Bold changes needed to address inequality
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Hey there, time traveller!
This article was published 02/04/2021 (494 days ago), so information in it may no longer be current.
Canada is grappling with multiple emergencies: a health pandemic, a looming fiscal crisis, and growing inequalities laid bare by COVID-19. Just as the virus itself has attacked the most vulnerable, its social and economic effects have been especially felt by marginalized individuals, including women, visible minorities and low-income workers.
A recent CIBC Economics study cautioned the country’s income gap is growing at a dramatic pace as higher earners saw employment gains despite lower-wage job losses. At the other end of the scale, all but one of Canada’s top 44 billionaires saw their fortunes grow or remain the same during the pandemic.
Meanwhile the federal government has gone into massive deficit to fight the pandemic, with its debt expected to almost double over the next five years.
Acknowledging that COVID-19 has exacerbated disparities, Finance Minister Chrystia Freeland has committed to “identify additional ways to tax extreme inequality.”
The Liberals’ long-awaited federal budget will be an opportunity for them to fulfill their commitments to both reduce inequalities and put the country’s finances on a more sustainable path, but it will require much bolder tax reforms than we have seen so far from this government.
Inequality in Canada is getting worse. The top one per cent of Canadians now own over a quarter of all wealth, according to the Parliamentary Budget Officer and annual Credit Suisse reports. While the one per cent significantly increased their share of wealth over the past decade, the share of all other groups declined or stayed the same.
A recent Statistics Canada study found children born into wealth or poverty are now more likely than ever to remain there. To combat this trend, the federal government should tax the extreme concentration of wealth at the top and use those revenues to strengthen public services to help middle- and lower-income families.
Governments are recognizing that they need to reshape their tax policies to address inequality and generate revenues to pay for the pandemic. Argentina just introduced a wealth tax, various U.S. states have already implemented or are considering new taxes on top earners, and even the World Bank and the IMF have recommended taxing the rich to reduce debt in the wake of the crisis.
When it comes to taxing inequality, the Liberals have many options.
Canada remains the only G7 country without a wealth, inheritance or estate tax. The federal NDP has proposed an annual net wealth tax on the richest families, which would be a good place to start, but not the only approach.
Canada’s tax system contains many loopholes that enable higher-income individuals to hoard wealth. Income from investments through capital gains is taxed at half the rate as income from labour, making it easier for the rich to get richer but harder for average workers to save and get ahead. Other loopholes such as the stock-option deduction overwhelmingly benefit men and top earners, contributing to both wealth and gender inequality. Closing these loopholes would provide funding for social programs and public services to benefit all Canadians.
Targeting taxes to the top will help reduce inequality, but not without improving how wealth is redistributed through the tax system.
The pandemic showed how critical it is for benefits to quickly reach individuals in need. Yet each year, many Canadians do not file their taxes and therefore miss out on important benefits, such as the Canada Child Benefit, that help reduce poverty.
The Liberals recently committed to bring in automatic tax filing, with the federal government providing simple tax returns for low-income Canadians. Following through on this commitment will help more vulnerable individuals receive social supports.
Other emergencies, such as the health pandemic and climate crisis, have shown that not making the necessary investments now poses a greater threat in the future. Without immediate action, inequality will continue to put lives at risk and prevent Canada from fully recovering from the crisis.
Taxes have an important role to play in tackling extreme inequality and raising the revenues needed to rebuild after the COVID-19 crisis. We have the money available to fund a more equitable and inclusive recovery that leaves no one behind, but not without making the tax system fairer.
Erika Beauchesne is the communications coordinator with Canadians for Tax Fairness, a non-profit organization that advocates for progressive taxes to reduce inequality, strengthen the economy and fund quality public services.