The Truth About Canada (12 page)

One reason was an “unprecedented surge in the pay of top corporate employees.” Neil Brooks, noted York University tax specialist, says that the top 1 percent of Canadians doubled their share of the total national income between 1980 and 2000.

Taking a longer look, from 1980 to 2005, Statistics Canada has calculated that during this period the richest 20 percent increased their incomes by 24 percent. During the same years, the average income of the poorest 20 percent increased by only 4.9 percent, or $600; a grand total of a pathetic $24 a year.
³

Statistics Canada put it this way in the spring 2005 issue of
Perspectives on Labour and Income:

During the 1990s, gains associated with economic expansion in Canada went mainly to higher-income families.

While incomes among the richest 20 percent of families were rising by about 10 percent, they stagnated among the poorest 20 percent between 1990 and 2000.

In addition, the mid-1990s saw an unexpected increase in the low-income rate. As unemployment fell, the low-income rate continued to rise.

This may be attributed to earnings difficulties among poorer families and declining social transfers.
⁴

“May be”? If you’ve already read the chapters in this book on poverty, wages, and social programs you’ll know that there’s no “may be” about it.

In the words of University of British Columbia economist and distribution-of-income specialist David Green, “There has been a notable rise in market income inequality because of declining real incomes at the bottom and rapidly rising real incomes at the top.”
⁵
Green quotes other Canadian economists who have shown that real market income fell for the lowest 25 percent of families during the 1980s and 1990s while “the share of total income going to the top 1 percent of individual earners rose sharply over the 1980s and, then, even more dramatically in the 1990s.”

When the final figures for 2000 to 2007 are in, the results are certain to be far more dramatic, and, for almost all Canadians, far more shocking. Except, of course, for the top 1 percent. Statistics Canada has already confirmed that income inequality continued to grow during the first half of 2007, with the income difference between the top and bottom fifths of families up by another third.

Mind you, the figures you have been reading do not include capital gains, so the actual imbalance is even greater. Much, much greater.

As bad as all of this seems, it’s actually even worse. Economists Marc Frenette, David Green, and Kevin Milligan, in a Statistics Canada paper,
⁶
make a number of important points. They find that after-tax inequality levels in Canada are substantially higher than previously
thought, and that previous sources under-represented both very low and very high incomes, producing an “underestimation of the level of inequality” in Canada, and “a substantial long-term increase in disposable income inequality.”

Their study puts average total income in the lowest decile in the year 2000 at only some $6,000, compared to previous estimates of almost $8,000. At the same time, the average total income in the top decile was about $98,000, about $7,000 more than previous estimates.

Economist Lars Osberg of Dalhousie University, in a
Policy Options
article,
⁷
writes, “While the poor have become poorer, the rich have become much richer. The real income (as reported for income tax purposes) of the top 1 percent of Canadian income earners increased by 65.7 percent from 1986 to 2000.”

How do we Canadians do in terms of income distribution compared to other countries? In the 2007/2008 edition of the United Nations’s
Human Development Report
, when you compare the incomes of the richest 10 percent to the incomes of the poorest 10 percent, 38 countries had a more equitable distribution of income. While Canada was 39th on the list, the U.S. was way down in 71st place.

If you compare the incomes of the top 20 percent with the incomes of the poorest 20 percent, Canada is in 34th place. Some of the countries that do much better than Canada are Norway, Sweden, Japan, Finland, Austria, Denmark, Germany, the Czech Republic, Hungary, Slovakia, and Croatia. In the
OECD Factbook
, 2006, some other countries with better-than-average equitable distributions of household disposable income include the Netherlands, Luxembourg, and Switzerland. The worst records are for Mexico, Turkey, Poland, and the United States.

In recent years, the top 10 percent of families in Canada took home an average of over 13 times the family income of the lowest 10 percent. This compares with 5.6 times in Finland and is twice as much as the average in the Nordic countries. In 2004, the gap between rich and poor in Canada was greater than at any time in the previous 30 years, and when the figures for 2007 are in it will almost certainly be by far the greatest in modern Canadian history.

How do most Canadians feel about all of this, the rich getting richer and richer, middle class incomes stagnating, and the income of the poor either standing still or declining? In late 2005, a Pollara public opinion poll summed it up nicely as reported under the
Globe and Mail
header “Canadians Not Seeing Benefits of Growth”: “While a record number of Canadian believe the nation is in a period of strong economic growth, the majority say they’re still not seeing any personal benefits.… Only 11 percent of Canadians believe their household income this year will more than keep pace with the cost of living.”
⁸

A fall 2006 Environics poll said that a record 76 percent of Canadians believed the gap between rich and poor had widened over the past decade. (By the way, British Columbia, the province with the highest child poverty rate in Canada is also the province with the biggest income gap between the rich and the poor.)

A November 2006 report by the Canadian Centre for Policy Alternatives showed that Canadians believed

that if the rich keep getting richer and the poor keep getting poorer, Canada will end up being more like the United States.

65 percent of those polled believed that most of the benefit from Canada’s recent economic growth has gone to the richest Canadians and hasn’t benefited most Canadians.
⁹

Another CCPA report,
The Rich and the Rest of Us
, this one by economist Armine Yalnizyan, showed that 40 percent of Ontario families with children (over 600,000 households) saw little or no gain in their incomes for the past 30 years.
¹⁰
Thomas Walkom, writing about the report in the
Toronto Star
, put it this way: “There is a party going on, but most of us aren’t invited.”
¹¹

When you consider what you’ve just read on the distribution of income, perhaps you will be interested in a May 2007
Globe and Mail
editorial which had this to say: “It is a mark of a healthy society when incomes grow and no one is left behind. The system is working.”

Amazing!

