Income Security for Children: A Supplementary Paper
Government of Canada
Published by authority of the
Minister of Human Resources Development
Copyright Minister of Supply and Services Canada
1994

Cat. No. MP90-2/6-1994
ISBN 0-662-61410-0
SC-057-10-94

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Table of Contents

Introduction: Children in Low-Income Families

Child Benefits
The Child Tax Benefit (CTB)
Provincial Social Assistance Benefits
Other Programs for Families with Children
Issues
Benefit Level
Support for Low-Income Working Families
Effectiveness of the Child Benefits System

Approaches to Reform
Approach 1: Enhanced and Re-targetted Child Tax Benefit
Approach 2: Integrated Federal-Provincial Benefit
Approach 3: Enhanced Working Income Supplement

Child Support
Issues
Recent Developments
Assured Minimum Child Support

Appendix I: Description of Programs that Provide 
Income Assistance for Families with Children

Appendix II: Impact of Illustrative Approaches to Reform

References

Preface

Social Security Reform Discussion Paper released

The Discussion Paper, Improving Social Security in Canada, released to the public on October 5, provides Canadians with a framework for participating in the reform of our social security system. The Paper takes a close look at why the social security system is not working for many Canadians and for the country as a whole. It sets a direction for change and offers a range of options for redesigning federal programs in the areas of working, learning and security. These programs include Unemployment Insurance, employment development services, child care and federal support for post-secondary education and social assistance.

Supplementary Papers provide analytical detail

This paper is part of a series of Supplementary Papers which are being released to provide Canadians with more detailed information about the current system and the options outlined in the Discussion Paper. This material is intended to provide a deeper understanding of the issues and to encourage more informed participation in the debate.

All contributions to the discussion are welcomed and encouraged. It is only with the participation of all Canadians that we can design an effective, fair, flexible and affordable system, which will respond to the needs of Canadians today and in the future.




Introduction

Children in Low-Income Families

Despite Canada's relative economic wealth, the number of children living in low-income families remains a serious and stubbornly persistent problem. The substantial improvement in this area during the 1960s and 1970s stalled in the 1980s and 1990s. At last count (1992), well over one million (1,265,000) children under the age of 18 - nearly one child in every five - live in low income families. (The term "low income families" refers to families living below Statistics Canada's Low-Income Cut-offs (LICOs). Statistics Canada publishes 35 separate low-income cut-offs based on various configurations of family size and community size. For example, in 1992, the LICO for a 3-person family living in a large city was $25,163. The LICO for three persons living in a rural area was $17,390. LICOs are established on the basis that families with incomes below these limits usually spend 54.7 percent or more of their income on food, shelter and clothing (based on analysis of the 1992 Family Expenditure Survey). Statistics Canada has stated that LICOs are not intended as a measure of poverty. There is, however no agreement on the definition of poverty or on a "poverty line" that should be used in Canada. LICOs continue to be the measure most commonly used in poverty studies. The reader is referred to The Canadian Fact Book on Poverty (1994) for a summary of the academic debate on the definition of poverty.) Of this total, slightly more than half (54 percent) live with two parents, while 41 percent live with lone-parent mothers. The remainder live in less common family arrangements, such as with lone-parent fathers or relatives other than parents. While the majority of low-income children live in two-parent families, the risk of low-income is actually much higher for children with single parents: six in ten children with lone-parent mothers live on low incomes, as compared to one in eight children living with two parents.
 
 

In comparison with other industrialized nations, Canada has a higher than average rate of low income among children. A group of academic researchers conducting the Luxembourg Income Study has constructed a standardized measure of low income which facilitates comparisons between countries. Based on this measure and using data from the 1980s, Australia. the United Kingdom, France, the Netherlands, Germany and Sweden have lower rates of low income among children than Canada. Only the United States has a higher rate. (Smeeding, 1992)

There is a strong association between poverty and negative outcomes for children:

* the infant death rate is twice as high in poor neighbourhoods than in rich neighbourhoods;
* poor children are more likely to die from injuries than other children;
* poor children are more likely to have chronic health problems and to be admitted to hospital than other children; and
* poor children are more likely to display psychiatric disorders, poor school performance and poor social skills.
 

Poverty Among Children in Selected Countries, Mid-1980s
Incidence of Poverty (Percent)

Canada 9 percent
U.S. 20.5 percent
Australia 9 percent
Sweden 2 percent
Germany 3.5 percent
Netherlands 3.75 percent
France 4 percent
U.K. 7 percent
Average 7 percent

Source: Smeeding 1992 (based on Luxembourg Income Study)

Incidence of Low Income Among Children 1980-1992

1980 Percentage of Children - 17 percent
1981 Percentage of Children - 17 percent
1982 Percentage of Children - 18 percent
1983 Percentage of Children - 19 percent
1984 Percentage of Children - 19 percent
1985 Percentage of Children - 18 percent
1986 Percentage of Children - 18.5 percent
1987 Percentage of Children - 18.5 percent
1988 Percentage of Children - 17 percent
1989 Percentage of Children - 16 percent
1990 Percentage of Children - 18 percent
1991 Percentage of Children - 19 percent
1992 Percentage of Children - 19 percent

Experts in child development acknowledge that poverty is not the only risk factor that can impede a child's physical, intellectual, social and emotional development. Other factors, such as isolation, lack of understanding of children's needs, family conflict and abuse can also place children at risk of not achieving their potential. However, the experts do agree that poverty is a core factor which causes and compounds other risk factors: poverty triggers "quite an impressive number of conditions which sooner or later appear in the list of threats to children and their families." (Bouchard, 1992)

Poverty not only affects poor children and their families, it also has an impact on society at large. Society pays the price of providing supports and services for children who are in poor mental and physical health, have suffered abuse, are unable to complete school or are generally unable to function in society. A 1989 Senate Committee report documented the link between the multiple risk factors associated with child poverty and the development of adult social problems that may require costly remedial interventions (Senate, 1989).

We can no longer afford the high personal and social costs associated with child poverty. One of the government's key objectives in undertaking social security reform is to reduce child poverty.

No single public policy intervention can achieve a lasting reduction in the number of Canadian children living in low-income families. In most instances, children are poor because their parents are poor; the primary means of addressing child poverty is therefore to strengthen the capacity of parents to earn income.

The Discussion Paper entitled Improving Social Security in Canada describes several reform initiatives designed to support greater participation in the labour market. For example, the lack of adequate and affordable child care is a fundamental barrier to training, education and employment for some low-income families. The Discussion Paper confirms the federal government's interest in working with the provinces to expand the child care system. Another major barrier to full participation is inadequate training and skills. The Discussion Paper describes proactive measures aimed at getting unemployed individuals back into the labour force. It stresses the need for young people (i.e., prospective parents) to make a successful transition from school to the work force, and for all working Canadians to upgrade continuously their occupational skills.

Measures that enhance the employability of low-income parents and reduce barriers to work would reduce the incidence of low income among children. At the same time, a national commitment to reducing child poverty could involve other policy initiatives more directly targeted at children. In the Discussion Paper, improvements in the child support system and better income support for families with children are set out as possible priorities for reform.

This paper describes and assesses various approaches to reform of the child benefits system. The goal is to ensure that individuals and interested organizations have the information they need to understand the costs, benefits and interactions of various approaches. Other approaches may emerge from the process of public consultation. The issue of child support is discussed briefly in order to highlight federal and provincial initiatives already in progress.


Child benefits

Income assistance to families with children is one of the oldest parts of Canada's social security system, dating back to 1918 with the introduction of the Child Tax Exemption. The federal government and provincial governments operate child benefit programs that either pay direct cash benefits or indirect benefits in the form of income tax savings that assist parents with the costs of raising dependent children. In addition, all provincial and territorial welfare systems take children into account in the calculation of social assistance payments to families.

Appendix I lists the federal and provincial programs that provide income support for families with children. This paper focuses on the two most significant child benefits programs in which the federal government participates: the federal Child Tax Benefit (CTB) and provincial and territorial social assistance in respect of children. Federal, provincial and territorial programs that support services for children, including child care services, are not addressed in this paper.

Child Tax Benefit for a Family with One Child Over Age 6, 1994

For a family without income, the benefit level is $1,020 per year.
For a family with a working income of $10,000, the benefit goes to $1,520.
For a family with a net income level of $25,921, the benefit level goes down to $1,020
For a family with an income of $40,000, the benefit goes down to $670
For a family with an income of $67,000, the basic benefits cease.


