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AGING
IMMIGRATION
ÉCONOMIE
HEALTH CARE
Building a
Better Future
RELATIONS WITH ABORIGINAL PEOPLES
ÉDUCATION
interculturalisme
INEQUALITY
Bâtir un
avenir meilleur
When Canadians go to the polls later this
En se rendant aux urnes plus tard cette année,
year, many of them will be making their choice
based on their impression of who can best
manage persistent economic uncertainty. Others
will be concerned about caring for older loved
ones or having the means to adequately provide
for their family. Others still will be assessing each
party’s response to global terrorism and domestic
radicalization.
To help inform voters’ choices, Policy Options
asked leading researchers and practitioners in
diverse fields to identify a pressing policy issue
that should be a priority in the election and to
make the case for how decision-makers can best
address it. While it certainly is not an exhaustive
list, taken together, their responses provide a
compelling agenda for public debate that all
political leaders should consider.
beaucoup de Canadiens donneront leur voix
au parti qui leur semble le mieux apte à gérer
l’incertitude économique persistante. D’autres
seront préoccupés davantage par les soins à
prodiguer à leurs aînés ou les moyens de subvenir
aux besoins de leur famille. D’autres encore
évalueront les mesures préconisées pour lutter
contre le terrorisme international et la radicalisation
des jeunes d’ici.
Pour éclairer le choix des électeurs, Options
politiques a demandé à des chercheurs et des
spécialistes reconnus de déterminer quel enjeu clé il
faudrait mettre au cœur de la campagne, et comment
nos décideurs peuvent s’attaquer à cette priorité.
Sans former une liste exhaustive, leurs réponses
composent un solide programme qui enrichit le
débat public et devrait inspirer tous nos dirigeants.
THE WONK
THE WONK
Sharing the wealth
ECONOMIC POLICY PANEL
Summaries
Canada’s economy faces many important medium-term
policy challenges. To meet them, our government’s priorities
and policy choices matter a great deal. Given that a new
government will be formed following the next federal
election, in order to help us identify these policy challenges
and choices, Policy Options reached out to well-respected
economists and policy leaders from across the country and
asked them to respond to the following question:
Regardless of political stripe, Canadians will elect a new
federal government in 2015. As it takes office, what
economic issue do you think should be made a priority,
and what should the new government do about it?
Partager la richesse
Panel sur la politique économique
Summaries
L’économie canadienne doit relever à court et à moyen terme
un éventail de défis d’une grande complexité. D’où l’importance
majeure des priorités et des politiques que se donneront nos
gouvernements. En prévision des prochaines élections fédérales,
Options politiques a donc demandé à des économistes et des
décideurs respectés à travers le pays de l’aider à déterminer ces
choix politiques en répondant à cette question :
Les Canadiens de toute allégeance politique éliront en 2015
un nouveau gouvernement fédéral. Quel enjeu économique
doit arriver en tête des priorités de ce gouvernement et quelles
mesures doit-il prendre pour y faire face ?
42
OPTIONS POLITIQUES
MARS-AVRIL 2015
Don Drummond
Focus on lower-income families
A new federal government should focus on raising the real
incomes and quality of life of lower- to middle-income
families. This involves much more than narrowing the income gap. Incomes at the bottom of the income range are
extremely low and falling in real terms. At the same time,
incomes in the middle-income range have been stagnating.
There isn’t a magic bullet that will raise incomes at the
bottom of the income distribution. The federal government
certainly has an important role to play. But many of the
relevant policies, such as those in education and training,
are provincial domains. An unprecedented degree of federal-provincial cooperation will therefore be required to make
this possible. It must truly be a national, rather than simply
a federal, project.
To support families transiting through poverty we need
better provincial social assistance policies and an improved
federal employment insurance system. Income support
must be adequate without creating disincentives to gainful
employment.
Improving education for Aboriginal people, who form
a disproportionate share of Canada’s poor, must be a national priority. There were promising elements in the recent
First Nations education act, but such an effort must also
involve provinces, and it must be based on more extensive consultation with Aboriginal communities. The high
tendency for recent immigrants to fall into poverty must be
addressed through better selection and integration processes — again, both federally and provincially.
