News

Joe Friesen / Globe & Mail

The perception of a growing generational divide seems to be taking hold among millennials and their baby boomer parents, as both groups now tend to believe that the economic future looks bleak for the younger generation, a new survey shows.

The survey, which was commissioned by the Broadbent Institute, found that millennials fear their working lives will be governed by precarious, short-term arrangements and that the gulf between rich and poor will grow. Their parents, meanwhile, worry that the younger generation will not produce enough income to support the social programs they’re counting on in old age.

“Parents across this country are fretting about the economic prospects of their kids. They’re worried their kids aren’t going to have the same economic opportunities as they did,” said Rick Smith, executive director of the Broadbent Institute, a left-wing think tank. “What really leaps out at me here is there’s a very high degree of angst.”

A feeling of anxiety about the economic prospects of a younger generation is not uncommon historically. What’s not clear is whether today’s fears are justified. Youth unemployment is at 13.6 per cent, unchanged over the last year and down from the peak of a recession that continues to send ripples through the global economy. This is also a period of significant technological change and it’s unclear what impact that will have over the long term. What’s clear is that a sense of pessimism, justified or not, is gaining momentum.

Baby boomers are more likely to say that their children face worse economic times than they did as young people. Just less than 50 per cent of the boomers surveyed said their children’s economic opportunities are worse than their own at that age, compared with 40 per cent that said they were better and 12 per cent that said they were the same, according to the online survey by Abacus. More than 55 per cent of boomers said they worried the younger generation won’t support social programs through taxes.

Millennials are expecting a different kind of working world from the one their parents entered. They expect to work a mixture of permanent and temporary jobs, compared with the more stable arrangements their parents had. They say lower rates of unionization will make good jobs harder to find and are more likely to say they don’t know anyone with an employer-provided pension, the survey said. Sixty per cent say the gap between rich and poor will increase over their lifetime, and only 16 per cent believe it will shrink.

Frances Woolley, an economist at Carleton University, said there’s no question today’s labour market is more unequal. This is a “winner take all” society, as some call it, where the greatest income gains go to those at the top of the spectrum and some, particularly those without a university education, will face a difficult job market. But one thing to consider is that the baby boomers had the good fortune to be born at the right time, an era of peace and prosperity, Prof. Woolley said.

“The older generation has had such a blessed life,” Prof. Woolley said. “Some generations are born in better times than others. That’s just the way it is.”

Matthew Cuthbert is a 27-year-old graduate of the University of Toronto. He has experienced the millennial’s anxiety. He has nearly $50,000 in student and credit-card debt and works at a community centre in customer service, earning $31,000 a year. He and many of his friends are the precariat, he said, a new class of precarious worker. It’s not what he was expecting, but after seven months unemployed, he’s grateful for the work.

“It’s frustrating to watch this break down. When I started school there was so much more optimism around the economy,” he said. “It’s far from the ideal situation that any of us anticipated.“

Julian Beltrame / Canadian Press

Canadian families have become wealthier over the past several years, with net worth rising despite the well-documented growth in household debt and a setback from the recession, a new Statistics Canada study shows.

In a report that takes a long view on the state of Canadian finances, the agency finds that the 2012 median net worth among family units — of two or more persons and unattached individuals — has risen 44.5 per cent since 2005 to $243,800 and up almost 80 per cent since 1999.

Those family units have also accumulated more debt, a total of $1.34 trillion in 2012, up from $864.6 billion in 2005. Most of the debt — about $1 trillion — has been used to finance home purchases. All figures are in inflation-adjusted dollars.

The Conservative government said the report shows that Liberal criticism of their policies as not benefiting Canadians generally is wrong.

"That is a very significant increase ... after-tax disposable income has increased by 10 per cent across all income bracket," said Employment Minister Jason Kenney.

But while the overall picture of family finances was positive, the report also pointed to continuing disparities across regions, age groups and types of families.

The biggest single reason for the improvement in finances overall has been due to house prices reaching record levels, notes economist Andrew Jackson of the Broadbent Institute, and those prices are widely projected to moderate or even fall in the next few years.

"The big question is if and when we get a housing price correction, individuals will still be holding the debt and that is a cause for concern," he said.

Real estate prices have risen faster than mortgage debt and other assets, he notes, but if the trend reverses, some Canadian families may discover their wealth rests on "shifting sand."

For those who owned their homes, the median reported value of the residence was $300,000, up 46.6 per cent from 2005 and 83.2 per cent from 1999.

