Higher interest rates last year contributed to the largest gap in income inequality since 2015, according to a new Statistics Canada report.
The findings come one day after the federal government tabled its 2024 budget, which one economist says won’t make many short-term differences in Canadians’ bank accounts.
The StatCan report released Wednesday said Canada’s higher interest rates had a “negative impact on the income and net worth of the lowest income and least wealthy households” in 2023.
The elevated rates allowed high-income households to gain higher yields on saving and investment accounts, while the struggle for low-income households to pay off debt charges heightened, StatCan said.
As a result, the gap between households in the two highest and two lowest income brackets widened to the greatest extent in eight years.
StatCan’s latest report highlights the income inequality that the 2024 federal budget largely aims to tackle. For example, the budget proposes changes to how capital gains are taxed, which aim to have the wealthiest Canadians pay tax on a bigger share of their realized profits.
Under the proposal, the inclusion rate for annual capital gains realized above $250,000 for individuals would be taxed at a rate of two-thirds, up from the current 50 per cent. Any gains under that bar would continue to be taxed at the 50 per cent rate.
From July 2022 to July 2023, the Bank of Canada’s policy interest rate had risen from 2.5 per cent to 5.0 per cent. StatCan’s latest report says that the average disposable income for lower-income households remained relatively unchanged, “as increases in interest payments on mortgages and credit cards offset gains in employment and investment income.”
Meanwhile, high-income households had the fastest increase in income in 2023 than any other group, according to StatCan. The agency says this was due entirely to “gains in wages (+4.0 per cent) and net investment income (+15.7 per cent).
The federal government’s proposed change to how capital gains are taxed, if adopted, would come into effect on June 25, 2024.
With the cost of living continuing to soar, economist David Macdonald says many Canadians are “justifiably concerned” with how they’ll make ends meet.
Will the budget boost affordability?
The 2024 budget tabled Tuesday was essentially a “go big or go home” housing budget, according to Macdonald, who is the senior economist with the Canadian Centre for Policy Alternatives.
He says the federal government’s primary goal with the budget is to tackle the housing affordability crisis with long-term measures that will take “several years to yield fruit.”
“I think (it) will yield big results in terms of new rental construction in a couple of years’ time,” Macdonald told Global News. “The fruits of the labour of this budget will be reaped by the next government, whoever it will be.”
Kevin Page, Canada’s former parliamentary budget officer, tells Global News that the 2024 Liberal spending plan is “a relatively large budget,” the size typically reserved for federal election years.
The budget speaks to a belief in “big government” to solve the problems facing Canadians, he says.
“This is more spending, more taxation … it’s a belief that the government can really help its citizens.”
Finance Minister Chrystia Freeland said the budget was geared towards young Canadians, with a spending plan that promises to do everything from making it easier to buy a first home to cracking down on costly concert ticket fees.
“We are moving with purpose to help build more homes, faster. We are making life cost less. We are driving the kind of economic growth that will ensure every generation of Canadians can reach their full potential,” Freeland said Tuesday.
Pierre Poilievre, leader of the Conservative Party of Canada, blasted the government’s spending plans on Tuesday and tied the Liberal budgetary deficits to the rising cost of living.
Poilievre called Trudeau a fiscal “pyromaniac” in the House of Commons after the budget was tabled, accusing the Liberals’ “wasteful” budget of stoking the flames of inflation.
At the same time, Macdonald says a key affordability topic was mostly left out: food prices.
As Canadians faced the rising costs over the past year, grocers have been under pressure from the federal government to stabilize food prices, which has included a proposed grocer code of conduct. But both Walmart and Loblaw have said they will not sign the code as currently drafted, warning it could lead to higher prices for Canadians.
The 2024 Food Price Report released by Canadian researchers in December also estimates food prices will increase by 2.5 to 4.5 per cent over the next year. While the rate is lower than was forecasted the year prior, Macdonald says prices still remain high.
“It’s not that prices are going up as quickly anymore, but they have gone up substantially. And that’s going to put a lot of pressure on people, trying to afford that grocery bill,” he said. “There’s little the government can do directly on this front.”
Industry Minister Francois-Philippe Champagne met with Canadian grocers in the fall about food inflation and demanded they create plans to stabilize grocery prices or face consequences, including potential tax measures.
In January, the minister expressed disappointment that the grocers have not been more transparent about their plans, but did not mention whether the federal government planned to punish them for it.
The 2024 budget did not follow up on this.
However, the budget did unveil a national school food program which promises to distribute $1 billion over the next five years.
In a statement, the Maple Leaf Centre for Food Security, founded by Maple Leaf Foods, said it believes the national school food program could help.
“Food insecurity is at crisis levels in Canada, with one in four children living in a food insecure home. Historically, Canada has been the only G7 country without a universal school food program,” said executive director Sarah Stern. “Alongside current programs and support by provincial, territorial, and municipal governments, establishing a healthy meal program in every school will deliver immediate benefit to the millions of children and their families struggling with food insecurity.”
The school food program was a demand made by the federal NDP.
NDP Leader Jagmeet Singh hasn’t yet said whether his party will support the budget.
–with files from Global News’ Craig Lord and Sean Previl