Evidence of meeting #113 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was inequality.
A recording is available from Parliament.
Senior Vice-President and Chief Economist, TD Bank Financial Group
Wage growth has been weak. Investment returns, though, have not been strong over a 10-year period because of the very deep financial crisis we had. But your point is well taken.
One of the things we've been talking about here is income inequality, but if you look at asset inequality, that's where you see much starker differences, where 20% of Canadians have 70% of assets. I would stress that it's the outcome of long-term differences in income growth and the ability to save.
Conservative
Conservative
Mark Adler Conservative York Centre, ON
Thank you, Chair.
Good morning, everybody. I'm so glad you're here.
I just want to begin with a comment.
This discussion kind of takes me back to Sociology 101 at U of T, when we were discussing John Porter's Vertical Mosaic. So this is really not something new we're discussing here.
But let me just try to get to the end game here. Mr. Poschmann, I'll begin with you first.
The opposite of income inequality is income equality. Is that what we should be striving to achieve? If income inequality is bad, is income equality good?
Vice-President, Research, C.D. Howe Institute
Mr. Chairman, that's a tough question.
There aren't any hard and fast rules here. There aren't any numbers. Excessive inequality is socially corrosive. It makes us unhappy, it undermines institutions, it makes it difficult to govern, and it morally offends us because it has a sense of unfairness. Does that make complete equality a good thing? No, by definition not, because it would deny the opportunity that we all seek and want for others around us. There are plenty of levers available to federal and provincial governments that want to improve the opportunities.
Conservative
Mark Adler Conservative York Centre, ON
Okay, thank you.
We were hearing about the nineties and how there was an increase in income inequality during that decade. Has the just society experiment of the 1970s been a dismal failure? Did the nineties governing party break the back of the just society?
Vice-President, Research, C.D. Howe Institute
Mr. Chairman, some witnesses know a loaded question when they hear one.
Vice-President, Research, C.D. Howe Institute
It would be difficult to point to income distributions in Canada and say that—to use the code word—the just society was a huge success. However, Canada, since the 1970s, has eliminated poverty; extreme low-income among seniors has significantly improved; opportunities for youth are more or less across the board, with howling exceptions.
The biggest exceptions to the just society are the ones Mr. Jules has talked about, particularly opportunities for on-reserve youth. This is an area where we have a huge percentage of kids who do not graduate high school or do not have a high school certificate or anything close to it. Their test performance is absolutely appalling. This is a failure of the educational systems on reserve, and therefore their governance. This is something that early childhood education can't get at. It's governance and institutions that can get at improving it, and that's where one would have a lot of oomph in results.
Conservative
Mark Adler Conservative York Centre, ON
Okay.
Now, I think we can all agree that the amount of talent is evenly distributed throughout the world, and maybe I'll go to Mr. Alexander on this. The amount of opportunity, however, is not. That's reserved for a number of perhaps western-style democracies: Canada, the U.S., Britain, and Israel. I go to a lot of citizenship swearing-in ceremonies. I'm sure a lot of my colleagues do the same. People are coming to Canada in record numbers because they are seeking hope and opportunity. If we are diminishing an opportunity, why do so many people want to come to Canada to seek hope and opportunity?
Senior Vice-President and Chief Economist, TD Bank Financial Group
If we look at Canada's success rate in integrating newcomers into the economy, I would say we are facing a pressing challenge. That's one of the reasons I've been encouraged by the immigration reforms the government has been doing. If we look at income level, the difference in income for newcomers relative to Canadian-born citizens is that in the early eighties a newcomer would earn about 82¢ on the dollar and over a couple of decades they could close the gap with Canadian-born individuals. Today that is about 62¢ on the dollar, and newcomers will never close that gap over their lifetimes.
What's amazing is that even given that outcome, StatsCan surveys show that more than 90% of newcomers say yes when asked if they would do it again; if they could do it again, they would come to Canada.
