CPJ responds to 2007 Federal Budget

Budget 2007: National poverty reduction strategy still needed

Canada has a problem of growing inequality. Budget 2007 will not make things better and may actually make the problem worse.

It is important to understand what the growing divide in incomes and wealth means for Canada.

  • Growing inequality is bad for our health. Population health research clearly demonstrates that where inequality increases, population health declines.
  • Growing inequality is bad for communities. Societies with great disparity are societies under social strain. Levels of trust suffer. The incidence of crime increases.

Over the past twenty years, the Canadian labour market has delivered more unequal outcomes. The richest ten percent have seen their incomes rise. The poorest forty percent have experienced stagnation and decline. Those in between have had to work harder to maintain their level of income.

One of the goals of Canada’s tax and transfer system has been to reduce the impact of this growing inequality. Budget 2007, however, fails to address the growing disparity in market incomes and weakens the long-term power of the tax and transfer system to mitigate that inequality.

Budget 2007: Does it measure up?

In its pre-budget brief, CPJ called for Canada to develop a comprehensive and integrated poverty reduction strategy. The provinces of Quebec and Newfoundland and Labrador have strategies as do the countries of the European Union. Canada, along with other rich countries, requires poor countries to establish a poverty reduction strategy in order to qualify for relief of their international debts.

CPJ argued that Canada needs a national poverty reduction strategy which ensures that everyone has adequate income and services to meet basic needs. A strategy that reduces inequality and that develops human capabilities. A strategy that strengthens communities and that is ecologically sound.

We acknowledge that all sectors of society need to come together to make this possible, but government needs to take a lead responsibility as part of its public justice task. Government has the ability to shape choices through its regulatory, taxing, and social, economic and environmental programs. Business, unions, the media, non-governmental organizations, faith communities and families all have their own role to play as well.

As a Christian organization, CPJ takes seriously the biblical imperative to create the conditions where no one in the land is in need. For a country as rich as Canada, there is no excuse for growing disparity, for the continued need for food banks or for emergency homeless shelters in church basements. We share as a matter of public justice a responsibility to look out for, not just our own needs, but also for the needs of our neighbours.

This imperative applies also to how our governments craft their budgets and public policies. And it is in this light that CPJ evaluates the federal budget.

In his budget speech, Mr. Flaherty speaks directly about values needing to form the foundation for the federal budget.

There are values and beliefs that unite us. Make us proud. That embody what it means to be Canadian.
To achieve a better Canada, we must invest based on those values and beliefs.
First of all, we help the vulnerable—and aspire to help one another.
Secondly, we take pride in the spectacular beauty of our country, and aspire to preserve it.
Third, we cherish the universality of our health care system, and aspire to strengthen it.
Fourth, we are a caring people, and aspire to support people who need our help.

“Help the vulnerable,” “help one another,” “supporting people who need our help” – those are all important responsibilities, for governments and for citizens in the context of a national poverty reduction strategy. The question is how well does this budget measure up in fulfilling those responsibilities?

Struggling to make a liveable income

Canada has a deep structural challenge. Nearly twenty-five percent of Canadian jobs pay low wages – less than $10 an hour. And 16% of full-time workers work for low-wages. At those wage rates, having full-time, full-year work is not enough to rise out of low-income. Putting in more hours at paid work – either by an individual working more than forty-hours a week or two parents working full-time – is the only way many people and families can make ends meet.

Budget 2007 presents the structure for a federal Working Income Tax Benefit (WITB). This benefit was first announced in the Martin government’s 2005 Economic and Fiscal Update and reaffirmed in the Harper government’s 2006 budget.

In his budget speech, Finance Minister Flaherty identified the WITB as a key tool for helping lift people over the so-called welfare wall.

In Canada, too many people feel trapped on welfare.
A single mother with one child who takes a low-income job can lose almost 80 cents of each dollar she earns. That’s because of higher taxes, and reduced benefits for things like drug and dental coverage.
Some people call this the welfare wall.
Mr. Speaker, it is time to help people over the welfare wall and on to a better, more prosperous life for themselves and their families.

The WITB provides up to $500 a year for a single adult with earnings between $3,000 and $9,500 and $1,000 for a family with earnings between $3,000 and $14,500. The benefit is phased out at incomes beyond those thresholds. An additional supplement is available for people with disabilities.

The WITB will undoubtedly provide some support for low income workers, particularly those who do not have full-time, full-year work. But the modest benefit levels and income thresholds leave the WITB far short of addressing the loss of things like drug and dental coverage. It is important to remember that many of these same families are struggling to pay their rent. Food banks have also reported increasing numbers of clients who have paid work. In short, many of these low income workers will need the additional money just to pay daily living expenses.

Out in the Cold

Budget 2006 affirmed $800 million dollars for affordable housing that was included in the last Liberal budget. But Budget 2007 provides no ongoing funding for affordable housing. This is a major omission and means that Canada’s housing crisis can only grow deeper.

