Will the 1998 Federal Budget Bring Down Canada's Social Deficit?

March 1998

INTRODUCTION

The Canadian Council on Social Development anticipated that the Federal Government would use its 1998 budget to begin tackling Canada's social deficit. With the ledgers finally balanced and the country's economy growing, Ottawa should have established a rigorous plan in this year's budget for bringing down Canada's social -- or human -- deficit. This is the deficit that has been left behind for many Canadians as they are struggling to cope with smaller social programs --largely due to cuts in federal funding intended to reduce Ottawa's fiscal deficit. The social deficit is also the result of our economy's transformation from its roots in manufacturing and resource development to one based on information traded globally at the click of a computer key.

Budget day therefore brought far less good news for Canadians than the CCSD had expected, especially for those who are hurt most by the social deficit. There is some assistance to low and moderate-income Canadians in the form of tax relief and aid for higher education in this year's budget, but there is no timetable or a coordinated plan of action for eliminating our social deficit. It is time for Ottawa to start taking remedial action to correct some of the worst consequences of the social deficit.

WHAT IS THE SOCIAL DEFICIT?

Today about 1.3 million Canadians are looking for but can not find work. And in 1996 about 5.3 million individuals had incomes so low that they were living in poverty. As the large reductions in fiscal transfers from Ottawa are felt in the provinces, access to universal health, education and social service programs is decreasing.

At the same time, income disparities among Canadians are growing. This is demonstrated when one looks at the incomes of the richest 20 per cent of the population and the poorest 20 per cent. Of 10 leading industrialized countries, Canada has the fifth greatest disparity between our rich and poor citizens. The United Nations' 1997 Human Development Report states that Canada's richest 20 per cent of households have seven times more purchasing power than do our poorest 20 per cent. In Japan the corresponding figure is four times more purchasing power, while the same figure for the Netherlands and Sweden is five times more purchasing power.

Income Disparity in Selected OECD Countries, 1980 to 1994 (PPP$)
CountryPoorest 20%Richest 20%Size of disparity
Japan (1) 8987 38738 4X
Netherlands (2) 7109 31992 5X
Sweden (3) 7160 33026 5X
Germany (4) 6594 37963 6X
Italy (5) 6174 37228 6X
Canada (6) 5971 42110 7X
France (7) 5359 40098 8X
New Zealand (8) 4264 37369 9X
US (9) 5800 51705 9X
UK (10) 3963 38164 10X
Notes: The number beside each country indicates its ranking by size of income disparity. The number in the "Size of disparity" column refers to the actual size of the income disparity, for example 4X means the incomes of people in the top 20% are 4 times greater than those in the bottom 20%. PPP$ = purchasing power parity.
Source: United Nations Development Programme, Human Development Report 1997, "Profile of human poverty," p.53.

However, in the United States, New Zealand and the United Kingdom -- where social programs have been cut significantly over the past decade -- the differences between the two groups are higher than in Canada. For the first two countries the richest 20 per cent of their populations have nine times more purchasing power than their poorest 20 per cent, while in the United Kingdom the corresponding figure is 10 times more purchasing power. Canada's middle standing demonstrates how programs like Employment Insurance (EI), health care and social assistance have been important in offsetting the effects of low wages or insecure work which, in turn, reduces the risks of unemployment and poverty.

BRINGING DOWN THE SOCIAL DEFICIT

The CCSD is not advocating that Ottawa should spend its way into another fiscal crisis. Rather, the Council is suggesting that fiscal and social responsibility have to be balanced. In the federal budget, the CCSD was looking for measures to:

  • improve employment opportunities for Canadians,
  • improve their income security,
  • increase access to postsecondary education,
  • improve child well-being, and
  • develop an annual social report.

AN ASSESSMENT OF THE FEDERAL BUDGET'S RESULTS

1. Improved Employment Opportunities?

While unemployment has decreased from a rate of 11.2 per cent in 1993 to below nine per cent today, the number of unemployed Canadians remains far too high. The 1998 federal budget focused on the improvement of human capital by increasing access to post-secondary education --a laudable goal--but this is problematic if there continues to be a limited supply of jobs for highly educated and skilled workers.

The only direct job creation measure that Ottawa proposes for 1998-99 is a commitment of $380 million for youth employment programming, up from $353 million in 1997-98. This will assist about 100,000 youth to gain work experience in community projects, internships and summer career placements. While this is helpful --particularly when combined with the budget's proposal of an EI premium holiday for employers that is intended to encourage the hiring of young Canadians-- little of this youth employment funding will lead to full-time permanent employment.

