HILL/MUNRO: Moe government’s tax changes don’t go far enough

Tegan Hill and Grady Munro are analysts at the Fraser InstituteDuring the election campaign, Premier Scott Moe’s Saskatchewan Party promised to reduce personal income taxes in the province. The Moe government recently introduced The Saskatchewan Affordability Act, which introduces several new tax credits and increases the province’s basic personal allowance — the amount of income that can be earned tax free—by $500 in each of the next four years.But it doesn’t reduce personal income tax rates.To be fair, the Moe government deserves some credit for these changes. At a time when many people in the Prairies report a decline in the state of their personal finances, increasing the basic personal allowance will help Saskatchewan families keep more of their hard-earned money. That said, the Moe government should have actually lowered personal income tax rates.High income tax rates reduce the reward that individuals receive for engaging in productive economic activities such as working, saving and investing because high tax rates mean you keep less of the additional money you earn. Though raising the basic personal allowance does leave more money in people’s pockets, it doesn’t fix this problem. Similarly, tax credits, which create special preferences for certain activities or groups of individuals, do very little to actually improve economic incentives.By lowering income tax rates, the Moe government would both improve the incentives to work, save and invest — which ultimately promotes overall economic growth in the province — while also allowing Saskatchewanians to keep more of their money.Saskatchewan also suffers from a tax competitiveness problem that won’t be solved by raising the basic personal allowance. Jurisdictions compete to attract and retain high-skilled workers (e.g. doctors, engineers, entrepreneurs) that contribute to economic growth. Though people consider many factors when deciding where to live and work, all else equal, jurisdictions that maintain relatively low tax rates enjoy a competitive advantage over those with higher tax rates.While Saskatchewan is competitive within Canada — its combined (federal/provincial) personal income tax rates are lower than most other provinces across a variety of income levels — Saskatchewanians face higher tax rates than Americans in nearly every U.S. state across a variety of income levels from C$50,000 to C$300,000. As a result, Saskatchewan remains at a disadvantage when competing with the vast majority of U.S. states to attract and retain skilled workers. Consequently, economic growth in the province is lower than it might be otherwise.Simply put, the Moe government’s recent increase in the basic personal allowance (along with a handful of new tax credits) will reduce the taxes paid by some Saskatchewan families over the next few years. However, by not reducing personal income tax rates, the government is stifling economic growth in the province.Tegan Hill and Grady Munro are analysts at the Fraser Institute.

HILL/MUNRO: Moe government’s tax changes don’t go far enough

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