When Canadians went to work on June 6 they were finally working for themselves.
If they had to pay all their taxes up front, they would have to pay each and every dollar they earned from Jan. 1 to June 5 to various levels of government.
Coincidentally, federal Finance Minister Jim Flaherty was also scheduled to deliver the federal budget on Tax Freedom Day.
While the federal March budget provided the Conservative government with good rhetoric heading into a federal election, the truth behind the spin is the budget was anything but a low-tax plan for jobs and growth.
In delivering the plan, Flaherty promised that his government “will keep taxes low.”
However, taxes are hardly low. With the tax return deadline having just past, Canadians were still getting over the shock of just how much income tax they paid last year. But the reality is that income taxes account for only about one-third of the total taxes they pay. Add property taxes, sales taxes, profit taxes, health taxes, social security taxes, alcohol taxes, tobacco taxes, fuel taxes, and many others to the mix and the average Canadian will pay $39,900 in taxes (42.6 per cent of income) in 2011.
The March federal budget actually estimated an increase in total federal tax take from 12.9 per cent of gross domestic product in 2010-11 to 13.4 per cent in 2015-16. While that may seem insignificant at first glance, it translates into an additional $67.1-billion in tax revenue. In all likelihood, that means a later Tax Freedom Day in years to come.
Canadians are also rightfully worried about the substantial $30-billion deficit the federal government expects to run this year and the fact that it has no credible plan to return to a balanced budget.
In the March budget, the Conservatives proposed balancing the budget in five years (by 2015-16). To get there, the government pinned its hopes on revenues growing at a robust average rate of 5.6 per cent over the next five years while holding program spending increases to an average rate of 1.6 per cent.
The same approach failed drastically in the 1980s and early 1990s. Successive federal governments failed to balance the budget by trying to slow the growth in spending while hoping for higher revenues.
And there’s nothing in the current Conservative government’s track record suggesting they are capable of keeping a lid on spending increases. Even before the financial crisis and its massive fiscal stimulus package, the government increased spending at an average rate of 5.5 per cent.
Delays in balancing books will lead to more taxes
Of course, today’s deficits must one day be paid for by taxes, which means the longer the government delays balancing its books, the more likely Tax Freedom Day will fall later in the year.
In fact, if Canadian governments covered current expenditures with current tax revenues, Tax Freedom Day would fall later, on June 22.
Rather than increase the tax take, a true low-tax plan would have aggressively cut government spending to balance the budget and then implemented a multi-year plan to reduce taxes. Waiting years to eliminate the deficit will only burden Canadians with higher government debt, increased interest payments and ultimately higher taxes.
Niels Veldhuis and Charles Lammam are economists with the Fraser Institute. Calculate your personal Tax Freedom Day at www.fraserinstitute.org.