The Child Tax Benefit (CTB)

In 1993, the federal government replaced the old system of family allowances and refundable and non-refundable child tax credits with a single Child Tax Benefit providing a monthly payment to families with children. In 1993, the CTB cost the federal government $5.1 billion and went to 3.1 million families, or 80 percent of all families with children.

The CTB is a tax-free, income-tested, monthly payment on behalf of children under the age of 18. It has three components: the basic benefit, a supplementary benefit for children under age 7 and a Working Income Supplement (WIS).

The basic benefit was designed to help families meet the costs of raising children. It is income-tested and varies according to the number of children in a family. The maximum basic benefit is $1,020 per child per year, plus an additional $75 for the third and each subsequent child in a family. The maximum basic benefit is payable to all families with annual incomes less than $25,921. The benefit is 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 receive basic benefits once net family income exceeds $67,000. (In Quebec, the income level at which small families no longer receive benefits is lower than $67,000. This is because Quebec varies the basic Child Tax Benefit according to the rank of the child in the family. Third and subsequent children receive considerably higher benefits than are paid in respect of the first and second child in a family. In Quebec, the "zero benefits" income level for a family with one child is $61,000, and for a family with two children is $63,000.)

The CTB includes a supplement of $213 per year for each child in a family who is under the age of 7. This supplement recognizes the additional costs, either direct or indirect, associated with raising pre-school children. The supplement is not available to parents who claim the Child Care Expense Deduction (CCED). (The CTB supplement for children under age 7 is reduced by 25 percent of any child care expenses claimed by parents for income tax purposes.)

The Working Income Supplement (WIS) supplements the employment earnings of working poor families. Families begin to receive benefits from the WIS once their earnings exceed $3,750. The benefit is calculated at 8 percent of earnings in excess of $3,750 and provides a maximum annual benefit of $500 for families with annual incomes between $10,000 and $20,921, regardless of the number of children in the family. The WIS begins to be reduced at a rate of 10 percent of family net income in excess of $20,921, until no benefit is paid when income reaches $25,921.

The diagram below illustrates how the current CTB works for a family with one child over age 6. It shows that if the family has no income, the benefit level is $1,020 per year. If the family's working income increases to $10,000, total benefits rise to $1,520 because of the additional Working Income Supplement. At net income of $25,921, the benefit level falls again to $ 1,020. At an income of $40,000, the family receives a benefit of $670. Benefits will disappear once the family's income exceeds $67,000.

Child Tax Benefit
Maximum Annual Benefits per Child, 1994
Basic Benefit $1,020
Supplement for third and each additional child 75
Supplement for children under age 7 213
Working Income Supplement 500

Quebec Variation (Basic Benefit)

Children aged 0-11
- 1st child 869
- 2nd child 1,000
- 3rd and additional children 1,597

Children aged 12-17
- 1st child 972
- 2nd child 1,103
- 3rd and additional children 1,700

Alberta Variation (Basic Benefit)

Children aged 0-6 933
Children aged 7-11 1,002
Children aged 12-15 1,131
Children aged 16-17 1,203

Benefit payments are automatically adjusted every July on the basis of income reported on the previous year's tax return. The annual benefit is divided into 12 equal monthly payments. Benefit levels and income thresholds are also indexed each July to any annual increase in the Consumer Price Index in excess of 3 percent.

The benefit amounts respond monthly to changes in family status, such as the birth of a child, a change in child custody, or a decline in family income as a result of separation or divorce. If, during a given year, family income fluctuates for other reasons (e.g., job loss) the benefit level adjusts the following July.

To reinforce their own priorities in the area of family policy, provinces may ask the federal government to vary the amount of the Child Tax Benefit according to the age and rank of children in a family. Alberta varies the rate according to the age of the child, while Quebec varies the rate according to both the age and the rank of the child in the family. The rate variation only applies to the basic benefit of $1,020 per child; the modified benefit for a particular child may not be less than 85 percent of the basic $1,020 benefit.


Provincial Social Assistance Benefits

Provincial and municipal social assistance programs are supported by the federal government under the terms of the Canada Assistance Plan (CAP). Under CAP, the federal government shares in the cost of provincial expenditures, providing that certain conditions are met. These programs are designed to provide income to meet the basic living costs of a family when all other financial resources have been exhausted.

Each province has established regulations which define the budgetary requirements covered by social assistance, as well as the treatment of income and assets from various sources. No two provinces use the same method for calculating social assistance benefit levels and there are, accordingly, significant variations in benefit levels across the country.

Even within a given province, there are wide variations in benefit levels among individuals and families in different circumstances. For example, in Ontario, there is no single social assistance benefit paid on behalf of children. In fact, there are 26 different social assistance rates for children, depending on the age of the child, family circumstances (such as number of adults and whether one or both parents are disabled), and type of living accommodation. (Naylor, Abbott and Hewner, 1994.)


Other Programs for Families with Children

In addition to the CTB and social assistance, governments provide a range of other benefits for families with children. These include universal benefits (i.e., benefits for all families, regardless of income), tax benefits for low-income families, special supports for low-income working families and insurance benefits.

Quebec is the only jurisdiction which currently provides benefits to families with children at all income levels. Families in Quebec receive monthly family allowances on behalf of all children under 18 and additional allowances for newborn and young children. Quebec, as well as other provinces, provides targetted allowances for children with disabilities.

Most jurisdictions provide some form of tax assistance for low-income families. The federal government, Ontario and Quebec provide sales tax credits. Many provinces provide property tax credits and/or special income tax reductions for low-income families.

Manitoba and Saskatchewan provide monthly cash benefits to low-income families with dependent children. These benefits are available to both social assistance recipients and working poor families. In effect, they enable low-income working families to retain some income support for their children as they make the transition into the labour force. Similarly, Quebec's Parental Wage Assistance Program (APPORT) assists low-income working parents by supplementing their earned income and providing direct subsidies for day care costs.

Both of the major federal insurance programs provide additional income support for beneficiaries with dependents. The Canada (and Quebec) Pension Plans provide benefits for the children of a deceased or disabled beneficiary. As of June 1994, the Unemployment Insurance Program provides higher benefits (60 percent of insured earnings) to claimants with low earnings and dependents. Other UI beneficiaries receive 55 percent of insured earnings.


Issues

In most instances, children are poor because their parents are poor. The most effective approach to child poverty is one that is sustainable over the longer term. As Improving Social Security in Canada stresses, for the majority of poor children, the best route out of poverty is to increase the capacity of their parents to earn income.

But income assistance for low-income parents in respect of their children can also play a role in alleviating child poverty. For families with no income from employment, income assistance includes child benefits which help cover the cost of raising children. Child benefits can also help parents with low-wage employment to stay in the labour market. Because wages are not adjusted for the presence of children, even parents with full-time jobs may not have adequate incomes both to provide for the needs of their children and to meet the additional costs associated with their employment, including child care. Thus, low-income families face a dilemma commonly referred to as the "welfare trap". Depending on their specific circumstances, if they leave social assistance to enter the work force, families may face an actual reduction in their standard of living, since low wage employment may not make up for the combined impact of the loss of social assistance benefits, loss of in-kind benefits provided only to social assistance recipients, and increase in employment-related expenses.

Approaches to child benefits reform can be assessed against three major issues:

* benefit levels;
* the impact on low-income working families; and
* implications for the overall effectiveness of the child benefits system.

Each of these issues is discussed below.


Benefit Level

For many social policy analysts and children's advocates the issue of greatest concern is the adequacy of child benefits available to low income parents. They point to the persistent high rate of low income among children as evidence that current benefit levels are not adequate. To provide a context for this argument, it is useful to consider the level of child benefits currently received by low-income families.

Current benefit levels

The most significant child benefit programs for low-income families with children in which the federal government participates are the federal CTB and provincial social assistance programs. There are also a number of other federal and provincial tax expenditures and direct transfers which benefit families. (For a description of federal and provincial child benefit programs, see Appendix I).

