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The Isle of Man Government’s real hike in income tax as part of their budget announced this week is a regressive attack on the lowest earning workers in our community, with Tynwald voting to almost double the tax bill on Isle of Man workers on the living wage.

In real terms, a worker earning the previous living wage of £9.63 in the past year would have had an annual income of £20,085, and paid a tax bill of approximately £583. With inflation and the cost of living increasing, the latest living wage has increased to £11.05, earning an annual income of £23,047, and the same person on the living wage will now face a tax bill of over £1,100. This is an increase of over 90% in income tax.

Regressive Attack on Poor

“Tynwald has launched a regressive attack on the poorest people in our community,” said Michael Josem of the Manx TaxPayers’ Alliance. “With inflation surging over the last year, the living wage has – rightly – increased. The income tax brackets have not been corrected to keep pace, meaning that a worker on the living wage will face a tax bill around 90% higher than last year.”

Under the Isle of Man Government’s budget announced this week, a worker on the living wage will have their tax bill increased from around 2.9% of their income to around 4.8% of their income.

“It is bad economics and bad morals to slug lowly paid workers with such a regressive increase in taxes, and it is disappointing that almost every Member of Tynwald voted for higher taxes on low paid workers,” said Josem.

Manx Personal Income Tax Bill Up 11%

Page 50 of the Isle of Man Budget Papers reveals that income tax levied on individual residents by the Isle of Man Government is budgeted to surge by 10.5% under the new budget, increasing from £222.2 million budgeted in the 2022-23 financial year to £245.6 million in the 2023-24 financial year. The budget papers also revealed that individual Manx taxpayers are now likely to pay £236.7 million this year, a surge of more than £14 million from last year’s budget, due to higher than expected personal income correlated with high inflation.

Bracket Creep

The real increase in taxes faced by workers on the Isle of Man living wage is a form of ‘Bracket Creep’. This is the situation in which an individual’s income increases over time due to inflation or wage growth, pushing them into a higher tax bracket. As a result, they end up paying a higher percentage of their income in taxes, even if their purchasing power remains the same.

Bracket creep can be particularly frustrating for many Manx taxpayers, as they are being penalized for their success or hard work, rather than being rewarded for it.

In some other jurisdictions, bracket creep is mitigated through tax reforms that adjust tax brackets for inflation or lower tax rates overall.

Regressive Taxes

Progressive and regressive taxes refer to the way in which taxes are structured and how they affect taxpayers with different income levels.

A progressive tax system is one in which the tax rate increases as the taxpayer’s income increases. In other words, individuals with higher incomes pay a higher percentage of their income in taxes compared to those with lower incomes. This is intended to ensure that those who can afford to pay more, do so, and it is often seen as a way to reduce income inequality.

Regressive changes, such as endured by Isle of Man workers here, mean that low paid workers will pay a higher percentage of their income as tax. This is likely to place a greater burden on low-income earners, who may already be struggling to make ends meet.

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