Think inequality is growing in Canada? Think again

The data shows lower-income Canadians are gaining ground but that’s not the story Canadians are being told

Interview requests

Canada’s inequality narrative is wrong. Claims that the rich are getting richer, the poor are getting poorer, workers are falling behind and younger Canadians are being shut out do not match what the data shows.

The position of the rich versus the poor is reflected by the share of wealth each group has and how it is changing. By this measure, it has been the lower-income groups that have been benefiting, particularly during the COVID-19 years, largely driven by temporary policy supports and reduced spending rather than long-term structural change.

A study by TD Economics using Statistics Canada data showed that between 2019 and 2023, the wealth gap between the top 20 per cent of Canadians and the bottom 40 per cent narrowed by five per cent. Government transfers boosted incomes and pandemic restrictions cut spending, pushing up savings. Net worth for the bottom 40 per cent also grew by 76 per cent, compared with 10 per cent for the upper fifth.

That is not a system where the rich are pulling away.

While some of this gain has eroded since the end of the pandemic, the share of wealth held by the lower 40 per cent of Canadians remains well above what it was in 2019.

There has also not been any notable reduction in the share of income going to labour in Canada. This stability partly reflects Canada’s lower investment in high-tech industries such as software, artificial intelligence and advanced manufacturing. While that has helped hold labour’s share steady, it has also dragged down productivity and economic growth.

In contrast, the United States tells a different story. After rising during the COVID-19-related labour shortages, the share of income going to workers has fallen while profits have risen. Investment has shifted toward sectors that rely more on technology and less on labour.

The gap between younger and older Canadians is real, but it is not as simple as it is often portrayed. Younger Canadians are often seen as being left behind, yet they also saw gains during the pandemic.

The wealth of those under 35 grew 81 per cent, admittedly from a small base and in part reflecting family support and inheritances rather than broad-based gains. More young people owned homes, helped no doubt by their parents. Seniors, meanwhile, are no longer an underprivileged group, with incomes for those over 65 now closing in on those for people of working age.

Taxes collected and government benefits paid out are how governments redistribute income. Governments use these tools to better balance income distribution, but most people don’t see the results because headlines ignore how taxes and benefits change people’s incomes.

As in most rich countries, taxes on the rich in Canada have increased significantly since the 1990s. Studies suggest that it is only the top 0.01 per cent that manage to evade most taxes. That is one in 10,000. At the same time, benefits are rising, including the ever more costly (but not necessarily timely) health care provided by government. These policies have helped smooth the income distribution, skimming excessive income from those at the top and padding the pocketbooks of those at the bottom.

Even in the U.S., where income inequality is significantly greater than in Canada, tax and transfer policies since the 1960s have kept the share of wealth held by the top one per cent at roughly 10 per cent of the total. Without such policies, the share of the one per cent would be more than double that. Unlike in Canada, American policies have not been sufficient to actually improve the income distribution but they have been sufficient to keep it from getting worse.

Canada is not facing an inequality crisis. The data shows lower-income Canadians gaining ground, workers holding their share and government policy already narrowing the gap. The real problem is that Canadians are being fed a story that isn’t true, and it is shaping the public policy choices made by governments.

Dr. Roslyn Kunin is a respected Canadian economist known for her extensive work in economic forecasting, public policy, and labour market analysis. She has held various prominent roles, including serving as the regional director for the federal government’s Department of Employment and Immigration in British Columbia and Yukon and as an adjunct professor at the University of British Columbia. Dr. Kunin is also recognized for her contributions to economic development, particularly in Western Canada.