Column: From the Hill -- Wealth gap a drag on the economy
Imagine a country where the top one percent of the population owned one quarter of all the wealth and the bottom 40 per cent together owned only one per cent. Sounds outrageous? That country is Canada.
The source of those figures is the latest report of the Parliamentary Budget Officer. The disparity between the super-wealthy and the rest of us is much greater than previously estimated and the gap between rich and poor in Canada has been growing for decades. There is also growing support for actions that would turn that trend around, including a wealth tax on the richest of the rich.
While this inequity is obviously unfair and some would argue unethical, it is also a drag on our economy. The more that wealth is concentrated at the top, the less it is recycled through local economies, helping to stimulate family incomes across the country. Instead it is squirrelled away in offshore bank accounts or spent on real estate and businesses outside Canada. I remember the vice-president of ScotiaBank saying at a breakfast meeting in Penticton a few years ago that the thing that really kept him awake at night was the widening wealth gap in Canada. I assume he’s sleeping even less well now.
This divergence began several decades ago as governments bought into the discredited theory of “trickle-down” economics—that lowering taxes on wealthy individuals and big corporations would spur investments and create jobs, raising everyone’s standard of living. After years of data, there is absolutely no evidence that these benefits ever materialized, and plenty of evidence that the opposite is true. Wages across the continent stagnated as corporate profits continued to soar.
So, what can we do? Well, the obvious step is to increase taxes on the wealthiest Canadians to ensure that they pay their fair share. A wealth tax of 1 per cent on those who have more than $20 million in assets would bring in about $9 billion per year according to the Parliamentary Budget Officer. Naysayers point out that wealthy people have highly paid accountants and would try find ways to avoid paying any taxes at all. The easiest avenue for that—moving assets out of the country—could be closed off with a hefty exit tax for money headed offshore. And we should move quickly to close down offshore tax havens. I’ve already written about that in a recent column.
What do Canadians think about a wealth tax? A recent poll by Abacus Data found that 75 per cent of Canadians support a wealth tax, while only 13 per cent are opposed. The same poll found that 81 per cent of Canadians think that government supports should not go to companies hiding profits in offshore tax havens, nor should they go to executive bonuses or stock buy-backs.
With governments around the world looking for ways to fund an economic recovery after the COVID-19 pandemic, more and more economists are talking about a wealth tax. The impact of such a tax would depend on the details of its implementation, but however it rolls out it could play an important role in making the wealthiest of Canadians pay their fair share.