Low taxes better than higher minimum wage.
by Don Cayo


The minimum wage is always a hot topic in Atlantic Canada. It seems it’s under more or less constant review in one province or another.

Nova Scotia has recently decided to up its lowest hourly rate by 10 cent to $5.60 on Oct. 1. That’s the same day working poor people in Newfoundland will get a 25-cent boost to $5.50. The Prince Edward Island rate, now $5.40 an hour, was under review as recently as last week. And New Brunswick’s new premier, Bernard Lord, has promised a 25-cent increase to $5.75 within his first 200 days of taking office.

The arguments, both for and against, are always the same.

The Atlantic Provinces have the lowest minimum wage levels in Canada, some will say. And they’ll point out that people can’t live on that.

Others will argue that increasing the minimum wage – like increasing any cost of doing business – will hurt the economy more than it will help. It will worsen the plight of the working poor – or poor people who’d like to be working – by slowing job creation, fostering cutbacks in working hours and, potentially, even leading to layoffs.

Both arguments are right.

On one hand, you don’t need a study – a moment’s reflection will do – to show how hard it is for people at the low end of the wage spectrum to make ends meet.

On the other hand, the effect may be a little more subtle, but there is no question that economic activity suffers when costs go up. Sophisticated businesses have a fixed amount they’re prepared to spend on wages, and that’s it. They won’t be bullied into spending more. And unsophisticated businesses – like the very small ones run by some very energetic young people I know – are already netting less than minimum wage to their owners who work 70, 80 or 90 hours a week. Simply put, people like this have limits to how much more they’ll pay their employees than they pay themselves.

The upshot is that both policy choices – increasing the minimum wage or not increasing it – are bad ones. And, in our typically Canadian way, we continue to fight over which of two bad policy choices to adopt.

Politicians can’t please everyone on this, so they generally opt to simply not make anyone too mad. They want to be seen to be doing something for poor people, so the do increase the minimum wage. But they don’t want to be seen as anti-business, so they make the increase as small as they can get away with.

Bernard Lord’s increase and the one already legislated in Newfoundland will add about four per cent to the cost of employing a low-wage worker when you add in the extra costs – the employer’s share of EI premiums, workers compensation payments and that sort of thing. That’s a significant increase, but not crippling in any obvious way.

The MacLellan government’s approach – adding 10 cents an hour this year and another 10 cents in 2000 – is even more incremental and thus even less likely to attract open outrage. But it’s also of no more than marginal value to a worker. The gross pay increase will add up to about $4 a week this year for a fulltime minimum wage worker, and they’ll be lucky to see $3 in extra cash after the mandatory deductions have been made.

And there lies the seeds of a just and sensible solution to this policy dilemma. If it’s wrong to raise the minimum wage and slow job creation, and if it’s wrong to leave working poor people with insufficient money to get by, why not just let them keep what they earn? Why not change the tax system to stop taking money from people who don’t have any?

To be fair to the provinces, Ottawa taxes the poor more than they do. EI and Canada Pension are the two big culprits, worse than income tax, of which the provinces get only a part. (And, make no mistake, EI and CPP are taxes, not “premiums”. The former taxes poor people who work year round to subsidize a lot of low- and middle-income earners who don’t; the latter taxes them to pay pensions to old folks who are better off than a lot of working stiffs.)

But, again, in our typically Canadian way, we’ll accept bad policy in preference to leaning on our two most senior levels of government to get together and solve the problem in a genuinely equitable way.

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OOPS: I can think of lots of reasons to carp about the record of former Nova Scotia Premier John Buchanan, but that doesn’t excuse my goof when I inadvertently maligned him in my last column. I attributed Nova Scotia’s largest-ever deficit – $615 million in ’92-’93 – to his administration. While the amount and the year were correct, I was wrong to pin it on him. He was out of office, safely in the Senate, by then.