I've done a lot of work on immigration issues, and I've found that newcomers come because they believe there will be a better outcome for their children.
Conservative
Mark Adler Conservative York Centre, ON
Ms. Nash quoted Joe Stiglitz, and I know he was a speaker at the NDP convention this past weekend.
To set the record straight, Mr. Stiglitz said, in 2010, when he was advisor to the Greek government, that Greece was having a short-term liquidity issue.
Conservative
The Chair Conservative James Rajotte
Thank you very much for that clarification.
Mr. Côté, you have five minutes.
NDP
Raymond Côté NDP Beauport—Limoilou, QC
Thank you very much, Mr. Chair.
Mr. Alexander, let's talk about household debt, because I found what you wrote on the website www.consensuseconomics.com to be very insightful.
Allow me to provide you with some context. I am currently reading the French translation of a book by Esther Duflo called Poor Economics: A radical rethinking of the way to fight global poverty. Ms. Duflo is a Franco-American economist who advises President Obama from within the President's Global Development Council. The American magazine Foreign Policy named her one of the Top 100 Global Thinkers.
You wrote the following:With a relatively muted pace of income growth for middle-income Canadians over the last decade, combined with a falling interest rate environment, it is perhaps unsurprising that many middle-income families may have turned to debt financing in order to bridge the gap between themselves and wealthier Canadians.
Moreover, in her book, Ms. Duflo puts a lot of emphasis on people's behaviour rather than proposing models for people to adhere to.
Could you shed some light on this need to understand what motivates people to act the way they do, for example in the case of taking on debt?
Senior Vice-President and Chief Economist, TD Bank Financial Group
I'm not familiar with the book, so I can't comment directly on it. But in terms of household debt, we've seen a very significant increase in the amount of leverage amongst Canadian households. Part of the explanation for that is that interest rates have come down to remarkably low levels, and that has provided a very significant incentive to borrow.
I have been very concerned about the degree of leverage on household balance sheets. My primary concern is what will actually happen to household finances when we get a normalization of interest rates. I think the degree of leverage is concerning.
One question that you can ask, though, is to what extent the rise in household debt is related to the very weak wage growth we've had. Is it the case that some Canadians, in an effort to have a rising standard of living, have actually had to debt finance that increase in standard of living? If wages can't provide for it, perhaps that has been an incentive to borrow.
I think there's more than one factor driving the debt cycle in Canada. Part of it is the low interest rates that are encouraging borrowing, and part of it could actually be related to the very weak wage growth. I think maybe that gets to your question.
NDP
Raymond Côté NDP Beauport—Limoilou, QC
Thank you very much.
I would like to share my time with Mr. Rankin.
NDP
Murray Rankin NDP Victoria, BC
Thank you.
Thank you all for attending this morning.
I'd like to pose my question to Manny Jules, if I could.
Sir, you are chief executive officer of the First Nations Tax Commission and therefore have a pretty sophisticated understanding of tax regimes amongst first nations communities and across Canada.
How do you see the work of the First Nations Tax Commission fitting in to the broader goal of reducing inequality, and what role specifically do property tax regimes have in reducing inequality between first nations communities and the rest of Canada?
Chief Commissioner, First Nations Tax Commission
It's one of the two fundamental pillars of a sound economy. If you don't have a real property tax system, which is really by most standards the most accountable form of taxation, and a property regime—those are the two pillars—you can't provide infrastructure as a government; you're not going to have businesses, schools, proper roads, etc.
What I've seen in first nations communities over the last 25 years or so is a change in attitude toward taxation. Initially, it was met with a lot of fear. When I first worked on legislative reform related to real property tax, we anticipated that maybe a dozen communities would get involved. Now there are just about 170 communities, and it's generated about a billion dollars, with an additional billion and a half dollars in funds that were made available as a direct result of the tax.
In my view, it's not only real property tax, but when you look at the goods and services sales tax...first nations should be able to participate in the tax structure of the country and therefore be a part of the fiscal makeup of the country. That also has to include the federal government, as well as the provincial governments.
