Canadians face bigger tax burden than you think

As the Trudeau government continues its debt-financed spending spree, and with budget season on the horizon, Canadians should remember that borrowing today means higher taxes tomorrow.

In recent years, the federal government has increased spending at an alarming rate, and shows no signs of slowing, with big ticket items such as $10-a-day daycare, national dental care and electric vehicle battery subsidies. Since 2019/20, according to its own projections, the government has increased annual program spending by more than $100 billion and added $500 billion in debt.

The Trudeau government is also expected to table national pharmacare sometime this year, which will cost an estimated $11.2 billion in 2024/25. Since the government already forecasts budget deficits for the foreseeable future, spending on national pharmacare will simply add to those deficits.

Of course, Canadians ultimately pay for this spending through taxes imposed either today or in the future.

And according to polling data, most Canadians feel their total tax bill—the sum of all taxes Canadians pay including personal income taxes, sales taxes and property taxes—is too high. In 2023 the total tax bill for the average family equaled 46.1 per cent of its income. Moreover, based on data from the Organisation for Economic Cooperation and Development (OECD), in 2021 Canada’s total tax revenues (as a share of the economy) were 33.2 per cent, which is lower than the OECD average of 34.1 per cent.

Good news, right? Wrong.

In reality, total taxes in Canada are actually higher than these statistics suggest because of deferred taxes. When governments run deficits, they shift the burden of paying for today’s spending onto younger generations, who will pay for it through higher taxes (and/or lower spending) in the future. As such, deficits are essentially deferred taxes and should be included in the equation about the actual burden of today’s spending.

So, as shown by the OECD, in 2021 Canada’s deficit as a share of the economy was 4.4 per cent. If we factor in this deficit into the tax bill, total taxes relative to the size of the economy were actually 37.6 per cent that year—not 33.2 per cent.

Another way to show this effect is through Tax Freedom Day, the day of the year when the average Canadian family has earned enough money to pay the taxes imposed on it by all levels of government. In 2023, Tax Freedom Day was June 19, meaning every dollar earned from January 1 until June 18 would go to the government—if Canadians had to pay all their taxes up front.

If we factor in federal and provincial deficits, and assume all governments raised taxes to balance their budgets in 2023, Tax Freedom Day would arrive June 27—eight days later. Put differently, the average Canadian family had to work nearly half the year to pay all the taxes imposed on it by governments, when accounting for both current and deferred taxes.

Finally, while nearly half of the average family’s income goes to taxes, most Canadians think that’s too much. Indeed, 80 per cent of Canadians surveyed don’t want average families to pay more than 40 per cent of their income in total taxes.

Canadians already worry about the size of their tax bills today, but they’re in for a rude awakening in the future when taxes rise higher because of government borrowing.