Flat Bubbly on Tax Freedom Day

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posted June 23, 2004

Pop the champagne, Tax Freedom Day is at hand. This year’s release from the taxman’s icy grip will occur on Monday, June 28th. That is the day when the total tax bill for the average family is finally paid off -- one day later than last year -- and Canadians are free to earn and spend their money as they please. Coincidentally or not, the 28th is also the day that Canadians will decide what their near-term political and economic future holds.

The Fraser Institute has been researching the tax burden on average families since 1977. Over that time, Tax Freedom Day has moved later and later in the year, until finally peaking on July 2nd in the year 2000. Since then, we have had one year of modest relief (in 2001) and then a gradual rise in line with the prior dire trend.

There is little good news in this year’s release. While Alberta saw a drop of six days in its Tax Freedom Day, celebrating now might prove premature as little of the impact comes from tax cutting. The main explanation for the earlier Tax Freedom Day in Alberta is the government’s ultraconservative provincial budget estimate regarding resource royalties from the oil patch. With oil prices at their current value, there could well be an upward revision in Alberta’s Tax Freedom Day next year once actual resource revenues are tallied.

As for the winner of this rather depressing contest, Prince Edward Island had the earliest date of all of the provinces: June 10th. The only problem there is that more than one-third of PEI’s tax revenues come from other provinces, via federal transfers. The early tax-free status in PEI, and the rest of the Atlantic provinces, therefore comes at the expense of later dates in the rest of the country, and especially in Alberta and Ontario.

The largest province in Canada is at the heart of the bad news in this year’s Tax Freedom Day report. A new Health Premium Tax (more truthfully labelled an income surtax) has helped to boost the government’s tax take in Ontario by $1,674. That is a lot of money for the average family. With income only increasing by $1,628, the taxman literally took it all -- and more. And the bad news doesn’t end there: the new health tax is going up again next year.

In fact, every province but Alberta lengthened its Tax Freedom Day in 2004 (though British Columbia remained unchanged at July 3rd, the latest date in the land).

The Federal government accounted for more than half of the increased tax burden, provincial governments for around 41 percent, and municipalities for nearly 4 percent. As for the specific taxes that were at fault, four-tenths of the national tax increase of $1,327 came from social security, pension, medical and hospital taxes. Income tax contributed a one-third share to the higher tax bill and sales tax made up another 13 percent.

There are admittedly many figures to digest in this survey of tax burden but one theme stands out clearly: Canadians are close to their highest tax payments ever.

And that naturally leads into a discussion about tax efficiency, whether taxpayers receive value for money for the $36,782 dollars taken this year from the average Canadian family. Is health care access at its all-time best? Are roads and sewers in their best ever shape? Is our educational system turning out the most well educated students ever? Are we using government to raise our standard of living in the best possible way?

The answers to these questions can help to put Tax Freedom Day into its appropriate context.

Take our health care system for example, the largest category of spending for our governments. Canada spends more on healthcare as a percentage of our economy than any other industrialized country that promises universal access for its citizens (once adjustment is made for our relatively youthful population). For that largesse, Canadians receive comparatively poor access to technology and doctors, increasing waiting times for surgery, and average health outcomes. It is quite clear that we are not getting value for money in government health care compared to other countries. Ultimately, however, it is up to individual Canadians to judge whether or not they get value for the services that their tax dollars provide.

For now, what we do know is that the first half of most workers’ time and effort through the year is spent working for the various levels of government rather than for themselves and their families.

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