FROLITICKS

Satirical commentary on Canadian and American current political issues

Increases in Canadian CEO Compensation Break New Records in 2022

For decades now, I’ve been following the steady increases in Chief Executive Officer (CEO) compensation among Canadian corporations.  Once again, the Canadian Centre for Policy Alternatives (CCPA) is reporting that compensation for Canada’s 100 highest-paid CEOs broke every compensation record on the books in 2022.  That means that these CEOs now make 246 times more than average workers made in the same year.  According to CCPA, this is up from their previous high of 243 times the average worker wage in 2021.

To put this issue in greater perspective, the same year Canadians were hard hit by the emergence of the worldwide recession in 2008, the CCPA authored a report that indicated that CEO compensation represented 174 times more than the average Canadian wage.  While the average compensation for the top CEOs outpaced inflation by 70 percent between 1998 and 2008, people earning the average income lost six per cent to inflation over the same period.

Furthermore, the CCPA report entitled Canada’s new gilded age notes that CEOs benefit from inflation because extreme CEO pay is linked to soaring corporate profits.  It’s driven by bonuses, not salaries, and those bonuses are tied to company performance, like revenue and profits.  In 2021 and 2022 as inflation soared, so did corporate profit margins.  As a direct result, CEO bonus pay also hit all-time highs as companies profited from higher prices.

Now, there are those that will say that CEOs should be rightfully awarded for the corporations’ higher profits.  However, in numerous cases, even where a corporation did not perform up to expectations, contractual arrangements still allow for CEOs to receive their bonuses.  What is most unfair is that their workers’ wages have not kept up with inflation.  The report notes that in 2022, the average worker in Canada got an average pay raise of $1,800, or three percent.  However, prices went up by 6.8 per cent in 2022, meaning workers took a real pay cut of almost four percent compared to 2021.  On top of which, the average worker has to deal with inflationary prices for such essentials as food, heating and accommodation and recent higher interest rates affecting everything, including mortgages. 

What’s worst is that when corporations are in the market to replace CEOs, they are forced to offer greater compensation at current rates in order to attract who they believe are the most qualified candidates.  This creates a continuing cycle in industries whereby the compensation for each new CEO starts at even a higher level than would have been the case in the past.

The CCPA rightly calls upon governments to address the rampant income inequality between the rich and the rest of us through taxation measures that both disincentivize extreme CEO compensation and help to redistribute CEOs’ extreme income to Canadians on the lower end of the income spectrum.  How much greater does the spread have to be between what Canadian CEOs now make and the average workers make before the federal government finally acts?  The above mentioned report suggests the creation of new top income tax brackets, the removal of corporate tax deductibility of pay packages over a million dollars, the introduction of a wealth tax and an increase in the capital gains inclusion rate.  Under the current circumstances, such measures would certainly appear reasonable and just!

Surely, the Canadian government is in a position to introduce certain tax measures to deal with this issue now.  There is little justification not to address the fact that 100 CEOs, who are overwhelmingly male, got paid a whopping average of $14.9 million in 2022.  This is double what they pocketed in 2008 (an average of $7.3 million), even when taking into consideration yearly inflation rates.

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Where Do Provincial Powers Begin and End in Canada?

To better understand the split between provincial and federal powers, given by Canada’s written constitution, one has to understand a little bit of the history.  When Canada became an independent country from Great Britain, the federal government was given a good deal of governance responsibilities.  Canada was formed as a confederation comprised of ten provinces and several territories.  However, the provinces eventually garnered a fair amount of responsibility for certain matters which were not national in scope.  Federally, the government deals primarily with inter-provincial areas such as transportation, banking, and inter-provincial commerce, as well as such international areas dealing with foreign policy, trade, defence and immigration.  So far so good.  However, during World War II, the federal government took control of areas of taxation in order to make war related payments.  These revenue areas were not returned to the provinces after the war. For this reason, the provinces have complained about their heavy reliance on access to federal funding for areas of primary provincial responsibility such as health, education and housing.  In addition, as the years passed, new areas surfaced of great importance such as telecommunications and nuclear energy, something that the federal government determined was in their jurisdiction as part of its constitutional responsibility for the peace, order and good government of Canada.  Over the course of the 20th century, legal interpretations of peace, order and good government more clearly defined the limits of federal authority over the provinces.  Often disputes over who’s responsible for what and to what extent end up in litigation by provinces and the federal government.  Like the old constitution of 1867, the new one of 1982 will remain vague in many areas until time and circumstance permit its interpretation by the courts.

