Tax burden high but shrinking
Tax represents 33% of GDP, down from 33.8%, OECD says
OTTAWA • Canadians’ tax burden eased last year to its lowest level in about two decades, but remained a lot higher than the taxes borne by Americans and Mexicans, according to figures released yesterday.
The tax revenues for all levels of government in Canada amounted to 33% of gross domestic product, down from 33.8% in 2003, and continuing a decline from a peak of about 36% at the start of the last decade, the Organization for Economic Cooperation and Development said in its comparison of the tax burdens in industrial countries.
The burden here is also below that of the industrial countries as a whole, which in 2003, the latest year for which full comparisons are available, averaged 36.3%.
However, the 2004 tax burden here was still a lot higher than the 25.4% in the U.S. and the 18.5% in Mexico, where taxes as a share of GDP have also been declining.
Jack Mintz, a tax lawyer and head of the C.D. Howe Institute, said the OECD report understates the real tax burden on Canadians because it doesn’t include other government revenues, such as from royalties and user fees.
And Canadian governments rely more on those revenues than, for example, the U. S., Mr. Mintz noted in an interview.
Canada’s total tax burden is equal to 41.7% cent of GDP, 30% higher than the 31.9% total tax burden in the U. S., Mr. Mintz said.
The C.D. Howe Institute last month called for a multi-year package of tax relief from federal and provincial governments in a report that calculated that Canada taxes investment more heavily than any competing country except China.
The OECD, meanwhile, noted Canada is also among the countries that are most dependent on income taxes.
“ Taken together, taxes on personal and corporate incomes remain the most important source of revenues used to finance public spending in half of all OECD countries, and in four of them — Australia, Canada, Denmark, and New Zealand — the share of income taxes in the mix exceeds 45 per cent,” it said.
“Most experts would agree that income taxes pose the highest economic cost on the economy, particularly because they fall on investment and savings decisions by individuals and businesses,” Mr. Mintz said. “ Those are the taxes that hit the growth in the economy the hardest.”
However, Mr. Mintz said the OECD report is positive in that “at least” the tax burden is going down slowly, though he wondered whether that has come to an end given last year’s 15% increase in federal spending.
But the OECD report notes the provinces impose a relatively heavy share of the tax burden in Canada.
The provinces accounted for 38% of the tax burden in Canada, the highest for the states or provinces of any industrial country, it said.