Module 10

The Role of Government

Income Distribution in Canada

Poverty In Canada

Income Distribution in CanadaIncome Distribution in Canada

•WWW.statcan.ca contains current statistics on income distribution in Canada

•In 1998, the AVERAGE TOTAL INCOME for a two parent family with children was $70,043.

•In 1998, the AVERAGE TOTAL INCOME for a lone-parent family was $29,887.

•To gather these numbers, economists rank Canadian households by income and then categorize households into five groups based on their income levels.

Income Distribution in CanadaIncome Distribution in Canada

•Each group represents 20% (one-fifth) of the total number of Canadian households.

•The fifth with the lowest incomes generally receive a small proportion of all households’ total pre-tax income, while the fifth with the highest incomes receives a much greater percent.

•This is the challenge that our government faces. They need to promote income equity and they try to attempt this by taxation policies and transfer payments.

The Lorenz CurveThe Lorenz Curve

•The Lorenz curve summarizes how equally or unequally income is distributed

•Perfect Equality: All Households earn an identical amount

•Perfect Inequality: one group receives all the income, others receive none.•The more “bowed” the

curve, the more inequality that exists.

Reasons for Income InequalityReasons for Income Inequality Risk - Taking: For example, starting your own

business. You could profit greatly or lose everything!

Ability: Some are able to pursue careers in high-paying areas; others can’t. Some abilities are also short in supply and thus earn more.

Wealth: Ownership of assets such as stocks, bonds, buildings, land. An individual can obtain wealth through savings and inheritance.

The Poverty LineThe Poverty Line

The poverty line is the income level below which a household is classified as poor In Canada, a household is considered to be

poor if it spends more than 54.7% of its pre-tax income on food, clothing, and shelter.

The poverty line depends on the number of household nembers and the size of the community they live in. (see Statscan for current statistics on poverty levels)

Poverty In CanadaPoverty In Canada Poverty is a situation in a person’s life when

their income is inadequate to provide the necessities of life (food, shelter, clothing).

There are factors that influence poverty levels:

Gender and household typeageemploymenteducationregion

Gender and Household TypesGender and Household Types

Single people tend to have higher incidents of poverty than married people or families.

Single females tend to live in poverty compared with single males -- single parent families are also highly affected.

AgeAge

Households with young or elderly mainwage earners are more heavily represented among the ranks of the poor than are other households.

EmploymentEmployment

Many of the “working poor” work in primary industries, such as fishing, where wages are low and seasonal employment is common.

EducationEducation

Highest poverty rates are in households where main wage earner does not have highschool degree.

RegionRegion

The Maritimes and Quebec tend to have high levels of poverty.

This is now extending into other parts of the country. Ontario is home to 1/3 of Canada’s poor.

Government Transfer PaymentsGovernment Transfer Payments

Transfer payments are government payments to either households or other levels of government.

Transfer payments are the most important element of Canada’s well-being.

Federal Transfer PaymentsFederal Transfer Payments

There are five main federal transfer payments to households Old Age Security Guaranteed Income Supplement Child Tax Credit Employment Insurance Quebec and Canada Pension Plans

Other Transfer PaymentsOther Transfer Payments

Provincial and territorial governments finance some elements of Canada’s welfare society with the aid of the federal government publicly provided health care subsidized post-secondary education welfare services (with municipalities)