Canada Income Inequality: OECD Report Finds Gap Rising, Urges Government Action
OTTAWA - Governments need to do more to address a growing gap between rich and poor in Canada and around the world by fostering more and better jobs and even considering raising taxes, a global economic think-tank says in a new report.
Among its findings, the Organization for Economic Co-operation and Development reported that the average income of the top 10 per cent of Canadian earners in 2008 was $103,500 — 10 times that of the bottom 10 per cent at $10,260.
The ratio for Canada in the early 1990s was about eight to one.
While the OECD study reaches only to 2008 — just as the recession kicked in around the globe — that kind of income inequality has been at the heart of the Occupy Wall Street protests across the U.S. and Canada.
The report found the gap between rich and poor in its member countries had reached the highest level in more than 30 years in 2008, with the average income of the richest 10 per cent now about nine times that of the poorest 10 per cent.
The aim of the study is to dispel the assumption that the benefits of economic growth trickle down automatically to those on the lower end of the earning spectrum, OECD Secretary-General Angel Gurria said Monday.
"Greater inequality does not foster social mobility," Gurria said in the release of the report.
"Without a comprehensive strategy for inclusive growth, inequality will continue to rise. There is nothing inevitable about high and growing inequalities. Our policies have created a system that makes them grow and it's time to change these policies."
The OECD report noted that the economic crisis has added urgency to the debate as disenfranchised young people see little opportunity in the future.
"Fostering more and better jobs, enabling people to escape poverty and offering real career prospects, is the most important challenge for policy-makers to address," the report said.
"Investing in human capital is key. This must including the early childhood period and be sustained through compulsory education."
The report also suggested governments may want to consider raising marginal tax rates on income, though cautioned that may not be the most effective way to raise revenue.
"Other measures include improving tax compliance, eliminating tax breaks and reassessing the role of taxes on all forms of property and wealth, including the transfer of assets," the report said.
Finance Minister Jim Flaherty defended the government's record on job creation.
"The OECD and the IMF say that Canada's economic growth, job creation will be the best going forward. That's how you address inequality," he told question period in the House of Commons.
However NDP Finance critic Peter Julian said the government was not doing enough.
"We have government that attacks the whole issue of economic policy in a one-dimensional frame and that is cutting taxes for Canada's biggest companies," Julian said.
"What's happened is that not only has job creation not kept up with the labour market, but the jobs that they created pay about $10,000 a year less than the jobs they lost."
The Bank of Canada and other economic forecasters have warned Canada faces at best sluggish economic growth in the final quarter of the year and into the early months of next year. Last week, Statistics Canada reported the economy lost 18,600 jobs in November as the unemployment rate moved up one notch to 7.4 per cent.
The OECD report found the main driver behind rising income gaps has been that high-skilled workers have benefited more from technological progress than the low-skilled.
The report also noted the top tax rates for high-earners have been cut, while benefits limited as rules have been tightened to contain spending.
As a result, the benefit system in most countries has become less effective in reducing inequalities over the past 15 years, the report said.
The report also noted that the increased inequality was also driven by a rise in self-employment, as the self-employed typically earn less than full-time workers.
In Canada, the richest one per cent of Canadians say their share of total income increase to 13.3 per cent in 2007 from 8.1 per cent in 1980, while the richest 0.1 per cent more than doubled to 5.3 per cent from two per cent.
The top federal marginal income tax rates in Canada fell to 29 per cent in 2010 from 43 per cent in 1981.
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First Posted: 12/05/11 10:10 AM ET Updated: 12/07/11 03:25 PM ET