As you will see, the problems we identified are much more obvious for single-parent families. When children are part of the equation, the problem of implicit taxes becomes much more serious. Basically, what we did was base our calculations on half of the average income up to three times the average income, and we tried to see what happened each time the income was 1% higher than the average income. What we wanted to know was how much goes back to the federal and provincial governments when you earn $400 more.
And here we see that there's a problem. The study did not cover all of the provinces in Canada, but it did cover two provinces, Quebec and Ontario. What we saw was that the implicit tax rate — when you make $400 more — has a bigger impact on people with low incomes, namely those whose income is lower than the average income and who make less than $40,000. If you make $400 more, you pay more in income tax and in social contributions and get fewer tax benefits. This is not really because of increased income tax, since we use a progressive scale. It has more to do with the tax benefits you lose for every dollar more you make.
I have prepared some images, since it is more difficult to explain without images. Let's take the case of a single-parent family with two children. For Quebec, let's take the average income of $40,000. If the family makes $400 more, the government takes back 80% of that. So the family is making $400 more but gets only about $86 in its pockets, especially because of lost tax benefits.
The results in Ontario are similar. A single-parent family making $400 more will lose $111 in benefits from Ottawa, $91 in child tax benefits and $20 in GST credits. These two things mean that there is little incentive to work. You will see that from the document. These same problems exist for two-parent families.
Does this situation that exists in Quebec and Ontario also exist elsewhere in the world? I ran the numbers for the U.S. and the results are not the same. They do not have the same problems of high tax rates for people with low incomes in the U.S. I also ran the numbers for the other G7 countries. In the study that will be published tomorrow, you will see areas in which Quebec and Ontario have the highest numbers among the G7 countries in terms of variations in income taxes. I looked at the numbers for the Scandinavian countries, which, as we know, have high taxes. Their benefits do not decrease as their incomes increase. The result is that, in some small segments of the population here in Quebec and Ontario, taxes are higher when people earn $400 more.
In closing, I believe we have to study this problem further. We have to try to understand whether having the highest taxes for some income groups when they make $400 more could become a trap leading people into poverty. Could this become a disincentive to work? We have to try to understand how many taxpayers are impacted by this and ensure that the federal and provincial governments hold consultations to improve this situation. I believe this is a priority.