Myth 4
| | The standard of living of ordinary Canadian working people has decreased over the past 20 years, and rising taxes are largely to blame
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T here is no question that poor and low-income
Canadians are unfairly taxed, compared to
wealthy Canadians and large corporations.
But, in examining inequality in Canada, it is not primarily
the tax system that impoverishes people.
While the income tax structure is far less progressive
than it was in the 1960s and 1970s, it still has
the effect, along with government transfers, of
modestly evening out incomes in Canada (see
Table 4.1). Without income taxes and transfers,
the gap between the top and bottom 20% of income
earners would be four times greater than it is.
Table 4.1
Family Income Shares, Before and After Taxes and Transfers, 1997
| Market Income
| Income After Tax and Transfers
| Lowest Quintile | 2.1 | 7.4
| Second Quintile | 10.1 | 13.2
| Middle Quintile | 17.7 | 18.1
| Fourth Quintile | 25.8 | 23.9
| Highest Quintile | 44.3 | 37.5
| Ratio of Highest/Lowest | 21:1 | 5:1 |
Source: Statistics Canada, Income after tax, distributions by size in Canada, 1997. |
The principal source of the decreasing living
standards is the decline in personal income,
largely as a result of the poor labour market. Average
after-inflation personal disposable incomes
were no higher in 1997 than they were in 1980. In
fact, they declined by over 7% between 1990 and
1997. While this drop is routinely ascribed to
higher taxes, Table 4.2 shows that it has been the
decline of before-tax incomes that is the principal
factor behind the fall in disposable income.
Table 4-2
Household Incomes, Spending, and Saving ($1,992 per capita)
| Personal Income | Personal taxes
| Consumer Spending | Saving | Saving Rate
| 1990 | $22,491 | $5,107 | $15,450
| $1,934 | 11.1%
| 1997 | $21,362 | $5,284 | $15,816
| $262 | 1.6%
| Change | -$1,129 | +$177 | +$366
| -$1,672 | -9.5 pts.
| Proportion of decline in savings accounted for by: | 68%
| 11% | 22% | | |
Source: Jim Stanford, Paper Boom (Ottawa: CCPA/Lorimer), 1999. |
Average personal taxes per capita rose by just
$177 in real terms between 1990 and 1997 — hardly
grounds for a tax revolt. Meanwhile, in the face
of growing unemployment, reduced wages, and
government cutbacks to UI and income assistance,
before-tax income plunged by $1,129.
The lowered standard of living of Canadian
workers is actually the result of a deliberate policy
of governments to lower the wage and salary rates
of Canadians in order to weaken the power of
labour vis-à-vis capital. Policies maintaining high
levels of unemployment mean that millions of
workers compete for an inadequate number of
jobs, and they compete by accepting less pay that
they would in an economy closer to full employment.
Systematically reducing labour costs is also
part of the government’s strategy to become “internationally
competitive” by restructuring the
Canadian economy along the lines of free trade
and liberalized investment rules. This strategy has
made it easier for capital and goods (and good
jobs) to move freely across borders.
This effort to suppress wages and salaries, and
to weaken social programs that support working
people, goes back to the mid-1970s. Years of
strong union organizing and aggressive collective
bargaining meant that working people had actually
made major gains and shared a bigger slice
of the economic pie. That meant there was less
for the owners of capital — corporations and their
shareholders. Profits slipped and there was a determination
by influential corporate leaders to reverse
the trend and recapture capital’s historic
share of wealth.
The means chosen to reach this goal was the
pursuit of what has become known as “labour flexibility.”
Corporations began a concerted move
away from providing the traditional job — 40 hours
a week, 9 to 5, on weekdays — and towards temporary,
just-in-time, and part-time jobs, and to
sub-contracting by large firms. And they successfully
pressured governments to pass legislation
and regulations that made such “flexibility” possible.
Free trade and NAFTA have restructured the
economy to such an extent that Canada now has
the highest proportion of low-paid jobs of any of
the 29 industrialized countries. While literally millions
try to put together a series of temporary and
part-time jobs to survive, others are overworked
through forced overtime. The Canadian economy
is increasingly characterized by a good job/bad
job phenomenon.
The impact is especially dramatic when it
comes to young workers, particularly young men.
According to a study by the Centre for Social Justice,
young men’s earnings are declining relatively
and absolutely, regardless of education level, geographic
area, or the industry they work in. This
trend continued even during the boom period of
the 1980s and when the economy came out of recession
in the min-1990s.
- The relative market incomes of the top 10% and
bottom 10% in Canada have gone through a
staggering change in the past 25 years. In 1973,
the top 10% of families with children under 18
earned an average income 21 times higher than
the those 10% at the bottom ($107,000 compared
to $5,200 in 1996 dollars). By 1996, the
top 10% made 314 times as much...(an average
$136,737 compared to an average market income
of less than $435)[7].
- In just seven years, between 1989 and 1996,
the number of firms using part-time workers
rose from 33% to 50%. Part-timers made up 29%
of the average firm’s work force, three times
the figure for 1989. In 1997, 20% of workers
worked part-time, compared to half that percentage
in the mid-1970s[8].
- In 1995, just over half of Canadian workers
were employed in traditional 35-hours-perweek
jobs, compared to 67% in the mid-1970s.
- Part-time and temporary workers lose out, not
only because of lower pay and financial insecurity,
but because under current labour standards
laws employers are not obliged to pay
them fringe benefits such as paid holidays,
maternity leave, sick leave, and the other benefits
that full-time employees might enjoy,
such as health and pension benefits.
