One Comment About Taxation – How Much Does the Average Canadian Family Pay in Taxes vs the Necessities of Life

 

Last week, The Fraser Institute released its 2024 edition of its publication Taxes versus the Necessities of Life: The Canadian Consumer Tax Index, which tracks the total tax bill of the average Canadian family from 1961 to 2023. It’s a fascinating read to see how much the average Canadian pays in taxes – not just income tax, but other taxes like property taxes, GST, carbon taxes, and indirect taxes as well.

 

Yes, some loud voices on social media – especially some left of centre economists and partisans – scream loudly that this Report is flawed mainly because, from what I can tell, such people don’t believe that indirect taxes – like corporate taxes – should be included in the analysis (and also that they simply don’t like the Institute for continuously calling out fiscal irresponsibleness) but I actually think it is well done and executed since any taxes, even those borne indirectly, add to a person’s cost of living.  At a minimum, it is good food for thought. 

 

Some highlights from the Report:

• “In 2023, the average Canadian family earned an income of $109,235 and paid in total taxes equaling $46,988…”
• “In other words, the average Canadian family spent 43.0 per cent of its income on taxes compared to 35.6 per cent on basic necessities.”
• “This is a dramatic shift since 1961 when the average Canadian family spent much less of its income on taxes (33.5 per cent) than the basic necessities (56.5 per cent). Taxes have grown much more rapidly than any other single expenditure for the average Canadian family.”
• “…since 1961, the average Canadian family’s total tax bill has increased nominally by 2,705 per cent, dwarfing increases in annual housing costs (2,006 per cent), clothing (478 per cent) and food (901 per cent).”

 

Absorb those statistics for even 30 seconds.  The fact that the average Canadian family now pays – and has for a while – more in taxes than the necessities of life is mind-boggling.  When I speak on this subject at lectures or conferences, I often test the audience to see if they know what the average Canadian family pays in taxes compared to the basic necessities of life.  The guesses I get are usually way off.  When the actual right answer is given, there are often surprised looks and some audible gasps.  However, when the logic is explained in more detail, the audience mostly understands.  

 

The simple fact is that the average Canadian family has less disposable income in their pockets than ever and increased overall taxes is a big reason for this. This leaves less money for savings, entertainment, travel, better living arrangements, etc.  

 

The spillover effect of this is damaging.  For example, with less or minimal disposable income in a person’s hands, they may not be able to purchase a home for quite some time if ever.  While the root cause of Canada’s current housing shortage is mostly self-inflicted given very poor federal immigration policies (we’re taking in far more immigrants than we’re able to house), less disposable income for Canadians is also a contributing factor especially with increased prices (since demand exceeds supply).

 

In my view, policy makers need to pay close attention to studies and tracking like that of the recent Report.  It’s time to return to the 1960s to 1980s, where, rightfully, Canadians spent more on the necessities of life than to support bloated governments.  However, it would be a monumental effort to get back to that scenario.

 

It starts with significantly reduced government spending.  The cuts should be swift, deep and big enough so as to enable the federal government to bring down personal income tax rates across the board to a more reasonable and competitive level.  This should all be part of a significant re-think on our current personal, business and sales tax regimes.  And we should be bold in our thinking. 

 

Overall, Canadians need to genuinely reflect on whether or not they are getting good value for the taxes that are paid by them.  Yes, I understand that taxes are a price to be paid for a stable country that provides critical infrastructure and support for its most vulnerable citizens, but there are limits.  To illustrate, another recent Fraser Institute poll on this subject found that 74% of Canadians surveyed feel that the average family is being over-taxed by the federal, provincial, and local governments.

 

I concur. For example, the population of the federal public service in 2015 was 257,034 people.  As of March 31, 2024, it has grown to 367,772.  That’s an increase of 110,738 in 9 years or a 43.1% increase which is far above the 15.2% increase in the overall population of Canada during that time period.  That’s incredible. 

 

Taking this analysis a bit further, the Canada Revenue Agency’s headcount during 2015 was 40,059 people.  For 2024, it’s 59,155 or a 47.6% increase.  That is a stunning increase. The CRA has an important job to do in administering Canada’s tax legislation.  However, have Canadians received good value for such a dramatic increase in the CRA headcount?  My opinion is an emphatic “no”.  I say this because of my experiences in long telephone wait times to discuss routine matters, numerous and lengthy delays in processing objections, delays in the processing of routine credits like foreign tax credits, audits for matters that are wholly ridiculous, frustrating incompetence of many new hires, etc. 

