by Clayton Welwood – Candidate for North Vancouver – Seymour

With an election half a year away, the federal government has started an ad campaign to remind Canadians how much they’re helping them financially. It’s called My Benefits and Credits, and it features heartfelt videos from citizens who are grateful for the GST credits, Canada child benefits, and other payouts from Ottawa.

But as surely as the government gives, it also takes away, and usually the latter more than the former. When I first heard Frederic Bastiat’s pithy definition of the state, it pulled together in my mind a huge tangle of misgivings, suspicions and frustrations I had with the top-heavy, tax-hungry, wealth redistributing, program-for-every-problem nanny states that we live under today. Bastiat wrote, in 1848:

The state is the great fiction by which everyone seeks to live at the expense of everyone else.”

We all know that the state must take more than it gives, but many people delude or console themselves with the thought that some other guy is getting stuck with the bill, while they extract more benefits than they put in, or at least break even.

The truth is, if Canadians of even modest means really scrutize their balance sheet with all three levels of government, all but the utterly destitute will find themselves in the red. If you ask someone, “How much tax do you pay?” they’re likely to think of income tax, and give you an answer like “30%”. The purpose of this post isn’t to convince you that taxation is extortion—if you’ve read this far, you probably already understand that it is. Rather, I hope help you see just what a large chunk of your earnings goes to the government even after they’ve taken up to half your income right off your paycheque (top combined BC/federal income tax rate is 49.8%, and the amount that exempt, a mere $10,682 provincially and $12,069 federally).

Before we get to all the ways governments increase the price of the things you buy, there are a couple of source deductions that are worth mentioning: CPP and EI. These are called insurance premiums, but in fact, they are taxes. With real insurance premiums, you have have a choice of insurance providers and a contract with one of them that gives you a claim on a payout under defined circumstances. You don’t have that with the Canadian Pension Plan or Employment Insurance. All you have is a spot in a welfare line, and the hope that the fund won’t be bankrupt by the time you need to make a claim. Assuming you’ll be eligible for a payout, the rates of return on CPP are terrible, hovering around 2% for people born in the 1970’s or later. Considering the contribution rate is 5.1% of your earnings (and set to rise over the next few years), you’d be much better off investing this money in your own RRSP. And with EI, it’s even worse. If you manage to never get laid off, sick, or pregnant, you’ll never see that 1.62% of your income again! EI, in my opinion, is not much more than a wealth transfer program from some occupations (year-round) and regions (western) to other occupations (seasonal) and regions (eastern) that a particular political party (Liberal) has used to buy a lot of votes with over the years. Those of us who aren’t on the receiving end of this scheme would be much better off if we just stashed that money in our own rainy-day fund, or set up coverage with a private insurer.

Case Study #1: Henry and the Canada Child Benefit

Getting back to the My Benefits and Credits campaign, we hear from “Henry” about how, as a new parent, the expenses just kept piling up and he thought, “there must be programs out there that can help us.” Because, you know, having a kid when you’re in your 30’s and married, is like a totally unexpected financial hardship…Anyways, I don’t blame Henry too much. He’s probably a hardworking guy who’s paid hundreds of thousands in taxes so far and feels it’s reasonable to get a bit of it back at this stage in his life. Not sure what Henry’s situation is, but let’s say he’s making $50k and so is his wife and they’ve got one infant. That would get them around $1,850 in Canada Child Benefits.

What kind of expenses will he and his wife need to pay? A big one is transportation. Let’s assume they’re like most other middle class couples and own two vehicles. Let’s say they each own a Honda Civic, one which they’ve just purchased.

The first thing Henry needs to pay is GST and PST. On the $25,000 purchase, he pays $1,250 GST. Because the purchase price is under $55k, he thankfully pays only 7% PST, $1,750 (instead of 8 to 20% for a more expensive vehicle). There are also some environmental levies on the battery and tires worth about $25.

Then Henry needs to get his new car insured. Because BC has a monopoly public insurer (ICBC) it’s difficult to determine how much extra Henry will pay for insurance over what a private insurer in a fully competitive market would charge. If he was a bad driver, there’s even a chance he’d be getting a better deal with ICBC, but let’s assume he hasn’t had any accidents. He’d probably be paying around $100 per month just for the mandatory liability coverage and fees through ICBC, and his wife, the same, so $200 per month in forced payments to the provincial government.

