‘A huge problem,’ Canada’s income gap hits alarming new high, here’s what experts say must change

The income gap between the highest and lowest-income families in Canada has reached a record high this year, and experts say the divide reflects a series of issues including the rising cost of living and economic instability. 

A report published by StatCan on Wednesday revealed that Canada’s income inequality has reached its peak in the first quarter of the year. 

Analyzing the difference in disposable income between households at the top 20 per cent income distribution compared to those at the 40 per cent bottom, the report found a 61.4 per cent gap between the two, a 0.2 per cent rise from last year. 

The top wealthiest households in Canada now account for 64.7 per cent of the country’s total net worth, representing an average of $3.3 million per family. On the other hand, the bottom 40 per cent households represent only 3.3 per cent of Canada’s wealth, at an average of $85,700. 

The study notes that a number of economic factors can affect families’ financial reality, including interest rate variations, real estate prices, investment returns, and the current job market. 

Throughout this year, the Bank of Canada announced a series of interest rate drops amid economic uncertainty, primarily resulting from the U.S. tariffs on Canadian goods. 

While interest rate cuts particularly benefit lower income households, making it easier to approve loans, it can also lead to less returns in interest-bearing investments, such as deposit or savings accounts, as explained by StatCan. 

Households in the middle 60 per cent income distribution also appear to be affected, having seen slower wealth increase compared to previous years, as their investment returns declined an average of 2.1 per cent compared to Q1 2024. 

At the same time, families in the top 20 per cent have seen an above-average increase in disposable income, mainly linked to a 4.7-per cent increase in wages and 7.4-per cent rise in investment income. 

PRICES UP, WAGES DOWN

The Ontario Living Wage Network (OLWN) Director of Communications Craig Pickthorne tells Now Toronto that Canada’s economy is going through a period in which prices are constantly rising at a faster rate. 

“The pace at which [things are] becoming more expensive is increasing. So, that means something that economists call real wages, which is really just an expression of how far your dollar can go, is going down. So, even if you get a raise…it’s not even effective, it’s still a pay cut,” he said.

In October, the Ontario government is increasing the minimum wage from $17.20 to $17.60 an hour. But amid high living costs, especially in housing and services like childcare, Pickthorne says it’s not enough. 

The expert also says that rising prices also make it more difficult for low-income families to accumulate long-term wealth, as they don’t have enough at the end of the month to invest in savings. 

“If you work full-time at a minimum wage job or even a sub living wage job, which for Toronto, is $26 an hour… You’re still short of being able to make ends meet, never mind saving or accumulating wealth at the end of the day,” he added. 

Given the new issues with pricing, Pickthorne says the government could help lower-income households not only by increasing the minimum wage, but also by implementing price control in essential services. 

At the same time, Canadian Centre for Policy Alternatives (CCPA) Senior Researcher Katherine Scott says that the job market is still recovering from the pandemic, and now with economic uncertainty from the trade war, many low-income families are left struggling to find jobs. 

“We see increasing unemployment, and particularly for young people. People are graduating, folks coming out of college and university can’t find jobs right now. Companies are holding back on new hires. That’s a huge problem. You see the disparities and struggles that people who are renting housing are facing exponentially higher rents than they did pre-pandemic,” she added. 

The current economic uncertainty has led to significant impacts in the job market, with the unemployment rate quickly rising this year, standing at 6.9 per cent in June. 

According to StatCan, lower income households also seem to be more susceptible to job losses, with the bottom 20 per cent income families being the only group that saw wage declines mainly due to reduced work hours.

Meanwhile, Scott explains that top income families are usually able to rely on accumulated wealth and stock returns, which have since gone up, contributing to more inequality.

“Families at the top who’ve been really largely insulated from all this turmoil because they can fall back on their family house or accumulated wealth. They have assets in the stock market that have appreciated,” she said.