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The Fraser Institute/Media Release: Canadians Celebrate Tax Freedom Day on June 26th

Friday, June 24, 2005

VANCOUVER, British Columbia--(CCNMatthews - June 24, 2005) - This year, Canadians start working for themselves on June 26th. According to The Fraser Institute's annual Tax Freedom Day calculations, Canadians worked until June 25th to pay the total tax bill imposed on them by all levels of government.

While the tax rate (total taxes as a percentage of cash income) that the average Canadian family faces is unchanged from last year, Tax Freedom Day falls one day later as a result of the leap year in 2004.

Since 2001, Tax Freedom Day for the average Canadian family has steadily advanced. Tax Freedom Day fell on June 19 in 2001, June 23 in 2002, June 24 in 2003, and June 25 in 2004. This year, Tax Freedom Day falls on the same day as it did in 2000, the latest Tax Freedom Day in Canadian history.

In addition, six provinces are now at their latest Tax Freedom Days ever. Since this group includes the most populous provinces of Ontario and Quebec, many Canadians are paying the highest taxes in their history.

The Fraser Institute calculates Tax Freedom Day to provide a simple reference point about the impact of government tax collection. The Institute has been researching the comprehensive tax burden for the average family in Canada, and each of the provinces, since 1977.

"It is nearly impossible for an ordinary citizen to have a clear idea of how much tax they really pay. Tax Freedom Day gives Canadians a true picture of their total tax burden," said Niels Veldhuis, senior research economist at the Institute.

Veldhuis points out that Tax Freedom Day is not intended to measure the benefits Canadians receive from governments in return for their taxes. Rather, it looks at the price that we pay for a product: government. "Tax Freedom Day is not a reflection of the quality of the product, how much of it each of us receives, or whether we get our money's worth. It's up to individual Canadians to decide how much value they receive in return for their tax dollars," he noted.

Tax Freedom Day calculations include all taxes levied on Canadians such as income taxes, property taxes, and sales taxes, as well as profit taxes, health, social security and employment taxes, import duties, license fees, taxes on the consumption of alcohol and tobacco ('sin' taxes), natural resource fees, fuel taxes, hospital taxes, and a host of other levies.

Canadians can calculate their personal tax bill using the Institute's Personal Tax Freedom Day Calculator, available at www.fraserinstitute.ca/shared/taxcalc.asp.

Our Total Tax Bill Has Increased

The average Canadian family experienced a $1,194 increase in their total tax bill between 2004 and 2005 (table 4). Nearly 50 percent of the increase in the average tax bill was a result of increases in personal income taxes, a direct result of increased economic growth.

Another area of concern is the increase in social security, pension and medical taxes (19.2 percent of the increase in the total tax bill) and sales tax (16.7 percent of the increase in the total tax bill) paid by average Canadians in 2005.

"A growing economy should have paved the way for reductions in both personal and corporate income taxes to ensure lasting competitiveness. Unfortunately, the majority of tax revenue gains were dedicated to increases in government spending," commented Veldhuis.

The only specific tax category that decreased from 2004 to 2005 for the average Canadian family was natural resources levies.

In past years, analysts at the Institute indicated that perhaps 2000 would stand on record as the latest Tax Freedom Day. There was good reason for this optimism, including some important tax relief from the federal government and many provincial governments. However, based on current budgets tabled by the federal and provincial governments, this prediction has turned out to be too optimistic.

"The rising costs of Canada's health care and retirement systems, coupled with failure of Canadian governments to properly address these issues, could well lead to increased future tax burdens and later Tax Freedom Days," said Veldhuis.

Tax Freedom Day by Province

While all Canadians face more or less the same federal tax bill, Tax Freedom Day for each province varies according to the extent of the provincially levied tax burden (table 1). This year, the earliest provincial Tax Freedom Day fell on June 13 in Alberta, while the latest date fell on July 7 in Quebec.

