Each year Manitoba taxpayers pay a secret tax, but few are aware of its existence.  It’s known as “bracket creep,” and according to calculations by the Canadian Taxpayers Federation, it costs Manitobans over $66-million annually.

To understand bracket creep, it’s best to first think about the price of going to a movie.  Decades ago, twenty five cents would get you a drink and a ticket to see your favourite show.  Today, you would be lucky if twenty five cents got you a gum ball from the candy machine in a movie theatre’s lobby.  As most people know, that effect is called inflation.

On a similar note, if the government allowed taxpayers to earn $1000 before they had to start paying income taxes, it would have had a much larger impact in 1930 than if the government told you the same thing in 2009.

In essence, without indexing the tax system to inflation each year, governments can secretly raise more in tax revenue from citizens without actually raising the rates.

Unfortunately, that’s what’s happening in Manitoba.  Government documents obtained by the Canadian Taxpayers Federation (CTF) confirm the effect.

According to the government’s briefing note, total inflation since 1999 has been approximately 23%.  Meanwhile, the basic personal exemption (the amount one can earn before paying income taxes), the lower tax threshold and upper tax threshold have only increased by 20 percent, 4.8 percent and 13.2 percent respectively.

Here is how it affects your pocket book.  In 1999, Manitoba taxpayers could earn $6,794 before paying any provincial income taxes.  Today, that number has risen to $8,134.  To the Doer government’s credit, this figure has almost kept up with inflation.  However, had it kept up with inflation, the threshold would be approximately $8,387 - $253 higher.

So what does that mean?  As our lowest tax rate is 10.8 percent, you’ll pay it on $253 of income that you wouldn’t have, had thresholds kept up with inflation.  That works out to about $27 for each taxpayer that earns $8,387 or higher.

The difference is stark when one looks at the lower tax threshold – the level of income where taxpayers’ earnings “graduate” from the 10.8 percent rate to the middle rate of 12.75 percent.  The lower threshold was $29,500 in 1999, but has only increased to $31,000 for 2009.  Had the threshold kept up with inflation, taxpayers would be able to earn $36,530 at the lower rate.  Meanwhile, the upper tax rate (17.4 percent) kicks in at $67,000 for 2009.  However, had it too kept up with inflation, the upper rate wouldn’t start until earnings reached $73,060.

For individuals earning $40,000 and $75,000, bracket creep costs them approximately $135 and $416 each year respectively.

As this form of taxation is unfair for taxpayers, it has been eliminated in most provinces and by the federal government.  Manitoba, Nova Scotia and PEI are the only provinces that have yet to address the problem.

While the Doer government has provided tax relief to Manitobans since taking office, this is one area that has been neglected.  Fortunately, the government’s proposed tax changes over the next few years almost keep up with normal levels of inflation.  Clearly the government can afford to solve this problem.

More importantly, we need the government to take the next step and do as other provinces have done by passing legislation that automatically indexes Manitoba’s tax brackets by the inflation rate each January 1^st.  It’s the right thing to do.