A family with no earnings and one child over age 6 will receive a basic Child Tax Benefit of $1,020 per year. Calculating the same family's entitlement to provincial social assistance benefits in respect of the child is more difficult. Welfare benefits vary across the provinces and within provinces according to family type, family circumstances, such as the presence of a parent with a disability, and shelter costs. Benefits paid in respect of the first child in a lone-parent family are typically highest. Benefits for children may also vary according to the age of the child, although there is no consistent pattern across the country. With these caveats in mind, $3,000 per year seems to be a reasonable estimate of the national average social assistance benefit paid in respect of one child. (This estimate was calculated using the following methodology. For each province, incremental social assistance benefits paid in respect of children were estimated for different family configurations (one- and two-parent families, one and two or more children) on the basis of information provided by the National Council of Welfare's Welfare Incomes 1992. Incremental benefits reflect the costs of providing shelter and other basic requirements for each additional family member. It was assumed that parents have no other source of income and thereby receive maximum benefits. Incremental benefits for children in each family configuration were multiplied by the number of children living in that configuration to arrive at an estimate of total provincial expenditures on children. Expenditures by each province were added together for a national total. This figure was then divided by the total number of children on social assistance across Canada to arrive at a national average benefit of $3,000 per year per child.) For families with no other source of income, combined CTB and social assistance benefits would therefore be about $4,000 per year per child. Even families with small amounts of income from other sources, such as child support or disability benefits, will not exceed a total average benefit of $4,000 per year per child. This is because these other sources of income are usually offset by reductions in social assistance benefits.

Working poor families are able to meet some portion of the cost of raising their children from their own resources. While these families would not be expected to receive the same level of child benefits as families with no earnings, in fact, they typically receive considerably less than the estimated average of $4,000 in annual child benefits available to families on social assistance. In most provinces, families with earnings are eligible only for the federal CTB (basic benefit of $1,020 per child per year, plus Working Income Supplement of up to $500 per family per year).

In Improving Social Security in Canada, the government suggests that one potential objective in reforming child benefits could be to increase the benefit levels of low-income families via an enhanced and re-targetted Child Tax Benefit.


Support for Low-Income Working Families

An income-tested child benefit provides a financial incentive for low-income families to remain in the work-force. Child benefits are not fully taxed back from the recipient as earnings increase at relatively low levels of family income. Further, the maximum benefit payable under the federal Child Tax Benefit extends beyond the income level of families on social assistance, so that social assistance recipients who are entering the labour force continue to receive maximum CTB benefits.

Directly subsidizing low-income work, for example through the Working Income Supplement, is another, more targeted, approach to providing support for parents in the work force.

The federal and some provincial governments have introduced various measures to provide support to low-income working families. However, there continue to be significant shortcomings in these efforts. For example, provincial governments, for the most part, continue to provide in-kind benefits to families on social assistance that are not provided to working poor families with similar income. Examples include prescription eyeglasses, dental benefits and prescription medication.

The Working Income Supplement component of the CTB, which was introduced in 1993, represented a significant innovation in federal child benefit programs. Designed to provide a positive incentive for labour force participation, the WIS helps offset the loss of social assistance benefits for families entering the work force and covers some of the costs related to working (e.g.. child care, transportation to work, additional clothing). These are costs not incurred by social assistance families in similar economic circumstances. Nevertheless, the impact of the WIS has been limited. The current benefit level is modest (up to $500 per family per year). Moreover, it is not immediately responsive to increased work effort, since it is only payable the year following the increase in work effort.

The welfare trap therefore persists, despite the efforts of governments to assist low-income families to enter and remain in the labour force. In many instances, the current supports available to families making the transition to the labour market are far from adequate to compensate for the financial loss these families incur.


Effectiveness of the Child Benefits System

Federal, provincial and territorial governments are involved in a wide range of cash and tax transfer programs which deliver benefits to the same families in respect of the same children. Critics have argued that the resulting complexity and duplication not only create difficulties for the recipients of benefits, but also prevent taxpayers from assessing whether the public supports provided by all levels of government to low-income children are meeting their goals. An effective child benefits system would be one that is equitable (i.e., provides the same treatment for families with the same circumstances) and responsive to changes in the needs of clients.

Differences in eligibility criteria between federal and provincial programs create inequities between clients. For example, a family claiming refugee status may be eligible for provincial social assistance benefits, but be ineligible for the CTB. A sole support mother living with a common-law partner may be treated differently in relation to social assistance and the CTB because of different federal and provincial definitions of common-law status. Differences in the take-up of federal and provincial programs by eligible families also create inequities. Some families eligible for both provincial social assistance and the federal CTB receive only the latter because of the more restrictive administrative criteria, greater compliance burden and stigma they believe is associated with welfare.

There are also differences in how quickly federal and provincial benefits respond to sudden changes in the needs of beneficiaries. For example, families who experience a decline in income typically become eligible for social assistance immediately, but will not immediately receive CTB payments, since the CTB responds to changes in income (for reasons other than a change in family status) after six to 18 months. This difference in responsiveness is a product of differences in the function of current federal and provincial programs. Whereas social assistance provides immediate income support of last resort for families with no other source of income, the federal benefit supplements the income that families are able to obtain from a variety of other sources.

One of the themes in the Discussion Paper on social security reform is the need to improve the delivery of social programs to meet the needs of people more effectively. The above examples illustrate that there is scope for better delivery of the various federal and provincial benefits programs for families with children.


Approaches to Reform

The Discussion Paper sets out three illustrative approaches to reform of the CTB. The first two would involve significant reform of the CTB benefit structure. The third approach focuses on a more limited reform of the Working Income Supplement of the CTB.


Approach 1: Enhanced and Re-targetted Child Tax Benefit

One approach to reform would be to provide additional income support for all low-income families with children through an enhanced and re-targetted Child Tax Benefit.

There are many ways in which the parameters of the current CTB could be altered in order to provide higher benefits to recipients with low incomes at the same time as benefits are reduced for higher-income recipients. (All of the program designs illustrated under Approach 1 have been modelled on the basis of a single benefit structure across all provinces. In practice, provincial governments may want to work with the federal government on particular configurations of benefits within provinces, as is currently done in Alberta and Quebec.)

Approach 1A
for a Family with One Child Over Age 6

For a family with no income, the existing benefit of $1,000 would increase to $2,500.
For a family with an income of $10,000, the existing benefit of $1,500 would increase to $2,500.
For a family with an income of $20,000, the existing benefit of $1,500 would remain at $1,500.
For a family with an income of $25,000, the existing benefit of $1,000 would remain at $1,000.
For a family with an income of $30,000, the existing benefit of $800 would remain at $800.
For a family with an income of $40,000, the existing benefit of $600 would remain at $600.
For a family with an income of $50,000, the existing benefit of $500 would decrease to $250.
For a family with an income of $60,000, the existing benefit of $200 would decrease to $0.00.
For a family with an income of $70,000, there is no entitlement to benefits.
Source: Human Resources Development

Approach 1A: Enhanced Benefits Up to $2,500 per Child [see Appendix II, Approach 1A, for detailed impact analysis]

A possible design has been modelled here to illustrate the issues and trade-offs that arise. Under this illustrative design, the current Child Tax Benefit, including its supplementary benefits (i.e., the Working Income Supplement, the supplement for children under age 7, and the supplement for third and subsequent children) is replaced with a new child benefit. This new program would provide a maximum annual benefit of $2,500 for the first child in a family, $2,000 for the second child and $1,500 for the third and each subsequent child. Maximum benefits would be payable to families with incomes up to $15,000.

In this illustrative design, benefits would be reduced on incomes in excess of $15,000 as follows:

* 13.6 percent of family income between $15,000 and $25,921 for families with one child;
* 22.5 percent of family income between $15,000 and $25,921 for families with two children; and
* 26.2 percent of family income between $15,000 and $25,921 for families with three and more children.

For families with a child(ren) under age 7, these reduction rates would be slightly lower (2 percent per child lower than the rates stated above). (This component of the benefit design would offset the elimination of the current supplement for children under age 7.) As the diagram below illustrates, for family incomes between $25,921 and $45,000, benefits would be reduced more gradually (i.e., at a rate of 2.5 percent for families with one child and 5 percent for families with two or more children, as in the current CTB). At family incomes above $45,000, benefits would be reduced at a rate of 6 percent for families with one child and 11 percent for families with two or more children. (An income level of $45,000 was chosen for the "turn-down" in benefits because it approximates the median family income. In 1992, the median income of all Canadian families was $48,000.)

