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Canada’s top 1 per cent takes a hit Add to ...

The gap between the rich and the rest may have hit record levels in the United States, but new data for Canada show top earners have seen a shrinking share of total income.

The share held by Canadian top earners remains higher than in previous decades. But a first glimpse of 2012 data shows Canada has not followed the U.S. in recent income trends.

Number of tax filers in the 1% bracket

SOURCE: Statistics Canada

In fact, Canada’s top 1 per cent of earners saw their share of total income fall to a six-year low in the same year that the top 1 per cent shot to century-high levels in the United States. Canada’s richest 1 per cent held 10.3 per cent of total income in 2012, down from 10.6 per cent a year earlier, Statistics Canada said Tuesday. Their share peaked in 2006 at 12.1 per cent.

That doesn’t mean Canada has licked challenges around income inequality. The top-earner share remains higher than it was three decades ago, when it was 7.1 per cent, and it is unclear how lower commodity prices, stock market shifts and sluggish overall wage growth this year have affected incomes since 2012. Growing income inequality in most developed nations has sparked concern from the International Monetary Fund and the Organization for Economic Co-operation and Development over the impact on long-term economic health and social cohesion.

When it comes to income concentration of the rich in Canada in this decade, “we’re plateauing at a very high level, relative to anything we’ve seen since the 1930s,” said Kevin Milligan, an associate professor of economics at the University of British Columbia who has studied income trends. “Maybe that’s a good thing that things haven’t been continuing to grow, but we’re plateauing at a very high level. So we haven’t totally undone the big income concentration that happened in the eighties and nineties. The difference is in the U.S., they haven’t plateaued, it’s gone up.”

It’s important to take a longer view, over decades, than focus on year-to-year changes, said Craig Alexander, chief economist at Toronto-Dominion Bank. “The share going to the top 1 per cent declined a little [in 2012], but the first two digits haven’t shifted. It’s still 10 per cent of income.”

Still, the report highlights key differences in Canada, where the remaining 99 per cent of the population has fared better than the 99 per cent south of the border. One factor is that a construction and natural resources boom and their spinoffs have supported middle incomes in Canada, Mr. Alexander noted.

Another possible reason for the dip in 2012 top-earner shares may be linked to the stock market. Canada’s benchmark stock index barely budged in 2012, which may have affected returns to the rich.

“The very highest income group [or the top 0.01 per cent of earners] seems to have taken a larger hit in 2012,” said Brian Murphy, Statscan income analyst. Further research is needed to explain the drop, but “high-end tax filers could be deciding not to declare their capital gains, delaying their stock dividends to later on when stocks are going to be higher, or it could be lower compensation or bankruptcies.”

The recent drop stands in stark contrast to the United States, where the share held by top earners has been climbing. In the U.S., the income share of the top 1 per cent hit 19.3 per cent in 2012 – the largest share in a century of record-keeping and up from 18 per cent in 2006.

In the U.S., since hitting a low of 16.7 per cent in 2009, “the total income share for the top 1 per cent had grown by 2.6 percentage points by 2012, while, in Canada, it had declined by 0.4 percentage points during the same period,” the government agency said.

The six years between 2006 and 2012 also marked, for the first time since 1982, “a prolonged period in which the total income shares of the bottom 90 per cent, 95 per cent and 99 per cent of Canadian tax filers rose or stabilized,” Statscan noted.

Canada’s top earners tend to live in Ontario and increasingly Alberta, with a median age of 52. They tend to get more of their incomes from their earnings – wages and salaries – than in the past. A 2012 UBC study on top earners shows they’re not just bankers and executives; they’re also professionals such as doctors, lawyers, dentists, engineers and accountants.

They are also, increasingly, women. The number and share of women in the top-earners group hit its highest level on record in 2012. More than one in five of top 1-per-cent earners in 2012 were women, almost twice the proportion in 1982. This may be due to growing numbers of women in boardrooms and management positions – but also more women graduating in medicine and other professions, Prof. Milligan noted.

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