While some gladly pay their share – thinking of the numerous government programs these tax dollars finance – others feel their income tax burden is too high. No matter where you fall in this debate, to truly gauge whether you’re getting value for your tax dollars, you must have a complete understanding of all the taxes you pay – in addition to income taxes.
Income taxes only the beginning
For that, you must look beyond your income tax returns because income taxes form only a portion of the total tax bill imposed on us by all levels of government (federal, provincial, and local). In 2011, a Canadian family with average income of $74,233 paid $9,137 in income taxes. Personal income taxes are the single largest tax Canadians pay, but they represent just about one-third of the total.
Two other significant taxes on our tax returns are contributions to the Canada Pension Plan (CPP) and Employment Insurance (EI). Additionally, residents of British Columbia, Ontario, and Quebec pay health care taxes either through direct premiums or payroll taxes. All together, the average Canadian family paid some $6,328 in CPP, EI, and health taxes in 2011. Payroll taxes are second only to income taxes as the single largest government levy.
Next up are sales taxes which many of us hate since they show up every time we make a purchase. Calculating the amount of sales taxes paid by Canadian families is difficult as it requires people to track all their purchases of taxable goods and services. Nonetheless, our estimates suggest the average Canadian family paid about $4,748 in sales taxes last year.
Property taxes are no more popular than sales taxes and add $3,520 to the average family’s tax bill. A common misconception is that only homeowners pay property taxes. But renters also pay these taxes since they are rolled into their monthly rent. In one form or another, we all pay property taxes.
We’re not done yet. There are a host of less visible taxes that Canadians pay but do not see. For instance, the average Canadian family paid approximately $3,133 in profit taxes in 2011. Taxes on liquor, tobacco, and amusement amounted to $1,735 for the average Canadian family, while automobile and gas taxes totalled about $775. Finally, average families paid $1,416 in other taxes that are not easily discernible (i.e., import duties).
Summed up, the average Canadian family faced a tax bill of $30,792 in 2011 against income of $74,233. That means 41.5 per cent of the family’s budget went to paying for government. For perspective, 33.6 per cent of the budget went to paying for food, clothing, and shelter combined. Indeed, families now pay more in taxes that they do for basic necessities.
Deficits only make it worse
And it doesn’t end there. Most federal and provincial governments are running budget deficits, meaning that current taxes do not cover current government spending. By running substantial budget deficits, Canadian governments of today are putting off tax bills that will inevitably come due. Including deferred taxation (deficits) in the total tax bill raises it an additional $2,663 to $33,455.
This year’s tax deadline will bring mixed views on the appropriate level of income taxation in Canada. But it’s critical for Canadians to realize that the taxes delineated on their income tax returns are only part of the total amount of taxes they pay.
With a more complete understanding of our total tax bill, we, as taxpayers, can better assess whether we are receiving value-for-money. Armed with this knowledge, we can hold our governments more accountable for the resources they extract.
Charles Lammam and Milagros Palacios are economists with the Fraser Institute. The Canadian Consumer Tax Index 2012 is available HERE.
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