1918-1940: Recognition of Family Needs
In
the 1700s and early 1800s, children were treated harshly under the Common Law
of England. Early legislation in Canada, such as the Orphans Act in 1799 and
the Apprentices and Minors Act of 1874 followed this tradition. For example,
the Orphans Act gave town wardens the power to bind a child under 14 as
an apprentice or labourer. The Indian Act of 1876 illustrated the colonizer’s
view of First Nations children, placing many children in residential schools
administered by Christian churches with the overriding aim of assimilation.
Government of Canada income support to families with children only began in 1918 with the introduction of the Child Tax Exemption in personal income tax. The exemption provided income tax savings that increased with taxable income. The after-tax benefit was of greatest absolute benefit to those in the highest tax brackets. This is due to the progressive nature of our income tax system. The exemption provided no benefits to families that did not owe income tax. Dual-earner couples with the same family income as single-earner couples generally pay less tax. This results from the fact that taxes are levied on individuals and not families. This is a problem that remains with us until today and never been adequately addressed.
Concern about widowed mothers with small
children after WW1 lead to British Columbia’s Mother’s Pension Act of
1920. This was a needs-tested monthly
income. All provinces followed within the next decade. Eligibility requirements
varied between Provinces, but one element remained steadfast – any mother
deemed to be of bad character was not eligibility – illustrating a throwback to
the poor law concerns of distinguishing between the deserving and undeserving
poor. The name “pension” was a demand from women’s groups that wanted to avoid
the stigmatizing effects of assistance. They also demanded, but did not obtain,
a non-discretionary pension.
1941-1974: Universal Benefits
The Family Allowance Act of 1944 introduced universal Family Allowances, providing benefits to all Canadian families with dependent children. The family allowance was also popularly known as the ‘baby bonus’. It was the first universal income security scheme. FA provided a monthly payment of $5.94 to the mother of every child under age 16 (changed to age 18 in 1973) and who, if of school age, was attending school. The stated purpose of the plan was to assure children of their basic needs and to maintain purchasing power in the postwar era.
FA was introduced one year after the Marsh report which indicated that an allowance for the parents of children was central to a social security system. Charlotte Whitton, a leading social worker and director of the Canadian Welfare Council, deemed the plan as wasteful as both the poor and wealthy families benefited. She believed that any such program should target the most needy with “social utilities” such as health and housing, rather than cash. Perhaps surprisingly, trade unions tended to oppose the benefit as a substitute for adequate wages. The majority of social workers and the Canadian Association of Social Workers strongly supported the plan.
The Family Allowance remained "purely" universal until various reforms starting in 1973 made it taxable, 1989 reforms increased the tax rate with what was then called a clawback, and its ultimate demise in 1993. In the 1973 Act, the benefit was made taxable and indexed to the Consumer Price Index (CPI). Why make the benefit taxable? People with more income pay higher marginal tax rates and so keep less of the benefit. This is what is meant by a progressive income tax system.
The question often debated is why did the Mackenzie King Liberal government introduce a universal children’s benefit at this time? Several factors have been raised by historians: 1) a desire to maintain purchasing power; 2) as an alternative to the wage freeze that was in place at the time; 3) to stave-off the threat from the leftist Co-operative Commonwealth Federation (CCF) Party that was endorsing such a program; and 4) to win Liberal support in Quebec were the conscription issue was problematic.
1975-1990: Erosion and Growing Poverty
Beginning in 1978, Minister of Finance, Jean Chrétien, announced a merging of social security programs and income tax provisions. He introduced the notion of an income-tested Refundable Child Tax Credit as a way to target families in need of government assistance. Upon the creation of the Child Tax Credit, FA benefits were reduced from an average of $25.68 per month (which would have increased to $28 with indexing) to an average of $20 per month. The stated goal of the benefit was to help families meet the costs of raising children. It is income-tested and varies according to the number of children in a family. Due to its use of the tax system to target low-income families, rather than a universal benefit, this was a fundamental shift in thinking – some would say from a institutional view of social welfare to a residual view. It was also the first time that the tax system was being used to redistribute income.
