How does the Canadian government spend your tax dollars?

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Find out what the federal government spends the most money on and what you should know ahead of the 2019 federal election

Whether you find yourself moaning about taxes from time to time or just willingly pay your fair share, everyone has to chip in for the federal government to provide the essential public services for our daily lives.

But do you know where exactly your tax dollars go?

As Canada inches closer to the upcoming federal election, Torstar’s Community Brands took a by-the-numbers look at how the federal government has been spending your tax dollars from 2012 to 2018 and what voters should know about before going to the polls.

Bad budget habit?

Like those who struggle to live within their means, it has been a real challenge for the federal government to make both ends meet.

An analysis of six years’ worth of financial statements reveals that the federal government has spent considerably more than it has taken in.

“Whatever the government’s good intention is, unexpected expenses pop up,” said Aaron Wudrick, federal director of the Canadian Taxpayers Federation, a not-for-profit citizens advocacy group.

A preliminary financial report of this fiscal year — from April 1, 2018, to March 31, 2019 — shows the Liberal government is on pace to post a budgetary deficit of about $15 billion, yet another double-digit billion-dollar shortfall in the government’s budget after being $19 billion in the red the previous fiscal year.

That means the Liberals won’t be able to keep a campaign promise made in the 2015 election to balance the federal budget by this year.

Wudrick, who wasn’t surprised by the broken promise, noted there’s been a tendency for the federal government — regardless of the political party — to spend more than was promised during the election.

More often than not, the government can’t stay within their own budget plans, he added.

For example, the Liberals estimated spending at $330.2 billion for 2017-2018 in its 2017 budget, and ended up overshooting by $2.4 billion.

Wudrick’s observation is backed by a new report by the C.D. Howe Institute, which referred to the overspending by senior governments as a “bad budget habit.”

The Toronto-based think tank compared financial statements and federal budgets over the past 18 years, and found Canada’s federal, provincial and territorial governments routinely spend and tax more than projected in their budget.

These senior government have spent a combined total of $91 billion more than they said they would since 2000, the report states.

Consequently, the government is in debt.

The interactive chart below shows, while both the federal revenues and expenses have significantly grown over the years, what the government earned has never seemed to fully catch up with the spending.

See interactive chart:  Federal Spending: An Overview of expenses and revenues, 2012 – 2018   https://www.simcoe.com/news-story/9521663-how-does-the-canadian-government-spend-your-tax-dollars-/

The federal government spent a total of $332.6 billion in the last fiscal year, while collecting $313.6 billion in revenue.

The gap between revenue and expense has been widened by $1.2 billion compared to 2016-17, which is the first full fiscal year since Justin Trudeau took office in November 2015.

But the red ink in the federal government’s budget didn’t start with the Liberal government.

In 2012-13, the first full fiscal year when Stephen Harper started his second term, the Conservative government shelled out $18.9 billion more than its revenue.

“When people are paying their tax dollars, they’re expecting to get things like schools, hospitals, roads. When you run a deficit and you have to pay interest. That’s taking money away from those things,” Wudrick said of the impact of the government deficits.

The federal government pays about $24 billion in debt interest every year, he noted, which is about the same amount of money Canada spends on the entire armed forces annually.

What’s the biggest expense?

Public services and benefits do not come cheap in Canada.

Every year, most of the over $300 billion federal revenue goes back to serving the more than 37 million Canadian residents.

Among all the services from keeping streets safe, to providing programs to kids, to maintaining national parks, the biggest single expense turns out to be elderly benefits, according to the analysis.

In 2017-18, the federal government paid out over $50 billion for senior citizens and residents eligible for Old Age Security (OAS) and Guaranteed Income Supplement and Allowance (GIS).

It accounted for over 15 per cent of the total federal expense, notably higher than the transfers for employment insurance and children benefits — the other two major transfers to persons.

The federal expense also covers transfers to other levels of government, other direct programs, and public debt charges.

See interactive chart: Federal Spending: Where the money goes 2012 – 2018   https://www.simcoe.com/news-story/9521663-how-does-the-canadian-government-spend-your-tax-dollars-/

This interactive pie chart above breaks down the federal spending in eight categories and hover or click anywhere find out how much money was spent. You can use the slider bar to see differences from 2012 to 2018.

At first glance, it looks like the government paid a big chunk of money — nearly 30 per cent of the expense in 2017-18 — for other direct programs. However, these direct programs consist of a number of big ticket-items such as national defence, and more than 100 departments, agencies and Crown corporations.

