Normal is what we are used to. So, for Canadians, normal has meant ever-increasing tax rates. But last year things changed for the better, and this year the positive change continues. Our new provincial tax cuts fall on the heels of significant tax cuts brought in last fall by the federal government. By significant, I mean you will notice it on your paycheque!

The chart below tracks the decline in the top marginal tax rate (federal and provincial combined) for British Columbians from 1998 to January 2002, when the announced provincial tax cuts will be fully implemented.

There has also been an increase in the income level at which the top bracket starts. In 1998, the highest bracket started at $78,221 of taxable income. Now, the top bracket doesn’t start until taxable income reaches $100,000.

In an effort to quantify the effect of the cuts, I prepared a simple plan for a fictitious 40-year-old, dual-income couple and compared their net worth at age 80 under the 1998 tax regime vs. the 2002 regime. After 40 years, their net worth would be approximately double. That is encouraging!

What is really interesting, however, is the relative importance of the specific changes to tax policy. The three largest contributing factors to the increase, in order of importance, are: