Are the rich getting richer and the poor getting poorer in Canada?
As Sarah Palin might put it: You betcha!
According to Statistics Canada’s recently released Survey of Financial Security, the total net worth of the poorest 20 per cent of families actually decreased by 15 per cent between 1999 and 2012. In fact, collectively, they now have a negative net worth (i.e. debts exceeding assets) of more than $10 million.
On the other hand, the richest 20 per cent of Canadian families saw their net worth grow by more than 80 per cent between 1999 and 2012. In fact they captured about two-thirds of the total increase in Canadian wealth during this period and now boast a net worth of nearly $5.5 trillion. (All figures are in constant 2012 dollars)
Middle-income families also made gains in net worth during this period and this is being touted by some as evidence that the economy is working well for the middle class. However, home ownership — and a median increase of over 80 per cent in home values — explains much of these gains.
Further, a government research memo released recently under Access to Information legislation belies any notion that things are going swimmingly for the middle class. It notes that the wages of middle class employees have stagnated (increasing just a dollar in real terms between 1993 and 2007), that the debt-to-income ratio of middle-income families has risen steadily and now stands at 163 per cent, and that the chances of middle-income families moving into a higher income bracket are low. As the memo puts it: “The Canadian Dream is more a myth than a reality.”
This augurs poorly for the Canadian economy. Increasing consumer debt and rising home values are not a sound basis for sustained prosperity. Lines of credit max out and house prices cannot rise forever. Indeed, the memo notes that the current debt level is close to that in the U.S. just before the 2007-2008 housing bubble burst, triggering the Great Recession from which we have yet to fully recover. And as economists such as Nobel Laureate Joseph Stiglitz have pointed out, depressed middle-class spending power is a drag on that recovery and on sustained growth.
How did we get to this sorry state? It’s not that big a mystery, really. Things like free-trade agreements that put Canadian workers in direct competition with low-wage workers overseas, outsourcing of good manufacturing jobs, and declining unionization can be expected to lead to type of income stagnation mentioned above.
With this in mind, the government could do a lot more to create good jobs at home by investing in important needs — everything from fixing our crumbling infrastructure to better healthcare and childcare to sustainable energy. The federal government’s low debt level makes such investments eminently affordable. The government could even avoid or minimize debt financing by reversing corporate tax cuts and tapping into some of the half-trillion dollars of “dead money” (to use former Bank of Canada Governor Mark Carney’s expression) which corporations are holding.
The government could also do more to even things out through redistribution via taxes and transfers. Countries that do a lot more of this than Canada boast some of the most dynamic and competitive economies (not to mention Olympic hockey teams!) in the world. Even the International Monetary Fund just released a study which found that high inequality is bad for growth.
However, the federal government has been doing just the opposite. And the blame for this stretches back well beyond the current government. Indeed, as the Conference Board of Canada has noted, from 1976 to 1994, the tax and transfer system did progressively more to reduce inequality. In 1994, the government shifted course — and has done less ever since. So, middle-class heroes from all parties should be clear as to what they would do (or undo) to make things better.
Sooner or later all segments of Canadian society must share more equally in the fruits of Canada’s immense increase in wealth of recent decades — if not out of simple fairness, then as a matter of economic necessity.
Rick Goldman is a Montreal lawyer and lecturer in the McGill School of Social Work
A version of this article was first published in the Montreal Gazette.