[English]
EVIDENCE
[Recorded by Electronic Apparatus]
Wednesday, May 12, 1999
• 0910
[English]
The Chairman (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Pursuant to the motion adopted by the Standing Committee on Finance, dated March 17, 1999, the subcommittee resumes its study on tax fairness for Canadian families with dependent children.
This morning I'm very pleased to welcome to the committee Mr. Jim Davies. He's a professor and the chair of the department of economics at the University of Western Ontario, and he represents himself as an individual this morning. We have as well Mr. David Duff, a professor in the faculty of law of the University of Toronto.
Today this is the third of a series of hearings we're holding across Canada. We've already been in Vancouver, and in Calgary yesterday. This evening we head out to Halifax, and to Montreal on Friday. We are having consultations across the country on a very important matter.
I welcome you both to this committee. I'd ask you to limit your presentations to about 10 to 15 minutes at the most to leave ample time for questions. I would ask whoever wants to go first to begin.
Mr. Jim Davies (Individual Presentation): My mother was a Wallace. She pointed out to me when I was quite young that there was a big advantage in marrying a Davies, and that is that you get closer to the beginning of the alphabet. So I've just narrowly beat out David. Once again it turns out this was true.
I'm a professor at Western and chair of the economics department there. I've been interested in tax treatment of the family for a fair while. I did a paper for the Canadian Tax Foundation in the early 1990s on this topic. Last year the C.D. Howe Institute asked me to do a project with Ken Boessenkool. We had a C.D. Howe commentary that came out in November on Giving Mom and Dad a Break: Returning Fairness to Families in Canada's Tax and Transfer System.
When I heard that you were going across the country and having these hearings, I thought I would really enjoy the opportunity to come along and talk about the stuff I have been looking at a little bit. I've given you copies of my four-page brief and I'll just go through some of the highlights.
I'll start off by saying that public finance economists have thought a lot about how to provide fair treatment for families under progressive income tax systems. We've long been aware that there's the need to design systems that are going to treat taxpayers with different child-rearing responsibilities fairly. There are some important and fairly simple principles underlying this analysis and there are straightforward conclusions.
One of those is that the tax system ought to have a universal deduction for all dependent children. So if you open a standard university public finance textbook or you go to a course in taxation and a talk by an economics department in Canada, this would be a standard topic. And this conclusion that there should be exemptions or deductions for dependants is a standard conclusion.
The underlying principle is the principle of the ability to pay, the idea that taxpayers should pay according to their ability to pay. This is also a very central concept for economists working in this area. The ability to pay is determined basically by two things: your income and your family responsibilities. By the way, this principle and this approach is very much the one pushed by the Carter commission in the 1960s in Canada.
The principle is recognized in Canada as far as non-working spouses are concerned. If a spouse is not working and doesn't have any income, then the other taxpayer would get a non-refundable credit worth $5,900 for last year. This is a substantial recognition for the reduction in ability to pay that results from the fact that there's an additional person in the family who has non-discretionary expenses that have to be covered.
So we recognize that aspect of ability to pay, but we don't recognize the costs that come from having children in a systematic cross-border fashion. This is a very strange state of affairs. It violates the principle of ability to pay, as I've been emphasizing. It's also different from what's done in practically every other advanced industrial country.
Boessenkool and I reviewed what's done in the other OECD countries and we discovered that it's basically just Britain where they are also not currently providing this kind of recognition for children.
• 0915
So the Canadian system didn't always have the set-up
that it has at the moment. Up to 1987 all taxpayers
supporting children had recognition of those burdens by
a personal exemption. I looked it up on my old tax form and
discovered that this peaked at $710 per child in 1986. That
would translate into about a $1,000 exemption for kids
in today's dollars. This was changed into a
non-refundable credit in 1988, and then that was
abolished in 1992.
There are two main planks in what the federal government regards as its tax treatment of children. One of these is the Canada child tax benefit—and I'm going to argue that this really has very little to do with the tax system. It's a transfer program. I don't even know what a tax benefit is. There are taxes and there are benefits. These are different things. I think it should just be called the Canada child benefit.
