Canadian real estate is expensive, but at least it comes with “free” healthcare, right? One might want to reconsider that statement when they take a look at the latest update of the Canadian Consumer Tax Index for 2023. Published by the Fraser Institute, it shows the average household is devoting significantly more towards income taxes than necessities last year. That wasn’t always the case, with the share of income dedicated towards taxes greatly outpacing the soaring cost of necessities such as shelter, food, and clothes over the past few decades. The skew doesn’t just apply pressure on household budgets, but also skews the incentives that helped to create an environment with high home prices and low productivity.
Canadian Households See More Income Go To Taxes Than Necessities
Canadian households pay a lot in taxes – a lot more than they probably think. In 2023 the average household reported an income of $109,000 And paid $47,000 in income taxes. That works out to about $903 per week or 43% of their household income. That’s a lot more than the average of 35.6% paid towards basic necessities—food, shelter, and clothing.
In contrast, a household in 1961 had a household income of $5000 and paid $1675 in taxes annually. That’s 33.5% towards income taxes while they spent another 56.5% of that income on those same necessities.
Households Saw Income Taxes Rise 3x The Rate of Inflation
Over the past few decades, Caandians have generally seen the cost of living surge. From 1961 to 2023, inflation jumped 901% according to the consumer price index (CPI). As big of a jump as that was, income taxes climbed 3x that rate coming in 2,705% over the same period. A breakdown shows necessities climbed rapidly over that period—shelter (+2,006%), food (+901%), and clothing (+478%).
Canadian Households Have Seen Tax Costs Rise Faster Than Necessities
The amount paid by the average Canadian household towards income taxes and necessities.
Source: Fraser Institute.
Canada’s rapid escalation of income taxes leaves little question about how productivity disappeared. Artificially low property taxes and tax-exempt primary residence profits, encourage higher home prices. That slants incentives towards property investment, especially paying more for a primary residence.
At the same time, municipalities subsidize those low carrying costs with Provincial and Federal spending. A significant portion of this spending is funded by income taxes, helping to bolster the property market. This takes away an incentive from earning income via productive sources like work.
That’s been great news for property investors and retirees, but young adults and working families? Not so much—not only are they increasingly priced out of the market, but a larger share of their income goes towards creating the incentive to price them out. That’s before they get the multi-generational bill for subsidizing the solution—cheaper leverage for investors and loans for profitable developers building the rentals they’ll live in.
