The Frasier Institute has found that the top 20% of income earners pay more than half of the total income taxes, refuting the notion by Finance Minister Chrystia Freeland that more needed to be done to ensure high-income earning Canadians pay their fair share.
The study titled ‘Measuring Progressivity in Canada’s Tax System’, confirmed that the top 20% actually contributed to a 53.1% share of the total taxes. These taxes include personal income, property taxes and sales taxes. Director for Fiscal Studies at the Frasier Institute, Jake Fuss, said that there were misconceptions concerning top earners and their paying a fair share of taxes. He pointed out that the study ascertained that in reality, these top earners paid a disproportionately large share of the tax bill.
In considering what makes for a fair share, a comparison is made of the share of income that a group earns to the share of taxes they pay. Using this approach, it was found that the top 20% of income earners contributed to a disproportionately larger share of the total tax burden compared to the share of the income they earned. In terms of figures, they contributed 53.1% of total taxes, while earning 45.7% of income earnings. The authors of the paper concluded that top-income earners paid 16 percentage points more than their share of Canada’s total income and thus contributed the biggest share of Ottawa’s income tax revenue.
The study also found that the bottom 20% of income-earning households paid just 2% of the total taxes while earning 5.1% of the overall family income in the country. All other groupings outside of the top 20% of income earners were found to be paying disproportionately lesser taxes than what they earned.
Fuss noted that in recent years there have been increased calls for higher taxes to be applied to top income earners. This was based on the idea that they did not pay enough taxes. A view that saw the support of the Finance Minister, culminating in her announcing during the March 2023 federal budget that she would be raising taxes on these earners. This study has however proven that the assertion that top income earners are not paying a fair share of taxes is false when looked at on a proportional basis.
The study also found that raising taxes on top-income earners was likely to result in their seeking ways to avoid a higher tax burden. Fuss added that increasing tax rates would encourage people to change their behaviour and move assets to avoid being impacted. They may relocate to regions with lower tax rates or seek advice from their accountants and lawyers on tax planning that would reduce their tax burden.
Federal director of the Canadian Taxpayers Federation, Franco Terrazzano, said that controlling government wastage was a better way to go about balancing the budget than by raising taxes. He acknowledged that higher taxes were more likely to encourage people and businesses to flee from the country with much-needed investment money.
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