Canadians pay highest property taxes among industrial countries, but other taxes are lower

Olivier Jacques is a post-doctoral fellow at Queen’s University where he is doing research on public finance including taxation

A researcher at Queen’s University in Kingston, Ontario says Canada has the highest level of property taxes among the 38 industrialized countries that are members of the Organization for Economic Co-operation and Development (OECD).

“There is a decision that has been made in Canada to have higher property taxes than elsewhere,” Olivier Jacques said during a telephone interview on Thursday.

“It’s actually the only tax where Canada is actually taxing much more, using that tax much more than other countries,” he added. “For pretty much all the other taxes, they tend to be lower in Canada.”

Jacques was commenting on an academic essay he wrote last year in which he pointed out that municipal property taxes account for 12% of total tax revenues in Canada, while in other OECD countries, they represent an average of 6%.

He explains that other countries rely more heavily on wealth and inheritance taxes as well as taxes on financial transactions that the OECD lists in the same category as the taxes on “immovable property” that Canadian homeowners pay to municipalities.

Jacques also points out that property taxes are the main source of revenue for Canadian municipalities (in Sackville, they account for just over 90%) and so, local governments depend heavily on them to provide services.

“The fact that municipalities are totally reliant on property taxes means that they’re going to be higher,” he says, adding that financially-strapped provincial governments have little incentive to share other sources of revenue, such as sales taxes for example, with cities, towns and villages.

(Provincial figures show that Sackville’s residential property tax rate of $1.56 per $100 of assessed value is slightly higher than the provincial average of $1.5486.)

Lower tax country

In spite of its higher property taxes, Jacques writes that overall, taxes in Canada are lower than the OECD average when measured in relation to the total size of its economy or gross domestic product (GDP):

Canada is at the lower end of OECD countries in levels of taxes in proportion to GDP, with total tax revenues around 32% of GDP in recent decades. Canada’s revenue levels are very similar to those of the United Kingdom (32.5%), higher than the United States (26.2%), but much lower than most western European countries. France, for example, maintains a tax burden of 45.2% of GDP, while the OECD tax revenue average is 36% of GDP.

Jacques notes, however, that there are significant differences in taxation among Canadian provinces. In 2016, tax revenues in Quebec, for example, amounted to just over 38% of its provincial GDP while in Manitoba, with a similar GDP per capita, tax revenues amounted to just under 32%.

Nova Scotia’s 2016 tax revenues were 36% of provincial GDP while in New Brunswick, they were close to 33%, only slightly higher than Ontario’s tax revenues as a proportion of its provincial GDP.

Finally, it is worth noting that tax levels are lower in oil-producing provinces, simply because they can afford to fund expenditures with oil royalties instead of taxes. Indeed, since 1980, natural resource revenues represent an average of 25% of total revenues of the government of Alberta and 19% of Saskatchewan’s government revenues. Since oil production boomed in Newfoundland in 2007, 29% of the provincial government’s total revenues came from natural resources. This is much higher than natural resource revenues in non-oil producing provinces, which have to compensate with higher taxes.

Less generous social programs

Jacques writes that countries, such as France, with higher tax revenues, provide more generous social programs than lower-tax countries such as Canada where public spending on social programs is among the lowest in the OECD.

He writes that, as a result, “income inequality and poverty remain relatively high in Canada.”

The case of Quebec in comparison to other provinces is revealing: Quebec taxes much more, spends even more and, in consequence, redistributes income more than any other province. If taxes in Canada were higher, income inequality and poverty would quite possibly be lower.

**Olivier Jacques’ essay “Funding the State: Taxation in Canada from a Comparative Political Economy Perspective” can be found in Who Pays for Canada? Taxes and Fairness edited by E.A. Heaman and David Tough pubished in 2020 by McGill-Queen’s University Press.

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