The fourth in a seven-part series, “Taxes for the Common Good.”
It’s wonderful to celebrate Canada Day in Ottawa. Thousands of people fill Parliament Hill and the surrounding streets, while many, many more take part in community events throughout the city.
For several years in the late 1990s, a centrepiece of the main stage Ottawa event was the proud announcement that Canada had once again been named by the UN as the best country in the world in which to live. This always bothered me.
It wasn’t that I disagreed with the UN’s assessment; Canada did indeed rank first on the Human Development Index several years in a row. What troubled me was that this ranking seemed to be used to gloss over the struggles faced by many in Canada, and also to justify inaction to improve the lives of the most vulnerable among us.
Several years have passed since the last time I made my way to Parliament Hill for Canada Day, and at least a few more since Canada dropped from first place. Canada currently ranks 8th overall, but adjustments for income inequality, inequality in education, and inequality in life expectancy, put Canada in 10th. In terms of gender inequality, Canada ranks 23rd.
Research by Citizens for Public Justice has shown that through the 2000s, income inequality, that is, the gap between the wealthiest Canadians and those at the lower end of the income spectrum has also grown.
This growing trend towards income disparity is mirrored by shifts in Canada’s tax system with repeated tax cuts for high-income individuals and corporations, and high costs to our nation’s economic and social well-being.
Canada’s tax system
Canada’s tax system is comprised of a variety of measures and programs ranging from personal income tax and local property taxes to payroll premiums to commodity taxes such as the GST/HST. And each has a distinct impact on individuals and families at the top, middle, and bottom of the income ladder.
Personal income taxes can be relatively progressive if higher tax rates are applied as individuals earn higher amounts of income. At the same time, many sources of income for high earners such as investment income from stock options or capital gains are taxed more lightly than income from wages and salaries, undermining the progressivity of the system.
Higher income Canadians are also able to access generous tax deductions like RRSP contributions and other tax expenditures that greatly lower their effective tax rates – that is the amount of total income paid in taxes.
And consumption taxes (that is, sales taxes) are, in fact, regressive since low income households end up spending a larger share of their income on taxes because most of their income is spent on goods and services, while higher income households have funds to save and invest.
The wealthy have benefited the most from two decades of tax cuts
Changes introduced through the 1990-2005 period – when Canada was on top of the world – reduced rates for top income earners considerably, while rates for bottom income earners actually increased as a result of changes in consumption, payroll and property taxes and other provincial taxes and fees.
Research by the Canadian Centre for Policy Alternatives (CCPA) indicates that in 2005, total rates of tax paid ranged from 30.7% for individuals in the bottom 10%, to 36.5% for those in the middle, to 30.5% for the top 1% of families. The richest 1% of Canadians actually paid a lower rate than the poorest 10% of Canadians. The OECD corroborates these findings, concluding that tax cuts in Canada between 2000 and 2006 mainly benefited high income groups at the expense of low and modest income earners.
Current figures confirm that “Canada’s wealth gap is big and growing – the wealthiest 10 per cent of families enjoy a net worth that’s millions more than families in the middle of the income spectrum.”
Canada needs a fair tax system
There is abundant research that demonstrates that more equal societies are healthier societies – across the income spectrum. More equal societies also have higher levels of social cohesion and are safer and more secure. Evidence also indicates that “fair is smart, that progressive taxes, where those who benefit most pay the greatest share, make good economic sense.”
A fair tax system is important, as it ensures sufficient federal revenue and creates a vibrant economy that benefits all people.
So as we celebrate this Canada Day, let’s take a moment to reflect on the kind of country we want – for ourselves and for everyone in this beautiful country. And let’s hold on to these reflections as we head to the polls in October.
Karri Munn-Venn is a policy analyst at Citizens for Public Justice, a national organization of members inspired by faith to act for justice in Canadian public policy. Taxes for the Common Good: A Public Justice Primer on Taxation is available free at www.cpj.ca/taxes-and-common-good. Follow Karri and her colleagues on Twitter @karri.munnvenn and @publicjustice.