The federal and provincial governments need to
work with businesses and Canadian schools, colleges and
universities to better match people’s skills with opportunities that will raise income in Canada. Finally, higher
wages will be contingent upon turning around our dismal
productivity record. Expanding trade, breaking internal
barriers to trade, fixing inefficient regulation, and encouraging businesses to invest and train more should also be
near the top of the list.
A newly minted federal government should address the
federal-provincial fiscal imbalance.
While a federal balanced budget is almost within reach,
the aggregate provincial deficits for 2013 were about $20
billion. This gap is likely to increase in the future, because
provinces face several open-ended expenditures, particularly health-related. In contrast, Ottawa has scaled down its
open-ended programs — increasing the age for accessing
Old Age Security, reducing the growth of its health transfer
from 6 percent to the nominal GDP growth rate — and
this year it is pocketing nearly $4 billion from employment
insurance.
Consider the two inverse solutions: first, increasing
federal transfers to provinces, and second, transferring a
provincial program to Ottawa. In 2004, provinces tried
the latter. They offered Ottawa pharmacare, but were
refused. This nonetheless remains a viable option — especially since Ottawa decides when generics can replace
brand-name drugs.
When Ottawa is next tempted to reduce the GST, to
transfer money downward, it should instead transfer the
proceeds to the provinces. And if a broader carbon tax is
ever implemented, rather than being devolved to the provinces, it should be a federal tax with proceeds transferred to
provinces on an equal per capita basis, since the burden of
ambient CO2 emissions affects all Canadians equally.
To my proposals, Ottawa would likely counter that its
“open federalism” approach means not operating in areas
of provincial jurisdiction. However, I would argue that this
response is lacking, because in today’s Canada many of the
critical drivers underpinning our socio-economic future are
now within provincial jurisdiction, and it is crucial to our
shared success that they function effectively.
Don Drummond is the Matthews Fellow in Global Public Policy
and adjunct professor at the School of Policy Studies at Queen’s
University.
Thomas J. Courchene is a professor emeritus in the Department
of Economics and the School of Policy Studies, Queen’s
University, and senior scholar at the IRPP.
Thomas J. Courchene
Resolve the fiscal imbalance
POLICY OPTIONS
MARCH-APRIL 2015
43
economic policy panel
THE WONK
Marcelin Joanis
Revoir les arrangements
financiers
intergouvernementaux
Jock Finlayson
Adjust Canada’s lopsided
public finances
Although there are few incentives for federal politicians to
tackle the problem of Canada’s lopsided public finances,
it will warrant greater attention in the next half decade.
With steadily aging populations and labour forces growing
more slowly than in the past (assuming they grow at all),
several provincial governments will struggle fiscally. As
noted in a recent report from the Parliamentary Budget
Officer, while the national government “has fiscal room
to meet all the challenges of ageing demographics under
current policy,” the same is not true of the provinces
collectively.
Quebec’s net public debt stands at 51 percent of GDP,
with Ontario at 41 percent, and three of the four Atlantic
provinces fast approaching the 40 percent mark. With
health care costs expected to outstrip revenue growth and
provincial governments on the hook for most of these expenses, some provinces are finding it increasingly difficult
to pay for education, social assistance, infrastructure and
other services. At the same time, Ottawa’s strong balance
sheet and unrivalled ability to raise revenues will contrast
with the precarious finances of most of the provinces.
While past debates over fiscal imbalance have rarely proved productive, there can be no denying the fiscal
squeeze that’s descending on a number of subnational
jurisdictions. While a lack of spending discipline and
ill-considered policies — for example, Ontario’s “green
energy” obsession — help to explain sickly public finances
in some provinces, it is doubtful that wiser premiers and
provincial finance ministers will be able to turn things
around within the confines of existing taxation and transfer arrangements. Either the provinces will need a bigger
slice of the Canadian tax pie, or Ottawa must devise other
ways to shoulder more of the fiscal burden stemming from
population aging and the related slowdown in Canada’s
potential economic growth rate.