Approach 1A
Impact by Family Income

Family Income $0 to 25,000
Benefit Increase: 930,000 families
Benefit Loss: 0
No Change: 0

Family Income $25,000 to 45,000
Benefit Increase: 275,000 families
Benefit Loss: 0
No Change: 1,100,000 families

Family Income $45,000 to $60,000
Benefit Increase: 50,000 families
Benefit Loss: 750,000 families
No Change: 790,000 families

Family Income $60,000 plus (Families with income of $60,000 or more who experience no change are not recipients of the current Child Tax Benefit.)
Benefit Increase: 0
Benefit Loss: 450,000 families
No Change: 1,000,000 families

Source: Human Resources Development

The program described above would provide increased benefits to 1.3 million Canadian families with children. Another 1.1 million families would receive lower benefits. The design would have no effect on the remaining 900,000 families currently receiving the CTB.

All families with incomes below $25,000 would receive increased CTB benefits under this illustrative design. For these families, the average increase in benefits would be $l,370 per year. Some modest-income families - those with incomes between $25,000 and $45,000 would get a slight increase in benefits, though for most (75 percent of recipients at this income level) there would be no change in benefits. Most families with incomes over $45,000 would receive reduced benefits (90 percent of families at this income level would lose an average of $330 per year).

This design would have a positive impact on lone parents, who are concentrated in the lowest-income categories. While they constitute only 17 percent of all families with children, lone parents would receive almost half (46 percent) of the net gains from this design.

Approach 1A
Impact by Family Type

Family Type - Single-Parent
Benefit Increase: 77 percent of families
Benefit Loss: 6 percent of families
No Change: 17 percent of families

Family Type - Two-Parent
Benefit Increase: 23 percent of families
Benefit Loss: 42 percent of families
No Change: 35 percent of families

Source: Human Resources and Development

This benefit design would provide additional assistance to working poor families that would help them close the gap between low wages and the needs of their children. However, the net impact of an enhanced CTB on families making the transition from social assistance to the work force will depend on certain technical aspects of the benefit design. In the design illustrated above, families with incomes between $15,000 and $25,921 face a relatively steep reduction in child benefits as their earnings increase. This design also eliminates the WIS as a stand-alone component of the CTB. Although current recipients of the WIS would not see their overall child benefits reduced, elimination of the WIS does remove a positive incentive for some families to increase their earnings. Some of the alternative designs and approaches to reform described below better address various aspects of the welfare trap, for example, by retaining the WIS, by maintaining low tax-back rates on families making the transition to the labour force or by providing equal child benefits to families on social assistance and low-income working families.

The assessment outlined above is based on the assumption that all low-income families would receive their full benefit entitlement from an enhanced CTB. It assumes that federal benefits are "passed on'' to eligible families without provinces making offsetting reductions in social assistance. If this assumption is wrong, social assistance families could be no better off in terms of their overall income position as a result of Approach 1A - their increased federal benefits would be fully or partially offset by reductions in provincial social assistance benefits. The Discussion Paper on social security reform notes that the federal government would need to work with provincial governments to ensure that families on social assistance get the full benefit from this approach. One possibility might be to integrate provincial social assistance benefits in respect of children with an enhanced CTB.

The program design described above would cost the federal government $1.0 billion, in addition to the $5.1 billion currently spent on the CTB. (Incremental costs have been reduced by a $400 million reallocation away from middle - and upper-income families, achieved by increasing the benefit reduction rates for family incomes in excess of $45,000 (see description of Approach 1A). If reduction rates had remained at their current levels on incomes above $45,000, the incremental cost of Approach 1A would have been $1.4 billion.) In the current fiscal circumstances, this cost would be covered by a reallocation from another federal program. The Discussion Paper on social security reform suggests that the Canada Assistance Plan could be a possible source of funds for an enhanced CTB.

Alternative Designs (All of the designs illustrated under Approach 1 make two common assumptions: federal benefits are "passed on" to eligible families without offsetting reductions in social assistance; and supplementary benefits, including the WIS, are eliminated. Other approaches to reform (see Approaches 2 and 3) do not make these assumptions.)

It was noted above that there are many possible ways to re-design the current CTB to enhance benefits for low-income families. Any design implies a series of choices on four key issues: net cost of the design; level of benefits for low-income families; extent of support for low-income working families; and impact on modest and middle-income families. To illustrate the implications of changing particular design features, it is useful to consider a few alternative designs to the one illustrated above.

Approach 1B - Enhanced benefits up to $2,500 per child with lower benefit reduction rates

One alternative design could address the issue of high reduction rates on benefits for families with incomes over $15,000. The objective of this option, relative to the first, is to provide greater support for modest - and middle-income families. The major trade-off in this alternative is a higher net cost for the program.

Briefly, this alternative would provide a benefit of $2,500 for the first child in a family, $2,000 for the second child and $1,500 for the third and subsequent children. On incomes over $15,000, benefits would be reduced at a rate of 5.5 percent for families with one child,10 percent for families with two children, and 13 percent for families with three or more children.

The net cost of this option is $2.0 billion. Relative to the first option, many more families would receive increased benefits (2.4 million families would receive an average increase in benefits of $950 per year.) Somewhat fewer families than in the first option would see their benefits reduced - 865,000 families would lose an average of $415 annually relative to the current CTB. (See Appendix II, Approach 1B, for detailed impact analysis.)

Approach 1C - Enhanced benefits up to $2,000 per child

If the above illustrations are considered to be too costly, one could consider an alternative design which provides more modest increases in benefit levels relative to the status quo, moves the income threshold for maximum benefits somewhat higher and retains relatively high reduction rates on benefits, similar to the rates used in Approach 1A.

In this example, families with net income of less than $18,250 would receive maximum benefits. However, benefit levels would be lower than in the other illustrations: $2,000 for the first child; $1,500 for the second child; and $1,300 for the third and subsequent children. Benefits would be reduced more rapidly than in the current CTB on family incomes between $18,250 and $25,921, at the current rate on incomes between $25,921 and $50,000, and again more rapidly on incomes above $50,000.

As in the previous illustrations, this design would be of greatest benefit to low-income families. A total of 1.4 million families would receive increased benefits, including 920,000 families with incomes under $25,000. However, the average increase in benefits for these families would be only $610 per year, significantly less than in Approach 1A. Because maximum benefit levels are lower than in the previous illustrations, the net cost to the federal government is also lower - $800 million. Lower benefit levels could also mean it is not necessary to reallocate as much from higher-income recipients of the CTB. In this example, 735,000 families with incomes over $50,000 would receive an average reduction in benefits of $75. (See Appendix II, Approach 1C, for detailed impact analysis.)

Approach 1D - Enhanced benefits up to $2,500 per child with substantial retargetting

It may be useful to consider a final illustration which would not require reallocation from CAP or other federal programs. Of course, such a design would involve relatively severe reductions in CTB benefits for modest- and middle-income families. For example, to design a program which is cost-neutral, but which provides the same benefit increases for low-income families as in Approaches 1A and 1B, benefits could be reduced more rapidly than at present on incomes in excess of $25,921. This design would result in reduced benefits for 2.2 million families (close to 70 percent of current CTB recipients). Included in this total would be close to 1 million modest-income families (i.e., those with family income between $25,000 and $45,000) whose benefits would fall by an average of $430 per year.

Summary

In summary, under any design, an enhanced CTB would address the issue of benefit adequacy for many low-income families (on the assumption that provinces pass on benefit increases to social assistance families). It would supplement the incomes of working poor families and thereby help meet employment-related costs.

Beyond these general impacts common to all designs under Approach 1, there are particular impacts and tradeoffs that hinge on specific choices made regarding: benefit levels; income thresholds at which benefits are reduced; reduction rates; and the overall net cost which is considered affordable. This section has described four alternative designs in order to illustrate these tradeoffs and inform discussions as Canadians work together to design a better system of child benefits. To recapitulate, the first illustration (Approach 1A) provided significant benefit increases for a well-defined target group (families with incomes below $25,000), with significant reallocation from families with incomes over $45,000, and a net cost of $1.0 billion. Approach 1B provided the same benefit increases to a broader target group, including virtually all families with incomes below $45,000. The result was a higher net cost-$2.0 billion. The final two approaches, 1C and 1D, are relatively less costly. In Approach 1C, benefit increases are less generous and are relatively well-targetted to low-income families. There is some reallocation from families with incomes above $50,000 and a net cost of $800 million. Finally, Approach 1D illustrates a zero cost option which funds an increase in benefits to low-income families entirely from a reallocation from other current CTB recipients.

