Finance Committee on April 16th, 2013

[Scott Brison, Liberal, Kings—Hants, NS]

I think probably one of the areas where there's the greatest gap between provinces is in the area of early childhood education, where some provinces have very robust systems and other provinces have virtually no systems around that. This may be an area for federal leadership.

[Diana Carney]

We would argue there's always room for federal leadership on these issues.

I agree with you, and I agree with Zanny that we can do more. We have to learn. The problem is there's inherently a lag.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Alexander, can you give us some examples of programs with high clawback rates or low limits on asset accumulation? As an example, what are some of the social and transferring tax policy changes you would make to help low-income Canadians deal with this issue of a welfare wall?

[Craig Alexander]

I'm not a tax expert, but I can tell you that one of the barriers to getting out of poverty is the enormously high marginal effective tax rate on income when you start to lose your government support programs.

In many provinces, for every dollar of additional income you generate, you might lose 50¢ on the dollar of government income support. The transition is so steep that it actually works as a disincentive and a barrier for people getting out of poverty.

I also think limits on the assets of people receiving government support are set too low. Ultimately, I think if you give people a bit more of an opportunity to build assets, it actually will be self-reinforcing.

If I could, I would like to comment on early childhood education.

[Scott Brison, Liberal, Kings—Hants, NS]

You did a report on this.

[Craig Alexander]

The rate of return on the investment in early childhood education is enormously high. In terms of the rate of return, for every dollar you invest, most academic studies show anything from $1.50 to $2.50 of economic and social return, and if you focus on people from disadvantaged backgrounds, it's quite possible to have a double-digit return. Within the OECD, Canada ranks dead last in terms of investment in this area at a mere quarter point of GDP.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Alexander, your recent report on early childhood education is important in this area. It contains a lot of good data to back this up.

Is there a risk in Canada, with the fiscal gap between provinces—some provinces being in very strong fiscal situations and others falling behind—

[The Chair, Conservative, James Rajotte]

Okay, question.

[Scott Brison, Liberal, Kings—Hants, NS]

Is there a risk of a balkanization of equality of opportunity in Canada based on some provinces' capacity to invest in this area and some with a lack of capacity?

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Craig Alexander]

Investment in Canada is very uneven across the provinces. It does lead to inequitable access to early childhood education.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Brison.

We'll go to Mr. Hoback, please.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you, witnesses, for being here today. It's great to see you here this morning. It is an interesting topic, and it just makes you think about some of the other perspectives. You can go into many areas on this.

One area that I'd like to talk about is the equality of opportunity. Ms. Carney, you talked about that, and that is one thing I often look at. When you look at income inequality, you will always have that because of opportunity. Some people take opportunities that pay a lot more income than other people's choices.

In Canada, do you feel we have equality of opportunity coming forward? As your young child is coming through the high school system and graduating from grade 12, let's say, at that point do you think there is equality of opportunity moving forward?

[Diana Carney]

I think Canada does well on that at present. What I'm concerned about is maintaining that, but yes, certainly relative to other countries, statistically we do well on it. But I think there is also a sense that the country is built on that fact, so we need to maintain it.

[Randy Hoback, Conservative, Prince Albert, SK]

You also talked about a generational cycle, where low income seems to be generational, from one generation to the next. Have you any recommendations on how to break that generational cycle? Mr. Jules would probably agree with that comment. There are some generational cycles that need to be broken.

What are the best practices to break that cycle?

[Diana Carney]

We have good examples of best practices in this country. You may be familiar with the Pathways to Education program that started in Toronto. It requires a wide range of supports. It is society, in a way, stepping in for the things that parents maybe can't provide in the poorer group. And it's not just one person or one thing. That program has been excellent in stepping up, and it has had some incredible outcomes with education, in getting people into upper secondary education, with peer support and incentives to stay in education.

[Randy Hoback, Conservative, Prince Albert, SK]

We had a program in Prince Albert, which unfortunately is no longer in the works. It was done by the fire department. They were working with high-risk individuals, with poverty-stricken people, and really encouraging these kids to become firemen or just building them up, giving them that role model to say that they could break the cycle and they could be firemen or policemen—basically building a dream, giving them the motivation for a dream. It is unfortunate that that program doesn't go on, but it was fabulous, because we did have an impact, there is no question about that. I have talked to kids who have gone through those types of programs and it has changed their lives.

I agree with you. There are some things we can do, not only in the private sector but in the public sector also. That's good.

Mr. Alexander, you touched a little on this income inequality formula they use. In my riding, if you look at the trades, for example, trades are probably historically in the area of $80,000 or $90,000. A tradesman might make $60,000 or $70,000 a year, but now we're seeing kids come out of high school, because of the activity in the mining sector and the resource sector, making $80,000, $90,000, $100,000, $110,000, or $120,000 a year. They wouldn't be classified as middle-income families in that situation, would they?

