Thank you for inviting Canadians for Tax Fairness to comment on this important issue.
Inflation is a complex phenomenon. Unfortunately, an overly simplistic claim about the cause of inflation being too much money chasing too few goods has driven an overly simplistic policy solution: higher interest rates. This claim also lends itself to blaming the federal government for inflation, because of the money created to support Canadians during the pandemic. Because of this money, we are told, there is excess demand.
Here's a question for those parroting the “too much money” line: Who has too much money? Whose demand for food and other goods is illegitimate?
There is much more I could say about the problem of reflexively using interest rates to manage inflation, but let me get to the topic of food price inflation.
Our organization has been drawing attention to the role of corporate power in inflation. Last April, we released a report, “The Rise of Corporate Profits in the Time of Covid”, which shows the profit margin of Canadian corporations jumped significantly in 2021. From an average pre-tax margin of 9% over the previous two decades, the margin reached almost 16% in 2021. Preliminary data for 2022 suggests that profit margins remained elevated. Corporations are not just passing along higher costs. Many are taking advantage of turmoil throughout the global economy to boost profit margins.
The big retail grocery chains—Loblaws, Empire and Metro—have gotten much of the attention for food price inflation. This attention is absolutely deserved, as all three have had higher profit margins during the pandemic. However, this goes beyond the public face of food retail.
Grocers' costs include the profit margins of their suppliers. Therefore, when the grocers' costs are higher, some of that is likely paying for higher profit margins. At practically every step along food supply chains, there are corporations seeking the greatest possible profit. Some corporations will be able to pass along higher costs while preserving their profit margins, and some will pass along more than higher costs to claim even greater profits.
Some of these higher costs and margins will be borne by small food businesses, such as neighbourhood restaurants, because they are not able to pass along higher costs. However, much of these costs will be paid by students, pensioners, workers and their families—in other words, everyone who needs to eat. Of course, workers also want to pass along increased costs through higher wages and salaries. Some may be able to do so; most will not.
This is the step where central banks express concern about a wage-price spiral. However, there is no similar concern about a profit-price spiral, even though, one, most of the prices we face are set by for-profit corporations and, two, corporate profit growth is well outpacing wage growth. In fact, the Bank of Canada's monetary policy reports, which justified its recent interest rate hikes, make zero reference to profit.
Let me mention the profits associated with fossil fuels—a vital input to all our food, at many stages of production. In 2019, Canada's 10 largest oil and gas companies had combined pre-tax profits of $8.5 billion at an 8.5% profit margin. In 2021, their margin doubled to 17%, bringing them a combined $23.8 billion. Oh, and while collecting these record-high profits, seven of the 10 paid no income tax.
The question of who gets to pass along higher costs, who has to absorb higher costs, and who gets to pass along more than higher costs is one of power and redistribution. Currently, some of Canada's biggest corporations have a lot of pricing power. Unsurprisingly, they are taking advantage of it, to the detriment of Canadians.
I will finish by advocating two tax measures to address this situation.
The first is a minimum tax on reported profits. If we had a 15% minimum tax on the profits that corporations report to their shareholders, the 10 largest oil and gas companies would have paid a combined $3.6 billion instead of nothing.
The second is an excess profit tax, which reduces the incentive to hike margins at every opportunity. The revenue from an excess profit tax could be redistributed to Canadians to help cover their increased costs of living.
Thank you, again, for having me speak on this important topic. I look forward to the discussion.