The Federal Government could have allocated money in this year's budget for the creation of useful, long-term jobs, by designating money to community economic development (CED) organizations for infrastructure and wage subsidies. Such an initiative would have allowed community organizations to hire young Canadians. By assisting the creation of CED corporations, worker co-ops and similar organizations, Ottawa could have sparked needed community activities and increased consumer spending at the same time as it created jobs.

The cost of federal investment in the voluntary sector would have been small. For example, if Ottawa had provided support to 6,000 CED projects at $50,000 each, requiring recipients to raise matching private sector and voluntary contributions, it would have created up to 30,000 jobs at a cost of $300 million to the treasury.

2. Improved Income Security for Canadians?

Canadian income security programs have been scaled back in recent years, through a combination of de-indexing tax credits such as the Child Tax Benefit, tightening eligibility requirements for programs such as Employment Insurance and Canada/Quebec Pension Plan disability benefits, and reductions in provincial social assistance triggered in large part by reduced federal transfer payments under the Canada Health and Social Transfer. Since 1994 Ottawa has cut $6.3 billion in health and social program transfers under the CHST. This year's budget does not restore any of the cut funds, but it does reduce the amount of funds originally planned as an additional cut in 1998-99.

Overall, Canada's income security programs have been weakened in recent years. The 1998 federal budget offers some minimal improvements to them, as detailed below:

a new $400 tax credit for individuals caring for infirm family members who live with them; and tax credit assistance for persons with disabilities and those who assist them.

Assistance to Canadians caring for infirm family members at home represents the budget's largest income security expenditure. Over the next three years about 450,000 individuals providing in-home care will receive $275 million in additional tax credits. This is a relatively small but positive recognition of the unpaid work by Canadians, mainly women, who provide valuable home care to their family members. The Council urges the government to extend this measure to others who are providing in-home care, but do not reside with infirm relatives.

Although Ottawa has committed $15 million over the next three years in further tax assistance for persons with disabilities and those who support them, this amount is small when compared with the full range of federal financial and program improvements that have been recommended by various organizations representing persons with disabilities. As well, the tax assistance needs to be considered in the context of the large-scale reductions of services to persons with disabilities at the provincial level prompted in large measure by CHST cuts.

Finally the CCSD recommends that Ottawa conduct a full scale review of the EI program, with the aim of extending coverage to far more than the current 43 per cent of unemployed Canadians who now receive benefits. According to the government's first annual EI Monitoring and Assessment Report, this rate has fallen dramatically from 83 per cent in 1989. For an alarmingly large number of Canadians, the loss of a job is compounded by the lack of replacement income.

Recently Human Resources Development Minister Pierre Pettigrew expressed an interest in enlarging the definition of those eligible to receive EI assistance, in particular to include the self-employed (La Presse, February 26, 1998). This is one important group of workers whose situation should be considered during a full-scale review of EI eligibility requirements. Also of concern are the growing number of part-time and temporary workers who are ineligible for EI benefits.

3. Improved Access to Postsecondary Education?

The budget's centrepiece is an endowment of $2.5 billion to the Canada Millennium Scholarship Fund. Over 10 years the Fund will award 100,000 scholarships a year averaging $3,000 each to students who "need help in their studies and demonstrate merit."

This fund will help to improve access to postsecondary education, so long as need is its most important eligibility criterion. The fund's eligibility pool should consist of the reported 550,000 students, out of 1.3 million (Globe and Mail, February 25, 1998), who currently qualify for Canada Students Loans, along with needy potential students in high school and in the labour force.

Two other important components of the Canadian Opportunities Strategy are Canada Study Grants and the Canada Education Savings Grant. The CCSD approves the introduction of the Canada Study Grants, which will provide up to $3,000 per year to 25,000 students with dependents. This program will provide welcome financial assistance to needy students at a total cost of $300 million over the next three years.

Under the Canada Education Savings Grant program, Ottawa will provide a grant of 20 per cent (or up to $400) on the first $2,000 made annually to a Registered Education Savings Plan that will be paid to students when they enroll in postsecondary education. This initiative will be of assistance, but only to those families who are capable financially of saving for their children's education.

Finally, to improve access to universities and colleges for needy Canadians, Ottawa should consider increasing fiscal transfers to the provinces for postsecondary education, health and social services under the Canada Health and Social Transfer (CHST). To date the Federal Government has raised the floor for cash payments under the CHST from $11 billion to $12.5 billion in 1997-98. However this floor is still much less than the $18.7 billion CHST cash transfer made in 1994-95 at the beginning of the Chrétien government's first mandate. This funding decrease contributed to the 41 per cent Consumer Price Index increase in university and college tuition fees that occurred between 1992 and 1996--much more than the six per cent increase in inflation registered during the same time period.

