Every election year in Canada, one of the issues that every politician talks about is taxes. The country is one the highest taxed countries globally, with residents paying a substantial part of their monthly income as tax every month. But why are Canadian taxes so high?
Taxes in Canada are high, but it’s easy to understand when one considers the benefits accrued to these taxes. These benefits are universal healthcare, high-quality and affordable education, social welfare programs, and parental and childcare benefits. All these makeup for its very high tax rates.
Despite the common complaints about tax rates in Canada, most Canadians are happy to pay it, given that the benefits are for everyone. But, it’s worth noting that the high tax rates mean a substantial percentage of annual salary goes back to the government. So here, we look at the tax rates and why it’s so high.
Why Do Canadians Pay High Taxes?
Canada might be one of the best countries to live in the world, but when it comes to taxes, there are plenty of reasons to complain. First, the taxes are quite high. In fact, Canada is top ten when it comes to the highest income tax. But these high tax rates aren’t for nothing. The taxes are used to fund several programs that benefit the residents, hence the high taxes. Here are some of the ways taxes in Canada are being used.
1. Universal Healthcare
As a permanent resident or citizen in Canada, one of the things you’ll get to enjoy is public health insurance. This program ensures that you don’t pay for most healthcare services. Each province and territory administer the universal healthcare system, also called Medicare, within their locality. The state pays approximately 70% of healthcare needs through this, which means individuals have to cover the other 30% of special cases.
Taxes fund this program. Thus, it’s one of the areas Canadians get their money back. Although the universal healthcare system has been criticized on multiple occasions for its deficiencies, such as very long wait times, it has helped individuals reduce their healthcare costs. Canadians pay about $4,894 annually compared to $11,000 per person in the US. Beyond universal healthcare, most Canadians still have supplementary health insurance. But basic health insurance ensures that everyone can access health services regardless of their income level. Apart from the basic healthcare plan for citizens and permanent residents, there’s also health coverage for vulnerable persons such as refugees and protected persons. The Interim Federal Health Program (IFHP) caters to this category of people.
2. Parental and Childcare Benefits
Canadian Families are major beneficiaries of the various welfare programs that are paid for through taxes. One of such benefits is up to 18 months of parental leave with subsidized pay within that period. This means they get to enjoy more flexible material and parental benefits. Before now, it was one year. But by extending it to 18 months, parents want to spend more time with their new kids and save on daycare if they wish.
Apart from that, families still enjoy several benefits for raising children. Such benefits include Caregiving benefits and leave, Canada child benefit, Canadian Benefit for Parents of Young Victims of Crime, Canada Pension Plan (CPP) children’s benefits, Child Disability Benefit, and lots more. Taxes fund all these benefits, which means individuals and families get back their taxes in kind and even cash.
3. High Quality and Cheaper Education
The quality of education in Canada is excellent, right from the lowest level to the highest. The public education system is excellent and free, catering for everyone till they finish high school. As a result, secondary schools in Canada have high ratings, and the country’s teenagers are part of the best educated in the world. This is possible because of the high standards of the education system, which is functioning due to taxpayers’ funding.
Even after secondary schools, permanent residents and citizens of Canada still enjoy cheap education at the tertiary level. Universities in Canada are cheaper for citizens and residents compared to international students. The school fees for residents are very much lower compared. For example, McGill University charged Quebec residents $2,544, other Canadians $7,940, and international students $18,110 – $48,747 for the 2019/2020 session. Thus, residents benefit from the taxes they pay by enjoying cheaper education.
Social Welfare Program
Apart from all the benefits listed above that taxpayers in Canada enjoy, there are a lot of other beneficial programs in place for residents and citizens to enjoy. These programs include several Income Assistance programs such as employment insurance, worker compensation, public pensions, income support, GST/HST credit, etc.
There are also service-based programs that provide individuals with access to basic needs such as housing, education, legal aid, and more. Thus, residents enjoy substantial returns on their taxes.
Tax Rates in Canada
It’s not an easy thing to determine how much Canadians pay in tax. While the income tax is clear for all to see, there are several other taxes such as property taxes, HST/GST taxes, payroll taxes, gasoline taxes, and lots more.
Income tax in Canada ranges between 15% on the first $49,020 taxable income to as much as 33% on taxable income above $216,511. But when every other tax is considered, it’s estimated that an average Canadian family with an income of $124,659 will pay 39.1% of their income – $48,757 – in taxes. That’s like paying wages for 143 days of the year as taxes. With the significant amount paid as tax, it’s not surprising that there would be complaints regarding the amount being paid.
However, Canadians can take solace because they get substantial returns on their taxes compared to other countries. For example, the 2009 study, Canada’s Quiet Bargain, shows that middle-income earners in Canada enjoy public services that would have cost about 63% of their income. Even high-earning households still enjoy free public services. Compared to Canada, the US spends mostly on national defence, prioritizing it above any other thing. This means that even though Americans pay similar marginal tax rates as Canadians, the direct benefits of public services are lesser.
There’s a common saying that only two things are sure in life, taxes and death. For Canadians, this couldn’t be any truer. They have to pay a substantial amount of their earnings as taxes annually. However, there are also substantial returns for these high taxes in welfare programs and public services that taxpayers enjoy.