Canada’s income gap is growing. Will Budget 2024 help affordability?

The 2024 budget tabled by Finance Minister Chrystia Freeland Tuesday promised to put money back into Canadians’ wallets. So what will that look like?

Higher interest rates last year contributed to the largest gap in income inequality since 2015, according to a new Statistics Canada report.

The findings come one day after the federal government tabled its 2024 budget, which one economist says won’t make many short-term differences in Canadians’ bank accounts.

The StatCan report released Wednesday said Canada’s higher interest rates had a “negative impact on the income and net worth of the lowest income and least wealthy households” in 2023.

The elevated rates allowed high-income households to gain higher yields on saving and investment accounts, while the struggle for low-income households to pay off debt charges heightened, StatCan said.

As a result, the gap between households in the two highest and two lowest income brackets widened to the greatest extent in eight years.

StatCan’s latest report highlights the income inequality that the 2024 federal budget largely aims to tackle. For example, the budget proposes changes to how capital gains are taxed, which aim to have the wealthiest Canadians pay tax on a bigger share of their realized profits.

Under the proposal, the inclusion rate for annual capital gains realized above $250,000 for individuals would be taxed at a rate of two-thirds, up from the current 50 per cent. Any gains under that bar would continue to be taxed at the 50 per cent rate.

From July 2022 to July 2023, the Bank of Canada’s policy interest rate had risen from 2.5 per cent to 5.0 per cent. StatCan’s latest report says that the average disposable income for lower-income households remained relatively unchanged, “as increases in interest payments on mortgages and credit cards offset gains in employment and investment income.”