Are Taxes in Canada Really That High?

A Press release by Fraser Institute showed the total tax bill of the average Canadian family has increased by 1,624 per cent since 1961, while expenditures on housing increased by 1,198 per cent, food by 559 per cent and clothing by 526 per cent from 1961 to 2009. The report was widely distributed by several media outlets including this one in the Calgary Herald.

There’s no question that we pay some hefty tax rates in Canada but the report is a little of what I call data spin.  In other words, I can always use the facts or data to prove a point.  It just depends on what data I want to show you.  Here are some other relevant thoughts on taxes

Taxes and quality of life

It’s been said there are two certainties to life: death and taxes.  Yes we pay tax but for what reason?  Yes we would all prefer lower taxes but at what cost? It’s easy to suggest that we all want lower taxes but be careful what you ask for . . . with lower taxes, what will we lose?  Will we lose health care?  How about Old Age Security?  What about our roads and our parks?

If you compare the life we had in 1961 with the life we have now in 2010, which life would you prefer?  For me I would take the lifestyle we have today hands down.  I like our health care system, our roads, our river valley, my laptop and the internet.  Yes, there can be flaws to all these benefits, systems and policy but at the end of the day part of our taxes goes to enhance the quality of life we have.

What about rising incomes?

Iglika Ivanova , Public Interest Researcher at the Canadian Center for Policy Alternatives responded to the report issued by the Fraser Institute outlining some very significant flaws in their analysis:  Have taxes changed all that much over the past half century?

We all know that the cost of living increases over time.  What really affects our personal lifestyles is the relationship between expenses and income.  In other words, we need our income to increase by the same rate if not more than our expenses.  If our incomes increase, then our taxes will naturally increase as well.  So does the fact that taxes have risen faster than the cost of goods really mean that our incomes have risen faster than the cost of goods?

Marginal tax can be misleading

We live in a marginal tax rate system where the more money we make, the more taxes we pay.  That being said, I also know that we can never lose money by making more.  In other words, you will always net more money in your pocket with more income even if it means moving into higher tax brackets.  Marginal tax rates can create a perception that taxes are higher than they really are.  If you don’t believe me, check out my article on marginal tax vs average tax.

Taxes are actually decreasing

Here’s another perspective using the Fraser Institute Data . . . . taxes are actually decreasing, not increasing.   According to the Fraser institute, tax freedom day has been falling for the past 10 years.  Their data suggests that Canadians are paying 10% less tax than they did in 2000 when tax freedom day peak to its highest point.

Tax Freedom Day in 2009 – June 5th
Tax Freedom Day in 2000 – June 24th (latest tax freedom day)
Tax Freedom Day in 1961 – May 3rd (earliest tax freedom day)
Alberta Tax Freedom Day in 2009 – May 16th
Tax Freedom Day in the US – April 9

For selfish reasons, I’m all about lower taxes.  That being said, there is an economic reality where we will have to pay some tax to pay for the quality of life that we have in Canada, as well as the province and city we live in.  What are your thoughts on taxes in Canada?

Taxes in Canada have been reported as increasing faster than other expenditures, but tax rates may actually be decreasing.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his website, Retire Happy.

24 Responses to Are Taxes in Canada Really That High?

  1. I think the taxes can also vary from province to province. Ontario and BC are implementing a harmonized tax on July 1st and this will increase taxes on BASIC needs like heat, hydro, and gasoline (in Ontario).

  2. So you are saying our “chocolate ration” has gone up? That’s great news!

    Point taken on data spin – lies, damn lies and statistics – sort of a non-point of view though so I’m lost in your argument.

    I would say in Canada we may technically have a marginal income tax system but, pardon the pun, only marginally. After returning from the US, I was surprised to learn that the top income tax bracket in canada began at near 70k per year which seems sorta low. I expected to have to work my income down a bracket or 2 but it was pointless.

    Add to that the consumer taxes of provincial sales tax and GST – can’t fail to mention the evolution of the HST of course. These are extremely regressive tax forms that, ironically, the US has fought hard against on the basis that they would hurt those with incomes in the bottom half.

    So if you are skewering sacred cows questioning the real tax rate here in Canada maybe put another on the list: that we aren’t as progressive as we think we are.

  3. Thanks for presenting both sides of the argument Jim! I think most of us would feel a lot better about paying taxes if we felt that the money was being used efficiently. I would love to see health care and social assistance programs get a thorough audit and get some proposals for streamlining measures that could increase efficiency in terms of both services and costs. Great article!

    • I think its a fatal flaw is that we expect our government to be cost efficient and effective in delivering service.

      By definition it isn’t the “best way” to spend public cash since there is no inexorable pressure to do so. What I mean is this: the problem with government is that there is only one of them addressing a given set of issues. Because of efficiency arguments, access fairness and not least internal division of powers it is difficult to justify competing approaches to a single set of issues. It is why we don’t have multiple militaries, health care systems etc. Sometimes that’s good but as the government continues to widen its surface area over the larger economy, alternative, quickly evolving and more innovative solutions are needed else we get lapped by faster moving economies. In my experience, complex problems of this sort require a Darwinian approach for the best solution to emerge, requiring many simultaneous attempts going on in the first place.

