The rich are getting richer – and we’re all helping

October 4, 2007

New data from Statistics Canada gives us a glimpse at the extensive income gains the richest of Canadians have been experiencing over the past two decades. Finance Minister Flaherty reveals a massive budget surplus, and promises more tax cuts. Canadian Centre for Policy Alternatives research fellow and economist Hugh Mackenzie connects the dots.

On September 25, Statistics Canada released a new study looking at how the distribution of income in Canada has changed over the past 20 years and found the lion’s share of income growth has been going to the richest of the rich – not to the rest of us.

Two days later, the Minister of Finance revealed the federal government surplus for 2006-07 was substantially higher than originally projected, and hinted broadly that his number one priority for the extra money was tax cuts.

What do these two things have to do with each other?

The Stats Can study confirmed what the Canadian Centre for Policy Alternatives found last spring: there is a large and growing income gap between the rich and the rest of us.

But by zeroing in on those at the top of the income scale, Statistics Canada also provided some eye-popping new detail.

It turns out that the growth in the share of income among the richest of Canadians is actually concentrated right at the top – among Canada’s richest.

The share of personal income for the richest 5% of Canadians was stable from 1982 to 1992 – they took about 21% of Canada’s total income pie.

But between 1992 and 2004, their share grew to 25.3% of the income pie.

That doesn’t sound like much, but that’s a 4.3% increase in the share of all income earned in Canada, in a statistic that usually doesn’t change much.

And it turns out the higher the income scale you go, the more money the richest of Canadians made: More than 90% of the gain in income share among the richest 5% went to the richest 1% of Canadians. Half of that gain went to the richest 0.1%. And remarkably, 20% of the gain went to the richest of the rich, the millionaires sitting in the top 0.01% of Canada’s income scale.

Now here’s where the dots line up. The Statistics Canada study also looked at the effective tax rates paid by individual Canadians in each income group.

It found that the average effective tax rate declined by about one percentage point for 95% of Canadians between 1992 and 2004.

The average effective tax rate for the top 5% declined by about two percentage points.

But the effective tax rate for the richest of the rich dropped dramatically.

The top 0.01%, the millionaires sitting at the top of the heap, enjoyed an average effective tax rate drop of 11 percentage points.

What the Statistics Canada study tells us is that between 1992 and 2004, Canada’s income tax system ceased to be progressive for the richest 5% of taxfilers.

And what about the rest of us? For almost a decade, our provincial and federal governments have been talking tax cuts, but those cuts went into the pockets of the richest of the rich. And that tax break only bolstered the unprecedented growth in the share of income going to Canada’s richest.

Canadians have paid dearly for the tax cut agenda of the past decade – with cuts in services like health care and education; with persistent poverty and homelessness despite economic prosperity; with deteriorating environmental quality; with cash-starved cities; with crumbling public infrastructure.

For what? For only the select few —the richest of the rich -- to enjoy the winning combination of rising personal income and falling taxes while our public services suffer?

Soon, our federal government will return to Parliament with a Throne Speech expected to trumpet the benefits of tax cuts – ‘putting more money in your pockets’. The problem with that statement is the evidence proves quite the opposite is at play.

The evidence should make all Canadians wonder whether it’s truly in our best interests to vote for tax cuts at the expense of investments that could benefit everyone.

Tax cuts come at the expense of affordable university tuition, housing and child care – three things Canadians tell Environics Research they’d like their governments to invest in.

The good news is that we have options. We can demand our governments invest our surplus in the things that benefit the majority of Canadians, rather than rewarding the few at the top. Because the rich are getting richer – and we’re all helping.

Hugh Mackenzie is a research associate with the Canadian Centre for Policy Alternatives.