Monday, December 31, 2012

Canada's Rising Tax Burden - 2013 Edition

The Canadian Taxpayers Federation recently released a report showing us what tax changes Canadians can expect in 2013 and how much more the provincial and federal governments will be "pilfering" from our wallets and purses.  Here is a summary of the damage.

On the federal side, all Canadians will be paying more in both Canada Pension Plan and Employment Insurance premiums.  Here is a graph showing how the amount that Ottawa has been collecting for both of these taxes from both employees and employers has been rising in recent years:

Since it is the bite of these payroll taxes that impacts employee's bottom lines the most, let's take a quick look at how much Ottawa took from individual Canadians who were at the maximum insurable and pensionable earnings over a sampling of years:

1995 - $2021
1997 - $2100
2000 - $2266
2003 - $2621
2005 - $2622
2008 - $2670
2010 - $2911
2012 - $3147
2013 - $3247

In one year from 2011 to 2012, these two payroll taxes rose by 5.35 percent and by 3.19 percent in the year from 2012 to 2013.  You will note that in both cases, the increase in Canadian payroll taxes well exceeded the rise in the Consumer Price Index as shown here:

In its worst year of 2002, Canadian payroll taxes rose by a rather stiff 6.63 percent while inflation hovered between 1.5 and 3 percent.

Since Canadian wage earners currently contribute only 47 percent of these payroll taxes to Ottawa, it's up to employers to pony up the rest.  When the employee and employer contributions to EI and CPP are summed, in 2013, Ottawa will receive $6850 from every Canadian who is at the maximum insurable and pensionable earning level ($47,400 for EI and $51,100 for CPP for 2013).

Now, on to the provincial side.  Here is a bar graph showing the average net tax change in inflation-adjusted dollars for 2013 for each of the provinces:

Quebeckers come off the worst with an average tax increase of $1082 with Nova Scotians seeing their average net taxes rise by $860 and PEI residents seeing their taxes rise by $795 as the Ghiz government desperately tries to achieve some resemblance of fiscal balance.  The overall winners with the lowest net tax increase are residents of Alberta who will see their taxes rise by only $448.  In most cases, these increased taxes can be attributed to bracket creep as tax bracket changes do not keep up with wage increases related to inflation, increases in health taxes and other tax increases.

Here is a chart showing how the taxes for a Canadian family with two children and both parents working making $80,000 per year will rise from 2012 to 2013 including both provincial and federal tax changes:

In this scenario, Nova Scotia residents are worst off, seeing their taxes rise by $621 in 2013, followed  by residents of Prince Edward Island who will see their family taxes rise by $570 in 2013 when natural growth from wage increases is included.  In both cases, the lion's share of the actual increase in taxes is  due to bracket creep as their respective governments look to any means to raise taxes on income without actually raising the marginal tax rates.  By far, these two provinces and Manitoba are the worst offenders when it comes to readjusting their tax brackets to account for inflation; 2012 inflation in Nova Scotia was 2.4 percent and 2.3 percent in PEI yet, both governments chose to adjust their respective brackets by 0 percent.   Residents of Alberta will see their taxes rise by only $414, none of which is related to bracket creep since the Alberta government adjusts its brackets to account for inflation.

On top of these changes are a myriad of user fee increases.  In my jurisdiction, some fees have gone up by well over 30 percent for such things as electrical inspections, driver's licences and registrations and just about every other service that the government offers.

While most of us know that taxes rarely go down and that one has to deal with the tax hand that is dealt, it wouldn't seem so bad on a personal level if governments didn't lever our tax dollars into additional debt by running deficit after deficit with no regard for the future.  If there was some attempt at achieving a semblance of fiscal balance, we would probably feel a whole lot better about seeing more of our money head toward Ottawa and the provincial capitals.  But, on the upside, at least the tax increases facing average Canadian households are a tiny fraction of the increases that Americans are facing on January 1, 2013!  Consider it a belated Christmas gift.

Happy New Year.

1 comment:

  1. Hi there! great stuff here, I'm glad that I drop by your page and found this very interesting. Thanks for posting. Hoping to read something like this in the future! Keep it up!

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    The IRS can also close a business for non-payment of payroll taxes. If the business is closed or files for bankruptcy protection, the IRS will look to the owner of the business for collection of the penalties, interest, taxes and trust funds. In the case of a corporation or a partnership, the IRS will look to the person responsible for paying the payroll taxes to collect the trust funds. This is known as the Trust Fund Recovery Penalty.