Tax Relief for Families – who gets excluded

Budget 2007 introduces a “new” tax credit for families with children. It is actually a return to an older tax credit, one that excludes the poorest families. The new tax credit is a non-refundable credit. That means that if you earn too little to pay income taxes, this credit will not help you.

Historically, tax benefits for families with children were a complex mix of measures. The first credit introduced in the early 20th century was, like the new credit, non-refundable. The higher your family income, the greater the tax benefit. Over the past twenty years, the federal government worked hard to create a fairer system of child benefits. The Canada Child Tax Benefit (CCTB) – including the National Child Benefit Supplement for low income families – provides support on an income-tested basis. The lower your family income, the greater the tax benefit. The CCTB helps more than 80% of Canadian families. It is simple to access and runs efficiently.

The past two budgets have reintroduced unnecessary complexity to Canada’s child benefit system. Budget 2006 created the Universal Child Care Benefit, a flat-rate taxable benefit for families with children under the age of seven. Budget 2007 creates a non-refundable credit that helps middle and higher income families but excludes those still struggling to pay the rent and put food on the table.

On the positive side, this new tax credit builds within the tax system greater recognition of the cost of parenting for all families. However, the same goal could be reached by creating a universal flat-rate child benefit that is non-taxable. A straight $310 refundable credit for all children under 18 could achieve tax recognition of the cost of parenting in a way that includes all parents. It would also help low income families get closer to exiting poverty. It is an unfortunate that the credit proposed in Budget 2007 excludes poor families. In that respect, it is a step backwards in Canadian social policy.

Child Care

The federal government has decided to scrap its plan to have employers create new child care spaces, as laid out in Budget 2006. Instead the $250 million in annual funding will be given to provinces, although arrangements for how that money will be used still need to be negotiated. As CPJ stated in its response to Budget 2006, it would make sense to flow this money through the child care agreements negotiated between the federal and provincial governments before the last federal election. While the level of funding is a fraction of what the federal government had committed at that time, it is crucial that Canada not lose more time in beginning to build a national system of high quality, developmental early learning and child care that is affordable and accessible to all parents with young children.

Federal transfers to Provinces and Territories

Mr. Flaherty’s optimistic claim to have fixed the fiscal imbalance once and for all was quickly dashed when premiers from Newfoundland and Labrador and Saskatchewan immediately cried foul over the proposed rules for equalization payments.

A much deeper problem lies in the federal transfer programs, however. The Finance Minister stated that the new principles for federal transfers deliver “Accountability through clarity of roles and responsibilities….Fiscal responsibility and budget transparency.”

However, there is, in fact, no accountability for the increase of $800 million a year in the Canada Social Transfer. Budget 2007 says the money is meant for increased spending on post-secondary education. And the provinces did ask for more money to fund post-secondary education. But there is nothing in the Canada Social Transfer that requires provinces to spend that money on post-secondary education. And it did not take long for Premier Charest, seeking re-election in Quebec, to state that he would use the increased federal transfers to fund a $700 million tax cut.

The deep flaw in the federal-provincial transfer system is that neither Canadian citizens nor their governments have an accurate accounting of how those funds are being used. This is very troubling since these funds are one of the principle ways that we help one another when we are in need of income supports and services, health care or education to develop our capabilities and contribute to the well-being of our country.

In terms of the fiscal imbalance, it is imperative that federal, provincial and territorial government establish how intergovernmental transfers will be used and accounted for in order to meet our fundamental commitments to ensure that all people in Canada can have access to a decent income, to health care, education, food security and housing.

Budget 2007 still leaves a lot of work to be done.

Budget 2007 includes much more than has been touched on above – creation of a Registered Disability Saving Plan, enhancements to Registered Education Savings Plans and the Transit Pass Tax Credit, funding for skills training, extending the gas tax commitment to cities, infrastructure funding, to mention just a few things. But it lacks the integrating strategy to make sure that all Canadians are included in achieving living incomes, sustainable likelihoods and the chance to participate and contribute fully to the life of our communities.

An example of the lack of integrating strategy includes the changes to the Tax Credit for Public Transit Passes. Budget 2006 introduced this “non-refundable” tax credit for the purchase of monthly transit passes. Budget 2007 acknowledges that many low income Canadians cannot afford a monthly transit pass. So it opens up the program to include weekly passes. However, if your income is so low that you cannot afford a monthly transit pass, it is probably too low to owe personal income tax. This means that you will not benefit from this non-refundable credit.

The federal government needs to take leadership in developing a comprehensive national strategy to fight poverty and social exclusion. A strategy:

  • that integrates programs across federal departments and between different levels of government,
  • that cities and communities can build upon in their own efforts to eradicate poverty and build inclusive communities,
  • to which Canadians, in our roles as workers, employers, consumers and members of faith and civic communities can commit.

Federal budgets should inspire our deepest commitments as citizens; commitments to live out the values of compassion and solidarity. From this perspective, Budget 2007 leaves a lot more for which to aspire.

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