Taxes are a recurring issue in Canada, where no party involved gets satisfaction. The country has one of the highest tax rates among OECD countries, making people wonder whether there’s a reason for the high tax rates in the country. So, why does Canada have high taxes?
The high tax rate in Canada is due to the dependence of the government on tax revenue, the multiplicity of taxes, and inflation. However, residents enjoy the benefits of paying taxes. These come in the form of healthcare insurance, access to amenities, welfare programs, and subsidized education.
Regardless of the benefits residents enjoy from paying taxes, the tax burden is still a significant issue for many. Here, we discuss the reasons for higher taxes in Canada and how residents benefit from paying taxes.
Reasons for the High Rates of Taxes in Canada
Canada has a high tax rate due to the following reasons:
1. Dependence of the Government on Tax Revenue
The number one reason for the Canadian high tax rate is the government’s expenses incurred annually. Canada operates democratic socialism where the government has multiple programs for residents. All these programs require funding to implement, and taxes are one of the government’s significant sources of revenue. Canada is one of the countries in the OECD that generates higher than average revenue from taxes. Canada’s tax to GDP ratio is 34.4% in 2020, ranking it 21st out of the 38 OECD countries.
2. Variety of Tax
The various taxes that residents have to pay also compounds their tax bill. For example, individuals have to pay personal income tax and taxes on goods and services. In addition, if they have property, they’ll also need to pay property tax. All these taxes take a chunk of the income.
3. Inflation and Increasing value of property
Due to inflation, property taxes in Canada have also been increasing in the country over time. In this case, it’s not the tax rate that increases but the value of properties to be taxed. Since property tax is a percentage of the home’s value, valuing a home higher also means more taxes to pay on it. While higher property value is good if you’re planning to sell your house, it’s not exactly great when you’re just paying taxes.
Benefits of higher taxes in Canada
While Canadians pay higher taxes than several countries, the taxes come with benefits. When one considers the benefits that Canadians get for their taxes, the higher taxes are worth it. Here are some of the benefits Canadians get through taxes:
1. Provincial and Territorial Healthcare Insurance
Citizens and permanent residents of Canada enjoy the benefits of taxes most. One of such benefits the healthcare insurance. This subsidizes Canadians health Bill significantly, ensuring that you pay less than half of what Americans pay annually got healthcare. The insurance covers every basic healthcare issue. Whine having it doesn’t mean you won’t have private health insurance; it means you pay much less on your private insurance.
The government uses revenue from taxes to fund this program, which has become one of Canada’s biggest selling points. Through universal healthcare insurance, you’ll have access to high-quality health services. However, the Canadian healthcare system has a few challenges, such as the long waiting times. But that’s a minor inconvenience in most cases.
Each province and territory administer the healthcare program as it deems fit. This means some things such as ambulance pickup might be covered in one province and not in another. As a newcomer to Canada, you may not have access to healthcare insurance for the first three months. Apart from permanent residents and citizens, there is also healthcare insurance for vulnerable people.
2. Welfare Programs for Residents
As a Canadian resident or citizen, you’ll get to enjoy several welfare programs as long as you qualify. For example, parents usually get time off and subsidized pay after giving birth. There are also child-friendly benefits that you can be eligible for as a parent in Canada. Unfortunately, without taxes, it might be impossible to finance this.
Note that it’s not only parents that enjoy welfare programs. The employment insurance, worker compensation, income support, and service programs that ensure access to basic amenities are only possible because of taxes.
3. Subsidized Educational Programs
Canada has one of the best educational systems in the world. This explains why it also has one of the most educated populations globally. It’s taxes that make this possible. While it might not be the only source of revenue, it’s a significant source of revenue. Public schools from kindergarten to secondary school are usually free. These schools aren’t like the stereotypical public schools because the quality of education is never subpar.
Beyond secondary school, Canada has several universities in the top 100 list. All these schools are most accessible to Canadian residents and citizens. Local students pay about half or even less of what international students pay in Canada. Attending a university within your province of residents usually comes with lower fees than if you go to one outside. Revenues from taxes help the government to meet all these obligations.
4. Access to Amenities
Canadians have access to several amenities and facilities that residents of other countries pay for. A good example is the plethora of parks all over the country. It’s taxpayers’ money that helps maintain these parks and keep them in good shape and available to everyone.
How much do Canadians pay as Taxes?
The tax rates in Canada differ from one province to another. Here we look at the most common tax, the income tax and how much Canadians pay. This is the most common tax paid by Canadians, and its rate differs across the province. Generally, the Canadian revenue agency collects the income tax for all Canadians except those living in Quebec. In this case, The Agence du Revenu du Québec (ARQ) collects it. Federal and provincial or territorial governments charge income tax, but it’s usually harmonized. Your tax will depend on your income bracket, and the higher the income, the higher the tax. The federal government has five tax income brackets ranging from $49,050 with a 15% tax rate to above $216,511 with a 33% tax rate. Taxable income differs from one province to another, and so does the tax rate. It ranges from 4% on the lowest income in Nunavut to 21% on the highest income bracket in Nova Scotia.
Canada has very high taxes, even if we only look at the income tax. But there’s a reason for this high tax rate, and residents enjoy the benefits.