In terms of inequality, the report found that the wealthiest 20 per cent of family units accounted for 67.4 per cent of the total national net worth, although that was slightly lower than the 69.2 per cent the top quintile possessed in 2005.

Meanwhile, the top 40 per cent of families possessed 88.9 per cent of total net worth, leaving the bottom 60 per cent with a mere 11.1 per cent of the pie.

The lowest quintile — the poorest 20 per cent of families — had an overall negative net worth, meaning that as a group they had more debts than assets.

That segment of the population saw its family median net worth drop from about $1,300 in 1999 to $1,100 in 2012. By contrast, the top quintile saw its family median net worth rise from $981,400 in 2005 to $1.38 million in 2012.

Bank of Montreal chief economist Doug Porter said the data, while positive, still shows household debt remains a concern.

"The standout is the tremendous growth in net worth over the 13-year period. It works out to average annual increases of better than five per cent, which is quite impressive," he said.

Don Curren / Wall Street Journal

If you divide Canadian families up into fifths in terms of net worth, the lowest quintile had net assets of about 1,300 Canadian dollars ($1,170) in 1999.

In 2012, it was actually below that; the overall worth of the lowest 20% of families declined 15.4% to C$1,100 by 2012, according to the “Survey of Financial Security” from Statistics Canada.

It’s a stark indication Canada is not immune the drift toward economic inequality in evidence in many other economies around the world.

“All in all, [the Statistics Canada report is] further disturbing evidence that economic inequality remains a serious concern,” said a blog posting from the left-leaning Broadbent Institute.

Income inequality is more frequently used as a metric when assessing economic inequality. But net worth, the wealth a family has when its debts are subtracted from its assets, also provides insight.

It’s important to note that, unlike the bottom 20%, Canadians in the four other quintiles did reasonably well in those 13 years.

The median net worth of Canadian families was C$243,800 in 2012, up 44.5% from 2005, and almost 80% more than the 1999 median of C$137,000, after adjusting for inflation.

Some analysts say the report undermines the idea Canada’s middle class is under siege, and that’s supported by the fact that the three middle quintiles all enjoyed gains of more than 75% since 1999.

But there is a catch. Much of the gain in wealth was driven by the increase in housing prices. If they drop, as many expect, that could erode much of the gains.

“Housing prices went up faster than any other form of wealth, including financial wealth, [and] housing wealth is more equally distributed,” said Andrew Jackson, senior policy adviser to the Broadbent Institute.

As in 1999 and 2005, the principal residence was the largest asset for Canadian households in 2012. Their median value was C$300,000, up 83.2% from 1999 and 46.6% more than in 2005.

Housing prices fluctuate, but debt is generally fixed. When the housing market collapsed in the U.S., many American households that had high net worth on paper watched it being eradicated as slumping housing prices left them with a sharply reduced asset position, or indebted overall.

“The experience of the U.S. tells us that housing values can fall, and housing debts will remain,” Mr. Jackson said.

If Canada’s housing market is subject to a sharp correction, as some analysts forecast, the value of Canadian families’ principal asset will decline without an offsetting decline in debt.

That fact points to the “fragility” of Canadians’ recent gains in wealth, Mr. Jackson said.

This week has been a watershed moment in the battle against income inequality in Canada.

The curious twist is that it was comments made by Jim Flaherty – who, as Finance Minister, has actually exacerbated income inequality – that illuminate a fundamental shift in Canada’s political imagination.

Sometimes, the world works in mysterious ways.

A lot of ink has already been spilled about Mr. Flaherty’s unexpected decision to publicly repudiate family income splitting, the day after tabling a budget that set up the Conservative government to deliver on precisely this tax cut. After all, it’s not every day that a finance minister chooses to oppose a key electoral promise of the prime minister.

Mr. Flaherty’s comments immediately split the Conservative caucus, forcing Prime Minister Stephen Harper to cast doubt publicly on what was expected to be the core goody in the Conservative’s re-election arsenal.

While the political questions surrounding Mr. Flaherty’s decision to speak out are intriguing, it is the precise words that Mr. Flaherty used to articulate his opposition to income splitting that matter most.

“It benefits some parts of the Canadian population a lot. And other parts of the Canadian population virtually not at all,” Mr. Flaherty said. Earlier, he had mused that the tax measure needed “a long, hard, analytical look” by experts “to see who it affects in this society and to what degree. Because [he wasn’t] sure that overall it benefits our society.”

