How is Tax Revenue Spent in Canada?
Between 2018 and 2019, Canada was running a $14B deficit, while in 2018, we were already in $768B of debt. While pulling Canada out of debt may be a significant challenge, slowing the deficit would, over time, allow the debt to become less significant compared to our GDP. This makes it important for citizens to be informed about how our tax money is spent in Canada. Between 2017 and 2018, the government collected $311.2B of tax revenue, so it’s easy to wonder, “where did all that tax revenue go?”
How is Canada’s tax revenue collected?
First, let’s answer where most of our tax revenue comes from. In the diagram above, 48.98% ($153.619B) of our tax revenue came from personal income taxes. The income tax is a percentage of money that is taken from personal income, with the tax rate varying depending on how much money a person earns.
If we take a closer look at the distribution of personal income tax revenue, the top 20% of families earning over $186,875 are responsible for 64.4% of the amount paid, with the bottom 20% of families earning less than $45,299 are responsible for 0.6% of the amount paid. Now that we know the categories that the Canadian government collects tax revenue from, let’s move on to how the money is allocated.
How is Canada’s tax revenue allocated?
In Canada, our tax revenue is distributed into many sectors, including:
- National defence, crown corporations, and other direct programs at $99.230B
- Federal transfer support for health and other social programs at $50.872B
- Elderly benefits at $50.644B
- Other transfer payments at $47.138B
- Children’s benefits at $23.432B
- Public debt charges at $21.889B
- Employment Insurance at $19.715B
- Fiscal arrangements and other transfers at $19.647B
All this money helps us pay for things such as education, waste management, roads, national defence, public libraries, healthcare, parks, and welfare.
Should Canada increase or decrease its spending?
In order to keep this article as unbiased as possible, I will not be commenting on whether or not spending should be increased or decreased as there are many different ways to analyze the current economic situation. However, what I will do is end this article with an economic theory that is commonly mentioned with running deficits or surpluses, Keynesian economics. One of the ideas from Keynesian economics is the idea of promoting aggregate demand to pull an economy out of a recession, while decreasing it during an expansionary period to help keep a countries economic cycle stable. A basic idea of this in the real world would be to slow down economic growth by running a budget surplus. This could be done by decreasing government spending while increasing taxes. The money saved from the surplus could then be used during an economic downturn on a budget deficit by increasing government spending while decreasing taxes. In combination, both can smoothen out an economy and help keep it stable in the long run.
Written by Fahim Ahmed, Writer for the Junior Economist
Originally published on December 9th, 2019
