Nearly two months after the April 30th deadline for filing income tax, Canadians can finally celebrate Tax Freedom Day. This year, Canadians popped the champagne on June 20th. That is, Canadians worked until June 19 to pay the total tax bill imposed on them by Canadian governments - federal, provincial and local. From June 20 to the end of the year, taxpayers are working for themselves and their families.
The harsh reality is that income taxes are only about one-third of the total taxes Canadians pay. To get an accurate picture of their total tax bill Canadians must include property taxes, sales taxes, profit taxes, health taxes, social security taxes, alcohol and tobacco taxes, fuel taxes… the list goes on.
In 2007, the average Canadian family of two or more people earned approximately $83,700 in income and paid $13,500 in income taxes. When all of the other taxes are added, their total tax bill jumps to $38,992. In other words, the average Canadian family paid 46.5 per cent of its income in taxes.
Of course many Canadians happily pay their taxes to support the numerous government programs they believe are effective. On the other hand, many others are outraged at the level of taxation and the quality of government services they finance.
Therein lies the value of Tax Freedom Day: it gives Canadians the information they need to determine whether they are getting value for the money they send to governments.
While it is ultimately up to individual Canadians to determine if their taxes are too high and whether or not they are getting value for their tax dollars, some perspective might help.
Consider the findings of a 2005 study Public Sector Efficiency: An International Comparison led by economists at the European Central Bank. The study measured the efficiency of the public sectors in 23 countries, including Canada and found that Canada’s public sector was relatively inefficient. Specifically, the authors found that Canada should be able to achieve the same outcomes from government programs while using only 75 per cent of current resources. In other words, there is approximately 25 per cent waste in Canada’s public sector. And it’s not hard to see why.
Our health care system consumes nearly a quarter of total federal, provincial and local tax revenues. Only Iceland spends more than Canada to deliver universal-access health care to their population. Despite that high level of spending, Canadians experience comparatively poor access to technology and doctors, and comparatively long waiting times for surgery. It is quite clear that we are not getting value for money in government health care compared to other countries.
Similar patterns hold for education, social services and a host of other government programs. In most cases, money is not the problem. Through genuine reform, Canada could reduce the amount spent on many of these programs without reducing the benefits to Canadians.
In addition, our tax dollars are often simply wasted – think sponsorship scandal and the fiasco surrounding the firearm registry. Unfortunately, these are not isolated events. Canada’s Auditor General consistently finds case after case of waste, misrepresentation, incompetence, and self-interested public officials. In fact, a recent survey of reports from the Auditor General found 284 cases from 1992 to 2005 where taxpayer’s dollars were either wasted or program objectives not achieved.
Clearly, Canadian governments should be able to enact significant tax relief while achieving the same level of performance from their programs. If federal, provincial, and local taxes were reduced by 25 per cent (the suggested amount of government waste), Tax Freedom Day would arrive roughly a month earlier year. In other words, Canadians would be celebrating Tax Freedom Day in mid-May rather than on June 20th.
Individual Canadians must decide for themselves if, as taxpayers, they are receiving value for their tax dollars. Tax Freedom Day provides Canadians with a comprehensive, graphic measure of an average family’s total tax bill or the cost of their bundle of government services, to allow them the opportunity to do so. Our hope is that such understanding will lead to more pressure for real and meaningful tax relief for Canadians in the future.