The other big transportation expense is fuel. Let’s say Henry lives in the suburbs of Vancouver. This means he’ll pay 25 cents per litre in provincial fuel tax, which includes a 17 cent levy for Translink. The feds take 10 cents for their excise tax. The provincial carbon tax, which went up again Apr 1, works out to about 9 cents per litre. Then there’s GST on top of this and the price of the fuel itself, which is about 8 cents with the price at the pumps currently around $1.60 per litre. That’s 52 cents in total taxes, nearly a third of the price per litre. If Henry and his wife spend $250 per month on gas, that’s $81.25 in taxes.

Speaking of the carbon tax, they’ll pay a bit more of it if they heat their home with natural gas. The cost of the carbon tax will also be passed on to them in the cost of pretty much all the products and services they buy in BC, because they all require transportation and building heating. It’d be very hard to estimate this though, so we’ll just look at their direct costs. A sample gas bill shows a typical residential customer paying $77.84 for one month, with $12.71 carbon tax, 24 cents clean energy levy, and $3.70 GST, for a total of $16.65.

We’ll assume that Henry and his wife aren’t drinkers or smokers, thus avoiding the most highly taxed commodities in BC. They will of course pay plenty of sales taxes on the everyday items they purchase, though estimating how much is difficult without knowing their precise consumption habits. Though most groceries are exempt from both GST and PST, they’ll pay both on other essentials like clothing. Let’s just use a ballpark number of $100 per month ($75 GST, $25 PST) for sales taxes paid on day to day items.

So what does the total annual tax bill look like for Henry and his wife, and how does the Child Benefit compare to it?

Expense Monthly Tax Amount Annual Tax Amount
Vehicle purchase $3,025.00
Vehicle insurance (50% of ICBC cost) $100.00 $1,200.00
Vehicle fuel $81.25 $975.00
Home heating $16.65 $199.80
Misc $100.00 $1,200.00
Total $297.90 $6,599.80


This is just a snapshot of Henry’s household consumption expenses, and doesn’t look the biggest part of his tax burden: income tax. It also doesn’t take into consideration property taxes. Even so, the Child Benefit of $1,850 he receives only offsets a bit more than a quarter of the consumption taxes he’s paid during the year. Sure, “ever dollar counts,” as the campaign tells us, but Henry’s balance sheet with the feds is still not looking very good.

Case Study #2: Shazeal and the GST Credit

What about Shazeal? The young lady who moved to a new town to go to university, and a windfall of up to…(wait for it)…$425 for her GST credit. Now, she wouldn’t have paid GST on what are likely, her two biggest expenses: tuition and rent. But what about everything else? Food, utilities, mobile phone, transportation, clothing, entertainment, maybe a flight home to see her family–let’s ballpark it at $10,000. If GST was payable on 85% of these costs, the GST credit of $425 would exactly cover her expenses.

But that isn’t the whole story. Let’s put aside for a moment the other taxes on purchases, like PST, that Shazeal would have paid, and look at her two biggest expenses: rent and tuition.

If she’s going to university in BC, she’s probably in the lower mainland, south island, or maybe the Okanagan, the parts of the province with the highest cost of living. Let’s assume she’s not living in student housing and is renting off campus. Sharing with a roomate, she could reasonably be paying $1,000 a month. Though she doesn’t see it, her landlord is passing on a share of his tax burdens to her. Let’s say she’s renting a basement suite in a house in Vancouver worth $2 million. The City’s mill rate is $2.47 per $1,000 of home, which is nearly $5,000 for the year. If the basement is a third of the house, and the landlord passes on that proportion of the property tax to his tenants, then Shazeal’s share is $70 a month. If the landlord had recently bought the property he might still be trying to recuperate the $38,000 in BC property transfer tax he would have paid.