 

Former U.S. President Ronald Reagan once famously said: “The government’s view of the economy can be summed up in a few short phrases.  If it moves, tax it. If it keeps moving, regulate it.  And if it stops moving it, subsidize it”.  

 

There’s a lot of wisdom in that quote.  

 

Canada, it’s well past time to demand more value for our taxation dollars.  

 

One Comment About Leadership – Titles Don’t Make You a Leader

 

So you just got promoted and now you have a different title.  Well, congratulations, I guess.  But does the new title make you a good leader?  Or require people to think that you are now their leader?  

 

Absolutely not.  

 

Especially in the professions, like law and accounting, I find this a very common issue.  For example, an accountant in public practice has gotten promoted to “senior manager” or to the highest level of “partner”.  Again, congratulations since such a promotion is usually the result of hard work, good technical skills and in some cases good business development skills.  But by no means does that mean that person is now a leader.  

 

Being a leader, as I’ve written and spoken about a lot, requires the honing of a tremendous amount of skills and takes a lifetime of practice.  I have seen this in my career a lot.  

 

One obvious case I can easily recall is a person that got promoted in our firm to partner.  The person was a tremendous talent technically and had some good business development skills.  However, this particular person was crass, didn’t like working with teammates and had a particular knack for alienating such people.  

 

When I confronted the new partner on some of his challenges, I suggested that he take some basic leadership training.  “Leadership training??!!” the person said incredulously.  “My new partner title says I’m a leader and people should respect that!”

I was floored.  After much discussion, the new partner finally seemed to understand that being a leader has nothing to do with your title.  

 

If you’re like the new partner – or you know someone like that – do yourself a favor (or the other person a favor) and ensure you – or the other person – gets good and basic leadership training to match the title.  You’ll be a much better person and leader for doing that. And less arrogant too.  

 

One Comment About Economics: How Much Tax Revenue Will The Capital Gains Inclusion Rate Raise in Extra Tax?

 

On August 1, 2024, the Canadian Parliamentary Budget Officer (“PBO”) released a report on how much it estimates the increase in the capital gains inclusion rate from 50% to 2/3’s will raise in extra taxation revenue.  To virtually no one’s surprise, the PBO doesn’t agree with the Federal Budget estimates of how much the capital gains tax increase will bring in. 

 

From the Report:

“PBO’s analysis accounted for a behavioural response due to the introduction of the increased inclusion rate. A change in the timing of realizations was made to account for the 10-week window taxpayers had to realize capital gains that would still be subject to the 50% inclusion rate. Considering the limited timeframe for tax planning strategies and the illiquidity of several types of asset holdings, the PBO estimated in 2024 a 15% increase in capital gains realizations for corporations and a 10% increase in capital gains realizations for individuals and trusts. Most of the increased realizations in 2024 were assumed to come from assets that would otherwise have been disposed of in the following year and a smaller portion coming from later years. The realizations in those following years were adjusted downward accordingly. It was assumed that corporations would see a more significant increase in realized capital gains before June 25, because all their capital gains will be subject to the higher inclusion rate after that date. In contrast, individuals have more options to mitigate the impact of the higher inclusion rate over the long term, as only the portion of capital gains exceeding $250,000 in a year is subject to that higher rate….

 

Budget 2024 was tabled on April 16, 2024, which provided taxpayers with approximately 10 weeks to tax plan before the change in the inclusion rate would apply on June 25, 2024. Certain assets are not easily liquidated such as real estate, unvested stock options or shares in private corporations. We assumed an increased realization of 15% for corporations and 10% for individuals given an analysis of the breakdown of types of assets held by taxpayers. However, these assumptions involve significant uncertainty due to the absence of draft legislation (which was only introduced on June 10, 2024), the limited time available for taxpayers to plan and the context of a minority government which introduces a level of uncertainty regarding the adoption of these legislative changes.”

 

Yep, the PBO’s estimates seem more reasonable than the Federal Budget estimates.  What’s interesting to me is that the Federal Budget estimated $6.9 billion of extra tax revenue for 2024-2025 while the PBO is estimating only $5.0 billion.  

 

I’m guessing the PBO is correct for the reasons as outlined above.  There was too much uncertainty to properly plan in too short of a time-frame.  

 

Overall, the capital gains inclusion rate increase is a very poor policy.

 

Bonus Comment – Quote From Simon Sinek – American Author, Speaker and Leadership Guru – About Titles and Leadership

  

“A leader without a title is better than a title without the ability to lead.”

 

Absolutely agree! 

 

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