I will call this meeting to order. This is the 117th meeting of the Standing Committee on Finance. Our orders of the day are pursuant to the order of reference of Wednesday, June 13, 2012, and we are continuing our study of income inequality in Canada.
I want to welcome all of our witnesses joining us here this morning, and I will present them now.
First of all, we have Mr. Stephen Richardson, executive fellow from the University of Calgary. Welcome.
We have Professor Michael Veall, Department of Economics, McMaster University.
We have, from the Assembly of First Nations, Chief Executive Officer Mr. Peter Dinsdale. Welcome to the committee.
We have, from the Broadbent Institute, the chair and founder, Mr. Ed Broadbent. Welcome back to Parliament, Mr. Broadbent.
From the Canadian Centre for Policy Alternatives, we have Madame Armine Yalnizyan. Welcome.
We are also welcoming Peggy Taillon, from the Canadian Council on Social Development, and Michel Venne, the Director General of the Institut du Nouveau Monde. Welcome.
And from the University of British Columbia, we have Madame Nicole Fortin.
It's 5:45 a.m. in B.C., so she may have gone for a coffee.
We welcome all of you to the committee. We have a large panel today of very distinguished guests. Thank you for being with us.
Each of you will have a maximum of five minutes for an opening statement, and then we'll have questions from members.
We'll begin with Mr. Richardson's presentation, please.
Thank you, Mr. Chairman.
I'd also like to thank the committee for the opportunity to appear here this morning.
In my opening remarks, I will briefly provide some context for the issue of income inequality and comment on some measurements.
The first point of context is that income inequality is a natural result of free markets that price goods, services, and capital according to supply and demand accounting for risk. Redistribution of income through taxes, transfers, and subsidies is the way in which governments act to reduce income inequality. Note, however, that redistribution mechanisms can have negative effects on the economy—for example, where high levels of taxation on business or skilled labour are used. Redistribution funded by government borrowing can also cause issues in terms of inequities between generations.
The second point of context is that income inequality is inherently a relative concept, and measures of it in a given population show only relative relationships. For example, a rich country producing a large, absolute amount of income could have a higher level of income inequality than a poor country producing a small amount of income, yet a sizable proportion of the persons living in the poor country would improve their economic welfare by living instead in the rich country.
The third point of context is that the determination of a correct or appropriate level of income distribution as a goal in itself is based on normative judgment derived from an ethical or a political framework. For example, at the political extremes, certain forms of socialism have a goal of absolute economic equality, while certain forms of libertarianism will consider very high levels of inequality as appropriate. Typically developed economies with free markets accept a position in between these extremes.
Though statistical or economic analysis cannot determine a correct level of income distribution, it can assist in measuring income inequality. These measurements of income inequality in a population can be used to benchmark inequality and redistribution against both historical and international comparisons.
Gini coefficients are a commonly used measure of income inequality in a population. A Gini is a measure of statistical dispersion, that is, the unevenness of a variable over a population, with a Gini coefficient of one representing complete unevenness—that is, inequality—and a Gini coefficient of zero representing complete evenness—that is, complete equality. Gini coefficients in between obviously represent intermediate amounts.
Now I'd like to refer to two figures that I think can be found in the materials that were handed out to members ahead of time.
This is a chart that shows the Gini coefficients for income distribution in Canada for all families from 1976 to 2010. The data is from Statistics Canada. The blue line shows the inequality measured by Gini coefficients pre-tax and transfer, that is, before any redistribution. The red line shows the reduced inequality after taxes and transfers are taken into account, which in effect shows the amount of distribution.
My figure 2, which I'm not going to put up at the moment, because I would use the rest of my time trying to get these two computers to do it—I'll put it up immediately after—just shows the difference between those two lines over time.
Figure 1 indicates that post-tax and -transfer, income inequality in Canada that takes account of redistribution increased during the time period from 1976 to 2010 by about 8.5% in total, but with virtually no increase in the last 10 years measured.
Figure 2 will indicate that the scale of redistribution of income by government increased during the same period by about 27%. Although it did drop from its peak in 1994, the scale redistribution has been relatively stable for the last 10 years measured. Moreover, as measured by the OECD—and this is not on the slides—the Canadian post-tax and -transfer income inequality for the late 2000s of 0.324 is very close to the OECD average of 0.314, compared to, for example, that for the U.S., which is much higher at 0.378.
What are my public policy conclusions? In my view, these historical and OECD benchmark comparisons suggest that the Canadian system of income redistribution is working well, and there's no reason for public policy in Canada to target income inequality as a general issue. However, in order to maintain and improve equality of opportunity and living standards for Canadians, continuing attention should be paid to more precise targeting of existing and new policy initiatives using existing resources that can specifically assist lower-income Canadians. For example, consideration could be given to reducing the phase-out threshold for OAS, which is currently available unreduced up to $69,562, and not eliminating it completely until the person has an income of about $112,000 a year. Using these cost savings could increase the benefits to lower-income Canadians who require this more.
There are other examples, but I think I've probably used my time, so I'll stop.
Thank you for your attention, and I'll be prepared to take questions.
Thank you for this opportunity.
The motion proposes an examination of best practices that reduce income inequality and improve GDP per capita. Turning to GDP per capita, Canada's recent productivity growth has been slow. In terms of output per hour, growth averaged about 4% per year until the early 1970s, but it has fallen since. This century, it's averaged only 1% per year. Moreover, the gains the economy has generated have gone disproportionately to the top of the income distribution. Between 1986 and 2010, the after-tax, after-transfer incomes of the bottom 90% of the population increased by about 19%, after adjusting for inflation. The incomes of the top 1% increased by 77%. The incomes of the top 0.01% increased by 160%, to about $4.7 million per year, after tax.
There are big policies on both the productivity and inequality fronts. I think you'll probably hear about some of that today. Instead, I've elected to focus on just three smaller policy directions that might draw support from across the political spectrum. These are not silver bullets. At best, I would describe them as silver BB pellets. They're small.
