Tax Bill Continues to Rise for Average Canadians

The dust has now settled from Monday’s Throne Speech and the future looks rather bleak: at least for average Canadians. The federal government intends to focus its efforts on special interest groups including, scientific researchers, environmentalists, aboriginals, university students, and many others. Their plan, as outlined in the Throne Speech and soon to be solidified by a federal budget, is to spend even more money on special-interest driven programs, which provide very little benefit to average Canadians. Reforms that would actually increase economic prosperity, such as tax relief, were absent from Monday’s speech. The spending proposals outlined will mean only one thing for average Canadians: we can look forward to yet another year of tax increases.

The tax burden faced by average Canadian families has been rising steadily for the better part of 40 years. For most Canadians, a quick look at their income tax return or pay stub provides ample proof. Yet many don’t realize that income tax represent less than half of their total tax bill. Other taxes, ranging from contributions to the Canada Pension Plan, Employment Insurance (EI) premiums, property taxes, sales and excise taxes, and motor vehicle fees, all take a big bite out of Canadians’ incomes. Income taxes accounted for only 32 percent of the taxes the average Canadian family paid in 2003. All those other, not so obvious, taxes accounted for the other two-thirds of the tax bill.

Back in 1961, the average family had an income of $5,000 and paid a total tax bill of $1,675. Last year, the average Canadian family earned an income of $58,782 and paid total taxes equaling $27,640. The total tax bill, including all types of taxes, of the average Canadian family has increased by 1,550 percent since 1961.

Let’s compare the increase in the tax bill faced by Canadian families to increases in other major expenditures: in contrast to the jump in taxes, expenditures on shelter increased by 936 percent, food by 460 percent, and clothing by 416 percent over the same period. What becomes evident is that taxes have grown much more rapidly than any other single expenditure item. In addition, the average Canadian family now spends more of its budget on taxes than it does on the basic necessities such as food, shelter and clothing.

So what benefit do we receive in return for all this tax? Or better yet do we get our money’s worth? Take our health care system, for example; Canada spends more than any other OECD country with a universal-access healthcare system. For that largesse, Canadians receive comparatively poor access to technology and doctors, increasing waiting times for surgery, and average health outcomes. The same can be said for education, social services, transportation and a host of other government programs. Money clearly is not the issue. In fact, Canada could reduce the amount spent on most of these programs and increases the benefits to Canadians if genuine reform was undertaken.

Every time the government takes a dollar of revenue from Canadian taxpayers it comes at a significant cost to our economy. Taxes create distortions by changing behavior. For starters, Canada’s personal income tax system continues to penalize work hard and entrepreneurship. Increases in personal income are met with increasing tax rates which reduce the incentive to work harder. Secondly, Canada’s tax regime continues to punish capital investment through high taxes relative to that in other countries; most importantly the United States. Lower rates of investment ensure lower productivity and ultimately lower wages for Canadian workers.

The United States has enjoyed some important tax relief since 2001. Unfortunately, Canadian tax burdens have increased. The Throne Speech delivered on Monday did absolutely nothing to address what is likely Canada’s most critical issue. For this, average Canadian’s will pay. The federal government must realize that economic prosperity is based on promoting, not punishing, investment in capital, hard work, risk taking and saving. To that end, we would all be well advised to pressure Prime Minister Martin to stop focusing on special interest and give average Canadians the tax relief they so desperately need.