The gap in purchasing power between high- and low-income households in Canada is increasing. But by how much?
This School of Public Policy publication highlights the widening difference between the average real (inflation-adjusted) after-tax income between earners in the top income quintile of Canadian households and that of earners in the bottom income quintile of households.
In 1976, the difference in purchasing power between the top 20 percent of households relative to the bottom 20 percent of households was roughly $58,000 when measured in 2019 dollars. By 2019 this had increased to over $84,000.
Canada, thanks to its tax and transfer system with redistributive spending programs, was able to maintain a relatively constant real income gap from 1976 and 1995, but since the late 1990s that gap has ballooned to the disparity we see today.
As authors Margarita Wilkins and Ron Kneebone explain, a difference in before-tax purchasing power between these two groups is to be expected given that gross earned incomes are not evenly distributed. Any discrepancy in the after-tax income gap, however, is the result of public policy choices.
As to what public policy choices are on hand to address this gap, they write:
“For those who express concern over these relative changes in purchasing power, one response is to advocate in favour of increasing still further the size of income transfers from rich to poor and in this way reduce the gap in after-tax purchasing power. Another response is to advocate in favour of public policies supporting what has been referred to as inclusive growth. This approach targets the difference in earned incomes and aims to increase opportunities and rewards for Canadians who may have previously been less able to fully participate in the economy.”