Given this government’s clear track record of introducing boutique tax initiatives that favour the wealthy, this sudden concern with equity is striking.

Mr. Flaherty, of course, is right about this $3-billion Mad Men giveaway.

Family income splitting would benefit only a small minority of families, giving a significant tax break to high-income traditional families with one earner and a stay-at-home spouse, while delivering little or nothing to middle- and lower-income families and nothing to single parents.

According to the Canadian Centre for Policy Alternatives, the top 5 per cent of all families would see more benefit from this tax change than the bottom 60 per cent – and 86 per cent of families would see no benefit at all. It would, in effect, actively make income inequality, not to mention gender inequality, worse.

But the Conservatives surely knew these troubling facts when they made the promise (emphatically and repeatedly) to introduce income splitting back in their election platform in 2011. So something changed in the world around Mr. Flaherty.

And that something, I believe, is the maturing of income inequality as an issue in the imagination of the Canadian public and, as a result, in the considerations of the politicians that serve us.

It is this maturing that allowed Mr. Flaherty not only to recognize that income inequality is a serious problem deserving of attention; but also to acknowledge that government – even Conservative governments – should not enact tax policy that deliberately makes the situation worse.

The story of how this change came about is yet to be told, but it no doubt has its roots in the tireless work and advocacy of citizen and civil society groups, academics, brave politicians and other equity-seeking voices. This change remains a tentative victory, as Conservative cabinet ministers continue to pop up this week to split with Mr. Flaherty and defend family income splitting and its genesis in the determined lobbying of social conservative pressure groups.

And the unfortunate reality is that we are still becoming ever more unequal, a trend due in large measure to political choices. Many countries have found ways to mitigate the growth of income inequality, while in Canada the policy response has tended to reinforce rather than offset the trend.

We know that since the mid-1990s, the social role of government has been dramatically cut back and its redistributive impact has faded. According to the OECD, government taxes and transfers lowered the gap between rich and poor most in Canada, Denmark, Finland, and Sweden in the late 1980s and the early 1990s. By the early 2000s, we joined Switzerland and the U.S. as the countries with the smallest redistributive impact.

That’s why I take caution not to overstate things here. But I do believe Mr. Flaherty’s remarks signal some hope that there is growing public support and political will to address income inequality. At the very least, important public policy will now be tested against a simple and compelling principle: Does this make income inequality better or worse?

This article originally appeared in the Globe & Mail.

Photo: Just a Prairie Boy. Used under a Creative Commons BY 2.0 licence.

Broadbent Institute congratulates Gillard, looks forward to her participation in the Summit

OTTAWA—The Broadbent Institute is delighted by the news that former Australian Prime Minister Julia Gillard was named yesterday to lead the Global Partnership for Education, an international initiative to provide quality childhood education in developing countries. Gillard is giving the keynote speech at the Institute's Progress Summit in Ottawa on March 29th.

Gillard will be joined as a keynote speaker by economist and author Mariana Mazzucato, Canadian-born French MP Axelle Lemaire, and Human Rights Campaign's Director of Marketing Anastasia Khoo. A dynamic roster of panel speakers will also add their voices to the debate on fairer and more sustainable approaches to building a prosperous 21st century Canadian economy.

"Progressives like Julia Gillard will offer unique perspectives on cutting-edge ideas," said Broadbent Institute Executive Director Rick Smith. "The summit is all about bringing together top-notch policy experts to provide an innovative and tangible contribution to the Canadian public policy debate."

The Progress Summit will take place from March 28-30 in Ottawa. The latest speakers list, including keynote speaker biographies and photos, is available online at www.broadbentinstitute.ca/en/summit.

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For more information, or to request media accreditation, please contact:

Mike Fancie, Broadbent Institute
613-866-3606 or mfancie at broadbentinstitute dot ca

OTTAWA—Broadbent Institute Executive Director Rick Smith will be available in Ottawa to react to the 2014 federal budget. The budget is widely expected to contain few measures that address growing inequality.

DATE: Tuesday, February 11, at 4 pm EST

LOCATION: Reaction Room (Room 253-D Centre Block, Parliament Hill)

WHO: Rick Smith, Broadbent Institute Executive Director (613-866-3606) The Broadbent Institute recently launched a campaign reduce inequality in Canada. Learn more: www.broadbentinstitute.ca/madmengiveaway.

