2023-12-13 00:30:00
Does our economic system have the effect of increasing inequality? Is it more or less fair than elsewhere?
Published at 7:30 p.m.
These questions are important because they influence our public policies on the level of redistribution to be made – or not – and therefore on the taxes to be levied.
However, a new study concludes that Quebec is not as egalitarian as we thought.1 More precisely, the richest 1% capture a share of pre-tax income that exceeds that of comparable economies such as British Columbia, France or Australia, depending on the authors.
Please note, Quebec remains the most generous Canadian region for income redistribution, confirms the study. After taxes, the share of the richest 1% therefore remains lower than elsewhere.
Furthermore, income inequalities have practically stopped increasing over the past twenty years, as in several countries, with the exception of the United States.
The study was carried out by economists associated with the Laboratory on Global Inequalities (WIL) and the Research Chair in Taxation and Public Finance at the University of Sherbrooke.
Researchers Silas Xuereb, Matthew Fisher-Post, François Delorme and Camille Lajoie presented their results during a teleconference attended by Thomas Piketty, the leading economist on the subject.
The great novelty of the study is that it managed to include income that is not taken into account in Statistics Canada’s most in-depth analyzes on the subject. This method known as “distributed national accounts”, developed by the team of Piketty and the Laboratory on Inequalities, makes data from Quebec and Canada more comparable to those from other countries in the world.
Professionals Inc.
Essentially, Statistics Canada files include 75% of work income, but only 29% of capital income (investments, dividends, etc.), explains one of the authors.
The researchers were able to make up the difference, which makes it possible to include, for the rich, income from profits that lie dormant in the coffers of SMEs and other businesses, such as RRSPs. We have seen this type of tax coverage in Quebec for certain professionals, such as doctors who incorporate.
Result: in Quebec, the richest 1% would have pocketed 11% of pre-tax income in 2021, while this share is more like 8.6% according to traditional Statistics Canada data. Quebec thus surpasses British Columbia and approaches Alberta and Ontario.
Why is Quebec’s share increasing more than in Ontario or British Columbia compared to the old method? The answers are not clear, but it appears that there would be a proportionately larger share of capital income not taken into account here.
This wealth can be dormant in businesses or even in retirement plans, from which Quebecers benefit more than elsewhere in Canada. François Delorme, co-author of the study, considers this hypothesis of retirement plans realistic.
That said, Quebec remains the champion of income redistribution. According to researchers, the poorest 50% of Quebec received only 18.3% of total income before taxes in 2021, but 26.5% following taxes and transfers. This redistribution makes the comparison with Ontario advantageous (22.6% following taxes) and erases the declines of the least well-off compared to 1982.
Another observation: following a strong growth in inequalities in the 1980s and 1990s, inequalities practically stopped growing therefollowing. The peak was reached in Canada in 2006, when the richest 1% group captured 14.4% of income, before falling to 11.6% in 2021. This share was 7.2% in 1982.
This downward trend has also been observed elsewhere, except the United States.
Piketty contradicts
Recently, two American economists (Auten and Splinter) published a study which contradicts, in part, the results of Thomas Piketty and his colleague Emmanuel Saez on American inequalities.
According to Auten and Splinter, the share of the richest 1% increased from 9.4% in 1979 to 13.8% in 2019, much less than the share estimated by the Global Inequality Laboratory (19.1% in 2019). Above all, following taxes and government transfers, the increase would only be 0.2 percentage points since 1962 and 1.4 points since 1979 in the United States.2
According to Thomas Piketty, the study in question, a renewed version of that of 2019, is shaky. Among other things, it assumes that the very rich taxpayers and their capital income are taxed just as much as others, while there are many more possibilities for tax optimization at the top.
“It’s not very credible. I informed them of my observations, but they did not take them into account. But if the University of Chicago is interested in inequalities, so much the better,” he said half-heartedly during the teleconference.
Furthermore, according to his calculation method, income inequalities have stabilized in recent years, which the economist says he has observed, judging the immense success of the progressive tax.
Thomas Piketty, however, returns to his main hobby horse, namely wealth inequalities. In the current context, he says, the children of the poorest 50% will receive practically no inheritance, while the richest 10% will have a very large share, exacerbating future inequalities.
He thus recalls why he is campaigning for a tax on heritage and inheritance. He judges that in this regard, the property tax on real estate assets needs to be reformed, because it is unfair and regressive: it taxes taxpayers in the same way, regardless of the mortgage and the net value of the building. A young person who buys a condo is therefore penalized.
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