Children and the 1996 federal budget

March 12, 1996

In the March 6, 1996 federal budget, the government announced at least four measures (described below) that will have a direct impact on the lives of Canadian children. The focus of the budget was on government action "to help Canadians secure their future", and to alleviate the insecurity and anxiety people are feeling about their children's futures. While the government has in this budget attempted to meet the needs of children, the Canadian Council on Social Development believes more needs to be done in response to the growing level of child poverty.

1. Child Support Payments

After May 1997, child support payments paid under new written agreements or court orders will no longer be taxed in the hands of the custodial parent -- in most cases the mother. In addition, the non-custodial parent making the payments -- typically the father -- will no longer be able to deduct child support payments at tax time.

The taxation of child support payments has been under scrutiny for a long time, especially by those concerned with the high rates of poverty among single-parent families. Family breakdown and divorce often precipitate a fall into poverty. Children are the inevitable victims in this situation.

Reducing the tax burden for custodial parents is an important step in making sure that children fully benefit from child support payments. Fifty years of experience with the old system demonstrated that it was not effective in ensuring that non-resident parents paid child support. The new child support measures are also intended to address the problem that child support orders often do not reflect the real costs of raising children and vary from case to case, and from province to province. To this end, the government has introduced Child Support Guidelines in the Divorce Act and new measures to assist provincial enforcement agencies that are designed to increase the chances that family support payments will be made. These much-needed reforms may mean that there will be more dollars in the hands of single parents and their children, and that awards will be determined in a more consistent manner.

2. The Working Income Supplement

The government has announced that it will contribute revenues generated by the elimination of the child support tax deduction for non-custodial parents -- an estimated $250 million -- to raising the Working Income Supplement (WIS). The budget proposes to double the value of the Working Income Supplement in two steps: the WIS will rise to $750 per year per working family in July 1997 and to $1,000 in July 1998. The WIS was introduced in conjunction with the Child Tax Benefit (CTB) in 1992. The supplement currently provides an additional annual non-taxable benefit of up to $500 for working poor families. It was designed to assist these families to meet the additional costs associated with working such as transportation and child care, and to offset the loss of in-kind benefits available to families on social assistance.

As it stands, the WIS is phased in at a rate of 8% of family earnings above $3,750. The full supplement is paid to families with earnings between $10,000 and $20,921. Above this point, it is phased out at a rate of 10% of family income until it reaches the CTB income threshold, $25,921. Neither the CTB nor the WIS is fully indexed. The value of the benefit and the income threshold are adjusted each year but only if inflation exceeds 3%. Because inflation has remained below that level, there has never been an increase.

The Child Tax Benefit could be an important bulwark against the devastating impact of child poverty, but the value of the benefit has steadily eroded over the past decade because it is only partially indexed to inflation. The federal government spent $4.1 billion on children's benefits in 1984; it spent $5.1 billion in 1994. This spending increase of 25% over this time compares with an increase in the cost of living of about 46%. If the 1984 children's benefit had in fact been indexed to inflation, it would have been worth $6 billion in 1994.

Inflation also pushes up the nominal value of families' incomes. Many more families are being pushed above the income threshold each year for receiving the child tax benefit, even though the real value of their income has not increased. The cumulative impact is a total reduction in children's benefit of some $150 million a year. An additional investment of $250 million in the child benefit system only makes up for what was lost in the past 18 months.

The CCSD endorses the government's initiative to fully index the new Senior's Benefit to the rate of inflation. The CCSD strongly recommends that the government demonstrate a similar level of commitment to children in poor and modest income families.

Any increase in the value of child benefits is a positive gesture toward reducing children's poverty. However, by the government's own estimates, only 250,000 children will receive the full benefit and another 450,000 will receive partial benefits. There is nothing in this budget for the 800,000 children who live in families that depend on social assistance. The WIS is really targeted to parents, a reward for their labour market participation. The CCSD believes that all poor children are equally deserving of support regardless of whether they live in working poor or non-working poor families. The CCSD therefore believes that government energy should be directed towards enriching and protecting programs that address the needs of all children such as the Child Tax Benefit, and establishing standards for the transfer of dollars under the new Canada Health and Social Transfer (CHST).

3. The Canada Health and Social Transfer (CHST)

The CCSD supports the establishment by the federal government of a cash "floor" in the CHST. This may enable the federal government to establish national standards for social programs. When the CHST comes into effect on April 1, 1996, the standards that accompanied the transfer of dollars under the Canada Assistance Plan will be abandoned, save the prohibition against imposing residency requirements for the receipt of social assistance.

Of equal import, this date marks the first of two major cuts in federal transfers to the provinces, a total of $7.4 billion by 1997-98. The government has announced its intention to freeze the total CHST transfer including cash and tax points at $25.1 billion for the two years following 1997-98. This means that there will be an additional reduction in the cash portion of the CHST of $1.4 billion. Between 2001 and 2003 the "cash portion" will be held constant at roughly $11 billion. Once the value of the Quebec abatement is deducted, the actual cash transfer will fall to $9 billion.

In the absence of any national standards for programs once funded under CAP, there is no protection for social assistance or the key social services that aid children and their families. Many provinces have already slashed welfare benefits and cut programming, and are planning to introduce user fees for a variety of family services. All of these moves hurt poor children in particular those on welfare and those whose parents are working at the margins of the economy. Many more are threatened due to the coming reductions in the CHST and the inevitable result of cutbacks in social services and assistance.

4. Child Care

The availability of good quality, affordable child care is a key factor affecting the ability of parents, especially those of young children, to retain paid employment that might alleviate poverty. The federal budget was regrettably silent regarding the Red Book commitment to increase child care spaces for every year of 3% GDP growth.

The budget did expand eligibility for the existing Child Care Expense Deduction (CCED) to include full-time students attending high school or a post-secondary educational institution and it extended the age limit for children with respect to whom the CCED can be claimed from 14 to 16 years. However, these measures do not address the critical need for more high-quality, affordable child care in Canada, particularly for low and modest income families.

Given the impact of the cuts to the CHST discussed above, funds to child care are likely to be reduced sharply in the next few years as provinces cut back social spending. The CCSD calls on the federal government to, at minimum, recommit itself to funding for the 150,000 child care spaces promised in the Red Book.


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