- In 1996, 5.4 million Canadians earned less than
$10,000 in the private market economy.
- Canada has the second highest incidence of
low-paid jobs — 23.7% — among the 29 industrialized
nations of the OECD), second only to the
16 Canadian Centre for Policy Alternatives
U.S. at 25%. The comparable figure for New
Zealand is 16.9%, France and Germany 13.3%,
Italy 11.9%, and Sweden 5.2%. (Low-paid is defined
as less than two- thirds of the median
earnings for all full-time workers.[9])
- Workers in the bottom 20% of income earners
saw their average market income drop from
$7,817 in 1984 to $5,325 in 1994, an astonishing
31.9% decrease. In the next fifth, incomes declined
from $29,276 to $26,291. The third fifth
lost some income, as well. If this 60% of the
Canadian work force had maintained its 1984
share of national income, they would have had
an additional $5.2 billion in 1993[10].
While employers have been putting an evertighter
squeeze on employees, governments have
aided and abetted this process by not adjusting
labour laws to protect this new just-in-time work
force. For example, they could pass laws requiring
employers to provide benefits on a pro-rated
basis to part-time workers, as an incentive to hire
full-time workers. They could make overtime voluntary,
opening up jobs for the unemployed, and
implement a shorter official work week, thus lowering
the overtime threshold.
Not only have governments not made these
positive changes, but they have actually made life
even more insecure for wage-earners by gutting
existing laws on welfare, minimum wage and UI,
which are intended to give working people a measure
of economic security not provided by the unregulated
private labour market.
Table 4.3
The Permanent Recession
| The “Golden Age”
| The Age of “Permanent Recession”
| 1950-1960 | 1981-1997 | 1990-1997
| Real interest rates, short term (%) | 0.9
| 5.6 | 5.1
| Real interest rates, long term (%) | 1.6
| 6.5 | 6.8
| Change in gov’t program spending (as % of GDP) | +16.3
| +1.1 | -2.5
| Average annual real GDP growth (%) | 4.7
| 2.4 | 1.8
| Average annual employment growth (%) | 2.8
| 1.1 | 0.5
| Average unemployment rate (%) | 5.4
| 9.8 | 10.0 |
Source: Jim Stanford, Paper Boom (Ottawa: CCPA/Lorimer),1999. |
- In 1978, the minimum wage levels in every
province and in the federal jurisdiction provided
an income above the poverty line — up
to 118% (in Saskatchewan). By 1994, not a single
minimum wage in Canada provided an income
above the poverty line. The best was 89% in
Ontario; the worst, the federal government,
was at 53%[11].
- Welfare rates in Canada have become cruelly
low and, despite the image of the U.S. as having
worse social programs, Canada has now
surpassed the U.S. for punitive welfare rates.
Almost one-third of U.S. states are more generous
than our most generous provinces[12].
- Unemployment Insurance, a major safety net
for people losing market income, has also been
slashed to levels below those in many U.S.
states. On average, just 36% of those who pay
into the fund are now eligible to collect when
they lose their jobs, compared to 74% in 1989.
The benefit levels for some workers is as low
as 25% of lost income, a far cry from the 70%
the program was originally designed to pay[13].
- Cuts to medicare, education and municipal services,
and sky-rocketing tuition fees for postsecondary
education, mean that services that
were once almost completely public are becoming
increasingly privatized, taking money
out of the pockets of working people and their
children.
Table 4.4
Average Family Income Before Transfers (Families with Children) ($1996)
| 1973 | 1984
| 1990 | 1996
| % change 1973-90 | % change 1990-96
| Bottom 5th |
| Decile 1 | 5,204 | 2,062 | 2,760
| 435 | -47 | -84
| Decile 2 | 19,562 | 14,930 | 16,599
| 11,535 | -15 | -31
| Middle 5th |
| Decile 5 | 40,343 | 42,495 | 46,477
| 42,829 | +15 | -8
| Decile 6 | 46,136 | 49,664 | 54,561
| 51,494 | +18 | -6
| Top 5th |
| Decile 9 | 71,611 | 79,628 | 88,426
| 86,497 | +23 | -2
| Decile 10 | 107,253 | 123,752 | 134,539
| 136,737 | +25 | +2 |
Source: Centre for Social Justice |
Taxes do play a role in the decreased standard
of living of low-income Canadians. Families earning
$10,000 should not be paying any income tax.
Bracket creep, whereby inflation pushes people
into a higher tax bracket, even when real income
down not go up, has hurt millions of working
people. But the general decline in living standards
is caused primarily by corporate pressure on
wages, Ottawa’s high unemployment policy, massive
cuts to social programs and the social safety
net, and free trade deals that allow companies to
threaten to leave the country if their employees
don’t accept management’s demands for wage
freezes and rollbacks.
[7] Armine Yalnizyan, “The Growing Gap: A report on
the growing inequality between rich and poor in Canada”, The Centre for Social
Justice, Toronto, October, 1998, p.45.
[8] Globe and Mail Report on Business, Feb, 1997.
[9] op.cit. Yalnizyan, p. 23.
[10] Clarence Lochhead and Vivian Shalla, “Delivering
the Goods: Income Distribution and the Precarious Middle Class”, in Perceptions,
Canadian Council on Social Development, spring, 1997.
[11] National Council of Welfare, Province of Manitoba.
[12] The Monitor, the CCPA, Sept, 1996.
[13] Kevin Hayes, “Left Out in the Cold”, Canadian
labour Congress, January, 1999.