Where Your Tax Dollar Goes

For the fiscal year ending March 31st 2006, Canada's federal government collected $222.2 billion in taxes and other revenues. That represents a bit over 16 per cent of our country's nearly $1.4 trillion economy. 

$222.2 billion in taxes and other revenues

Here's a quick overview of where that money went-and how it was raised. 

About These Numbers

The federal government calculates its finances over a 12-month "fiscal year" that ends every March 31. This presentation is based on the Annual Financial Report of the Government of Canada for the most recent completed fiscal year, 2005-06. Where Your Tax Dollar Goes is updated annually, after the Government's final financial results become available. Please note that numbers may not total 100 per cent due to rounding

Interest Payments - $33 billion or over 15 cents

1. Interest Payments

The largest single federal spending item was interest payments on Canada's public debt (that is, money borrowed by the central government over the years, which has not yet been repaid to the lenders). These payments-to institutions and people who hold federal bonds, treasury bills and other forms of the debt-cost $33.8 billion. That's just over 15 cents of every tax dollar.

Transfer Payments - $118.3 billion or 53 cents

2. Transfer Payments

Cash payments that go directly to individuals, to provincial and territorial governments, and to other organizations are called "transfers." There are three major categories of transfers. Combined, they make up more than half of all federal spending-just over 53 cents of each tax dollar ($118.3 billion).

Transfers to Persons - $52.6 billion or 23½ cents

Transfers to Persons

The biggest transfer category was Major Transfers to Persons. These direct payments to people cost about 23½ cents of every tax dollar ($52.6 billion).

Old Age Security, Guaranteed Income Supplement and Allowance for Spouses - $29 billion or 13 cents

Enployment Insurance Benefits - $14.4 billion or 6½ cents

Canada Child Tax Benefit - $9.2 billion or 4 cents

Support for Families and Children

The federal government also provides assistance to low- and modest-income families especially those with children-the goods and services tax (GST) credit ($3 billion). Since these payments are subtracted from ("netted against") GST revenues, they are not included in the spending calculations presented to Parliament in each year's federal budget.

Funding for Provinces - $41 billion

Funding for Provinces

The federal government also funds several Major Transfers to Other Levels of Government. These payments-totalling almost $41 billion in 2005-06 -help provinces and territories pay for health care, post-secondary education and other social services. 

Since 1996, much of this support came through a single program, the Canada Health and Social Transfer. However, to improve transparency and accountability, the federal, provincial and territorial First Ministers agreed to divide this funding into two separate programs starting in 2004.

Canada Health Transfer - $19 billion or 8½ cents

Canada Social Transfer - $8.2 billion or 3½ cents

Equalization and Territorial Formula Financing - $12.4 billion or 5½ cents

Further major transfers included the equalization and Territorial Formula Financing programs, which together equal 5½ cents of every tax dollar
($12.4 billion). These are payments from Ottawa to less-affluent provinces, and to the three territories, to help them provide public services reasonably comparable to those that wealthier provinces can deliver. 

Other Transfers - $3.9 billion or 2 cents

There were also a variety of other federal transfers, such as $0.6 billion in gas tax transfers to cities and communities for purposes of environmentally sustainable municipal infrastructure, and $3.3 billion in transfers to provinces and territories under Bill C-48 for post-secondary education, public transit and affordable housing. Together, these helped boost transfer funding by almost
2 cents of each tax dollar ($3.9 billion). 

Due to long-standing fiscal arrangements with the provinces, these transfer amounts exceed $41 billion.

Alternative Payments for Standing Programs and the Quebec Abatement 

  • During the 1960s, the Government of Canada offered provinces opting-out arrangements for certain federal-provincial programs, such as hospital care and social welfare. Only Quebec chose to use these arrangements.
  •  Under these arrangements, the Government of Canada reduced - or "abated" - personal income tax by 13.5 percentage points while Quebec increased its personal income taxes by an equivalent amount. 
  • Quebec continues to receive the value of these extra tax points through its own income tax system, in lieu of cash, while other provinces receive the corresponding amounts in cash. 
  • Transfers to Quebec for the CHT/CST and Equalization are shown in the budget on the same basis as transfers to other provinces. However, since part of the Quebec transfer is made through lower federal taxes, it is necessary to net this amount out of transfer program spending.

Support for Health Care

Federal support for health care goes beyond cash payments under the Canada Health Transfer, and the equalization program. 

For example, in 1977 the federal government agreed to let the provinces take over a share of its taxes to supplement direct cash transfers. In 2006-07, these "tax points" added some $18.6 billion to provincial finances for programs such as health care. 

