August 25, 2011 – Marginal effective tax rates (METRs) on working families’ personal income are generally lower in Canada’s Western provinces than in the rest of country, according to a report from the C.D. Howe Institute. In “Western METRics: Marginal Effective Tax Rates in the Western Provinces,” authors Alexandre Laurin and Finn Poschmann find the tax bite on each dollar of extra income for families with children in Western provinces is lowest in British Columbia and Alberta, followed by Saskatchewan and Manitoba.
“METRs matter for families who want to pocket more income from their extra work effort, and for policymakers who want to ensure low-income families benefit from taking paid work and moving up the income scale,” commented Poschmann, Vice President of Research at the Institute, and Laurin, Associate Director of Research. “High METRs also create incentives to avoid taxes.”
The marginal effective tax rate (METR) on personal income, explain the authors, measures the impact, on take-home pay, of federal and provincial income taxes combined with the impact of reductions and clawbacks of income-tested tax credits and benefits. These income-tested credits and benefits mostly target financial support to low- and middle-income families with children, or to low-income seniors. As family incomes rise past prescribed thresholds, clawbacks and reductions begin, raising the METR on each dollar of incremental income.
Among the highlights of the report:
- British Columbians enjoy the lowest average METR in Canada.
- Alberta has the second-lowest METRs for families with children, at 34 percent. However, Alberta’s average METRs for families with seniors, at 41 percent, is higher than in the rest of Canada.
- Manitoba is the Western province with the highest METRs for families with children, with an average of 40 percent, but ranks second-lowest for seniors, at 37 percent.
- Overall, Western seniors face among the highest possible METRs in Canada. METRs for single seniors in Saskatchewan, for example, reach 100 percent on taxable income from zero to about $4,500.
For the most part, the Western provinces appear to have done a better job than other provinces at keeping down METRs for working families. This is especially true for British Columbia, which stands out as the province where taxpayers, whether working or retired, are typically exposed to the lowest METRs.
Click here for the full report.
For more information contact:
Alexandre Laurin, Associate Director of Research;
Finn Poschmann, Vice President Research,
C.D. Howe Institute, 416-865-1904;
email: cdhowe@cdhowe.org