Millions of Canadians enjoy representation without taxation

In the United States, today (Dec. 16) is the anniversary of the Boston Tea Party, when in 1773 the “Sons of Liberty” protested against taxation without representation. Nearly 250 years later, a new phenomenon has emerged in Canada—representation without taxation.

In recent years, Canadian governments have dramatically increased spending and sought a larger role in the economy. Such an expansion of government can lead to negative consequences including higher taxes to pay for today’s spending. Yet these consequences are not felt evenly by all Canadians. Indeed, a large share of the electorate doesn’t in any meaningful way bear the burden of their decisions for larger government because they pay limited or no taxes.

First, consider the growing size of government in Canada. Measured by government spending as a share of the economy, the Canadian government (including federal, provincial and local levels) grew from 37.4 per cent of the economy in 2007 to 40.3 per cent of the economy by 2018. (Notably, estimates suggest economic growth is maximized when spending is closer to 26 per cent of the economy.) That figure has undoubtedly increased since, particularly given the impacts of the pandemic. The federal government is on track to record the five highest levels of per-person spending (adjusted for inflation) in Canada’s history in 2018, 2019, 2020, 2021 and 2022.

Again, the burden of Canada’s larger government is not evenly felt by Canadians. The bottom 20 per cent of income-earning Canadian families are estimated to pay only 2.3 per cent of total federal, provincial and local taxes in 2021. In contrast, the top 20 per cent of income-earning families pay more than half (54.7 per cent) of total taxes. This is, in part, due to the progressivity of Canada’s personal income tax system, where the share of taxes paid typically increases as income rises.

Further, data from the Canada Revenue Agency (CRA) demonstrate that an increasing proportion of lower-income Canadians don’t pay any personal income taxes at all. In 2007, roughly 60.0 per cent of Canadians earning less than $30,000 had no personal income tax liability. That percentage increased significantly over the subsequent decade. By 2017, more than two-thirds (68.6 per cent) of individuals with income below $30,000 didn’t pay any personal income taxes—that’s more than 8.8 million Canadians. Many low-income Canadians do not pay any personal income taxes because their tax credits and deductions are greater than the amount of taxes owed.

Centuries ago, the Boston Tea Party led to the end of taxation without representation in some parts of the continent. Today, a more suiting slogan would be representation without taxation. This is not to say that lower-income Canadians should pay more in taxes, but it should raise concerns about the current state of decision-making in government.