Canada’s K-shaped recovery is deepening the lines between rich and poor. Here’s how we can shift our economy toward a fair outcome for all

Posted on November 15, 2020 in Debates

Source: — Authors: , – Business/Opinion
Nov. 15, 2020.   By Ronald Meng, Imran Abdool, Contributors

As a famous group of puppets on Sesame Street would say, “Today’s letter of the day is ‘K.’ ”

But what if a “k” is not what we want?

This is the situation the Canadian economy finds itself in: current economic data shows that the pre-pandemic well-off are benefiting while the pre-pandemic marginalized are suffering considerably.

For example, white-collar workers are benefiting from work-from-home’s favourable commute times, low interest rates to upsize their living space, and soaring financial assets in their portfolios.

In contrast, blue-collar workers providing essential services on the front lines are facing potentially serious health problems. They also have to deal with unpredictable work schedules, shutdowns and convoluted government income-support programs. In short, we are experiencing a K-shaped recovery: the rich are getting richer and the poor are getting poorer.

Winston Churchill famously said, “Never let a good crisis go to waste.” COVID-19 and its congruent economic crisis is an opportunity to implement key changes that will set Canada’s economic trajectory on the right path.

Specifically, three things must be done: a universal basic income with automatic stabilizers; high-quality, affordable child care; and a well-designed wealth tax.

A guaranteed income

The current global pandemic has rekindled a discussion on the need for a minimum guaranteed income, or GI. Receiving cash payments from the federal government through CERB with few strings attached has meant Canadians have been able to meet basic needs without going bankrupt or having to take health risks looking for work that may be hard to find. Having a somewhat scaled-down, long-term GI strategy would ensure that low-income Canadians would not fall through the cracks once the pandemic is over.

GI income proposals have been supported, and opposed, by both the left and the right. We have seen discussions about GI proposals put forward in the U.S. Democratic primaries of 2019 and 2020. At the same time, one of the greatest proponents of GI was Milton Friedman, a hero of conservative economists and free marketers.

Child care

With female labour force participation rates plummeting during the pandemic, society will need to redouble its effort to utilize this group’s talents. With the pandemic stalling Canada’s typical immigration intake, it becomes evermore important to get high participation rates from the current workforce.

Most of our social programs get cash inflows from the taxes workers pay, which in turn offset the cash outflows from those utilizing the programs. For decades, our domestic birth rates have declined, and immigration has been Canada’s fiscal saving grace — infusing our labour force with new participants at rates enviable to most other countries. If female workforce participation rates do not rebound to pre-pandemic levels, not only will there be significant individual loss of human capital, but our social programs will be on even more precarious financial footing.

A wealth tax

Much research suggests that income inequality is reaching worrisome levels. Intuitively, when people at the lower rungs of the economic ladder feel that they do not have a fair shot at moving up, they start to disengage and, in some cases, civil unrest can ensue.

While the specifics of a wealth tax are debatable (one example is the NDP’s proposal of taxing households — with net worth over $20 million — one per cent on their assets), the need to institute a wealth tax has become more apparent than ever. The federal government tax receipts as a percentage of GDP has been declining for decades — but the demands for federal funding will only grow in the future.

While the wealthiest of households may balk at the tax, with proper enforcement the ability to avoid the tax will be limited. Any increase in government revenues could be used to shore-up our health-care system and its backlogged cases, or to keep our education system competitive — critical to our long-term prosperity.

In short, these measures are needed to change our K-shaped recovery into a U-shaped. To move from a U to a V requires winning the epidemiological battle against the virus with through effective vaccines. Once that is done and with the right economic framework in place, we will be well-positioned to rapidly shift from a U to a V-shaped economic recovery.

Imran Abdool is president of Blue Krystal Technologies and Business Insights.Ronald Meng is professor emeritus and former chairman of the department of economics at University of Windsor.

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