December 15, 2006
According to TD Bank Financial Group Economists Drummond and Tulk (2006) wealth disparities will intensify. They paint a dismal picture for Canadians excluded from the top quintile. Prospects are bright for Canada’s 22 billionaires and others in that elusive group of Ultra High Net Worth (UHNW) ie c. .004% of Canadian families (Stenner et al., 2006 ), who hold more than $10,000,000 in assets. In sharp contrast to Canadians in the four lower quintiles, the UHNW benefited with large increases in wealth since 1984. Unlike real estate held by the lower quintile, these rare families saw their luxury homes, properties, businesses and collections rise in price. With these additional assets they were able to invest, many in tax-free RRSPs, so their net worth grew. “If investment returns rise the trend towards growing wealth disparities will likely intensify. This could be compounded by sluggish wage gains in the low end and the financial challenge of immigrants – the main source of growth in the younger, less affluent population (Drummond and Tulk, 2006).”
Considerable wealth was accumulated in Canada between 1999 and 2005. In 2005 net worth increased by 41.7% to nearly $1.5 trillion (US?). The most recent Statistics Canada report revealed today that the Canadian national net worth reached $4.8 trillion by the end of the third quarter. While in terms of an economist’s algorithm this translates into an average of $146,700 per person. In reality only the a tiny number of Canadian households benefited. “The gain in net worth resulted from an increase in national wealth (economy-wide non-financial assets) as well as a sharp drop in net foreign debt. National net worth grew 2.8% in the third quarter, the largest increase in more than two years (Statistics Canada 2006 )”.
Drummond and Turk are concerned that in spite of the dramatic growth in Net Worth, there is a significant portion of the population with little or negative Net Worth (debts/assets ratio) in 2005.
Although Drummond and Turk cite the World Institute for Development Economics Research as their source in regards to situating the seemingly overwhelming disparity between the 10% of households that are extremely wealthy and the lower quintiles. (I believe they refer to reports by Senior Researcher of the World Institute for Development Economics Research (WIDER) of the United Nations University, Mark McGillvray (2005) whose research is available only of the deep Internet — an exclusive members-only club.)
For the first time however, 165 of the UNHW families accepted to be interviewed by the Stenner Group. The True Wealth Report (Stenner 2006 ) reveals that the most popular past-times of UNHW are traveling (particularly to London, Paris, Vienna, New York and Vancouver staying in ), playing golf and taking part in other sports, collecting art and antiques, drive BMW’s, Volvo’s or Porsches. They claim their philanthropy is tied to both their religious faith and strategic money management (Stenner et al., 2006 ).
(Morissette and Zhan, 2006)
According to Stats Can economists in their recent report who refer to research by Western University Economist James B. Davies and Shorrocks Economist with the United Nations World University, it is to measure the actual holdings of the uber-wealthy. Forty-eight percent of Canadian wealth might be held by less than 1% of the Canadian population; (Davies and Shorrocks, 2000, Davies, 2003).
