OTTAWA – Canada’s troubled middle class is holding back economic recovery because families are so cash-strapped, suggest federal bureaucrats who cite the work of a maverick American economist.
An internal government analysis, which has stirred debate about what political party best champions the middle class, approvingly cites the work of Joseph Stiglitz, a Nobel Prize-winning economist who argues that “inequality is holding back the economic recovery.”
The report from last fall asks “Why care about middle-income Canadians?” — and answers the question by adopting Stiglitz’s argument that the economy needs the consumer spending of the middle class in order to recover.
“The hollowing out of the middle class means that they are unable to invest in their future, by educating themselves and their children by starting or improving businesses,” it adds, citing another of Stiglitz’s arguments, referring to the U.S economy.
And a middle class with weak income does not deliver the taxes governments need to improve infrastructure, education, health and research, another borrowing from Stiglitz.
The document, obtained by The Canadian Press under the Access to Information Act, was produced by a little-known unit within Employment and Social Development Canada, which runs Canada’s income-support programs such as EI.
The report by the Strategic Policy and Research Branch draws on a variety of economic indicators from 1993 to 2007 to argue Canada’s middle class is in dire shape, with stagnant incomes, mounting debt and a cloudy future.
The bleak message is in sharp contrast to the Conservative government’s talking points, that a million jobs have been created since the recession, that “average” families have been given 160 different tax breaks since 2006 and that incomes are in fact rising.
The report’s references to Stiglitz, who has written extensively about the growing inequality in the distribution of wealth, also suggests a bureaucracy out of step with Conservative messaging about deficit-cutting austerity and tax reductions.
Stiglitz has been somewhat critical of free-market economists, calling for a better balance between the roles of government and markets in shaping the economy.
The government has repeatedly emphasized its tax cuts for average families, amounting to $3,400 a year — including GST cuts — for a two-working-parents family with two kids, bringing in $120,000 a year.
That was a message repeated in the House of Commons on Monday, as opposition parties each claimed to be the standard-bearer for the middle class.
“A thriving middle class drives our whole economy, but today middle-class Canadians are just as likely to move down the income scale as move up,” said Liberal MP Ralph Goodale, a former finance minister, drawing on data from the internal report.
“Their earnings are flat. Household debt is 166 per cent. Three-quarters do not have a pension. Two-thirds worry that their kids will not do as well as they did. … Will the government … drive more economic growth for middle-class Canadians?”
That drew a Conservative shot against Liberal Leader Justin Trudeau, who has often cited the plight of the middle class, but was not in the House on Monday.
“Unlike the Liberal leader, who has no idea what it is like to be in the middle class, our government has cut taxes 160 times for ordinary Canadians,” said Kevin Sorenson, minister of state for finance.
“That is 160 times so Canadian families with two children receive approximately $3,400 more in their pockets every year. That helps the middle class.”
The NDP accused both the Liberals and Tories of abandoning the middle class.
“Middle-class Canadians suffered badly under the Liberals and the Conservatives have only made matters worse with their attacks on EI, collective bargaining and retirement support,” said MP Peggy Nash.
“Will the government finally take action to help middle-class Canadians get a raise?”
Sorenson repeated the low-tax theme, saying “the greatest threat to the middle-class would be the piling on of more taxes and taking more from their pockets.”
“The middle-class has been very well-served by this government. Over one million new jobs have been created since the deepest part of the recession.”