CSJ Calendar

 CENTRE FOR SOCIAL JUSTICE

Inequality Rises As More Families Slide To The Bottom Of The Income Scale

Tax cuts don't address economic reality says new report

January 27, 2000 – Canadian families have fallen towards the bottom of the income scale over the course of the 1990s, and the odds of "getting ahead" have all but disappeared says a new report released today by the Centre for Social Justice.

 Canada's Great Divide: the politics of the growing gap between rich and poor in the 1990s by economist Armine Yalnizyan charts the startling results of the decade's "grand social experiment" as governments put the emphasis on "more market, less government."

Despite economic growth over the last decade, inequalities have grown.  There has been a dramatic surge in the proportion of families who have ended up at the bottom of the income scale.  Surprisingly, the proportion of families in the middle and at the "top" actually fell between 1989 and 1997, as did their average incomes.  Cuts to transfers and taxes further fueled the growing gap.

"We are witnessing a slide to the bottom, with fewer opportunities to get ahead.  These are not the results that we were led to expect from a more vigorous pursuit of market solutions over the ‘90s,"  says Armine Yalnizyan, author of the report.  "By any measure, the poor are getting poorer, and there are more poor among us."

In 1989, 30 per cent of families registered an after-tax income of less than $35,038.  By 1997, more than 37 per cent of families found themselves in this income bracket.

The poorest 10 per cent of families fared the worst.  In 1989, this group had an average after-tax income of less than $15,596.  In 1997, their after-tax income had fallen to an average $13,806.

With incomes this low, says Yalnizyan, proposed federal tax cuts will not reach the poorest Canadian families.  She cautions against a tax-cut approach of "giving back to Canadians" which leaves a large number of families out in the cold, and does not address escalating concerns about cut-backs to social programs and services.

"Tax cuts aren't the solution because taxes aren't the problem," Yalnizyan says. "Tax policy is not a substitute for social policy.  A tax cut will not buy us better hospital emergency services when we need them.  A tax cut will not keep our kids' schools from closing.  A tax cut won't raise the incomes of the poorest Canadian families who don't have taxable incomes."

The report examines the critical role of political choice in shaping the growing gap, highlighting the outcome of two distinct periods over the 1990s – recession and recovery.

During the recessionary period of 1989 to 1993, the gap between rich and poor grew in market terms, but government actions helped close the after-tax gap despite tough economic times.  The opposite trend occurred during the recovery period of 1994 to 1997.  Average market incomes improved for all income groups, including the poorest, closing the market gap; but in after-tax terms the gap grew at the most rapid rate it has since the 1970s, when we first started tracking trends in income inequality.  The growing gap in after-tax incomes can in part be traced to governments pulling back from key income supports to Canadian families such as Unemployment Insurance and social assistance.

The report also tracks income disparities in the provinces over the 1990s, again with surprising results.  There were significant differences in rates of economic growth and decline across the country, but economic growth did not always translate to reductions in income inequality.  In the final analysis, the state of inequality was more likely to correspond to choices of the governments in power than economic circumstance.

"This trend in sliding family incomes has devastating implications.  Our odds of achieving greater prosperity or simply greater financial security have dropped – let alone the odds facing our children," says Yalnizyan. "The promise of prosperity through tax cuts plays on that sense of insecurity.  But tax cuts will not reverse this economic trend, nor address the erosion of services.  As poll after poll has shown, Canadians are looking for a new direction from their governments, one that will increase their security and well-being."

For more information or to order a copy of the report, please contact:

Centre for Social Justice, 416-927-0777 or 1-888-803-8881