Here we are: you only have a few hours left to do your taxes.
Ah, damn tax season!
I still remember the night my parents did their taxes when I was a kid. There were plenty of papers on the kitchen table, my brother and I were allowed to watch TV all evening, and you could hear my dad grumbling when his “mitten” calculations didn’t come up…
Today, we no longer do our taxes “by hand”. But many taxpayers continue to grumble when it comes time to file their tax return. Because they are late. That they are missing a form. Let them look at the amount of tax paid and think, phew, that’s a lot of money!
One out of two Quebecers thinks they pay too much tax.
If this is you, we have good news for you: your taxes are secretly making you…happier.
You do not believe in it ? Here is the proof.
Every year on the International Day of Happiness, March 20, a group of academic researchers publish a report on happiness. These independent researchers – renowned economists, but also psychologists – rank countries according to their level of happiness.
This is a very serious report, published by the United Nations Sustainable Development Solutions Network. The researchers come from, among others, Oxford University, the London School of Economics, Columbia University in New York and two Canadian universities (UBC, Simon Fraser).
To rank countries according to their level of happiness, the report uses six criteria. An economic criterion, GDP per capita. The other five are responses to Gallup’s World Poll on mental and physical health, level of social support, freedom to make life choices, level of generosity, and perception of corruption.
For the sixth consecutive year, Finland, which has a very heavy tax burden, is the happiest country in the world, with a score of 7.8 out of 10. Five of the seven happiest countries in the world also have a among the heaviest.
Is it a coincidence? Or does paying taxes make you happier?
To answer this question, we took a group of 25 developed countries similar to Canada. Countries like Denmark, Japan, USA, Australia, Switzerland that have stable democracy, rule of law, population of at least 4 million people, and are not at war.
We have divided them into three groups according to their tax burden (this includes all types of taxes and duties), from the heaviest to the lightest.
One thing is clear: the group of countries with the heaviest tax burden are on average the happiest.
“It doesn’t surprise me to find that societies with a heavy tax burden that spend it wisely are among the happiest societies,” says economist Tim Besley, professor at the London School of Economics and one of the authors of the annual happiness report.
In addition, this is the group of countries where the gap in happiness is the least pronounced between half of the happiest citizens and half of the least happy citizens. In short, happiness is more evenly distributed in countries where the tax burden is heaviest.
But beware, happiness is not the only advantage of paying a lot of taxes.
Don’t believe in the Happiness Index and swear by economic data?
You may also be surprised: countries with the highest tax burden are wealthier on average. They have higher GDP per capita and stronger 11-year economic growth than the other two groups.
To make our calculations, we made an adjustment to economic data from Ireland, boosted by its status as a tax haven for multinationals.
Yet we hear from the right that lower taxes and a low tax burden can stimulate economic growth. In the long term, the numbers do not support this claim. They might even tend to demonstrate the opposite.
“The evidence for this theory [tax cuts = economic growth] is extremely weak,” says economist Tim Besley of the London School of Economics. What drives growth is investment. Taxation is not a determinant of investments as long as tax rates are reasonable and not repressive. »
Countries with a heavy tax burden are also those where economic inequalities are lower.
“We see that the more taxation there is, the more the state intervenes, the less there is inequality of wealth and happiness, and vice versa”, summarizes the Quebec economist Pierre Emmanuel Paradis, president of the firm of economic analysis AppEco.
Conclusion: Countries with a heavy tax burden are generally happier, wealthier, and have better economic growth.
We have taken 25 developed countries similar to Canada, from a list of countries in the Bilan de la taxation au Québec (2023 edition), published by the Chair in taxation and public finance at the University of Sherbrooke. We have taken all the countries in this list with a population of at least 4 million people, where the rule of law prevails and which is not at war. We have divided these 25 countries into 3 groups according to their tax burden (heavy, medium, light). There are eight countries in the first group (heavy tax burden), nine countries in the second group (medium tax burden), and eight countries in the third group (light tax burden).
