Growing Gap

A Census report from Statistics Canada today shows a booming economy did nothing to reverse the gap between the rich and the rest of us - in fact the gap is worse now than in the 1980s.

Census data show the richest 20 per cent of Canadians enjoyed median earnings increases of 16.4 per cent but the poorest 20 per cent had a 20.6 per cent drop in earnings since 1980.

Median earnings for middle-income Canadians stagnated.

If anything, this is a wake-up call for Canadians, and for our governments to have long ignored persistent poverty and deepening income inequality.

Today's Census report should have been a good news story. It should have been telling us everyone is better off. Instead, we are seeing a growing and deepening divide between the rich and the rest of us.

The labour market is rewarding the richest 20 per cent but a stunning majority of Canadians didn't get ahead in the last 25 years even though our economy is doing better than it has in 40 years.

The Census report also shows young Canadians are struggling to get ahead and things are worse for newcomers and children living in poor families.

Canadians and their governments can't keep ignoring this problem because it isn't going away - in fact it's only going to get worse.

There is an economic downturn on the horizon, and when that happens, fasten your seat belts, it's going to be a bumpy ride for a lot of Canadians.

-- Armine Yalnizyan

For over a year, the Canadian Centre for Policy Alternatives has been producing report after report showing Canada's income and wealth gaps are growing at a time when they should be sinking.

They are growing despite a healthy economy, high unemployment figures, better worker productivity, better educated workers and workers putting in longer hours.

But why does income inequality matter?

Just a week before Statistics Canada releases its Census analysis of income inequality in Canada, the CCPA is releasing a new and powerful essay series by some of Canada's leading thinkers on income inequality.

The contributors to this essay series come from all kinds of academic backgrounds.

Though all the contributors are distinguished and well-respected for their academic work, they are not of like mind. They have differing ideological starting points and differing intellectual approaches.

But they agree on this: Income inequality is a problem that should be addressed, right here in Canada.

They warn that income inequality and persistent poverty could have serious and adverse effects on our nation.

In this series we present the opinions of four economists-Lars Osberg, Charles Beach, Jon Kesselman and David Green; a political scientist- Michael Orsini; a sociologist-John Myles; a philosopher-Frank Cunningham.

The series, in its entirety, is featured on the Globe and Mail website at: http://www.theglobeandmail.com/servlet/story/RTGAM.20080426.wincomes26/BNStory/census2006/

On the Globe and Mail website you will see a story on income inequality by Michael Valpy. To the right, you'll see a button to click on links -- that's our essay series.

So why, you ask, does inequality matter? Inequality affects democracy. It affects our sense that we can get ahead, do better than the next generation. It pulls us apart and leaves people behind. But don't take my word for it, read the series.

-- Trish Hennessy

A groundbreaking study released by the B.C. office of the Canadian Centre for Policy Alternatives raises important new questions about the validity of harsh welfare rules.

The study follows real-life people on welfare in B.C. for two years, tracking them through periods of homelessness and desperation.

And it found that harsh rules forced welfare recipients into a day-to-day struggle for survival, scrambling for food, shelter, the basics -- simply because welfare rates push them into such deep poverty.

The study shows the political promise to get people off welfare and into jobs is empty: Many were cut off welfare even though they weren’t job-ready (some were too sick to work but got cut off anyway). Some found jobs but remained below the poverty line (the working poor). And some, especially women, turned to prostitution to get by.

Many remain inappropriately categorized in the basic “Expected to Work” welfare category for far too long – two years or more.

The study also makes a vital link between welfare and homelessness: Throughout the study, almost one third of participants reported having no fixed address at some point in the previous six months.

We live in an era where governments still trump reduced welfare caseloads – but we never really hear about the fate of those who left (or were push off) welfare.

This study forges new territory by asking that question and following real people during their very troubling struggles.

As Seth Klein, director of the B.C. CCPA, tells the Vancouver Sun: "It's all so stupid and pointless. None of these people are being served by being cut off nor is society served."

-- Trish Hennessy

They’re saying it again. Those two mystical words: Consumer confidence.

This story in today’s Toronto Star references a Conference Board of Canada report that predicts Canadians like you and I will pull our nation out of the depths of economic despair by opening our wallets and spending. The euphemism for this heroic behaviour is ‘consumer confidence’.

The thing is, we’ve done it before. Shortly after 9/11 the North American economy started to slump but average shoppers like you and I pulled out our credit cards and opened lines of credit in a mass movement to buy new cars, renovate our homes, mortgage ourselves to the hilt by buying houses in a rapidly inflated market.

In short, we rescued ourselves from recession.

Governments awash in fiscal surpluses didn’t do it. They used to torque things up in bad economic times by investing in infrastructure and public services. Not last time, and our current Prime Minister suggests no ‘bailouts’ can be expected this time either.

Corporations, rolling in 40-year record profit highs, didn’t do it either.

Ordinary Canadians did it.

Since we are so trigger-happy to pull out the plastic, who can blame industry analysts for predicting citizens will spend once more? A little retail therapy is good for what ails us, right?

Consider this dirty little secret: Many Canadians really can’t afford to pretend we are our very own personal Bank of Canada.

