Who is the fairest one of all? Part III

One of the twelve indicators in the British Columbia Prosperity Index is income inequality, using a measure known as the Gini coefficient. In 2017, B.C. had the 8^th most balanced income distribution among 21 jurisdictions. Two previous blogs explored Canadian and OECD data on income inequality (see Part I and Part II). This blog discusses the latest Statistics Canada data for 2018.

Figure 1 plots the Gini coefficients for market and disposable incomes for B.C. and Canada annually from 1976-2018 (see Part I for a discussion of these concepts). The chart highlights that:

• Income inequality in Canada has been declining since 1998 for market incomes (i.e. incomes before taxes and government transfers), and since 2004 for disposable incomes (i.e. income net of taxes and transfers, including fiscal equalization across provinces).

• Income inequality in B.C. has been decliningsince 2002 for both market and disposable incomes.

• B.C. generally exhibits less market income inequality than Canada. There are only two years – 1985 and 2002 – where market incomes were more concentrated in B.C. than for Canada.

Comparing income inequality across provinces

In 2018, B.C. had the second most even distribution of market incomes in Canada, after Saskatchewan (Figure 2). For disposable incomes, B.C.’s Gini coefficient roughly matched that for Canada as a whole (Figure 3).

Federal fiscal equalization payments help explain the results across provinces (Figure 4). Most provinces (i.e. PEI, NS, NB, QC and MB, but not ON) that were recipients of federal fiscal equalization payments in 2018-2019 had lower measures of disposable income inequality than non-recipient provinces (i.e. AB, B.C., SK and NL).

The charts above highlight several key points:

• There is always a sizable difference between the Gini coefficients for market and disposable income for Canada and B.C. This indicates that the system of taxes and government transfers, including fiscal equalization across provinces, is effective in re-distributing market income.

• B.C. and Canada almost always exhibit similar Gini coefficients for disposableincome (i.e. distributions of disposable income are almost always similar). Again, this indicates that taxes and government transfers, including fiscal equalization, are effective in re-distributing market income.

• Western Canadian provinces tend to have the most evenly distributed market incomes in Canada. Residents in these provinces pay federal taxes but (with the exception of Manitoba) these provinces do not receive federal fiscal equalization payments.

• By contrast, provinces in central and eastern Canada tend to have higher market income inequality. Most of these provinces (except Newfoundland and Labrador) received federal fiscal equalization payments of around $1,400 to $2,800 per person in fiscal year 2018-19 (Ontario received $70 per person), which helped these provinces achieve lower disposable income inequality.

Poverty rates are also declining

As noted above, B.C. market incomes are more evenly distributed than in most other provinces. Meanwhile, disposable incomes in B.C. are about as evenly distributed as for Canada as a whole, once fiscal transfers are accounted for. However, if we look at very low incomes only, poverty rates in B.C. as defined by Statistics Canada have typically been higher relative to Canada (this is in part due to high shelter costs in B.C.). Figure 5 shows the percentage of persons living below the poverty line.[1] Poverty rates have been declining in Canada and B.C. since 2006. As of 2018, there is no longer any gap in poverty rates between Canada versus B.C. Again, the data suggests taxes and government transfers in Canada and B.C. are working well in mitigating both overall income inequality and poverty rates at the low end of the income distribution.

Conclusion

It can be tempting to follow American news or policy discussions and presume that Canada faces similar challenges around rising income inequality. The data does not support that assessment.

Overall income inequality has been declining in Canada and B.C. for around two decades. And at the low end of the income distribution, poverty rates have been declining since 2006.

The data suggests that the paramount public policy challenge facing Canada and B.C. is less about how to share economic prosperity, and more about how to generateit in the first place.

[1] The “poverty line,” also known as the Market Basket Measure (MBM), is based on the cost of a specific basket of goods and services representing a modest, basic standard of living. It includes the costs of food, clothing, shelter, transportation and other items for a reference family. These costs are compared to the disposable income of families to determine whether or not they fall below the poverty line.