A new report that seeks to shine light on the contentious issue of taxation says the idea Canadians are heavily taxed is a myth.
The study from the Broadbent Institute found that tax revenue as a share of the economy is at the low end of global norms. On tax revenue, Canada ranked 25th out of 35 mostly developed OECD countries.
This chart from the Broadbent Institute's report on tax rates shows that tax revenue as a share of the economy is relatively low in Canada. A majority of countries collect more taxes.
The study directly challenges the Fraser Institute’s annual “Tax Freedom Day” — the day in the calendar year when the institute says the average Canadian stops working for the government and starts working for themselves.
Typically, the Fraser Institute has pegged Tax Freedom Day as being in early June, arguing that the total tax burden on the average Canadian is upwards of 40 per cent of income.
But the Broadbent study says it’s much lower: The median Canadian family’s total tax burden — including income taxes, property taxes, sales taxes, and excise taxes paid on things such as alcohol and tobacco — is around 24 per cent.
By that measure, "Tax Freedom Day" would fall in late March, rather than June.
“It’s not hard to hear people comment that Canadians are highly taxed, and they use numbers that are not challenged.”
— Robert Shillington
The Fraser Institute estimate is “quite misleading,” report co-author and statistician Richard Shillington told HuffPost Canada, “because they include taxes that people don’t pay.”
For instance, the Fraser Institute includes corporate taxes in their calculation of families’ tax burden, on the argument that those taxes are passed on to consumers. But corporate income isn't included in families' income.
The Fraser Institute also includes royalties paid to the government for use of natural resources, which Shillington says aren’t taxes at all — it’s money paid for services rendered.
That narrow definition of income and broad definition of taxes means the Fraser Institute overinflates its estimate of taxes, Shillington argues.
“It’s not hard to hear people comment that Canadians are highly taxed, and they use numbers that are not challenged,” Shillington said.
The federal government has been cutting corporate and personal taxes since 2000.
After struggling with astronomical deficits through the 1980s and 1990s, Canada's federal government balanced the budget and began cutting corporate and personal taxes starting around 2000. The result has been that Canada's tax burden fell from above average among OECD countries to below average.
Numerous studies have shown that Canadians enjoy lower tax rates than many developed countries. One such study, published in 2013 by auditing firm KPMG, found that Canadians earning US$100,000 per year pay the lowest effective personal tax rate among 40 countries surveyed.
The Broadbent study found that the median Canadian family loses just 11 per cent of its income to incomes taxes.
Although the highest tax bracket in Canada can be above 50 per cent, depending on the province, the Broadbent study found that the highest earners — those making more than $250,000 a year — pay an effective income tax rate of 29 per cent.
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Only money earned above $202,800 is taxed at the highest rate.
The share of income taxes paid by the wealthiest has jumped to 20 per cent from 12 per cent — but that’s because their share of all income has also grown, Shillington says. The actual tax rate paid by the wealthy has been falling since 2000.
Shillington noted that Canada often ranks among the highest countries for quality of life, despite having much lower taxes than most of the other places that top those rankings.
From that perspective, Canadian tax rates are “quite a bargain,” he said.
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