      Audits and oversight are a necessary evil. Required but insufficient. They are stuck in the world where there can be only one approach tried at a time so you better get it right.

  4. Interesting look at the numbers.

    I really wonder about the Fraser Institute – they are masters of statistics spin but I’m not sure why.

  5. When you add up everything that we do pay, then taxes are still quite high. Add up income, sales, license, etc…. and then add in inflationary spending as well. 🙂

    I don’t have a very high income, but I pay more in *income taxes alone* than I do on both my total living costs, total transportation costs, and total food costs. Do I really get that much value out of the government spending? I don’t know.

    I don’t go as far as saying taxation is theft, because it is part of the contract of living in the country and the government is the defacto property master, so whichever ideology you want to spin I do see the taxes as legitimate to a certain extent, but I also think that government spending needs to be more efficient.

    The government should be there to reduce transaction costs and make commerce and industry more efficient, allowing standards of living to rise. It shouldn’t be there to favor one group over another. I think Canada could do better in this regard, but I still do prefer living here, even with the high taxes, over many other places. It is a cost of living expense associated with all of the benefits of living in a stable and peaceful country!

    I think the best way to deal with this and discover the optimum mix of public & private is to reduce barriers on labour. It is very easy for capital to cross borders; why not labour? Why isn’t it much easier for me, as a Canadian, to work in the US or elsewhere, and vice-versa? You don’t need to apply for a visa to buy stock in the US. It is this discrimination against labour that helps perpetuate inefficiencies in the system and tips the balance of power toward capital. Reduce the barriers to movement, and it will be easier for people to vote with their feet (and labour), and not only their capital.

  6. When we saw the higher prices on everything in Canada compared to the US, we wondered at first. Then I told my husband, I figure someone needs to pay for people to have medical insurance and a good quality of life. Not to say that tourists are the ones paying for that – but overall, higher taxes for a better quality of life.

  7. Great comments everyone! Taxes will forever be debated especially when it comes to how the government uses the money. Unfortunately, I don’t think the government will ever win on spending because the interests of the people are too broad. I guess that’s why they call it politics.

  8. at least you don’t pay taxes that most of us Americans do on wars and other knuckle head stuff that we shouldn’t be having to worry about.

    i wish my taxes would go down, that would be amazing.

    • James, you do pay for wars and other things you probably wouldn’t like to pay for, but you’re not paying for it in the way that you think. Even if you paid no taxes, all the government has to do to spend is … just do it. They can literally wave a wand and spend your money and wealth without physically taking a dime from you. In fact, when they tax you, they are just reclaiming money that they created in the first place and dampening some of the inflation that would otherwise result. ‘Tis is the vagaries of fiat currency…

  9. Sales tax is not only a tax on the poor, but it negatively affects the economy. Two ways in particular the HST increase in Ontario will be felt are: domestic travel (impacting tourism), and less disposable cash (impacting jobs, and businesses catering to those with lower income levels). Instituting more sales tax at this time will hit our economy hard.

  10. Interesting article. I don’t know enough about Canada’s tax system or its social benefits to comment intelligently on the real or perceived tax burden there. But I do know that when we Americans point at Canadian taxes as an example of the horrors we can expect from
    “tax-and-spend” policies, we don’t take into consideration the fact that health insurance premiums actually are a form of taxation. The only difference is, we pay that tax to private companies rather than to a government entity.

    For some people the taxation that is private health insurance is very high and very unfair. Anyone with a condition that actually NEEDS medical care pays astronomical rates — if the person can get insurance at all. And in this country, if you have a salary and you can’t get insurance, you can’t get healthcare. Period.

    I’ve spoken to people who say their health insurance costs upwards of $2,000 a month. That is more than my net income. It doesn’t matter who’s taking the cash out of your pocket. One way or another, you’re going to have to pay for these services. Given what we’ve seen from banks and insurance companies, I’d rather go through a government agency than deal with unbridled corporate predators.

  11. When a company has to pay in 5 months of equivalent pay, yes taxes in Canada are very high! Just myself alone enslaved 4 months out of 12 of labor to the government income tax which I’ll never see again! It would be cheaper if all companies moved their businesses over seas! The Federal Government created a mess!

    You want to understand how a business calculates losses to tax; compare the staple expenses to income deductions! Just the taxes alone calculate to 7 months of staple cost!

    If everyone had to calculate their income tax to the hourly rate they receive, you will begin to notice just how long throughout the year you worked for the government, 2 to 5 months out of 12 on average!

  12. It really sucks that because I went out and got a better paying job, that should have to pay more in taxes. I work away from my family, I miss out on a lot of thing going on with my kids as they grow up.
    Then I get my 2 week cheque and it’s almost half of the amount after taxes.
    It should be a straight across the board 15% tax for everyone. I’m tired of paying out and not getting ahead. Pls someone tell me why us blue collar hard workers are getting ripped off.

