Canada

FUSS: Prices for basic necessities rose but tax bills grew faster

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Due to high inflation, prices for food, housing and other necessities have risen, squeezing household budgets across Canada. But no bill has increased for the average Canadian family more than the tax bill. In fact, taxes represented the single biggest expense for Canadian families in 2021.

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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.

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As noted in a new study published by the Fraser Institute, last year the average Canadian family (including single Canadians) earned $99,030 and paid $42,547 in total taxes — that’s 43 per cent of our income going to taxes.

For context, housing costs (including rent and mortgage payments) for the average Canadian family totaled $20,923 or 21.1 per cent of its income. So the average family spends more than double the amount on taxes than it does on housing. 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 (35.7 per cent of its income) than it paid in taxes.

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But the tax bill for families has not always exceeded the amount spent on basic necessities. In 1961, the average Canadian family spent 56.5 per cent of its total income on shelter, food and clothing compared to 33.5 per cent on taxes. On an inflation-adjusted basis, the total tax bill for families has increased by 181.6 per cent over 60 years. In nominal terms, since 1961 the average Canadian family’s total tax bill has increased by 2,440 per cent, dwarfing increases in annual housing costs (1,751 per cent), food (802 per cent) and clothing (790 per cent).

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Another factor to consider is the recent budget deficits run by Canadian governments. Today’s deficit spending means higher taxes tomorrow, so the tax bill for Canadian families will likely increase in the future rather than decrease.

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So, with 43 per cent 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 — they estimate the cost of government for the average family.

As price increases become a bigger issue for Canadians, being able to make these calculations about annual expenses becomes even more important. The combination of rising prices for goods and a growing tax bill is making life costlier for average Canadian families.

Jake Fuss is the associate director of fiscal studies at the Fraser Institute. This op-ed was co-authored by Evin Ryan, a research intern at the Fraser Institute.

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