The Canadian Fact Book on Poverty 2000 - related material

July 19, 2000

Canadian Fact Book on Poverty 2000

A month before publication of this Fact Book, Statistics Canada released income data for 1998 in a new publication, Income in Canada.¹ While we are not in a position to update the research in this book, we do want to summarize some of the findings for 1998 and to draw the reader's attention to Statistics Canada's new approach in reporting low income among Canadians.

As discussed at length in Chapter 2, Statistics Canada has been contemplating a shift in the presentation of low income data. Historically, the federal agency has published low income figures based on its Low Income Cut-offs (LICOs). A debate has ensued about whether the low income cut-offs highlighted in Statistics Canada publications should be based on pre-tax income, as has been the practice to date, or on after-tax income. With the publication of Income in Canada, Statistics Canada has decided to emphasize after-tax low income data in its publications and analyses. On average, poverty estimates derived using after-tax LICOs are roughly five percentage points less than estimates derived using pre-tax LICOs.

The CCSD has argued that the shift to after-tax LICOs as they are presently calculated is problematic for a number of reasons, the most important being that not all taxes are taken into account, such as payroll taxes and consumption taxes which bear most heavily upon the less affluent. Consequently, the proposed after-tax LICOs take account only of the progressive aspects of the overall tax system, and make no adjustment for the flat or regressive tax elements. That is one of the reasons that there is such a marked difference in poverty estimates based on these two ways of calculating the LICOs. The merits of this debate aside, the authors are concerned that Canadians should not compare a pre-tax LICO in 1997 to a post-tax LICO in 1998. Readers of this book should keep in mind that the traditional pre-tax LICO has been used for the analysis in order to track poverty and income over time in a uniform and credible way.

Statistics Canada has also discontinued its annual cross-sectional (that is, one point in time) income survey, the Survey of Consumer Finances (SCF), in favour of a new longitudinal survey, the Survey of Labour and Income Dynamics (SLID) which follows groups of people over time. From this point forward, historical data prior to 1996 will be drawn from the SCF, and data since 1996 will be taken from the SLID. While much of the content of these surveys overlaps, differences in sampling variability and response rates result in different population counts. Income estimates are remarkably similar, but again, there are differences: SLID shows more people with low incomes while SCF shows more people with no income.² That is why the estimates for 1997 based on the SCF that are presented in this book may differ slightly from those published by Statistics Canada in the future based on the SLID.

With these caveats in mind, income data for 1998 show that many Canadians have finally begun to recover from the effects of the 1990-91 recession. Family incomes improved significantly between 1997 and 1998. At $49,626, average after-tax family income rebounded to its highest level in a decade, surpassing average family income recorded in 1989, the peak of the last business cycle. Average after-tax incomes among unattached individuals also increased to $21,067. (All figures are expressed in 1998 dollars.)

Earnings have been the principal source of these income gains. Improving levels of employment, particularly among full-time workers, coupled with wage growth have led to higher earnings. In 1998, average market income reached $55,224 among families and $20,758 among unattached individuals. Non-elderly families, including families with children, registered a sizeable gain in incomes between 1997 and 1998, but lone-parent families still fell short of their market income level in 1989. The market and after-tax incomes among elderly families and individuals remained essentially unchanged.

At the same time, government transfers declined slightly after adjustments for inflation. Transfers contributed 12.6 per cent of total household income in 1998, down from the previous year (13.1 per cent). Transfers have declined every year since their recessionary peak in 1994 (14.1 per cent), most notably among working-age households. This decline is the result of improved labour market conditions and significant cuts to income transfer programs - notably social assistance and employment insurance. In contrast, average income taxes increased slightly between 1997 and 1998 as a result of improved market incomes, from 19.4 to 19.8 per cent of total household income.

Higher average incomes in 1998 have led to a drop in the proportion of Canadians living on incomes below Statistics Canada's low income cut-offs. Using the pre-tax low income cut-offs, as we do in this book, the poverty rate among all Canadians fell from 18.2 per cent in 1997 to 16.9 per cent in 1998. An estimated 5.1 million people lived in poverty in 1998. Of this number, 1.3 million were children, representing a child poverty rate of 18.8 per cent. (Please note that the data for 1997 presented in this book are based on the 1997 Survey of Consumer Finances. The income data presented in Statistic Canada's Income in Canada for 1996, 1997 and 1998 are based on the Survey of Labour and Income Dynamics.)

Looking at the poverty rate among households, rates have dropped among families (from 14.3 to 13.0 per cent), and among unattached individuals (from 41.2 to 39.4 per cent). In both cases, 1998 poverty rates remain above those recorded in 1989. As well, while fewer people were living in low-income households in 1998, their poverty gap actually grew compared to both 1997 and 1989. For families, the average gap between their incomes and the low income cut-off was $8,219; for unattached individuals, the average poverty gap was $6,154.

This widening poverty gap points to a very disturbing trend in the 1998 income data. While average incomes have turned a corner, Canadians at the bottom and even those at the middle of the income ladder are not sharing in this new-found prosperity. While all households saw an increase in their after-tax incomes between 1997 and 1998, those in the top 20 per cent or quintile gained $3,404 or 4.1 per cent, compared to a gain of just $63 or 0.6 per cent for those in the bottom quintile and $692 or 2.1 per cent for those in the middle quintile. (Income quintiles are discussed in Chapter 3. These data are based on after-tax income quintiles.)

The gap in incomes between Canadians has been growing throughout the 1990s, and notably so since 1994. Market incomes in particular have become more polarized. In 1989, the top 20 per cent of households received 46.3 per cent of market income; by 1998, their share had grown to 50.1 per cent. In contrast, the income shares of households in the lowest, second and middle quintiles fell over this period: by 0.8, 1.3 and 1.7 percentage points, respectively. Stated another way, households in the top quintile in 1989 received $18 in market income for every $1 earned by households in the lowest quintile. By 1998, this gap had widened to $27 for every $1.

The impact of transfers and taxes was important in offsetting the widening gap in market incomes during the first half of the 1990s. After 1994, however, the gap in after-tax incomes started to grow. The income share of households in the top quintile grew by 2.1 percentage points, while households in the lowest quintile saw their share fall by 0.7 points. The ratio of after-tax incomes widened from 7.2 to 1 in 1994, to 8.5 to 1 by 1998. So while the equalizing effects of the tax/transfer system on the highly unequal distribution of market income continues, but, from the mid 1990s, after-tax income inequality has been on the rise. Market driven inequality is now overwhelming the counterweights of taxes and transfers.

These findings broadly corroborate the research presented in this edition of The Canadian Fact Book on Poverty. Clearly, much more remains to be done to address the growing income inequality in Canada and the serious consequences for all Canadians that flow from impoverishment.

Endnotes

¹Statistics Canada, Income in Canada (Ottawa), Catalogue No. 75-202-XPE, annual.

²Cathy Cotton, Kevin Bishop, Phil Giles, Peter Hewer and Yves Saint-Pierre. A Comparison of the Results of the Survey of Labour and Income Dynamics (SLID) and the Survey of Consumer Finances (SCF) 1993-1997: Update (Ottawa: Statistics Canada, 1999).

Canadian Fact Book on Poverty 2000 - Related Material

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