Recently I heard the Anglican Bishop of Ottawa, John Chapman, speak at the AGM of a local community chaplaincy. Bishop Chapman described the evolution of community ministries from the rise of the social gospel to the heady days of the 80s when churches and other organizations had plenty of money and energy to offer community-based ministries and anti-poverty initiatives. And then, said Bishop Chapman, came the rise of global capitalism and the notion that the needy could be divided into deserving and undeserving, and retrenchment began. Now, we’re in a position where churches are losing their own staff. The pot of money available not just to community ministries but to churches is smaller. Organizations have to fight for enough funding simply to survive.
“Where has all the money gone?” I thought. “Why are all these organizations struggling? What happened to the money that was so abundantly available 25 or 30 years ago?”
It’s not just community-based ministries and organizations that are struggling. Larger non-profits like CPJ and our coalition partners are also forced to work constantly to ensure their survival in a not-for-profit arena where the funding just doesn’t seem to be enough to go around. How come we once had enough money for all of these organizations to flourish?
Similarly, we hear from governments and media pundits constantly that we don’t have enough money for big social programs any more. We can’t afford new national schemes, like pharmacare or childcare; we can’t afford the social programs we’ve already got like universal healthcare and public pensions; we certainly can’t afford anything ambitious like the eradication of poverty. The welfare state is dead, we’re told. There simply isn’t enough money anymore.
It seems as though earlier times were wealthier times. There was enough money then to pay for an expanding social welfare state, a thriving non-profit sector and vibrant community-based ministries. Nowadays, we all have to get used to doing with less. Looking after one another has become unaffordable.
The reality is, however, that we are far wealthier now than we were 25 years ago. Using constant 2000 US dollars, Gross National Income (GDP plus income earned outside the country, minus income paid outside of the country) has nearly doubled since 1985, rising from $461.6 billion to $815.5 billion in 2009. Of course, Canada’s population has increased significantly as well, but it still works out to an increase in per capita GNI from $17,794 in 1985 to $24,170 in 2009.
The problem is not that the amount of money has changed, but that the distribution of money has changed. Between 1982 and 2004, the average income of the top 5% of Canadian families increased 50%. The bottom 80% of Canadians experienced little or no income growth over this period.
While Canada’s tax and transfer system offsets some of this market inequality, it has not changed the trend of growing income inequality. According to the Vanier Institute of the Family, the after-tax income share of the top income quintile (the richest 20% of Canadians) increased from 41% in 1990 to 44.3% in 2008. The bottom four income quintiles (the other 80% of Canadians) have all seen their share of after-tax income decrease over this period.
This is a trend exacerbated by recessions, like the global recession we just experienced. Past recessions have demonstrated a trend in which the poor lose more of their incomes than the wealthy, but fail to recover as strongly following the recession. For instance, in the 1989 recession, the average income of the poorest 10% of Canadians dropped $3,230 (86%) but during the first four years of recovery, their average income climbed only $584 (79%). Recessions thus exacerbate the growing income gap between rich and poor in Canada.
Why income inequality makes the money pot seem smaller
So what does this changing income distribution mean for charities and non-profit organizations? Well, the good news is that higher income individuals donate at a higher rate than lower income individuals (in 2007 the rates were 90% and 71% respectively), but the bad news is that average donations were higher as a percentage of income for low income donors compared to high income donors (1.05% vs. 0.69%).
Charitable donations have more than doubled since 1985 (adjusted for inflation), largely due to changes in the tax treatment of charitable donations in 1996. However, the number of donors has only just kept pace with the growth in population, dropping off slightly in 2008-2009 because of the recession. Increasingly, the trend is toward fewer donors giving more dollars. In 2007, 10% of donors (those giving $1000 or more) contributed 62% of the total dollars donated. 50% of donors (those giving $120 or less) accounted for only 5% of total dollars donated.
The smaller number of donors are also concentrating their donations on fewer organizations. This has occurred at the same time as an increase in the number of non-profit organizations (charitable organizations alone, a small part of the non-profit sector, increased by 3% a year between 1987 and 1999). The result has been vastly different resources available to different non-profits. The largest non-profits have seen their revenues increase, while smaller non-profits have seen their revenues stagnate or decrease.
In fact, the 2003 National Survey of Non-Profit and Voluntary Organizations found that out of 161,227 non-profit organizations, “about 1% have annual revenues of $10 million or more and account for 59% of all revenues. In contrast, 42% of organizations have annual revenues of less than $30,000 and account for just 1% of all revenues.”
Small non-profits such as community-based ministries are competing with hospitals and universities, as well as comparatively massive charities such as the Canadian Cancer Society and World Vision.
The 2003 Survey also reported that 49% of non-profit dollars came from governments – federal, provincial and territorial. Unfortunately, government funding of non-profits has been decreasing steadily, leaving non-profit organizations increasingly unable to “make do.”
This has been part of an overall trend of declining government expenditure. As a percentage of GDP, government expenditures in Canada have declined from 48% in 1985 to 39.7% in 2008. This has been during a period where GDP has increased from $471 billion to $868 billion (2000 US$). In other words, there have been ever more resources available in our economy, while governments have significantly cut spending. Federal revenues are now at a level they have not been at since the early 1960s. As Armine Yalnizyan has pointed out, that was an era without universal health care, Employment Insurance, and a significant network of universities and colleges.
The cuts in government programs and services have disproportionately impacted the poor. Reductions in government transfers, cuts to EI benefits, and dramatic reductions in welfare levels and availability have all contributed to rising income inequality in Canada.
As government expenditures have been cut, so have taxes. In the past decade, corporate income taxes have been significantly slashed, in addition to personal income and sales tax reductions. These cuts have contributed to growing income inequality. An OECD study concluded that tax cuts in Canada between 2000 and 2006 mainly benefited high income groups, with those earning 150-200% of the average wage seeing their taxes reduced by 2.3% compared to a 1.1% reduction for those earning only one-third to two-thirds the average national wage. Tax changes since 2006 have continued to disproportionately benefit the wealthy.
In fact, Canada’s overall tax incidence is now an inverted u-shape, progressive through the middle of the income distribution but regressive thereafter. As a result the richest 1% of Canadians now pay a lower rate than the poorest 10% of Canadians. Total rates of tax paid range from 30.7% at the bottom of the income spectrum to 36.5% in the middle to 30.5% for the top 1% of families. Tax rates for the richest 1% of Canadians dropped four percentage points between 1990 and 2005, while tax rates for the poorest 10% increased by more than five percentage points.
And while the rich benefit the most from tax cuts, the poor pay the price in lost services. Hugh Mackenzie and Richard Shillington estimate that 80% of Canadians would have been better off if the 2% GST cut had instead been passed to local governments. If, rather than exempting another 25% of income from capital gains, the federal government had invested in improved federal public services, 88% of Canadians would have been better off. And 75% of Canadians would have been better off if provincial governments had invested in health care and education, rather than in broad-based income tax cuts.
So this is how the changing income distribution – and the ideologies and policies that have fostered it – have created the illusion that we cannot afford to look after one another anymore. Tomorrow, we’ll look at what the ramifications of this situation are.