4. Will the budget improve Child Well-Being?

This year's federal budget continues the effort to reduce Canada's social deficit by increasing government spending on the National Child Benefit, a tax credit for low-income families with children. Last year Ottawa announced that it would consolidate the Child Tax Credit and the Working Income Supplement into the new National Child Benefit, and that it would spend an additional $850 million on this benefit once it comes into effect by July 1998. It also committed to an increase in spending of $850 million on the benefit before the end of this Parliament's mandate. This year's budget specifies when this second allocation will be made: $425 million by July 1999 and a further $425 million by July 2000.

To put Ottawa's initiative into perspective, the additional $850 million for the NCB that will come into effect in July 1998 will increase total child tax benefit spending to about $6 billion. The CCSD calculates that this additional funding will result in about ten per cent fewer children living in poverty than is now the case. However, the government has not committed itself to indexing these funds to inflation. Since 1984, inflation has reduced the value of the child benefits by $800 million (in 1996 dollars), and their value continues to decline at a rate of $170 million per year.

Now Ottawa should commit to a further $850 million installment, indexed to inflation, for the NCB. If it wants to make serious inroads into eliminating our social deficit, it should also take a leadership role in getting the National Children's Agenda back on track, and developing other programs that would improve child well-being, such as accessible child care and other labour market supports. As well, Ottawa should put meat on the bones of its promise to collaborate with the provinces in developing clear measures to gauge success in eliminating child poverty.

Child well-being may also be improved slightly due to two tax relief measures offered to poor and moderate-income families in this year's budget. First, the basic personal and spousal tax credit will increase by $500 for low income tax filers, thereby eliminating federal tax payable for about 400,000 Canadians and reducing it for another 4.6 million individuals. However, since these credits are non-refundable and are used to reduce income tax payable, those families reliant on social assistance will derive no benefit from this increase.

This situation is particularly acute for lone-parent families. Using 1995 Statistics Canada data, the CCSD has calculated that one-third (or about 247,000) of all lone-parent families fall under these circumstances. Therefore, the Federal Government cannot count on tax cuts alone to help poor children. It must also work with the provinces to meet the needs of those on social assistance.

With the raise in the basic personal tax credit, a family of four with one person earning $15,000 will receive an extra $174 in 1999. To say the least this credit is a modest one, since it adds up to a total of $3.35 per week. Furthermore, this credit will erode in value each year unless it is fully indexed to inflation. To assist those at the lowest end of the earnings scale, Ottawa should fully index tax credits.

The second tax relief measure that the budget offers involves the three per cent general surtax. This surtax will be eliminated for an estimated 12.6 million tax filers earning up to $50,000, and reduced for another one million taxpayers who earn between $50,000 and $65,000. Almost all dual earner families (99 per cent) will receive at least some benefit from this measure because they have at least one spouse earning less than $65,000. About 100,000 single earner families (two-parent and lone-parent families) have earnings of $65,000 or more, thereby making them ineligible to receive any benefit from the surtax elimination.

5. Measuring our progress in bringing down the social deficit

Since the 1993 general election, Ottawa has taken the lead in improving Canadians' understanding of the fight against the fiscal deficit. Now the Federal Government needs to improve Canadians' understanding of our social deficit. Unfortunately, no mention of this issue is made in the 1998 budget.

To turn Canadians' attention to the social deficit, Ottawa should produce a national social report that identifies specific targets--or benchmarks--to measure progress in job creation, improving income security and employability, and combatting poverty. For example, data related to levels of literacy, education performance, population health, public safety, and employment should be measured and analysed regularly. This reporting will stimulate discussion and subsequent action throughout our society on ways to improve Canada's social well-being.

The Federal Government could produce such a "social audit" by using a mechanism established by the Budget Implementation Act, 1995. Section 50 of the Act stipulates that the Finance Minister and his ministerial colleagues in Health and Human Resources Development may, together or individually, prepare a report of the administration and operation of the CHST and table the report in Parliament.

CONCLUSION

As a national, independent, non-profit organization the CCSD seeks the improvement of Canadians' social and economic security. This goal is achievable, given our economy's recent growth. But while Canada's economic train is leaving the station, too many Canadians find themselves still on the platform.

Budgetary measures like the Millennium Fund and assistance for persons with disabilities show Ottawa is willing to help the poor and the unemployed. Now the government needs to make greater investments in other parts of Canada's social infrastructure, as we have specified, to tackle the social deficit. Most important, the government needs to set a timetable and establish a coordinated plan of action for eliminating the social deficit. Our future depends upon our ability to produce a healthy, well-educated and prosperous citizenry. Every dollar spent now must be part of a strategic plan to make it pay off tomorrow as an improvement to our collective well-being.

CCSD

Canada's Social Development Convenors

info@ccsd.ca

Phone: 613-236-8977

Kanata, ON

P.O. Box 13713 K2K 1X6

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