Canadians Celebrate Tax Freedom Day on June 30
Contact:
Dr. Michael Walker, Executive Director
The Fraser Institute, (604) 714-4545, Email: michaelw@fraserinstitute.caJoel Emes, Senior Research Economist
The Fraser Institute, (604) 714-4546, Email: joele@fraserinstitute.caRelease Date: 29 June 2000
VANCOUVER,BC>>>Canadians finally start working for themselves on June 30. According to The Fraser Institute's annual Tax Freedom Day calculations, released today, Canadians worked until June 29 to pay the total tax bill imposed on them by all levels of government. This represents a five day improvement over 1999 when Tax Freedom Day fell on July 5.
"It is all but impossible for an ordinary citizen to have a clear idea of the tax demands which are imposed on them by the various taxing efforts of government. Tax Freedom Day provides clarity about the size of the tax burden," says Dr. Michael Walker, Executive Director of The Fraser Institute.
Tax Freedom Day is the day of the year that Canadians finally start working for themselves. All money earned prior to this day goes to one of three levels of government: federal, provincial, or local. The Institute calculates Tax Freedom Day in order to provide a simple, easy reference point about the impact of the most complex and intrusive activity of government - its tax collecting apparatus. The Fraser Institute has been researching the comprehensive tax burden for the average family in Canada and each of the provinces since 1977.
Canadians can calculate their own individual tax burden using the Personal Tax Freedom Day Calculator located on the Institute's web site at www.fraserinstitute.ca.
Canadians' Total Tax Bill
The total tax bill that is added up to compute Tax Freedom Day includes income taxes, property taxes, and sales taxes and also includes; profit taxes, health, social security and employment taxes, import duties, license fees, taxes on the consumption of alcohol and tobacco, natural resource fees, fuel taxes, hospital taxes, and a host of other levies too numerous to mention.
"Although the last few years do show a small respite from the seemingly endless increase in taxation, Tax Freedom Day this year falls 58 days later than it did 39 years ago," says Walker. In 1961, the earliest year for which the calculation has been made, Canadian Tax Freedom Day was May 3. By 1974, it had advanced to June 8.
Provincial Tax Freedom
While all Canadians face more or less the same federal tax structure, Tax Freedom Day for each province varies according to the extent of the provincially levied tax burden (see Table 6). All provinces will experience earlier Tax Freedom Days this year than in 1999.
The earliest 2000 provincial Tax Freedom Day fell on May 30 in Newfoundland, while the latest date is July 8 in Quebec and British Columbia.
The Atlantic provinces historically have the earliest Tax Freedom Days due, in part, to the large share of their total revenue that comes from other provinces through the federal government (Table 9).
Alberta has the fifth earliest Tax Freedom Day at June 19, followed closely by Ontario at June 22, while Manitoba's Tax Freedom Day is June 27. The personal income tax bills for the average Canadian family in all provinces except Manitoba show a drop between 1999 and 2000. Manitoba shows an increase despite recent cuts to provincial tax rates and the impact of federal cuts on provincial revenues because the province expects a strong increase in personal income tax revenue while most other provinces expect less revenue than in 1999.
Tax Freedom Day in Saskatchewan falls on July 6, six days after the Canadian date. All provinces expect to collect more sales tax revenue in 2000 than in 1999. The largest increase is in Saskatchewan where the province expects a large increase in total sales tax revenue over 1999, in part due to a base broadening announced in this year's budget. Saskatchewan's sales tax revenue in 1999 was low compared to the previous five years.
British Columbia shares the latest Tax Freedom Day with Quebec: July 8. BC had relatively weak income growth and a $286 overall tax bill increase; as well, the province has been reluctant to cut taxes significantly and, under its current tax reduction plan, will continue to have the highest top marginal tax rate in North America. British Columbia also continues to spend considerably more than it takes in, which amounts to deferred taxation.
Quebec exerts its tax pressure against families in a much more aggressive fashion than other provinces in spite of the fact that, like the Atlantic provinces, and Manitoba and Saskatchewan, Quebec receives a relatively significant fraction of its revenue from other provinces through the federal government.
"However there may be some hope for Quebec taxpayers as the recently revised Quebec income tax structure features fewer tax brackets and emphasized cuts for all," says Joel Emes, Senior Research Economist at the Institute.
The Good News
The 5 day improvement in this year's national Tax Freedom Day is to some extent a result of more prudent fiscal conduct by the various levels of government as witnessed by the fact that 7 provinces and the federal government expect to have balanced budgets this year.
"Last year we stated that there was good reason to hope that 1998 would be the `high water mark' for Tax Freedom Day in Canada. While this turned out to be too optimistic, there is considerable evidence to suggest that 1999 will be distinguished as the latest Tax Freedom Day in Canadian history," concludes Emes.
Overall, the strong economy is starting to improve Canadian incomes. In 2000, income growth in all provinces boosted the cash income of families more than the tax bill increased, thus diluting the overall tax impact, and leading to earlier Tax Freedom Days than in 1999.
Federal tax brackets and exemptions are once again fully indexed to inflation, something the Fraser Institute suggested before partial indexation was introduced. Many provinces have also announced that they will implement indexation, although some have put it off until as late as 2003. There are more personal and corporate income tax cuts awaiting implementation and even more cuts may come.
Cause for Concern
All the news however is not good. Canada and Quebec Pension Plan contributions will continue to rise through 2003, when they are expected to reach their long-term steady state of 9.9 percent of pensionable earnings. The increase in CPP and QPP contributions between 1999 and 2000 was larger than the decrease in personal income taxes for the average Canadian family.
Fairness in the Tax System
In addition to the size of the average family's tax bill, there are concerns about the fairness of the Canadian tax system. The top 30 percent of income earners pay 65.7 percent of all taxes and earn 58.3 percent of all income (Table 8) while the bottom 30 percent of all income earners pay 4.2 percent of all taxes and earn 9.1 percent of all income.
This distribution shows that the tax system is effectively progressive and does extract proportionately more money from those on the higher end of the income scale.
Methodology
Tax Freedom Days are calculated on the Fraser Institute's Canadian Tax Simulator (CANTASIM). Statistics Canada's Social Policy Simulation Database and Model (SPSD/M)) is an important part of this model for the 1992 through 2000 Tax Freedom Days. The assumptions and calculations underlying the SPSD/M simulation results were prepared by The Fraser Institute and the responsibility for the use and interpretation of these data is entirely that of the authors. Statistics Canada recently undertook a revision of its National Accounts and Provincial Economic Accounts but were only able to provide new data back to 1992; pre-1992 Tax Freedom Days using SPSD/M will be re-calculated when Statistics Canada completes the historical revision.
The 1999 Tax Freedom Day calculations were revised utilizing updated provincial and federal budget numbers, and data from Statistics Canada.
Tables
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
For further information contact:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
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