Jock Finlayson is the executive vice-president and chief policy
officer at the Business Council of British Columbia. He is a
member of the IRPP’s board of directors.
44
OPTIONS POLITIQUES
MARS-AVRIL 2015
Nancy Olewiler
Ron Kneebone
Address the climate
policy deficit
Au cours de la dernière décennie, le développement sans
précédent du secteur des hydrocarbures au pays a profondément transformé l’équilibre des forces entre les provinces,
tant au plan politique qu’économique. Cette évolution
a creusé le déséquilibre fiscal horizontal entre provinces
productrices et non productrices d’hydrocarbures, mettant
sous pression le système existant de transferts fédéraux aux
provinces, la péréquation au premier chef. L’effondrement
récent du prix du pétrole exercera à son tour des pressions
(différentes) sur le système, dont nous ne prendrons la
pleine mesure qu’au cours des prochains mois.
Face à ces défis, le système actuel, hérité d’une série de
réformes et de modifications ad hoc au cours des dernières
décennies, apparaît dépassé. La fédération canadienne a
besoin d’institutions du 21e siècle pour régir ses relations
financières intergouvernementales. C’est un enjeu majeur
qui soulève des questions épineuses auxquelles les partis
politiques fédéraux devront fournir des réponses :
• L’unilatéralisme fédéral en la matière sera-t-il encore
l’approche privilégiée, ou le temps est-il venu pour les
deux ordres de gouvernement de reprendre un dialogue
sérieux et constructif ? Dans une fédération du 21e siècle,
l’absence de conférences fédérales-provinciales régulières
dignes de ce nom est-elle souhaitable ?
• La réforme du Sénat sera-t-elle abordée en tenant compte
du rôle clé que cette institution pourrait jouer en tant
que vecteur de la représentation provinciale dans les
affaires de la fédération ?
• Les transferts fédéraux seront-ils revus afin d’éliminer
leurs dispositions arbitraires (par exemple les plafonds à
la péréquation) et de les immuniser contre les aléas de la
politique partisane et les soubresauts de l’économie ?
Le prochain mandat sera l’occasion de souligner les
150 ans de la Confédération. Afin d’assurer leur pérennité,
il importe que les institutions mises en place pour régir les
relations intergouvernementales s’adaptent au contexte
d’aujourd’hui. Les chefs de parti actuels auront tout intérêt
à retourner aux sources afin de doter le pays pour 2017
d’arrangements financiers intergouvernementaux vraiment
à la hauteur de la vision des Pères de la Confédération.
Get aggregate
supply policies right
The public services we value most are provided by provincial governments (health care, education and social
assistance) and municipal governments (water, sewage,
transit). The federal government mainly transfers income
from rich to poor, negotiates international agreements
and regulates markets. In doing these things we expect
it to manage its finances sensibly and contribute to the
stability of the economy.
For quite some time federal governments have done
well in meeting their financial responsibilities. In some ways
they have gone too far, and they now wring their hands
about small budget imbalances. Yet the amount of government debt, measured against our collective income, is not
only low but is falling. Trying the balance the budget come
hell or high water is sometimes harmful and often unnecessary. The tax-and-transfer system is effective at shifting
income from rich to poor and works automatically to soften
the effects of economic slowdowns. Some modifications
could be considered to federal transfers, but the basic design
is correct and few would argue major changes are required.
I would like to see the next government be more vigorous in defending free markets. The current government’s
crusade for a fourth national wireless carrier goes against all
economic evidence. Government also needs to stop making
the tax-and-transfer system less neutral with targeted tax
incentives. I would like it to eliminate agricultural marketing boards, which have maintained such high prices on
milk and cheese that low-income parents cannot afford
to feed these staples to their children. With low interest
rates and signs of an economic slowdown, deficit-financed
support for infrastructure investments would be well
timed. In sum, I would like to see the federal government
focus on getting aggregate supply policies right. That isn’t
always exciting or even popular policy-making but it is the
foundation of a successful economy and establishing that
foundation is, beyond all else, what we should expect of
the federal government.
While the federal government wrestles with how to eliminate the budget deficit, another larger deficit looms, one
that has been fundamentally ignored for too long and
that threatens our economy and wellbeing — the climate
policy deficit.
