By Linda Nazareth, June 14, 2018
Canadians pay a lot of taxes right? We hear it every time there is an election, and most of us feel that we are living the reality of it. In truth, however, there is a wide divergence between tax rates for different kinds of Canadian households. According to a newly released study by the Organization for Economic Co-operation and Development (OECD), depending on who you are, your burden may be relatively high or relatively low in comparison with other countries.
In 2017, workers in the 37 OECD countries paid slightly more than a quarter of their gross wages in tax, on average. At 22.8 per cent, Canada is actually below that average, and as well is below the U.S. rate of 26 per cent. Country averages range from 15 per cent in Chile, South Korea and Mexico at the low end, to more than 35 per cent in Belgium, Denmark and Germany at the other extreme.
Parents have lower net personal average tax rates (NPATR) than do households without children. In 2017, in the OECD as a whole, a one-earner married couple who earned the “average” wage and who had two kids had a NPATR of 14 per cent. Canada, however, ties with Ireland for actually having the second-lowest NPATR across the OECD at 1.2 per cent. The Czech Republic, at 0.7 per cent, had the lowest rate in the OECD, while the measure was negative for Poland (minus 4.8 per cent) since cash benefits in that country exceeded taxes and social security contributions. The highest NPATRs for one-earner families with two children at the average wage were in Turkey (25.9 per cent) and Denmark (25.3 per cent).
Unfortunately, other kinds of households do not fare nearly as well in terms of their tax burdens. A two-earner married couple in Canada, one of whom earns 100 per cent of the average wage and the other who earns 33 per cent, and who have two kids, had a NPATR of 10.92 per cent, while a childless two-earner couple, one at 100 per cent of the average and the other at 33 per cent, had a NPATR of almost 20 per cent. No households, however, had a higher tax burden than do single persons without children.
In 2017 in Canada, the average single worker without children had a net average tax rate of 23 per cent, as compared with the 1.2-per-cent rate of the one-earner married couple with two children. Put another way, the single person without children is taking home about 77 per cent of their gross wage. Once benefits are taken into account, the married worker with children was taking home about 98.8 per cent. It is a wide divergence – one of the widest across the OECD.
The gap has gotten wider over time in Canada. Over the past decade, policies that affect children have become more generous and there is a lot to be said for that. As a result, the NPATR for the one-earner couple with kids has fallen from more than 10 per cent in 2007 to the current 1.2 per cent. Over the period, the tax treatment of single people has not changed much at all. In 2007, it was 25 per cent, not much higher than its current rate.
That decision to become more generous with families while not doing much for singles without kids is perhaps something that should be given some thought. At one point in time, the population was dominated by families: As of 1951, single-person households accounted for only 7 per cent of the total. Flash forward to the 2016 Census and they accounted for 28 per cent, and the proportion is only expected to grow as the baby boomers age. That is a big chunk of the population that might be worth considering when it comes to forming policy.
The relatively high taxation rates for single people are also worth thinking about in relation to the millennial generation. Already, we know that millennials are marrying later and starting families later. This has a lot to do with their financial circumstances: High educational debt burdens and high housing costs are a reality for them. On top of that, however, they apparently pay relatively high taxes without a lot of accompanying benefits. Ironically, as we support those who currently have children we are apparently making it more difficult for others to get to a place where they can do the same.
Tax policy is not random, but rather involves a lot of choices based on where we want to place our priorities. For the past decade we have made one set of choices that reflect one set of priorities – and that is great. Perhaps looking forward we need to think about the groups that have not been supported as well and make a different set of choices.
Linda Nazareth is the principal of Relentless Economics and senior fellow for economics and population change at the Macdonald Laurier Institute.
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