With most provinces facing deficit challenges, finance ministers have to find new sources of revenue. In his February 2013 budget, the BC Finance Minister chose to raise the general corporate tax rate by a percentage point, increase the price of a carton of smokes by two dollars and impose a special new tax on higher-income earners. With this last measure he joins three other provinces who have implemented similar tax hikes in the past three years:
- Nova Scotia was the first province to come up with the idea in its 2010-2011 budget, introducing a tax of 21 per cent on taxpayers with taxable income in excess of $150,000. The tax will be repealed once the provincial budget is balanced. Back in 2010, this was projected to be four years. While the tax rate remains in effect, Nova Scotia has the highest combined federal/provincial marginal tax rate of 50 per cent.
- Last year, Ontario introduced its so-called “Deficit-Fighting High-Income Tax Bracket” for taxpayers with taxable income in excess of $500,000. For 2012, the rate was 12.16 per cent. It has increased to 13.16 per cent for 2013. As in the case of Nova Scotia, the tax will be removed once Ontario finances return to a surplus position. In the 2012 fiscal update backgrounder this was projected to be 2017-2018. Since taxpayers subject to the new tax rate also remain subject to the high-income surtax, the highest combined federal/provincial marginal tax rate is now 49.53%.
- Effective 2013, the Quebec government has introduced a new tax rate of 25.75 per cent on taxpayers with taxable income exceeding $100,000. In contrast to the high-income tax rates in other provinces, there are no promises about it being temporary. According to the budget papers, it was necessitated by the loss of revenue resulting from changes to the provincial health contribution. However, Quebecers pay a lower rate of federal tax than residents of other provinces. When this is taken into account, the highest combined federal/provincial marginal tax rate in Quebec is 49.97 per cent.
- The new BC tax rate of 16.8 per cent will be imposed on taxpayers with taxable income in excess of $150,000. According to the budget papers, it will be a temporary tax for 2014 and 2015 only. Once implemented, the highest combined federal/provincial tax marginal rate in British Columbia will be 45.8 per cent.
Since Alberta has a flat tax rate of 10 per cent, regardless of taxable income, higher-income earners in that province enjoy the lowest federal/provincial marginal tax rate of 39 per cent. The flat tax rate is something of a sacred cow in Alberta. However, with the government warning of a $4 billion dollar deficit in advance of its March 7th budget, this may not be the case for much longer.