Rising inequality poses a threat

Times Colonist

Canadians need to decide how much inequality is acceptable in our society. A recent Broadbent Institute report called inequality a defining issue of our time. It’s hard to dispute that claim, especially given the serious damage that could result from rising inequality.

There is a myth that growing inequality is inevitable, or the result of some natural market forces.

That’s simply false. Governments in some countries – including Canada – have made policy choices that increased inequality, ensuring the richest citizens claim the largest share of economic gains, and the rest of the population benefits much less.

Other countries have chosen a different path without damage to their economies. Canada now has greater inequality than most of its economic peers, according to a 2011 Conference Board of Canada report.

Market forces are a factor, of course. Globalization meant manufacturers shifted operations to other countries with lower wage costs. That reduced demand for workers here and resulted in lower wages for many Canadians.

But a wide range of government policy choices also increased inequality.

Traditionally, governments have set out to ensure economic gains are shared. Taxes have been structured so the rich pay more. A variety of transfer payments – disability assistance, pensions, unemployment insurance – boost the incomes of those at the bottom. Minimum-wage laws set a baseline to protect those with the least bargaining power.

The Conference Board report found that between 1976 and 1994, the Canadian tax and transfer system increasingly reduced income inequality.

But since 1994, policies have increased the income gap. In 1990, for example, about 83 per cent of unemployed people were eligible for Employment Insurance benefits, boosting their income as they looked for work. By 2009, only 48 per cent were eligible.

Tax policies have also increased the income of the richest. In B.C., for example, income tax cuts have delivered an average benefit of $9,000 a year to the richest 10 per cent of households, while saving the poorest 10 per cent an average $200.

The trend is dramatic. And an Organization for Economic Co-operation and Development report last year found that the richest one per cent of Canadians shared 13.3 per cent of total income in 2007, up from 8.1 per cent in 1980. And the richest one-10th of one per cent – about 13,000 families – claimed 5.3 per cent of all income in Canada, more than twice the share they received in 1980….

But excessive inequality is destructive on many levels. Rising inequality, the Broadbent report notes, erodes the incentive for those at the bottom to strive for a better life, because the gap is too large and the rules rigged against them.

Public services are also at risk. When the rich can buy services, like private schooling, they have less interest in maintaining a public system. And deteriorating public services create a perpetual advantage for those already at the top and their children.

The Conference Board identified another risk. When people’s incomes fall too far, they cannot participate fully in society.

Politics are seen as the exercise of power by the rich. And individuals who feel excluded have much less stake in accepting the laws and social conventions that make our society function.

Excessive inequality is a threat to our country’s future. It’s past time for a full public debate on the issue, followed by policy changes to return greater equity to all Canadians.