Six weeks after the deadline for filing income tax, Canadians can finally pop the champagne and celebrate Tax Freedom Day. This year, Tax Freedom day falls on June 14th. That is the day when the total tax bill for the average family is finally paid off – four days earlier than last year. From here on in, 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…
In 2008, the average Canadian family consisting of two or more people earned approximately $90,700 in income and paid $14,000 in income taxes. When all of the other taxes are added, their total tax bill jumps to $40,667. In other words, the average Canadian family paid 44.8 per cent of its income in taxes.
While many Canadians happily pay their taxes to support the numerous government programs they believe are effective, 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 2007 study Public Sector Efficiency: An International Comparison led by internationally renowned economist Vito Tanzi. 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, for example, consumes 22 per cent of total federal, provincial and local tax revenues. Only Iceland and Switzerland spend 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 offering universal access health care.
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. Canada’s Auditor General consistently finds case after case of government cost overruns, unnecessary spending, improperly managed programs and other examples of government failure. In fact, a recent study of reports from the Auditor General found that the federal government waster upwards of $125 billion between 1992 and 2006.
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 more than a month earlier this year. In other words, Canadians would be celebrating Tax Freedom Day in early-May rather than mid-June.
Of course, individual Canadians must decide for themselves whether they, as taxpayers, 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 and the cost of their bundle of government services. Our hope is that understanding how much families truly pay for government services will lead to more pressure for real and meaningful tax relief for Canadians in the future.