Earlier this year, the Fraser Institute, a Vancouver think tank, published a study that claims Canadians spend more on taxes than on all other household necessities combined. Its authors, economists Milagros Palacios and Charles Lammam, reported that in 2013 taxes accounted for 41.8 percent of the average family’s income, while outlays for food, clothing, and shelter amounted to only 36.1 percent. They tracked expenditures as far back as 1961, when the same figure was 33.5 percent—which translates to an increase of 25 percent in that proportion over the years. “While there’s no doubt that taxes help fund important government services,” Lammam said at the time, “the real issue is…what we get in return. With almost 42 per cent of income going to taxes, Canadians should ask whether they get the best value for their tax dollars.” Translation: we’re almost certainly paying too much.
However, the study failed to note that since 1961 Canadians have asked their governments to fund a national pension plan; a more robust social safety net; a massive expansion of post-secondary education; and, above all, medicare. In the past four decades, per capita health care spending has risen from about $500 (unadjusted) to more than $5,500, of which Ottawa’s share now exceeds 70 percent. Critics of the Fraser Institute report have also pointed to a bias in its definition of taxes, in terms of what it included in its calculation of the average tax bill. Are royalties on oil and gas revenues taxes? Are import duties taxes? Are taxes on goods and services, property, vehicles, fuel, alcohol, and tobacco—so-called consumption taxes—as burdensome as those applied to income? Is it reasonable to include corporate taxes in the total that Canadian families pay?
On the day the study was released, I listened to a radio reporter interview people on the street about their tax bills. Some expressed disgruntlement, which is not surprising. But none could say how much he or she actually paid, which made me wonder: How can you complain that you pay too much if you have no idea what you pay? The widespread belief that our taxes are excessive is not based on a rational calculation; rather, it proceeds from an ideology in which government is wasteful and inefficient, in which less government is better than more, and in which taxes are inherently undesirable. This seems to be a recent departure from the view—traditional in Canada—that government is a legitimate and necessary actor in the maintenance of civil society. For Canadians, the phrase “Peace, Order, and good Government” has been more than constitutional boilerplate.
Tax systems are complicated and vary from country to country, so comparisons are difficult. Still, some studies suggest that our taxes may be, if anything, on the low side. The most straightforward international comparator is tax revenue as a percentage of gross domestic product, and 2012 data from the Organisation for Economic Co-operation and Development indicates that the Canadian figure—30.7 percent—is below average. Denmark has the highest at 48.0, Chile the lowest at 20.8. The OECD also reports that the tax wedge—the difference between an employer’s labour cost and what an employee actually takes home—is lower in Canada than in all but eight of the thirty-four member nations. Data from 2013 shows that Belgian workers bear the highest tax burden, at 55.8 percent; those in Chile enjoy the lowest, at 7.0. In Canada, the figure is 31.1, slightly better than the US, where it is 31.3.
But even if the Fraser Institute study were correct—even if the average Canadian family does pay close to 42 percent of its income in taxes—the issue, as Lammam argued, is whether we are getting our money’s worth. Instead of obsessing about how much we pay, we should focus on what it buys us. Are governments guilty of waste and inefficiency? Of course. But the more important question is whether they are predominantly so. What matters most is the quality of the services they provide: law and order, public health, education, infrastructure, private sector regulation, and so on. Any country that values the welfare of the many as highly as that of the few will be intent not on producing these public goods for as little as possible, as the tax-cutting crusaders would have it, but on spending as much as it can afford in pursuit of the best possible results. Unfortunately, we are not yet there.
This appeared in the November 2014 issue.