GLOBAL ECONOMICS

GLOBAL ECONOMICS COMMENTARIES



Patrick Grady and Herbert G. Grubel
Are Recent Immigrants Paying their Share of Income Taxes?
July 3, 2010

This is obviously a loaded, non-politically-correct question that only out-of-touch economists would ask. The share of income taxes that specific groups of taxpayers should pay is a value judgement that many Canadians would dispute. Granted everyone thinks that there own taxes are too high and that others, particularly the rich, are not paying their fair share.

Forget that the rich actually pay a higher tax share of income taxes because they are progressive, meaning the higher the income earned, the higher the proportion of income paid in taxes. And this is even with all the loopholes.

Given that recent immigrants earn only around two-thirds of non-immigrants, the progressive income tax ensures that they will pay lower rates of income tax. This is the way the Income Tax Act and regulations are designed to work.

Consequently, it should come as no surprise that data from the 2006 Census show that recent immigrants who came to Canada between 1990 and 2004 and were in the prime age earning group of 25 to 64 only paid $4,172.69 in 2005 or only slightly more than half of the $8,130.82 paid by non-immigrants in the same year. Taken alone, this difference amounts to an enormous net fiscal transfer to recent immigrants of $6.1 billion.

It’s true that over time recent immigrants may come to pay a higher share of taxes. But then again, maybe they won’t. And if Canada’s overall target for immigration remains around 250 thousand per year, today’s cohort of recent immigrants will be joined by a growing pool of their former country folk who will also be paying lower income taxes than other Canadians, while, of course, still demanding the same services.

If immigrants come to Canada expecting to get the same government services as other Canadians, shouldn’t they have to pay the same taxes? Why should Canadians offer to subsidize immigrants on such a grand scale to entice them to Canada?

Of course, it may take a while for new immigrants to be integrated in the labour market and catch up with other Canadians in income. But, after a transition period, they should on average pay roughly the same taxes for the same services if they are going to contribute as much to Canada as their fellow Canadians.

It's ironic that immigrants who are being admitted to Canada arguably to respond to the demographic challenge of Canada’s low birth rates and to help lighten the burdens of the pensions of Canada’s aging population are themselves likely to become a net fiscal burden.

This underlines the inconsistency between mass immigration and the welfare state decried by Milton Friedman. The choice facing Canadians is between maintaining social and health programs at their current levels with current levels of taxes and continuing to welcome so many new Canadians.


Patrick Grady is an economic consultant with Global-Economics.ca and Herbert G. Grubel is Professor of Economics (Emeritus) at Simon Fraser University and a Senior Fellow at the Fraser Institute in Vancouver, BC, Canada. This paper is based on the analysis presented in Some Observations on Net Fiscal Transfers to Recent Immigrants Resulting From Income Taxes and Government Transfer Programs.