Comparing the LIFT Credit to a Minimum Wage Increase Technical - PowerPoint PPT Presentation

Comparing the LIFT Credit to a Minimum Wage Increase Technical Presentation April 2019

Overview and Background

Report Outline LIFT credit was announced in 2018 Fall Economic • Statement. Subsequent legislation cancelled the planned • minimum wage increase from $14/hour to $15/hour. This report: 1. Estimates the budget impact of introducing the LIFT credit and cancelling the minimum wage increase. 2. Reviews how the LIFT credit will affect Ontarians. 3. Compares the benefits provided to Ontarians by the LIFT credit to an increase in the minimum wage to $15/hour. Financial Accountability Office of Ontario | fao-on.org April 2, 2019 3

1. Budget Impact

Budget Impact Estimated impact on the Province’s budget balance from introducing the LIFT credit and cancelling the minimum wage increase, $ millions $ millions 2018-19 2019-20 2020-21 2021-22 2022-23 Total LIFT credit (104) (413) (393) (373) (353) (1,636) Cancelling the minimum wage (18) (59) (60) (61) (63) (261) increase Impact to budget balance (122) (472) (453) (434) (416) (1,897) Source: FAO analysis of Statistics Canada’s Labour Force Survey (January-December 2018) and Social Policy Simulation Database and Model. Budget balance to worsen by a total of $1.9 billion from • 2018-19 to 2022-23 Budget impact consists of the cost of the LIFT credit and • lost tax revenue from the cancelled minimum wage increase Cost of LIFT is projected to decline as the credit is not • indexed to inflation Financial Accountability Office of Ontario | fao-on.org April 2, 2019 5

2. Impact of LIFT Credit on Individuals and Families

LIFT Credit Structure 900 800 700 600 Average Benefit ($) 500 400 Maximum Benefit 300 200 Average Benefit 100 0 16,000 17,000 18,000 19,000 20,000 21,000 22,000 23,000 24,000 25,000 26,000 27,000 28,000 29,000 30,000 31,000 32,000 33,000 34,000 35,000 36,000 37,000 38,000 39,000 Income Individuals earning less than $30,000 can receive a • LIFT credit of up to $850 Credit is reduced for individuals with incomes over • $30,000 and is phased out at $38,500 Financial Accountability Office of Ontario | fao-on.org April 2, 2019 7

LIFT Benefits One-Third of Eligible Ontarians 3.5 3.0 0.4 2.5 Millions of people 35 per cent of eligible individuals will receive the 1.0 2.0 LIFT credit 1.5 1.0 1.5 0.5 0.0 Non-Taxpayer LIFT Recipient Excluded family income 2.9 million employed Ontarians with incomes under • $38,500 are eligible for the LIFT credit 1.0 million Ontarians will receive a LIFT credit • Financial Accountability Office of Ontario | fao-on.org April 2, 2019 8

Average LIFT Credit of $409 in 2019 600 541 500 443 Average LIFT Credit ($) 409 400 300 243 200 100 0 0-20,000 20,001-30,000 30,001-38,500 Average Employment Income Average LIFT credit of $409 per recipient in 2019 • Highest benefits to individuals earning approximately • full time minimum wage income 19,000 LIFT recipients will receive maximum benefit • of $850 Financial Accountability Office of Ontario | fao-on.org April 2, 2019 9

LIFT Provides Significant Tax Relief 1,000 67% average tax reduction for LIFT Reduction Taxes Paid all LIFT credit recipients 376 800 Average Personal Income Tax ($) 95% tax reduction for individuals < 30,000 600 409 537 557 400 200 206 171 34 4 0 0-20,000 20,001-30,000 30,001-38,500 Average Income 95% Ontario personal income tax reduction for LIFT • recipients with incomes under $30,000 90% of Ontarians with incomes under $30,000 will • pay no Ontario personal income tax Financial Accountability Office of Ontario | fao-on.org April 2, 2019 10

3. LIFT Credit vs Minimum Wage Increase

LIFT provides less benefits Minimum Wage Increase LIFT Credit 1,400 1,316 1,200 1,065 1,021 1,000 810 800 600 418 409 400 200 0 Total Benefit Total Beneficiaries Average Benefit ($ millions) (thousands) ($ dollars) LIFT credit: 1.0 million individuals receive an average • benefit of $409 $1 minimum wage increase: 1.3 million individuals • receive an average benefit of $810 Financial Accountability Office of Ontario | fao-on.org April 2, 2019 12

LIFT excludes most minimum wage earners 1,400 1,200 267 1,000 Thousands of people Only 38 per cent of minimum 800 wage earners will receive the 503 LIFT credit 600 400 546 200 0 Don't Benefit, Don't Pay Tax Benefit from LIFT Don't Benefit, Pay Tax Financial Accountability Office of Ontario | fao-on.org April 2, 2019 13

LIFT credit is better targeted Minimum Wage Increase Median Income LIFT Credit Series4 300 14% of minimum wage benefits $910 million total minimum 250 to individuals with wage benefits to individuals with above-median incomes, below-median incomes, versus LIFT at only 3% versus LIFT at $405 million Total Benefits ($ millions) 200 150 100 50 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Individual net income percentile LIFT provides relatively greater portion of its overall • lower benefits to individuals with below-median incomes Financial Accountability Office of Ontario | fao-on.org April 2, 2019 14

Both options do not target low-income families Minimum Wage Increase LIFT Credit MBM Threshold 120 Market-basket measure of family low-income at $44,000 100 Total benefits ($ millions) Both minimum wage 80 and LIFT each provide about 10% of their benefits to low- 60 income families. 40 20 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Adjusted economic family MBM income ($ thousands) Financial Accountability Office of Ontario | fao-on.org April 2, 2019 15

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