A report from the Parliamentary Budget Officer (PBO) has revealed that COVID-19 supports provided a boost to Canadians’ spending power during the pandemic. Additionally, the report states that wages for higher earners have exceeded inflation.
According to PBO Yves Giroux, “By the end of March 2021, the launch of, or increase in, income benefits associated with the COVID-19 pandemic bolstered the purchasing power of all households. By the end of the first year of the pandemic, disposable income had increased faster than consumer prices.”
However, as pandemic supports were phased out and costs began to rise, the situation changed. Canada’s auditor general, Karen Hogan, estimated in late 2022 that $4.6 billion in COVID-19 benefits was paid to ineligible individuals, and further investigation is needed for $27.4 billion in payments to individuals and businesses.
Inflation in Canada reached its peak in June 2022, with an annual rate of 8.1 percent, as reported by Statistics Canada. At that time, COVID-19 benefits had ended, and the combination of income tax and rising inflation resulted in a 5.7 percent decrease in purchasing power for all households.
The PBO further emphasizes that households in the bottom 20 percent of income experienced the greatest decrease in purchasing power at 25 percent, while those in the highest 20 percent only experienced a 0.5 percent decrease.
However, there is some positive news. By the end of December 2022, nearly three years after the start of the pandemic, rises in disposable income surpassed the impact of higher inflation for all households, improving purchasing power by five percent. Giroux notes that “households in the lowest income group relied significantly on government transfers to preserve their purchasing power.”
In the fourth quarter of 2022, purchasing power increased by 9.4 percent for households in the first two income brackets compared to pre-pandemic levels. Disposable income also rose relative to consumer prices by 16.7 percent for all Canadians and 10.9 percent for the first two income brackets. The report also highlights that wage increases alone exceeded the rate of inflation for households in the three highest income levels.
In conclusion, while COVID-19 supports initially boosted Canadians’ spending power, the phased withdrawal of these supports and the impact of inflation have had varying effects on different income brackets. Nevertheless, overall purchasing power has shown improvement, especially for those in higher income brackets.
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