How has our middle class fared since the 2015 election?
Political strategists often say policy is for the desperate. Don’t roll out your election ideas until the campaign is actually upon you unless things are really bad and you need to change the channel, as they say.
On May 4, 2015, that day had come for the federal Liberals. Limping along in the polls, the third-place party was only making waves for its proposal to legalize pot, and the brain trust figured it was time to show they were serious.
They booked a photo op at a local restaurant in nearby Aylmer, Que., invited some supporters, and the three-point plan to help the middle class was born. Hike taxes on the rich, cut taxes for everyone else, and send lots more money to low- and middleclass families with children.
The plan didn’t grab the public’s attention right away, but it gained momentum and eventually came to define the Liberals’ social policy and, inadvertently, the new government’s fiscal policy too, driving up the federal deficit by billions of dollars.
Despite its boldness, Justin Trudeau’s middle-class makeover was experimental. At the time, policy experts around the world were hashing out the best ways to lessen income inequality and bolster the middle class, but there was no consensus and plenty of disagreement over what would actually work. Tax hikes on the rich were particularly controversial, since many economists believed rich people would take their money and run, or at least hide their wealth in a tax shelter somewhere.
Four years later, after daily repetitions of the mantra about “the middle class and those working hard to join it” still ring in voters’ ears, Trudeau is asking Canadians to give him a stamp of their approval for his overhaul of the country’s income security system.
Was the middle-class makeover more than skin deep? Was it simply cosmetic? Or was it lipstick on a pig, clumsily glossing over the flaws that blemish Canada’s social cohesion?
The Star has worked with Statistics Canada to look at the most recent income and wealth data through the lens of evaluating changes to the middle class — its size and its wherewithal — during the Liberals’ time in office. The results show that for families with low incomes, there has indeed been a noticeable change. Poverty levels have fallen.
The story is not so clear-cut for the middle class. Data crunched for the Toronto Star by Statistics Canada show a gradual improvement in people’s after-tax incomes, but no real change in the size of the middle class. The tax-and-benefit programs aimed at the middle class have certainly not failed. But nor have they led to a blossoming.
Christian Spence is on a lunch break at the Rideau Centre in downtown Ottawa indulging in some onion rings. The 29-year-old says with his job as a project co-ordinator at an Inuit association, he is quite comfortable financially — but he is not giving Trudeau’s tax measures the credit.
“The government had nothing to do with my life improving. It’s all my doing,” he said.
He isn’t against government intervening in the economy and he is watching the Liberals closely to see if they keep their promises to Indigenous communities.
But at a personal level, he hasn’t noticed much difference in the quality of life in his middle-class Westboro neighbourhood, where he shares a condo with his girlfriend. What he does see all around him is pressure from the perpetually rising costs of housing. “When is that going to stop!” Kinsi Aidid has had a very different experience. With her job in customer service at a telecommunications company and her husband’s job drilling in the oilsands, the couple is able to make ends meet for their four kids. Aidid doesn’t usually vote, but she did in the 2015 because she liked the sound of Trudeau’s middleclass package.
And it’s worked out well for her. The extra money from the Canada Child Benefit helped her move from her townhouse into a single-family home.
“I did notice a tremendous difference,” she said before heading to the next stop in her back-to-school shopping spree with two of her children.
Both Spence and Aidid fall solidly into the middle class, and their differing experiences speak to the design of the Liberals’ policies. Families with children can feel a difference. For others, life is fine, jobs and financial security are stable, but not much different than before. Housing, for every demographic, is always on the mind.
Let’s take a look at what the data say.
There’s no fixed definition of what the middle class actually is, but the Organization for Economic Co-operation and Development has set a standard. Middle class is anyone who earns between 75 per cent and 200 per cent of the median household income after tax. Effectively, for Canada, that means any household that brought in between $45,000 and $120,000 in 2017. In other words, most of us.
Statistics Canada took a look at how many people fell within that envelope and whether it has changed over the past few years. The answer? The size of the middle class in Canada has barely budged.
About 64 per cent of the population used to fall into that middle-class envelope during the 1980s. But by the time Canada had gone through the 1990s, that percentage had edged down to about 60 per cent, where it has stuck. The low-water mark was 59.8 per cent in 2013, but that’s not much different than the 60.7 per cent of the population in 2017.
Unfortunately, StatsCan doesn’t have the data at its fingertips yet to look at 2018 and 2019, so we only have the first half of the Trudeau mandate to evaluate. But generally, the size of the middle class has been remarkably stable — or stubborn — since the turn of
“The government had nothing to do with my life improving. It’s all my doing.” CHRISTIAN SPENCE PROJECT CO-ORDINATOR
the millennium, regardless of the government, regardless of tax policy, regardless of benefits.
