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Imran Abdool is president of Blue Krystal Technologies and Business Insights, and a lecturer in economics, finance and strategy at the University of Windsor. Richard Douglass-Chin is associate professor of American and postcolonial literature at the University of Windsor. Kal Juman is the managing director for IndustryLabs Ltd., and Adsona Marketing Corporation.

A persistent complaint in Canada has been the country’s low growth in wages. Statistics Canada data show inflation-adjusted wages grew about 1 per cent from 2005 to 2015. The key determinant of long-run economic growth – and by extension wage growth – is productivity. But as the old joke goes: “In the long-run, we’re all dead.” Therefore, what can governments do to boost household incomes in the short-term?

One solution would be a modification of the dividend tax credit. Consider the following: Google (a subsidiary of Alphabet Inc.), Apple, Tesla, Microsoft, Facebook and Amazon are all ranked among the world’s most valuable brands. A generation ago, iconic brands included GM, Ford, Chrysler, GE, Pan Am, AT&T and Nortel, among other industrial conglomerates. These companies, in contrast to today’s tech-heavy leaders, had a higher demand for labour: Their operations were called labour-intensive – especially in relation to today’s companies. A case in point: Alphabet Inc. (Google’s parent company) has a worldwide workforce of 61,000 employees while GM has 215,000. However, Alphabet Inc., operating with less than one-third of GM’s work force, has 10 times GM’s value when measured by market capitalization.

This broad shift in iconic companies from manufacturing to technology has an important implication for workers: Participating in the growth of leading companies by offering labour – that is, becoming an employee – is a limited option at best. But, under the right public policy framework, more people can participate in corporate growth through capital markets by offering their capital.

Households derive their wealth from various sources, such as wages, interest, dividends, rent and inheritance. While Canadians’ wage growth stagnates, the S&P 500 was up 20 per cent and the TSX was up 6.2 per cent during 2017. This is in stark contrast to the paltry 1 per cent in Canadian wage growth seen over the past decade.

For an investor to actually realize the growth occurring in capital markets, dividend payments or the selling of equity is needed. Dividends from publicly traded companies are taxed in Canada under a two-step process: a gross-up factor (meant to bring the dividend to its pre-corporate-tax level) and then a tax reduction through provincial and federal government dividend tax credits. Poorer households in Canada often live paycheque to paycheque, making investment in capital markets a hard choice. Participation in capital markets is unlikely for these households; therefore, strong incentives such as increasing the dividend tax credit and making it inversed to income – that is, poorer Canadians pay less tax (or no tax at all) on their dividend incomes – should be considered.

To implement such an incentive requires strong financial discipline on the part of lower-income Canadians. Without exception, students across Canada must be taught financial literacy, saving and budgeting. Moreover, when lower-income Canadians file their taxes, educational material on financial management such as practical saving guidelines should be provided. Finally, lower-income Canadians need an option to have part of their tax refund directed into an investment account – which would allow them to make use of a more favourable dividend tax framework.

Granted, governments would lose revenue from any increased tax credit, but such losses could be offset by higher consumer spending and the ensuing indirect taxes it would accrue, such as HST on purchases. Leading companies have benefited from the unique attributes of our Canadian society, such as the rule of law, due process, political stability, an independent judiciary and generous social systems – structures and institutions to which most Canadian citizens in one way or another have contributed. Governments should consider modifying the dividend tax credit to unleash capital markets’ growth for lower-income Canadians.

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