Winnipeg Free Press - PRINT EDITION

Canadians can't afford their wealthy

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Jim Stanford, chief economist for the Canadian Auto Workers, has carved out a tiny corner for progressive economic thought in a field dominated by his colleagues on the fiscal and economic right with his articles for The Globe and Mail and commentary on CBC-TV.

In his latest Facts From The Fringe newsletter, Stanford reports that Canada now has 61 billionaires, meaning Canada boasts not simply a one per cent to 99 per cent inequality, but a 0.0002 per cent to 99.9998 disparity.

According to Canadian Business, their combined wealth is $162 billion, about five times the size of Ottawa's $33.4-billion deficit.

These 61 individuals own about six per cent of all personal net worth in Canada, which stood at $2.8 trillion in 2010. In contrast, Statistics Canada reports that in 2005, the bottom 50 per cent of Canadians owned about three per cent of all personal net worth.

That means just 61 people owned twice as much wealth as the bottom 17 million Canadians.

The discrepancy keeps accelerating. Average billionaire wealth grew by 8.4 per cent last year, three times as fast as the meagre 2.5 per cent increase in average hourly earnings for Canadians. The average wealth of the billionaires rose by just under $100 million each. By contrast, the average Canadian household saw its wealth grow by $524.

Stanford provides one final arresting statistic. The top one per cent of Canadians captured about one-third of all the new income generated in Canada in the last decade.

"We have to have a very different version of how we create jobs and how we invest in the economy," he said in an interview. "And that's where we have to outline the failure of the profit-driven accumulative logic of capitalism and show there's other ways to do it -- public investment or Crown corporations, non-profits and NGOs or community development -- other ways to put money and people to work in the economy and show that the whole idea of having to shovel wealth upward to make the economy succeed is wrong."

In his recent research paper for the Canadian Centre for Policy Alternatives, Stanford writes that the more Ottawa cuts corporate taxes, the less corporations invest in Canada. In fact, business investment in Canada has been steadily declining ever since the first round of corporate tax cuts began in 1988.

"Since 2001, Canadian corporations have received a cumulative total of $745 billion in after-tax cash flow which they have not reinvested into Canadian fixed non-residential capital," he continues in Having Their Cake And Eating It Too.

Business investment has declined by a full percentage point of GDP since 1988 even though after-tax business cash flow has grown by three to four percentage points of GDP due to those tax cuts.

So where is the money going? According to Stanford, this new, uninvested cash flow -- almost $750 billion since 2001 alone -- has been divvied up five ways -- $82.1 billion to accelerated dividend payouts to shareholders and executives; $89.8 billion in net outflows of foreign direct investment; $196.2 billion to share repurchases, mergers and acquisitions; $744.9 billion to excess accumulation of cash and short-term financial assets; and $232.7 billion to corporate debt reduction.

This represents a complete turnaround from historic Canadian capital behaviour. During the postwar decades, businesses reinvested their full cash flow into the Canadian economy. After the late 1980s, the amount of reinvestment declined steadily, averaging just 70 per cent reinvestment throughout the entire last decade, in both good and recessionary years.

Stanford draws a direct link between the drop in Canadian corporate business investment in Canada and the parallel near-quarter century of successive cuts to corporate income taxes.

Brian Mulroney's Conservatives began the 25-year tax cut bonanza in 1988, lowering the federal statutory rate from 36 per cent to 28 per cent.

The Jean Chrétien-Paul Martin Liberals joined the parade, cutting the rate seven points to 21 per cent by 2004.

Beginning in 2008, Stephen Harper's Conservatives slashed it in successive chops -- 18 per cent in 2010, 16.5 per cent in 2011, and 15 per cent by 2012.

Overall, Canadian corporations have enjoyed a drop of 21 points in their federal income taxes in just 24 years. But that's not the end of it. Add the provinces' corresponding reductions and you have the perfect scenario for the growing business and media chorus insisting that "we, the people" can no longer afford "Big Government."

If the wealthy continue to have their way, Canadians soon will be told they can't afford even the vestigial national programs and institutions we had during the Great Depression.


Frances Russell is a Winnipeg

author and political commentator.

Republished from the Winnipeg Free Press print edition November 2, 2011 A10

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