Canada’s income and wealth gaps reached new highs in the third quarter of last year, Statistics Canada data shows. While economists say the country has yet to slip into a K-shaped economy, they warn a widening class divide could have longer-term economic and political consequences.

The income gap widened to 47.5 percentage points—its highest level since 2010—driven largely by weak wage growth for low-income households. Meanwhile, recent interest rate cuts reduced that group’s savings by 21 per cent, while their average disposable income fell 0.5 per cent from a year earlier, according to Statistics Canada figures.

In contrast, the richest Canadians saw their incomes grow 4.3 per cent from a year earlier, thanks to higher wages, including from self-employment. They were also the only group to post investment gains, the agency’s data shows.

That growing class divergence mirrors the “K-shaped” economy, a term popularized during the pandemic to describe widening income disparities in the U.S. The upper arm of the “K” represents higher-income households whose wealth has grown, while the lower arm reflects lower-income groups’ struggle with stagnant wages and steep prices.

Economists broadly agree that Canada has so far avoided such a split. One key reason has been the steady increase in consumer spending across all income groups over the past few years, CIBC senior economist Andrew Grantham said in a note to clients last month.

However, different forces are sustaining that spending resilience. The poorest households have been dipping into their savings to cover daily expenses, while the richest Canadians—who hold less wealth and income than their U.S. counterparts—have remained cautious, Grantham said in the report.

Recent interest rate cuts, personal income tax reductions and a surge in the Buy Canadian sentiment have helped keep “some spending in the country,” Douglas Porter, chief economist at BMO, wrote in a report.

Canada’s social safety net and progressive system of wealth redistribution have also helped blunt a sharper divide, said Rebekah Young, vice-president of inclusion and resilience economics at Scotiabank. 

“That gap has just widened further as the U.S. has rolled back [progressive] measures,” Young said. “The inequality arguments are far less pronounced in Canada than the U.S.”

But Dan Ciuriak, a fellow at the C.D. Howe Institute and former deputy chief economist at Global Affairs Canada, warned that the foundations of a K-shaped economy may already be forming beneath the surface. 

Canada could feel a “sympathetic echo” of the U.S. economy, he warned, where tech-driven sectors lift wealth at the top while more workers face unstable economic conditions.

That risk is evident in the country’s widening wealth divide, measured as net worth, or the total value of financial and non-financial assets like pensions, insurance and real estate, minus debts.

In the third quarter of last year, that gap widened to 62.4 percentage points, with households in the top 20 per cent holding 65.5 per cent of Canada’s total net worth—or an average of $3.5 million per household. The bottom 40 per cent, meanwhile, controlled just 3.1 per cent, or about $82,100 per household, according to Statistics Canada data.

The figures also point to a generational split. Households aged 35 and under saw the fastest gains of any age group, buoyed by strong equity market returns.

But that momentum may not last forever. “Financial markets are cyclical,” Young warned, noting that recent gains have been largely driven by rallies tied to the AI boom.

Meanwhile, older and lower-wealth Canadians remain heavily dependent on the housing market. Ciuriak said real estate has historically been their main source of wealth, leaving them with limited flexibility to invest in financial markets.

“As a country, I think that’s something we have to think about,” Young said. “How do we keep Canadians adequately sheltered without seeing housing primarily as a capital accumulation vehicle?”

Between 2024 and 2025, Canada’s richest 40 billionaires grew their wealth by almost $95 billion, or more than 20 per cent, according to a recent Oxfam Canada report. 

The growing gulf between the ultra-rich and the rest of the country could have significant consequences, economists told The Logic. 

Although several affordability measures have been rolled out since Prime Minister Mark Carney’s election, Ciuriak described them as a “band-aid” fix, arguing they do little to address the structural drivers of economic inequality.

Instead, he said, the problem lies within the country’s tax system. With wages making up a shrinking share of national income, relying on labour taxes to fund public services is no longer sustainable, Ciuriak argued, saying Ottawa should ultimately shift more of the burden onto capital taxes.

Without deeper reforms, Ciuriak warned, mounting economic strain could spill into political instability. 

“You [will] see an erosion of the tax base based on wage income, which undermines the provision of social services, which undermines the legitimacy of democratic governments, which drives populists,” he said.

Young said the federal government’s recent focus on boosting productivity and expanding employment opportunities across sectors could help narrow disparities, but that such a strategy may take years to produce tangible results.