and Milagros Palacios
As we come to the end of another tax season, some Canadians will be eagerly awaiting an unexpected refund, while others will be frustrated by having to dig deep to pay an amount owing. For most Canadians, regardless of unexpected refunds or balances owing, the tax deadline provides a sobering reminder of just how much income tax they paid last year.
Of course, there are many of us who happily pay our income tax, thinking of the numerous government programs that our tax dollars finance: health, education, the military, etc. But the question all Canadian taxpayers must answer for themselves is whether or not we are getting our money's worth for the taxes we pay. To answer this question, you need an accurate picture of your total tax bill.
The reality is that income taxes form only a portion of the total tax bill imposed on us by all levels of government. In 2008, the average Canadian family (families and unattached individuals) earned approximately $71,800 in income, and paid $10,293 in income taxes, representing 14.3 percent of their income. While personal income taxes are the single largest tax Canadians pay, they represent only about one-third of our total tax bill.
Two other significant taxes that we deal with on our tax returns are the Canada Pension Plan (CPP) and Employment Insurance (EI). In addition, residents of British Columbia, Ontario, Quebec and Alberta (until 2008), also pay health care taxes through either direct premiums or payroll taxes. All told, the average Canadian family paid some $6,403 in CPP, EI, and health taxes in 2008. Payroll taxes are second only to income taxes as the single largest government levy.
There are two other relatively visible taxes that we pay, thankfully not at the same time as our income tax bill: property taxes and sales taxes. The average Canadian family paid about $2,787 in property taxes in 2008. One of the common misconceptions is that only homeowners pay property taxes. The truth of the matter is that property taxes for renters are included in their monthly rent, so in one way or another we all pay property taxes. For homeowners, at least the cost of property taxes is transparent since we each receive an annual bill.
Sales taxes are visible whenever we make a purchase upon which the tax is implied. Calculating the amount of sales taxes paid however is difficult in that it requires people to track all of their purchases of taxable goods and services. Our estimates indicate that the average Canadian family pays about $4,542 a year in sales taxes.
In addition to personal income taxes, payroll taxes, property taxes, and sales taxes, which are all visible to a certain degree, there are a host of taxes that we pay but do not see. For instance, average Canadian families paid approximately $3,302 in profit taxes in 2008. Taxes on liquor, tobacco, and amusement amounted to $1,782 for the average Canadian family, while automobile and gas taxes totalled about $770. Finally, average Canadian families were assessed about $286 in import duties in 2008, another cost which is not easily discernable.
Summed up, the average Canadian family faced a tax bill of $31,535 in 2008 against income of $71,764. The total taxes imposed on the average Canadian family consumed 43.9 percent of income. In other words, average Canadian families hand over nearly half of their income to Canadian governments.
The harsh reality is that the average Canadian family is paying more of its income to governments in the form of taxes than they spend feeding, clothing and housing themselves. All told, the proportion of income spent on shelter, food and clothing amounts to 35.7 per cent compared to 43.9 percent for taxes.
It is critical that Canadians understand that the taxes delineated on our income tax returns represent less than half of our total tax bill. Understanding our total tax bill will enable each of us to better assess whether or not, we as taxpayers, are receiving value-for-money. Our hope is that such understanding will lead to more pressure for real and meaningful tax relief for Canadians in the future. At the very least, we should be able to hold our politicians much more accountable for the resources they extract from us.
Niels Veldhuis and Milagros Palacios are economists with the Fraser Institute and authors of Taxes versus the Necessities of Life: The Canadian Consumer Tax Index, 2009 available at The Fraser Institute - A free and prosperous world through choice, markets and responsbility