Canadians Celebrate Tax Freedom Day on June 29
Contacts:
Jason Clemens, Director of Fiscal Studies
The Fraser Institute, Tel: (604) 714-4544
Email: jasonc@fraserinstitute.caJoel Emes, Senior Research Economist
The Fraser Institute, (604) 714-4546
Email: joele@fraserinstitute.ca
Release date: 26 June 2001
VANCOUVER, BC—Canadians finally start working for themselves on June 29. According to The Fraser Institute's annual Tax Freedom Day calculations, announced today. Canadians worked until June 28 to pay the total tax bill imposed on them by all levels of government. This represents a five day improvement over last year when Tax Freedom Day fell on July 4.
On an hourly basis, Canadians work until 12:56 pm each day (based on a 9 to 5 work day) before they start keeping the money they earn.
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.
"It is all but impossible for an ordinary citizen to have a clear idea of the tax demands imposed on them by the various taxing efforts of government. Tax Freedom Day provides Canadians clarity about the size of their tax burden," says Jason Clemens, the Institute's director of fiscal studies.
Canadians can calculate their own individual tax burden using the Institute's Personal Tax Freedom Day Calculator located on the web at www.fraserinstitute.ca.
Tax Freedom Day is not intended to measure the benefits that Canadians receive from governments in return for their taxes. Rather, it looks at the price that is paid for a product – government. It has nothing to say about the quality of the product, how much of it each of us receives, or whether we get our money's worth.
Canadians' Total Tax Bill
The total tax bill that is added up to compute Tax Freedom Day includes income taxes, sales taxes, property taxes, 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.
"While recent Tax Freedom Days show a leveling off of the tax burden and 2001 a break from the ramping up of taxes, it is nevertheless the fact that Tax Freedom Day this year is 57 days later than it was 40 years ago," says Clemens. "In 1961, the earliest year for which the calculation has been made, Canadian Tax Freedom Day was May 3."
Provincial Tax Freedom
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 (Table 1).
Atlantic Canada
The earliest 2001 provincial Tax Freedom Day fell on May 30 in Newfoundland. The Atlantic provinces historically have had 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). The earlier Tax Freedom Days in those provinces, as well as in Manitoba, Saskatchewan, and Quebec, come to some extent at the expense of later celebrations in the 'have' provinces: Ontario, Alberta, and British Columbia.
Alberta
Alberta has the fifth earliest Tax Freedom Day, June 17. Alberta achieved a nine-day decrease in its Tax Freedom Day between 2000 and 2001 driven largely by decreases in natural resource revenue. Exclusive of natural resource revenues, Alberta posts a one day decline and the second lowest Tax Freedom Day in the country.
Ontario
Ontario follows Alberta at June 27. This is a four day reduction from 2000 but still one day later than the province's Tax Freedom Day in 1996. Between 1996 and 2001 provincial and municipal taxes as a portion of average cash income in Ontario have decreased while federal taxes have increased.
BC Moves Ahead
Due to the recent income tax cuts announced by the new Campbell government, British Columbia moves to seventh spot with a Tax Freedom Day of June 29. In recent years, BC and Quebec have vied for the dubious distinction of having the latest Tax Freedom Day.
The decrease in personal income tax for the average British Columbian family is over $900; this is the largest decrease in the country and is the result of both the recent federal and provincial tax cuts.
"BC's six day decline in Tax Freedom Day remains intact even when natural resource revenue is excluded, unlike the other provinces which collect relatively large shares of their revenues from this source," says Clemens.
Manitoba and Saskatchewan
Manitoba and Saskatchewan are next at July 2. Manitoba shows a one day decrease in Tax Freedom Day this year while Saskatchewan shows a six day decrease. "Like Alberta, all but one day of Saskatchewan's decrease is eliminated if we exclude natural resources," says Clemens.
Quebec Falls Last
The latest Tax Freedom Day is July 4 in Quebec. Quebec exerts its tax pressure against families in a more aggressive fashion than other provinces, in spite of the fact it receives a relatively significant fraction of its revenue from other provinces through the federal government. However, Quebec taxpayers have enjoyed some relief as a result of the new Quebec tax structure that features fewer tax brackets and cuts for all taxpayers. Quebec shows a relatively large six day decline in its Tax Freedom Day from 2000.
The Good News
The Institute originally 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, or possibly 2000, will be distinguished as the latest Tax Freedom Day in Canadian history.
There are several reasons to believe this. The federal government and all provincial governments have cut income tax rates in recent years. Federal tax brackets and exemptions are once again fully indexed to inflation. Most of the provinces have either indexed their tax systems or indicated that they will. Several provinces, most notably Alberta and Ontario, have begun to implement corporate income tax cuts.
Cause for Concern
Canada and Quebec Pension Plan contributions will continue to rise through 2003 when they are expected to reach their long-term rate of 9.9 percent of pensionable earnings. The increase in CPP and QPP contributions between 2000 and 2001 offset over 80 percent of 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 65.3 percent of all taxes and earn 58.2 percent of all income (Table 8) while the bottom 30 percent of all income earners pay 4.4 percent of all taxes and earn 9.2 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," says Clemens.
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 2001 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.
The 2000 Tax Freedom Day calculations were revised using updated provincial and federal budget numbers, and data from Statistics Canada.
View the Tables:
- Table 1 - Tax Freedom Days
- Table 2 - Taxes of the Average Family (with two or more individuals), 2001, preliminary estimates
- Table 3 - Taxes of the Average Family (with two or more individuals), 2000, revised estimates
- Table 4 - Difference in the average Family's Tax Bill between 2001 and 2000
- Table 5 - Average Income and Tax for Three Different Types of Families, 2001, preliminary estimates
- Table 6 - Breakdown of the Average Family's Tax Bill by Level of Government, 2001, Preliminary Estimate
- Table 7 - Tax Rates, percent
- Table 8 - The Distribution of Cash Income and Tax Across Deciles, and the Average Tax Rate by Decile, 2001, preliminary estimate
- Table 9 - Tax Freedom Days and Federal Transfers as a Percent of Total Provincial Revenue
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver, with offices in Calgary and Toronto.