Vol. 3, #2 – The New Canada Child Tax Benefit

December 1998

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Background

The 1997 Federal budget called for a change in the way the government provides financial support to families with children. According to the budget, the goal is “an enriched and simplified federal child benefit as a platform for provincial and territorial supplementary benefits to low-income working families.”

The announcement of this supplement for working poor families comes after a decade and a half of massive and regressive cuts to social programs that hit those on low-incomes the hardest. These cuts are evidenced by an increase in the number of poor children, despite the passage of a unanimous Parliamentary Motion in 1989 to “seek to achieve the goal of eliminating poverty among Canadian children by the year 2000.”

Instead, the percentage of Canadian children in poor families increased from 15.3% in 1989 (one in seven children) to 21% in 1996 (one child in five). Since 1989, the number of poor children has increased by over half a million (564,000) or by 60% (from 934,000 to 1,498,000 in 1996).

What do we mean by poor? In Canada, Statistics Canada Low-Income Cut-Off (LICO) is the most widely used measure of poverty. It is calculated by looking at incomes and average expenditure on food, shelter and clothing for different family sizes by size of community. The LICO is often referred to as the poverty line. For example, using the 1997 LICO figures, a single parent with one child on an income of $18,664 or less in Halton would be living below the poverty line and would be considered poor.

In Halton poverty has increased. Using the 1996 Statistics Canada Census data, family poverty has increased 52% in Halton from 4,700 poor families in 1991 to 7,140 in 1996. Many of these families are supported by social assistance. All families on social assistance survive on limited incomes that are below the poverty line. For example, a single parent with one child under 12 years of age on social assistance in Halton receives a maximum of $11,484 a year, which is $7,180 below the 1997 poverty line.

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What is the New National Child Tax Benefit?

The new Canada Child Tax Benefit, which came into effect in July of 1998, amalgamates the previous Child Tax Benefit and the Working Income Supplement and adds a new supplement: the National Child Benefit Supplement. This Supplement is an initiative directed at working poor families.

Under this initiative, the Federal Government will contribute to the Canada Child Tax Benefit by providing an additional $850 million in 1998, $425 million in July 1999 and $425 million in July 2000.

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Objectives

The Canada Child Tax Benefit will direct money to Canadian families who live below a set income level. The Federal Government has three objectives for the program:

• to reduce child poverty;
• to promote attachment to the workforce; and,
• to provide harmonization of programs and avoid duplication.

 

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Eligibility

Families are eligible for the new Canada Child Tax Benefit monthly amount if:

• they have an annual net income under $25,921
• they have children under 18 years of age
• the child lives with the applicant
• if the applicant has filed last year’s income tax return

 

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Monthly Benefit Amounts

Under the new National Child Tax Benefit, families are supported financially up to the maximum amounts displayed in the table below.

The maximum benefits apply to families with an annual net family income up to $20,921. For families with incomes between $20,921 and $25,921 benefits are paid on a sliding scale. Families with income above $25,921 will not receive the National Child Benefit Supplement component but will continue to receive the same amount of Child Tax Benefit they received under the old Child Tax Benefit.

The implementation of this program involves three steps:

1. The federal government will increase its benefits for low income families with children with the new National Child Benefit Supplement.

2. Corresponding with the increased federal benefit, provincial and regional governments will decrease social assistance payments for families with children by the same amount.

3. Provincial and regional governments will re-invest these newly-available funds in complementary programs targeted at improving work incentives and services for low-income families with children. Since in Ontario, the provincial government cost shares social assistance with municipalities 80%/20% respectively, the provincial government will receive 80% of the reinvestment funds and municipal governments 20%.

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Concerns About the National Child Tax Benefit

1. A comprehensive approach is needed

Without a commitment to a comprehensive anti-poverty agenda, the Canada Child Tax Benefit is a band-aid solution. Children are poor because their parents are poor. Eliminating child and family poverty will require a comprehensive strategy that must include other essentials such as adequate income, job creation, housing, child care, training and post-secondary education.

2. Provinces

Any money the provinces “save” on social assistance costs as a result of the Canada Child Tax Benefit is meant to go towards programs aimed at assisting families living in poverty. Without national standards, provinces are not obliged to ensure those funds go towards alleviating poverty. Different provinces are reinvesting funds in different programs. The record of some provincial governments provides considerable reason to be concerned about where funds are being diverted. For example, Ontario will spend $100 million of the $117 million 1998/99 National Child Benefit Supplement reinvestment funds on the Ontario Child Care Supplement for Working Families. Child care is a fundamental barrier to many poor families entering the labour market. However, if these programs are funded, then they should be paid for by the whole community and/or by other levels of government rather than money deducted from already poor families.

3. Unfair to poorest of the poor…families on welfare…

People on welfare will receive no additional funds. While the funds will initially be distributed to every child below a specified income level, provincial and regional governments will deduct that amount from current welfare payments. This means that welfare-poor children and their families will not gain any financial relief from the new Benefit. We have real concerns regarding the implications of this plan, particularly the segregating of working poor from welfare poor through differential treatment.

There would be no reason to deduct the Benefit from regional welfare payments if the Benefit was truly designed to alleviate child poverty. The Benefit serves to reinforce current stereotypes related to the “deserving and undeserving poor.” Stereotyping of the poor is one of the major obstacles to the implementation of real anti-poverty measures. The government�s targeting of “working poor” under this Benefit plan does nothing to eradicate that division in the public eye.

