* Inflation adjustments net small tax savings
* Payroll Taxes inch up despite miniscule reduction in EI rates
* Manitoba's Corporate Tax Rate dropping but Bracket Creep continues

Tax Savings

Employee / Employer Contributions

Employee / Employer Contributions 1994-2005

WINNIPEG/OTTAWA: The Canadian Taxpayers Federation (CTF) today released projected income and payroll tax changes kicking in on January 1st 2005.

"On average, Canadians will save a total of $2.94 per month as a result of federal indexation of the income tax system," said research director Bruce Winchester. "Taxpayers are being served up thin gruel in 2005 which, despite record surpluses, marks the first time since 1999 that taxpayers won't have tax savings to look forward to in the New Year."

Payroll Taxes Continue to Increase

Higher Canada Pension Plan (CPP) taxes of $59.40 will outstrip three and four-cent reductions in Employment Insurance (EI) taxes for 2005. In total, maximum payroll taxes will increase by $32 - $18 for employee and $14.10 for employers.

"Canadian workers and employers are getting nickel and dimed with annual payroll tax increases. In ten short years these taxes are up by $1,000," said Winchester. The CTF urges the Martin government to match EI rates to EI payments over a ten-year business cycle. Further, employer and employee EI rates must be harmonized. "Getting payroll taxes under control is an economic imperative, high payroll taxes killed 28,000 jobs over the last ten years," said Winchester. "To quote Prime Minister Paul Martin: High payroll taxes are a cancer on job creation."

Federal Income and Payroll Taxes 2005 - Select incomes

Taxpayers tread water

Federal personal income tax (PIT) reductions in 2005 over the 2004 tax year are not the result of any tax cuts, but rather are due to indexation for inflation. "Tax savings in 2005 are not really savings at all. By adjusting the tax system for inflation, Canadian taxpayers will keep their heads above water, but won't see any real gains," said Winchester.

Provincial Tax Changes

January 1, 2005 Manitoba's Corporate Tax Rate will drop to 15 percent, but income tax payers will see little relief. "Manitoba continues to tax more by stealth, as a result of not having indexed their tax systems to inflation, this phenomenon is known as bracket creep," added Manitoba Director Adrienne Batra. "Had the province indexed Manitoba's tax brackets to the rate of inflation, our competitive position relative to Saskatchewan would not have eroded." Taxpayers earning $45,000 in Manitoba will save $46; the same income earner in Saskatchewan will save $97.

The CTF tax cuts plan

Three consecutive years of substantial federal surpluses are the result of structural over-taxation, and broadly based tax cuts are the only remedy. The CTF advocates a five-year tax reduction plan to increase the Basic Personal and Spousal Exemptions to $15,000. Had the CTF's plan been adopted in the 2004 Budget, taxpayers would have seen an average of $161 in tax savings in 2005. At the end of five-years: 1.8 million low-income Canadians will be off the tax rolls; every taxpayer will have $1,100 in tax savings; and all families with income $30,000 or less will pay no federal income tax.

The CTF's target for EI rates is a five-year reduction which matches EI taxes with EI benefits, using a rolling average of the previous ten-year business cycle. At the same time, the 140% higher EI taxes paid by employers should be harmonized with EI taxes paid by employees. Based on the last ten-year cycle, the 2009 target for EI rates would be $1.70 per $100 of earnings (for both employers and employees).

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For more information, please contact:
Bruce Winchester at 613-234-6554 or 1-800-265-0442 or Adrienne Batra at 204.982.2150 or 204.227.5561.