Government policies hurt New Brunswickers seeking to increase modest incomes

In New Brunswick, thanks to the joint effects of government policies, when workers earn additional income they effectively get penalized for their extra efforts. Here’s why.

Many provincial and federal benefit programs are based on income, which means that New Brunswickers at certain income levels will lose some of those benefits if they earn additional income.

As one example, the Canada Workers Benefit provides a tax credit of $1,428 for individuals with net income up to $23,495 per year. The benefit is gradually “clawed back”—that is, its cash value is reduced—for any individual who earns more than $23,495 up to $33,015, after which no benefit applies. The cost of this clawback is on top of the fact these workers already pay personal income taxes.

Consequently, if you account for all provincial and federal benefit programs in New Brunswick, and both provincial and federal personal income tax rates, any New Brunswicker (or family) earning $60,000 who earns an additional $100 will lose $61 of the $100 due to the joint effects of clawbacks and taxes, keeping only $39 to pay their bills, feed their families and meet other priorities in their lives.

Economists call that loss of $61 the “marginal effective tax rate” or METR. While METRs are relatively high across the country, New Brunswick stands out. At $61 in lost income for an additional $100 in earnings at the $60,000 household income level, the province has the fourth-highest METR in Canada and higher than Nova Scotia and Prince Edward Island (both at $59).

At a time when many New Brunswickers are struggling with the cost of living, taking home just $39 of an additional $100 earned is a discouraging prospect. After they do the math, some workers may decide to not take on additional work or increase their incomes. And unfortunately, METRs are generally higher for workers with modest incomes, which means—thanks to government policy—some New Brunswickers face a substantial disincentive to move up the income spectrum.

The Higgs government and the Trudeau government should look closely at both the design of their benefits programs and their tax rates to provide relief for workers in New Brunswick and across the country.