July 2000 Fraser Forum: July Questions & Answers & July Graph
Q: How does Canada's "tax mix" differ from the larger industrialized countries, particularly the United States?
A: Both Canada and the United States rely heavily on property taxes, and income and profit taxes relative to the OECD average (see table 1). Canada has a low reliance on social security taxes relative to the US and the OECD average, although this differential will probably shrink as Canada Pension Plan deductions increase to 9.9 percent of pensionable earnings in 2003 from the 1997 level of 6.0 percent. Goods and services taxes as a percentage of the total is lower in Canada than the OECD average, but considerably higher than in the US. Part of the difference in this category is explained by the fact that only states levy sales taxes. Canada has federal (GST or HST) and provincial (PST or HST) sales taxes.
| Income & Profits Tax | Social Security Tax | Payroll Tax | Property Tax | General Goods & Services Tax | Other | |
|---|---|---|---|---|---|---|
| Australia | 56.6 | 0.0 | 6.7 | 9.2 | 27.5 | 0.0 |
| Canada | 49.0 | 13.4 | 2.1 | 10.0 | 24.4 | 1.1 |
| France | 19.9 | 40.6 | 2.4 | 5.4 | 27.8 | 3.8 |
| Germany | 27.9 | 41.6 | 0.0 | 2.7 | 27.7 | 0.0 |
| Italy | 35.4 | 33.5 | 0.1 | 5.1 | 25.9 | 0.0 |
| Japan | 35.5 | 36.9 | 0.0 | 10.8 | 16.5 | 0.2 |
| Korea | 27.8 | 8.8 | 0.3 | 13.5 | 45.4 | 4.2 |
| Mexico | 26.9 | 16.1 | 0.0 | 0.0 | 55.3 | 1.7 |
| Netherlands | 26.0 | 40.9 | 0.0 | 4.6 | 28.0 | 0.4 |
| Spain | 29.9 | 35.0 | 0.0 | 5.8 | 28.9 | 0.3 |
| Switzerland | 37.1 | 36.9 | 0.0 | 7.7 | 18.3 | 0.0 |
| US | 48.4 | 24.2 | 0.0 | 10.7 | 16.7 | 0.0 |
| UK | 36.9 | 17.2 | 0.0 | 10.8 | 35.0 | 0.0 |
| OECD average | 35.6 | 24.9 | 0.9 | 5.5 | 32.1 | 1.2 |
| Source: OECD, Revenue Statistics, 1999 edition. | ||||||
Q: How has Canada's tax mix changed over the last 30 years?
A: Table 2 and the July Graph show how the structure of Canadian tax revenue collection has changed between 1965 and 1997. Social security taxes as a percentage of the total tax take have increased by 139 percent between 1965 and 1997. The Canada Pension Plan contribution rate increase mentioned above will be fully implemented in 2003, likely adding to this growth. Although the share of tax revenue collected as property taxes and general goods and services taxes have fallen between 1965 and 1997, this does not mean that these types of taxes are collecting less revenue. It simply means that property taxes and general goods and services taxes are responsible for a smaller portion of the total tax take than in 1965.
| Income & Profits Tax | Social Security Tax | Payroll Tax* | Property Tax | General Goods & Services Tax | Other Taxes | |
|---|---|---|---|---|---|---|
| 1965 | 38.6 | 5.6 | 0.0 | 14.3 | 40.5 | 1.0 |
| 1970 | 44.6 | 9.7 | 0.0 | 12.8 | 31.7 | 1.2 |
| 1975 | 47.2 | 10.0 | 0.0 | 9.5 | 32.0 | 1.3 |
| 1980 | 46.6 | 10.5 | 0.0 | 9.1 | 32.6 | 1.2 |
| 1985 | 44.1 | 13.5 | 0.0 | 9.3 | 31.8 | 1.3 |
| 1990 | 48.1 | 12.1 | 2.2 | 9.6 | 26.7 | 1.3 |
| 1994 | 44.9 | 14.7 | 2.2 | 10.9 | 26.0 | 1.3 |
| 1995 | 46.5 | 14.1 | 2.3 | 10.5 | 25.3 | 1.3 |
| 1996 | 47.2 | 14.1 | 2.2 | 10.3 | 24.9 | 1.3 |
| 1997 | 49.0 | 13.4 | 2.1 | 10.0 | 24.4 | 1.1 |
| Percentage change, 1965-1997 | 26.9 | 139.3 | n/a | (30.1) | (39.8) | 10.0 |
| *Included under Social Security prior to 1990. Source: OECD, Revenue Statistics, 1999 edition; calculations by the author. | ||||||
July Graph
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