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

Comparing the LIFT Credit to a Minimum Wage Increase

April 2019 Technical Presentation

Overview and Background

Report Outline

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 3

• 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.

• 1. Budget Impact

Budget Impact

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 5

• 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

$ 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 increase (18) (59) (60) (61) (63) (261) Impact to budget balance (122) (472) (453) (434) (416) (1,897)

Estimated impact on the Province’s budget balance from introducing the LIFT credit and cancelling the minimum wage increase, $ millions

Source: FAO analysis of Statistics Canada’s Labour Force Survey (January-December 2018) and Social Policy Simulation Database and Model.

• 2. Impact of LIFT Credit on

Individuals and Families

LIFT Credit Structure

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 7

• 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

100 200 300 400 500 600 700 800 900 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 Average Benefit ($) Income Maximum Benefit Average Benefit

LIFT Benefits One-Third of Eligible Ontarians

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 8

• 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

1.5 1.0 0.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Millions of people Non-Taxpayer LIFT Recipient Excluded family income

35 per cent of eligible individuals will receive the LIFT credit

Average LIFT Credit of $409 in 2019

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 9

• 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
• f $850

243 541 443 409 100 200 300 400 500 600 0-20,000 20,001-30,000 30,001-38,500 Average

Average LIFT Credit ($) Employment Income

LIFT Provides Significant Tax Relief

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 10

• 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

171 537 376 409 4 34 557 206 200 400 600 800 1,000 0-20,000 20,001-30,000 30,001-38,500 Average Average Personal Income Tax ($) Income LIFT Reduction Taxes Paid

95% tax reduction for individuals < 30,000

67% average tax reduction for all LIFT credit recipients

• 3. LIFT Credit vs Minimum

Wage Increase

LIFT provides less benefits

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 12

• 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

1,065 1,316 810 418 1,021 409 200 400 600 800 1,000 1,200 1,400 Total Benefit ($ millions) Total Beneficiaries (thousands) Average Benefit ($ dollars) Minimum Wage Increase LIFT Credit

LIFT excludes most minimum wage earners

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 13

546 503 267 200 400 600 800 1,000 1,200 1,400 Thousands of people Don't Benefit, Don't Pay Tax Benefit from LIFT Don't Benefit, Pay Tax

Only 38 per cent of minimum wage earners will receive the LIFT credit

LIFT credit is better targeted

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 14

• LIFT provides relatively greater portion of its overall

lower benefits to individuals with below-median incomes

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 50 100 150 200 250 300 Total Benefits ($ millions) Individual net income percentile Minimum Wage Increase Median Income LIFT Credit Series4 14% of minimum wage benefits to individuals with above-median incomes, versus LIFT at only 3% $910 million total minimum wage benefits to individuals with below-median incomes, versus LIFT at $405 million

Both options do not target low-income families

April 2, 2019 Financial Accountability Office of Ontario | fao-on.org 15

20 40 60 80 100 120 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Total benefits ($ millions) Adjusted economic family MBM income ($ thousands) Minimum Wage Increase LIFT Credit MBM Threshold Both minimum wage and LIFT each provide about 10% of their benefits to low- income families. Market-basket measure of family low-income at $44,000

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