Regardless of design Approach 1 does have drawbacks. It does not go as far as it might in addressing the problems of overall effectiveness, simplicity and the welfare trap.


Approach 2: Integrated Federal-Provincial Benefit

This approach would address some of the limitations of the first by integrating provincial social assistance benefits for children and the federal CTB to create a single benefit system. All low-income families with children would have access to this new benefit, regardless of the family's source of income - wages, welfare or unemployment insurance. In effect, social assistance benefits in respect of children would be separated from adult assistance and targetted to families on the basis of an income-test, rather than the needs-test used in determining eligibility for social assistance. All low-income families would receive the same benefits in respect of their children.

This approach to reform has been a constant for many years in discussions among child benefits experts, non-governmental organizations and various federal and provincial governments. The
comprehensive reform process now underway provides a rare opportunity for a more thorough investigation of the feasibility of this approach.

There have been indications of interest in this approach from both Ontario and Saskatchewan. The government of Ontario proposed a program to be called the Ontario Child Income Program (OCIP) which would have had the same objectives as the integrated benefit described above. Ontario's proposal to "remove children from the welfare system" - perhaps better described as removing children's benefits from the welfare system - was a key component of a proposed comprehensive reform of income support programs announced by the province in 1993. The provincial government has since announced that it is unable to proceed with OCIP for fiscal reasons.

The government of Saskatchewan has also explored the possibility of introducing an integrated child benefit for all low-income families in that province.

There are a variety of possible approaches to delivery and financing of an integrated child benefit. The benefit could be delivered by one level of government. Alternatively, both levels of government could run independent, but integrated, components of the system. For example, the federal government could provide a base benefit, with a "top-up" benefit provided by provincial governments. Finally, there is the possibility of a benefit jointly financed and delivered by both levels of government.

Regardless of the delivery mechanism, governments would have to decide whether the integrated benefit system would provide additional benefits to all low-income families with children, or whether additional benefits would focus on working poor families. In some provinces, it might be felt that for social assistance recipients, the equivalent of existing federal and provincial benefits is adequate and/or is all that can be afforded. Social assistance recipients would still benefit from the fact that they could keep their child benefits as they move off welfare. However, even an integrated benefit that did not improve benefit levels for social assistance recipients would be more costly for governments than the current system, since it would extend the child-related benefits currently received by parents on social assistance to parents with low wage employment. Therefore, to make an integrated benefit possible, both levels of government would have to be prepared to reallocate funds from current expenditures.

Assessment of Approach 2

A detailed assessment of this approach, in particular its costs and distributional impacts, can only be undertaken within a joint federal/ provincial/territorial context. The specific design of an integrated child benefit could only be determined on the basis of discussions between federal, provincial and territorial governments, nongovernmental organizations and interested experts.

Regardless of program design, removing children's benefits from the welfare system would undoubtedly strengthen employment incentives (and diminish the welfare trap) for low-income parents with children. At present, in most provinces, two parents with one or two children, working full-time at minimum wage can exceed, by a modest amount, the incomes they would receive on welfare. (National Council of Welfare, 1993b) However, lone parents and one-earner families with children can receive higher incomes from welfare than from full-time employment at the minimum wage. (Quebec is an exception to this general rule. In Quebec, the Parental Wage Assistance Program (APPORT) provides an earnings supplement which significantly improves the income position of lone parents in the labour market.) While some would argue that social assistance benefits must exceed a single minimum wage income in order to provide adequately for the needs of all family members, this situation nevertheless produces a negative impact on incentives to work. Social assistance families with only one earner know that their chances of leaving welfare depend on their ability to secure well-paying jobs, and some working-poor families understand that they would be better off financially if they left the labour market and relied on social assistance.

From the perspective of beneficiaries of child benefits, an integrated benefit system would have several advantages. A "single-window" approach to delivery of child benefits would mean easier access for those who are currently eligible for a mix of different programs. In combination, the administrative strengths of the income tax and social assistance systems could allow for a benefit that is more responsive, particularly to changes in income. The system would also be more equitable in that families in similar circumstances would be treated the same. Federal and provincial governments would harmonize eligibility criteria (e.g., definition of a common-law relationship, eligibility of refugees etc.).

In summary, an integrated benefit has many advantages.

* Providing equal child benefits to social assistance families and working poor families smooths the transition from welfare to work;
* The level of child benefits received by working poor families would increase;
* Governments could choose to increase the current level of child benefits available to families on social assistance;
* The overall effectiveness of the child benefits system could be improved.

There would, of course, be a cost associated with these improvements. Governments would be faced with difficult decisions regarding reallocations from other areas.


Approach 3: Enhanced Working Income Supplement

This approach focuses on enhanced support for working poor families. Its objective would be to help low-income working families to remain in the labour market by compensating for some of the additional costs (such as child care) that parents incur in order to work and by offsetting the loss of social assistance benefits. A relatively straight forward way that this could be achieved is by increasing the benefit level of the Working Income Supplement (WIS). This increase in benefits could be financed by a reallocation of basic CTB benefits from higher-income families.

This approach would be relatively simple to implement. There would be little interaction with most provincial social assistance systems. (There would be some interaction between an enhanced WIS and Quebec's Parental Wage Assistance program (APPORT). APPORT supplements the employment income of low-income parents. Depending on design, there could be significant overlap between beneficiaries of APPORT and beneficiaries of an enhanced WIS.) Approach 3 could therefore be implemented by the federal government as a first step in child benefits reform, with the longer-term goal of an integrated federal-provincial benefit.

Illustrative Design for Approach 3
for a Family with One Child Over Age 6

Family Income $0 to $5,000
Existing Benefit: $1,000
Approach 3 Benefit: $1,000

Family Income $10,000
Existing Benefit: $1,500
Approach 3 Benefit: $2,000

Family Income $20,000
Existing Benefit: $1,500
Approach 3 Benefit: $2,000

Family Income $30,000
Existing Benefit: $850
Approach 3 Benefit: $850

Family Income $40,000
Existing Benefit: $800
Approach 3 Benefit: $800

Family Income $50,000
Existing Benefit: $475
Approach 3 Benefit: $475

Family Income $60,000
Existing Benefit: $300
Approach 3 Benefit: $0

Family Income $70,000
Existing Benefit: $0
Approach 3 Benefit: $0

Source: Human Rights Development

To illustrate this approach, consider the impact of increasing the maximum Working Income Supplement from $500 to $1,000 per family per year. The supplement would continue to be paid when annual family earnings reach $3,750. For every dollar of earnings in excess of this amount a family would receive $0.16 in benefits until the maximum benefit of $1,000 was reached at earnings of $10,000. The maximum benefit would be payable on family earnings between $10,000 and $20,921. On net family income in excess of $20,921, the Working Income Supplement would be reduced by $0.20 on the dollar until it disappeared at an income level of $25,921. If the funding source were the CTB, funds could be reallocated from higher-income families by increasing the reduction rate for the basic CTB benefit on incomes above $53,000, from the current rate of 2.5 percent to 6 percent for families with one child and from 5 percent to 12 percent for families with two or more children. Of course, if funds were reallocated from another source to, support an enhanced WIS, basic CTB benefits would not have to change. In this instance, no families would experience benefit reductions.

Illustrative Design for Approach 3
Impact by Family Income

Family Income $0 to 25,000
Number of Families to receive the Benefit Increase: 500,000
No Change: 930,000 families

Family Income $25,000 to 45,000
Number of Families to receive the Benefit Increase: 110,000
No Change: 1,100,000 families

Family Income $45,000 to 60,000
No Benefit Increase
Number of Families that have a Benefit Loss: 250,000
No change: 775,000 families

Family Income $60,000 plus
Number of Families that have a Benefit Loss: 460,000
No Change: 1,000,000 families

Source: Human Resources Development

Assessment of Illustrative Design under Approach 3 [see Appendix II for detailed impact analysis]:

This illustrative design would redistribute about $200 million per year away from higher-income families to provide an average benefit increase of $330 annually to 610,000 working poor Canadian families with earnings between $3,750 and $25,921. About 730,000 families with net incomes above $53,000 would lose an average of about $275 annually.

This approach reflects a clear commitment to low-income working families. While it would not increase benefits for social assistance families with no employment earnings, it would reduce the welfare trap these families face. As the Discussion Paper notes, an enhanced WIS could be a useful first step in a longer-term, more comprehensive reform.


