OTTAWA—Canada is among the worst countries in the developed world in terms of the widening income gap between top earners and others in society, according to the Organization for Economic Co-operation and Development.
The analysis shows income inequality is on the rise in most developed economies, but the trend has particularly taken hold in the United States and Canada.
The OECD report shows the top one per cent of Canadian pre-tax income earners captured 37 per cent of the overall income growth between 1981 and 2012, and now swallow up 12.2 per cent of the country’s income pie.
In the U.S., the top one per cent captured 47 per cent of income growth in the country during the period—and now take in 20 per cent of the country’s pre-tax annual income.
Meanwhile, incomes among the poorest households have not kept pace with overall income growth, the OECD says. In fact, stripping away the top “one per centers” would leave overall income growth considerably lower in many countries.
This is why the majority of the population can’t reconcile their countries’ economic growth rate with improvements in their incomes, the report speculates
The OECD also acknowledges the effect on top earners from the recent economic crisis, but says by 2010 real incomes among the top group had increased by four per cent while for the lower 90 per cent incomes were stagnant.
The OECD, whose 34 member countries are among the world’s wealthiest, warns the problem will worsen unless steps are taken to ensure top earners pay their fair share of taxes.
“Without concerted policy action, the gap between the rich and poor is likely to grow even wider in the years ahead,” predicted OECD Secretary-General Angel Gurria. He notes that in almost all OECD countries, governments have substantially cut personal tax rates for the richest in the past three decades.
As a result, the OECD is calling for a rollback in those tax rate cuts, as well as abolishing or scaling back on a wide range of tax regulations that disproportionately go to top earners, including on stock options, fringe benefits and income from capital and investment.
The OECD report shows Canada is near the top of the heap in terms of both growth in income disparity over the past three decades and in absolute terms.
With the one per centers capturing 12.2 per cent of the income pie in 2012, Canada ranks only behind the United States (20 per cent), Great Britain (12.9 per cent), and Germany (12.7 per cent) in terms of income disparity among the 18 relatively rich countries compared.
The biggest growth in disparity over the past three decades occurred in Norway, Sweden and Finland, where the percentage increase in income captured by the top group rose by about 70 per cent. Still, the three countries continue to rank among the most egalitarian—by 2012, the top one per centers constituted only seven or eight per cent of total national income.