I'll start my presentation with some brief observations about income inequality trends in Canada, and then follow up with some suggestions about the types of federal policy action that would be most beneficial.
Income inequality is a challenging subject. This is something that's politically sensitive and ideologically polarizing. Most of us would probably agree that too much inequality is a bad thing. It leads to social exclusion, crime, political disengagement—but the question is, how much inequality is too much? The answer to that is subjective, and that makes the thoughtful, unbiased study of inequality very difficult. What makes matters worse is that data on income inequality is very easy to spin. Anyone with an agenda, whether on the right or the left, can easily create the impressions they wish through selective presentation of numbers.
For example, earlier in your testimony, you may have heard that Canada is more unequal today than it was 20 or 30 years ago. Someone may have said that inequality has held steady since the late 1990s. In the past 10 years, the bottom 20% of Canadians has seen the fastest growth in after-tax incomes. In the past 10 years, the top 20% has captured 46% of all income growth. Now, all these facts are true. So how is this possible? How can some argue the rich are getting richer, but others say inequality has remained unchanged since the late 1990s? It really comes down to a matter of selective interpretation of numbers.
I have an example here. Suppose we have a society of two people; one earns $100,000 a year and the other earns $10,000. Now, let's say each receives a 10% raise. Have we become more unequal? Some will say, “No, both are now 10% richer.” Before, one made 10 times as the other, and now, one still makes 10 times as much as the other. Nothing has changed. Others would argue that things have in fact become worse. The gap between the two people used to be $90,000, now it's $99,000. A full 91% of all the income gains that year went to the richer person. They're wider apart than ever. These are two interpretations of the same thing, and they create very different impressions.
My advice to the committee in studying the numbers as they're presented is generally to be wary of information that relies heavily on dollar figures. Percentages, relative growth, and the ratios comparing the rich and the poor are what matter.
A more extreme example will show you what I mean. Suppose that in that two-person example our salaries were $1 and $2 a year, and the next year they went up to $98 and $100. Then, in that case, is inequality lessened? I'm sure most people would say yes, but if you believe that in the first example I gave that inequality had widened, because the richer person captured most of the income gains, then logically you would have to argue that the same was also true in the second case. They used to be $1 apart, now they're $2 apart.
Now, my point is not to cast doubt on the existence of income inequality or its importance as a public policy issue, but rather just to serve as a warning that we distract ourselves from the real issue when we get caught up arguing about the selective interpretation of numbers. Moreover, I submit that equality of opportunity and poverty reduction matter far more than equality of income.
So how do we improve equality of opportunity and keep income inequality from deteriorating? I'd like to draw your attention to four specific issues.
First, the federal government must improve economic prospects for aboriginal Canadians. This is especially an important issue in the west. The federal government needs to better foster economic development on aboriginal reserves. It needs to greatly enhance the quality of on-reserve K-to-12 education, and it needs to improve aboriginal skills training and labour force engagement.
Second, policies that address income inequality must not impede labour mobility. In fact, the federal government needs to do better than just remove barriers; it needs to encourage labour mobility. There is a desperate need for workers in the west, especially in Saskatchewan. The unemployment rate there now is 3.9% and industry-specific labour shortages are already impeding growth in that province. Meanwhile, we have surplus labour capacity elsewhere in the country. It makes no sense to spend money on policies and programs to kick-start economic development in struggling regions, when doing so effectively prevents other parts of the country from growing at their full potential.
Third, we need a strong focus on education and skills training. On the education side in particular, there's the ongoing mismatch between the skills that students are developing and those in demand by employers. The stubborn social bias favouring universities over technical schools has to end, and we need to ensure that rising tuition does not create a barrier to entry for poorer students.
I'll close on the issue of taxes. Our progressive tax system already partially smooths out income inequality. It could probably do more, but we need to tread carefully on tax policy. Government revenues today already depend heavily on the contributions of the rich. The wealthiest 10% collect 35% of income and pay 55% of taxes. These are also the most mobile Canadians. We can very quickly solve income inequality by driving the rich out of the country, but our tax revenues would evaporate, taking away our capacity to implement programs and policies to help the poor. This is not to say that increasing taxes on the richest Canadians should be off limits, but it would be more useful to focus on measures to help lower-income earners and help reduce poverty than to focus unduly on penalizing the rich.
Thank you for your time.