Newfoundland and Labrador middle-income tax bite among biggest in Canada

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Appeared in the St. John's Telegram, December 8, 2022
Newfoundland and Labrador middle-income tax bite among biggest in Canada

Residents of Newfoundland and Labrador face some of the highest income tax rates in Canada—and not just “the rich.”

As shown in a recent study published by the Fraser Institute, Newfoundlanders and Labradorians with market earnings at the national average income level face substantially higher tax rates on the next dollar they earn than people with identical incomes in Ontario and Western Canada.

Let’s look at the numbers. At the national average market income level (in 2022) of $52,750, Newfoundlanders and Labradorians face a provincial tax rate of 14.5 per cent on the next dollar that they earn compared to 7.7 per cent in British Columbia, 9.15 per cent in Ontario and 10 per cent in Alberta.

This means that the tax bite for middle-income workers from earning additional money is far higher in Newfoundland and Labrador than in most of the country.

One way to understand the impact of these different tax rates is to consider (after accounting for both federal and provincial taxes) how much additional income a person must earn to increase their take-home pay by $100. In Newfoundland and Labrador, to boost their after-tax income by $100, individuals at the national average income must earn an additional $153.80 compared to only $139.30 in B.C.

In other words, the tax rate facing middle-income Newfoundlanders and Labradorians is so high by national standards it’s almost identical to rates faced by the highest-income earners in some other provinces. In Saskatchewan and Alberta, for example, CEOs earning $500,000 faces a tax rate of 14.5 per cent and 15 per cent respectively.

Finally, Newfoundlanders and Labradorians earning the national average income face a much higher overall provincial income tax burden than someone with a similar income in several other provinces. For example, the provincial income tax bill in Newfoundland and Labrador is approximately twice as large as it is for someone earning the same amount in B.C. or Ontario.

Across Canada, governments take large bites out of the pockets of average income earners by way of personal income taxes, and high income tax rates mean that governments takes a substantial bite out of each additional dollar earned. The Furey government can help leave more money in the pockets of Newfoundlanders and Labradorians, particularly if they work hard to earn extra money, by reducing tax rates on middle-income residents.