This credit provided the maximum benefit to low-income families, a declining amount to middle-income families and no benefit to wealthy families. It provided a credit in the income tax account with the federal government. The whole credit was payable to families with family net income below a certain threshold. The credit gradually reduced with income until income reached near the national average, at which point it was reduced to zero. If the families tax credit was more than the amount they owed in taxes, the difference was paid in cash in form of a monthly cheque. This is what is meant by the term “refundable”. The tax credit is paid out if the taxpayer does not own income tax.
Benefits
paid in this way are called “tax expenditures” in that they comprise foregone
taxes or taxes that go uncollected. In the case of a tax credit, it goes as far
as a reverse tax. This is the first major program of its type in the field of
income security. Previously, it was predominate in the investment arena whereby
governments would act to induce certain types of investment behaviour and
support for various industries.
The Child Care Expense Deduction was introduced in 1971 and was originally intended for one-parent families only. It was designed to offset the incremental costs of child rearing for parents in the labour force. When first introduced, this deduction was limited to $2,000 per child under age 14, subject to a maximum of $8,000 per family. Statistics from Revenue Canada for the 1996 tax year indicate that this deduction is being used by about 760,000 claimants, with about $2 billion in total deductions in 1996.
In 1986, the FA benefit, which still existed in its reduced form, was partially de-indexed meaning there were no increases in benefit levels until inflation reached 3%. This meant the value of the FA would lessen over time. In 1989 benefit clawbacks were introduced. The clawback was a higher tax rate for FA benefits. This meant that higher income earners would pay back their FA. This was the end of FA as a universal program in all but name. This eventually led to the elimination of the family allowance in 1993 and, many argued, to the end of universality as a principle of Canadian social security.
1991- Present: Targeting Poverty & Work Incentives
The
notion of the “welfare wall” entered government lexicon during this period. The
term “welfare wall” refers to barriers that hinder the movement from social
assistance to the labour market. In
1993, the Government of Canada consolidated its child tax credits and the
Family Allowance into a single Child Tax Benefit (CTB) that provided a
monthly payment based on the number of children and the level of family income.
In addition to a basic benefit, the Child Tax Benefit included a Working
Income Supplement (WIS) to supplement the earnings of working poor
families.
The CTB included a supplement of $213 per year for each child in a family who is under the age of 7. The maximum basic benefit was $1,020 per child per year, plus an additional $75 for the third and each subsequent child in a family. The maximum basic benefit was payable to all families with annual incomes less than $25,921. The benefit was reduced at a rate of 5 percent of family net income in excess of $25,921 for families with two or more children, and at a rate of 2.5 percent for families with one child. Families with one or two children no longer received basic benefits once net family income exceeded $67,000.
The maximum Child Tax
Benefit per child in 1994 was as follows:
Basic Benefit: $1,020
Supplement for third and each additional child: $75
Supplement for children under age 7:
$213
Working Income Supplement: $500
The
WIS gave an additional benefit to those working at low-income levels. This
benefit was not available for those not working. The benefits were paid out at
the rate of 8% of all earnings up to a maximum annual benefit of $500 (with
annual income of $20,921). In July
1998, the Government of Canada replaced the WIS with the National Child
Benefit supplement paid to all low-income families (including those not
working) as part of the Canada Child Tax Benefit. Since 1998, the
federal investment in the CCTB has risen dramatically. The
National Child Benefit is the first truly national social . It is the first
joint federal-provincial/territorial initiative under the Social Union
Agreement - The first national social welfare program since the coming of
Medicare and the Canada Pension Plan in the 1960s. The 2000 federal Budget announced
large increases in funding and that CCTB funding would automatically rise with
inflation. The critics contend that the reform
discriminates against welfare families because they will see no net increase in
their child benefits, whereas the working poor and other low-income families
not on welfare (e.g., those on Employment Insurance) will enjoy an improvement.