Remember when Canada announced it would establish a Minister of Middle Class Prosperity, only to eliminate the role a few months later? It perfectly foreshadowed the roller coaster the Middle Class is on, according to the latest data on income inequality. Statistics Canada (Stat Can) data released today shows the disposable income gap between Canada’s wealthiest and poorest households is widening. According to the agency, the country has never seen such a wide gap since they began tracking the issue. Even more disturbing is how quickly this occurred—the income gap between Canada’s wealthiest and poorest households went from a record low to record high in 4 years, reversing decades of progress in a span of just a few quarters.
The Income Gap Between Canada’s Richest & Poorest Households Has Never Been Wider
Canada’s middle class has seen their share of wealth shrink to a new low. The income gap between the bottom 40% and top 40% of households reached 47% in Q2 2024. That’s 0.2 points higher than the previous record making it a new record for the inequality indicator, according to Stat Can. They also note they began collecting data 25 years ago, back in 1999. At least one whole generation has never experienced such inequality in Canada.
Canadian Household Income Inequality Hits A New Record
The gap between the share of disposable income earned by the bottom and top 40% of households. In percentage points.
Source: Stat Can; Better Dwelling.
The Canadian Household Income Inequality Gap Went From A Record Low To Record High In Just 4 Years
The past few months have seen an unprecedented surge when it comes to this widening gap. Just the first two quarters in 2024 would make it the second-fastest year for the erosion of income equality prior to 2020. If the growth is annualized for the full year, it would be second only to the surge seen in 2021—a correction of sorts, after 2020 reported the lowest income equality on record.
Most people are likely to assume this has to do with interest rates, since people believe cheap mortgage debt will solve all of Canada’s problems. However, it’s worth noting that the record surge in 2021 occurred during a record low for rates. That may be a hint of what’s happening here.
Wealthier Households Typically Capture A Greater Share of Wealth After Low Rate Shocks
The Dutch central bank previously found that low rate shocks generally result in the wealthiest households gaining a greater share of total wealth. Initially, rate cuts provide relief to those carrying debt and make it easier to increase leverage. The central bank found the wealthiest households are better positioned to benefit from this increased leverage, having substantially more income in the first place. The research reveals this consequently leads to the wealthiest households capturing an additional point of total wealth.
It’s easy to see why in Canada, especially with investment so heavily concentrated in housing. More leverage for wealthier households means they can purchase more investments. More leverage for lower income households means they can borrow more to pay for essentials. A point emphasized by Bank of Canada (BoC) researchers, who determined lower rates didn’t make housing more affordable for buyers, but instead allowed them to more easily absorb price hikes. Prices moved almost in lock step with falling rates and greater leverage for roughly 20 years. More recently, the US Federal Reserve emphasized a similar point.
Stat Can did find one bright spot—lower income households took the opportunity to deleverage on the debt they held. It’s an optimistic way of looking at the data, considering the decline in credit is seen at the average and most outstanding credit is mortgage debt. If younger, lower income households are priced out of the housing market by investors, it would make sense that they aren’t borrowing as fast as usual.
One person’s investment property is another person’s home. A problem the Federal Government is now keenly aware of. Shortly after making a splashy announcement about new first-time home buyer incentives, they quietly extended those incentives to investors who can actually afford the home prices they bluntly stated they intend to preserve.
2021 to 2024 was enough to reverse 20 years of progress? How fascinating.
I’m a Liberal voter that’s effectively undecided because of this mistake they keep doubling down on. Things were good in Canada, and getting a lot better under Morneau who at least understood the whole country can’t just be real estate.
Now if you mention anything about their policies, Liberals tell me I’m either pro-Putin or a Conservative. They’re making it clear they don’t want the vote of people like us that used to support them, and then doubling down on the lie that people like us are now looking for new parties.
Definitely not the Liberal party of the past decades. Our economy is in big trouble going forward.
Couldn’t agree more. I had the distinct pleasure to meet him as my MP. It’s insane that someone like Morneau can be thrown under the bus while Trudeau and Freeland stay in charge.
Life lesson I learned…. never define your views and yourself by any party. I too voted liberal all my life and consider myself a centrist with some left leaning views and some right lean views. However, these days the conservatives seem to be the only party that has maintained a position that is closest to the center. I will be voting conservative for the first time ever. It’s the only way to send a message to the far left leaning forces of the liberals to pull themselves back to the centre left. The other thing is we need to raise the voting age in this country to at least 21, same goes for drivers licenses etc… Today’s 18 year olds are not as mature as prior generations to trust with such important decisions and responsibilities.
