Increase tax for high earners, boost rebates for low income earners: economists

A team of economists from Memorial University is proposing broad changes to income tax rates in Newfoundland and Labrador in order to steer money from high income earners to the province's poorest people.

Finance Minister Ross Wiseman has already made it clear there will be tax hikes in next week's provincial budget. The economists agree that's a good idea and have put together a report of how that can best benefit the province.

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Wade Locke, one of the authors of the report presented Thursday night, said the economists are recommending higher taxes on people making a higher income, which would then be used to help people in the low income bracket.

The report recommends creating new tax rates and brackets for people who earn more than $100,000 a year. 

That money would then be used to expand and increase the HST rebate, or fund a new tax credit program for low income earners.

"We're trying to come up with a technique and an approach that will allow people, if they think it's appropriate to do, to address the income distribution implications," Locke told CBC News.

The proposed HST changes would see people making $20,000 or less get a higher HST rebate, between $60 and $400. The rebate would be incrementally smaller the closer a person comes to the rebate limit.

Locke said a new tax credit would likely be more effective in helping the people who need it most, but added it would be simpler for the government to simply enrich the HST rebate, as the infrastructure and staff to implement those changes are already in place.

Wouldn't go to reign in deficit

While the report recommends creating a new rebate program, Locke said the more likely scenario, if adopted by government, would be changing the current structure of the HST rebate program.

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"They already have an HST credit at the provincial level so they can change the threshold for that and the amount of credits that they give out for that and that will be the easiest way of doing it," he said in an interview to be broadcast Saturday on this week's On Point with David Cochrane.

We're comfortable that the methods we're proposing can work and probably should be adopted.- Economist Wade Locke

"It's similar to the method we're proposing. It doesn't get at the lowest of the low income as much as ours does, but it does get at them."

Locke said he "would hope" government is willing to implement a plan like the one he recommends, adding there's no real argument to be made that taxing higher income earners more would take money out of the economy.

"As we give the low income individuals more income, they spend it, so that will have an impact as well," he said.

"As we make their income potential higher then they're more likely to engage in education and training and be more productive in their own lives and in society, as well, so we're comfortable that the methods we're proposing can work and probably should be adopted."

Locke added this increase in taxes should be revenue neutral. It wouldn't go toward government to help reduce the deficit. Rather, the new revenue would be sent to low income earners through one of the proposed subsidy options.

Lacke had earlier recommended government increase the HST from 13 per cent to 15 per cent as a way to decrease the province's deficit.

He said that was his recommendation in a recent sustainability plan and remains the recommendation now.

The report was also authored by economists Doug May, Noel Roy, Michael Sullivan and Craig Wiseman, under the auspices of CARE, or the Collaboration for Applied Research in Economics.