Tax Freedom Day fell on June 6 this year, meaning the average Canadian family had to work more than five months in 2009 to pay the total tax bill levied on them by all levels of government, according to the Fraser Institute’s annual Tax Freedom Day calculations.
“Tax Freedom Day provides Canadians with a clear, easy to understand, and accurate estimate of the total amount of taxes they pay to all levels of government,” said Niels Veldhuis, Fraser Institute Director of Fiscal Studies.
“The total tax bill paid by Canadians is much more than income tax. The reality is, the total tax bill assessed by all levels of government requires almost 43% of an average family’s annual income,” he added.
The taxes used to compute Tax Freedom Day include income taxes, property taxes, sales taxes, profit taxes, health, social security and employment taxes, import duties, license fees, taxes on the consumption of alcohol and tobacco, natural resource fees, fuel taxes, hospital taxes and a host of other levies.
The good news for Canadians is that Tax Freedom Day fell three days earlier this year than in 2008. The latest Tax Freedom Day in Canadian history was in 2000, when it fell on June 24, according to the Fraser Institute.
While the federal government recently provided some minor tax relief, most notably increasing the basic personal exemption for income tax as well as various new or expanded tax credits, and some provinces decreased taxes in 2009, Veldhuis points out that the shrinking economy - not the tax cuts - are the primary reason for the earlier Tax Freedom Day.
“Under our progressive tax system, families pay more proportionately in taxes as they earn more income. The reverse is also true. It is this reverse phenomenon that is driving much of the decrease in Tax Freedom Day,” he observed.
Still, the marginally earlier 2009 Tax Freedom Day was seized upon by Finance Minister Jim Flaherty as evidence that the Conservative government has decreased the overall tax burden.
"Our government's commitment to lower taxes is long-standing, and has been backed by action in every one of our budgets," said Flaherty. "We have been working to reduce the tax burden on Canadians since the day we took office, and as a result Tax Freedom Day for the average Canadian family has steadily decreased. Even in today's global recession, we have provided tax relief that has left more money in the hands of families and businesses across Canada, giving the economy a boost when it needs it most."
However, when the tax implications of the government’s recent return to budget deficits are factored in, the institute says that ‘Balanced Budget Tax Freedom Day’ arrives on June 25, almost three weeks later than Tax Freedom Day.
“By running substantial budget deficits, Canadian governments of today are accumulating debt. Eventually, the debt must be paid and we could see Tax Freedom Day move later in the calendar as a result,” Veldhuis said.
According to the institute’s calculations, in 2009, the average Canadian family (with two or more individuals) will earn CAD88,432 and pay a total of CAD37,699 in taxes, for a total tax bill amounting to 42.6% of its income.
It is predicted in the study that income for the average Canadian family will decrease by 2.5% (CAD2,245) between 2008 and 2009 with the total tax bill also decreasing by 4.7% (CAD1,846).
“There’s no doubt our taxes pay for some essential government services. But the debate Canadians need to have is: are we are getting value for our tax dollars? In order to discuss that question in a rational way, we need to have a clear idea of the price we pay for government services. In other words, what is our total tax bill?” Veldhuis said.
Among the provinces, Alberta continues to enjoy the earliest Tax Freedom Day (May 16), followed by New Brunswick (May 31), Ontario (June 1) Prince Edward Island (June 3), Manitoba (June 7), British Columbia (June 8), Nova Scotia (June 11), Quebec (June 12), Newfoundland and Labrador (June 16) and Saskatchewan (June 20).
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