Conservative
The Chair Conservative James Rajotte
Thank you very much, Mr. Rankin.
Colleagues, I have four more MPs on the list, but we're going to have to do those in the second panel. I apologize to those members for that.
I want to thank our witnesses for being here with us this morning, for your presentations, and for responding to our questions. If you have anything further for the committee to consider on this study, please submit it to me or the clerk and we will make sure all the members get it.
We will suspend, colleagues, for a couple of minutes and bring forward the next panel.
Thank you.
Conservative
The Chair Conservative James Rajotte
I'll ask my colleagues to take their seats, please. We're on a very tight timeline today.
I call this meeting back to order, pursuant to the order of reference of Wednesday, June 13, 2012, for a study of income inequality in Canada.
We want to welcome an additional four witnesses to this session. We have, first of all, from the Canadian Taxpayers Federation, Mr. Gregory Thomas, federal director.
We welcome Yanick Labrie, economist from the Montreal Economic Institute. Welcome to the committee.
We have two gentlemen from Vancouver via video conference. Presenting as an individual today, we have Mr. Jason Clemens. From the Fraser Institute, we have Mr. Charles Lammam, associate director, Centre for Tax and Budget Policy and Centre for Studies in Economic Prosperity.
Welcome to all of you.
We have just under an hour here for this panel, so we're going to ask you to keep your presentations to a maximum of five minutes.
We will begin with Mr. Thomas, please.
Gregory Thomas Federal Director, Canadian Taxpayers Federation
Thank you, Mr. Chairman.
We appreciate the opportunity to present to the committee on this important issue. We've got five minutes.
I'll start by referring to the recent report from Statistics Canada that analyzed income inequality, highlighting the status of the 1%. I'll quote directly from the StatsCan report, which wasn't all that sympathetic to the 1%. It said:
In 1982, the richest 1% of [tax] filers paid 13.4% of federal and provincial or territorial income taxes. This proportion rose steadily to a peak of 23.3% in 2007, then slipped to 21.2% in 2010. The share of income taxes paid by the rest of all tax filers fell from 86.6% in 1982 to 78.8% in 2010.
We get contaminated by media coverage of the U.S. tax system. The straight facts are that the top 1% have been paying an increasing proportion of the federal and provincial income taxes in the country. It's come off a couple of per cent since the financial meltdown. That's a trend no one is talking about.
We also look at overall taxes paid. About 25 million Canadians file tax returns. The top 1% amount to 254,000 people. We're talking about Saskatoon here in a nation of 35 million people. In 2010 those 254,000 tax filers paid $36 billion in federal and provincial income tax. That's nearly six times the amount of tax paid by the bottom 12.7 million Canadian tax filers.
In fact, over 8 million Canadians who filed a tax return paid no tax at all. You have 254,000 people shelling out approximately one-third of their incomes and they're paying nearly six times as much as 12.7 million Canadians who all filed tax returns.
Just for the sake of putting this in a very clear perspective, there are 2,550 in the top one one-hundredth of 1%. We're not talking about 1 in 100 but 1 in 10,000 taxpayers. There are 2,550 of these people in the country. Their average income was over $5.1 million in 2010. They paid almost $1.8 million on average in federal and provincial income tax. That tallied up to $4.5 billion. You have 2,550 people paying $4.5 billion in income tax. You have 12.7 million Canadians paying $6.9 billion in income tax. These are the straight facts, and it's something that parliamentarians need to be aware of.
We'd also like to touch today on the EI system. It's a $25 billion program. It is our best hope for addressing income inequality. It's egregiously unfair to residents of urban areas in the cities of Toronto and Montreal, or any of Canada's major cities. It's not solving the problem of income inequality, it's not giving people a hand-up, and it's probably Canada's biggest economic problem. We'd like to touch on that in the question period.
Thank you.
Conservative