Posted by Armine Yalnizyan under Conservative government, economic thought, financial literacy, fiscal policy, income distribution, income tax, inequality, liberals, NDP, pensions, poverty, TFSA.
April 26th, 2011
The following appeared in the National Post today.
We’re in the last week of a federal election campaign, and every party wants you to believe they’re there for the hardworking families of a middle class under enormous pressure.
That’s you, right? The idea of the middle class resonates, because it is a notion we all share. Time and again, opinion polling shows the rich think they are the middle class, and so do the poor. That’s because everyone wants to belong to the big tribe.
Newspapers make their living by writing around the facts. But most Canadian media outlets have created a fictional middle that’s wildly out of step with the facts.
A single mother with a federal government job paying about $60,000 a year is portrayed as struggling -and she is. But the average Canadian made $31,400 after tax in 2008. And that’s before the recession hit.
Stories on how to bundle up on the value offered by RRSPs, RESPs and TFSAs abound, written as if generous tax-sheltered advantages are available for anybody with a bit of pluck and thrift. But you’d need at least $100,000 to take full advantage of all three preferential tax options. So is that the middle class? How could it be? Roughly 80% of Canadian households make less.
Where’s the real middle? There are many ways to measure it, but let’s keep it simple: the dead centre of the income distribution -median income. Half of Canadian households have more, and half of Canadian households make do with less. In 2008, median after-tax household income of Canadians was $48,500 ($55,000 before taxes).
In 2008, 3.3 million people fell below Statistics Canada’s low-income cutoff before the recession hit. Based on historic patterns of recovery, we can expect between 750,000 and 1.8 million of the nouveau poor will remain in poverty. In 2008, the poorest 10% of Canadian households lived on incomes below $16,000 (pre-and post-tax incomes were roughly the same.)
Both the Liberals and the NDP address poverty and decry growing income inequality. Harper’s Conservatives do not. They all claim to introduce measures to ease pressures on average families, but Harper’s proposals actually worsen income disparities and do almost nothing of substance for those truly in the middle.
Take income splitting for young families -a promise that comes with a $2.5-billion price tag. The Harper team touts average savings of $1,300 per family. But a 2006 Library of Parliament assessment showed only 8% trickles down to half of Canada’s young families, those with incomes under $60,000. Most goes to the rich, nothing goes to the poorest -single parents have no incomes to split. (One in five families raising children are headed by single parents. They have the highest poverty rate of any group in Canada.)
It’s the same with elderly benefits. Harper promises modest improvements to Guaranteed Income Supplements, worth $300-million. But his pension splitting scheme, introduced in 2007, costs the public purse over $920-million. The elderly living on incomes under $30,000 get 6% of that. They make up 40% of seniors’ households. None gets to the poorest seniors, mostly women living alone.
Then there’s the Tax Free Savings Account. Introduced in January 2009 -at the height of the recession, when every other govern-ment across the globe was trying to stimulate spending, not saving. Harper now promises to double the maximum contribution, from $5,000 to $10,000.
It’s pitched as something that’s good for everyone, with a whopping price-tag of over $6-billion a year upon full implementation. But in 2008, before the recession hit, half of Canadians made less than $25,400 after tax. Try taking $10,000 out of that. But their incomes, along with those of every other Canadian, are enhanced by the public health care, public transit and other public services (clean water, bridges and roads, education and more) that taxes support.
In Canada income inequality just keeps getting worse, and the middle class is increasingly squeezed by stagnant incomes and rising prices. A federal election is the perfect time to consider whether campaign promises resolve the real problems Canadians face, or simply help the rich get richer.
- Polozogistics: Nine Thoughts About the Choice of the New Bank of Canada Governor (May 3rd, 2013)
- EI and CPP Appeals consolidation begins (April 16th, 2013)
- Glass-House Mortgages (March 21st, 2013)
- The Right Response to “No Job Is A Bad Job” (August 17th, 2012)
- Canada’s Economic Problem is NOT High Wages (August 16th, 2012)