May 6, 2005

Who Benefits?

On May 5th Statistics Canada released more bad news for the Campbell re-election effort. Analyzing income tax returns filed in 2004 for the 2003 tax year, Statistics Canada calculated the median income for individuals and found that: "Median employment income fell in 21 of 27 census metropolitan areas in 2003, with the biggest declines in the three British Columbia urban centres: Victoria (-3.1%), Vancouver (-2.7%) and Abbotsford (-2.3%)." The "median" is a statistic that is the middle point; by definition exactly half are below and half are above the median whereas more than half of the population have incomes below the "average" because the top income earners have a much higher proportion of total income than their number represents as part of the population. It is possible for median incomes to be declining, even if the average shows an increase, if inequality is increasing.

On the defensive, the Liberal campaign issued a news release saying: "If you look at the median incomes for the province as a whole, they are actually UP by 1.8%." Unfortunately for Mike Morton (listed as the contact for the BC Liberal Party release), he forgot to allow for inflation. The news release put out by Statistics Canada said: "All figures for previous years have been adjusted for inflation, as measured by the Consumer Price Index." The Consumer Price Index for BC increased by 2.1% between 2002 and 2003, so a 1.8% province wide increase in the median wage still means a loss in real income. Everyone knows that the Interior got hit hard, but the latest data shows that even Victoria and the Lower Mainland lost ground for most individuals. (Family data will be released next week.)

The data from the taxation statistics raises the question of who is benefiting from BC's "booming" economy. Some say that things will get better, but the previous week Statistics Canada released gross domestic product (GDP) data for 2004 which raises even more concerns. Personal savings as a percentage of income was a record NEGATIVE 7.9% in 2004. Families who are seeing their incomes fall behind inflation certainly aren't benefiting. Data from Statistics Canada on the 2004 provincial GDP accounts show that corporations were the big winners with profits up by 33% in BC compared to an increase of 17% for Canada. Few would say that is bad news, but the gains are not being shared by everyone.

GDP is a concept of what is called the national or provincial accounts. The accounts reflect the identity that everyone's cost is someone else's income, hence there are expenditure accounts and income accounts. In simple terms, the expenditure side is broken down by consumption, investment, government spending and net exports. That is equal to the break down on the income side which includes labour income, corporation profits, investment income and taxes. Wages, salaries and supplementary labour income made up 51.6% of GDP in 2003 but decreased to 50.2% in 2004. Corporation profits, before taxes, increased from 8.6% of GDP in 2003 to 10.7% in 2004. Other components on the income side changed by less than 2 tenths of one percent between 2003 and 2004.

The increase in inflation adjusted GDP for BC in 2004 was 3.9%. When inflation is included economists call the figures "nominal"; nominal GDP increased by 7.5%. Wages, salaries and supplementary labour income increased by only 4.5%, just over half the rate of increase in nominal GDP. The 33% increase in corporate profits was more than four times the rate of increase in nominal GDP.

Changes in after tax income, "per capita disposable personal income", are more important for most people than are changes in GDP. The growth in BC's GDP was highest amongst the provinces in 2004, but average personal after tax income remained lower than the Canadian average, and for many it declined.