The first policy direction relates to the regulation of corporate finance. Randall Morck, a distinguished professor of business at the University of Alberta, argues that the Canadian corporate sector underperforms because of a low level of shareholder democracy and high insider power. He notes that the Yale School of Management concluded that Canada had the highest rate of insider trading among all developed economies. Low shareholder democracy and high insider power might contribute to high executive salaries, but even if not, a weak commitment to broad shareholder accountability makes it harder to raise money on Canadian capital markets and to replace tired management with innovators.
Professor Morck suggests continued attempts to introduce national securities regulation to prevent a race to the bottom by provincial regulators. He also suggests tax disadvantaging shares with different levels of voting power because such shares enhance the ability of insiders to control corporations.
The second policy direction relates to intergenerational mobility. Children should have a good chance at success, regardless of the status of their parents. Long-run productivity growth is higher when society gets the best out of everyone, not just the best out of those who were born with relatively high incomes. The current published evidence suggests that Canada has had a high intergenerational mobility, by international standards, probably due to relatively equal access to high-quality schooling and prenatal health. Provincial budget crunches may jeopardize this. Federal policy interaction with the provinces may become even more important.
The third policy direction relates to taxation, perhaps particularly appropriate to talk about on April 30—I got mine in last night. I do not believe we currently have the evidence to be sure that an increase in marginal tax rates at the top will raise much tax revenue. Perhaps a better, immediate approach is to eliminate those tax expenditures that both distort productive activity and benefit the affluent. I strongly support the removal of the labour-sponsored venture capital fund tax credit in the recent federal budget as well as changing the dividend tax credit so that it cannot exceed the corporate tax paid in the case of small business. I would suggest the proposed study examine other measures, such as the employee stock option deduction.
As former Rotman business school dean, Roger Martin, writes in his book, Fixing the Game, stock options contributed to the financial crisis by giving an incentive to corporate executives to focus on the information that the company released, not on true corporate performance, or, as Arianna Huffington somewhat harshly put it in her review of his book, “We’ve gone from an economy based on making things to one based on making things up.”
Staying with the tax system, I support moving towards refundable tax credits. A small example is the children’s art tax credit and the children’s fitness credit. Elimination of these would save $220 million for other purposes. But if they are to exist, I believe they should be refundable. As I have written elsewhere:
In effect these subsidize the participation in the arts and sports activities for children in all families except those too poor to be subject to personal income tax, probably the only families for which the subsidy might make an appreciable difference.
I thank you for your attention.
Thank you very much to the committee for inviting us here to make the presentation. I would also like to acknowledge that we are on unceded Algonquin territory, and we thank them for allowing us to gather here.
We're very pleased to make a brief presentation and provide our recommendations to your study on income inequality and the relationship to taxation.
As you near the end of your hearings on this matter, I know you're well aware of the terms of income inequality in Canada, and in particular that first nations continue to rank very last here.
In the 2010 study published by the Canadian Centre for Policy Alternatives, they outline the persistent and growing income inequality of aboriginal peoples, which is generally 30% lower than the immediate income of non-aboriginal Canadians. At the current rate of change, the author has estimated it would take 63 years for that gap to be bridged.
According to StatsCan, in 2010 the average annual income of a first nations person on reserve was $14,000, compared to $18,400, which is the poverty cut-off line for those same communities. In northern remote communities, the cost of essential goods and services is at least 30% higher. We're seeing tremendous income inequality, and also gaps and opportunities.
So many of our communities are facing crippling poverty and wider social implications. The question is, how do we handle this, and what do we do? To paraphrase Mr. Scott Brison, who introduced the motion for this current study...he said that first nations income inequality is a demographic and economic ticking time bomb. The question is, what do we do for change?
For many years, AFN has made submissions to the federal government on their budget process for needed investments in these various areas, although significant change has not yet occurred. That's what I would like to focus on briefly here: the change that's required.
I'd like to speak briefly on taxation issues. For first nations governments and citizens, which this committee has heard before, what I'm about to say will be fundamentally different.
In the past 20 years of erosion, the courts are breathing new life into the tax immunity provisions of the Indian Act and how they impact our communities. The fishermen's decisions in the Robertson and Ballantyne as well as the Bastien and Dubé cases represent legal outcomes that we need to build on, and frankly this is a shared success.
We need to work together to ensure that the law develops in a positive way so that we can achieve corresponding policy outcomes by engaging and working with the federal government to restore fairness, predictability, and fair rendering of the tax rights of first nations governments, as they agreed to as part of the treaty-making with this country and as part of the go-forward solution.
Another practical component addressing inequality is building instruments to assist first nations governments in addressing their tax priorities, tax issues, and tax jurisdiction. The AFN has proposed a national conference on revenue options and generating revenue streams. There's much to be learned from other governments, both indigenous and non-indigenous.
I'd also like to talk briefly about natural resources. In 2011 KPMG introduced a guide to Canadian mining taxation, which was specifically targeted towards potential foreign investors and partners. There's not one single reference to first nations governments, first nations peoples, or first nations rights. This is not an oversight by KPMG, but it shows you that the tax system, which ignores first nations governments whose communities these very natural resources are on, is certainly a challenge that we must work together to address.
We can talk about lots of examples, but I want to talk about a positive example. Out of Fort McKay First Nation is one great success story. There are only 700 on-reserve residents in Fort McKay. After over 20-plus years of creating companies to serve the oil sands industry, they now employ 4,000 people, both aboriginal and non-aboriginal. Imagine if we had 100 more Fort McKays across this country. What would the income inequality be in these communities then?
This past March, Fort McKay Chief Jim Boucher told the Canadian Association of Petroleum Producers that the federal government has failed to acknowledge first nations rights to resources and to have a say in how these resources are to be developed. I quote:
Canada has not stepped up to the plate with respect to dealing with the First Nations on a treaty issue basis, and...it’s not contributing to a healthy economic development situation.
For us this solution appears relatively simple.
One minute. Thank you. I'll summarize that solution in one minute.