But the much more significant contributor to Shazeal’s high rent cost is municipal zoning regulations. Unfortunately, the costs of these are nearly impossible to estimate, so let me just pose some hypotheticals: How much greater would the supply of basement suites be in Vancouver if there were no permits required for them? What effect would this greater supply have on rents? What would the effect on rents be if apartments were not prohibited by zoning by-laws in 85% of the city? How much lower would the cost of housing be if the city’s development and building permit processes took months or weeks instead of years? Because virtually all North American cities have such regulations (though some are better than others, and Houston, TX is a notable exception) it’s hard even to ballpark how much cheaper rents would be without them, but conservatively we could say 25%.

Shazeal’s other big expense is tuition. Let’s assume she’s taking a full undergraduate course load in the arts at UBC. That would mean $5,400 if she just attends Sep-Apr. Add to that $543 per year in mandatory levies and possibly several hundred more in levies that she can opt out of , like health insurance. The amount that Shazeal pays represents about 40% of the cost of her tuition, with rest paid by taxpayers. Over the course of her academic career, this represents a subsidy of tens, possibly even hundreds of thousands of dollars.

But let’s say that Shazeal isn’t interested in becoming a professor, and just wants a BA so that she can appear respectable to her friends and family back home, and be qualified for an entry-level office job. In order to figure out Shazeal’s total outlay for her 4 year degree (direct education costs only), we need to add in those notoriously overpriced textbooks, at about $400 per term. Tuition plus fees plus books equals $6,743 per year, so $26,972 for 4 years. When we consider Shazeal’s living and other expenses during this period, and the income she could have made if she went straight into the workforce, we’re up to 6 figures very quickly. It’s no small investment on her part, even if the taxpayer is picking up the lion’s share of the tab.

Though the $425 GST credit she gets offsets the GST she paid out, in the grand scheme of things she’s in a difficult financial situation thanks to the high cost of education and housing.

Case Study #3: David and Working Income Tax Benefit

Let’s turn to our third and final My Benefits and Credits case study: David. It seems that David was employed in a certain industry or profession, but lost that employment and had to change careers. While getting established in his new career, he had to make do with low-wage jobs, and was eligible for the Working Income Tax Benefit (WITB). This benefit is available to employed Canadians earning under $30,000 per year. David hints that he may be a single father, and if so he could claim up to $1,903 in WITB. Let’s assume that he earns little enough ($16,000 per year) from work that he gets the full benefit.

Now let’s look at the taxes David pays on his employment income. We’ll say that his $16,000 per year in wages is his only income. On that, he’ll have about $270 in Employment Insurance and $638 in Canadian Pension Plan contributions. Assuming he has no other deductions he can claim, he’ll pay 5.06% provincial income tax on $5,318 of his income, which equals $269. He’ll also pay 15% federal tax on $3,931 of his income, which equals $590. For the reasons I mentioned above, we’ll consider CPP and EI taxes. In total, that makes $1,767, so with his WITB of $1,903, it looks like David has just barely made it out ahead!

Let’s not get too excited for David though. This exercise only considered his tax on income. Like Shazeal and Henry, there will be taxes and government burdens on the costs of everything he buys. And unless he has a friend a relative to help provide him shelter, transportation, or cover some of these costs, David and his daughter will likely be destitute on such a low income. His monthly net income of $1,344 will barely get him a roof over his head, and of course there are other necessities to cover beyond that.

You win some, you lose most

To sum up, in 2 out of the 3 cases presented, the government benefits didn’t come close to offsetting the taxes and other government-imposed costs. In the third case, the individual barely broke even. These were my rough calculations and don’t capture the whole financial picture of these individuals. They each would have paid more taxes, but in fairness, also received more benefits (health care, education for their kids, public roads, etc). Doing a full accounting is virtually impossible, because we can’t estimate what some goods and services would cost in the absence of government monopolies and regulations.

I hope this exercise gives some sense of how there’s a spectrum of government imposed costs: from direct taxes (like income tax), to less direct ones like PST, to hidden taxes like the Employer Health Tax (which will drive up the cost of everything, from fitness membership to municipal taxes), and finally to those other unavoidable costs which can’t properly be called taxes but amount to the same thing (e.g. EI contributions, ICBC premiums). If British Columbians knew how much of their earnings they were actually paying to all levels of government, they might demand a tax cut, or at least better services.