Taxes are way up since 1961—are public services?

Media reports about the Canadian Consumer Tax Index that the Fraser Institute published this week focused, quite rightly, on the fact that the average Canadian family now spends more of its income on taxes than on food, clothing and shelter combined. Taxes win, 42.4 per cent to 37.6 per cent.

According to Figure 4 of the research bulletin (on its page 8), the crossover to taxes being higher first took place in the recession of the early 1980s, was reversed for a year in the recession of the early 1990s, and has been standard ever since. In fact, if anything the tax gap was a little wider in the first decade of the 2000s than it is now.

I find that as you get older you become more interested in your formative years. So I focused on the numbers for the early 1960s. In 1961, the first year the study charts, spending on food, clothing and shelter took up more than 55 per cent of the average family’s income. That number bottomed out in 2010 at under 35 per cent, but despite a slight rise since, it’s still at about 37 per cent.

The struggle to obtain food, clothing and shelter has dominated mankind’s economic history—for that matter, mankind’s entire history—since there has been a mankind. That the average Canadian family now spends only a little over one-third of its total income on this essential triad is pretty impressive.

If you look at the absolute amounts people are spending, the change is staggering. Average shelter spending in 1961 was $1,130. In 2015, it was $17,237. Inflation is the main reason for that growth, of course. But since 1961 the consumer price index is up “only” 706 per cent while shelter spending has increased 1,425 per cent. So inflation isn’t the whole story. Either the price of shelter has gone up more quickly than the prices of other consumer goods (i.e. its “real price” has risen) or Canadians are buying better shelter. All indices of the size and quality of homes, condos and apartments say the latter is true. But there’s likely some real price change in the mix, too.

Since 1961 nominal spending on food and clothing is up 645 per cent and 746 per cent, respectively, which both represent basically a saw-off against the CPI (706 per cent). Whether real spending on these goods has gone up or not depends on whether their respective parts of the CPI have gone up more or less quickly than the index as a whole.

Comparing the prices of goods from 55 years ago runs up against the problem that some goods aren’t available anymore. Can you still buy those fake-o elastic ties we little boys all used to have to wear to school or the dainty white gloves and pill-box hats girls wore to church? Do they still make Brylcreem? (An early version of hair gel, all the rage in the early 1960s.) I personally think people dressed better in 1961 than they do now. If you look at black-and-white pictures of the Saturday night crowd at the Montreal Forum in that era, all the men are wearing suits, ties and fedoras. So maybe people are actually consuming less clothing, quality-weighted, than they did then.

How about the government? As the Fraser study reports, taxes for the average family have increased 1,939 per cent since 1961. Is the average Canadian family getting 1939 per cent more services? Not likely. There’s that 706 per cent increase in the CPI to contend with first. But subtract that out and the question then becomes: have public services gone up by 1,233 per cent? Unfortunately, it’s hard to say. We do a lot more things through the public sector than we did in 1961: health care and post-secondary education, to name two big ones. But the cost of public services has also gone up. By how much, exactly? That depends on how you compare the output of a family physician in 1961 (they were called general practitioners then and some actually did make house calls) with the output of a family physician in 2016? What is that output? Lives saved? Colds cured? Psyches soothed? Stitches sewn? How has it changed on average?

Or, to take an example from my day job, how do you compare the output of a university professor in 1961 with that of a university professor in 2016? What’s my output? Students with a certain attainment? How measured? We have microphones, computers and websites now in my business. How much have they increased my output and therefore my productivity? And what about the fact that we have more and (maybe) better economics to teach students?

I could tell you my salary (though I won’t) and my university could tell you how much it spends supporting my teaching effort, but if we can’t figure out how much output I’m producing, we can’t calculate the price per unit of the services I’m providing, which is what we want to calculate in order to know how much of the extra public spending on university education is inflation, how much is cost per unit having gone up and how much is more units being produced.  

Output isn’t always easy to measure in the private sector, either. In very few industries—maybe literally none—is the product exactly the same as it was in 1961. The machines being produced by the computer industry, to take the most obvious example, are much more sophisticated now. I did get my first hand-held computer in the early 1960s. But it was a slide rule.

My guess is that for all the new taxes we’re paying we’re getting some increase in real services but also a considerable increase in costs.