Truth be told, Canadians didn’t fund the last economic turnaround by pulling rainy day savings out from underneath the mattress.

Stagnant incomes and rising costs have squeezed savings out of many Canadians’ budgets.  Average Canadian household savings have practically dried up, plummeting from $7,500 in 1990 to $1,000 today.

In place of savings, Canadians have been steadily, systematically racking up record-high household debt.

At least 60% of Canadians under 45 are mired in debt.

Some leave university so far behind the eight-ball -- with average student debt levels of $40,000 -- it’s hard to get ahead.

Others hawk themselves up to their eyeballs just for a chance to ‘own’ a home – that symbol of security in these insecure times – they may never be able to pay off.

No wonder 49% of Canadians tell Environics Research they are one or two paycheques away from being poor. Canadians are sick with financial worry.

And yet, their governments, their corporate leaders, their industry analysts are telling them to keep on charging it. In other words, they are encouraging average citizens like you and I to privatize the risk of a tumultuous global economic market. To work harder, to get smarter, to take our tax cuts and spend like mad.

And we will – undoubtedly we will.

But let’s not confuse consumer spending with confidence.

-- Trish Hennessy

(PS: For a more technical take on all this see this Progressive Economics Forum blog.)

The Financial Post reported today on a new OECD study that shows Canada's legacy of tax cuts only deepens the gap between the rich and the rest of Canadians.

The OECD study, Taxing Wages 07, shows Canada is out of step with many other countries. Of 30 OECD nations, 13 raised taxes and 15 lowered them between 2000 and 2006.

Canada is among the 15 nations that lowered taxes -- but here's the thing: Canada, the U.S. and Australia didn't just lower taxes; they implemented the type of tax cuts that worsen income inequality.

This report is just one more document that shows the folly of Canada's tax cut agenda.

We know that tax cuts don't reach 31% of Canadian taxfilers at all, because their incomes are too low to be taxable.

These Canadians -- one-third of the population -- would get more benefit from governments that invest in public services such as child care, affordable housing, postsecondary education, and public transit. Fittingly, the OECD report also notes that Canadian employers' social security contributions are "far below" the average for industrial countries.

Let's be clear about Canada's history with the tax cut agenda. Tax cutting isn't just about cutting personal income taxes. It's about shifting responsibility for the public into private, individual hands. It's a twisted perversion of the line "ask not what your government can do for you" and instead, leaves Canadians to fend for themselves.

The OECD report gives yet another reason to reflect on the relentless tax cut campaign in Canada. It begs the important and telling question: who benefits from this one-dimensional kind of economic fundamentalism? And who doesn't?

-- Armine Yalnizyan

The Toronto Star's Carol Goar writes about CCPA Senior Economist Armine Yalnizyan's recent testimony to a Senate committee asking for an analysis of this year's federal budget from a woman's perspective.

As Goar reports, Yalnizyan concludes: "Regrettably, women appear as an afterthought in this year's budget."

Goar writes: "[Yalnizyan] pointed out that there were six references to women in the entire document. She enumerated some of opportunity costs of the $200 billion in cumulative tax cuts that Flaherty flagged proudly in his budget speech: lost child-care spaces, unbuilt social housing, inadequate immigrant services and underfinanced job training programs. And she reminded parliamentarians that women have been waiting 11 years for the improvements in public services that the post-deficit era was supposed to bring.

"But her central argument was that women have lost out badly in the tax cuts the Tories have distributed. Using figures from Statistics Canada, she showed that every $1 in tax relief that has gone to Canadians in the lowest tax bracket (those with taxable incomes below $37,885) has been matched by a $12 tax break to Canadians in the three higher tax brackets.

"Two-thirds of women fall into the lowest tax bracket."

Yalnizyan's submission to the committee is available on this website, in Research and Publications.

In the ongoing debate about what makes for a good “middle class” tax cut, here’s an eye-popper of a fact, provided by those who support raising the amounts you can contribute to the Registered Education Savings Plans, and making them tax deductible: 55% of Canadians who contribute to RESPs are in the top income bracket, those earning $123,185 or more. (Taken from a 2003 Human Resource and Skills Development report)

Tax statistics don’t tell us how many tax-filers are in the top bracket, but they tell us how many people have incomes over $100,000. The answer is 5% of taxable Canadians. 7.5% of these are men, and 2.6% are women.

And, because they are well-positioned to make the biggest contributions, those in the top income bracket get the lion’s share of what this program offers.

In 2007 the RESP program cost taxpayers about $200 million in foregone revenues and about another $500 million for government top-ups that automatically go along with the contributions, through the sister program Canada Education Savings Grants.

We’re spending $700 million on a program, more than half of which goes to 5% of taxpayers, who just happen to be the richest 5% of Canadians.

That’s hundreds of millions of dollars lining the pockets of the most affluent instead of hiring nurses, or buying buses for public transit, or opening up child care spaces – the kind of things the rest of us would like to see.

Tax cuts for us all? This era of tax cuts has taken the redistributive role of government and stood it on its head, by giving the most to those who have already have the most – and need the least help.

-- Armine Yalnizyan