Many of the federal departments the Department of Citizenship and Immigration, Indigenous Services Canada, and Infrastructure Canada costs billions of dollars each year to operate.

There are also 45 federal Crown corporations in Canada which are funded to varying degrees by the federal government.

These corporations — most common in sectors such as transportation, and utilities and power generation — include Atomic Energy of Canada Limited (AECL), Federal Bridge Corporation Limited and Canadian Air Transport Security Authority.

For instance, AECL alone received $826 million of parliamentary appropriations in 2017-18, according to its 2018 annual report.

In comparison with the spending on the individual programs, transfers to elder benefits still take up the largest proportion of federal spending.

And, it has been increasing over the years.

The federal money spent on children benefits have grown as well but to a lesser extent over the same period.

“People live longer now,” Wudrick said. “These (elderly benefit) programs were built on presumptions of lifespan that are outdated.”

He explained that extended life expectancy was one of the two main reasons that the federal government paid an increasing share of money for the elderly, as the seniors can receive the government benefits for a longer period of time.

The changing population structure is the other reason, Wudrick said.

By 2030, nearly one in four Canadians would be a senior. That number was one in seven back in 2012. Additionally, by 2036, the average life expectancy will rise to 86 years for women and about 83 for men, according to the Action for Seniors report by the federal government.

In short, more people are withdrawing money from the elderly programs while fewer people are contributing, Wudrick said.

“Seniors are also a source of income for the government, not just an expense,” said Amin Mawani, an associate professor at York University, specializing in taxation.

The professor said the senior population does not just add to the government’s financial burden.

“In general, the government also benefits from seniors. For example, when you withdraw your RRSP when you retire, it is taxable … And these seniors have paid taxes their whole lives,” Mawani said.

While admittedly the shift in Canada’s population could pose some new opportunities, Wudrick suggested that a restructure of the elderly programs may be needed in order to respond to the foreseeable financial strains.

See interactive chart: Federal spending: Cost of elderly benefits on the rise, 2012 – 2018    https://www.simcoe.com/news-story/9521663-how-does-the-canadian-government-spend-your-tax-dollars-/

The chart above illustrates how much money was spent on transfers to persons and the distribution of expense among three categories. Hover or click on the bar to see details.

Where does the money comes from?

A good part of federal revenue — and we’re talking billions here — comes from your hard-earned money.

Personal income tax makes up almost half of the federal government’s annual revenue on average, which is the biggest source of revenue for the federal government.

In 2017-18, the federal government collected about $154 billion in personal income, accounting for 49 per cent of the total revenue.

The rest came from corporate income tax, goods and services tax and other revenues, as the pie chart shows below.

See interactive chart: Federal spending: Where the money comes from, 2012 – 2018   https://www.simcoe.com/news-story/9521663-how-does-the-canadian-government-spend-your-tax-dollars-/

The pie chart shows where the federal revenue came from every year from 2012 to 2018. Hover or click anywhere to see the exact amounts. Use the slider bar to see differences over the years.

For as much as ordinary Canadians contribute to the government revenue, how do the tax rates here compare with the rest of the world?

That depends on who you ask or how you perceive taxation.

“Somewhere in between” is Wudrick’s response.

Generally speaking, taxpayers in Canada with a higher income pay a higher tax rate than those with a lower income.

There are five brackets in the federal income tax system where the lowest rate, 15 per cent, is imposed on the individuals who make $47,630 or less, according to the 2019 federal tax.

The highest rate, 33 per cent, is applied on taxable income over $210,371.

“There is no straight answer,” Mawani said, noting individuals also have to pay provincial income taxes which vary from province to province.

It’s not fair to merely compare taxes without factoring in the benefits that the Canadian government provides that many other governments don’t, such as universal health care and senior benefits, he added.

No matter whether you’re happy with your taxes or not, some changes may be expected as party leaders are currently busy honing their platforms to woo voters ahead of the fall’s election.

“Elections are dangerous time for taxpayers because the politicians will promise to spend, and the danger is they don’t explain how they’re going to pay for it,” Wudrick said.

Those promises that require extra revenue would often lead to debt, which means future taxes or cuts in services for Canadians.

A good question for the candidates, Wudrick suggested, would be: “how are you going to pay?”

https://www.simcoe.com/news-story/9521663-how-does-the-canadian-government-spend-your-tax-dollars-/

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This entry was posted on Thursday, August 22nd, 2019 at 10:26 am and is filed under Equality Debates. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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