If Canada truly wants to benefit from the projected $650 billion in new resource-based projects, then make sure, either through tax breaks or by recognizing treaty rights and treaty jurisdictions, that every first nations community has the opportunity to share in that prosperity.
In closing, the Assembly of First Nations' recommendation on how to reduce income inequality and how best to improve equality and opportunity and prosperity for first nations and all Canadians is to work with first nations to bring about fundamental and transformative change. This includes a re-examination of equalization, fiscal transfers, and resource-revenue-sharing regimes, and an assessment of a taxation framework that reflects first nations jurisdiction and supports investment in our communities, as well as targeted investments in education, literacy, and training.
We can no longer allow the human and social costs entrenched in inequality to continue. While the solutions are not simple, the benefits will include us all.
Mr. Chair, members of the committee, I am really pleased to be joining you today.
This is especially so on a subject of such great importance to a large majority of Canadians, and especially, I note, today, when tax returns of all Canadians are due.
I want to make two points at the outset. The first is that extreme inequality undermines democracy and the common good. The evidence is in. Very unequal societies do much worse, including in such fundamental terms as health and the real equality of opportunity for children.
Second, I want to underscore that the level of inequality in a nation is ultimately a matter of political choice. Despite common exposure to globalization and other forces of economic change, which are real, a good number of advanced industrial countries have clearly been able to remain much more equal than others. They're all facing the global circumstances, but politically, they've made adjustments to that. So I repeat, a number are much more equal than others.
Canada used to do quite well at achieving broadly shared prosperity, but changes in the job market, changes in our tax system, and cuts to social programs from the mid-1990s have pushed us strongly, I believe, in the wrong direction. As a result, Canada today has a major inequality problem.
Part of the solution lies in achieving a fairer distribution of market income by creating more good, middle-class and unionized jobs. Another important part of the solution is to make major changes in our tax transfer system. Experts have shown us that its redistributive impact has shrunk significantly, to the point that it is now one of the least fair in the OECD.
Our institute says that the goal should be to reform our income security system so as to eliminate poverty and significantly narrow the growing gap between low- and higher-income Canadians. This goal should be met by building incrementally on existing income support programs targeted to different age groups and by promoting greater tax fairness. The maximum level of income-tested child benefit should be raised to cover the full cost of raising children.
We should significantly increase the federal working income tax benefit to support the working poor and deal with the growing reality of low pay and precarious work.
I want to give credit to the government for creating the working income tax benefit, a new form of benefit here in Canada that can promote employment as the best path out of poverty. However, the current benefit is extremely modest, as members will know, and is lost completely at low levels of employment income. I believe it should be increased significantly and phased out more slowly as income rises.
In addition, we should eliminate poverty in old age by raising the guaranteed income supplement. Canadian seniors, on a global basis, technically and statistically, are the best off in the world right now. But we still have a number of Canadian senior citizens who need assistance and we should be providing that.
Finally, a long-term goal—this would clearly involve complex negotiations with the provinces—would be to abolish welfare as it currently exists and replace it with an income support program for working-age adults, delivered as a negative income tax. This approach, as again I'm sure members will know, has been broadly championed across the political spectrum, including by my once friend and colleague from a different life, Senator Hugh Segal, and by the late Tom Kent.
To pay for change, these improvements to our income support programs can be financed by making our income tax system much fairer. We have proposed a number of approaches in our discussion paper, which the institute produced on inequality.
We should scale back special tax breaks that deliver huge benefits to the very well off, such as the exclusion of 50% of capital gains income from taxes and low tax rates on gains from stock options. For a functional market-based economy, I believe these existing benefits are not necessary.
We should be looking to more progressive income tax rates, and we should be cracking down on tax avoidance.
Revenues can also be gained by more broadly applying the principle of polluter pay.
In summary, Mr. Chairman, concrete steps can be taken to make our tax and transfer system a much more effective vehicle for closing the growing gap in Canada between the very rich, on the one hand, and the middle class and the poor on the other. Priority, as I've suggested, should be given to fundamental reform of our income security system.
Thank you very much.
I thank you very much, Senator...not yet “Senator” Brison, right?—
Voices: Oh, oh!
Ms. Armine Yalnizyan: —for bringing forward this opportunity. I thank very much the whole process that permits us to talk about what is perhaps one of the defining issues, not only for Canada but around the world, on the future of democratic capitalism and globalization.
Don't ask me, ask the World Bank what they think about rising inequality. Provocative words coming out of the World Bank are that perhaps rising inequality is increasingly threatening and undermining democratic capitalism.
The International Monetary Fund, again, no left-wing pinko organization, says that the more inequality you have, the shorter the spells of growth you have, the more volatility you have in markets, and the less overall growth you have over a sustained period.
Internationally referenced Canadian academic Miles Corak, from whom you've heard, has noted that there is a tight correlation between the degree of inequality in society and the degree of mobility, both social and economic, for the next generation, which is clearly something that violates the very principles of meritocratic societies. If you think these trends are only happening elsewhere to other people, think again. The same things are happening in Canada.
The Conference Board of Canada has warned that growing income inequality left unchecked in this country will lead to lost potential, increased costs, squandered opportunity, and potential social unrest. Those are words from the Conference Board of Canada.
Data from the Organization for Economic Co-operation and Development show that whereas Canada, from the mid-1980s and mid-1990s, bucked the international trend towards rising income inequality, since then Canada has slipped most rapidly down the international rankings, from 14th place to 22nd place, from above-average to below-average equality, while at the same time, 15 of 34 OECD nations reduced inequality.
The University of Toronto's Centre for Urban and Community Studies has launched path-breaking research showing how income inequality leads to people living in more rich neighbourhoods, more poor neighbourhoods, and fewer middle-class neighbourhoods. If you think you can predict poverty by postal code, you know you're creating problems, and it creates problems for the way we raise our kids and the opportunities that are hard-wired into their environment.
Between 1981 and 2010, the economy more than doubled, in inflation-adjusted terms, but poverty has been on the rise.
