Ten Tax Myths
P R É C. S O M M A I R E S U I V.

Myth 4
The standard of living of ordinary Canadian working people has decreased over the past 20 years, and rising taxes are largely to blame

 T here is no question that poor and low-income Canadians are unfairly taxed, compared to wealthy Canadians and large corporations. But, in examining inequality in Canada, it is not primarily the tax system that impoverishes people. While the income tax structure is far less progressive than it was in the 1960s and 1970s, it still has the effect, along with government transfers, of modestly evening out incomes in Canada (see Table 4.1). Without income taxes and transfers, the gap between the top and bottom 20% of income earners would be four times greater than it is.

Table 4.1
Family Income Shares, Before and After Taxes and Transfers, 1997

Market Income Income After Tax and Transfers
Lowest Quintile2.17.4
Second Quintile10.113.2
Middle Quintile17.718.1
Fourth Quintile25.823.9
Highest Quintile44.337.5
Ratio of Highest/Lowest21:15:1
Source: Statistics Canada, Income after tax, distributions by size in Canada, 1997.

The principal source of the decreasing living standards is the decline in personal income, largely as a result of the poor labour market. Average after-inflation personal disposable incomes were no higher in 1997 than they were in 1980. In fact, they declined by over 7% between 1990 and 1997. While this drop is routinely ascribed to higher taxes, Table 4.2 shows that it has been the decline of before-tax incomes that is the principal factor behind the fall in disposable income.

Table 4-2
Household Incomes, Spending, and Saving ($1,992 per capita)

Personal IncomePersonal taxes Consumer SpendingSavingSaving Rate
1990$22,491$5,107$15,450 $1,93411.1%
1997$21,362$5,284$15,816 $2621.6%
Change-$1,129+$177+$366 -$1,672-9.5 pts.
Proportion of decline in savings accounted for by:68% 11%22%  
Source: Jim Stanford, Paper Boom (Ottawa: CCPA/Lorimer), 1999.

Average personal taxes per capita rose by just $177 in real terms between 1990 and 1997 — hardly grounds for a tax revolt. Meanwhile, in the face of growing unemployment, reduced wages, and government cutbacks to UI and income assistance, before-tax income plunged by $1,129.

The lowered standard of living of Canadian workers is actually the result of a deliberate policy of governments to lower the wage and salary rates of Canadians in order to weaken the power of labour vis-à-vis capital. Policies maintaining high levels of unemployment mean that millions of workers compete for an inadequate number of jobs, and they compete by accepting less pay that they would in an economy closer to full employment. Systematically reducing labour costs is also part of the government’s strategy to become “internationally competitive” by restructuring the Canadian economy along the lines of free trade and liberalized investment rules. This strategy has made it easier for capital and goods (and good jobs) to move freely across borders.

This effort to suppress wages and salaries, and to weaken social programs that support working people, goes back to the mid-1970s. Years of strong union organizing and aggressive collective bargaining meant that working people had actually made major gains and shared a bigger slice of the economic pie. That meant there was less for the owners of capital — corporations and their shareholders. Profits slipped and there was a determination by influential corporate leaders to reverse the trend and recapture capital’s historic share of wealth.

The means chosen to reach this goal was the pursuit of what has become known as “labour flexibility.” Corporations began a concerted move away from providing the traditional job — 40 hours a week, 9 to 5, on weekdays — and towards temporary, just-in-time, and part-time jobs, and to sub-contracting by large firms. And they successfully pressured governments to pass legislation and regulations that made such “flexibility” possible.

Free trade and NAFTA have restructured the economy to such an extent that Canada now has the highest proportion of low-paid jobs of any of the 29 industrialized countries. While literally millions try to put together a series of temporary and part-time jobs to survive, others are overworked through forced overtime. The Canadian economy is increasingly characterized by a good job/bad job phenomenon.

The impact is especially dramatic when it comes to young workers, particularly young men. According to a study by the Centre for Social Justice, young men’s earnings are declining relatively and absolutely, regardless of education level, geographic area, or the industry they work in. This trend continued even during the boom period of the 1980s and when the economy came out of recession in the min-1990s.

While employers have been putting an evertighter squeeze on employees, governments have aided and abetted this process by not adjusting labour laws to protect this new just-in-time work force. For example, they could pass laws requiring employers to provide benefits on a pro-rated basis to part-time workers, as an incentive to hire full-time workers. They could make overtime voluntary, opening up jobs for the unemployed, and implement a shorter official work week, thus lowering the overtime threshold.

Not only have governments not made these positive changes, but they have actually made life even more insecure for wage-earners by gutting existing laws on welfare, minimum wage and UI, which are intended to give working people a measure of economic security not provided by the unregulated private labour market.

Table 4.3
The Permanent Recession

The “Golden Age” The Age of “Permanent Recession”
Real interest rates, short term (%)0.9 5.65.1
Real interest rates, long term (%)1.6 6.56.8
Change in gov’t program spending (as % of GDP)+16.3 +1.1-2.5
Average annual real GDP growth (%)4.7 2.41.8
Average annual employment growth (%)2.8 1.10.5
Average unemployment rate (%)5.4 9.810.0
Source: Jim Stanford, Paper Boom (Ottawa: CCPA/Lorimer),1999.

Table 4.4
Average Family Income Before Transfers (Families with Children) ($1996)

19731984 19901996 % change 1973-90% change 1990-96
Bottom 5th 
Decile 15,2042,0622,760 435-47-84
Decile 219,56214,93016,599 11,535-15-31
Middle 5th 
Decile 540,34342,49546,477 42,829+15-8
Decile 646,13649,66454,561 51,494+18-6
Top 5th 
Decile 971,61179,62888,426 86,497+23-2
Decile 10107,253123,752134,539 136,737+25+2
Source: Centre for Social Justice

Taxes do play a role in the decreased standard of living of low-income Canadians. Families earning $10,000 should not be paying any income tax. Bracket creep, whereby inflation pushes people into a higher tax bracket, even when real income down not go up, has hurt millions of working people. But the general decline in living standards is caused primarily by corporate pressure on wages, Ottawa’s high unemployment policy, massive cuts to social programs and the social safety net, and free trade deals that allow companies to threaten to leave the country if their employees don’t accept management’s demands for wage freezes and rollbacks.

[7] Armine Yalnizyan, “The Growing Gap: A report on the growing inequality between rich and poor in Canada”, The Centre for Social Justice, Toronto, October, 1998, p.45.
[8] Globe and Mail Report on Business, Feb, 1997.
[9] op.cit. Yalnizyan, p. 23.
[10] Clarence Lochhead and Vivian Shalla, “Delivering the Goods: Income Distribution and the Precarious Middle Class”, in Perceptions, Canadian Council on Social Development, spring, 1997.
[11] National Council of Welfare, Province of Manitoba.
[12] The Monitor, the CCPA, Sept, 1996.
[13] Kevin Hayes, “Left Out in the Cold”, Canadian labour Congress, January, 1999.

Ten Tax Myths
P R É C. S O M M A I R E S U I V.