This deficit manifests itself in two ways. First, and this
needs no elaboration: Canada’s failure to reduce its greenhouse gas emissions. The Commissioner of the Environment and Sustainable Development’s 2014 report finds
federal action on climate change unsatisfactory in all measures. Canada will not meet its 2020 target. Carbon-pricing
policies if introduced soon would help show leadership
and stay competitive with carbon-pricing developments in
China and the United States.
Second, our climate is already changing, and there are
negative impacts across the country, from the pine beetle
devastation of BC’s forests, to extreme rainfall events that
flood our cities and coastal areas, to loss of winter roads in
the north. The Insurance Bureau of Canada reports extreme
weather events in 2013 alone cost Canada $3.2 billion.
We are wholly unprepared for escalating climate impacts. The following three major policy changes are needed.
First, work with the provinces and the insurance
industry to reform disaster relief, and assess the potential
for overland flood insurance that provides incentives for
property owners to reduce their flood risk.
Second, enhance the federal funding of climate adaptation investments. According to the Federation of ­Canadian
Municipalities we have a public infrastructure deficit
approaching $200 billion, and that doesn’t include climate
risks. In the Building Canada Plan, disaster mitigation is
just one component of the 10-year, $10-billion budget for
the Provincial-Territorial Infrastructure Component. It’s a
mere finger in the dike.
Finally, one of the most cost effective ways to improve
ecological resilience is to protect natural areas, especially
urban ones. The National Conservation Plan was announced in the 2014 budget with details to follow. While
we wait, our climate deficit continues to grow.
Marcelin Joanis est professeur agrégé à Polytechnique Montréal,
chercheur au CÉRIUM et fellow au CIRANO.
Ron Kneebone is a professor in the Department of Economics at
the University of Calgary.
Nancy Olewiler is a professor in the School of Public Policy at Simon
Fraser University.
POLICY OPTIONS
MARCH-APRIL 2015
45
panel SUR LA POLITIQUE ÉCONOMIQUE
THE WONK
Doug May
Norma Kozhaya
Think beyond GDP
Government leaders sometimes play the piano and sing the
oldies but goodies. When I think of the oldies, I recall the
following line from a song that Elvis made famous: “caught
in a trap, [we] can’t walk out.” And sometimes, I worry that
this line could be the unfortunate theme for any government that wins the upcoming federal election.
For Canada, the trap is our virtually stalled economic
growth, which has regional, see-saw characteristics. And
while our economy is clearly a natural preoccupation, we
don’t seem to be able to move beyond our discussions about
GDP, productivity, innovation or household debt. These
issues are important, of course, but only as they relate to
society progressing overall and reaching its potential.
Respected organizations, such as the OECD and its
­Better Life Index, have been urging us to move beyond
GDP as a measure of our collective well-being. They argue
that we should pay more attention to wider concerns, such
as growing inequalities, educational outcomes, health,
social inclusiveness and community vitality.
Governments at all levels seem to be either unaware
or uninterested in these wider social issues. Instead they
focus almost exclusively on their deficits, aggregate revenues and spending. Moreover, the spending-side focus
is on inputs, but not the outputs they produce. Our focus
should go further to state outcomes and their associated
value to society. For example, health expenditures dominate our thinking (which is natural, given the aging of the
boomers), but how do these expenditures improve the
quality of our lives? Other issues, such as tax fairness or
promoting equal opportunity, are over-shadowed by the
panic induced from falling natural resource prices and
government revenues. Widening governmental perspectives, as I’m suggesting, also calls for a longer-term focus
and an understanding of the dynamics of change that is
due to government initiatives.
But whatever economic issues we economists urge the
new federal government to consider, the ultimate managers will be the public. It is we, the people, who seem to
be caught in a psychological economic trap from which we
can’t walk out.
Doug May is a professor of economics at Memorial University. To see
how your province is doing using a version of the Better Life Index,
see www.mun.ca/care/topics.
