Are Canadians Receiving Value for Their Tax Dollars?

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posted June 20, 2006

Pop the champagne, Tax Freedom Day has finally arrived! This year, Canadians start working for themselves on June 19. In other words, we’ve worked each and every day from January 1 to June 18 to pay the total tax bill imposed on us by all levels of government. This of course translates into an awful lot of money.

In fact, the average Canadian family with two or more individuals will pay almost $36,650 in taxes.

While many Canadians happily pay their taxes to support the numerous government programs they believe are effective, a great many others are outraged at the level of taxation and the quality of government services they finance. With Tax Freedom Day having just passed, all Canadians should ask themselves whether or not they are getting value for the nearly 50 percent of their income they send to local, provincial and federal governments.

The question of value for money is not easily answered and indeed some perspective is needed.

First, consider that the average Canadian family’s total tax bill as a percentage of income has increased dramatically over the past 45 years. Back in 1961, the average family had an income of $5,000 and paid a total tax bill of $1,675. In other words, 33.5 percent of family income went to taxes. In 2006, the average family’s tax bill will consume 46.2 percent of their income. In fact, the average Canadian family now spends more of its income on taxes than it does on life’s basic necessities: food, shelter, and clothing combined.

Of course, as our taxes increased so too did the number and size of government programs. But are these programs being delivered in the most efficient manner and do they provide Canadians with the greatest value for their money?

Take our health care system, for example; most Canadians are acutely aware of the problems with the government’s monopoly on health care. Only Iceland and Switzerland spend more than Canada (age-adjusted) 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 long waiting times for surgery.

Similar patterns hold for social services, transportation, infrastructure, and a host of other government programs. In most cases, money is not the problem. In fact, Canada could reduce the amount spent on most of these programs and increase the benefits to Canadians through genuine reform.

In addition to the poor value for money we receive from many government programs, our tax dollars are often simply wasted; a fact highlighted by the firearm registry and the sponsorship scandal. 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 from 1992 to 2005 found 284 cases where program objectives were not achieved or taxpayer’s dollars were simply wasted.

Finally, let’s not forget that every time the government does take a dollar from the pockets of taxpayers, it comes at a significant cost to our economy. Our personal income tax system penalizes hard work, risk taking, and entrepreneurship through highly progressive tax rates. In addition, Canada maintain relatively high tax rates on capital, which produces lower rates of investment, lower productivity, and lower wages for Canadian workers. High tax rates end up costing Canadians much more than their tax bills show.

Ultimately, individual Canadian taxpayers must determine if their taxes are too high and whether or not they are getting value for their tax dollars. To answer that question, Canadians need to have a clear idea of the price we pay for government services -- in other words, our total tax bill. Tax Freedom Day is a simple, graphic measure of an average family’s total tax bill. At the very least, Canadians can use this metric to better hold their politicians to account for taxes they extract.

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