Report: Economic Projections for Canadian Families 2014

Is Cautious Optimism Justified?

These are not the easiest times for Canadians, for young people, for seniors, for the middle class. What can Canadian families expect in 2014? What can business and investors expect? Are we pursuing the right fiscal and monetary policies? What about early-childhood, school and post-secondary education? And pensions? What can the private sector and governments be doing? What can you do and how should you plan for the year – and the years ahead? This session addressed several of these issues as we get going with 2014!

Panelists:
Chrystia Freeland, MP, Toronto Centre
Derek Holt, Vice President, Scotiabank Economics
Kim Jarvi, Senior Economist, Registered Nurses Association of Ontario
Liam McGuinty, Senior Policy Analyst, Ontario Chamber of Commerce

Moderator:
Sandra Pupatello, Director, Business Development and Global Markets, Price Waterhouse Coopers LLP; CEO, Windsor Essex Economic Development Corporation

Wednesday, January 22, 2014; 7:30 – 9:00 am
University Club of Toronto; 380 University Ave. Toronto

Report Contents

  1. Summary of Proceedings (written by Colin Lynch, Member, Board of Advisors, The Canadian Centre)
  2. The Growing Income Gap Is Serious (written by Andrew Cardozo, Director, The Canadian Centere)

Summary of Proceedings

Written by Colin Lynch, Member, Board of Advisors, The Canadian Centre

Overall, panelists agreed that while 2014 looks economically brighter than 2013 for Canada, several trends would color this perspective, the most notable being a continued weakening of the Canadian dollar toward the $0.80-$0.82 per USD range which will ultimately help Ontario and Canadian exporters.

Introductory Remarks

Chrystia began the panel by noting two major trends: the first is the perception of Canada’s relatively strong financial standing will be weakened as the US recovery takes hold. The second is that the United States will increasingly become a producer of energy, thus diminishing the need for Canadian energy imports. She also added that CEO’s confidence in the economy remains stronger than individual experiences in the job market.

Derek Holt continued with a brighter outlook and noted that Canada’s expected return to fiscal surplus combined with its stable financial system will moderate expected negative tailwinds associated with high consumer indebtedness and inflation adjusted consumer spending.

Kim expressed concern that the average duration of unemployment is growing while Canadian government revenues and expenditures are dropping, thus creating negative tailwinds. He noted that Canada’s benchmark interest rate (1%) is out of step with the US (0.25%); a concern given that monetary policy is the most powerful tool in a flexible exchange rate regime.

Liam concluded with a regional and sector perspective and noted that while regions such as Toronto and Kitchener-Waterloo are buoyed by strong confidence in select sectors (such as financial services) resource industries in other regions are performing poorer than expected, creating negative tailwinds for those regions. Liam also noted an overall trend toward substituting previously full-time positions with contract positions.

Discussion

A lively discussion then ensued with panelists receiving questions from and engaging in dialogue with guests.

Income Distribution – “the 1%”
Chrystia noted that Canada is where the US was in the 1990s, though trending towards a less equal society. She’s troubled by ‘what happens when you make all of the right choices and still fall into the hollowing out middle class’. Kim noted that income distribution is an issue and tax income has failed to narrow the gap; further modifications should be made to Free Trade Agreements to improve fairness. Derek pointed to two often overlooked realities: that the wealthy are often quite successful at keeping networks and job opportunities open. Further, inheritances have substantially increased over the past several decades. Derek noted that even though Canadian underemployment in is much lower than in the US, business leaders are strongly in support of progressive moves to close the province’s infrastructure gap, fund transportation improvements and increase the minimum wage.

Pensions
Derek pointed to several positives: several difficult choices in the mid 1990s have transformed the CPPIB into a world leading pension plan that holds substantial ownership positions in companies globally.

Two Further Downside Risks
Derek noted that the Canadian housing market is increasingly off-cycle relative to the US. Further, the Canadian dollar is relatively unknown in many countries; as a result, central bank and foreign currency managers might be prone to dump the Canadian dollars at a fast pace if the dollar continues to fall – thus creating further downside risks.

Conclusion

Chrystia concluded with two remarks. As Canadians, we should not simply continue to compare ourselves simply to Americans. We should compare ourselves with the countries that we aspire to (for instance, Canadians shouldn’t feel smug because Canadian income inequality is lower than in the USA).

Secondly, right wing think tanks have successfully portrayed government employees as non-value adding bureaucrats. In reality, government employees are teachers, doctors, nurses, service providers and other professionals that directly contribute to the economy.

The Growing Income Gap Is Serious

Written by Andrew Cardozo, President, the Canadian Centre

Here are some interesting , and in fact, troubling stats:

  • Income trends over the past 90 years, reveal that the richest 1% took 32% of all growth in incomes between 1997 and 2007 — the biggest piece of action any generation of Canadians has taken, according to the CCPA report authoured by economist Armine Yalnizyan, in “The rise of Canada’s richest 1%”
  • The richest 85 individuals in the world hold wealth equal to that owned by the poorest half of the planet’s population, according to a new OXFAM report entitled “Working for the few”. The report estimates that half the world’s wealth, $110 trillion US is held by just one per cent of the population.
  • Minimum wage in Canada is now one-third of what it was in 1970, once you factor in inflation, according to Professor Rafael Gomez, labour economist and associate professor of industrial relations at uToronto.
  • And Canada’s workforce is becoming more polarized as “wages in high-paying industries are rising faster than low– and mid-paying industries – probably reflecting supply factor.” Sluggish wage growth at the bottom, partly due to a lack of bargaining power, “suggests that the income gap will continue to widen” according to Benjamin Tal, Deputy Chief Economist at CIBC World Markets.
  • 908,200 Canadians have jobs but are underemployed (also known as involuntary part-time workers – because they want full time work but can’t find it), based on stats derived from Statistics Canada data.
  • Doctors are speaking out and reminding us that most of the people in this growing category of low paid, non-permanent and part-time work, do not have health benefits, and will therefore often forego the medication they need or they will eschew services such as physiotherapy, family and mental-health counseling. They have less access to child care and early childhood education, making the working life of parents more challenging and undermining the early start that all children need in social skills and education. Observers point to inequality thus being entrenched from one generation to the next.

These are troublesome trends. As more adult Canadians feel their children will be worse off than them, we have to think about what can be done to reverse this trend. Some believe it is just the way things are going and as long as we can keep a decent number of people working, we’ll be alright. But in reality very few will benefit if large swaths of society can’t participate in the economy, buy cars and home, appliances, not to mention computers and smart phones. Few benefit when large number of Canadians can’t get post-secondary education – a must for any form of success in the job market.

All sectors have a role: the private sector, governments, labour unions, the education and post-secondary education system, early childhood education and childcare, the health care sector.

As one of the richest countries in the world, the Canadian Centre will focus on identifying some of the solutions to this unacceptable conundrum, so that as the overall economy improves, we work to ensure that the maximum number of Canadians will benefit from it.

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