46
OPTIONS POLITIQUES
MARS-AVRIL 2015
Christopher Ragan
Miser sur le dynamisme de
nos entreprises
Put cities’ infrastructure
and transportation needs
on the agenda
In designing the retirement income system, Canada has
gradually — and very successfully — emphasized keeping
seniors out of poverty. In this process, however, we have
also created disincentives to working longer and adequately
saving for retirement.
A key reason for this is that the Guaranteed Income
Supplement (GIS) — our primary instrument to fight
old-age poverty — claws back 50 cents on each dollar of
recipients’ other income. These rules have several negative
effects. They discourage labour force participation among
older workers. They change how and when people claim
CPP/QPP pension benefits, and they affect the use of various savings vehicles.
The federal government should change the design of
GIS to mitigate these disincentives while still leaving it
as a powerful instrument to fight old-age poverty. In fact,
without improving the design of the GIS, most proposals to
enhance the CPP/QPP will be unfair to low-income workers
(who have to contribute at the same rate as more fortunate
workers) and will have little effect on their benefits because
of the clawback. As some scholars suggest, one way to
“neutralize” this flaw is to base GIS eligibility and payments
on the CPP/QPP benefits that an individual would have
received had they claimed them at age 60. Another way to
make the program more neutral for working into old age is
to slightly reduce the maximum benefit and clawback rate.
Any increased cost from redesigning the GIS could be
recouped from fixing tax-deferred savings vehicles. Canada offers several plans: pretax plans include Registered
­Retirement Savings Plans, and posttax plans such as Tax
Free Savings Accounts, which are particularly interesting
for low income earners. Generally such schemes have not
been shown to increase net savings. With public revenue
losses from these tax-deferred plans forecast to increase
substantially as our population ages, now is also a good
time to impose stricter limits on how these funds are used.
Alors que des élections fédérales pointent à l’horizon, le
moment est opportun pour discuter des principaux enjeux
économiques du Canada.
Tout d’abord, nous devons miser sur le dynamisme de
nos entreprises. Comment ? En privilégiant l’innovation
ainsi que l’ouverture à de nouveaux marchés. Il faut mieux
préparer nos entreprises, par la formation et l’information,
à tirer profit des occasions d’affaires qui se présenteront
grâce aux accords avec l’Union européenne et la Corée
ainsi qu’au Partenariat transpacifique, dont les négociations
progressent.
Le gouvernement du Canada devrait en même temps
investir dans des programmes qui ont un effet de levier
structurant sur la productivité, l’innovation, la commercialisation et la réduction de l’empreinte environnementale
des entreprises. L’Office des technologies industrielles,
notamment, pourrait soutenir des programmes ciblés sur
les sociétés manufacturières innovantes du pays.
Parallèlement, l’atteinte de l’équilibre budgétaire en
2015-2016 doit demeurer une priorité avant que le gouvernement renoue avec les surplus budgétaires, quitte à laisser
tomber certaines réductions d’impôt.
La question des investissements dans les infrastructures
est un autre enjeu tout aussi important. Le gouvernement
fédéral devrait investir davantage dans les ports et dans les
pôles logistiques, de même que dans des projets porteurs en
matière de transport collectif. Il est crucial que la portion
du Québec dans les investissements en infrastructures liés
au fonds PPP Canada corresponde à son poids démographique au pays.
Parmi les autres problèmes structurels qu’il est nécessaire d’examiner figure la situation des aéroports. À cause
des différentes charges qui leur sont imposées, nos aéroports sont clairement désavantagés par rapport à ceux des
États-Unis, et cette forte concurrence commence à peser de
plus en plus lourd sur l’économie canadienne. Un rapport
sénatorial a déjà avancé différentes pistes de solutions
prometteuses qu’il faudrait considérer sérieusement dans
l’intérêt de la compétitivité de notre économie.
Listen to the mayors of Canada’s big cities and you will
hear them talk about the challenges of providing necessary
infrastructure and transportation systems in response to
population growth. In some cities the challenges do relate
to the pace of growth; but in all cities they relate to money.
Cities derive most of their revenues from property
taxes, but this tax base is not growing as quickly as the
financial needs, especially in those cities where replacing
old, crumbling infrastructure simply adds to the total requirements of a growing population.