  13. I’m sorry but the government taking 25% of my income and still having to pay 5% sales tax on everything is bullshit. I couldn’t even fathom living in the other provinces where taxes are even higher. This whole idea that the higher taxes are paying for a higher quality of life is crap. Travel a bit, just south of us is a country with perfectly fine roads, future pensions in no larger instability then on our own, and an identical life span. A country with much lower tax rates.

    I would be perfectly happy budgeting for medical expenses and taking personal responsiblity for what I eat, exercising, and doing everything I can to lessen my expenses. Why are we supporting a health care system that takes care of people that treat themselves like shit? Obese people should have to pay for medical expenses themselves, so should anyone with mental illness we could have culled from the herd with foresight and abortion. Don’t even get me started on drug addicts milking EI and causing endless burden to the health care system. You know how expensive drunks are to take care of also?

    I guess I have gotten off topic, point is the benefits we Canadians enjoy because of the higher taxation are non existent. I was born abroad and have travelled to enough first world countries to know that the smartest most financially capable of our citizens are less wealthy then they otherwise would be because of the extreme taxation.

    INB4 being called heartless/monster by lesser humans.

    • Well… Alex I’m sure you would be happy to know that I am morbidly obese and am taking steps to be healthier. I eat healthy and am active and work Damn hard for 8 hours a day. I’m sure you will also be happy to know that When I do encounter any health problems.. my wonderful Canadian Healthcare system will Infact do nothing for me. Why?… u guessed it.. because of my obesity. So just don’t you worry about your tax dollars being wasted on caring for us fat people… because it quite simply in my experience.. doesn’t happen. What you did forget to mention as well are all the non-contributors we support in Canada. Providing people with free money to spend as they chose, coincidentally often on nasty habits. Or what about all the money that our foreign workforce gets to come here and earn only to send it back home tax free.. right out of our economy. No contribution there. There are all kinds of delightful ways in which we are robbed to pay for stupidity. O Canada.

    • “Obese people should have to pay for medical expenses themselves, so should anyone with mental illness.”

      Yeah, because we all know that the mentally ill/handicapped are the way they are because of their own doing..

      The d*mn fools made the personal choice to be Paranoid Schizophrenics, Demented, Bi-polar, etc, etc, isn’t that right Alex? They wanted it, they got it and you shouldn’t have to help pay for any treatment they get due to those self-chosen disorders, right Alex? And as a matter of fact, they should have been aborted in the first place..

      Tell me again, how can they tell if unborn babies are going to be obese and/or mentally ill in order to keep them from being a burden on society by aborting them?

      You’re an idiot.. You are everything that is wrong with my country(US), and you’re not even a citizen here.. People don’t understand just how dangerous stupidity and ignorance really are..

  14. Yes Canadians are overtaxed. Do you really believe we get value for our taxes? Governments overspend and are completely inefficient. It should be illegal to run deficits. Deficits are just deferred taxes. Deferred to your kids and thier kids. How are we ever going to pay that back? Eventually the country will default. It’ll happen when your grandkids aren’t able to keep up with the overspending of the previous generations. I am sick of the socialism that permeates through every federal and most of the provincial parliamentary policies. Hey if you want the special program, you pay for it because I want to save up to retire or at least be able to buy the groceries. The problem is no govt will ever significantly reduce taxes. Ralph Klein is the closest I’ve seen to a man who understood how to run the show. Eliminate the deficit not by raising taxes, but by cutting out the things we can’t afford. Now that Trudeau is in we are all doomed to pay more. Just wait till the carbon tax is introduced. What a joke. Just like him.

  15. I am totally shocked by the high sales tax. I have to pay 13% HST, 15% tips on a 110 Canadian dollars meal. The same meal probably would cost $50 plus 8.75% NYC tax and 15% tips. This is ridiculous. We make more money in US and we don’t need to pay so much for daily expense. This is kind of sad.

  16. I live in Saskatchewan with my fiancee, one of the better provinces for making money and keeping it. However even still we are being crushed by taxes, looking at buying property is just insane. When you factor in total taxes (sales taxes income taxes environmental fees etc etc) your average family loses roughly 44% of their income, so after that and living expenses there is barely anything left to put extra down on the mortgage. We simply can not afford to have kids and don’t plan to, forget it. I would support a 15-20% across the board tax system. I am also sick of the debt, the soul crushing 10s of thousands of dollars in federal and provincial debt I was born into is pretty damn depressing honestly, I just hope my generation can be sensible enough to at the very very least not steal from their kids, doubtful.

  17. I had no idea Canadian taxes were the reason we have laptops and the internet…
    Secondly tax freedom day is no way whatsoever to look at “lowered taxes”. It could actually mean they are pulling in more tax money revenues than in 1961.
    For calling the Fraser Institute out on “data spin”, you certainly give some lukewarm arguments. Hell, you don’t even call them out ON the data, just different points of views on tax itself.

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