In the current chaotic political climate, one thing is certain: prices of some goods will rise. We don’t know exactly by how much since Trump’s threatened tariff rates and Canada’s retaliatory responses change by the day. However, we can be sure that tariffs will raise prices and some will seek to benefit more than they should. Canada needs to be ready to impose steep taxes on excess profits to prevent our recent history of predatory pricing from repeating itself.
During the economic pandemonium caused by the pandemic and Russia’s invasion of Ukraine, many of Canada’s largest corporations profited like never before. Prices on many household goods like food and fuel rose steeply in 2021 and 2022, with supply chain disruptions and government spending being proffered up as the sole causes. However, in 2022, the year that the Consumer Price Index (CPI; an index of the prices of goods purchased by a typical household) peaked at 6.8%, Canadian corporate profits peaked at $685 billion. Before the pandemic, profits had never topped $433 billion.
Corporations, of course, are merely a legal construction — ultimately they are owned by people, disproportionately the wealthiest among us. Unsurprisingly, then, the incomes of the wealthiest top 0.01% also spiked during the pandemic, hitting an average of $12.5 million in 2021, never having surpassed $9 million before the pandemic.
This phenomenon of rising prices directly benefitting the wealthy is not new, nor is it contained to extreme situations such as global health crises and war — it is a pervasive economic trend of the last four decades. Our new report, Canada’s affordability divide, finds that CPI has risen faster than market incomes for half of working Canadians since 1982. Over the same period, the market incomes of the top 0.01% have risen six times faster than those in the bottom half of Canada’s income distribution.
Although Canada’s real GDP per capita has grown by 70% since 1982, the real incomes of half of Canadians have increased at less than half that rate. The missing economic growth has largely been captured by the top 1%.
The disproportionate rise of prices of essential goods, especially housing, is also a long-standing trend. Since 1982 an index of housing prices has risen 981% while incomes of the bottom 50% of Canadians have increased only 254%. The share of shelter costs in a typical household’s budget has increased from 23.4% in 1982 to 31.4% in 2021, putting increasing strain on working households.
These trends are not inevitable, but will continue if we don’t make drastic changes. Over the past 50 years, our economic policy has been guided by the idea that government should do less and markets should do more. Rather than increasing living standards, these policies have shifted power away from workers and towards the wealthy and large corporations This power shift has positioned the wealthy to be able to profit from increasing prices while workers bear the higher costs.
So as we watch the tariffs raise prices, we have to ask ourselves - do we want to allow the increased prices to be captured by the wealthiest among us, again? When that money is sorely needed to fund non-market housing, a just transition, and improve our public services?
If we want to make a different choice this time, we can take some lessons from history. During both world wars, Canada implemented excess profits taxes on corporate profits above pre-war levels. Many other countries, including the United Kingdom, have enacted similar policies in response to profiteering that resulted from the pandemic and the Russian invasion of Ukraine.
An excess profits tax now would ensure that corporations and their wealthy owners are not able to win the tariff war at the expense of the rest of us and raise the public funds we need to build a sovereign, democratic future where no one is left behind.
