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75-203-XIE
Analysis of income in Canada
2002


Highlights

2002 income: an overview

  • After five consecutive years of growth, after-tax family income remained virtually unchanged between 2001 and 2002, as the three main components — market income, government transfers and personal income taxes — each remained more or less stable.

  • After-tax income for families of two people or more amounted to an estimated $60,500, virtually unchanged from $60,300 in 2001, after adjusting for inflation.

  • This lack of growth was in contrast to the increase of 3.2% in annual average after-tax income for these families between 1996 and 2001.

  • Family income is correlated with economic conditions. After reaching a peak at $53,900 in 1989, average family income declined through the recession of the early 1990s and stayed below $52,000 up to and including 1996. Since then, it has rebounded in step with the recovering economy.

  • The low-income rate among families of two people or more edged up slightly in 2002 after five consecutive years of declines. A small increase in the low income rate was experienced by those aged 18 and over. However, the proportion of children aged under 18 and living in low income was marginally lower, continuing its long-term decline.

  • Unlike most other family types, average after-tax income declined in 2002 for single-parent families headed by women. However, their income gains were among the strongest between 1996 and 2002 because of the increase in labour force participation by single mothers.

  • For unattached individuals, after-tax income amounted to $25,900 in 2002, up 2.4% from 2001 and 17% from 1996. An estimated 1 million of these individuals lived in low income in 2002, about 25% of the total, down from 34% in 1996.

Main components all hold relatively steady

  • The three main components of after-tax income - market income, transfers from governments and personal income taxes - were all relatively unchanged from 2001.

  • Market income is the sum of paid employment and self-employment earnings, and income from investments and pensions, and represents the lion's share of family income, particularly for non-elderly families. In 2002, it remained at the same average level as in 2001 (approximately $66,000) for families of two or more people. This compares with an annual average gain of 2.7% during the previous five years.

  • Families of two or more people paid an estimated $12,800 on average in personal income taxes in 2002, about $300 less than in 2001 after adjusting for inflation.

  • This decline, equal to about 2.3%, came on the heels of a 7.1% decrease in 2001 when federal and provincial tax changes included increases in exemption and income threshold levels, and cuts in tax rates. The implicit tax rate for families was 17.4% in 2002, down from 17.8% in 2001.

  • Government transfers cover a range of programs such as Employment Insurance, old-age security, child tax benefits and so on. They remained virtually unchanged from 2001 at an estimated $7,300. In 1996, transfers amounted to $7,900 on average.

  • The number of families receiving Employment Insurance benefits rose 8.4% in 2002, following an 11.2% gain in 2001. Average EI benefits rose from $5,500 in 2001 to $5,900 in 2002. These increases are attributed mainly to the program changes that expanded parental benefits.

After-tax income down for female single-parents

  • On average, the after-tax income for the estimated 500,000 single-parent families headed by women declined from $32,500 in 2001 to $30,800 in 2002 mainly due to a drop in their market income from $27,300 to $25,600.

  • Even when including the decline in 2002, the annual average rate of increase of market income for female lone-parent families was 5.5% between 1996 and 2002. This was one of the largest increases among the different family types. As a result the 2002 after-tax income of female single parents was still much higher than in 1996 ($25,300).

Continuous growth of after-tax income for senior families

  • Among senior families — those in which the major income recipient was aged 65 and over – after-tax income was estimated $43,400, up from $39,000 in 1996.

  • After-tax income of senior families steadily grew for the past five years, primarily due to the increase of their market income. Between 1996 and 2002, after-tax income for senior families has increased 11%, compared with 18% for all younger families.

  • In 2002, senior families received on average an estimated $20,200 in government transfers, accounting for 41% of their total income before taxes.

Low-income rate among children down for sixth straight year

  • Although the change is not significant the low-income rate among children under 18 based on after-tax income, declined for the sixth consecutive year in 2002.

  • An estimated 702,000 young people, or 10.2% of the total, were living in low-income families. This level was down from 713,000 children in 2001 (10.4%).

  • The proportion of children living in low-income families has been declining since 1996, when it peaked at 16.7%. This decline follows overall improvements in the Canadian economy during the late 1990s.

Slight rise in low-income rate of families

  • After five consecutive years of declines, the proportion of families living in low income rose slightly to 7.0% in 2002 from 6.6% the year before. The 6.6% level in 2001 was the lowest rate for families since 1980.

  • An estimated 605,000 families were in low income in 2002, compared with 564,000 in 2001 and 870,000 in 1996.

  • The long-term downward trend in the low-income rate reflected a healthy labour market in the latter part of the 1990s, as well as recent increases in transfers and cuts in income taxes.

  • Of the estimated 500,000 lone-parent families headed by women, 34.8% were in low income in 2002, up from 30.1% in 2001. This was the first increase in the low-income rate for these families in five years. Their low-income rate peaked at 49.0% in 1996.

  • For the population as a whole in the 10 provinces, about 2.9 million people, or 9.5%, were living in low income in 2002.

Income inequality among families remained stable

  • One measure of income inequality is the ratio of average market income received by the 20% of families with the highest income compared with the 20% of families with the lowest income.

  • In 2002, this ratio was about 11.7 to one. That is, the 20% of families with the highest income received about $11.70 in market income for every $1 received by the 20% with the lowest.

  • However, taxes and transfers moderate the differences between the quintiles of the income distribution.

  • In 2002, after taxes and transfers, the one-fifth of families with the highest income received $5.20 in market income for every $1 received by the one-fifth with the lowest. Historically, this ratio remained stable at about 4.8 to 1 for several years up to 1995. It then rose in 1996 and 1997 to 5.3 and, since then has remained at 5.2 to 5.3.

Provinces: After-tax income remained stable in most cases

  • Families of two people or more recorded at least marginal increases in after-tax income in most provinces in 2002, but there was the occasional exception.

  • In Alberta, after-tax income declined from $65,600 in 2001 to $64,300 in 2002. On the other hand, the proportion of these families living in low income in Alberta fell from 5.9% to 4.8%.

  • The biggest gain was in Nova Scotia where after-tax income for families of two or more people rose from $49,800 to $51,500.

  • Families of two or more people in Newfoundland and Labrador received government transfers estimated at $11,300 on average in 2002, highest in Canada and well above the national average of $7,300.



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