By doing so, he has halted deadly bracket creep and the erosion of a wide range of federal credits, which over the past decade have lifted billions of extra tax dollars from the pockets of beleaguered Canadians. Full indexation begins retroactively, on Jan. 1, 2000. In other words, Mr. Martin's measures do nothing to compensate for the harsh impact that partial deindexation of the system had prior to Jan. 1. Nonetheless, taxpayers should welcome the change, which comes as something of a surprise.
Bracket creep occurs because the tax system is only partly protected from inflation.
The policy was introduced by the Mulroney government in 1986 when it was faced with high interest rates and a revenue shortage. Governments have been able to boost tax revenues automatically, without having to resort to the messy business of actually raising rates. This policy has had a devastating impact over the last decade. According the Organization for Economic Co-operation and Development, bracket creep has pushed 1.9 million people from the lowest tax bracket to the middle one, and 600,000 into the top bracket. And it has been a huge windfall for Ottawa and the provinces.