The Chairman: The tax man gives it to you.
Mr. Jim Davies: Perhaps that's it.
As everybody knows, it's the latest in a series of schemes that started off with the refundable child tax credit in 1978, and it's gone through different forms. It's currently in transition. When it's fully phased in in July 2000, it's going to provide a benefit of close to $2,000 for the first child and about $1,800 for any additional children. So it is a substantial benefit.
It's recently been enhanced at a cost of about $2 billion. An important feature of this scheme is that there is a very high rate of clawback. In the past this operated in the income range of about $21,000 to $26,000. When this thing is fully phased in, these very high clawbacks will be basically over the entire range from $21,000 up to about $30,000. Above that point the clawback rate goes down.
The point is that there is a big addition to the effective marginal tax rates in that range. When somebody, say, rejoins the labour force after having been out for a while, if they're in this income range, they're going to discover that when they go out to work they're not really much better off, they don't really increase their take-home pay very much at all. That must have a serious disincentive effect on people's work effort. Even if they don't understand the technicalities of how these things work, they'll notice that they're not any better off, and it's very discouraging.
The bottom line on the child benefit is that it's an attractive way to deliver income support to families with children in the lower income range. If we're looking at the tax system, it doesn't really have much to do with whether or not we're treating families equitably in the tax system. We have a transfer program that is attractive in many ways, but there should be some focus paid to what's happening with the treatment of children in the tax system.
How about the child care expense deduction? I'm not going to say very much about that today. As you know, it was enhanced in the 1998 budget with the maximum amount for children under seven being increased from $5,000 to $7,000, and for older kids being raised from $3,000 to $4,000. Those are fairly generous deductions.
The reason I'm not going to say very much about it is that it's a perfectly sensible and defensible deduction. If people want to ask me questions later about why I think that, I could go into it. There's nothing wrong with it as far as I can see. It's important to note that it only goes to a relatively small minority of families with children.
I went to the websites of Revenue Canada and Statistics Canada yesterday and I figured out that only 17% of Canadian families with children claim the child care deduction. Some 83% don't. There's a lot of common ground between dual-earner and single-earner families. Most dual-earner families don't claim this child care deduction. It goes to people who have their kids in formal day care, who have receipts. It's perfectly defensible in that situation, but it doesn't do anything for the other 83% of families with children.
Mr. Paul Szabo (Mississauga South, Lib.): Could you clarify that the 17% are all families with children, or all dual-income earners?
Mr. Jim Davies: No...all families with children.
Mr. Paul Szabo: And that percentage of dual-income families with children would be slightly higher?
Mr. Jim Davies: Oh yes. It would be higher than 17%, but I think it's still less than half.
Mr. Paul Szabo: I think it's about one-third.
• 0920
Mr. Jim Davies: Okay.
Let me come to changes that I would suggest are needed. Every parent knows kids are expensive; day care costs are just the tip of the iceberg. Children have to be housed, fed and clothed. This is both a moral obligation and a legal obligation. People have to do this.
The minimum money required to give children those necessities of life is not available for the taxpayer's consumption. I would argue it's not available for the government. This non-discretionary income ought to be deducted from the taxpayer's income in order to figure out the taxpayer's ability to pay. That's what we don't do.
How much should we deduct? In 1986 they were deducting in today's dollars about $1,000 per kid. In my commentary with Ken Boessenkool I suggested we should deduct $2,000 per child. This is still far less than the non-discretionary expenditures on kids.
I have two of them. I know they are expensive. I'm quite happy to make these payments, but I don't have any discretion about whether I pay for my kids' subsistence or not. This $2,000 is very modest and it can easily be afforded.
There are some other adjustments that ought to go along with introducing such a deduction. The child care deduction, as I pointed out, is quite generous. I'm not sure for the minority of families who receive that deduction if it's necessary to provide them with an additional deduction at this time.
