Income growth for Canadians requires raising the overall growth of GDP. Policies that passively accept slow growth or actively redistribute incomes from corporations and top income-earners will not get the job done. Photo by Johan10/Getty Images

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Canada’s economic growth has decelerated markedly. We have just lived through the worst decade for real GDP growth per person since the Great Depression, almost a full century ago. Over the last 10 years, real GDP per capita increased just 0.6 per cent a year on average. That’s markedly less than its high of nearly 4.0 per cent a year in the early 1970s, and below an extended period of 2.5-per cent per year growth at the turn of the 21st century.

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Since 2010 the 10-year average of annual growth has been consistently below 1.0 per cent. Before that, the only 10-year periods when growth averaged less than 1.0 per cent a year were those ending in 1996 and 1997. In both those years, decadal growth was just 0.9 per cent.

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GDP matters mainly because household disposable incomes closely track its growth. Since 1961, per capita real GDP is up 209.1 per cent and per capita real disposable income up 222.4 per cent. Disposable incomes briefly lagged GDP in the 1990s, as employment recovered slowly from the recession of the early part of that decade and governments kept taxes high as they struggled with high debt levels.

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Disposable incomes then outstripped GDP growth for several years after 2008, buoyed by higher oil prices and (believe it or not) lower taxes. In the last decade, growth in both GDP and personal income has converged, with real per capita GDP growing an average of 0.6 per cent a year and disposable incomes 0.8 per cent.

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The close correlation between GDP growth and disposable income makes clear that what has caused the recent slowdown in real take-home income is, not a redistribution of incomes to corporate profits or the top one per cent, but slow economic growth. In Canada, labour’s share of income actually edged up slightly between 2014 and the first quarter of this year — from 50.1 per cent to 50.2 per cent — while profits were unchanged at 27.9 per cent of total income. The remaining one-fifth or so of income goes to farmers, unincorporated businesses and indirect taxes.

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Nor are stagnating incomes for the average Canadian due to the rich seizing more income. In this country, the top one per cent’s share of market income peaked in 2007 at 13.6 per cent. By 2023, the last year for which data are available, it was down to 11.6 per cent. After adjusting for transfers from government and taxes paid to it, the income share of the top one per cent fell from 9.7 per cent in 2007 to 7.7 per cent in 2023.

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Income growth for average Canadians requires raising the overall growth of GDP. Policies that passively accept slow growth or actively redistribute incomes from corporations and top income-earners will not get the job done. Over time, according to Statistics Canada, 90 per cent of income growth is driven by productivity gains.

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That is why Bank of Canada Deputy Governor Nicolas Vincent recently said “Canada’s affordability problem is really a productivity problem.” Reviving Canada’s economic growth requires shifting policy priorities from the obsession with income redistribution that characterized the Trudeau era to income creation. Mark Carney’s success as prime minister will depend on whether he can engineer that transition.

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