Constitutionally, cities are creatures of the provincial
governments, to whom they must go, cap in hand, to
ask for money. Unfortunately, Canada’s provinces have
enormous fiscal challenges of their own. Their single largest
budget item is also the fastest growing: health care. As the
baby boomers move into retirement, these costs will rise
even faster. And when it comes to decisions taken around
provincial cabinet tables, health care trumps infrastructure
and transit every time.
This brings us to the feds. Despite the current shortterm challenge — a slowing of tax revenues driven by low
world oil prices — the federal government is in a solid fiscal
position. Its debt-to-GDP ratio is just over 30 percent, and
it is scheduled to fall gradually but inexorably for many
years into the future.
So, the challenge is to figure out a way to reallocate
some of that available fiscal space in Ottawa to our big
cities, to finance the infrastructure and transportation
systems they so desperately need. Maybe the money could
flow straight through the provinces from the feds to the
cities. Maybe there could be a creative shifting of tax
points. Maybe a few points of the GST could go to cities.
And maybe cities could start tapping revenue sources right
under their noses — such as road-congestion fees, user fees
for water, and tolls for bridge crossings.
Whatever the solution, the problem is large and badly
needs some serious thought. Whichever government we get
in Ottawa this fall, the needs of our cities must be on the
agenda.
Pierre-Carl Michaud is an associate professor at the Université du
Québec à Montréal.
Norma Kozhaya est vice-présidente à la recherche et économiste en
chef au Conseil du patronat du Québec.
Christopher Ragan is an associate professor in the Department of
Economics at McGill University.
Pierre-Carl Michaud
Fix the Guaranteed
Income Supplement
POLICY OPTIONS
MARCH-APRIL 2015
47
Sharing the Wealth
economic policy panel
Why the increase in
inequality matters
Jennifer Robson
Lars Osberg
Reform personal income taxes
The next government will have to deal with a personal
income tax system that is struggling under the weight of
its own density and contradictions. This advice may not
appear in the transition briefings prepared by federal public
servants. Those briefings will likely mention instead the
Bank of Canada’s repeated warnings that the precariousness of Canadians’ household balance sheets is now one of
the greatest risks to our economy, and regular warnings to
consumers to reduce their debts. I think that the link between our tax system and household balance sheets is more
intertwined than we’ve acknowledged, and this is worth
highlighting.
An income tax system establishes a baseline definition
of income and taxes it. It includes certain allowances and
adjustments — excluding some types of income, deducting
others, allowing certain credits, etc. Over the years, our
tax system has become riddled with loopholes that neither
achieve tax fairness nor appear to have their desired policy
impacts (for example, the children’s fitness tax credit).
Worse still, our tax system may also inadvertently contribute to household imbalances by creating incentives for
households to rearrange their finances. While tax-sheltered
savings are attractive, they come at the major public cost
of foregone tax revenues equal to nearly 5 percent of the
federal budget annually. Some tax-incentivized assets, like
home ownership, come with hefty purchases prices and
debt for most Canadians. Others, like RRSPs, have spurred
financial innovations like “catch-up loans.” Most worrisome is that it’s not clear that the personal income tax system is directing the majority of the benefits to households
that need help unwinding their balance sheets. Instead,
most of the benefit flows to the reasonably well off: a little
more than half of the assets owned by the wealthiest 20
percent of Canadians are now held in tax-preferred assets.
Policy-makers can and should use the tax system to
promote certain policy goals and influence social outcomes.
But successive governments have built a system that over
the decades has become layered with incremental choices,
each usually made for short-tem political gain. How much
longer can we afford to keep this up without fundamentally reforming the whole tax system?
Peter Wallace
Reset federal-provincial
relationships
The next federal government will have an opportunity to
reset its economic and fiscal relationship with the provinces.
Federal and provincial governments are critical economic players, but provincial expenses are a greater share
of the economy. There is massive overlap in sources of tax
revenue and key spending areas, particularly the infrastructure partnerships that are vital to future growth. Any
major policy thrust will require both levels of government.