Boessenkool and I argued that you should roll back the child deduction by the same amount that this new universal deduction was introduced at. If you do that, nobody who has their kid in day care and who is receiving a child care deduction will pay any extra tax. All right, they get a new deduction that's worth $2,000 per kid. Reduce their old deductions by $2,000 per kid and they stand pat. Okay? So that's what we would do with the child care deduction. That's just a wash.
On the Canada child tax benefit, what would we do there? Getting back to some of my other work, I'm very concerned about marginal tax rates. Low-income people are facing marginal tax rates of 60% or 70%. It's just nuts. It would be very nice to do something about that problem.
There is one way you can do that. If you introduce this universal deduction, all the families who are in a taxpaying position are going to benefit. So it turns out that if you say that up to $15,000 people will get the child tax benefit the same as they do now, and we won't make any change there, but above $15,000 we will tax it back at a low uniform rate, and we've suggested 7.5%, basically what would happen is people would be protected.
If you look at the combination of their child tax benefit and the benefit they would get from this deduction we're suggesting, their incomes would stay constant or increase after all taxes and transfers have been taken into account. So we would argue for simplifying the child tax benefit. We also suggest that it should be rolled together with the GST credit, which would further streamline and simplify the tax system.
So if you do these three things, if you introduce a universal child deduction, $2,000 per kid, if you make an adjustment in the child care deduction to offset that, and if you streamline the child tax benefit and the GST credit, the total bill for all of that, starting from the system that was in place before the last federal budget, would have been $3 billion. In the last federal budget the child tax benefit was enhanced. The cost of those enhancements was about $2 billion.
So the scheme I suggested last November—and I still think it is a good scheme—would only cost about $1 billion more than what we're doing at the moment, and I think this is really a very attractive way to go. There's a very strong logic to having this universal exemption for children. So we used to have this before 1987, and for a long, long time no questions were asked—a very sensible thing to do.
You might look at me and say, isn't this just a benefit for high-income people? My argument there is that we have a kind of odd idea about what makes you rich in this country. Suppose you have a family with two people who are both working and they happen to earn, say, $36,000 in net income. I don't think these people are rich. They're not going to get any child tax benefit. Suppose their kids are in school and they're not using day care; they don't get any child deduction either. What recognition do they get for their kids? They might have three or four kids. I know people who have four kids at home who are in this position. They're not getting anything. I know other people who don't have any kids at home and they're paying exactly the same taxes. They don't have the same ability to pay. The people with the four kids at home have a lot less ability to pay. There are lots of families who have two kids at home who are not receiving any recognition in the tax system.
• 0925
What we're talking about is getting fairness in the
take part of the system. Just because people's incomes
are more than $60,000 or $70,000 a year, I don't think
it's sufficient reason to disregard their personal
circumstances when you decide how much to tax them.
There ought to be fairness among people who are earning
more than $70,000 a year as well as fairness between
the rich and the poor. The redistribution isn't
everything; there's also a very important issue that
has to do with the integrity of the tax system, with
having fairness in how tax burdens are allocated among
the fortunate people who have sufficiently high income
to be able to pay substantial taxes.
Maybe I'll leave it at that.
The Chairman: Thank you very much, Mr. Davies.
Mr. Duff, please.
Mr. David Duff (Individual Presentation): Thank you. I teach tax law and tax policy at the University of Toronto faculty of law. I've been doing that for three years now. In an earlier era in my career, I wrote and published a number of articles in family law. So the combination of these two areas is of obvious interest to me. I'm currently doing work in the area and I'm very appreciative of the opportunity to speak before the subcommittee.
I have two main points that I will try to make. I thought I had seven minutes, so I tried to narrow this down as much as possible. I have two main points and three specific proposals that come out of these points.
The first point is going to relate to the so-called tax discrimination against single-earner families; and the second point, which is related to this first point, is about income-splitting as a concept. In dealing with that second point, I'll talk more specifically about dependent children and the child care expense deduction in particular.