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For more information, please contact:

Mike Fancie, Broadbent Institute
613-866-3606 or [email protected]

Joe Friesen / Globe & Mail

When Jim Flaherty introduces his budget next week, he may trumpet a long-promised policy that would allow parents with children at home to split their income to reduce the amount of tax they pay.

Income splitting is a tax policy that would allow a higher-earning person to assign some of his or her income to a spouse, effectively lowering what tax bracket he or she is in. The policy brings the most benefit to a couple in which one spouse works while the other stays at home with the kids, and could cost the treasury a few billion dollars of lost tax revenue a year.

But the policy can also be seen as a tailored appeal to voters in the constituencies the Conservatives need to hold to keep their majority.

Family income splitting was first promised back in the 2011 election campaign, with the caveat that it wouldn’t be introduced until the budget was balanced. Three years later Mr. Flaherty is expected to announce that the government is on course to get out of the red by next year, just in time for an election-year budget.

The Broadbent Institute launched a campaign this week, calling the income-splitting proposal a $3-billion Mad Men giveaway. They describe it as a misguided policy that favours the wealthy and is based on an early 1960s concept of the traditional family. On the other side of the coin, University of Calgary economist Jack Mintz and lobby groups such as the REAL Women of Canada have long argued for such a measure, on the grounds that it would remove a tax penalty for those families that want to have a parent stay at home but struggle to make it work financially.

Kevin Milligan, an economist at the University of British Columbia, said the policy would benefit only a small subset of families. For one, single parent families are ruled out. They make up 16 per cent of all families. What’s more, nearly 14 per cent of the population aged 15 and over lives alone, a rate four times higher than it was in 1961. About one in five people did not live in a census family in Canada in 2011.

So having removed all those millions of people from eligibility, the policy would also be of little or no benefit to those families where each parent earns roughly the same amount, or even those cases where they’re in the same tax bracket. It would be of most benefit to those families with a very-high earning breadwinner and a spouse who stays at home and earns nothing. That’s a relatively small group.

“Imagine it was your goal to transfer resources to families that choose to have a stay-at-home spouse and are struggling with their finances, then this is an odd policy to hit those people,” Prof. Milligan said. “If I had a couple billion to spend on remedying the inequities in our society, spending it on lowering the taxes of a $200,000 and $0 [incomes] couple is not where I would spend it.”

So why pursue it? It represents a marriage of ideological and strategic goals. One clue comes from the accidentally leaked Conservative strategy document about the ethnic vote in the last campaign. It said of certain ethnic groups “they live where we need to win.” The same is true of families with children. The key seats that are vulnerable to a Liberal resurgence are those suburban ridings around big cities, primarily in the Greater Toronto Area. The Conservatives need to hold on to them and they are rich with families with young children.

Take, for example, Brampton West, a Conservative gain in 2011. Roughly 54 per cent of families in that riding have children at home, much higher than the Canadian average of 36 per cent. The same is true for many other similar ridings, such as Mississauga-Brampton-South, Ajax-Pickering and Pickering Scarborough-East, which have above-average numbers of families with children at home.

The Conservatives will still have to work hard to get them to the polls though. A StatsCan study of the 2011 election found that “the presence of children was negatively associated with 2011 voting in all family types.” Single parents with kids under five had the lowest turnout figures at 36 per cent. Couples with children under five voted at a 60 per cent rate, very close to average.

Photo: bcgovphotos. Used under a Creative Commons BY-NC-ND licence.

"It’s absurd that the Conservatives plan to take a $3 billion surplus and spend it on a tax giveaway to high-income families — it’s as though the government is trying to recreate a society straight out of an episode of Mad Men," said Executive Director Rick Smith. "Today we are taking the first step in speaking out against the proposed Conservative family income splitting plan that will exacerbate inequality in Canada."

Under the Conservative plan, a two-parent family with children under 18 will be allowed to split up to $50,000 of their income for tax purposes.

"An analysis of the plan shows 86% of Canadians, including single mothers and low-income parents in the lowest tax bracket, will receive no benefit whatsoever from the scheme," added Smith. "And the top 5% of families would see more benefit than the bottom 60% of families."

As part of the campaign, the Broadbent Institute is launching a contest asking Canadians how they would invest the money lost to income splitting. "The Broadbent Institute will be making it a priority over the months ahead to draw attention to income inequality and the terrible ways income splitting threatens to make this problem much worse," said Smith.

Learn more about the Broadbent Institute's income splitting campaign at www.broadbentinstitute.ca/madmengiveaway.