Canadians pay 42% of income in tax: study

Budget item that’s grown most, says Fraser Institute

Canadians shell out more on taxes — federal, provincial and local, and indirect — than they do on food, shelter and clothing combined, says a report by the Fraser Institute released Monday.

The Canadian Consumer Tax Index compares how much the average taxpayer forks out today, compared with 1961, posing the question: Are Canadians getting enough bang for their bucks?

It finds taxes have grown more rapidly than any other single item of expenditure for the average family. Last year, that added up to 41.8% of income, compared with 33.5% in 1961.

Given the sheer number of indirect levies — such as the taxes on sales, property, fuel, vehicles, imports, alcohol and tobacco — it’s hardly surprising people don’t realize how much they actually pay.

But with such a hefty chunk of income being eaten up in this way, Charles Lammam, co-author of the report, said taxpayers should ask whether they’re getting value for money.

“Telling people that almost 42% of their income goes on taxes, that’s the first important takeaway. Then people can say, ‘Hold on, that’s one area that can be scaled back.’ We want to start that conversation and this is the data to do that,” he said.

Given that incomes have increased substantially since 1961, it’s inevitable taxes would also rise in terms of the amounts paid, but tax rates have increased because governments provide a wider range of services.

Since 1961, the average family’s tax bill has risen by 1,832%, dwarfing increases in the costs of housing, clothing and food.

Last year, the average family earned $77,381 and paid $32,369 in total taxes, or 41.8%. Food, shelter and clothing ate up another 36.1%.

For 1961, the numbers were $5,000 in income, $1,675 on taxes (33.5%) and food, shelter and clothing (56.5%).

But despite the higher tax rates, Canadians are increasing their net worth, says an Environics Analytics report released Monday. The average net worth per household was $442,130 at the end of 2013, up 7.7% from the year before, mainly because of increases in real estate and investments.

Although the Canadian economy generally seems to be in good health, Mr. Lammam contends it’s “reasonable” for people to ask if they are getting a good deal for their tax dollars.

“With more money going to the government, families have less to spend on things they care about, to save for education and retirement, and to pay down household debt,” he said.

“While there’s no doubt that taxes help fund important services, the real issue is the amount of taxes that governments take compared to what we get in return. There is a lot of room for improvement when it comes to the delivery of government services.”

He points to health care as an area where he believes Canadians are shortchanged when compared with similar jurisdictions with universal health care.

“It is the largest and most important budget, but independent analyses have shown that Canada does not get [the] same level of return for taxes on health care. We don’t get the same outcomes as others.… We are faltering here and there is an opportunity for us to change the way programs work.”

The Fraser Institute report also points to “deferred taxation,” suggesting that even higher taxes could be on the horizon.

“After many years of budget surpluses, the federal and most provincial governments have once again begun to resort to deficits to finance their expenditures. The total tax bill of the average family would be higher … if, instead of financing its expenditures with deficits, all Canadian governments had simply increased tax rates to balance their budgets.

“Deficits should therefore be considered as deferred taxation,” it says.