My first point has to do with the choice of the unit that we apply tax to. Based on a tonne of literature in tax policy over the last 20 years, I think one can come to the conclusion that there's really no good reason for treating spouses as a single unit for tax purposes. The Canadian system has, since its origin, adopted an individual tax unit rather than the joint return system that is used in the United States, treating spouses as a joint unit for tax purposes. That was adopted in the U.S. in 1948, for a variety of complicated reasons.
I think that sticking with the individual unit makes a lot of sense, so as a starting point, I want to reaffirm the value of the individual unit in the Canadian tax system.
Why would one reaffirm the value of the individual unit? First of all, there's no clear evidence, based on a number of studies, that the income of one spouse is shared or shared equally with another spouse or among the family. So even if one takes the assumption that income is being shared as the justification for a spousal unit, there's no real evidence that this is the case.
Second, there is a lot of evidence that having a spousal unit or a familial unit biases a variety of important individual personal choices. Invariably you end up with tax bonuses or tax penalties for entering into this unit, however you define whatever the spousal unit or the family unit is. The U.S. has had this history. From 1948 to 1959, there was a tax bonus for getting married. It was defined as married, and still is, in the United States. We've moved away from a marital definition when we use spouse and we talk about cohabiting spouses, and I understand that it's considered whether we're going to change the definition to include same-sex couples as well, which is something I would favour.
But the point is that if you have a family or spousal unit, you have to define this unit. These are highly personal choices, and you not only have to define it in the act, but you create either a bonus or a penalty for entering into that kind of relationship. I think that as a general principle the tax system should attempt to be neutral in these matters, and the only way to effectively do that is to maintain an individual unit.
• 0930
Secondly, there is also evidence that if you have a
spousal or marital unit there are significantly higher
disincentives to paid labour market participation by
so-called secondary earners. That means participation
in the paid labour market. So-called secondary earners
generally mean women in our society, so there's a
strong disincentive to participation by women in the
paid labour market. That's because if they leave the
paid labour market for a while and then return to it,
they're taxed at the combined marginal rate of both
spouses, which is going to be higher than if they were
entering and being taxed at their own individual rate.
The third argument for sticking with an individual return relates to the whole main purpose of an income tax. An income tax plays an important role in society in moderating the inequalities and distribution of market income. You can think of it as an insurance role. For those who do very well in the market, no doubt a large element of personal effort plays a role in that, but we all know that a large element of luck plays a role in that.
So an important purpose of a progressive income tax is to moderate those distributions from the market economy. If that's an important purpose of the income tax, the focus has to be on the individual who has entitlement to and control over the income. So there's a logical reason why an individual is the appropriate unit given an income tax.
Those are my reasons for thinking one should stick with an individual unit for income tax purposes. Now, the consequence of that, of course, is that with a progressive rate structure, which I favour...and I favour it for exactly these reasons, about the insurance purpose of the income tax, moderating inequalities in the distribution of market earnings. As a result, if you're going to have progressive rates and an individual unit, families with the same aggregate income that's distributed differently among them are invariably going to face different tax burdens. I demonstrate that mathematically. That's the case. That is not discrimination; that is a consequence of favouring an individual tax unit and favouring a progressive tax system. It's an inevitable consequence of that. I think the consequence, of course, is that there are these different distributions, but it makes sense. There are justifications for progressivity and for an individual unit.
That was the first point that I wanted to make.
The second point is about income-splitting. This point was made about the individual unit and the consequences of an individual unit and progressive tax rates. That said, differences in the tax burdens that are faced by families who have the same aggregate income but a different distribution can be lessened to the extent that the tax system recognizes transfers of income, or income-splitting, between spouses.
Note, though, this kind of income-splitting is different from the income-splitting that's assumed in a joint return. The income-splitting of a joint return is not actual income-splitting; it's notional income-splitting. It assumes an equal transfer of income. To the extent that we actually allow and recognize, for tax purposes, actual transfers of income, you'll end up with a result creating an incentive to the tax system, to have a greater degree of equality of distribution of actual income between spouses and a greater degree of equality and distribution of tax burdens on families because they'll have an incentive to equalize the distribution of income.