I ask you to look at the first table I've distributed for you, the “Percent of People with Incomes below the Low Income Measure”, in after-tax terms, by age group. You will notice that seniors' poverty rates are increasing, working-aged adults' poverty rates are increasing, and children's poverty rates are higher today than they were in 1989, when all parliamentarians stood together and said that child poverty in a nation as rich as Canada was a travesty and it needed to be eliminated by the year 2000. It has been pretty much eliminated in Denmark, Sweden, Norway, and Finland. We know this can be done, should we wish to do it.
I ask you to look at the second chart I've distributed, which shows the percentage of Canadians in low-, middle- and high-income classes. The group of people earning a middle-class income, between $30,000 and $60,000, has been shrinking over time. The group earning less than $30,000 is higher today than it was in the mid-1970s—and this is all in inflation-adjusted terms—and the group earning above $60,000 is rising. This leads to, of course, who at the top is earning the most. Professor Veall indicated that those in the top income group have seen the biggest share of income growth.
I point you to my third and last chart in the presentation, which shows that the top 1% took 32% of all income gains in the decade before the crisis. That, ladies and gentlemen, is four times the amount of a similar period of growth in the 1960s and twice the amount of the Roaring Twenties.
What can the federal government do? You can introduce direct income measures. We've mentioned some of these today: the working income tax benefit, refundable tax credits, enhancing the child tax benefit, the OAS or the GIS, or more sweeping reforms such as the guaranteed income supplement. Also, improving access to EI is important for our macroeconomic strength, so that we can more recession-proof in future.
If you don't choose to do direct measures, you could indirectly support the provinces and territories, eight of which have committed themselves to poverty reduction strategies. The federal government should support these initiatives. You seem to like experimentation at a provincial level, and the alternative federal budget has outlined how such a plan could take place.
In terms of tax measures, we've talked a lot about what could be done to raise taxes, but enforcing the rules that exist requires enhancing, rather than cutting, the staff at the Canada Revenue Agency and following through on prosecution of tax evasion.
I would recommend also that you avoid expanding the tax free savings account, and do not introduce income splitting for families with young children, both measures the parliamentary library has shown increase disparities, rather than reduce them. You can improve the supports and services, as you have done in measures such as Pathways to Education funding, and you can target additional revenues raised or not forgone by alleviating the pressure on the middle- and low-income households through child care, transit, housing, and post-secondary education.
Can I just close by saying that the most immediate concern is the temporary foreign worker program?
Good morning, everyone. Thank you very much.
Thank you, Mr. Chair, for seating me beside Madame Smarty-pants here, because I get to take a different tack, knowing that Armine would bring forward a lot of great solutions and also help us dissect the numbers.
I'm the head of the Canadian Council on Social Development, the oldest organization of its kind in Canada, founded in 1920. We came up with the concept of EI, disability pension, and old age pension, to name a few important policies.
I want to talk about inequality from the perspective of, “Why bother?” Armine is right, this is a defining issue, and it's important that you are exploring it in the way you are today. But why bother? Is it just a buzz? Is it something that came out of the Occupy movement, or is it something much more substantial than that?
Fundamentally, if inequality is left to fester, it will tear apart the very fabric of Canadian society. Equality connects us. It binds us together and it builds cohesion, and social cohesion is critical. It's not just the absence of conflict, it's the ability to move forward in the same direction with shared purpose. It is a requisite for a smaller trading country like Canada. We can only exercise our full strength through some essential level of agreement as a country. Canada must have a continuous nation-building process by furthering a genuine consensus across provinces, cultures, and languages. We require more than a passive tolerance of one another for us to advance our common problems and our common purpose.
At the core of our Canadian idea there has been a broad definition of success as shared progress for all citizens, measured in terms of income, opportunity, well-being, and the enjoyment of social rights and freedoms. It has been coupled with a special responsibility to ensure that those who are vulnerable are not left behind. In Canada the assumption of common advancement has reached across political perspectives, governments, and generations. This Canadian aspiration gave expression to an underlying individual value of hard work, fairness, merit, and shared responsibility. But we are at a crossroads. We are faced with a choice of shared prosperity or increased polarity. Decades of accomplishment in support of our shared advancement have been followed by a period of stagnation, as Armine and others have indicated today. It's stalling progress, and now that progress is beginning to unravel.
Consider the following. We are running the very real risk that our children will be the first reverse generation in Canadian history: one that is less well off than any one before it—less well off in employment opportunity, health outcome, the environment they inherit, income attainment, and the list goes on. Growing income inequality is becoming entrenched. Middle-class families are working more but not getting ahead, except by borrowing more than they have to spend. Poverty is becoming a bog that entraps people contending with life challenges or transitions caused in part by ineffective government policy. Our collective failure to grasp sustainable development and deal with our environmental concerns puts us on the other side of our values and our international expectations. In part, is this because we have lost the will and the focus? It's a question for all of us to answer.
In recent years, almost imperceptibly, Canadians have been cajoled to reduce their expectations, to accept a lower common denominator of what we can accomplish together. Individuals and families are being encouraged to look after their own interests. Economic problems are now portrayed as the result of international or global conditions well beyond our reach.
Good morning and thank you, Mr. Chair. I will speak in French.
I want to begin by thanking all the members of the committee for looking into income inequality and, more generally, social inequality. Income inequality cannot be addressed through discussions on income alone, as that problem is often caused by inequalities in health, education, and access to culture and information. Income inequalities are either the result or one of the causes of inequalities among us, in society, such as inequalities in terms of opportunities.
The mission of my organization, the Institut du Nouveau Monde, is to engage Canadians to take an interest in what is happening in society and to discuss it. The institute is an organization that defends democracy and not social rights. Today, you are discussing a topic of key importance for our society in our main democratic arena, Parliament.
Social inequalities are the very issue the institute will address in a large public debate that will be held over the next two years. Since we work in Quebec, the debate will be held in that province, but we would be pleased to open it up to all of Canada.
Why did we choose this topic? Whether we are talking about the World Bank, the OECD, the IMF, the World Economic Forum held in Davos or the Conference Board, everyone—with the exception of a few economists—is saying very clearly that the increase of inequalities has become counterproductive.
