Social Policy in Ontario

Canadians giveth, the taxman taketh away

Posted on August 24, 2016 in Governance History

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NationalPost.com – Full Comment
August 24, 2016.   John Robson

If Canada is not a high-tax country, why does the average family pay more in taxes than on food, clothing and shelter combined?

The Fraser Institute, which released these figures in its latest study on the subject, has been tracking the tax bill for years. Whereas in 1961, a typical family spent 56.5 per cent of its income on necessities and 33.5 per cent on taxes, today the figures are 37.6 per cent and 42.4 per cent respectively.

It should come as no surprise that necessities require less of our income today than half a century ago. The economy has grown dramatically in that time. And while the benefits of this growth have been uneven, it is nevertheless clear that, once the bills are paid, the average person has more left over than he or she used to.

The study notes that the cost of food has risen 645 per cent. A six-fold increase may seem like a lot, but much of the increase is the result of inflation, which, measured by the Consumer Price Index, has risen 706 per cent since 1961. So the apparent increase in the food bill is actually a decrease: since the average family’s income has risen, according to the Fraser study, by 1,612 per cent since 1961, the share of its budget spent on food has fallen by nearly half.

That’s how increased prosperity is meant to work: as we get better at making a house, a shirt or a meal, we need to work fewer hours to get a decent one. And without ignoring the fact that hunger remains a reality for some even today, Canadians get more food for less effort now than they did in 1961.

The same is true of clothing. We pay a little more in real terms, but we spend a lot less of what we earn, working many fewer hours to afford a wardrobe that in many respects is an improvement on what our parents could have bought.

Shelter is a bit different. Canadians today spend 1,425 per cent more on putting a roof over their head, just over 14 times the 1961 figure, twice as much in real terms and about the same share of their income. But homes are bigger and more comfortable, whatever one thinks of architectural trends. Overall, we spend just over a third of our income on food, clothing and shelter, instead of more than half.

That brings us to the shocker. Taxes, and taxes alone, take more of our income than they used to. Canadians’ taxes, including business taxes hidden in the price of goods and services, have increased almost 2,000 per cent, nearly three times the rate of inflation. From a third of our income in 1961, all taxes combined now take more than 40 per cent.

Why? Before the advent of the welfare state, it was believed that government should stick to a few duties citizens could not perform as individuals, like national defence, policing and infrastructure construction. But the list of things Canadians were presumed unable to do for themselves, or do well, has expanded on many fronts, from health care to charity. And so the state has expanded dramatically as it takes on added tasks.

That’s where the irony lies. Given our enormous increase in wealth, we should need less state help than we once did, especially relative to our incomes. Yet the cost of government is growing at a rapid clip, faster than we can keep up. Even at 42 per cent of our income, governments at the federal and provincial level continue to borrow heavily to pay the bills. The justification for big government is often the claim that people are having trouble making ends meet, a refrain voiced frequently by Prime Minister Justin Trudeau during last year’s federal election. Yet the reality for many people is big government itself. If the state took only the same share of our income it did in 1961, the typical total tax bill would drop by a quarter.

Surely these numbers indicate that there is something wrong with a public sector that grows faster than the population can afford. Canadians need to take a hard look at what we expect of the government and how it performs. Or eventually its take will pass 50 per cent, and we will all find ourselves working for the government, but without the perks.

< http://news.nationalpost.com/full-comment/john-robson-canadians-giveth-the-taxman-taketh-away >

Tags: budget, economy, featured, ideology, standard of living, tax

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