Canadians are considering a flat tax

With 85 percent of respondents to a Canadian poll objecting to their country's high levels of taxation, Canadian conservatives are advancing proposals for a flat or single-rate tax.

Canada's top federal-provincial rate of personal income tax is about 48 percent - and it kicks in when workers have earned the U.S. equivalent of about $41,000 (R280,000). The U.S., by comparison, has a top tax rate of about 39.6 percent (RSA 42 percent) that doesn't apply until earnings exceed about $285,000.(R1,995,000)(RSA R205,500)

So with taxpayers steaming, the Canadian Alliance - the country's opposition party - is offering its 17 percent personal flat tax plan.

Here are some of its features, with all monetary references in Canadian dollars:

  • The personal exemption would be set at $10,000, there would be a deduction of $3,000 per child, and the 5 percent surtax would be eliminated.

  • The limit on tax-exempt retirement contributions would be raised to $16,500, and there would be a 30 percent cut in employment insurance premium rates.

  • The single-rate tax would reduce the top federal/provincial tax level to roughly 29 percent over five years - and eventually relieve 1.9 million Canadians from paying taxes altogether.

    Not unmindful of the political stakes involved, Canada's ruling Liberal Party has offered its own tax-reform plan. But observers report that it consists of only tinkering at the margins.

    Source: Michael Taube (analyst and commentator), "Canadians' Bacon: Flat-Tax Proposals Sizzle as Canadians Flee High Taxes," Investor's Business Daily, June 2, 2000.

    For more on Flat Tax Proposals

    RSA Note:
    South Africa’s top marginal tax rate is 42 percent and it kicks in at R205,500 – compare this to the US at 39.6 percent and R1,995,000. Our total government expenditure in 1997 (at all levels of government) was 31,6 percent of GDP and Canada’s 46,4 percent. This means that if Canada can reduce its federal/provincial tax level to 29 percent then South Africa should be able to cover its current level of spending with a flat-tax rate of less than 20 percent. However, a developing country such as South Africa should limit its total government expenditure to GDP ratio to 20 percent if it wishes to produce the high rate of growth necessary to eliminate unemployment and rapidly reduce poverty. The flat-rate tax could then be as low as 15 percent.

    Eustace Davie, Director, FMF
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