Western University Economist and co-author of publications with Shorrocks, editor for the United Nations World University publications and Financial Post journalist (Chevreau, 2003) both cited Shillington’s C.D. Howe Insitute report (2003), revealing an unintended disincentive for the those who earn under $50,000/annual to save. “Shillington (2003) has used Statistics Canada’s 1999 Survey of Financial Security to illuminate what he calls the “futile saving” problem. He looks, first, at the savings of “near-seniors”, those households where the older spouse is aged 55 – 64. He finds that 21% of these households have no retirement saving, and in total 53% have retirement savings of less than $100,000. On the grounds that savings of $100,000 would not permit the purchase of an annuity of more than about $10,000 Shillington believes that the majority of these people will be GIS recipients in retirement. Their savings are thus “futile”, since they will be at least half confiscated by the GIS taxback.17 Turning to actual GIS recipients, Shillington reports that about 23 percent have an RRSP, with an average value of $43,000; 29 percent have an RPP, with an average value of $65,000; and about 40% have either an RRSP or RPP. In Shillington’s view this represents the result of a gigantic fraud, however unintentional. Governments and financial institutions have advertised the importance of saving for retirement very heavily, and the annual campaign to get RRSP contributions is a vigorous one. The voices warning low-income people that this is in no sense an “investment” are tiny ones.” (Davies, 2003) p. 28
Shillington concluded that
poor seniors dependent on the federal Guaranteed Income Supplement (GIS) and its means-tested provincial and municipal counterparts should not bother with RRSPs. To do so means losing GIS benefits, rent subsidies, drug benefits, provincial aid programs like Ontario’s GAINs and similar welfare programs.” Once RRSPs create income from Registered Retirement Income Funds after 69, $1 in income reduces GIS benefits by 50¢. Since half of GIS recipients pay income tax, they face an effective marginal tax rate of 75% on extra income. In some cases involving dividend gross-ups, the effective top-rate savings may pass 100%, Mr. Shillington said. For them, “RRSPs are a terrible investment. They are victims of a fraud, however unintentional.” Saving $100,000 in RRSPs may be futile if that is your target. However, it does not mean younger people with $100,000 already saved should stop, as long as they are on the way to accumulating several hundred thousand dollars by the end of their working lives. “RRSPs can be dangerous to your financial health” is the subtitle of Free Parking, a self-published book by “reformed financial planner” Alan Dickson. “I totally agree with the report,” Mr. Dickson said. Citing 2001 Statistics Canada data, Mr. Shillington said of $1-trillion in retirement assets, $600-billion is in employer pensions, $340-billion in RRSPs and $70-billion in RRIFs. (Chevreau, 2003)
“National net worth reached $4.8 trillion by the end of the third quarter, or $146,700 per person. The gain in net worth resulted from an increase in national wealth (economy-wide non-financial assets) as well as a sharp drop in net foreign debt. National net worth grew 2.8% in the third quarter, the largest increase in more than two years (Statistics Canada 2006 )”.
Clever people like Derek Foster who know how to work the system trigger angry responses against publicly-financed assistance for the lowest quintile. (Heinzl, 2005) Foster (born c. 1961) began making astute investments while still in university. He learned from finance gurus Peter Lynch and Warren Buffett. In 2005 he continued to earn enough from his total investments (which total six digits) in Starbucks, Colgate-Palmolive, Rothmans Inc., Royal Bank of Canada, Corby Distilleries Ltd., Manulife Financial Corp., George Weston Ltd., Pembina Pipeline Income Fund, Canadian Oil Sands Trust and a dozen or so others, that he and his family of four can live modestly without ever having to work again. Their low income c. $30, 000/annual actually allows them to enjoy certain publicly-financial benefits designed for low-income earners with no assets (Heinzl, 2005). Others include Dianne Nahirny’s Stop Working, Start Living (http://www.smartmakeovers.com) and Alan Dickson’s Free Parking and Advance to Go (http://www.freemoneypress.com)
Unfortunately I cannot use this source. References have no weight: [1.4 million Canadian children — about one in five — living in poverty, an increase of more than 500,000 since 1995. [. . .]”Housing, health, education, labour rights and a healthy environment are all included in the covenant,” she said. “Wealthy nations like Canada are expected to take steps toward meeting the goals of the covenant, but since Canada last reported in 1993, it has taken many steps backward.” [. . .] But life may not be as rosy as the UN survey found. A recently released Indian Affairs study said off-reserve aboriginals came in about 35th and on-reserve natives rank about 63rd in the world, putting their standard of living in Canada at the same level as Mexico’s and Thailand’s. The Ottawa-based Centre for the Study of Living Standards recently said anyone who has tried to measure Canadians’ quality of life has found it’s worsened considerably during the 1990s, even though the economy has bounced back from the last recession. (McGran, 1998 )
With more than a billion people living on less than one dollar per day, some evidence of increasing gaps in living conditions within and between countries and the clear evidence of substantial declines in life expectancy or other health outcomes in some parts of the world, the related topics of inequality, poverty and well-being are core international issues. More is known about inequality, poverty and well-being than ever before as a result of conceptual and methodological advances and better data. Yet many debates persist and numerous important questions remain unanswered. This book examines inequality, poverty and well-being concepts and corresponding empirical measures. Attempting to push future research in new and important directions, the book has a strong analytical orientation, consisting of a mix of conceptual and empirical analysis that constitute new and innovative contributions to the research literature.Mark McGillivray is a senior researcher with the World Institute for Development Economics Research (WIDER) of the United Nations University.