4. No real help to the working poor

The federal government has tried to justify the lack of support for families on social assistance by pointing to the need to provide additional assistance to children in working poor families. Unfortunately, for a number of working poor families, the introduction of the new Canada Child Tax Benefit will leave them even worse off than the previous system of benefits.

Working poor families with one child which received the maximum Working Income Supplement will get $395 less a year from the new Child Benefit that they would have if the federal government had proceeded with its 1996 Budget proposal to double the Working Income Supplement by 1998.

Working poor families with two children will be only $10 ahead under the Canada Child Tax Benefit than they would have been if the Working Income Supplement had been increased.

5. Without national standards, there is no guarantee that programs will be adhered to

Instead of enhancing meager social assistance payments, the new Canada Child Tax Benefit is considered as income and the Child Benefit Supplement is diverted from social assistance payments. This diverted money is supposed to be targeted to other services to offset the hardships faced by low-income families, but there are no guarantees to ensure this will happen. Designing well crafted program interventions demands a holistic understanding of poverty and the crippling circumstances of the poor.

With the introduction of the Canada Health and Social Transfer (CHST), Ottawa relinquished its role in setting standards. Government transfer programs have played an important role in supporting families with low market earnings, and have helped to offset the income inequality left by employment earnings alone. Today, negotiated processes in which the terms and conditions of new agreements are jointly hammered out, are done behind closed doors, and without public debate. There is little assurance that provincial partners – already hurting from down loading of human services – will provide a uniform national program.

6. Too little too late

The $850 million in new federal spending announced in the 1998 budget is only a drop in the bucket compared with the billions of dollars the federal government spends on other programs, the additional billions the federal government hands out in tax reductions, and does not replace the $7 billion Ottawa has cut from the federal social transfers to the provinces under the CHST.

The Canada Child Tax Benefit does not appear to offer new gains, and does not come close to making up for ground already lost. As a result of a decision in the late 1980’s to partly remove inflation protection from the existing Child Tax Benefit, its value has been eroded by up to $150 million a year. The government’s announced $850 million down payment ($600 million in new federal spending) will only serve to bring poor families closer to where they were in 1993.

7. The benefit will erode over time

Partial de-indexation has gradually eroded the value of child benefits and offset increases that the Conservative Government made to the refundable child tax credit in the mid 1980’s. The same will happen to the Canada Child Tax Benefit if it remains partially indexed; a portion of its gains will be lost to inflation each year. The inflation over 3% formula, in operation for more than a decade, means that the value of child benefits declines in real terms each year inflation is below 3%. The Conservative Government introduced this negative feature into the federal benefits, the personal income tax system and the refundable GST credit; and the Liberals have continued the policy.

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What can we do in Halton?

There is an expectation on the part of the federal and provincial governments that municipalities re-invest their 20% deduction from social assistance payments (often referred to as “savings”) in programs which prevent and reduce the depth of child poverty and/or promote attachment to the workforce. Halton Region estimates that 1998 and 1999 gross “savings” are $90,000 and $200,000 respectively. Recommended reinvestment strategies include: additional child care support, Learning, Earning and Parenting Program (a new component of Ontario Works), Healthy Community Funding Consortium, Healthy Babies, Healthy Children Program and Ontario Works Dental Program.

As previously mentioned, there are no national standards that municipalities have to adhere to in the federal-provincial reinvestment framework. Both the Provinces of Newfoundland and New Brunswick chose not to deduct any of the federal National Child Benefit Supplement from social assistance recipients.

We urge the Province of Ontario and the Region of Halton to consider the impact of reinvestment strategies on the poorest of poor families in Halton – those on social assistance. We are already aware of the alarming rate in which family poverty is increasing in Halton – a 52% increase between 1991 and 1996. There is nothing in the federal-provincial re-investment framework to disallow putting the municipal and provincial “savings” from social assistance deductions back into the pockets of social assistance recipients.

Although many programs and services for the poor need adequate investment, the Council believes one of the most effective ways to help poor families is to increase their income. The action we recommend involves very little money, probably $10 per month for a parent with one child. This is far better than deducting the money from welfare poor children to pay for services or programs they may or may not receive.

Halton has the opportunity to send a message to Halton parents and to other levels of government:

 

Every child who is living in poverty should benefit from a federal child income plan without discrimination.

 

Sources:

 

• National Child Benefit Supplement Fact Sheet. The NCBS Action Group.
• NDP Backgrounder on the National Child Benefit. Libby Davies, M.P., Critic for Social Programs, Children & Youth and Post-Secondary Education. February 1998
• Health and Social Services Report No. SS-50-98. Commissioner of Social and Community Services, Regional Municipality of Halton. November 19, 1998
• Report to Metro Toronto Community Services and Housing Committee. Metro Toronto Campaign 2000. November 5, 1998
• From the Kitchen to the Boardroom table: The Canadian Family and the Work Place. The Vanier Institute of the Family, 1998

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Produced by the Community Development Halton
860 Harrington Court
Burlington, Ontario L7N 3N4
(905) 632-1975, (905) 878-0955; Fax: (905) 632-0778; E-mail: office@cdhalton.ca