The real income of Canadian families has been creeping upward in the past few years, but not everyone has shared in the improvement. The gap between households with high incomes and those with low incomes has grown even wider.
In fact, income inequality has increased in the past decade, reports Statistics Canada. In 2005, average after-tax income for the 20% of families with the highest incomes was $128,200, compared with $22,800 for the 20% with the lowest incomes.
To analyse income inequality, StatsCan divided families into five groups, or quintiles, in ascending order of after-tax income. Each quintile represented 20% of all Canadian families. The income gap between the top and bottom quintiles started at $83,800 in 1980 and fluctuated between $79,500 and $84,500 until 1996. By 2005, the agency reports, the gap had reached $105,400. All figures are in 2005 dollars.
StatsCan’s latest report on Canadian incomes says all quintiles benefited from the positive economic conditions the country has experienced since the early 1990s, but families in the top tier gained the most. Since 1996, their average after-tax income has risen by 24%, vs about 18% for the other four groups.
The report also notes the 20% of families and unattached individuals who took home the highest amount of after-tax income in 2005 collectively paid almost 60% of all personal income taxes that year — up from 50% in 1980.
StatsCan notes, however, that government transfer programs and federal, provincial and territorial income tax systems have helped to reduce income inequality by redistributing income from higher-income Canadians to lower-income families.
For example, in 2005, the average market income for families in the top income quintile was 12.8 times higher than those in the lowest quintile. But the gap was reduced to 6.9 times when government transfers were taken into account. When taxes were included, the average income for families in the top income quintile was 5.6 times higher than average income of the lowest quintile. (Market income is the sum of earnings from employment and net self-employment income, investment income excluding capital gains and private retirement income.)
The agency reports the median after-tax income for Canadian families with two or more people was $56,000 in 2005, an increase of 1.6% from 2004 after adjusting for inflation. But incomes of senior families and singles remained about the same in 2005 as the year before. Seniors living on their own had a median after-tax income of $19,600 in 2005 — virtually unchanged from the year before. (The median income is the point at which half of those counted have higher income than the rest and half have less.)
Although the income of senior families did not really improve in 2005, those people saw a 15% increase in income since 1996 after taking inflation into account. StatsCan says the increase is mostly the result of a five-year upward trend that began in 1997.
The report estimates about 650,000 Canadian families, or 7.4% of all families, were living on low incomes in 2005 — about the same as the year before.
Although Canada does not have an official “poverty line,” the low-income calculation is based on StatsCan’s after-tax low-income cut-off, which takes into account government transfers and tax measures. StatsCan says the measure reflects the income level at which a family may be in tighter circumstances because it has to spend a greater proportion of its income on necessities such as food, clothing and shelter than the average family of similar size.
Some 788,000 Canadians under the age of 18 were members of low-income families in 2005 — about 11.7% of the total, often referred to as the “child poverty rate.” Although that total was an improvement from the rate the year before, low-income rates for older women and especially for senior women living on their own increased in 2005. In fact, more than 20% of older women on their own had low incomes in 2005, up from about 17% in 2004. The low-income rate for senior women is more than double that for senior men (see upper table).
Women who head lone-parent families also face high rates of low income, but their position has improved dramatically since 1996, when almost 53% lived on low incomes. StatsCan says much of that gain reflects higher earnings and a larger proportion of mothers in the paid workforce.
@page_break@But incomes of these women still average $6,700 below the low-income cut-off — indicating their depth of poverty. Incomes of low income two-parent families with children average $9,100 below the cut-off, while low-income senior women on their own average $2,200 below the cut-off (see upper table).
Median taxes and transfers for both families and unattached individuals didn’t change much from 2004 to 2005. In fact, the amounts received in government transfers and the amounts paid out in taxes have both gone down in recent years. For every $100 in total income received by Canadian families in 2005, states the report, an average of $10 came from government transfers. This compares with a 25-year low of $8 in 1980 and highs of $13 in the early 1990s. As for taxes, families paid $17 of every $100 in personal income taxes in 2005, vs a low of $15 in 1980 and a high of $20 in 1998.
There were several reasons for these differences. Economic recessions and booms, changes in tax and transfer programs, changes in demographics such as family composition, student status and an aging population all have played a role, says StatsCan.
There were also notable differences in market income, transfers and taxes paid among different types of families. For instance, senior families got about half their income from government transfers, reflecting payments from government programs such as old-age security and the Canada Pension Plan. Two-parent families with children had the highest median incomes, even after taxes and transfers were taken into account.
Among the provinces, Alberta families had the highest median income for the second consecutive year, with median income of $64,700, vs $61,000 for Ontario families. Both those provinces were well above the national median of $56,000. Families in Newfoundland and Labrador had the lowest median after-tax income, at $43,100. IE
Gap widens further between high and low incomes: Includes Charts
Incomes of the top 20% of Canadian families now $105,400 a year more than the lowest 20%, StatsCan reports
- By: Monica Townson
- July 31, 2007 July 31, 2007
- 09:39