Inequalities have always existed and will continue to exist, but their worldwide increase is now threatening peace and economic growth. This information is not coming from me, as I am not an economist. This has been stated in all major economic publications last year, including The Economist. They are saying that we have gone beyond the point where inequalities are productive.
We may think that inequalities are a good thing because they encourage people to do better and do more. However, inequalities are currently so significant—especially between the richest 1%, 3% and 5%, and others—that the incentive to do more and better has disappeared. They are already so rich that the difference between being a bit richer or a bit poorer is no longer a motivating factor for increased productivity. It is also no longer a motivating factor when it comes to creating jobs or investing in the country. So we have achieved a level of inequality that is counterproductive. Awareness of that phenomenon is necessary.
The second reason I am so happy you are discussing this issue is that the main problem with inequalities is the refusal to discuss them. This is something of a taboo topic. People seem to think that the issue is not serious, since inequalities have always existed in society. The other day, someone told me that people have always been jealous of the rich, but all they had to do was follow their lead—as if that were easy or possible. It is not.
The topic is somewhat taboo, and people seem to be reluctant to discuss it. One of your roles, as elected officials, is to study important topics, even when they are taboo. Why?
I want to begin by making a distinction. I am not talking about the fight against poverty.
Today I will provide some highlights on a recent paper on Canadian wage inequality in Canada.
As others have said, it's important to note that the changes in income inequality in Canada have been different from changes in the United States, where the changes were larger, happened earlier, and resulted in greater gains at the top than in Canada.
Second, as already mentioned, the Canadian fiscal regime does somewhat lessen the blow of increasing inequality. In 2009, the inequality in the after-tax and transfer of family income was 28% lower than the before and after-tax transfer of family income inequality. Nevertheless, given the tension between redistribution and economic growth, it's important to consider the economic forces that are behind the changes and whether they can be addressed directly.
To understand how these forces work, we have to note that in the 2000s especially, the Canadian experience with wage inequality has been one of wage polarization. When we're talking about wage polarization, we're talking about situations where the wage of the median worker—and here I am talking mostly of the median male worker—is not improving as much as those at the bottom or at the top. In the 2000s, the real—meaning after inflation—hourly wages of the median male have increased by 5%, while the wages of the men at the top 90% have increased by 12% and those at the bottom by 9%.
That being said, in terms of the Canadian post-recession experience, from 2009 to 2012 we have seen decreasing wage inequality. This is in contrast with the U.S., where wage inequality has continued to increase.
So what are the driving forces behind the difficulties of the middle workers? They are usually attributed to two forces: declining unionization rates and technological change. In Canada, the decline in union coverage of males has been quite substantial; it dropped from 47% in 1980 to 25% in 2012. The reason that declining unionization rates do contribute to the polarization of male earnings is that the union premium is highest in the lower wage distribution of males.
Technological change is also thought to adversely affect mostly the routine, male-dominated jobs that are in the middle of the wage distribution, the wages on the plant floor.
Let's note that these forces apply less to women because they are more likely to work in the wider public sector, including the health and education sectors. So women fare generally better against these winds of change than men; however, there remains a gender gap.
In terms of some of the policy options that work with these forces, many of them come under provincial jurisdiction. They would include the support for public education. Most of the time we talk about higher education, but it's also important to have policy to foster high school completion. When we're talking about exclusion, we're usually talking about individuals who have not completed high school. Support for a minimum wage in an appropriate range is among the policy tools to be thought about, as is support for collective bargaining.
As I noted, Canada has performed relatively well in terms of generating new university degrees. However, it is important to note that not all carry the same prospect of high-paying jobs. In a changing environment, information relative to the prospects of the different degrees I think is quite important.
Raising the minimum wage is a tool that can help reduce inequality at the very bottom of the wage distribution. However, because there is limited spillover, it's not a very effective tool overall.
Moving in the direction of a policy environment that is more supportive of unions, especially in terms of the procedure governing union certification, is one option to be considered.
Let me conclude by saying, as many others have done before me, that while growth-oriented economic policies, such as encouraging trade and deepening investment in new technology, may provide the basis for economic success for future generations, these policies may also have the effect of exacerbating inequality. This should be kept in mind to continue to get public support for such policies.
This concludes my remarks.
Good middle-class jobs can come from anywhere. Around the world, whether you're talking about IT, high-technology information jobs or resource-based industries, we see that it depends on how you treat the environment for labour relations. Canada has been pursuing a low-wage strategy for several decades now. We have an unusually high proportion of low-wage jobs.
Income inequality doesn't fall from the sky. We look at one another and we value each other's work. We say it's normal that that guy gets that much and that person gets that much, so there's a kind of social and cultural consensus around the value of different forms of work, which is why I have pointed out the importance of unions in many of the jurisdictions in which growing inequality has not occurred and in fact has been reversed. There has been a strong union component because that's actually the countervailing voice to the growing strength of employers everywhere around the world, especially in the wake of the recession—there's been growing corporate concentration.
If you cannot negotiate on an equal playing field and have some kind of collective strength, more of the rents from this process will flow to the employers and to the property owners.
You also asked a question about what these nations are doing that prevent the middle class from stagnating. Let me run a thought experiment on you. What if we had no reduction in income inequality at all but we improved people's access, whether they're low, high, or middle income households, to transit, to more affordable and accessible, high-quality child care that prepares kids for learning readiness, to better public school education and high school completion, and to more affordable housing? All of those things will improve our quality of life and create a richer middle class. I think we can do this.
Thank you to all the witnesses for some great presentations.
Seeing as it's tax day...I heard a few comments in terms of the tax system. As the parliamentary secretary for the national revenue agency, I just want to make a note that certainly our goal is closing the tax loopholes. We've made significant progress. There's certainly more to do in terms of tax evasion and offshore tax havens.
As for CRA staffing, we actually have 400 more auditors than we did in the past. As far as where we've looked at reductions goes, of course, I think probably most people have electronically filed. Really, we are trying to refocus our resources to actually do exactly what you said.
