MEASURE OF OVERALL TAX BURDEN (2007)

Taxpayers pay income taxes to federal and provincial governments and property taxes municipally. Most provinces have a provincial sales tax and there is the Goods and Services Tax (GST) (which has recently been reduced). There is also a host of other taxes including health, social security and employment taxes, import duties, license fees, taxes on the consumption of alcohol and tobacco (‘sin’ taxes), natural resource fees, fuel taxes, hospital taxes, and other levies.

The revenue ratio – budgetary revenues as a percentage of Gross Domestic Product (GDP) – represents an approximate measure of the overall "tax burden" in that it compares the total of all government revenues collected to the size of the economy. According to data compiled by the Organization for Economic Co-operation and Development (OECD) and published annually by Finance Canada , Canada's overall tax burden stood at 40.7% in 2004 (the most recent data available). This is down from a high of 44.5% reached in the years 1997 and 1998 but considerably higher than the 35%–37% range in the 1970s. Moreover, it remains higher than that of the U.S. (31.7% in 2004).

The effective tax rate is a second measure of competitiveness. Here, too, Canada is lagging behind. Canada has the second-highest ranking of OECD countries in the measurement of effective tax rates while the U.S. holds the fourth-place ranking. This positions Canada as less attractive to international business investment than other competing nations.

The degree to which Canada’s tax system can compete with that of our southern neighbour and other developed nations is vital. Though Canada is currently experiencing strong economic performance, much of this is linked to a strong commodity market. More long-term strategies, including a competitive tax system, are necessary to sustain and sharpen Canada’s competitive edge.

There are currently a number of studies available that indicate Canada’s competitive tax positions as a nation. Examples include the “Competitive Alternatives” report by KPMG and the Tax Competitiveness Reports of the C.D.Howe Institute . However, there is little easily accessible, detailed comparative tax and cost of living information at the inter-provincial or inter-municipal levels.

Businesses and individuals have received a significant amount of federal tax relief. While this allows tax room for the provincial government to address fiscal imbalance, caution must be exercised to ensure that the reduction of the overall tax burden as a function of sharpening our national and provincial competitiveness is attained.

There would be exceptional value in understanding the tax burden on the taxpayer (Overall Tax Burden). If the overall tax burden were understood, the effectiveness of tax measures and programs could be measured by changes in the overall tax burden.

As an individual or business owner, it is difficult to navigate the reams of tax information available. A number of organizations, including municipal, provincial and federal governments, along with research organizations such as the BC Progress Board, the Fraser Institute, C.D. Howe Institute, and KPMG conduct extensive tax research and regularly publish tax comparisons. Yet, there is no single source compiled in a user-friendly format with which to easily compare the overall tax burden by municipality across British Columbia, or indeed across the country.

A good starting point for such a compiled comparison is from the provincially gathered municipal tax information. The Ministry of Community Services collects information on areas on municipal finance and provides that information to the public on their website. The data is broken down by municipality and includes:

• Tax rates across all property classes;
• Total taxes collected from property tax and other fees;
• Total taxes and charges by a representative house within each municipality; and
• The tax burden that each property class carries compared to the total land assessment of their class.

This information is available at http://www.cserv.gov.bc.ca/lgd/infra/tax_rates/tax_rates2006.htm

Portions of the overall tax burden are quite easily measured. Though at varied rates, municipal, provincial and federal taxes are readily available, as demonstrated, on a yearly basis. Other taxes, such as consumer taxes are not as easily measured in absolute dollar value, though one can get a sense of their relativity through comparing the Consumer Price Index (CPI). The CPI provides a comparative indication of the cost of living across Canada by jurisdiction in extensive detail.

The Chamber would like to see these different aspects of available tax and consumer information combined into a more comprehensive report on a yearly basis. With the information available, provincial economists could provide a more complete picture of the overall tax burden by overlaying the municipal tax rates on the provincial and federal tax brackets. This would provide a more accurate depiction of a business’s or individual’s tax burden, which could then become a basis for comparing either the profit potential for new business development or an individual’s net income. In the case of the individual inquirer, the information would show their net purchasing strength against varying CPI’s across the country.

Such a comprehensive measure of overall tax burden would serve three purposes. It would:

1. provide greater visibility into the impact of provincial, territorial and municipal tax decisions on the overall tax burden in order that all levels of government can understand their role in creating a competitive system;
2. provide municipalities and provinces with more favourable outcomes to use the information as a marketing point in economic development and labour attraction activities; and
3. allow individuals to more easily assess the competitiveness of labour market opportunities across the province or country.

The provincial government has the resources, expertise and leadership ability to promote such an index so that British Columbians better understand how much tax they are paying relative to the economy and how we compare with our competitors. This would also facilitate a provincial goal of reducing the overall taxation burden on individual and corporate taxpayers.

THE CHAMBER RECOMMENDS

That the provincial government:

1. develop a full and comprehensive means of measuring the overall corporate and individual tax burden on a provincial and municipal basis;

2. develop a method to measure and compare resulting purchasing power of after tax income, based on the consumer price index; and

3. work with other provinces and the federal government to create a consistent measure of the overall tax burden on a provincial and municipal basis.