By Allan Lanthier

Do you think your taxes are too high? Well, join the club: the Fraser Institute says that nearly three-quarters of Canadians feel the same.

In addition to income tax, we pay sales taxes, property taxes and payroll taxes (such as levies for the Canada Pension Plan and Employment Insurance). Then we have invisible taxes that we pay but don’t see — “sin” taxes on liquor and tobacco, custom duties and import levies, plus carbon taxes that add to the cost of products we buy, including groceries.  The Fraser Institute estimates the average family paid 45.2 per cent of its earnings in taxes and levies in 2022.

But here’s the head-scratcher. Our total taxes are not particularly high by international standards. The Organisation for Economic Co-operation and Development (OECD) reports that in 2021 Canada’s tax-to-GDP ratio was only 33.2 per cent, less than the OECD average of 34.1 per cent. Canada ranked 24th out of 38 OECD countries in terms of tax-to-GDP. Denmark had the highest ratio at 46.9 per cent, while Mexico brought up the rear at 16.7 per cent.

Canada’s personal income tax rates are out of whack

So why are we all so disgruntled? Two reasons. Canada’s personal income tax rates are out of whack. And many of us feel governments are not giving us enough value in return for the taxes and levies we pay.

Canada places greater reliance on personal income tax than other developed countries do. In 2020, 37 per cent of Canada’s taxes and levies came from personal income tax: the OECD average was only 24 per cent. And our tax rates are high. In Ontario for example, the combined federal-provincial rate is 53.5 per cent on annual income above $235,000: only four OECD member-countries have rates higher than that (with Japan and Denmark topping the list at 55.9 per cent).

Our rates are high at other income levels as well. Ontario residents with annual income of $150,000 pay 45 per cent on each additional dollar of earnings. They are part of the “top 10 per cent” of income earners: you know, the group that seldom pays its “fair share” of taxes. Except that Statistics Canada says the top 10 per cent pay 53 per cent of all personal income taxes in Canada, which sounds more than fair to me: one in 10 Canadians pays more than half the personal income taxes.

We need to get personal tax rates down, and at all income levels. This would give Canadians a bit more breathing room. But how do we replace these government revenues? The most sensible alternative would be to increase the rate of GST at the same time, as part of a revenue-neutral package.

Moving the GST back to the seven per cent it originally was would raise about $20 billion a year. More important, economists say that shifting from income taxes to the GST encourages savings, investment and economic growth. And the rate increase would bring Canada more in line with other OECD countries: Canada raises only 22 per cent of its tax receipts from sales taxes versus an OECD average of 32 per cent.

There is a second reason why we are disgruntled: many of us feel we are not getting sufficient value from government spending programs.

In a report issued earlier this month, the Parliamentary Budget Officer (PBO) estimated that federal program expenses and public debt charges will be $498 billion for fiscal 2023-2024, $7.6 billion more than the government estimated in its budget less than seven months ago. The PBO estimates a deficit of $46.5 billion for this year, $6.4 billion more than the government projected.

Many of us wonder how much of the $498 billion in spending will help us cope from paycheque to paycheque. To take just one example, the electric vehicle battery subsidies of $28.2 billion announced by the federal and Ontario governments earlier this year for Stellantis-LGES and Volkswagen won’t help the average Canadian anytime soon: the PBO says it will take 20 years for governments to break even. Ottawa on its own faces even more fiscal headwinds: for example, its commitment to NATO earlier this year to increase defence spending to two per cent of GDP would add an estimated $20 billion a year to our annual deficit. Is the government concerned about its spending levels?

It seems not. To placate the NDP, it has promised to table legislation this fall for a universal national pharmacare program. At what cost? The PBO estimates the cost will be $11.2 billion in the first year, with no commitment the provinces would share in any of this cost.

Are we being taxed to death? No. But we need lower tax rates and a more balanced mix between personal income tax and GST. And government spending needs to be reined in.

Allan Lanthier, retired partner of an international accounting firm, has been an advisor to both the Department of Finance and the Canada Revenue Agency.