Canadians finally started working for themselves, rather than their governments, on June 28 of this year, one day later than they did last year.
According to the Fraser Institute’s annual Tax Freedom Day estimate, released on June 21, all income earned by Canadians before June 28 was used to pay the tax bill imposed on them by all levels of government–federal, provincial, and local.
Typically, Tax Freedom Day in Canada falls later in the year than in the United States. In 2004, Americans celebrated Tax Freedom Day more than two months earlier than Canadians, on April 11, according to the Washington, DC-based Tax Foundation.
The Fraser Institute calculates Tax Freedom Day to provide a simple reference point about the impact of the most complex and intrusive activity of government: tax collection. The institute has been researching the tax burden borne by the average family in Canada and in each of the provinces since 1977.
“It is nearly impossible for an ordinary citizen to have a clear idea of how much tax they really pay,” said Niels Veldhuis, senior research economist at the institute. “Tax Freedom Day gives Canadians a true picture of their total tax burden.”
Date Measures Costs, Not Benefits
Tax Freedom Day for the average Canadian family reached farthest into the year in 2000, when it fell on July 2. After a seven-day decline between 2000 and 2001, Tax Freedom Day has been steadily increasing. According to revised Statistics Canada and government financial information, Tax Freedom Day fell on June 25 in 2001, June 26 in 2002, and June 27 in 2003.
“The fact that Tax Freedom Day has been steadily increasing since 2001 and comes only four days earlier than its peak should be cause for concern,” said Veldhuis. “All the talk of tax relief has not resulted in meaningful reductions in the tax burden for Canadian families.”
Veldhuis pointed out that Tax Freedom Day is not intended to measure the benefits Canadians receive from governments in return for their taxes. Instead, it looks at the price Canadians pay for a product: government.
“Tax Freedom Day is not a reflection of the quality of the product, how much of it each of us receives, or whether we get our money’s worth. It’s up to individual Canadians to decide how much value they receive in return for their tax dollars,” Veldhuis noted.
Total Tax Bill Has Increased
The average Canadian family experienced a $1,327 increase in its total tax bill between 2003 and 2004. More than 40 percent of that growth was the result of increases in social security, pension, medical, and hospital taxes. Income taxes were responsible for 34 percent of the increase in Canadians’ total tax bill, while sales taxes represented 12.5 percent of the total increase.
“By providing increased revenues with existing tax rates, economic growth should have paved the way for reductions in both personal and business taxes to ensure lasting competitiveness,” said Velduis. “Unfortunately, the majority of tax revenue gains were dedicated to increases in government spending and not used to reduce tax rates.”
Tax Freedom Varies by Province
Although all Canadians face more or less the same federal tax bill, the Tax Freedom Day for each province varies according to the weight of the provincial tax burden. This year, the earliest provincial Tax Freedom Day fell on June 10 in Prince Edward Island, and the latest date fell on July 3 in British Columbia.
Alberta and British Columbia were the only two provinces where Tax Freedom Day arrived earlier in 2004 than it had in 2003. Tax Freedom Day peaked in 2000 for five provinces: British Columbia, Alberta, Saskatchewan, Manitoba, and Quebec; it peaked in 1999 for Ontario. All four Atlantic Provinces–New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland–experienced new peaks in Tax Freedom Day in 2004.
Alberta showed the largest decline in its Tax Freedom Day from its peak in 2000 to 2004, recording a 20-day improvement. Quebec and Manitoba had the next largest decreases since their peak in 2000, at seven days and six days, respectively. British Columbia (5 days) and Saskatchewan (3 days) also experienced improvements in their Tax Freedom Day from their peak in 2000. Ontario’s Tax Freedom Day in 2004 fell one day earlier than its peak in 1999.
Mark Mullins is director of Ontario policy studies for the Fraser Institute. His email address is [email protected].
For more information …
visit The Fraser Institute’s Web site at http://www.fraserinstitute.ca.