Canadians Pay Higher Income Tax Than Workers in Most Other OECD Countries: Report

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Canadians at all levels of income pay more tax than residents in most other OECD countries around the world, according to a new report.

“In 2022 (latest year of available international data) Canada had the 5th highest combined top tax rate out of 38 countries,” the report said. “This indicates that in 2022, while Canada’s top tax rate was more competitive than in four countries, it was uncompetitive compared to most OECD countries including the United States, the United Kingdom, and other English-speaking countries such as Australia.”

Countries that ranked higher than Canada for tax rates in the OECD were Japan, Denmark, France, and Austria.

Five Canadian provinces were in the top 10 spots for highest tax rates in the OECD, according to the report. These include Newfoundland and Labrador at 54.80 percent, Nova Scotia at 54 percent, Ontario at 53.53 percent, British Columbia at 53.50 percent and Quebec at 53.31 percent.

Prince Edward Island landed in the top 15 with 51.37 percent, while Manitoba (51.40 percent), Alberta (48 percent) and Saskatchewan (47.50 percent) were in the “middle range,” according to the report. These tax rates were higher than those in the United States (43.30 percent) and the United Kingdom (45 percent).

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Authors Jake Fuss and Grady Munro said high income tax rates hinder Canada’s ability to attract workers and discourage people from achieving higher incomes.

“Our high-income tax rates can deter professionals, entrepreneurs and businessowners from working and investing in Canada, which is bad for the Canadian economy and therefore Canadians,” said Mr. Fuss in an April 9 release.

The authors argued that Canadians who are “given the opportunity to work more and earn more labour income are discouraged from doing so when a significant portion of their increased income is consumed by taxes.”

“If policymakers want to attract and retain skilled workers and job-creators, and encourage entrepreneurs, we must lower personal income tax rates and avoid higher rates at all costs,” Mr. Munro said in the statement.

It’s not just high-income earners that face higher tax rates, the authors found.

“Canada’s marginal tax rates are also uncompetitive at incomes of CA$75,000 and CA$50,000,” the authors wrote.

Authors Mr. Fuss and Grady Munroe said governments are looking to increase revenues, but that continually raising taxes could have unintended consequences as taxpayers look for ways to save.

“Canadian governments have put the country in this uncompetitive position partly in an effort to raise more revenue. However, taxpayers, especially upper-income earners, respond to tax increases in ways that reduce the amount of revenue that governments would otherwise collect,” they wrote.

Two-thirds of Canadians said they pay too much tax, according to an Ipsos poll released in July 2023. While 39 percent said they pay too much, 29 percent said income tax was “much too high.” Only one percent said tax rates were too low.

The survey also found that 55 percent of Canadians think the government spends too much money, while 27 percent said government spending was at “an appropriate level.” Eight percent of respondents said spending was too low.

The report does not take into account higher taxes coming in 2024 in response to inflation. The Canada Revenue Agency announced changes in November 2023, saying it would be using an inflation rate of 4.7 for tax brackets in 2024.

The changes include an increase in Canada Pension Plan contributions as well as Employment Insurance or EI deductions. The government is also introducing a second CPP tax, called CPP2. It applies to those earning between $68,500 and $73,200.

Matthew Horwood and Jennifer Cowan contributed to this report.

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