Integrating children's benefits: what will result?

January 1997

With more than one in five children in Canada living in families with poverty-level incomes, the issue of child poverty has made its way to the forefront of the national political agenda. Canada's Social Service Ministers are working on an integrated child benefit that would pool together the dollars currently spent on social assistance, the federal Child Tax Benefit and other family supports, to create a new benefit for low-income families with children. Such a plan is intended to improve the incomes of working poor families and to reduce the financial disincentives to employment for families with children on social assistance.

Federal Finance Minister Paul Martin has announced that he will set the "foundation" for a strategy to alleviate child poverty in this year's federal budget, while his colleague, Human Resources Minister Pierre Pettigrew, continues negotiations with his provincial counterparts over the integrated child benefit proposal.

Notwithstanding this political goodwill, no single policy prescription, be it an integrated child benefit or other measure, should be viewed as a panacea for eliminating child poverty. As demonstrated in this CCSD backgrounder, a very large sum of money would be required to eliminate child poverty through an enhanced child benefit alone – some $15 billion. Still, an integrated and enhanced child benefit with a somewhat smaller price tag could provide enough money to make a significant difference to at least some children in poor families. Such a benefit could form an important part of a comprehensive strategy for eradicating child poverty in Canada.

Child Poverty - The Extent and Depth of the Problem

When compared to other major industrial countries, Canada has the second highest rate of child poverty. Based on the internationally accepted method of measuring and comparing poverty across countries (using one-half of median income as the poverty line cut off), only the U.S. has a worse performance (see CCSD: Child Poverty: What are the Consequences?).

Using Statistics Canada's "Low Income Cut-offs" (LICOs) as a proxy for our poverty line, the number of children living in poverty in Canada in 1995 was nearly 1.5 million, or one in five (see Campaign 2000: Child Poverty in Canada: Report Card 1996). This represents an increase of about 500,000 children since 1989, the year of the unanimous House of Commons resolution to eliminate child poverty by the year 2000.

On average, poor families with children have incomes considerably below the poverty line. (The average income of a poor lone-parent family is $14,300; for two-parent families with children, it is $19,100.) The amount of money that it would take to bring a poor family up to the poverty line is referred to as the "poverty gap." The average amount of money that poor families need to bring their incomes up to the poverty line is about $8,800, or about $4,400 per child.

The figures in Table 1, using 1994 data (the most recent data for this level of detail), illustrate the size of the child poverty problem, as well as the money required to have a significant impact on the problem. For example, providing an additional $1,500 to each poor child through an enhanced Child Tax Benefit would move about one-fifth of poor children above the poverty line (in addition to moving thousands of other poor children closer to the poverty line). Proposals calling for increases in the Child Tax Benefit of this magnitude (see Caledon Institute: One Way to Fight Child Poverty) have been priced in the $2 to $3 billion range.

Table 1
Depth of Child Poverty in Canada - 1994
Poverty Gap* per Child
Poor Children
  ('000s) Per Cent
less than $1,500 260 19%
less than $4,000 730 54%
more than $4,000 630 46%
*The poverty gap is the distance a family's income is below the poverty line.

From Table 1, we can assess the impact of increasingly larger cash injections as well. For example, an additional $4,000 a year for each poor child would move about half of all poor children above the poverty line. The cost of this measure would be in the $6 billion range. To move all poor children out of poverty, the total bill would jump to about $15 billion. It is clear from these numbers that it would be very costly to attempt to eliminate child poverty by relying on an enhanced benefit alone.

The Current Child Tax Benefit - How it Operates

The current Child Tax Benefit (CTB) is a major federal program designed to assist lower-income families with children. Under the program, families receive a maximum of $1,020 per child. Families with incomes over $25,921 (known as the "income threshold") have their CTB reduced by a proportion of the additional income. The CTB falls to zero for families with one or two children when their income exceeds $67,000.

The maximum benefit is determined as follows:
- $1,020 basic amount per child.
- $70 additional for third and subsequent children.
- $213 additional per child aged 0-7 without a child care tax deduction.

The total cost of the CTB is about $5.2 billion. The average family with children receives about $1,400 from the CTB. Some low-income families also receive the federal Working Income Supplement. This benefit provides up to $750 per family (starting in July 1997 and $1,000 effective July 1998) based on their labour market earnings. Families with annual earnings of between $3,750 and $25,921 are eligible for some or all of the supplement, with the maximum amount received by those with earnings of about $15,000.

The Erosion of the Federal Child Benefits

The value of federal child benefits has declined substantially in recent years as a result of cuts to benefits and inflation. The Progressive Conservatives in the 1980s modified the federal child benefit system in several stages, with the stated goal of retargeting benefits to those "most in need." The data in Table 2 compare the child benefit systems of 1984 and 1996 and illustrate the overall negative impact of these changes:

  • overall, families are receiving $800 million less support in 1996 than they did in 1984, and the rate of coverage (the percentage of families with children eligible for child benefits) has dropped from 100 per cent to 80 per cent;

  • poor families are receiving marginally less support than they would have under the previous system;

  • modest-income families are receiving about $1,100 less a year;

  • middle-income families are receiving almost $1,200 less a year.