- Chevreau, Jonathan (2003) RRSPs a bad option for low-income earners Financial Post.
- Davies, James B. (2003) Social and Economic Risks to Seniors in Ontario. Ontario Panel on the Role of Government (OPRG). Toronto.
- Davies, James B. & Shorrocks, Anthony F. (2000) “The Distribution of Wealth.” In Atkinson, A.B. and Bourguignon, F. (Eds.) Handbook of Income Distribution.
- Drummond, Don & Tulk, David (2006 ) Lifestyles of the Rich and Unequal: an Investigation into Wealth Inequality in Canada. TD Bank Financial Group.
- Heinzl, John (2005) The ‘Youngest Retiree’ Tells How To Punch Out Of The Workplace. Globe and Mail.
- McGillivray, Mark (2005) Inequality, Poverty and Well-being, Helsinki, Finland, Palgrave Macmillan.
- Mcgran, Kevin (1998 ) Anti-poverty activists take case to the United Nations. The Canadian Press. Toronto, ON.
- Mcquaig, Linda (1995) Shooting the Hippo: Death by Deficit and Other Canadian Myths, Toronto, Viking
- Mcquaig, Linda (1998 ) The Cult of Impotence: Selling the Myth of Powerlessness in the Global Economy, Toronto, Penguin Books
- Morissette, René & Zhan, Xuelin (2006 ) Revisiting Wealth Inequality. Perspectives on Labour and Income. Ottawa, ON, Statistics Canada.
- Shillington, Richard (2003) New Poverty Traps: Means-Testing and Modest-Income Seniors. C. D. Howe Institute. Backgrounder. 65.
- Statistics Canada. (2006). “National balance sheet accounts: Third Quarter”. Press Release. Ottawa, ON. December 15, 2006.
- Stenner, Thane, Bower, Rod, Currie, John & O’connor, Rory (2006) True Wealth Report: Values and Views of Ultra-Affluent Individuals, Vancouver, BC, T. Stenner Group ™.
Sachs, Jeffrey D. 2011-03-04. “Need versus greed: The global economy is growing quickly, but too much wealth is siphoned off by well connected billionaires.”
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Flynn-Burhoe, Maureen 2008. “Food Fertilizer Fuel.” >> papergirls.wordpress.com
Filed in Business & Finance, economic efficiency, Economy & Finance, Risk Society, Social Justice, wealth disparities will intensify
Tags: art collectors, C.D. Howe, Creative Commons, deep Internet, Drummond and Turk 2006, economic efficiency, economist's algorithm, economy-wide non-financial assets, EndNote 8, faith-based philanthropy, Financial Post, futile saving, Guaranteed Income Supplement (GIS), immigrants, lower quintile, National net worth, national wealth, negative Net Worth, philanthropy, philanthropy: strategic money management, RRSP as gigantic fraud, Shillington, social capital, Statistics Canada, Statistics Canada's 1999 Survey of Financial Security, Stenner 2006, strategic money management, strategic money management philanthropy, TD, True Wealth Report, uber-wealthy, UHNW, Ultra High Net Worth, unintended disincentive to save, United Nations World University, upper quintile, WIDER, World Institute for Development Economics Research