There is also direct health-related spending by the federal government itself, which contributed some $6 billion this year. This included funding for First Nations health services; health care for veterans; and programs for health protection, disease prevention, health information and health-related research.

Other Grants and Contributions - $24.9 billion or just over 11 cents

Other Grants and Contributions

Other transfer programs by various federal departments provide funds to individuals, governments and other organizations and groups for specific public policy purposes.

In 2005-06, spending on these federal grants, contributions and subsidies added up to $24.9 billion, or just over 11 cents of each tax dollar. This included:

Other funding went to student assistance programs, health research and promotion, the arts, amateur sports, and multiculturalism and bilingualism.

Other Program Expenses - $56.9 billion or 25½ cents

3. Other Program Expenses

After transfers, the bulk of federal tax dollars went to cover the operating costs of government itself: the more than 130 departments, agencies, Crown corporations and other federal bodies that provide programs and services for Canadians.

In 2005-06, these operating costs (such as salaries and benefits, facilities and equipment, and supplies and travel) made up roughly 25½ cents of each tax dollar ($56.9 billion).

But a large share of this spending-close to 11½ cents of each tax dollar-went to just three organizations.

Defence - $15 billion or 7 cents

Defence

First, spending in 2005-06 by the Department of National Defence on Canada's military forces made up almost 7 cents of each taxpayer dollar ($15.0 billion).

Public Safety - $6.6 billion or 3 cents

Public Safety

Next, operating costs of the Department of Public Safety and Emergency Preparedness were close to 3 cents of your tax dollar ($6.6 billion). This includes funding for the Royal Canadian Mounted Police, the federal prison system, and border traffic and security operations.

Canada Revenue Agency - $4 billion or 2 cents

Canada Revenue Agency

And third, there was funding for the Canada Revenue Agency, which administers the federal tax system (and also collects personal income taxes for all provinces except Quebec). Its operations cost about 2 cents of each tax dollar ($4.0 billion).

Other Operations - $24 billion or just over 11 cents

Other Operations

A further $24 billion-just over 11 cents of each tax dollar-was spent on the operations of the other federal departments and agencies. 

These included major departments such as; Environment; Fisheries and Oceans; Health; Human Resources and Social Development; Industry; Justice; Natural Resources; Public Works; Transport; and Veterans Affairs. 

As well, funding went to federal agencies such as the Canadian Food Inspection Agency, Parks Canada and the Canadian International Development Agency.

Paying for Parliament

One of the smallest slices of federal operating spending goes to Parliament itself-the House of Commons, the Senate and the Library of Parliament. 

In 2005-06, the combination of salaries and benefits for Members of Parliament, Senators and parliamentary staff, and spending on facilities and services, totalled about $495 million. That's less than one-quarter of a cent of every tax dollar.


Crown Corporations - $7.2 billion or over 3 cents

Crown Corporations

The last portion of Other Program Expenses went to Crown corporations (organizations owned directly or indirectly by the Government). This cost
$7.2 billion, or a bit over 3 cents of your tax dollar. But the bulk of this funding went to just three organizations:

Funding was also provided to cultural organizations (including the National Gallery of Canada, the Canadian Museum of Civilization and the Canada Council for the Arts), to enterprises like VIA Rail, and to the Canadian Tourism Commission.

Budgetary Surplus - $13.2 billion or 6 cents

4. Budgetary Surplus
(Debt Reduction)

The remaining 6 cents of the tax dollar was the $13.2 billion budgetary surplus-how much money was left after paying for all federal programs, operations and interest on the debt. 

This surplus was not money available for future spending. Government accounting principles mean that any surplus at year-end automatically reduces the federal debt. 

Summary

That's our brief summary of the investments and operations where Canadians' federal tax dollars go. But before finishing, let's look at how these funds are raised.

Where the Money Comes From

The federal government's budgetary revenues came from a variety of taxes and other sources.

Personal Income Tax - $103.7 billion or more than 46 per cent

Goods and Services Tax - $33 billion or 15 per cent

Corporate Income Tax - $32 billion or over 14 per cent

Other Taxes - $17,.7 billion or 8 per cent

Employment Insurance Premiums - $16.5 billion or 7.4 per cent

Other Revenues - $19.6 billion or 8.8 per cent

So that's the story of where your federal tax dollar goes, and how it was raised.

Useful links 

More information on Government of Canada finances is available from these sources: 

How Can I Get More Information?

A multimedia version of this document—which also includes direct links to other online material on federal finances—is available on the Internet at www.fin.gc.ca.

General information on the Government of Canada and its operations is available by phoning:

1 800 O-Canada (1 800 622-6232)
1 800 926-9105
(TTY for the speech and hearing impaired)