Tax burden on Canadians up slightly in last three years but down overall since 2007: report

Posted on March 27, 2013 in Governance Debates – Canada/politics
Mar. 13, 2013. Michael Woods, Postmedia News, Ottawa

The average tax burden on Canadians has increased slightly in the last three years, but is down overall since 2007, according to an upcoming report by the Organization for Economic Co-operation and Development.

The slight increase in tax burden on labour income since 2009 hasn’t offset the reduced burdens many OECD countries, including Canada, put in place in the midst of the economic crisis in a bid to maintain consumption levels.

Canada’s tax burden on single-earner couples with two children at average wage levels increased by 1.2 percentage points from 2009 to 2012, the data show. For the single average worker, there was a 0.2 percentage point increase.

However, that increase is a “very minor” one, the result of an uptick in employer contributions to social security, said Bert Brys, a senior tax economist at the OECD. “It has happened a bit across the board, but that is not a really significant impact.”

The report looks at the tax burden on labour income by calculating a “tax wedge:” the sum of all income tax, employee and employer social security contributions, and payroll tax, minus benefits, as a percentage of labour costs.

The report, called “Taxing Wages,” will be published in May, but the OECD released the data ahead of time.

[ See Chart: Canada’s Lessening Tax Burden < > ]

The data help support the Harper government’s oft-repeated argument that it has reduced the overall tax burden on Canadians.

Since 2007, the year after the Harper government assumed power, the tax burden for Canadian families at all income levels has decreased, the data show.

The largest decrease has been for lower-income families with children. For single parents with two children at 67 per cent of average wage, for example, the tax wedge decreased by about four percentage points from 2007 to 2012.

“Canada has, over the last five or six years, already decreased the tax burden on low incomes a lot, especially families with children,” Brys said.

The tax burden on labour income in Canada is also well below the OECD average for all family types, and even more so for families with children at lower income levels, the data show. The low burden on families with children is mainly the result of generous child benefits, Brys said.

These benefits are typically reduced when income increases. Brys pointed out that a disadvantage of such a system is that there’s less incentive for workers at certain income levels to seek higher pay because not only is extra income taxed more heavily, but benefits are lowered.

“There’s a clear trade-off that governments have to make,” he said. “I’m not saying it’s a problem, but it’s something that government has to keep in mind.”

The tax burden on labour income for Canadians was 30.8 per cent in 2012, compared to the OECD average of 35.6 per cent. Canada was ranked 25th out of the 34 OECD member countries in the category, meaning it has the 10th-lowest tax burden.

Belgium had the highest average tax burden among OECD countries in 2012, at 56 per cent.

As OECD countries seek to make hiring workers cheaper, they are looking more closely at whether to reduce employer social security contributions, Brys said.

“For Canada, that’s not immediately really a concern because of the relatively low overall tax burden,” he said. “In that respect Canada’s got a very nice starting point.”

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