To obtain the average happiness level of the group, we took the happiness index of each country according to the World Happiness Report, published in March 2023 by the United Nations Sustainable Development Solutions Network.
To get the level of wealth, we took economic data from the World Bank (GDP per capita in 2021 for wealth; GDP per capita growth between 2010 and 2021 for economic growth). We used GDP per capita in international dollars at purchasing power parity. International dollars are a fictional currency with the same purchasing power in a given country as a US dollar in the United States, for a given year (2021 in our case).
For GDP per capita, we made two adjustments. First, we have kept only 60% of Ireland’s GDP, because the country’s GDP is boosted by 40% by its status as a tax haven for multinationals, according to a report by economist Patrick Honohan, ex-governor from the Central Bank of Ireland1. That 40% of GDP doesn’t actually make the Irish richer. Ireland is in the group of countries with the lowest tax burden. Without this adjustment, the average GDP per capita for this group would be 61,375 international dollars. Second, we subtracted 4.3% from the GDP of Norway, which is in the highest-taxed group, to subtract its oil wealth. For economic growth, we did not take into account the economic growth of Ireland, for the same reasons as explained above. With Ireland, the average economic growth of the group of the least taxed countries is 3.8% per year.
Furthermore, in our results, we notice that the group of countries with the lowest tax burden (the third group) is on average happier, richer and has better economic growth than the group of countries with an average tax burden (the second group). ). In this second group, there is notably Greece, which experienced a significant economic crisis from 2010 to 2018 and which has the lowest GDP per capita of our group of 25 countries. Excluding Greece, the group of countries with a medium tax burden are almost as happy (happiness index of 6.76 out of 10) as the countries with low taxes (index of 6.81). It nevertheless remains less wealthy than the group of least taxed countries (GDP per capita), but its economic growth is slightly stronger (3.2%/year compared to 3.1%/year).
By separating the 25 countries into two groups (rather than three), we arrive at the same conclusions: the group of 12 countries with a heavy tax burden are happier and richer than the group of 13 countries with a light tax burden. The annual economic growth of the first group (high tax burden) is 3.0%, that of the second group (light tax burden) 3.1%.
We are therefore richer and happier in countries where we pay a lot of taxes.
Then why aren’t all governments in developed countries like Canada raising taxes? Would everyone be happier then?
It’s not as simple as that.
In fact, Finns and Danes are not happier because they pay more taxes. They are happier, among other things, because they live in a society that offers government services that they appreciate and an important social safety net that tends to reduce inequalities. This greater social safety net is financed by higher taxes.
“If your government raises taxes by 5% [without doing anything in return], it will not lead to an increase in happiness”, illustrates the economist Tim Besley, of the London School of Economics.
Why do some countries have a larger social safety net than others? Canadian economist John Helliwell, one of the authors of the annual Happiness Report, has studied this question all his life. He just turned 85.
His answer: the benevolence of the citizens.
It’s a virtuous circle: the more benevolent citizens are to others, the more they trust each other, the more they tend to trust their government, and the more they are willing to pay high taxes to fund a significant social safety net.
Through his research, John Helliwell developed an intriguing but effective way to measure the benevolence of citizens in different countries: the lost wallet test.
The correlation is very strong: the more you believe that you will see your lost wallet again, the more you trust others, the more you agree to pay taxes to finance a social safety net, and the happier you are, notes the researcher.
There is also a psychological aspect: giving generally makes you happy. Spending money on others even improves cardiovascular health1. “Giving has a beneficial effect on people’s psychological health. It’s a natural tendency in humans that we find from childhood, “says psychologist Jacques Forest, professor at the School of Management Sciences at UQAM.
But to give to your government, you have to trust others.
Conversely, in countries where the level of corruption is high and democracy shaky, taxpayers lose confidence in their government and do not want to finance it.
Even in developed countries – like the 25 in our study – the level of trust in other people and governments differs. This partly explains why the tax burden varies by country.