It’s too soon to write off the policies as ineffective though because there’s a lot going on beneath the surface.
The fact that the proportion of the population living in poverty has declined, taken together with Canada’s solid history of income mobility — the ability to get ahead — suggest that poor people are moving up the ladder and should eventually become middle class. They’re just not showing up in the data quite yet, says Jennifer Robson, a poverty specialist and associate professor at Carleton University.
The Canada Child Benefit in particular “was important, and I think that it really bears out in terms of what we see in the numbers around child poverty.”
For now though, the middle class is not really growing; but is it any better off?
As far as income goes, yes, the middle class is making a bit more money than in the past. Median take-home pay for households was $59,800 in 2017 — up 9.5 per cent from $54,600 a decade earlier, measured in constant 2017 dollars to remove the effects of inflation from the calculations.
During the first two years of the Liberal government, aftertax median income rose 3.6 per cent.
That doesn’t feel quite as luxurious when you compare the rising fortunes of the middle class to those of the upper echelons of income earners. The richest 10 per cent of households took home $142,100 after tax in 2017, and that’s up 11 per cent from a decade earlier (again, measured in constant 2017 dollars so that inflation doesn’t torque the numbers).
During the first two years of the Liberal government, the income of the rich rose 2.4 per cent — a slower pace than the middle class. But income is not the same as wealth, experts caution. And also, the top-income figures for 2015 and 2016 are not really an indicator of anything at all because many of those taxpayers saw Trudeau’s higher tax rate coming in their direction and took measures to claim all the earnings they could at the lower tax level before the higher rate kicked in.
In other words, aggressive “tax planning” means there is not yet enough data to thoroughly assess how the rich have behaved in the Trudeau years. The department of finance sees revenue from taxes paid by high-income earners flowing into the federal coffers as projected, suggesting there was not the feared massive flight of wealth following the 2015 election.
But researchers see a lot of perplexing dynamics among the super-rich, and they’re watching the numbers carefully.
“There’s no doubt there was a behavioural impact” on how the wealthy approached work and taxes, says Brian Kingston, vice-president of policy at the Business Council of Canada. “We need a couple of more years to determine the larger impact.”
We do have some reliable and recent information about wealth and income from 2018. The top 20 per cent of income earners held 48.7 per cent of the population’s wealth, or net worth, in 2018 — and that’s pretty much the same proportion that the rich have held for years. In 2010, the rich controlled 50.4 per cent of the population’s net worth, and that proportion has edged down very gradually since then — regardless of who was in power in Ottawa.
The top 20 per cent, StatsCan says, were 2.4 times richer than the average person in 2018, and that’s been static for the past five years. Before then, the ratio was 2.5.
As for the middle-income earners and lower-income earners, the proportion of wealth they hold has remained pretty constant over time too. In 2018, the bottom 20 per cent held about 5.5 per cent of the population’s net worth, while the middle three segments held 45.9 per cent — much the same as it ever was over the past decade.
Was the middle-class experiment worth it? After moving around billions of dollars in taxation and government spending, the deficit is bigger, poverty is diminishing, and middle-class take-home pay is slowly rising. However, the middle class is the same size as before, and wealth distribution looks nearly identical as well.
There’s a giant price tag at the front end of a long-term experiment that hasn’t yet paid its full dividends in terms of the economic inclusion that it promised. The Child Tax Benefit alone is $24.3 billion this fiscal year, and while Carleton University’s Robson argues that the money is well worth it to prevent the cost of poverty down the road, it’s hard to see much of a society-wide payoff for the tax measures.
Politically, the Liberals reaped the benefits in the 2015 election. They made a controversial bet that by taking on a deficit, rejigging income taxes and enhancing family benefits, voters would take a second look — and they did.
“It was a huge differentiator in terms of the ‘change’ narrative,” said one Liberal insider.
But the experiment can’t be repeated to scale without breaking the bank, and so the Liberals have to campaign on reminding voters over and over again about what they did — hoping that the middle class will be triggered to feel the benefits.
Perhaps their best hope is someone like Tru Evans, a middle-class 63-year-old who is sitting on a mall bench waiting for a friend before the Labour Day weekend. She is going back to school this month.
“I wouldn’t say anything has changed for me … It’s not a complaint. I’m happy the way things are,” she said. “I have more problems with Doug Ford.”