I certainly wanted to make that comment and not leave it unresponded to, because we do recognize how important it is to have a tax system that's fair to all Canadians.
I will start my questions with Mr. Richardson. I appreciate your article, “Some Observations on the Concept and Measurement of Income Inequality”. You state that “income inequality is a relative concept”. We've heard from other witnesses who've also said that looking at a single group as a snapshot in time doesn't actually look at an absolute level.
I've watched a number of young adults, friends of my children, who have graduated from high school and graduated from university. Certainly many of them are enjoying life right now. They're certainly not at a high-income level. I anticipate that will change over time.
Can you elaborate? Does a single sample group give us a true picture of the real economic conditions? Just talk a little bit more about your graphs.
I think the point is fairly straightforward, in that a country like the United States or Canada could have a very high level of income inequality and yet the people at the middle or even the bottom of the income scale would be, in absolute terms, more well off economically than some place that had a very equal distribution—maybe some place like Cuba, which is very equal and very poor.
It doesn't mean that income inequality is not an important concept in Canada, so I'm not intending to demean the idea or the importance of it. I would note however—I don't know if it's possible to view the first slide again. I apologize to Nicole Fortin if it blots out her presence momentarily.
This point goes to the question of overall economic growth and overall income levels. There have been a number of comments about the growing inequality gap. Well, actually, those are the numbers. If you look at the red line, there is almost no increase in inequality in the last ten years. In fact, the actual percentage increase in the last ten measured years, according to Statistics Canada—I don't make this stuff up, I just use it—is 0.4%. If the rich are getting richer, which may be the case, something else has to be happening as well to result in not having an overall increase in inequality. That means that some other people on the income scale have to also be doing well.
So the fact that there is greater growth in some parts of the income scale may raise some issues, but from the overall data it looks as if Canadians in general—as I think Madame Fortin mentioned as well—are really doing a lot better than some other countries, particularly the U.S.
I'd like to reply specifically to Mr. Brison's question, and to the earlier one on the whole notion of equality of opportunity.
There isn't a sane adult in Canada, whatever the ideological perspective, I think, who would be against equality of opportunity. For me, the serious debate, though, is between those who see a link between equality of opportunity and substantive equality and those who don't. The evidence is I think very clear, whether it looks at the work of Wilkinson and Pickett, and I'm sure the committee is familiar with that work, The Spirit Level, or Joe Stiglitz, a Nobel prize winner who has written on inequality.
The clear point I would make, but I won't elaborate because of the time, is that it becomes almost meaningless to talk about equality of opportunity—and the data supports this—unless you narrow the gaps. If kids growing up don't have adequate housing, if they don't have early education opportunities, as upper-income people do for their kids in many countries, the beginning in life with serious inequality undermines the notion of equality of opportunity. I'll just make that point and pass over to Scott's question.
I think increasing the allocation of funds for pre-school learning, pre-school opportunities for children, is of fundamental importance. And to make a non-partisan comment, I think the Government of Ontario and its initiatives recently in trying to deal with that issue are very progressive.
So beginning with pre-school children, with a lot of emphasis...again, I think the evidence around the world is that it's a very important initiative to take.
The Library of Parliament in 2006 released a document, presumably at the request of the government because you were interested in these measures, showing that the distribution of benefits from these two measures combined.... Well, the income splitting was divided between seniors and young families. That package of income-splitting measures cost roughly $5 billion at that time.
At that time, they said that $2.2 billion went to families with young kids, and that 8% of that bundle of money would flow to the bottom 50% of families. The higher up the income ladder you went, the more the benefits of income splitting accrued to very high-income earners. The bottom 50% of families in 2006 were at less than $60,000, so the 50% of families raising kids who were making less than $60,000 would get 8% of the benefit of that measure. Single parents, who are the poorest parents, would see nothing of it because there's no income to split.
With respect to the tax free savings account, the tax expenditures report that came out two months ago, in February 2013—note that it was the first time we lifted the hood on the tax free savings account—showed that people who were most likely to benefit from that measure were older than 65 and of high income. Although there was quite a large take-up of the program, the real benefits accrued to those with high incomes who had surpassed their ability to contribute to RRSPs. What was clearly created was an ability to expand tax sheltered accounts.
You've probably heard from the chartered accountants of Canada, who have referred to this tax measure as revolutionary. It's revolutionary, sir, because it is going to create a huge hole in the public purse as time progresses.
Good morning. I want to thank all of you. Your presentations were excellent. Unfortunately, five minutes is really not enough to ask all the questions.
I want to begin with Mr. Richardson.
I will set the charts aside because they are always a bit misleading. I would like to focus on the tables you have submitted. You are telling us that the income inequality issue is relative because an increase in the Gini coefficient is not that bad, since the redistribution factor has not decreased. So the situation is not so bad, relatively speaking.
However, when I look at the figures, and especially those since 1994, I see that there are few changes to the Gini coefficient in Canada before taxes and transfers—be it for all families or economic families. Yet there is a marked increase in the Gini coefficient—so an increase in inequalities—after taxes and transfers. That increase is about 10% in both cases. I would go as far as to say that this correlates with the fact that the redistribution factor dropped by 20% during that time.
Would I be wrong to believe that, since 1994, the redistribution effect of Canadian policies has been decreasing significantly, thus leading to an increase in inequalities based on the Gini coefficient, after taxes and transfers? So there is a lot less redistribution in our system.
Thank you for coming today.
I'm going to deal with what I think is one of the most serious situations.
But first I'd like to wish our Prime Minister, Stephen Harper, happy birthday. He's 54 today, and I think it's very important. He is one of the most important people to our economy, for certain.
I do want to talk to you, Peter, in relation to what I consider to be one of the biggest issues and dramas, and quite frankly one of the best opportunities we have in Canada. That is, of course, first nations people, with the highest rate of poverty of any group, the highest incarceration rate of any group, and the highest birth rate or fastest growing of any group.
