How tax attitudes change — over time and around the world
Canada once saw itself as the lower-tax alternative to the U.S.
If they happen to be from Saudi Arabia, there is a good chance new arrivals to Canada will be surprised by: a) the nightmarish winters, b) that any non-starving biped would willingly eat poutine and, perhaps most of all, c) income tax.
They don't have income tax in Saudi Arabia — or in Qatar, the United Arab Emirates, Kuwait, Bahrain or Brunei Darussalam. No need, since the streets are paved with petrodollars.
So, the concept comes as "more than a bit of shock" to any well-heeled ex-patriates, says Abraham Iqbal, who lectures on management and accounting at the Mississauga campus of the University of Toronto.
"When they come to Canada and are taxed on their worldwide income — that's something completely different for them," he said.
True, almost nobody likes tax. If you're a politician, just try saying the word out loud without immediately adding "cuts" and see how well you do at the polls.
Unless, that is, you happen to be running for office in France, a country known for both its high individual tax rate and "tax morale" — the phrase economists use for the general level of willingness among taxpayers to play by the rules.
High taxes, high tolerance
The French have one of the largest tax burdens in the entire eurozone (the top marginal rate was 45 per cent in 2013, compared to an EU average of 37.8) and in 2012 cheerfully elected the Socialist President François Hollande on a promise of notching it up even higher — at least for those at the higher end of the income spectrum.
We appreciate that taxes help put out our fires, keep our schools clean and safe.- Abraham Iqbal, lecturer, University of Toronto
Last year, Hollande's government succeeded in gaining approval for the so-called millionaire's tax that Hollande had championed in the election campaign. The new tax will apply to companies — not individuals as originally planned — and amounts to a 50 per cent levy on any salary amounts above one million euros, or about $1.4 million, a year. When taken together with companies' social benefit contributions, the total tax rate will be about 75 per cent.
Had it been applied to individuals as originally intended, the 75 per cent tax would have outdone even the famously tax-happy Swedes, who pay close to 60 per cent in personal income taxes to fund their cradle-to-grave social programs, one of the highest tax rates in the world.
|Canada (federal only)||29%|
|Source: KPMG (*All rates are the top marginal rate and do not include state or provincial taxes.)|
France's "fast trains, first-rate hospitals and public crèches (daycares) do not come for nothing," noted a 2013 piece in the Economist. The French, the weekly magazine said, are "the first to defend a way of life subsidised by the public purse that can often only be bought privately in Britain or America."
Programs like those help make taxes more palatable in Canada, too.
In contrast to Americans and taxpayers in some other parts of the world, Canadians are "generally more aware of where tax dollars are going," says Iqbal.
"We appreciate that taxes help put out our fires, keep our schools clean and safe, keep our streets safe, keep our level of social standing where it is, and our health care."
Other factors also cast the taxman in a rosier light. According to a 2013 report from the Organization for Economic Co-operation and Development, tax morale tends to be higher among women, the educated, the religious, older people and full-time employees, who are more likely to have tax taken straight from their paycheques.
Trust in and satisfaction with the principles of democracy, with the government in general, and specifically with any health and education services it provides also help build up people's tolerance for the taxman.
- Will the 'tax the rich' plan scare them away?
- Should Canadian millionaires pay more taxes?
- Watch: Obama on rich tax
Real or perceived inequality and government corruption will drag tax morale down.
"When people see the government taking steps to lessen the gap [between rich and poor], it puts more trust in the government and people are more open to paying taxes," said Iqbal.
Unless one happens to be rich, that is. Actor Gérard Depardieu left France in a huff over Hollande's plans to redistribute the wealth and, ironically, found greener and less-socialist pastures in Russia.
Changes in Canada
Canadians are often thought to be more tolerant of taxes than Americans, but it wasn't always so.
Who pays the most?
Individuals in Sweden, Denmark and Aruba have the highest income taxes in the world, according to global data compiled by the accounting firm KPMG. People in the top income brackets in those countries paid tax rates of between 55 (Denmark) and 59 per cent (Aruba) in 2013. The global average for the top marginal tax rate that year was 32 per cent. In Canada, individuals in the top income bracket paid 29 per cent to Ottawa, plus another 10 to 21 per cent in provincial tax.
The lowest tax rates, among countries with income taxes, are in Kazakhstan (10 per cent), Bulgaria (10 per cent), Belarus (12 per cent) and Macau (12 per cent).
Low taxes were a point of pride among pre-Confederation Canadians, says Mark Milke, a senior fellow at the Fraser Institute and author of Tax Me I'm Canadian.
Some argued against joining Confederation because the new nation would take too big of a cut out of their income.
George Beer, a P.E.I. politician at the time, once complained that a united Canada would, "graciously allow us to expend about one half of our earnings but will exact from us the other half, to be expended a thousand miles away."
Early Canadians saw themselves as "more free" than Americans in part because of their lower taxes, says Milke.
"There were arguments, in early Confederation debates, about making sure taxes did not exceed the levels of the U.S, because of the necessity to attract and retain immigrants," he said.
- 10 celebrities who tried to dodge the taxman
- Millionaires, billionaires and Buffett : Paying enough taxes?
- Canadians OK with higher taxes to fight inequality
That line of thinking persisted into the 1950s and 60s when post-war confidence — over-confidence in Milke's view — saw governments on both sides of the border take on new and more challenging problems, raising taxes to help pay for these efforts.
"People believed … that governments could organize to do just about anything," says Milke.
In Canada, universal health care was established. In the U.S., governments declared war on poverty.
It helped establish the notion, among Canadians, "that taxes equal compassion," says Milke.
"And who doesn't like to think of themselves as compassionate?"
With files from Reuters