[Craig Alexander]

No. What we have seen, for example, and this is something that has been recognized for some time, is that we do have labour shortages in areas like trades, and the laws of economics work so that if you have a scarcity of people with a set of skills, those individuals are going to be able to garner higher compensation.

This is one of the reasons, as I alluded to earlier, we haven't seen the same degree of the sort of hollowing out of the middle-income, middle-skilled jobs as in the United States, because we have had a robust resource sector. We've also had a very robust construction sector during this period of strength in the housing market, so it has helped to support incomes in that area, such as trades, and it has also pushed up compensation for those trades.

[Randy Hoback, Conservative, Prince Albert, SK]

Exactly, so wouldn't that distort the formula when you start comparing low income versus high income? The fact is, we just have more people making more money. Should we discourage that?

[Craig Alexander]

As I said in some of the earlier remarks, one of the things we have seen is a shift toward higher skills and higher value-added jobs. We've also seen.... We did have a 30-year unemployment rate before the recession that was actually putting upward pressure on compensation for trades, as you mentioned. That's why my focus is really not about income inequality per se but rather about helping people at the low end of the income scale and reducing those barriers.

To go to your point, and picking up on the intergenerational side of things, I view education in essential skills as the great enabler. Give people equal opportunity and develop their skills. What you'll find is that, generally speaking, people at the low end of the income scale underestimate the value of education. They overestimate the cost of post-secondary education. They are not fully aware of all the potential supports that are there for them, for their children to go on to post-secondary education.

It leads to under-investment of education for people to come out of low-income households. Then there are some inherent barriers for getting out of low income. At the end of the day, I think that's where you put your focus.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Hoback.

Mr. Caron, you have the floor for five minutes.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

I will ask my questions in French.

From what most of you are saying, it would seem that income inequality is an important issue but that it could be resolved by making a few adjustments, through some fine tuning.

I would like to focus my questions on the way in which these incomes are divided up. There's a lot of talk about market income, but that is made up of many things. For example, it could be divided into two major categories: wages and capital income.

I think you would agree that over the last 20 or 30 years in Canada, there has been substantial growth in terms of GDP. However, the indicators such as real incomes, whether they be hourly, weekly or annual, have remained relatively stagnant.

If we talk about capital gains, whether they be dividends or other capital income, you would also agree that, in general, those who are among the 40% with the lowest incomes do not really have access to these incomes. They rely more on government transfers, or wages.

Do you not think that the relative stagnation of wage incomes compared to capital incomes is a significant factor in growing inequality?

My question is for Mr. Poschmann first, followed by Mr. Alexander.

[Finn Poschmann]

Thank you for your question.

Very interesting. Yes, I have a very different perspective on the experience in the 1990s and its contribution to income inequality. At the onset of the 1990s, we were recovering from a recession. We had very high interest rates as we wrung inflation out of the economy. That had good outcomes and bad. Globally, however...in other countries, as well as in Canada, the 1990s were, in the early part, a very slow growth period. It picked up after, and there were shifts in the composition of the population and wages of the sort that Craig described. These processes are likely to increase inequality. So there were a lot of different factors contributing to that shift in inequality at that time.

Whether it's persistent, though, remains to be seen. If you look at Canada's history of income equality or asset equality since World War II, it has been very flat, very steady. Inequality rose somewhat in the 1990s, and in recent years it has started to drop off in relative terms. There are many ways to look at this.

Globally, if we compare across countries or look at OECD countries, we see that income inequality has gone up a little, but it makes more sense to me not to compare countries but to compare people who live in those countries. When you compare individuals across countries, you'll find that the globalization processes we've talked about have raised incomes for many. In fact, in the developed world it has lifted billions out of low income, and that matters too.

[Craig Alexander]

If we think about wage growth from 1999 to today, I would argue that wage growth has actually been very subdued. In fact, it's been relatively subdued for most workers. If we think about it in terms of high-skilled occupations, wage growth between 1999 and 2010 averaged a gain of 3.2%. Now remember, inflation was basically around 2%, so you're only talking about a 1% wage growth.

Middle-skilled jobs over that same timeframe increased only 2.6%. So strip off inflation and you're talking about something very close to zero. Then for low-skilled jobs we've had a 3.4% increase. Actually, low-skilled jobs had the highest percentage increase, but I'd argue that the issue is the level of income—3.4% only takes you up to $15,200. It's not an issue about wage growth. A lot of that growth came from increases in minimum wages in various provinces. The bottom line here is that wage growth actually has been very subdued.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I would like to confirm something in regard to the growth in GDP that we have experienced. It was a real source of wealth for the country. However, those workers or people whose primary income source is their wages did not manage to benefit from a significant portion of that new wealth that was created over the last 20 or 30 years in the country. Would that be fair to say?