Madam Speaker, I will be sharing my time with the member for Mississauga South.
Throughout this debate there has been the odd mention from time to time of the issue of bracket creep. This issue is close to my heart and is something I would like to use my time to discuss. I do not think many people really understand this issue. This is a cancer which exists within our taxation system. It is as deadly as a cancer because it has crept through our taxation system in a slow and insidious way. It was ironic to hear the Conservative member talk about going back to our old ways because we have to go far back to understand how this insidious cancer became part of our taxation system.
Back in 1984 the then Conservative government stated that it would not allow indexation of tax credits and tax exemptions to occur unless inflation exceeded 3%. Back in 1984 the rate of inflation was 10%, so obviously people were getting a degree of relief, that is that portion which exceeded 3% at that time. There was very little debate about the issue of bracket creep.
However, today we note that it is the stated policy of the Bank of Canada to keep our inflation rate within a narrow band between one and two percentage points. Needless to say because inflation is less than 3%, there is no indexation.
What does this all mean to the average taxpayer? Let us say that someone earned about $2,000 a month in 1992 and that person paid $800 in rent. By 1998, assuming they had kept up with inflation and indeed a lot of people have not been able to do even that, their income would have risen to $2,360 and their rent would have been $944. The reality is of course that that person is no better off. The dollars they bring into their household buy less goods.
Revenue Canada taxes this incremental increase as if it were real income. In this case the tax may be as much as 50% or $180 per month for something that quite frankly has never happened. In real terms their income did not rise and the dollars will not buy even the same amount of goods because we have implemented a tax on them.
To give another example which is a practical one, a family with two dependants from 1992 to 1997 saw their income rise by $900, but their income taxes actually went up $1,400. This is the double compound effect which is known as bracket creep. These are not wealthy people. They are not the idle rich. They are in fact middle to low income earners. We should be ashamed of what we are doing to them.
The impact on the truly high income earner is almost negligible. As one's income gets very high, personal exemptions are less and less of concern because they represent such a small quantum of deduction.
I have done a number of graphs on this. They show that there is about $840 million worth of revenue we bring in to our coffers from this insidious tax called the bracket creep.
The other aspect of bracket creep is that it creates a burden for people. Indeed we can look at marginal rates of tax. I will give a quick explanation of what a marginal tax rate is. It is that tax on an extra dollar of income, not on the dollars that one has already paid or may have been eligible for, but the extra dollar that one pays tax on.
With respect to bracket creep, over the years we have slowly amplified this marginal tax bracket on low income earners who go from basically paying no tax—people who earn under $8,000 a year are not taxed—to paying some tax. Suddenly, not only do we get the normal taxation coming into effect but we also have the problem of bracket creep. As a consequence income earners earning approximately $20,000 suddenly find themselves earning an extra dollar which costs them 50 cents on the dollar.
Imagine the impact this has on many low income families. The reality is that it is very difficult for them to get out of their so-called poverty trap. I do not have to remind the House that Statistics Canada regards the low income cutoff of $20,000 to be poverty.
I had a phone call from a constituent the other day. He told me how he had become disabled and earned only $12,000 a year. Miraculously he was able to get a part time job and double his income to $24,000. When he looked at his take home pay, he quickly came to the realization that he had hardly progressed at all. I told him that he suffered from bracket creep but I had not been able to come up with a cure.
The people are not versed on the virtues of fundamental economics but they know something is terribly wrong. From low income seniors to the working poor we are fleecing them to the tune of $840 million a year, $840 million of tax money on income that never happened. It is a tax illusion.
I remind this House that a voluntary tax compliance system is operable only when people believe the system is fair.
Some have suggested a piecemeal approach to this such as giving increased child tax credits and other benefits directed at this group. This is just what it entails, a piecemeal approach, a band-aid to cover a cut when the wound is still infected. Put them back on the treadmill for a few more years and this insidious aspect of bracket creep will catch up to them again. This may be the expedient solution but it is certainly not the right solution.
Last month we read of the survey on Canada as reported by the OECD. It had some alarming conclusions about the Canadian economy. It stated that our standard of living would likely decline so much so that by 2015 Canada's standard of living would be lower than the average of all OECD countries.
There are many reasons for this but I would like to read one of them, which is that indexation has pushed 1.4 million low income individuals on to the tax rolls over the 10 year period ending in 1998. Over 1.9 million individuals have been pushed from the lowest marginal tax bracket to the middle bracket while 600,000 were pushed from the middle to the higher income brackets.
We live in a remarkable time. People's income is not increasing. Indeed it is declining. Taxes are going up. Savings are being reduced and people are turning more and more to consumer credit just to stay afloat.
Personal credit is reaching alarming levels made only possible by lower interest rates. One hundred and sixteen per cent of disposable income now goes toward personal debt. This is unhealthy. A country that cannot save and maintain its level of disposable income is a country that is not progressing but on the decline.
Some have suggested other methods to reduce taxes, for instance the 3% surtax. This will affect people with incomes in excess of $50,000. One of my dreams for our budgetary process is to adequately address the issue of bracket creep.
I hope in the short period of time I have had I have been able to enlighten if not all at least some of our members of parliament and some of the people watching us of what is meant by bracket creep and how it affects the average income earner.
I hope that one of the things we will be able to address in this budget is some move to eliminating the whole concept of bracket creep.