Canada's national benefits are facing a formidable challenge: How to provide security in an insecure world.
This is not a new challenge. In fact, the social programs we are working hard to reform were themselves conceived in adversity, as a response to insecurity.
They grew out of the economic devastation and social dislocation of the Great Depression in the 1930s. They arose from the struggle and sacrifice of World War Two, which for all its horrors forged Canada into a modern economy and a fully independent nation. Even before truce was declared, the federal and provincial governments were drawing up plans for a comprehensive set of social programs - a social system that could meet Canadians' emerging demands for income security, accessible health care and social services.
National benefits programs did not get a free ride. They contributed to the economy by ensuring an income safety net for the unemployed, sick, disabled and elderly, who otherwise would face a devastating loss of earnings that would cripple their purchasing power and reduce consumer spending. Unemployment insurance and welfare cushioned the worst effects of periodic recessions.
Training and other employment programs helped create and maintain a skilled workforce. Medicare ensured that families no longer would run the risk of financial ruin from prolonged or frequent illness. Old age pensions and the Canada and Quebec Pension Plans built an essential foundation for the retirement income system.
In the first few decades after the war, Canada's social programs were sustainable. The economy grew fast enough to pay for large new social programs serving substantial segments of our expanding population. A non-partisan political consensus gradually emerged as to the desirability and necessity of comprehensive social security. Canadians welcomed and in some cases demanded a broad network of social programs.
The federal government played a pivotal role in constructing this massive, coast-to-coast social infrastructure. It financed and delivered major programs that served many and in some cases all Canadians at some point in their life. The list includes family allowances and child tax credits; Old Age Security, the Guaranteed Income Supplement, the Spouse's Allowance and the Canada Pension Plan; unemployment insurance and employment development services; veterans' allowances and pensions; and a range of services for aboriginal peoples.
But the federal government cast its net even wider. It also offered vital financial assistance to the provinces to help them build their own social infrastructure.
The Canada Assistance Plan of 1966 offered 50-50 federal cost sharing of provincial welfare programs and social services. Beginning with hospital care in the late 1950s and moving on to doctors' services in the 1960s, the federal government shared part of the cost of national health insurance or what is popularly known as medicare. Federal cost sharing and transfers also helped build Canada's modern postsecondary education system.
Now I don't want to give you the impression that life was easy for the politicians of earlier generations who built our national benefits system. Not everyone welcomed the creation of what has been termed 'the welfare state.' Some provinces opposed the rise of federal power in social policy, particularly in areas of provincial jurisdiction. Some people worried that social programs would undermine the work ethic and replace individual responsibility with dependency on government. Others argued that the system needed further growth to extend protection to the working poor and do more to fight poverty and unemployment. There were disagreements about how to design, finance and improve social programs.
But the federal government of the day had one thing going for it that made the choice to expand its role in social policy relatively easy and painless: A buoyant economy and healthy bottom line. Federal governments in the 1950s and 1960s could afford to build their own social programs and to foot part of the bill for developing provincial health, welfare and postsecondary systems.
All this began to change in the mid-1970s, which turned out to be the end of the expansion era of Canada's national benefits system. The world oil shock in 1973 and mounting unemployment and inflation in 1974 and 1975 ushered in a period of slower economic growth, rising government deficits and mounting public debt and associated financing costs. The severe recessions that opened the 1980s and 1990s dealt a deadly two-punch: The first blow was to drive up social expenditures as thousands of Canadians swelled the unemployment insurance and welfare rolls. The second blow was to erode government tax revenues at the worst possible time - when social expenditures rose sharply.
The fiscal challenge is not the only imperative driving governments to scrutinize social programs. There are several other profound forces which are exerting heavy demands on our social security system.
The aging of the population is a well-known but under-appreciated challenge.
Population aging is the single most consistent pressure on federal income security spending, as public pension spending continues its relentless upward climb. The elderly will also exert heavier demands on health care and social services in future.
