Although many Canadians pride themselves on living in a “compassionate” country, our personal income tax system has completely been drained of real compassion; it especially gouges low income earners.

Consider that when income taxes were first introduced in Canada in 1917, the government allowed citizens to earn a whopping $1,500 before they had to begin paying personal income taxes. Thus if you earned $2,000, you would have paid income taxes on only $500 of it.

Back in the day, $1,500 was a decent threshold set by the government of the day.

To give you an idea as to how much it was worth in 1917, visit the Bank of Canada’s inflation calculator on the internet. Plug in “$1,500” and “1917” in the appropriate boxes and it will calculate that $1,500 in 1917 was the equivalent of about $21,234 in 2010.

Imagine if every Canadian could earn $21,234 this year before paying income taxes? That would especially help struggling families put food on the table, pay for clothing and cover a good portion of their monthly rent.

Sadly, we’re a long way away from such a compassionate tax system.

For 2010 the federal government only allowed Canadians to earn $10,382 before they started taxing people at 15 per cent. The province of Manitoba on the other hand only allowed people to earn a paltry $8,134 before taxing them at 10.8 per cent.

When you combine federal and provincial income tax rates, Ernst and Young’s online income tax calculator shows a Manitoban earning $21,234 in 2010 would have paid $3,034 in combined federal and provincial taxes in Manitoba. That’s the highest tax bill in the country.

Imagine what you could have done with an extra $3,034 last year.

You’re probably wondering what happened?

The answer is simple. For years governments didn’t automatically increase the original $1,500 threshold (known as the basic personal exemption) for inflation.

The bleeding stopped at the federal level in 2000 after the Canadian Taxpayers Federation (CTF) convinced Paul Martin’s Liberal government to automatically index the federal tax system for inflation.

However, the Manitoba government is one of three provincial governments in the country that still hasn’t indexed the personal income tax system for inflation. That’s one of the reasons why Manitoba’s $8,134 basic personal exemption is the third lowest in Canada and why Manitobans pay such high taxes.

Conveniently, the Manitoba government did decide to adjust provincial politicians’ expense accounts for inflation each year and even tried to ensure annual funds given to political parties went up with inflation.

The first step in addressing the problem is for the Manitoba government to stop the bleeding; it needs to fully index the tax system for inflation. In fact, the CTF has a petition running to encourage the government to do just that. We even uploaded a YouTube clip to help explain the issue.

The next step is for both the feds and province to make injecting compassion back into the tax system a long term priority. It can’t be done over night, but like they say, admitting the problem is the first step.