11

THE DISTRIBUTION OF WEALTH IN CANADA

THE RICH ARE GETTING RICHER, AND RICHER, AND RICHER

L
et’s move on from wages and income to look at wealth in Canada. The figures that follow are up to 2005, but there’s lots of evidence to suggest that when more recent breakdowns are available, the imbalances below will be shown to have worsened considerably.

Statistics Canada has reported that between 1984 and 2005 only the wealthiest 10 percent of Canadians increased their share of the national net worth, while the other 90 percent of families saw a decline in their share of wealth, meaning all assets, such as houses, property, cars, bank accounts, shares, and so on. While the bottom 10 percent of Canadian families saw their wealth fall between 1984 and 2005 by an average of $7,500, during the same years the top 10 percent of families more than doubled their wealth from $535,000 to $1,194,000.
¹

By 2005, the highest 20 percent of Canadian families owned 69.2 percent of all net worth. The next highest 20 percent owned 20.2 percent. So, the top 40 percent owned 89.4 percent of Canadian net worth. At the other end of the scale, the bottom 60 percent of Canadians owned only 10.6 percent of net worth, and the poorest 40 percent owned only 2.4 percent.
²
That’s right. The bottom 40 percent of Canadian families owned only 2.4 percent of all family wealth in Canada!

Measured another way, the top 50 percent of individual Canadians owned 96.2 percent of all wealth, and the bottom 50 percent controlled only a tiny 3.8 percent.

Whichever way you want to measure it, the figures are pretty appalling. And the disparities are even greater since Statistics Canada does not include the value of registered pension plans in their wealth calculations.

Taking another look at the 1984–2005 comparisons, between 1999 and 2005 the median net worth of the top 20 percent of Canadian families increased by 19 percent, while the lowest 20 percent saw their net worth remain essentially unchanged.

The annual Statistics Canada report on Canada’s national net worth is inevitably followed by cross-Canada press reports such as “National net worth reached $5.3 trillion … or $159,900 per person.”
³
Such reports are, of course, almost meaningless when distributions of both income and wealth are so warped. A Canadian Imperial Bank of Commerce economist noted that despite “one of the strongest economic expansions in many years … we still haven’t seen a closing of the gap (between rich and poor). In fact we’ve seen a widening.”
⁴

The research and advisory firm Economist Intelligence Unit says that the super rich in Canada (people worth $3-million or more) will go from 90,000 households in 2006 to 320,000 by 2016, while the number of individuals whose wealth is over $1-million will increase sixfold, to 2,100,000, a rate of increase double that of the United Kingdom or Germany.

Canadian Business
magazine says there are now 46 billionaires in Canada, whose combined net worth is greater than the total assets of the bottom 14 million Canadians.

Let’s try that again. Forty-six individuals with greater total wealth than 14 million of their fellow citizens!

Whichever way you choose to look at it, during the past two decades in Canada, the rich have been getting much richer, the poor have been getting comparatively poorer, and most hard-working Canadian families and individuals still aren’t being invited to the party.

If you get a chance, have a look at the 2007
Canada Year Book
. It says Statistics Canada analyzed 13,348 family units. The top 5.7 percent in 2005 owned over 97 percent of all family wealth. The bottom 94.3 percent together owned less than that 3 percent.

Sound fair to you?

12

BIG-BUSINESS BELLYACHING AND ACTUAL CORPORATE PROFITS IN CANADA

“We have now found who’s claiming the lion’s share of gains in the economy.”

N
ow let’s look at how corporations in Canada have been doing. Let’s start by looking at net profits. In 2003, they reached an all-time record of over $102.6-billion. The next year, they increased to over $132.3-billion. In 2005, they jumped to over $157.5-billion. And in 2006, there was yet again another new record — of over $168.2-billion in net corporate profits.
¹
In the third quarter of 2007, they set another new record of $67-billion. In 2003, 2004, 2005, and 2006, net corporate profits in Canada totalled $560.75-billion, far greater than in any previous four-year period in Canadian history. In 2006, total corporate earnings of the top 1,000 firms were up 24 percent over the previous year.
²

In 1992, corporate profits before taxes were 4.7 percent of GDP. In 10 of the next 14 years, they increased as a percentage of GDP. By 2005, they were up to 13.8 percent of GDP, and in 2006 they were up again, to 13.9 percent of GDP. In the words of Global Insights economist Dale Orr, “We have now found who’s claiming the lion’s share of gains in the economy since 1998.” And, as most of us will have suspected, all of the top 10 most profitable Canadian corporations in 2006 were either oil and gas companies or banks and other financial institutions.

As corporate profits increased, wages declined as a percentage of GDP. As we’ve seen, in 1992 they were 55.4 percent of GDP. By 2005, they had fallen to only 50.2 percent. That 5.2 percent difference represented a decline of an enormous $71.3-billion in the share of GDP represented
by wages in 2005. That’s a huge amount of money missing from pay-cheques. Yet if you listen to all the constant corporate and lobby-group bellyaching from big business and the organizations they fund, such as the C.D. Howe Institute, the Fraser Institute, the Canadian Council of Chief Executives, the Canadian Chamber of Commerce, etc., etc., the picture you get is that business in Canada is hard done by, overtaxed and over-regulated, and conditions here are lousy for investment. As detailed in the chapters that follow, all of this is nonsense.

Let’s have a quick look at U.S. after-tax corporate profits and compare them with Canadian corporate profits. In 2005, U.S. profits were 7.5 percent of GDP. In the second quarter of 2006, they reached 8.6 percent of GDP, the highest level in 60 years! In Canada in 2006, they were a huge 11.63 percent of GDP. Surprised? Well, from 1982 to 2006, net profits in Canada were higher than those in the United States as a percentage of GDP in 16 of those 24 years! Poor, hard-done-by, overtaxed corporate Canada!