Tuesday, September 19, 2017
5 Important Programs Your Taxes Provide
Taxes are a thorn in many people’s sides. You take a look at your pay stub every couple weeks and you think, “What did I just pay for?” For some people, they don’t see a direct dollars and cents view of what their taxes actually pay for. It’s hard to equate how paving a road actually helps me personally. The same can be said for buying a tank or building a hospital. We know these are necessary and valuable things but what do they actually mean to me? While there are many things that taxes provide that we will never utilize, there are a few that affect each of us greatly. Some call it the social safety net; others call it the nanny state. One thing is for sure, here in Canada we have come to love and count on these social programs. In this post, I will speak to 5 important things that taxes provide for us in Canada. These 5 programs can be very expensive and if bought individually could cost a small fortune. While we do pay for our services in the form of taxes, we do get heavily subsidized in these 5 areas.
Old Age Security (OAS) and Guaranteed Income Supplement (GIS)
Prime Minister Mackenzie King first instituted the Old Age Pension’s Act in 1927. Since then it has evolved into the staple of the Canadian Government’s sponsored retirement benefits. While it does not provide Canadian’s with a large amount of income, it can work alongside the Guaranteed Income Supplement (GIS) to provide seniors with a basic income. Changes have been made to OAS since its inception but it appears that it will remain constant for the foreseeable future. Here is a breakdown of OAS and GIS.
Old Age Security
Amount of Income Provided: $570.52 per month ($6,846.24 annually)
Age of eligibility: 65 years old (changing to 67 in 2023)
Income eligibility: Anyone earning $71,592 or less receives full OAS income
-Those earning more than this amount have their OAS income “clawed back” at a rate of 15% of their net income
-There are residency and citizenship requirements that go along with OAS
Guaranteed Income Supplement
The GIS is an additional income for low-earning retiree’s that works along with Old Age Security.
Maximum amount of income provided: $864.09
Age of Eligibility: Once one receives OAS (Age 65)
There are certain criteria to receive the GIS. To receive maximum GIS one must:
- Single persons with total income less than $17,544.
- Married/common-law couple, both OAS pensioners, with combined total income less than $23,184
- OAS pensioners whose spouse/common-law partner is not receiving OAS, with combined annual income less than $42,048
The GIS is basically a supplement for those who do not receive CPP because they did not contribute enough during their lifetime. GIS income is “clawed back” much like OAS income on a 2 for 1 ratio.
Canada Pension Plan (CPP)
Lester B. Pearson and his Liberal government first established CPP benefits back in 1965. It was established as a contributory benefit, to work alongside OAS. Workers over their lifetime will pay into CPP and then start to withdraw from it during retirement. While CPP is funded by contributors, it is essentially a tax on oneself that is paid back. Its purpose is simple: To force workers and employers to provide for their retirement income. For this reason, I believe it serves a valuable purpose. Here is a breakdown of CPP:
Maximum amount of income provided: $1114.17 per month ($13,370.04 annually) 2017
Age of Eligibility: CPP can be taken as early as 60 or as late as 70
Income Eligibility: CPP benefits rely on your contributions throughout your lifetime. CPP essentially takes your best 39 working years to create the average of what you receive in retirement. To receive the maximum one would have to contribute what is called the “Yearly Maximum Pensionable Earnings” or YMPE. The YMPE is the amount you need to make to contribute enough to get the maximum CPP benefit in retirement. ($55,300 2017, up from $54,900 in 2016). You would have to contribute that amount for 39 years to receive maximum CPP benefits.
Freedom 55? Is that even possible? – Budget Boss
Employment Insurance and Disability
In 1940 the Unemployment Insurance Act became law. It has undergone many changes since then including a name change to Employment Insurance or (EI). Losing your job or getting hurt could be two of the worst times in your life. When you are most vulnerable the government does give some help. Here is an overview of Employment Insurance and Disability.
-EI gives you a maximum of 55% of your income. You can claim EI from 14 weeks (3 months) to 45 weeks (10 months).
https://www.canada.ca/en/services/benefits/ei/ei-regular-benefit/benefit-amount.html
Disability is a bit more of a confusing area. There are many qualifiers and confusing jargon. Basic Ontario disability support for an individual is $650. CPP-Disability offers a basic amount of $470 with the average support given being $933.
Disability Benefits – Government of Canada
Education
In many countries, education is not free and is in fact quite expensive. In most of the world, people pay for their small children to attend school as the public schools either don’t exist or are in terrible condition. Some countries do offer free post-secondary education but here in Canada, it does cost a fair amount. Despite the cost of college here in Canada, it is far cheaper to go to school here than for our neighbors to the south. The Organization for Economic Co-Operation and Development (OECD) states that public tuition annually in the US is $8,202 versus $4,939 here in Canada (2015/16 report). The same report states that private college tuition in America is $21,189 on average per year. In Canada, all of our universities are public so we don’t face that issue but the numbers still show the vast difference. Our costs are lower because they are heavily subsidized by our government and that is another way our tax money is used to our advantage. Our government also provides grants for those wishing to save for their child’s education through the Registered Education Savings Plan (RESP).
Healthcare
Being someone who has used the healthcare system in our country extensively throughout my life I have a deep appreciation for it. Many Canadians consider healthcare a fundamental right and boast of our single-payer system. Sadly, our neighbors to the south don’t quite have the same system as we do. Health Insurance for American’s is not cheap and costs are rising every year. EHealthInsurance stated that for the 2015 year average individual American’s paid $3,852 for health insurance. Families paid even more for insurance; a whopping $9,996 during that year. While that may seem high it is still lower than if you had to pay out of pocket in some cases. According to the U.S. Agency for Healthcare Research and Quality, the average emergency room expense in 2008 was $1,265. Ambulance rides cost on average $800 and for surgery the price skyrockets, up to 20K or higher depending on the severity. Healthcare costs often bankrupt uninsured individuals. While the majority of people are fairly healthy, those who need the care will have to pay. We are lucky to not have to deal with this burden.
Could You Survive on Less Than Half Your Income? – Budget Boss
The point of this post is to show a few ways in which everyday Canadian’s actually benefit from the taking of taxes. While every Canadian might not use all 5 of these programs, we will use most of them in our lifetimes. They cover things that we can often not afford on our own. Along with many other things such as roads, lakes, sewers, security, the environment and others, our tax money is of great help to all of us. Now if only it wasn’t wasted, but that is a topic for another day!
“Taxes are not good things, but if you want services, somebody’s got to pay for them so they’re a necessary evil.” – Michael Bloomberg
Email – joe@budgetboss.ca
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