Year-End Facts On Taxes From Niels Veldhuis, President Of The Fraser Institute

Apr 26, 2018 | Cairy Holtby


An open letter to Canadians from Niels Veldhuis, President of The Fraser Institute:


We Get What We Pay For - There Is No Free Lunch


"I know these facts aren't pretty - but Canadians need to hear them. " - Fraser Institute Review...

Pretty depressing and there is no hope in sight except at the next election……..

The following is a summary of current economic factors from the Fraser Institute:

* With the federal and many provincial governments ramping up spending, the government sector grew in 2017 with federal, provincial and local governments spending over 40 percent of our nation's total output (GDP). But extensive research has shown that economic growth and social outcomes are maximized when government spending is between 26 and 30 percent of GDP.

* At the federal level, per person program spending under Prime Minister Trudeau has nearly eclipsed the all-time high recorded during the 2009 "great" recession.

* A large portion of government spending in Canada goes to pay for the 3.6 million federal, provincial and local government employees. Government employees on average earn nearly 11 percent higher wages than comparable workers in the private sector, who pay for these salaries. Further, government workers across Canada also enjoy much more generous non-wage benefits (i.e. pensions and early retirement).

* To pay for all this spending, the total tax bill for the average Canadian family will exceed $35,000 in 2017, or 42.5 percent of their income - more than what the average family spends on housing, food, and clothing combined.

* While the federal government has claimed it "cut taxes for middle-class Canadians everywhere," the reality is that 81 percent of middle-class families in Canada are paying higher income taxes under the government's personal income tax changes -- on average, $840 more a year.

* More than 60 percent of lower-income families (those in the bottom 20 percent of earners) in Canada are now paying higher federal income taxes because of the federal government's tax changes.

* And that does not include the impact of the federal carbon tax mandate, the coming CPP payroll tax increase, the lowering of tax-free savings account contribution limits, or the proposed changes to the tax treatment of incorporated small businesses.

* Canada's high and increasing personal income tax rates on its best and brightest workers have made the country uncompetitive compared to other developed countries. The federal government increased the top federal tax rate to 33 percent from 29 percent, and increases to top provincial rates have been made in Ontario, Alberta, British Columbia and other provinces. Seven of our 10 provinces now have a top combined federal-provincial rate above 50 percent.

* But that's just personal income taxes. When the 13 percent HST (Ontario) and other taxes are added, the total tax rate on additional income for many professionals, entrepreneurs and skilled workers is over 70 percent! When 70 cents of every additional dollar a family earns and consumes goes to taxes, hard work and entrepreneurial risk-taking simply don't pay.

* The top 20 percent of income earners in Canada-families with an annual income greater than $186,875- will pay 64% of all personal income taxes and 56% of all taxes (i.e. income, payroll taxes, sales taxes and property taxes, etc.).

* As if this isn't enough, the federal government has failed to achieve its election promise to run $10 billion deficits in its first two years and thereafter balance the budget. Instead, since coming into office, it has run deficits of $18 billion in 2016 and $20 billion this year, additional deficits of almost $80 billion are forecast over the next five years. There is no plan to balance the budget.

* Large annual deficits mean government debt in Canada is ballooning. Federal net debt increased to $727 billion in 2016-17 with provincial net debt collectively at $633 billion. All told, federal and provincial debt currently stands at $1.4 trillion and has increased by over 60% in the past decade. What a legacy our governments are leaving young Canadians.

* Prime Minister Trudeau is on track to increase per-person federal debt more than any other prime minister in Canadian history who didn't face a world war or economic recession.

* The federal government has claimed deficit spending will help grow the economy through expenditures such as the promised $100 billion in infrastructure investment over the next ten years. But only $6.6 billion of that will be spent in 2017 (only about a third of the $20 billion deficit), and less than 11 percent of the $100 billion will be spent on projects that have the potential to strengthen the economy.

* When it comes to private sector infrastructure such as pipelines, the federal government has said "yes" while governing very differently. For example, federal regulatory changes seriously reduced the profitability of pipeline projects and ultimately led to the canceling of the $16 billion Energy East and Eastern Mainline projects.

* 74,881 well-paying manufacturing jobs have been lost in Ontario since the 2008 recession, and Ontario's economy is suffering because of anemic business investment, due in large part to high electricity costs, high labor costs, and high taxes. Firms plan to invest only $50.9 billion in Ontario in 2017, less than the pre-recession peak of $53.8 billion in 2008.

* Alberta's government has unfortunately followed Ontario's lead and undermined investor confidence in recent years through fiscal uncertainty, personal and business income tax increases, a new carbon tax, the Alberta Climate Action Plan and an oil sands emission cap, to name but a few poor policy choices.

* And now British Columbia is following suit. Indeed, the change in policy direction in B.C. eerily echoes the 1990s with increased personal and business taxes, deteriorating fiscal prudence, and a government keen to stop the pipeline and other key infrastructure projects.

Reflecting on these facts...

Is it any wonder that business investment in Canada is the second-lowest among 17 advanced economies and is holding back economic growth and higher living standards?

Is it any wonder that Canada has fallen out of the top 10 most economically free countries for the first time ever? Canada dropped to 11th from the 5th spot last year.

Is it any wonder that economic growth will likely be dismal going forward? The government's own Department of Finance is forecasting economic growth to fall from 2.1 percent next year to 1.6 percent in 2019 and 1.7 percent in 2020. The Bank of Canada is even more pessimistic, with growth falling from
2.1 percent in 2018 to 1.5 percent in 2019.

I know these facts aren't pretty - but Canadians need to hear them.

Niels Veldhuis | President
The Fraser Institute