One would think it feels good to be at the top of this stat, but the view below makes it not really worth it.
the real problem is the bottom half thinks they’re in the top, and supporting the destruction of their own prosperity.
Good luck handling the AI-unemployment surge. What did Poloz say, 1/3 of people are expected to lose their job by 2030? Sure home prices will continue to produce prosperity… or tax liabilities that will execute you.
Just admiring the like-minded insanity we share down under. Would appreciate revisiting your coverage of Australia, but all great stuff. Best of luck from down under.
The Liberals are achieving everything they accuse Conservatives, unfairly, of supporting. An old saying from the past .. handsome is as handsome does.
Our current government is destroying this country. Literally anything else would be better. If they ran a Bloc candidate in downtown Toronto, I’d seriously consider supporting them.
So what we are seeing is the result of the Federal govts forced economic ‘transition’ to clean energy. Canada is the worlds 4th largest Oil producer and oil and gas represent the single biggest, most profitable and productive industry in Canada. However over years of PR war with the sector, virtually all foreign investment in this sector has left for the USA, who, despite minimal reserves, is the worlds leading producer?
So if you want to know why the USA now has a 25kUSD/y income gap over Canada this is why. Canada’s GHDP and GDP per capita in real terms is down 35% or more, meaning that every one of us is out 35% of the pay check we had in 2015.
So instead of telling us that the ‘transition’ would effectively banish 60-80% of us to low income status, the Trudeau govt instead used zero banking regulation and kjust suicidal monetary policy to create fake wealth via real estate.
The end result of that is at least 4 major real estate price bubbles in Canada where incomes required to buy a home are more than double the average (not median) family income. The problem is when you expand the M3 money supply to finance residential real estate price hikes, it doesnt actually add any value to our economy, it just creates a price bubble.
It did hide the massive drop in income for a while, but then with housing prices spiraling out of control, many industries decided to just leave the GTA and GVR for cheaper places. The wealth transfer is three ways. First Banks, builders, development companies grew profits in double digits since 2015. Secondly people were able to basically risk free invest in real estate and grew wealthy. Finally, those who owned houses in the right areas could generate substantial equity in their homes without risk.
The bigger problem is when the bubbles deflate, banks will transfer most of the risk on to taxpayers. The CHMC has at least $1Tr in unfunded potential liabilities if the GTA and GVR, Ottawa, Victoria crash. So in effect, beyond the 800B Trudeau has wasted on all manner of nonsense, the housing bubble could easily double the national debt? That doesnt factor in the CDIC, EDC, BDC, and other crown corps with equally disastrous credit books and unfunded liabilities.
If one, two three of the big banks becomes insolvent, the govt would have to bail them out as well? So basically for the average Canadian, this is all bad. Not onlyu did most not really participate in the increase in prices and wealtyh, they will now end up paying interest on that debt for the rest of our lives because Trudeau wanted to deal with Climate change?
No other energy producer like Canada has even tried to do this, its frankly baffling to the world how completely idiotic this govt has been on the economy. We have seen the biggest drop in standard of living in Canada since 2015 since the great depression under Trudeau Jr? The only positive is that they, by mistake, built the TMX pipeline. Now that was also a disaster, costing 15x what Kinder Morgan was going to pay, but it has opened up the pacific to oil exports and reduced the reliance on US refining. That’s actually funny because due to Trudeau’s various taxes and regulations, Canadian gasoline costs more than Saudi, Venezuelan, Nigerian gasoline? Despite the fact that there are zero environmental controls on them? So now, its cheaper to buy gas in ON than in AB?
We need these people gone yesterday. Its sad that not only should we have known what Trudeau Jr was going to do based on Trudeau sr (another train wreck who hobbled Canada for decades after leaving office), we clearly should have known from the mess in his wake – scandals, corruption, nepotism, and so on.
Even today, the Liberals are going to consider a 55km tunnel under the 401? I mean really, why not start by building a proper national highway system, whihc would cost less than 10% of that debacle. Anyone who thinks thats a good idea read on the big dig in Boston, that was a couple of kms, and cost billions over budget.
When you let in 3 million poor immigrants, of course this gap widens!