The COVID pandemic has led unprecented economic interventions from both government and central banks. Government’s were able to borrow large amounts of money to finance unprecedented expansionary agenda’s thanks to central banks willingness to lend them newly printed money at low interest rates, and, central banks were able to ensure financial stability through the injection of trillions of dollars into sectors of the economy whose productivity ground to a halt (nine trillion USD worldwide). As vaccines rates pick up in many advanced countries and citizens eagerly await a return to normal life, reseachers have begun to pick apart the details of public sector interventions, including the distributional impact of government and central bank measure. Such investigations have become even more important as high profile calls from progressive governments have raised the public’s attention to social issues including income and wealth inequality.
So, I thought it would be useful to look at the evidence to see how the Trudeau government fared when it came to income and wealth equality in 2020.
As advertized in the title of this article, we can begin by looking at how the super-rich fared throughout the pandemic. While there is limited evidence of wealth distribution in Canada, a recent report from the office of the Parliamentary Budget Officer found that wealth distributions remained relatively unchanged between 2016 and 2019 with the top 1% owning about 26% of Canada’s total wealth. Over the same period, Canadian billionaire wealth increased about thirty-two percent according to Forbes data. Since 2019, a large proportion of the nine trillion USD injected into the world economy found its way into financial markets which has rewarded investors with a boom year. Moreover, contracts for goods and services (i.e. medical equipment) has allowed for large corporations to enter into lucrative contracts in the midst of government’s spending sprees.
Both of these factors suggest that, while most households and small business became reliant on government for small furlough transfers as they hunkered down for a year of lockdown, the super-rich experienced a pandemic boom. The magnitude of this boom in Canada can be seen in the incredible 81% increase in total wealth held by billionaires according to data from Forbes obtained from Knoema.
We can compare this increase with average household wealth. Between 2016 and 2019, average household wealth as a percentage of disposable income increased by about four percent (compared with the 32% from above). In 2020, household wealth decreased by about two percent (as compared with the 81% increase for billionaires).
Lastly, the Canadian government embarked on one of the most expansionary periods in 2020 compared with other high income countries. In 2020, the general government borrowed about 6,200 CDN per capita and increased gross debt from about 53,455 per capita to about 68,500 per capita (a twenty eight percent increase) and expenditure rose by about 5,000 per capita.
All of this suggests that, while the Trudeau government and the Bank of Canada adopted unprecendented expansionary policies, the outcome of thes policies will likely produce an unprecendented shift in wealth and income inequlity in Canada. Moreover, with recent evidence from the US suggesting that the super rich pay no income tax, the burden of repaying vast sums of new debt incurred by government will fall on the shoulders of the middle class. It is likely this will also be the case in Canada if the status quo tax structure remains in place with sufficient loopholes to save the rich from contributing.
Putting this all together, it is important that we look beyond the rhetoric of progressive governments and hold them accountable to the outcomes of their financial decisions which, more often than not, are significantly less progressive than their impassionate speeches might have you believe.