Who’s Paying Their ‘Fair Share’ Of Taxes?

Bob Manning is a New Brunswick entrepreneur and business owner.

Canada is an amazing country.

We have a strong democratic tradition, and we’re equal and inclusive, particularly compared to what’s happening with our neighbours to the south. Our unemployment rate is low, interest rates are low, and we have a strong social safety net that includes universal health care. Sure, there are issues, but on balance it is a great place to live and work. Every Canadian should be proud.

Of course, that comes at a cost in the form of taxes. Our tax system is premised on the idea of “fair share” – that everyone should pay what is considered fair. But how do we define fair share, and who defines it? Right now, it is a purely political decision – one that has consequences.

In 2017, the Trudeau government changed the taxation of private corporations, muttering darkly about “rich people” using them as a way to avoid paying their “fair share.” That was never true, of course, and these tax changes harmed an entire generation of working professionals and their families.

That would be bad enough except the government got the math wrong and they missed their own projections. Their tax changes actually reduced the amount of cash the government brought in the short-term. In the long-term, the news is even worse as the government will take in many millions less than if they had left the system alone.

Here in New Brunswick, we pay some of the highest personal taxes and property taxes in the country. Despite this, we seem to lack the resources needed to provide effective public services, as anyone who has crashed into a pothole or waited endlessly for a doctor in an emergency room can tell you.

Something we hear all the time in New Brunswick is that wealthy individuals and businesses aren’t paying their fair share. But is that accepted conventional wisdom actually true? Let’s look at the facts.

According to a 2018 Statistics Canada report, the top one per cent of taxpayers accounted for 9.3 per cent of the total income of everyone who filed a tax return in Canada in 2016. Those same taxpayers paid 19.9 per cent of all taxes paid. Is that a fair share?

What’s interesting in this data is that the average total income for the top one per cent fell from $537,200 in 2015 to $433,500 in 2016, and the threshold needed to be included in the top one per cent decreased from $238,000 to $226,200.

Taxes have been trending slightly downward in recent years in Canada for every income group making over $15,000 except for the top one per cent whose effective tax rate has gone up as their income has gone down. As the gap in the Effective Tax Rate (ETR) widens, those in the one per cent bear a larger and larger portion of the country’s tax burden. How long will they endure this?

According to a 2017 report from the Canadian Taxpayers Federation, those with incomes at $100,000 and above represented 8.4 per cent of tax return filers yet paid nearly 52 per cent of all federal income tax. Meanwhile, those with incomes under $50,000 represented 68 per cent of tax filers but paid only 13.2 per cent of federal income tax.

These figures show conclusively that successful, hardworking Canadians are certainly paying their fair share. And that’s alright. As a country we’ve concluded that the well-off should pay proportionately more taxes than those that earn less. But how much more? That’s where things get interesting.

The political rhetoric arguing that business people or professionals are “tax cheats” is dangerous. It seems as though they are trying to stoke a class war. That creates needless division in our society. It also points to the need to take the politics out of our taxes and use tax policy as an economic driver rather than a political tool.

With the looming changes to our economy and society – the acceleration of globalization, Artificial Intelligence and automation – the urgency to change our tax system grows daily. We need to take the politics out of the mix and create a tax system that is balanced and works for everyone.

A good tax system will create a virtuous cycle that supports the growth of personal income and business investment. A strong economy delivers more tax revenues that can be invested in social programming. It also means everyone has a bit more money to spend, money that will support growth throughout the economy and actually lead to higher tax revenues.

The next government of Canada should make this a priority. After the election, they should pull together a committee of experts from the business world, labour groups, academia, not-for-profits and more to work together – without political interference – to develop a new tax regime that is balanced and fair. This committee should take their time to make sure it is done properly, that people are consulted, and that outcomes are truly understood.

We all recognize that taxes are necessary in Canada but today too few people are shouldering too heavy a tax burden. Governments shouldn’t punish success to further a political agenda or exploit ugly class divisions. We can do better as a nation.

Perhaps then we’ll all know what a “fair share” really is.

Bob Manning is a New Brunswick entrepreneur and business owner raising his family in Saint John. He is past Chair of Enterprise Saint John and the Saint John Chamber of Commerce and is a former Board Member of the Canada Revenue Agency. He writes an occasional column for Huddle addressing important business issues.

Huddle publishes commentaries from groups and individuals on important business issues facing the Maritimes. These commentaries do not necessarily reflect the opinion of Huddle. To submit a commentary for consideration, contact editor Mark Leger: [email protected]