On average, providing a significant social safety net and valued government services is the recipe that most often works to make citizens happier. Among other things because it reduces economic inequalities. Historically, according to an academic study, the bottom 40% of Americans tended to be happier when the tax burden was higher, and the top 20% of Americans were no less happy.
Countries are also defying the rule that links a large social safety net and happiness. Switzerland and Australia have a level of happiness equal to that of Canada or higher, with a lower tax burden. We can think that they offer public services in a very efficient way.
“Whether you have a big or a small government, you can be happy. Look at Switzerland,” says John Helliwell. The Swiss country actually ranks 7th out of our 25 countries for the happiness index, and its tax burden is the 3rd least heavy.
John Helliwell suggests that countries like Canada focus on the efficiency of public services and the consideration of collective happiness in the evaluation of public policies. “Are the children happy at school?” Are older people happy in their living environment? What matters is what you do for each other, not how much it costs,” he said.
For many experts, however, the link remains clear between the importance of the social safety net – funded by public funds – and the collective happiness of citizens.
Luxembourg economist Kelsey O’Connor examined data from 104 countries between 2005 and 2012. His conclusion: it is above all the size of the social safety net that leads to happier citizens3.
This tends to validate our initial hypothesis: the more you live in a society where the tax burden is heavy, the more you benefit from a significant social safety net with reduced economic inequalities, the happier you will be.
Even if you’re grumbling about wasting a beautiful spring Sunday doing your taxes.
Finns have been the happiest country for six years. They have a significant social safety net. But there’s another reason: they know how to recognize when they’re rich enough, says Arto O. Salonen, a professor who studies well-being at the Faculty of Social Sciences at the University of Eastern Finland. “There is no significant difference in level of happiness by income level in Finland,” he wrote by email. Finns distinguish quite well between their real needs and their endless desires. To be happy, knowing how to make this distinction is more important than increasing your income. When you know what is enough, you are happy. »
Countries that pay the most taxes generally have happier citizens. But there is another very important factor that influences the level of happiness: wealth. Generally speaking, the richer a country, the happier its citizens. In our group of 25 countries, 6 of the 10 happiest countries are also among the 10 richest countries. However, there are some anomalies. Israelis (3rd happiest, 20th richest), Finns (1st Happiness, 12th Wealth) and New Zealanders (8th Happiness, 16th Wealth) are much happier than portends their wealth. Conversely, the United States is the 3rd richest country, but only the 13th happiest country. And Canada? He is a little happier (11th rank) than his wealth (13th rank) suggests.
In 2022, 53% of Quebecers thought they were paying too much tax.
Since the Chair in Taxation and Public Finances began to publish this data in 2005, the proportion of Quebecers who believe they pay too much tax has varied between 44% (in 2020, during the pandemic and its government assistance programs) and 70% (in 2011, in full Charbonneau commission on corruption).
And yet, most Quebecers agree with an increase in the QST if it is to specifically fund health (62% of respondents) or education (58%). “People are willing to pay more, despite everything, if it’s for a specific public service,” says Luc Godbout.
When we compare ourselves to other countries, we realize that Quebecers are perhaps less grumpy than you think when it comes to their tax burden.
As the OECD does elsewhere in the world, the Chair in Taxation also asked Quebec taxpayers if they believe they are getting their fair share of public services given their tax burden.
Result of this sounding: Quebec ranks 10th among the states where the tax burden is best accepted, out of 26 states. Yet it has only the 17th lowest tax burden of the 26. Quebecers are therefore accepting their heavier than average tax burden.
We sometimes hear that the government “takes half of our pay”. That’s wrong, you don’t pay 50% tax. In Quebec, taking into account basic deductions, an employee earning $35,000 per year pays 13.5% in taxes on his total income, an employee earning $50,000 pays 18%, an employee earning $75,000 pays 24% , an employee earning $100,000 pays 37%, and an employee earning $200,000 pays 38% of their total salary in taxes. These calculations take into account the deductions for basic personal amounts, the deduction for QPP, the deduction for workers, the tax credit for social contributions and the tax credit for employment.