Social change is another challenge to programs which were designed in and for a different kind of society. The majority of women, including mothers of preschool children, now work in the paid labour force; yet they still typically carry a heavier load of parenting and housework than their husbands. The conflicting demands of home and workplace are a heavy burden for many Canadian families. Finding affordable, good-quality child care is a difficult task for many parents. Marriage breakdown is another major pressure on welfare and social services, as was the trend to deinstitutionalize persons with disabilities.
Social programs also are facing serious political challenges necessitating tough choices. Governments have responded to the debt problem in two ways - by raising income taxes, consumption taxes and other forms of revenue, and by curbing spending. Throughout much of the 1980s, the weight was on the revenue side, though social programs began to feel the pinch in the latter part of the decade. Governments have now hit a tax wall, leaving them no choice but to rein in social spending. Most provincial governments have managed to achieve success in bringing down their deficits and balancing their budgets.
I make no apologies for past and present efforts to curb social expenditures.
Our social programs have no future unless we put the nation's finances in order. My government and I are firmly committed to our course of deficit reduction, which is an essential condition for sustainable social policy.
My challenge, as the Minister responsible for the country's largest social policy budget, is to lay the foundation for a strong, effective and sustainable social safety net - one that will better serve Canadians now and well into the next century. This is no simple or short-term task, especially in light of the profound demographic, economic and social pressures that are straining the capacity of social programs that were largely designed to meet the needs and conditions of an earlier time.
My first challenge as Minister of Human Resources Development was to legislate a new Employment Insurance program to replace the long-criticized, inefficient and inequitable Unemployment Insurance system. I know better than most that UI reform is a political powder keg and a tough sell. But the program had to be reformed, and not through the tried-and-untrue method of tinkering.
The Employment Insurance program is a radical departure from the flawed UI system. The new program will be tougher in some respects, but also fairer and more effective. Some applicants will have to work longer to qualify for benefits. The level and duration of benefits will be reduced. Frequent users will receive lower benefits. However, by calculating eligibility on the basis of hours rather than weeks worked, Employment Insurance will extend coverage to half a million part-time workers who were excluded from the old UI program. Low-income recipients with children will be eligible for a Family Income Supplement that will provide a badly-needed boost to their benefits.
The federal government is transferring responsibility for employment development services to provinces which want to take on the task. In order to get more people working, the provinces and territories will be able to deliver a variety of employment measures funded through the Employment Insurance fund, including wage subsidies, income supplements, support for self-employment, job creation partnerships, and loans and grants for skill development. The provinces will be allowed to provide labour market services currently delivered by the federal government, such as counselling and placement. Ottawa will withdraw from labour market training - an area that properly should be seen as a part of the educational system overall.
The public pension system is one of Canada's major social policy success stories. It has played a key role in improving incomes and reducing poverty among the elderly over the years. It ensures a basic income, serving as a form of guaranteed income for seniors. It provides a foundation upon which private pension plans, RRSPs and other forms of individual savings can build.
My government is taking steps to ensure that the public pension system will be able to maintain its essential role in the face of increasing demands from our aging population. Last year's Budget announced a new Seniors Benefit that will replace the current Old Age Security, Guaranteed Income Supplement, age and pension income credits in the year 2001. The Seniors Benefit will improve benefits for low-income seniors. It will sensibly and fairly gear the amount of payment to the amount of income from other sources, such as the Canada Pension Plan, employer pension plans and RRSPs. The higher their income from other sources, the less people will get from the Seniors Benefit. In the case of couples, both spouses' income will be taken into account in determining eligibility for and level of benefit.
The federal and provincial governments are working together to ensure that the Canada Pension Plan will be there for future generations. I cannot provide details now, since negotiations are still underway. But I can say that we will change the way the program is financed to ensure that it remains financially sound. We also want to make sure that the CPP does not place an onerous burden on tomorrow's workers as contributions increase to pay for the pensions of the baby boom generation.
The other area of federal social spending where we have made some very difficult decisions is transfer payments to the provinces.
My government revamped the system of federal transfers to the provinces and territories. We abolished the Canada Assistance Plan, which had cost shared welfare and social services. We also ended the Established Programs Financing arrangement, which had provided federal support for health and postsecondary education. In their place, we have created a single new program called the Canada Health and Social Transfer (CHST for short).