I think it is the best opportunity, because to my way of thinking...and coming from Fort McMurray and knowing Jim Boucher, who used to live with my brother back in the seventies when he was just a young fellow, that is definitely a very successful situation—$130 million or $133 million in sales last year—but it's not an unusual story.
In fact, there is a true correlation. My nephew, Dwayne Jean, who is also a treaty aboriginal from Janvier—and I think you know him—started a business two years ago. He just told me—I was pinging him—that he did $2.5 million last year, and this year he's already at $5 million and the year is only halfway through. He has a company with 40 employees; he has water trucks and sumping. It is an amazing success story. He has $2 million in the bank. This is a guy who spent 10 years in and out of jail, in Drumheller in particular, but...tremendous success over the last few years. Why? Because there seems to be true correlation between successful aboriginal communities and resource development.
Would you agree with that?
Thank you very much, Mr. Chair.
The last testimony has left me frustrated. I will have a question for Ms. Fortin and then another one for Mr. Zorn. I ask that the other witnesses remain silent. They can comment on those questions if any time remains.
Ms. Fortin, I really liked your presentation. I will get straight to the point.
There has been an increase in all kinds of regressive tax measures. Let's take employment insurance as an example. The Parliamentary Budget Officer—in his latest economic and fiscal outlook—said that the rate for every $100 of insurable earnings could go up to $2.03 in 2016.
Clearly, this is the type of measure that affects middle-class workers, low-income workers and small businesses. You are conducting studies specifically on women. Some measures, such as new tariffs and the abolition of the tax credit for labour-sponsored funds, seem to have a limited scope when considered separately. However, when combined, they can have a certain impact. What are the general impacts on those categories of workers and businesses, and especially women?
Thank you, Chair, and thank you all for being here today.
Mr. Broadbent, it's truly an honour to have you here today. I'm so happy you're here.
I do have a couple of questions for you. I would like to pursue my line of questioning with you, if you don't mind. You spoke in your remarks about governments making political choices, and that's what we do as a government. Our political choice, in terms of the Canada health and social transfer, is the health transfer going up 6%, plus nominal GDP, and the social transfer going up 3%, plus nominal GDP. We give that block transfer to the provinces and they in turn spend it on health, and social transfers are spent on education, etc. They have not been spending all the money we've been giving them—in fact, a lot less than what we've been giving them.
Could you talk a bit about the political choices they are making? We seem to be making the right choices on that front and they are making the wrong choices. Could you comment on how their choices are contributing to social inequality?
All I can say is that the old movies are still with us. When I was around in this place, 150 years ago, we had the same issue with various governments—sometimes a federal Liberal government, sometimes in the past a federal Conservative government—and that is whether the transfers were being used for what they were intended. You have put your finger on a very serious issue.
If I remember correctly—and I think I do—the Romanow commission recommended the big increase at that time. It was big, and it was badly needed. He also recommended that certain reforms go with it—to drive down costs of health care, for example—but he also wanted some kind of agreement that would see the provinces actually spend in areas in which they're supposed to.
As you know, our Constitution has real problems with enforcing that. I don't care about the ideological persuasion of a given federal government; whoever the federal government is will have problems, given the provincial constitutional authority, in enforcing the priorities. All I would hope for is that, in a negotiating process, a mechanism for enforcement be set up.
I would go so far as to say that a certain conditionality should be introduced. If a province is going to get money and negotiates a certain percentage from the federal government, then I think it should be obligated to use that money for what was intended—otherwise, don't take part in the agreement.
Having said that, I don't underestimate the challenge of making that happen.
Thank you, witnesses.
I'm going to follow up on the first of Mr. Adler's questions, not the second. My focus is on federalism.
By way of overview, I'm looking at what practical measures a federal government can take to implement measures to address income inequality. There are three witnesses I'd like to have respond.
First, Mr. Broadbent spoke of welfare reform, acknowledging that it was primarily provincial. He wrote this morning in the National Post about the welfare wall and what we do about it—again, provincial issues.
Professor Fortin acknowledged that education, the minimum wage, and collective bargaining are mostly provincial.
Ms. Yalnizyan recommended that we support provincial poverty reduction measures. Again, all are matters provincial.
We have this federal social transfer, and it tends to be essentially a “no strings attached” type of process more and more, yet we have the federal spending power, which is robust.
I'd like to ask the three of you—Mr. Broadbent, Professor Fortin, Ms. Yalnizyan—what we as federal politicians can recommend to specifically address the issues I've referred to in your various presentations, starting with Mr. Broadbent, please.
And thank you as well to the witnesses for being here.
I'd like to follow the angle of education, and in particular public policy on education. What our government is facing now, and what future governments will face, is the fact that we're on a trajectory of being a million workers short within this decade of the jobs that are available in this country. I know this is real, because I know it's real in certain regions of the country now, having travelled with the human resources committee and in speaking with employers and employees and unions and whatnot on the various sides.
When you reflect on what has happened over the last number of decades.... I remember when I was in elementary school we had a tech room in which there were tools, and there was the ability to find out whether you had the aptitude to do a skilled trade. It might not have been your choice eventually, but it was there and was available. They were available as well in the tech wing at Brantford Collegiate Institute, where I went to high school; it had a full tech wing—automotive, electrical, carpentry, you name it. For the most part, these are gone in Ontario, as far as I can see, at the elementary level, and we have put a focus on.... I'm as guilty as any, with four children—having graduated three of them with general BAs—who were not employable when they got into the workforce and who had to go back to a year of community college.
I'm painting the scenario for you. Is that progress? Is this the kind of thing we need to reinstitute—matching skills with the job sets that are available? If we're talking about the inequity question, as we are today, is it important? We all know how empowering education is at different levels. Not everyone is meant to be a university professor or a doctor, or, for that matter, a politician. Nonetheless, can I ask you your views on getting that right?
To comment briefly, I really strongly agree with your orientation. I grew up in a town with a high school that had what we called “technical training” of the kind you've talked about, and it has disappeared too.
