From the Fraser Institute

By Jake Fuss and Grady Munro

According to a new poll from RBC, nearly half (48 per cent) of Canadians can’t maintain their standard of living due to rising costs. These polling results should come as no surprise; recent research has shown that Canadian living standards are in a historic decline.

Governments across the country should take note, and immediately cut the largest expense for families—taxes.

Consider this. Gross domestic product (GDP) is the value of all goods and services produced in the economy, and is the most widely used measure of economic prosperity. And by measuring GDP on a per-person basis (and adjusting for inflation), we can track how living standards of Canadians change over time.

According to the latest data from Statistics Canada, as of September 2024, GDP per person was $58,601 compared to $59,905 in June 2019 (after adjusting for inflation). And since the fourth quarter of 2022, living standards have fallen in seven of the last eight quarters.

The driving factor behind this decline in living standards is Canada’s sluggish economic growth in recent years. Moreover, as highlighted in the poll, inflation over the last several years has left Canadians weary and struggling to cope with the elevated cost of necessities such as food and housing.

Again, if governments want to help improve living standards, they should reduce taxes and leave more money in the pockets of Canadian families.

In 2023 (the latest year of comparable data), the average Canadian family spent a larger share of its income on taxes (43.0 per cent) than on food, shelter and clothing combined (35.6 per cent). In other words, taxes are the largest single expense for Canadian families, and governments have the power to lower this expense to help families make ends meet.

Tax reductions would also benefit the overall economy and increase opportunities for workers. Across a variety of income levels ranging from $50,000 to $300,000 a year, Canadians in nearly every province face a higher combined (federal and provincial/state) personal income tax rate than Americans in virtually every U.S. state.

Of course, jurisdictions compete to attract and retain high-skilled workers such as doctors, engineers and entrepreneurs because these individuals contribute greatly to overall economic growth. By maintaining higher tax rates than U.S. states, provinces remain at a competitive disadvantage in attracting these workers. Lowering both federal and provincial income tax rates would improve Canada’s competitiveness and help increase economic growth.

A stagnant economy and rising cost of living are reducing living standards while stretching the finances of Canadian families. This budget season, governments from coast to coast should lower taxes to improve the economy and put more money back in the pockets of hard-working Canadians.

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Policy Analyst, Fraser Institute