The CHST will offer the provinces and territories much more freedom and flexibility in how they allocate their federal transfer payments among their various social programs. They feel be able to experiment with new solutions in welfare and social services.
Let me state up front that the CHST arrives with a sizable reduction in federal transfer payments to the provinces. However, the Finance Minister has established an $11 billion cash floor for the CHST to ensure a continuing significant federal contribution and ability to enforce the conditions of the Canada Health Act. The combined value of cash transfers and tax points will grow from $25 billion in 1998-99 to more than $27 billion in 2002-03. Over this five-year period, we will transfer nearly $130 billion to the provinces.
The Canada Assistance Plan required that the provinces and territories meet four conditions: They had to make social assistance available to all persons deemed to be in need as determined by a needs test, regardless of the cause of need. The could not impose residency requirements for welfare. They had to establish welfare appeal mechanisms. And they were required to furnish certain basic information and data. But in no way, shape or form did these conditions set or enforce standards regarding welfare or social services. For example, the provinces and territories have always been free to set welfare benefits as they see fit.
We have to be realistic and pragmatic when it comes to national standards. It is not the role of the federal government to dictate in detail how the provinces run social programs which are under their jurisdiction.
But the federal government is committed to working in partnership with the provinces to jointly develop values, principles and objectives for a renewed and rejuvenated social security system. We have to move past the bickering and bitterness that too often has characterized federal-provincial relations in recent years. We have to combine our energies and resources to create a sustainable social security system for the 21st century.
The first order of business is to draw up a new architecture for Canada's national benefits - one that preserves the best features of the old system but also creates cost-effective new programs.
Fortunately, the provincial and territorial governments also have taken up the challenge and put on the table some creative concepts for a new social policy framework. The Report of the Ministerial Council on Social Policy Reform and Renewal, released last March, presented a number of proposals for significant change.
One is for a national child benefit. An 'integrated child benefit,' as it is sometimes called, would offer several advantages over the present uncoordinated system of child benefits and social assistance. At present, welfare families with children receive larger child benefits than the working poor; welfare families' combined provincial social assistance benefits for their children and the federal Child Tax Benefit are more than working poor families' Child Tax Benefit and Working Income Supplement. Not only is this difference unfair, but it works as a disincentive for parents on welfare to move into the workforce because they will lose income from welfare benefits for their children.
An integrated child benefit would remove this disincentive and help families get off welfare and stay in the labour force. It would provide working poor families with a badly-needed supplement to their earnings. A new child benefit would offer a tangible commitment by both levels of government to combat child poverty. It is not a magic bullet in the war against poverty - which is far too complex a problem to be vanquished by a single social program - but it would constitute a powerful new weapon.
Another important idea in the provinces' report is a comprehensive income security system for Canadians with disabilities. The current system is not really a system, but rather an unconnected collection of various public and private benefits that developed willy-nilly over the years. These programs include Workers' Compensation, the Canada and Quebec Pension Plan disability benefit, Employment Insurance, veterans' benefits, welfare, several tax expenditures (the disability credit, the infirm dependants credit, the medical expenses credit and the attendant care expense deduction), private long-term disability insurance, auto insurance and criminal injuries compensation. Different programs use different definitions of disability. Many persons with disabilities do not qualify for most of these programs, and so have to turn to welfare, which in turn raises barriers to employment that add to their other problems finding and keeping a job.
A new income security system for Canadians with disabilities would replace much or all of the present hodgepodge of programs and benefits. An integrated, rationalized set of programs would reduce the complexity of the current system and would minimize costly duplication and excessive administrative costs. Implementing such an approach, will no doubt take time. But any progress in this direction will help Canadians with disabilities.
Such innovations would be a giant step forward. They would greatly improve income security for many thousands of families with children and for Canadians with disabilities. Such programs would be national rather than federal or provincial, jointly designed and maintained (like the Canada Pension Plan) by both levels of government.
We cannot rebuild the social safety net overnight. But we can create a new framework for social security. And we will take concrete steps in the coming months to construct a strong, effective and sustainable social security system for the future.