Table 2
Child Benefits System - 1984 versus 1996
  1984 (1996 $) 1996
Coverage (per cent of children under age of 18) 100% 80%
Total Cost (all families with children) $6.0 billion (in 1996 $) $5.2 billion (1996 $)
Family Type (by level of income in 1996 $)Level of Basic Benefit (calculated for family with two children)
Poor families ($25,000) $2,183 $2,040
Modest income ($40,000) $2,426 $1,336
Middle income ($60,000) $1,513 $336

Under the federal Liberal Government, child benefits have not been cut directly, but total CTB spending continues to drop as inflation eats away at benefits – each year the value of the amount spent on the CTB falls by $170 million. This erosion will continue for many low-income families despite the increases in the Working Income Supplement scheduled for 1997 and 1998.

The erosion of benefits through inflation has persisted since 1986 when the full indexation protection of the CTB was replaced by a partial indexation formula. This partial formula provides increases in the benefit only when inflation exceeds 3 per cent, and only by the amount of inflation above the 3 per cent. The impact of partial indexation on CTB recipients has been and will continue to be substantial. During the current government's mandate alone, the CTB for a modest-income family – with an income of $30,000 and 2 children – will have eroded by about $235, or 13% of their total benefit.

Other federal government policy changes in recent years have had a negative impact on families and their children. For example, the billions of dollars in cuts to Unemployment Insurance (now called Employment Insurance) which began in 1989 have affected tens of thousands of families. The $7 billion reduction in federal support for social programs, through the Canada Health and Social Transfer (CHST), has also had and will continue to have a substantial impact. This second change will be especially burden some on poor families and children as social assistance payments and programs are slashed to accommodate shrinking provincial revenues.

The Risks of an Integrated Child Benefit

We have identified the following potential risks in introducing an integrated child benefit:

  • Complacency. This is perhaps the greatest risk in moving ahead on an integrated child benefit. That is, once governments agree on the form of the new benefit, they may wish to state that the problem of child poverty has been solved. But as we have demonstrated, without massive new spending, an integrated and enhanced benefit alone is not going to eliminate child poverty – although it would have the potential of reducing it.

  • Integrating without substantially enhancing. The over-emphasis on integrating child benefits may eclipse another key issue – benefit adequacy. It is through integrating and enhancing child benefits that governments in Canada will make a major contribution to reducing child poverty.

  • Tighter targeting of benefits. Pressure may rise to fund an integrated child benefit by reducing dollars currently directed towards modest-income families. This strategy of taking money from the near-poor to help the poor should be avoided unless measures to compensate modest-income families are implemented along with the newly structured benefit.

  • Offsetting reductions. Provincial governments may be tempted to partially fund the new benefit by reducing social assistance payments to the parents of poor children and single adult social assistance recipients. This would leave children in poor families whose parents rely on social assistance even worse off than they are currently, and would unfairly penalize single social assistance recipients who already receive minimal income support. An integrated benefit scheme must have safeguards in place to ensure that this "giving with one hand but taking with the other" does not occur.

  • Narrow focus. The current focus on child poverty and the Child Tax Benefit encourages a narrow view of poverty in Canada. Such a focus could lead policy makers and others to lose sight of why children and their families are poor: unemployment, low wages, insecure work, and the lack of affordable and quality child care and housing.

An Integrated Child Benefit - One Part of a Comprehensive Strategy

As demonstrated, if $2 to $3 billion of additional money were put into a new integrated child benefit, the government could expect to reduce child poverty by about 20 per cent. To put that figure into context, child poverty would have to drop by 33 per cent just to return to the 1989 level. It is clear that more must be done – either through transfers or by other means.

To have a substantial impact on child poverty and its consequences, governments will have to focus on a number of key policy areas. Job creation, for example, should be central to any child poverty reduction strategy. In recent years, the child poverty rate and the unemployment rate have tended to rise and fall together. Also of great importance is the quality of jobs. Low wages and involuntary part-time and temporary employment have contributed to the growing number of "working poor" in Canada and serve as formidable road blocks to substantially reducing poverty through job creation. There is a role here for private sector employers as well as governments. Certainly, better labour market earnings (i.e., higher wages and more stable working hours) and workplace benefits (i.e., dental and extended health coverage, workplace training and so on), would reduce the burden placed on a new integrated child benefit and other government transfers and services, and would contribute to the reduction of child poverty.

Supports like child care, training and advanced education that allow parents to engage in paid employment would also make a major contribution to the reduction of child and family poverty. And, it should not be forgotten that adequate income support to adults on social assistance, many of whom have children, plays a key role – one not addressed in the discussion of an enhanced and integrated child benefit. These initiatives, combined with an integrated child benefit designed to bolster the incomes of poor families with children, would move Canada substantially closer to Parliament's goal of eradicating child poverty by the year 2000.

Related Resources:

The Progress of Canada's Children 1996
Katherine Scott (CCSD: 1996)

Child Poverty: What are the Consequences?
David Ross, Katherine Scott and Mark Kelly (CCSD: 1996)

A Statistical Profile of Urban Poverty
Clarence Lochhead and Richard Shillington (CCSD: 1996)

The Canadian Fact Book on Poverty - 1994
David Ross, Richard Shillington and Clarence Lochhead (CCSD: 1994)

Child Poverty in Canada: Report Card 1996 (Campaign 2000: 1996)

Crossroads for Canada: A Time to Invest in Children and Families
Marvin Novick and Richard Shillington (Discussion Paper for Campaign 2000: 1996

One Way to Fight Child Poverty
Ken Battle and Leon Muszynski (Caledon Institute: 1995)


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