The provincial and federal governments can work
together to powerful effect. Nowhere was this clearer than
in their response to the 2008-09 recession, with coordinated efforts to break log jams in asset-backed capital, support for key domestic industries (including the auto sector)
and stimulus through major public works.
Now relations feel more fragmented, under stress.
Provinces are uncertain about equalization, capital project
investments and other transfers. The federal government
faces many and perhaps disjointed demands for additional
investments.
But underlying this tension is a core reality — provinces are under pressure from the cost drivers associated
with demographic change. The relative shares of tax room
don’t match well with these spending responsibilities.
So let’s take advantage of the new mandate, under any
party, to reengage with the provinces. This means offering
stability in funding where possible. It may also mean orderly shifts of any available tax room. We’ve shown what we
can do in a crisis, so the same should be feasible in a time
of relative stability.
The government of Canada may not need to concede
anything through this, least of all its fiscal discipline. This
is an opportunity for both levels of government to leverage
and even integrate spending commitments to maximize
economic and social benefits on behalf of their citizens. n
Growing income inequality is not just a serious economic challenge.
Left unaddressed, it could also have a significant negative impact
on Canada’s political fabric.
Les inégalités de revenu croissantes ne sont pas qu’un défi économique.
Si on n’y remédie pas, elles pourraient sérieusement menacer le tissu
social et politique du Canada.
t
he new normal in Canada and the United States
over the last 30 years is that incomes at the top
have grown rapidly while middle-class incomes
have stagnated. As a consequence, the real-dollar income gap between the top 1 percent of taxpayers and
the median household in Canada doubled between 1982
and 2010 and, if historic trends continue, will more than
double again by 2032. Why does this matter?
To some extent, the top 1 percent already consume
their incomes in a separate world of exclusive shops and
expensive neighbourhoods, one where most of the other
99 percent never go. The increasing magnitude of top
1 percent consumer expenditures has sustained a growing infrastructure of inequality (for example, high-end
shops, five-star resorts, luxury car dealerships), and over
time the growing top-end market will mean that ever
more entrepreneurial energy is devoted to the design, production and marketing of such separate spheres of exclusivity. Strong income growth for the top 1 percent implies
that, as their incomes diverge increasingly from the median, they experience an increasing disconnect from the
lived reality of everyone else. But so what? Why should
anyone care if the top 1 percent pull steadily away from
the middle class?
One reason for concern about increasing income gaps
is inequality of opportunity. The data are very clear: coun-
Jennifer Robson is an assistant professor at Kroeger College, Carleton
University, where she teaches courses in public policy, policy research
and political management.
48
OPTIONS POLITIQUES
MARS-AVRIL 2015
Peter Wallace is the 2014-15 Ontario Public Service Visiting Fellow
at the School of Public Policy and Governance at the University of
Toronto.
Lars Osberg is the McCulloch Professor of Economics at
Dalhousie University.
tries with more income inequality have more inequality
of opportunity. Economists have long recognized that in a
market economy, more income inequality for adults inevitably produces more inequality of opportunity for children,
because the increasing incomes of top 1 percent parents
enable them to purchase ever more influence over the social mobility process.
As Alfred Marshall remarked in The Principles of
­Economics over a century ago, “The professional classes
especially, while generally eager to save some capital for
their children, are even more on the alert for opportunities
of investing it in them,” while the children of the working
classes “go to their graves with undeveloped abilities and
faculties.” Marshall insisted that “this evil is cumulative.”
Greater inequality raises the stakes in childhood educational achievement. As some parents respond by increasing
the pressure on their children, the resulting “loss of childhood” is one of the costs of increasing income inequality.
However, individual effort only partly determines success.
Canada’s widening income gap also implies that top 1 percent
parents have increasingly more income to spend on private
schooling, better school districts and greater enrichment activities to enhance their own children’s chances of success.
In addition, top slots are limited and real life is competitive — when some people get ahead in social rank,
others necessarily fall behind. But those who are already at
the top can only lose from future mobility. For the top 1
percent, the only future mobility is downward. Hence, the
dark side of increasing inequality is that affluent parents
have increasingly more to lose from improvements in the
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