March 25 is Manitoba Budget Day

Stay tuned for budget commentary from The Knowledge Bureau. Manitoba needs to take a close look at personal taxation as it contemplates a future within a financial crisis. Some thoughts for the Finance Minister:

Financial strength comes from what you own. Tax systems must make it possible for people in all income brackets to accumulate and keep capital while they are financially productive, and then stop stripping it away when they are not. That way their assets can sustain them, when they can no longer work, taking a strain off social support requirements.

It is important to note that different income sources are subject to different marginal rates of tax. Further, risk and reward plays into the tax systemóbusiness and capital losses offsetting income and capital gains over time will show different income results for tax purposes. Particularly in these difficult times, we need to understand whether we agree as a society that it is important to reward those who are brave enough to invest their money within highly volatile marketplaces, at least with the ability to offset taxable income with losses, particularly when those losses often result from the employment of workforces, which creates taxpayers.

The unfairness in the system comes in large part from the taxing of non-discretionary incomesóincreasing non-refundable tax credits like the basic personal amount can help here. Other culprits are bracket creepówhich Manitoba notoriously keeps in place year over year--and for the low and middle classes in particular, high marginal tax rates in clawback zones. . .which generally occur with incomes under the top brackets. Tax rates, brackets and clawback zones need urgent review in this province.

Taxing one time lump sums from unexpected sources like severance packages is also problematic. Governments need to consider income averaging as a solution to spiking marginal tax rates leading to unfairness in certain situations like these. Farmers could also benefit greatly from a return to averaging over 5 years.

High user fees also transfer taxes disproportionately to the low and middle classes. This needs to be added to the discussion. Finally a global economy requires that volatility associated with currency fluctuations and future inflationary pressures are better addressed in the tax mix.

It's tough to be a finance minister these days. . .we wish the Minister luck in his deliberations and recommendations for stimulus and change.