Only four of the 10 Canadian provinces, Newfoundland, Saskatchewan, Alberta, and British Columbia, experienced a decrease in their Tax Freedom Day between 2004 and 2005, which means that most citizens are working more for the government and less for themselves and their families this year. Earlier Tax Freedom Days in Alberta and Saskatchewan were, however, almost entirely due to a decline in natural resource levies.

Taxpayers in Quebec and Prince Edward Island celebrate Tax Freedom Day three days later than in 2004, the longest advances in Tax Freedom Day among the provinces.

Nearly 50 percent of the increase in the total tax bill paid by the average Quebec family can be attributed to an increase in personal income taxes caused by generally strong income growth that pushed many families into higher income tax brackets. Quebec maintains relatively high income tax rates, coupled with the lowest threshold for the top marginal rate among the provinces. Quebec's top statutory income tax rate applies to incomes above just $56,070.

Ontario's Tax Freedom Day comes one day later in 2005, after a three-day increase from 2003 to 2004, the result of increases in numerous taxes and the introduction of the Ontario Health Premium.

There is an unresolved debate as to whether natural resource royalties are actually a tax or simply the conversion of a balance sheet asset ("public asset") into an income stream. This debate is not one the Institute attempts to resolve for our annual calculations. For this reason, two sets of Tax Freedom Days are provided for the provinces of Saskatchewan, Alberta, and British Columbia, one including and one excluding resource royalties.

If natural resource revenues are excluded, Tax Freedom Day is 13 days earlier in Alberta (May 31), 9 days earlier in Saskatchewan (June 14), and 7 days earlier in British Columbia (June 23).

The Atlantic Provinces historically have had some of the country's earliest Tax Freedom Days due, in part, to the large share of their total revenue that is transferred from other provinces through the federal government (table 9). The earlier Tax Freedom Days in those provinces, as well as in Manitoba, Saskatchewan, and Quebec, come, to some extent, at the expense of later celebrations in the traditional "have" provinces: Ontario, Alberta, and British Columbia.

Provincial Changes since 2000

Only three provinces have experienced reductions in their Tax Freedom Days since 2000. Alberta leads with the largest decline in its Tax Freedom Day from 2000 to 2005, recording an eleven-day improvement. British Columbia (5 days) and Saskatchewan (7 days) were the only other provinces to experience improvements in their Tax Freedom Days since 2000. All four Atlantic provinces have experienced significant increases in their Tax Freedom Days since 2000, with Newfoundland seeing a ten day increase, the largest in the country.

Important Note on the Methodology

Tax Freedom Days are calculated on The Fraser Institute's Canadian Tax Simulator (CANTASIM). Statistics Canada's Social Policy Simulation Database and Model (SPSD/M) is an important part of this model for the 1992 through 2005 Tax Freedom Days. Prior to 2004, the SPSD was based on Statistic Canada's Survey of Consumer Finances (SCF). The SCF has since been replaced with the Survey of Labor and Income Dynamics (SLID) as the dataset for the SPSD.

As a result of this change, Tax Freedom Day has been revised back to 1992. While The Fraser Institute's methodology has not changed, the switch from the SCF to the SLID has led to changes in historical Tax Freedom Days.

The Tax Freedom Day calculations utilize updated provincial and federal budget numbers, and data from Statistics Canada.

Established in 1974, The Fraser Institute is an independent public policy organization with offices in Vancouver, Calgary, and Toronto. The news release and tables are posted at www.fraserinstitute.ca.

To view the tables accompanying this media release please click on the following links:

http://www2.ccnmatthews.com/database/fax/2000/taxfreedomdaytables1.pdf

http://www2.ccnmatthews.com/database/fax/2000/taxfreedomdaytables2.pdf

FOR FURTHER INFORMATION PLEASE CONTACT:

The Fraser Institute
Niels Veldhuis
Senior Research Economist
(604) 714-4546
nielsv@fraserinstitute.ca
or
The Fraser Institute
Jason Clemens
Director of Fiscal Studies
(604) 714-4544
jasonc@fraserinstitute.ca
or
The Fraser Institute
Suzanne Walters
Director of Communications
(604) 714-4582
suzannew@fraserinstitute.ca
www.fraserinstitute.ca

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