Child support

Issues

It was noted in the introduction to this paper that children in lone-parent families are more likely to live on low incomes than children living with both of their parents. In 1992, 53 percent of lone-parent families lived below Statistics Canada's Low-Income Cut-offs (LICOs). Among two-parent families, the incidence of low income was 11 percent.

Most lone-parent families (more than 80 percent) are headed by women. There are several factors which could explain the high incidence of low income among these families. On average, Canadian women continue to earn less than their male counterparts. The combination of low wages and lack of affordable child care makes labour force participation difficult, if not impossible, for many lone mothers. Yet, low rates of labour force participation and low wages are only part of the answer. In many instances, lone parents are poor because they are raising their children without the benefit of adequate financial support from the non-custodial parent.

There is very little national information on the level and regularity of child support payments by non-custodial parents. What we do know suggests that many payments are low - that is, too many payments are not based on an equitable sharing between parents in the costs of raising their children. Many custodial parents receive only sporadic child support payments; others receive no payments at all.

The Discussion Paper suggests that improvements in the child support system would help further the government's goal of reducing child poverty in Canada. The remainder of this section summarizes initiatives already under way which are intended to strengthen the financial contribution of non-custodial parents to the care of their children. The section concludes by suggesting that governments in Canada may want to review the experiences of various countries that have established a stronger role for governments in ensuring that all custodial parents receive a minimum level of child support.


Recent Developments

Representatives of the federal, provincial and territorial governments are currently completing work on a study of the child support system that was initiated by Justice Ministers in 1990. Expected to be released this winter, it will include recommendations for change in three areas:

* it may suggest a formula which could be used by the courts to determine levels of child support (the formula could increase average levels of child support and improve the consistency of awards among families in similar economic circumstances);

* it may make recommendations concerning the current tax treatment of child support, (At present, child support payments are deductible from the income of the parent who makes the payment, and are considered as taxable income of the parent who receives the payment. The issue of the tax treatment of child support payments is currently being examined by the Supreme Court of Canada. A decision is expected within the next several months.);

* it may suggest improvements in the area of support enforcement.

The recommendations of the federal/provincial/territorial committee will reflect input received from interested Canadians and affected organizations who participated in public consultations held in 1991 and 1992.

At the same time, the federal government has recently completed a separate process of consultation and review on child support, with a particular focus on the issue of tax treatment. During the summer of 1994, a Task Group on the Tax Treatment of Child Support, led by the Secretary of State (Status of Women and Multiculturalism), heard from hundreds of organizations and individuals about a range of child support issues. Two key messages were conveyed to the Task Group. First, there is a consensus that the child support system must be improved. Second, Canadians told the Task Group that governments must act to address three interdependent child support issues: levels of child support awards, tax treatment and enforcement.

Finally, some provinces have acted to improve the enforcement of child support orders within their jurisdiction. For example, in March 1992, Ontario implemented the Family Support Payments Plan Act, which requires employers to deduct child support payments from wages and transfer the amount to a provincial enforcement agency. Within one year of implementation, there was a significant increase in the proportion of families receiving support payments in cases in which automatic wage deduction applied. Better enforcement of child support orders for custodial parents on social assistance resulted in savings in provincial social assistance expenditures during the same year. In 1992, New Brunswick established a system requiring non-custodial parents to choose between three options to ensure payment of support orders: payroll deduction, garnishment of wages by an enforcement agency, or advance payment of three months of child support. Other provinces are also taking steps to improve enforcement.


Assured Minimum Child Support

Governments are close to completing the research and consultations that are necessary to address the major issues of child support levels, tax treatment and enforcement. As a longerterm initiative, governments may also wish to review the experience of jurisdictions that have been testing systems that provide an assured minimum level of child support for custodial parents.

We know that several OECD countries provide an assured child support benefit, or, as it is frequently called, an "advance maintenance benefit". These countries provide a guaranteed minimum payment for custodial parents in cases where the non-custodial parent is unable to pay, or makes payments which fall below an established minimum. Other countries have developed more limited programs in which minimum payments by the state may depend on the age of the child or may be discontinued after a specified number of years.


Appendix I

Description of Programs that Provide Income Assistance for Families with Children

[Note: Appendix I does not include descriptions of the federal Child Tax Benefit (CTB) and provincial social assistance programs. These major programs are described in the text. Descriptions of provincial programs are based on information provided in the Inventory of Income Security Programs in Canada, prepared by HRD in cooperation with provincial officials.]

Federal Programs

CPP/QPP Children's Benefits

Both the Canada and Quebec Pension Plans (C/QPP) provide additional benefits for the dependent children of a beneficiary of a disability pension and the dependent children of a deceased contributor. Under both CPP and QPP, the disabled contributor's child benefit and the orphan's benefit are payable on behalf of children up to age 18, and up to age 25 if in full time attendance at school. The maximum monthly benefit payable in 1994 to a disabled contributor's child or an orphan is $160.47 under CPP and $50.95 under QPP.

Special Allowances

Children's Special Allowances are payable to government departments, agencies and institutions which maintain children under the age of 18. In some cases payments may be made directly to foster parents. The rate payable is the same in all provinces and territories, and is equal to the basic amount of the Child Tax Benefit ($85 monthly in 1994).

Newfoundland

Special Child Welfare Allowance

A family maintaining a physically or mentally handicapped child under 18 years of age may apply for this monthly non-taxable allowance. The allowance is intended to assist families in meeting the cost of drugs, services and medical devices related to the child's disability. For families in receipt of Social Assistance benefits, the allowance is considered to be assistance for a special need. The amount payable is based on the child's special needs and an assessment of the financial capability of the parents to contribute toward the child's maintenance as determined using guidelines on net salary. The maximum allowance payable in 1994 is $424 per month per child.

Quebec

Quebec Family Allowance (Allocation familiale du Québec)

This program provides for the payment of a non-taxable monthly allowance (in addition to the federal Child Tax Benefit) to the parent or guardian of an unmarried child under the age of 18 who is not a ward of the province. The applicant must have resided in Quebec for at least one month or be paying Quebec income tax. Persons eligible for the Child Tax Benefit are not required to apply; they receive the provincial benefits automatically.

The allowance is not considered as income in the determination of eligibility for programs of last resort under the Income Security Act. Annual rate increases, which are based on the Consumer Price Index (CPI), are announced in the provincial budget. Monthly Quebec Family Allowance levels in 1994 are $10.91 for the first child, $14.54 for the second child, $18.18 for the third child and $21.78 for each additional child.

Allowance for Young Children (Allocation pour jeune enfant)

Since January 1989, a monthly non-taxable allowance for children under six years of age has replaced the provincial Availability Allowance (Allocation de disponibilité). This allowance is payable in the form of a tax credit and added to the household's monthly Quebec Family Allowance cheque.

The amount of the monthly allowance varies according to the rank of the child in the family as established for the purposes of the Quebec Family Allowance (i.e., the rank among all siblings under 18). The monthly allowance in 1994 is $9.77 for the first child under six years of age, $19.53 for the second such child and $48.83 for each additional child under six in the family.

Allowances for Newborn Children (Allocation à la naissance)

Since July 1988, a non-taxable allowance is paid in respect of each child in a family who was born or adopted on or after May 1, 1988. In 1994, these amounts are as follows:

* $500 for the birth or adoption of a child of first rank in the family;
* $1,000 for the birth or adoption of a child of second rank, payable in two instalments of $500 each; and
* $8,000 for the birth or adoption of a child of third or subsequent rank, payable in quarterly instalments of $400 until the child reaches the age of 6 years.

Allowance for Handicapped Children (Allocation pour enfant handicapé)

A family raising a child under 18 years of age with a severe and permanent impairment may apply for an allowance to assist them in caring for the child. The child must be certified by a physician as being affected by a hearing, visual or motor impairment, mental retardation, or a psychological or chronic physical illness. Eligible families who are either caring for the child at home or paying the full costs of the child's care in a hospital or reception centre receive this allowance in addition to their monthly Quebec Family Allowance. In 1994, this allowance is equal to $119.22 per handicapped child per month.

Parental Wage Assistance (PWA) (Aide aux parents pour leurs revenus de travail - APPORT)

This program was implemented in May 1988 and made retroactive to January of that year. The financial assistance provided by the PWA program contains three components: a supplement to employment income, reimbursement of a portion of eligible day-care expenses and a housing allowance, where applicable. In addition, families eligible for the PWA program do not have to pay provincial income tax.

