Canada’s richest 20% pay three-quarters of all the income tax collected
By Jock Finlayson : The federal budget presented last March offered a timely reminder of something that many Canadians may not realize: a surprisingly big slice of the federal government’s overall revenues comes from a single source, the personal income tax (PIT).
According to the budget, Ottawa’s PIT revenues will reach $131.5 billion in the current fiscal year, which is equivalent to half of all of the money collected by the national government. The federal government’s second biggest revenue generator is the corporate income tax, followed by the GST. PIT is also the number one revenue source for the provinces, although it makes up a smaller portion of their tax base than of Ottawa’s.
Who pays the personal income tax? Most Canadian households except those with low incomes contribute something. But an examination of data from the Canadian Revenue Agency indicates that the PIT burden falls preponderantly on the most economically successful individuals and families. Consider the following summary statistics:
There were 25.5 million Canadian tax filers in 2011.
Of these, the richest 20 per cent coughed up three-quarters of the income tax collected by the federal and provincial governments combined. The remaining 80 per cent paid the rest.
The richest 1 per cent of tax filers had taxable incomes of at least $201,400 in 2011. This small group accounted for 11 per cent of total personal income and provided 20 per cent of the PIT revenues flowing to the federal and provincial governments. Put differently, 1 per cent of all Canadians who file tax returns are responsible for a share of personal income tax that is 20 times greater than their share of the tax-paying population.
At a time when the issue of inequality is attracting lots of public discussion, it is useful to remember that Canada maintains a “progressive” income tax system, meaning that people typically face higher tax rates as their incomes rise. This point is sometimes ignored by commentators concerned about inequality, many of whom imply the “rich” are paying too little tax. While such judgments are necessarily influenced by subjective values and philosophical dispositions, the data show that a small number of relatively affluent Canadians pay a significant portion of the total income tax collected by the state.
That said, the past three years have seen several provinces take steps to hike tax rates on the fortunate few. Nova Scotia did so in 2010, by establishing new high-income tax bracket. Ontario followed suit last year with its new “tax on the rich” that applies to 25,000 high-income earners. As a result, Ontario’s combined federal-provincial top marginal income tax rate is now just shy of 50 per cent, almost back to where it stood a decade ago. In Quebec, top earners face combined federal-provincial tax rates above 50 per cent. Even in British Columbia, an avowedly “pro-business” government recently legislated a new tax bracket for incomes above $150,000 a year, a step that will lift the top combined federal-provincial tax rate in that province to approximately 46 per cent (well above the 39 per cent to marginal rate in next-door Alberta).
As governments struggle to reduce deficits and put their finances on a Troy Media Media footing before the coming onslaught of retiring baby-boomers, the prospect of higher taxes looms. Indeed, after 15 years of tax reductions, the prevailing trend is now pointing in the other direction, at least at the provincial level.
But as policy makers reflect on the options available to boost government revenues, they would wise to recognize that Canada already relies heavily on the personal income tax and that the most economically successful 1 per cent and 5 per cent of households are shouldering a large portion of the current PIT burden.
Jock Finlayson is Executive Vice President of the Business Council of British Columbia.