As the pandemic continues to hamper the economy, many Canadian families are struggling to keep up with monthly expenses including rent or mortgage. However, there’s another major expense that significantly adds to the financial burden of families. Indeed, the average Canadian family spends more money on taxes than any other single expense.
To understand the extent of our tax burden, beyond the income and payroll deductions on our paycheques, we must consider all taxes — both visible and hidden — we pay throughout the year to federal, provincial and municipal governments including property taxes, sales taxes, alcohol taxes, import taxes and many more. Together, these taxes comprise our total tax bill.
As noted in a new Fraser Institute study, last year the average Canadian family (including single Canadians) earned $91,535 and paid $38,963 in total taxes — that’s 42.6% of our income going to taxes.
To put this in perspective, housing costs (including rent and mortgage payments) for the average Canadian family totalled $19,685 or 21.5% of its income. Consequently, the average family spends nearly twice the amount on taxes than on housing.
Moreover, even if we add expenses for food and clothing on top of housing costs, the average family spent significantly less on those three basic necessities last year (36.2% of its income) than what it paid in taxes.
Some Canadians, especially younger Canadians, may think it’s always been this way. But the tax burden has evolved over time. For instance, in 1961, the earliest year of comparable data, the average Canadian family spent much less on taxes (33.5%) than on food, clothing and housing combined (56.5%).
In fact, since 1961, the average Canadian family’s total tax bill increased nominally by 2,226%, dwarfing increases in annual housing costs (1,641%), clothing (793%) and food (663%). Even after accounting for inflation, our tax bill has still increased 168.5% over this period.
So, with 42.6% of income now going to taxes, Canadian families are right to wonder whether they get good value for their tax dollars. Of course, taxes fund important government services, but we shouldn’t simply assume that higher taxes always provide better government services.
While it’s ultimately up to individual Canadians and their families to decide if they’re getting the best bang for their buck, you must know how much you pay in total taxes to make an informed assessment.
That’s where these calculations help. Essentially, they estimate the cost of government for the average family. Using this knowledge, Canadians can then determine whether or not they’re getting good value in return.
When Canadians understand the true cost of government, they are better equipped to hold government accountable for how it spends our tax dollars. As it stands today, the total tax bill is the largest single expense for the average family, eating up more income than housing, food and clothing combined.
Jake Fuss and Milagros Palacios are economists at the Fraser Institute.