Ontario’s low-income tax credit not as good for workers as $15 minimum wage, and it fuels the deficit, new report says

Thestar.com
April 3, 2019
Rob Ferguson

A minimum-wage increase to $15 would have put much more money into the pockets of the working poor than Premier Doug Ford’s low-income tax credit, which will cost $1.9 billion over five years and fuel the deficit, says Ontario’s independent financial watchdog.

A new report from the Financial Accountability Office said the cancellation of the previous Liberal government’s $1 increase in the hourly minimum wage means the province will take in less tax revenue to offset the cost of the Low-Income Individuals and Families tax credit better known as LIFT.

Ontario Premier Doug Ford government froze Ontario’s minimum wage at $14 last fall.

The result should come as “no surprise” to the Progressive Conservative government, said Peter Weltman, who heads the office tasked with keeping track of fiscal issues.

“When you cut revenues you’re going to increase your deficit.”

Weltman’s report put Finance Minister Vic Fedeli on the defensive as he prepares to unveil his first provincial budget next week with a promised path to ending annual deficits in the coming years.

“We would never apologize for bringing tax relief to low-income families,” Fedeli told reporters, insisting the tax credit was a more “balanced” approach at a time when businesses raised concerns about the impact of having to pay higher wages.

Opposition parties said Weltman’s report confirms concerns from social welfare groups that the tax credit is not as good as the minimum wage increase to $15, particularly given the added stress on the provincial treasury.

“Nobody is better off from this policy decision,” said NDP Leader Andrea Horwath.

Weltman’s report found many minimum wage earners do not pay provincial tax and will not benefit from the LIFT credit. He noted, however, about 90 per cent of minimum wage earners will not pay provincial income taxes under LIFT, compared with 78 per cent previously.

The report also estimated 1 million Ontarians will get an average LIFT tax credit of $409 this year at a total cost to the treasury of $418 million. Only 38 per cent of minimum wage earners in Ontario will receive the low-income tax credit.

But there are 1.3 million Ontarians who would have enjoyed average after-tax gains of $810 a year under a $15 minimum wage that had been slated to take effect on January 1 of this year, the report added.

Ford campaigned last spring on the low-income tax credit as an alternative to a $1 minimum wage increase he warned would hurt business and kill jobs.
“There’s no sense having a higher minimum wage if you don’t have a job,” Fedeli told reporters as rivals called foul.

“That argument makes absolutely no sense. Last year, when the minimum wage went up, Ontario experienced its lowest unemployment rate in 18 years. The minimum wage had absolutely no effect,” added Green Leader Mike Schreiner, MPP for Guelph.

“It’s completely outrageous that the government would actually decrease the amount of money minimum wage workers are going to earn and increase costs to government at the same time.”

Despite warnings from business that higher minimum wages could lead to massive job losses, “the sky hasn’t fallen,” said interim Liberal Leader John Fraser.

Fedeli insisted the previous Liberal government, reduced to seven seats in last June’s provincial election after the party held power for almost 15 years, had a dangerous “too much, too soon” approach on the minimum wage that did not give businesses enough time to adjust.

Former premier Kathleen Wynne raised the $11.60 hourly minimum wage to $14 in 2018, a sharp increase of $2.40 she argued was necessary to help workers cope with rising costs of living. The move was criticized by both the Conservatives as a pre-election ploy to win votes.

Under the Progressive Conservatives, the $14 minimum wage is frozen until October 2020.

“We’re going to continue to look at this,” Fedeli said, pointing to the 132,000 jobs created in Ontario’s economy since the Ford government took power.
“Our strategy is working.”