All in all, the provinces continue to have substantial jurisdiction for areas such as education, health and urban affairs.  One area of contention has been the federal introduction of “equalization payments” to the provinces to help ensure that provincial governments across Canada can provide adequate services.  It was expected that the richer provinces would help to subsidize certain areas in the so-called poorer provinces.  For example, Alberta has its oil and gas industry which brings in large revenues to its coffers.  The federal government gets its share of taxes from Alberta’s energy sector and passes most along to the Maritime and other provinces to help provide some of the services that Canadians have come to rely on.  Quebec has also benefited greatly from the equalization arrangement, while Ontario has not.

Now, the current Alberta government is complaining about federal policies and laws that they feel intrude upon their provincial responsibilities or which Albertans are not in agreement with, such as gun control measures and environmental taxes on oil and gas sectors to name a few.  Recently proposed legislation introduced in Alberta would allow its cabinet to direct “provincial entities” — Crown-controlled organizations, municipalities, school boards, post-secondary schools, municipal police forces, regional health authorities and any social agency receiving provincial money — to not use provincial resources to enforce federal rules deemed harmful to Alberta’s interests.  This is a very disturbing development, suggesting even greater polarization between a province and the federal government.  Fortunately, the Alberta government has not gone as far as — like Quebec in the past — to suggest a potential separation from Canada’s confederation.

However, Alberta’s stance appears to be somewhat similar to Quebec’s political moves in the sixties, seventies and eighties where provincial parties promoting Quebec’s independence from Canada had emerged.  Failing to obtain a majority in two referendums on independence, the Quebec movement slowly disappeared over the last decade.  Instead, Quebec has attempted to secure more provincial control over former federal jurisdiction, such in such areas as immigration and public pensions plans.  Indeed, Quebec recently passed several contentious laws dealing with French language rights and secularism in its public sector.  The courts have already begun to examine appeals to such legislation based on possible violations under human and rights laws.

What all this amounts to is the power to govern.  The federal government has to play a fine line between what powers can be shared and what policies best serve all Canadians equally.  There is little doubt that provincial premiers will continue to gang up on the Prime Minister, particularly when to do so is in their interests.  The PM on the other hand has the difficult and delicate task of maintaining a strong national presence in governance in support of the peace, order and good government of Canada.

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Canadian Federal Election is Here, But What About the Issue of Fairness in Taxation?

A recent release of secret files of the U.S. Internal Revenue Service (IRS) revealed that some of the wealthiest billionaires in the world — including Jeff Bezos, Elon Musk, Michael Bloomberg and George Soros — hadn’t paid a cent in income tax in some years, and paid very low rates of tax in general.  The files indicated that the wealthiest 25 American billionaires paid an average income tax rate that worked out to just 3.4% of their increase in wealth in the five years from 2014 to 2018.  That’s far less than the average American or Canadian paid in income tax as a share of their income or their increase in wealth.  The tax system in both countries is obviously broken, and it could never really pretend to be progressive in its current form.

According to most tax experts, there’s little doubt that Canada’s ultra-wealthy and billionaires also pay very low rates of tax on their income and wealth.  Our tax system has many similarities with the U.S., similar ways to dodge taxes, and Canada is the only major country without some form of wealth tax.  And we’re talking big bucks!  As the non-profit Canadians for Tax Fairness (C4TF) notes: “Canada’s 1% now control over a quarter of the country’s wealth — over C$3 trillion.”  The existing massive inequality in wealth grew even bigger during the pandemic, as corporations and wealthy individuals prospered while many Canadians struggled to simply maintain their standard of living.  Canadian corporations received taxpayer-funded government subsidies while paying out billions to their shareholders.

A recent book by Jonathan Gauvin and Angella MacEwen, entitled “Share the Wealth”, highlights the injustices found in the current tax system.  The book is highly recommended.  It  points out that more and more countries are applying new successful taxes on the uber-rich.  Even the Biden administration is promoting higher corporate taxes.  The concept of a wealth tax on the richest of the rich is increasingly becoming accepted by Americans and Canadians.  In addition, most of us would like to see the current tax loopholes for individuals and corporations closed.  This alone would bring in billions dollars into the federal treasury, and could be used to help fund such things as much needed infrastructure improvements, national child care initiatives and pharmacare programs. 

All three major federal parties have expressed their willingness to introduce tax fairness measures if elected.  Since its establishment in 2011, the C4TF has brought forward issues like taxing the wealthiest 1%, closing tax loopholes, tackling tax havens, having corporations pay their fair share, and taxing digital giants in Canada.  All the necessary rationale for change exists.  Isn’t it about time that whichever party forms the next government, it will put the issue of tax fairness front and centre in parliament.  Let’s hopefully see the next government ‘walk the talk’ in support of the needed changes when it comes to this important issue!

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