Payroll taxes to wipe out income tax cuts in 2009: watchdog group

Higher employment insurance and Canada Pension Plan payments will wipe out skimpy tax cuts for many Canadians in 2009, according to the Canadian Taxpayers Federation.

While CPP contribution limits are normally raised each year, EI rates are lowered, making the overall increase to payroll taxes very small.

But next year, both EI and CPP contribution limits increase. At the maximum (incomes over $42,800), Canadians will pay an additional $188 in payroll taxes in 2009, the federation said in its annual new year tax change calculations, released Monday.

This is the largest single hike in payroll taxes since 2002. It will be only slightly offset by decreases in income tax exemptions. These decreases will save most taxpayers roughly $39 in 2009.

"How can the government justify increasing EI premiums with the massive, multi-year, multibillion-dollar surpluses in the EI fund?" asked director Scott Hennig. "EI premiums should be falling, not rising."

The biggest change in 2009 will be the introduction of Tax-Free Savings Accounts, which will allow anyone over the age of 18 to save up to $5,000 annually, tax-free.

"Of course, Canadians will need to have the money before they can invest it, and a significant tax reduction and reform of our tax code would go a long way towards allowing Canadians to benefit fully from the TFSA change," said Hennig.

With files from the Canadian Press