I've been spending some time in recent months in the United Kingdom. A big debate is being waged there. Like so many countries, they're looking at Germany as a model, where they make a distinction between formal academic training, like you and I probably had, and technical training. There's no low status allocated, to put it bluntly—quite the contrary—to working-class men and women who get technical skills. They're being recognized not only all over Europe but elsewhere.
In addition to what's been said already, a point I would make is that it seems to me that an industrial policy for Canada, in the manufacturing sector in particular, might use some kind of incentive in terms of tax systems in regard to corporations—and they have to really do it—for them to have apprenticeship training programs in the industry. That, by and large, as I understand it, is the emphasis in Germany. Also, we should encourage our children. As you say, not everyone is going to be a doctor, and being a skilled worker should have the same kind of positive response from the rest of us.
One thing a federal government could do, it seems to me, is look at the idea of having a tax policy for corporations that is related to skills training.
It's a little complicated, as I am sure you can appreciate. This takes place at a variety of different levels. The primary importance is consultation with the rights holders themselves, individual first nations themselves.
We've heard it reflected from some of our constituents that notification is not consultation. Coming in and telling that you're doing something does not meet whatever standards we have out there, or they're not seen as the standards we should strive for.
We do have a Supreme Court reference on the matter, in section 35. Any time the right is infringed, or we say it is infringed, there is a duty to consult and accommodate. That doesn't mean there's a veto, but it certainly means there's a requirement to engage in those discussions in good faith.
Of course, Canada endorsed the UN Declaration on the Rights of Indigenous Peoples, and with that comes the free, prior, and informed consent for communities as well, as they go forward.
So what consultation has taken place? I don't think we've seen the substantive consultation process yet that ticks off all those boxes. Certainly I want to acknowledge that first nations have a responsibility to engage in good faith in those consultations, but it can't simply be notification that we're going forward with this and we're interested in your opinions as we go forward with this. I think it was meant to be more iterative.
As it relates to what we stated here this morning about resource development, if you're going to come into a community and extract resources from that community, a variety of negotiations need to take place. Those are understood, affirmed rights to those communities and those areas and those resources.
So I think it needs to be much more iterative. It must be prior to them coming in. It must be collaborative. And it must end in a relationship where the nations themselves are thriving as well as broader Canadians.
I have two comments. Earlier Ms. Glover commented that there are questions as to whether or not income disparity exists in Canada. We invite you to come to our communities and determine....
I know you weren't saying it doesn't exist, but the debate that exists amongst academics is a very academic exercise: yes, the rich get richer, but the poorer get richer too. The gap that remains, though, is quite evident in communities such as ours. I think the way to move forward is this collaborative process.
On the role of the provinces, the first nations have a unique relationship with the crown, with the federal crown. Of course there is the province in right of the crown, which has resources, so I think it will need to be tripartite. But first nations, I think rightly, look to the federal government first in assertion. Education, for instance, which is a provincial responsibility, of course, is also a federal responsibility. It's a treaty right to education, guaranteed under section 35, that we need to make sure gets maintained in those consultations as well.
I'm going to take the final round.
In university I actually read that piece by Milton Friedman, although he would describe himself as a Libertarian, probably, not as a Conservative, so there is some commonality across the philosophical divide on that. I have too many questions and not enough time, unfortunately. I did want to get into that and the working income tax benefit.
Professor Veall, I appreciate your recommendations with respect to national securities regulation, intergenerational mobility, and the removal of labour-sponsored venture capital funds. We may ask you to come back on the budget bill, either this one or the next one.
I did, though, want to focus my comments with respect to Mr. McColeman's remarks and follow up on that. Especially in my area, the demand for people, for skilled and unskilled labour of all types, is the number one issue I get from businesses of all sizes. Small, medium, and large, they all come to me and say, “James, we cannot find enough people.” Whether it's BioWare, which is a computer tech company, or a manufacturing processing facility that is running at two-thirds capacity, or a hotel, or a restaurant, all types of business are saying they don't have enough people. There is a skills mismatch, which we're obviously trying to address through things like the Canada job grant.
But I want to focus perhaps on you, Mr. Dinsdale, with respect to the aboriginal community, because my friends were first nation and have, frankly, succeeded. I looked at them when I was sitting around with a number of them. All of them have either a trade or a university education, so I said to them that what was sort of the key to their success was finishing university or a trade school. They looked at me and they all said the same thing. They said, “No, the key was finishing high school.” The key was completing high school, so perhaps I'll just ask you to comment on some of the programs that are in place with respect to completing high school, things like Pathways to Education, a program that the government reaffirmed and supported in the last budget, and programs like that.
Could you comment on that and anything else this committee ought to be considering in terms of ensuring that kids do have that great opportunity by encouraging them to complete high school?
I was going to start off by teasing you and saying that I have non-aboriginal friends who also do very well and some of them are in trades—
Voices: Oh, oh!
Mr. Peter Dinsdale: —but I would agree that they all have completed high school as well, which would have been the key marker. But I jest. I appreciate the question, though, of course, with the graduation rates.
I think the primary issue right now is the lack of a sustainable system across the country for first nations education. We have such a disparity in funding in schools, in communities. It shocks me when federal departments try to challenge whether or not their rates are equitable on first nations versus off reserve. Are we talking about the same things? Do we have access to counsellors and things of that nature? There are tremendous funding disparities at its core, estimated at up to $3,000 per student.
I think it's such a structural issue that it's difficult to look past it. It has to be more than just more money. I understand that we need standards and we need measures of accountability, but we can't get beyond the basis that you have to hire teachers, have strong and effective facilities to go to, and actually educate kids through a curriculum. There's no question that this is what needs to take place.
There is a process right now where the federal government is out discussing proposed education legislation. Our hope that it's an open.... You talked about the consultation process that Ms. Nash asked about. It is all about not notifying, and it's also about engaging and working together towards creating a system of education that is appropriate.
I absolutely agree that the education attainment is critical, that high school education is critical. I think we need a collaborative process between our respective governments to help facilitate and make sure we have the best system in place for kids, because ultimately we're all striving for the same thing: a public education system where first nations kids are graduating at the same level.