Discussions about taxes are inevitably polarizing. Some Canadians think taxes are too high while others happily pay their share. But given the litany of taxes levied on us by the three levels of government, it is nearly impossible to get a sense of how much we truly pay.
That’s why in a recent report we calculate and track the total tax bill of the average Canadian family from 1961 to 2012 by adding up the various taxes they pay to federal, provincial and local governments, including taxes on income, payroll, sales, property, fuel, profits, imports – and the list goes on. We found the average family’s tax bill totalled $31,615 in 2012, representing 1,787-per-cent growth (before adjusting for inflation) compared to 51 years earlier.
Unsurprisingly, our report drew criticisms from people who want bigger government and higher taxes. Rather than respond to each individually, we address their four main criticisms here.
First, these critics quibble with the types of taxes we include in the total bill. They particularly point to the inclusion of business taxes, which, they argue, overstates the average. Such criticisms make a fundamental error about who bears the burden of business taxes.
The reality is that the cost of business taxation is ultimately passed on to ordinary Canadians – either to workers receiving lower wages, consumers paying higher prices or regular investors earning lower returns in their retirement portfolio. When it comes to corporate taxes, economics research finds the burden falls mostly on workers.
A second criticism is that our calculations exaggerate growth in the tax bill, since we present a growth rate from 1961 to 2012 that is not adjusted for inflation. Our report also presents the inflation-adjusted growth rate of the total tax bill, which is 143.5 per cent. The non-inflation-adjusted number is used to facilitate comparisons with other nominal indexes; these comparisons show the tax bill (1,787 per cent) has grown faster than spending on basic necessities such as shelter (1,290 per cent), clothing (607 per cent) and food (578 per cent).
A third criticism suggests the report misrepresents the trend in the tax bill. While the average family’s tax bill increased as a proportion of income from 33.5 per cent in 1961 to 42.7 per cent in 2012, there have been periods of decline. For instance, the trend from 2000 to 2008 was to a lower burden, but that changed in 2009. Since then, families are paying relatively more tax.
But a complete measure of the total tax bill must account for federal and provincial government deficits. When current taxes do not cover current government spending, governments delay tax bills that will inevitably come due. Including deferred taxation increases, the total tax bill of the average family in 2012 represents 45.9 per cent of income – virtually no change from 46.2 per cent in 2000.
The fourth main criticism targets the beginning year of our analysis. We use 1961 simply because it is the furthest year back for which we have data to do the calculations.
Of course, the increased tax burden since 1961 has coincided with new and expanding government programs, including universal health care and the Canada Pension Plan. But just because families pay more in taxes with these programs, it does not mean they are getting good bang for their tax dollars. While the purpose of the report is not to answer this question, the evidence suggests we are not getting value for money.
Consider the findings of a 2007 study led by economist Vito Tanzi that measured the efficiency of the public sectors in Canada and 23 other countries. The study found Canada could achieve the same outcomes from government programs using just 75 per cent of current resources.
Moreover, reports from Canada’s federal and provincial auditors-general consistently find case after case of cost overruns, boondoggles, unnecessary spending, improper management and other examples of government waste – all underscoring the presence of substantial and systemic inefficiencies.
Or take a specific program such as health care, which is arguably Canada’s most important and the single largest spending item for provincial governments. Analyses from various sources come to the same conclusion: Canada is among the biggest spenders compared with other universal providers, but Canadians receive comparatively poorer access to medical technologies and doctors, and they experience longer waiting times for surgery.
While it is ultimately up to Canadians to determine whether they are getting value for their tax dollars, our report at least gives them a clear picture of the price they pay for government services.
Charles Lammam and Milagros Palacios are economists at the Fraser Institute. The Canadian Consumer Tax Index 2013 is available at www.fraserinstitute.org