Income Inequality in Canada: Another Kick at the Can

February 14, 2018
Jock Finlayson

Recent years have seen an outpouring of analysis, commentary and advocacy on economic inequality from academics, policy geeks and social activists. Some days it almost seems as if the issue has been studied to death. But then along comes a new piece of work that sheds fresh light on the topic.

Such is the case with a recent paper by the Chartered Professional Accountants (CPAs) of Canada. In a report published late last year, the organization’s chief economist, Francis Fong, dives into the data on income inequality in Canada and reaches some interesting conclusions.

First, he finds that the growth of income inequality in Canada has mainly affected major urban communities. The data show that rising market income inequality “…is not only centered in our cities, it is almost exclusive to our cities,” with the largest metros – Toronto, Montreal and Greater Vancouver – reporting the most significant jumps in the Gini coefficient[1], a common measure of inequality. Non-urban areas have experienced little if any increase in their Gini coefficients, while most mid-sized and smaller metro communities have seen very modest changes.

Source: Chartered Professional Accountants Canada, Income Inequality in Canada: The Urban Gap, p. 11.

Second, the CPA study underscores the important role played by the federal-provincial tax-transfer system in mitigating market (i.e., pre-tax and pre-government transfer) income inequality. Once taxes and government transfers to households[2] are considered, the Gini coefficient for Canada drops by more than half. In fact, after accounting for taxes and transfers, income inequality measured by the Gini coefficient has declined in some Canadian metro communities since the early 1980s (the big metros are notable exceptions).[3]

Third, inequality, both before and after-taxes, has been “broadly flat” in Canada in the 2000s. This runs counter to common media and political narratives. The increase in the share of market income accruing to the top 1% of the Canadian population “almost completely disappears” after accounting for the effects of taxes and government transfers.

Source: Chartered Professional Accountants Canada, Income Inequality in Canada: The Urban Gap, p. 6.

As budget season kicks into high gear, Finance Ministers in Ottawa and Victoria would do well to acquaint themselves with the CPA’s study. The public and political discussion of inequality in Canada has been heavily influenced by debates and data about the United States. However, no matter what indicator is used, economic inequality has increased more sharply in the US than it has in Canada or most other developed economies. That’s why it’s important to look at Canadian data to develop a well-grounded understanding of what’s been happening in our own country. The CPA report is an example of research that’s firmly rooted in Canadian evidence.

[1] The Gini coefficient is a way to summarize the distribution of income or wealth across residents of a jurisdiction. Perfect equality – everyone has the same income or wealth – produces a Gini coefficient of 0. A world where all income or wealth is held by a single household produces a coefficient of 1.

[2] Such as EI, OAS, Canada Pension Plan payments, and social assistance.

[3] Some examples are Quebec City, St. Catharines, Sherbrooke, Sudbury, Saint John, and Thunder Bay.

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