Tax Freedom Day '98: 27 June
Canadian taxpayers celebrate three days earlier than last year
Contact:
Michael Walker, Executive Director
The Fraser Institute, (604) 714-4545, Email: michaelw@fraserinstitute.caJoel Emes, Research Economist
The Fraser Institute, (604) 714-4546, Email: joele@fraserinstitute.caRelease Date: 26 June 1998
Vancouver, BC >>> Canadians will work until June 26 this year to pay the total tax bill imposed by all levels of government, according to calculations released today by the Fraser Institute. Tax Freedom Day is therefore June 27. This represents a three day improvement over 1997 when Tax Freedom Day fell on June 30.
The Fraser Institute has been researching the comprehensive tax burden for the average family in Canada and each of the provinces since 1977. The most widely recognized output of this research is Tax Freedom Day, the day of the year when Canadians finally start working for themselves. All money earned prior to this day is required to pay the taxes imposed by the three levels of government -- federal, provincial, and local.
"While 1998 has provided a respite from the unrelenting ramping up of taxes, and cause for celebration because of it, it is nevertheless the case that Tax Freedom Day in 1998 is 55 days later than it was 37 years ago," said Fraser Institute Executive Director Michael Walker. In 1961, Tax Freedom Day was 3 May. By 1974 it had advanced to 8 June, and in 1998 Tax Freedom Day will fall on 27 June.
The 1998 decline in the tax burden is, to some extent, a result of more prudent fiscal conduct by the various levels of government. It is also a reflection of a rebounding economy. Strong income growth in all provinces except British Columbia has boosted the cash income of families, thus diluting the tax impact.
Also, the Tax Freedom Day decline may be partly the result of conservative revenue budgeting. Provincial and federal budget forecasts of tax revenues are one of the key inputs of the Tax Freedom Day model. Many provinces and the federal government use prudent assumptions when forming these estimates, and it is common for tax collections to exceed expectations. If these revenues do end up higher than currently projected, the drop in Tax Freedom Day could shrink when the 1998 preliminary estimates are revised.
Table 6 shows Tax Freedom Days for Canada and each of the provinces for 1981, 1985, 1992, 1997, and 1998. Several provinces have cut their income tax rates and the federal government recently announced increased earnings exemptions and reduced surtaxes for many taxpayers. With the exception of those in Ontario, however, the effect of these rate cuts are small. In the case of British Columbia, they are nonexistent, since announced cuts won't take effect until 1999.
While all Canadians face more or less the same federal tax bill, Tax Freedom Day for each province varies according to the extent of the provincially levied tax burden. The earliest 1998 provincial Tax Freedom Day fell on May 24 in Newfoundland. The latest date is July 6 in Quebec.
The Maritimes historically have the earliest Tax Freedom Days due to the large share of their total revenue that comes from other provinces through the federal government. To some extent earlier Tax Freedom Days in those provinces, as well as in the prairie provinces, come at the expense of later celebrations in the contributory provinces: Alberta, Ontario and British Columbia. Table 9 ranks the provinces by their Tax Freedom Day and by the percent of their total revenue that comes from the federal government. The Maritime provinces top both rankings.
Alberta has the fourth earliest Tax Freedom Day for 1998 thanks to a ten day decline from 1997. Forty percent of the decline is due to lower natural resource revenues, due in part to the decline in the price of oil. (Natural resource taxes are regarded as one of the taxes citizens pay, since the resources belong to the people and if the government takes the revenue at the source it is equivalent to a 100 percent tax on the oil royalty income.)
Manitoba ranks sixth with a decline of one day from 1997. Manitoba's tax burden has historically been lighter than all but the Maritime provinces. Like the Maritimes, Manitoba draws a significant fraction of its revenues from the federal government.
Ontario, in seventh position, is the only province that had an outright decline in the personal income tax bill of the average family (see Table 3).
British Columbia, which ranked eighth, is the only province that does not show an increase in cash income between 1997 and 1998. The one day improvement in Tax Freedom Day in that province is due entirely to the collapse of forestry and mining revenues. When natural resources are not counted, its one day decline vanishes.
Saskatchewan comes in at second to last for 1998 and is the only province that has an increase in its Tax Freedom Day from 1997. The increase is the result of the income mix in the province in 1997 and happened in spite of provincial tax reductions. In 1996, net farm income was $1,166 million; in 1997 it was -$98 million. The unusual drop in farm income in 1997 put many families into lower tax brackets and produced an earlier Tax Freedom Day in 1997. The later date for 1998 is a return to a more normal situation for the province.
As usual, the latest Tax Freedom Day is in Quebec, as that province exerts its tax pressure against families much more aggressively than other provinces, in spite of the significant fraction of revenue it receives from other provinces via the federal government.
In response to concerns about the fairness of the Canadian tax system, the Fraser Institute also reports how the tax burden is spread across the population. Table 8 shows that the top 30 percent of income earners pay 63.9 percent of all taxes and earn 56 percent of all income. The bottom 30 percent of income earners pay 5.2 percent of all taxes and earn 10.2 percent of all income. This distribution shows that the tax system is effectively progressive and extracts proportionately more money from those on the higher end of the income scale.
Model Changes
The model used to calculate Tax Freedom Day has undergone several improvements since last year. The microdata file which provides the tax and income information on families and individuals now comes from Statistics Canada's Social Policy Simulator Database and Model (SPSD/M). The SPSD/M uses the information from the Survey of Consumer Finances -- the previous microdata source -- augmented by Revenue Canada tax data. Some of the improvements to the model include: increased detail on personal income and payroll taxes, increased coverage of investment income, and a correction for under-representation of those earning over $110,000 per year.
Tax Freedom Days have been calculated on the new model for 1992 through 1998. Statistics Canada recently undertook a revision of its National Accounts and Provincial Economic Accounts, which only provides new data back to 1992. Pre-1992 Tax Freedom Days will be re-calculated when Statistics Canada completes the historical revision.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
For further information:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca
info@fraserinstitute.ca
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