Canada’s Tax Freedom Day was on 5 June

Canadians celebrated Tax Freedom Day on June 5 this year, three days later than 2009, according to the Fraser Institute’s annual Tax Freedom Day calculations.

Tax Freedom Day is a clear and easy-to-understand representation of the amount of tax the average Canadian family must pay to all levels of government. If Canadians were required to pay all of their taxes up front, they would have to pay each and every dollar they earned to governments prior to Tax Freedom Day.

Even though Tax Freedom Day arrives three days later this year than in 2009, it would arrive much later if governments had to cover current expenditures with current taxation instead of deferring the tax burden by running deficits.

“The significant deficits racked up by the federal and provincial governments as they attempted to stimulate the economy must one day be paid for by taxes and should therefore be considered as deferred taxation,” said Niels Veldhuis, Fraser Institute senior economist

“If Canadian governments had increased taxes to balance their budgets rather than run deficits, Tax Freedom Day would fall 25 days later in 2010, on June 30.” Fifteen of the 25 additional days are due to the federal deficit and the remainder to the provincial deficits. The reason Tax Freedom Day falls on June 5 in 2010, three days later than 2009, is primarily the result of Canada’s improving economy as the country emerged from recession.

When the economy recovers and incomes increase, a family’s tax burden tends to increase to a greater extent. That is mainly because household consumption increases, which results in an increase in the amount of sales and other consumption taxes paid by Canadian families.

In 2010, the average Canadian family (with two or more individuals) will earn $92,754 (which includes not just wages and salaries, but interest, dividends, private and government pension payments, old age pension payments, and other transfers from governments) and pay a total of $39,141 in taxes, for a total tax bill amounting to 42.2 per cent of its income.

The total tax bill for the average Canadian family will increase by 3.8 per cent ($1,441) between 2009 and 2010. By comparison, income for the average Canadian family will increase by just 2.0 per cent ($1,816).The largest increase among the myriad of taxes came in the form of income taxes, which increased $634 for the average Canadian family while sales taxes jumped by $378.

“It is nearly impossible for an ordinary citizen to have a clear idea of how much tax they really pay. Tax Freedom Day gives Canadians a true picture of their total tax burden.”

“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.

Source: Niels Veldhuis and Milagros Palacios Canadians Celebrate Tax Freedom Day on June 5, 2010 Fraser Institute, Canada

For text: http://www.fraserinstitute.org/researchandpublications/publications/7345.aspx

First published by the Fraser Institute, Canada

FMF Policy Bulletin/ 08 June 2010