There are two major target groups for PWA. Workers with modest incomes and with dependent children will be encouraged by PWA to remain in the work force. Unemployment Insurance or welfare recipients with dependent children will have an incentive to join the work force.

Applicants to the PWA program (and their spouses, if applicable) must meet the following criteria:

i) They must be residents of Quebec.
ii) They must have at least one dependent child. A maximum of two dependent children may be designated for calculation of benefits, although all dependent children are taken into account for reimbursement of a portion of child care expenses and for payment of the housing allowance.
iii) They must have limited assets.
iv) They must expect to earn income within certain limits: employment, business or professional earnings must fall within the limits set by PWA.

The assistance is calculated according to the applicant's estimated employment income for the year. It is paid in monthly instalments equivalent to 75 percent of the expected annual benefit calculated on a monthly basis; these instalments are paid only for those months in which the applicant earns employment income. The balance will be paid by the Ministry of Revenue at the end of the year, when a reconciliation is made between the instalments paid and the benefit actually due, taking into account the predominant family situation and the actual earnings during the year. Applicants are required to report any change during the year in their family or financial situation. Any overpayments that might occur during the year, where applicable, will be recovered at the time of the annual reconciliation. Enrolment in the program takes place once a year. In 1994, Parental Wage Assistance program benefits (earnings supplement, day care cost assistance and special housing allowance) can reach almost $6,000 for a working single parent with a child in day care (where day care costs are assumed to be $2,500 per year).

Quebec Tax Reductions for Families

A non-refundable child tax credit is available to families with dependent children. In addition to the basic amount in respect of each child, there is an additional credit available to lone-parent families.

In addition, a provincial tax reduction is calculated according to income levels and is available to parents with dependent children.
This tax reduction depends on the applicant's family situation and serves to reduce or cancel out the amount of provincial income tax otherwise payable. In determining the amount of reduction for which an applicant is eligible, total income (of the individual, the spouse and the dependent child designated as qualified for this reduction) is taken into consideration.

Ontario

Handicapped Children's Benefits

A family caring for a severely handicapped child (including a foster child) who is under 18 years of age may be eligible to receive a monthly Handicapped Children's Benefit. The child must be residing in the parent's home and have a severe handicap that results in a functional loss. Further, extraordinary costs must be incurred as a direct result of the handicap.

Benefits are not taxable and are not considered as income in determining eligibility for social assistance. In 1994, the benefit varies between $25 and $375 monthly for each handicapped child, with the actual amount based on the severity of the handicap and the expenses related solely to the handicap. Where the child's family is not eligible for an allowance under the Family Benefits Act, family income is another factor in the determination of the actual amount of the benefit.

Ontario Tax Reduction (OTR)

The Ontario Tax Reduction program eliminates or reduces Ontario income tax for lower-income taxpayers. For many years, a tax reduction had been automatically taken into account in calculating the Ontario tax tables. The OTR program provides additional tax relief for eligible individuals with dependent children 18 years of age and under, or with disabled dependants of any age.

Manitoba

Child Related Income Support Program (CRISP)

Low-income families with dependent children under 18 years of age may apply for income-tested CRISP benefits. CRISP is payable to families who satisfy the following criteria:

i) Support one or more children under 18 years of age who are listed as dependant(s) on a valid Manitoba Health Services Card;
ii) Are eligible for the federal Child Tax Benefit;
iii) Have a total net family income within specified levels; and
iv) Have net family assets of $200,000 or less (excluding principal residence, furnishings and family car).
Benefits are based on total family income for the previous tax year, less the following deductions:
i) 6 percent of total gross annual family income;
ii) $952 for each eligible dependent child (i.e., eligible for the Child Tax Benefit);
iii) $100 for each dependant who is 8 years of age or younger; and
iv) The amount of maintenance or alimony payments made.

Estimated income for the current year may be used when there has been a change in the applicant's situation, such as a death or change in marital status. In 1994, the maximum monthly CRISP benefit is $30 per child per month.

Manitoba Tax Reduction

Manitoba taxfilers are entitled to non-refundable tax credits which serve to reduce the amount of provincial taxes payable. A basic credit is available to all individuals, and claimants may receive supplemental credits in respect of age, disability, marital status and/or number of dependants.

The total credits are reduced by 2 percent of the individual's net income; the income adjusted credit is deducted directly from Manitoba Income Tax otherwise payable.

Saskatchewan

Family Income Plan (FIP)

A family with gross assets not exceeding a current market value of $150,000 (excluding principal residence, furnishings and family car) and in receipt of the federal Child Tax Benefit, on behalf of any dependent children under 18 years of age, may apply for this income-tested benefit. Entitlement to FIP benefits is based on estimated income of the household for the current calendar year, less allowable deductions and exemptions. Earnings of any dependent child under 18 years of age are excluded from income. Persons who have been in receipt of Saskatchewan Assistance Plan (SAP) (regular social assistance) benefits for six consecutive months or more become ineligible for FIP; instead, their monthly SAP benefit is increased to offset any reduction. In 1994, maximum FIP benefits are $105 per month for each of the first three children and $95 per month for the fourth and each subsequent child.

Saskatchewan Tax Reductions

Low-income Saskatchewan residents may claim reductions on their federal income tax form to reduce their net provincial taxes payable. Tax reductions are available in respect of each dependent child, with a further reduction available in respect of the first child in a single parent family.

Alberta

Alberta Selective Tax Reduction

This reduction provides tax relief to low-income individuals and families by decreasing the amount of provincial income tax payable.


Appendix II
Impact of Illustrative Approaches to Reform

Approach 1A
Estimated impact of a design that enhances up to $2,500 per child

Distribution of Families Receiving Increased and Reduced Benefits by Net Family Income (Net income is used to determine eligibility for the Child Tax Benefit. It includes all income of the parent(s) that is reportable for Income Tax purposes, less deductions for pension contributions, RRSPs, union dues, child care expenses, moving expenses and various business related expenses.)

Net Family Income 0 - $25,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 935,000
Incidence (percentage) of families receiving increased benefits: 100
Average gain of families receiving increased benefits: $1,370

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 0
Incidence (percentage) of families receiving reduced benefits: 0
Average loss of families receiving reduced benefits: $0

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 0
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income $25,000 - $45,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 275,000
Incidence (percentage) of families receiving increased benefits: 25
Average gain of families receiving increased benefits: $255

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 0
Incidence (percentage) of families receiving reduced benefits: 0
Average loss of families receiving reduced benefits: $0

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 840,000
Incidence (percentage) of families who are CTB recipients: 75
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income $45,000 - $60,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 70,000
Incidence (percentage) of families receiving increased benefits: 9
Average gain of families receiving increased benefits: $250

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 655,000
Incidence (percentage) of families receiving reduced benefits: 84
Average loss of families receiving reduced benefits: $265

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 60,000
Incidence (percentage) of families who are CTB recipients: 7
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income over $60,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 0
Incidence (percentage) of families receiving increased benefits: 0
Average gain of families receiving increased benefits: $0

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 465,000
Incidence (percentage) of families receiving reduced benefits: 46
Average loss of families receiving reduced benefits: $420

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 0
Not CTB Recipient
Number of families not CTB recipients: 540,000
Incidence (percentage) of families not CTB recipients: 53

Total
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 1,280,000
Incidence (percentage) of families receiving increased benefits: 33
Average gain of families receiving increased benefits: $1,070

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 1,120,000
Incidence (percentage) of families receiving reduced benefits: 29
Average loss of families receiving reduced benefits: $330

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 900,000
Incidence (percentage) of families who are CTB recipients: 23
Not CTB Recipient
Number of families not CTB recipients: 540,000
Incidence (percentage) of families not CTB recipients: 14

Source: Human Resources Development, SIMTAB Model

Note: Figures under 10,000 are statistically insignificant and have been suppressed. Therefore sums may not add up to the totals indicated.

Approach 1B

Estimated impact on a design that enhances benefits up to $2,500 per child with lower benefit reduction rates

Distribution of Families Increased and Reduced by Net Family Income (Net income is used to determine eligibility for the Child Tax Benefit. It includes all income of the parent(s) that is reportable for Income Tax purposes, less deductions for pension contributions, RRSPs, union dues, child care expenses, moving expenses and various business related expenses.

