Canadian Taxes Outstrip Household Expenditure

by Mike Godfrey, Tax-News.com, Washington

22 April 2010

The total tax bill for the average Canadian family has increased at a much faster rate since 1961 than any other single household expenditure, according to a new study released by the Fraser Institute, a Canadian public policy think tank.

The Canadian Consumer Tax Index (CCTI) 2010, which calculates the total tax bill of the average Canadian family, found that taxes have increased by a whopping 1,624% since 1961. In contrast, expenditures on housing increased by 1,198%, food by 559%, and clothing by 526% from 1961 to 2009.

“Taxes have grown much more rapidly than any other single expenditure item for Canadian families to the point where taxes from all levels of government take a greater part of a family’s income than basic necessities such as food, clothing, and housing,” said Niels Veldhuis, the study’s co-author and the Institute’s senior economist.

“With most Canadians filing their income tax returns at this time of year, it’s important to remember that Canadian families are required to pay a myriad of additional and hidden taxes. In fact, personal income taxes account for only one third of the total tax bill paid by the average Canadian family in 2009.”

Much like the Consumer Price Index calculated by Statistics Canada, which measures the average price that consumers pay for the goods and services that they buy of their own choice, the CCTI measures the price of goods and services that government buys on behalf of Canadians.

The CCTI calculates the total tax bill of the typical Canadian family by adding up the various taxes that the family pays to federal, provincial, and local governments. These include direct taxes such as income taxes, sales taxes, Employment Insurance and Canadian Pension Plan contributions, as well as “hidden” taxes such as import duties, excise taxes on tobacco and alcohol, amusement taxes, and gas taxes.

This year’s index shows that even though family incomes have increased significantly since 1961, the total tax bill has increased at a much higher rate:

• In 2009, the average Canadian family earned an income of CAD69,175 (USD69,120) and paid total taxes equaling CAD28,878 – 41.7% of its income.
• In 1961, the average Canadian family earned an income of CAD5,000 and paid CAD1,675 in total taxes – 33.5% of its income.

The recent recession resulted in a small decrease in the total tax bill for the average Canadian family because an average family’s tax burden is reduced during economic slowdowns. The result was a dip in the total average tax bill in 2009 to CAD28,878 from CAD30,362 in 2008.

But Veldhuis points out that government deficit spending incurred in the past year are, in reality, unpaid debts that must eventually be paid through taxes.

“When we include deferred taxation – deficits – we see the total tax bill for the average Canadian family is actually CAD31,714 in 2009. This means Canadian families are facing a future tax bill of an additional CAD2,836,” he explained.

Summarizing the change in trend, the report states that:

• In 1961, the average family spent 56.5% of their cash income to obtain food, clothing, and housing. In the same year, 33.5% of the family’s income went to governments as tax.
• By 1981, the situation had been reversed; governments took 40.8% of income in the form of taxes, while the family spent 40.5% on food, clothing and housing.
• By 2009, the average family was giving 41.7% of its income to governments for taxes while spending 37.1% of its income on food, clothing, and housing.

“Taxes have now become the most significant item that Canadian consumers now face in their budgets,” Veldhuis concluded.

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