Net Family Income 0 - $25,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 935,000
Incidence (percentage) of families receiving increased benefits: 100
Average gain of families receiving increased benefits: $1,565

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 0
Incidence (percentage) of families receiving reduced benefits: 0
Average loss of families receiving reduced benefits: $0

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 0
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income $25,000 - $45,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 1,095,000
Incidence (percentage) of families receiving increased benefits: 98
Average gain of families receiving increased benefits: $705

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 20,000
Incidence (percentage) of families receiving reduced benefits: 2
Average loss of families receiving reduced benefits: $195

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 0
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income $45,000 - $60,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 400,000
Incidence (percentage) of families receiving increased benefits: 51
Average gain of families receiving increased benefits: $190

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 380,000
Incidence (percentage) of families receiving reduced benefits: 48
Average loss of families receiving reduced benefits: $345

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 0
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income over $60,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 0
Incidence (percentage) of families receiving increased benefits: 0
Average gain of families receiving increased benefits: $0

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 465,000
Incidence (percentage) of families receiving reduced benefits: 46
Average loss of families receiving reduced benefits: $485

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 0
Not CTB Recipient
Number of families not CTB recipients: 540,000
Incidence (percentage) of families not CTB recipients: 53

Total
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 2,435,000
Incidence (percentage) of families receiving increased benefits: 63
Average gain of families receiving increased benefits: $950

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 865,000
Incidence (percentage) of families receiving reduced benefits: 22
Average loss of families receiving reduced benefits: $415

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 0
Not CTB Recipient
Number of families not CTB recipients: 540,000
Incidence (percentage) of families not CTB recipients: 14

Source: Human Resources Development, SIMTAB Model.

Note: Figures under 10,000 are statistically insignificant and have been suppressed. Therefore sums may not add up to the totals indicated.

Approach 1C

Estimated impact of a design that enhances up to $2,000 per child

Distribution of Families Receiving Increased and Reduced Benefits by Net Family Income (Net income used to determine eligibility for the Child Tax Benefit. It includes all income of the parent(s) that is reportable for Income Tax purposes, less deductions for pension contributions, RRSPs, union dues, child care expenses, moving expenses and various business related expenses.

Net Family Income 0 - $25,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 920,000
Incidence (percentage) of families receiving increased benefits: 98
Average gain of families receiving increased benefits: $820

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 0
Incidence (percentage) of families receiving reduced benefits: 0
Average loss of families receiving reduced benefits: $0

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 2
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income $25,000 - $45,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 260,000
Incidence (percentage) of families receiving increased benefits: 23
Average gain of families receiving increased benefits: $200

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 0
Incidence (percentage) of families receiving reduced benefits: 0
Average loss of families receiving reduced benefits: $0

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 855,000
Incidence (percentage) of families who are CTB recipients: 77
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income $45,000 - $60,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 125,000
Incidence (percentage) of families receiving increased benefits: 16
Average gain of families receiving increased benefits: $260

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 350,000
Incidence (percentage) of families receiving reduced benefits: 45
Average loss of families receiving reduced benefits: $35

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 305,000
Incidence (percentage) of families who are CTB recipients: 39
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income over $60,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 100,000
Incidence (percentage) of families receiving increased benefits: 10
Average gain of families receiving increased benefits: $165

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 385,000
Incidence (percentage) of families receiving reduced benefits: 38
Average loss of families receiving reduced benefits: $110

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 0
Not CTB Recipient
Number of families not CTB recipients: 520,000
Incidence (percentage) of families not CTB recipients: 52

Total
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 1,405,000
Incidence (percentage) of families receiving increased benefits: 37
Average gain of families receiving increased benefits: $610

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 735,000
Incidence (percentage) of families receiving reduced benefits: 19
Average loss of families receiving reduced benefits: $75

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 1,175,000
Incidence (percentage) of families who are CTB recipients: 30
Not CTB Recipient
Number of families not CTB recipients: 520,000
Incidence (percentage) of families not CTB recipients: 14

Source: Human Resources Development, SIMTAB Model.

Note: Figures under 10,000 are statistically insignificant and have been suppressed. Therefore sums may not add up to the totals indicated.

Approach 3

Estimated impact of a design that re-targets CTB to double the Working Income Supplement

Distribution of Families Receiving Increased and Reduced Benefits by Net Family Income (Net income is used to determine eligibility for the Child Tax Benefit. It includes all income of the parent(s) that is reportable for Income Tax purposes of the parent(s), less deductions for pension contributions, RRSPs, union dues, child care expenses, moving expenses and various business related expenses.

Net Family Income 0 - $25,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 510,000
Incidence (percentage) of families receiving increased benefits: 55
Average gain of families receiving increased benefits: $380

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 0
Incidence (percentage) of families receiving reduced benefits: 0
Average loss of families receiving reduced benefits: $0

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 425,000
Incidence (percentage) of families who are CTB recipients: 45
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income $25,000 - $45,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 100,000
Incidence (percentage) of families receiving increased benefits: 9
Average gain of families receiving increased benefits: $90

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 0
Incidence (percentage) of families receiving reduced benefits: 0
Average loss of families receiving reduced benefits: $0

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 1,015,000
Incidence (percentage) of families who are CTB recipients: 91
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income $45,000 - $60,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 0
Incidence (percentage) of families receiving increased benefits: 0
Average gain of families receiving increased benefits: $0

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 260,000
Incidence (percentage) of families receiving reduced benefits: 33
Average loss of families receiving reduced benefits: $120

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 520,000
Incidence (percentage) of families who are CTB recipients: 67
Not CTB Recipient
Number of families not CTB recipients: 0
Incidence (percentage) of families not CTB recipients: 0

Net Family Income over $60,000
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 0
Incidence (percentage) of families receiving increased benefits: 0
Average gain of families receiving increased benefits: $0

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 470,000
Incidence (percentage) of families receiving reduced benefits: 47
Average loss of families receiving reduced benefits: $365

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 0
Incidence (percentage) of families who are CTB recipients: 0
Not CTB Recipient
Number of families not CTB recipients: 540,000
Incidence (percentage) of families not CTB recipients: 53

Total
Families Receiving Increased Benefits:
Number of families receiving increased benefits: 610,000
Incidence (percentage) of families receiving increased benefits: 16
Average gain of families receiving increased benefits: $330

Families Receiving Reduced Benefits:
Number of families receiving reduced benefits: 730,000
Incidence (percentage) of families receiving reduced benefits: 19
Average loss of families receiving reduced benefits: $275

Families Experiencing No Change:
CTB Recipient
Number of families who are CTB recipients: 1,960,000
Incidence (percentage) of families who are CTB recipients: 51
Not CTB Recipient
Number of families not CTB recipients: 540,000
Incidence (percentage) of families not CTB recipients: 14

Source: Human Resources Development, SIMTAB Model.

Note: Figures under 10,000 are statistically insignificant and have been suppressed. Therefore sums may not add up to the totals indicated.


References

Bouchard, Camil. 1992. "Children and Youth: Our Priority", Remarks at the Annual Conference of the Canadian Pediatric Association.

Canadian Institute of Child Health. 1994. Child Health: The Newsletter of the Canadian Institute of Child Health. 16(3).

Economic Council of Canada. 1992. The New Face of Poverty. (Ottawa).

Lipman, Ellen L.; David R. Offord; and Michael H. Boyle. 1994. "Relation between economic disadvantage and psychosocial morbidity in children." In Canadian Medical Association Journal. 151(4): 431-437.

National Council of Welfare. 1993a. Welfare Incomes 1992. (Ottawa: National Council of Welfare).

National Council of Welfare, 1993b. Incentives and Discentives to Work. (Ottawa: National Council of Welfare).

Naylor, Nancy; Ruth Abbott; and Elizabeth Hewner. 1994. The Design of the Ontario Child Income Program. (Ottawa: Caledon Institute for Social Policy).

Ross, David P.; E. Richard Shillington; and Clarence Lochhead. 1994. The Canadian Fact Book on Poverty. (Ottawa: Canadian Council on Social Development).

Senate. Standing Committee on Social Affairs, Science and Technology. 1989. Child Poverty and Adult Social Problems. (Ottawa).

Smeeding, Timothy M. 1992. "Why the U.S. Antipoverty System Doesn't Work Very Well " in Challenge (January - February): 30-35.

Statistics Canada. 1993. Income Distributions by Size in Canada 1992. Catalogue 13-207.
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