Now, the Canadian tax system does this in a variety of ways. It's interesting, we have a conflicting attitude towards income-splitting. On the one hand, we actually encourage it. We encourage people to contribute to their spouse's RRSP. You can contribute to your spouse's RRSP, and if it's left in there for three years and it's pulled out, it becomes the spouse's income. It becomes a form of income-splitting. We actually encourage it. We also encourage it in a payment of Canadian Pension Plan benefits that can be split with your spouse.
So in both of these ways we encourage income-splitting. On the other hand, we have a number of rules—so-called attribution rules, and there are others—that actually discourage it by taxing back to the transferor of properties income from property that's transferred to a spouse.
• 0940
I would abolish the attribution rules for
transfers of property to a spouse. Abolishing these
attribution rules would take the individual unit
seriously. If we think tax should flow from whoever is
entitled to or has control of income, we should
consider these transfers of property legitimate and
take them seriously.
There's a different argument for attribution rules with children. We can assume that with children they don't actually have effective control over the income, so I think it's a good argument for attribution rules in that context, but not for spouses.
Furthermore, this would be advantageous in that it would encourage transfers of property in our society; that would generally mean transfers of property from male breadwinners to female stay-at-home spouses or lower-income women. This would have positive benefits for family law as well, if anyone knows the story in family law and divorce and marital breakdown. Women generally fare poorly from it. This would encourage actual transfers of property.
That's the first proposal: abolish the attribution rules for transfers of property from one spouse to another.
As for the second proposal, I'm in favour of a child care expense deduction for lessening disincentives to paid labour market participation by whomever; however, I would amend it. Right now the child care expense deduction must be deducted by the lower-income-earning parent, and it can only be taken for child care expenses paid to a third-party provider. I would amend the child care expense deduction to allow the deduction to be claimed by whoever actually paid for the child care services. That means generally it would be in their interest, if they're two parents, to have the higher-income person pay it because it would be worth more, and I would allow that to be paid to a stay-at-home spouse.
This is actually very similar to Mr. Szabo's proposal—slightly different, but I've read the bill he proposed and I think there's a similar idea here about a limited form of income-splitting for actual transfers of income. This would again encourage actual transfers of income. It would recognize different choices that parents may make in the kind of child care arrangements they prefer. It would recognize—and I think it's an important thing to recognize this—the economic and social value of child care provided by stay-at-home parents. And interestingly enough, it would also have positive benefits in giving a stay-at-home parent independent earned income, which would give that stay-at-home parent—generally, in our society, women—independent contribution room for the RSP. Presumably if the income were treated, as it should be, as pensionable earnings for Canada Pension Plan, it would give credits for subsequent independent Canada Pension Plan payments.
Furthermore, and it depends how one would deal with it, if these payments were treated as insurable earnings for employment insurance purposes, this kind of arrangement would actually improve the position we've read about in the media—how women have not fared well from changes to the Employment Insurance Act, largely because, going in and out of the paid labour force, they lose labour market participation hours. If you recognize this real work as hours contributing toward employment insurance qualifications, in fact you'd probably see a significant change in some of those statistics, and I think it's consistent with the notion that this is real work.
So that's the second proposal: to amend the child care expense deduction in those two ways; let it be taken by whoever makes the payment, and let it be paid to a stay-at-home spouse.
The third proposal might appear somewhat more controversial. Instead of actually increasing the spousal credit, if there's a spousal credit that can be taken by a breadwinning spouse in recognition of the cost of supporting a stay-at-home spouse—it's slightly less than the basic personal credit, 20% less—I would actually abolish it.
I'll tell you why I'd abolish it. If you create an incentive to actually have transfers of income from one spouse to the other, then that spouse, as a stay-at-home spouse or a spouse that's caring for children part-time and working part-time, can use his or her—generally her—own credit, and that would be the full 100% personal credit.
• 0945
So what you see here is a system, a series of reform
proposals that encourage the transfer of income
from one spouse to another, rather than assuming those
transfers of income, and allowing for transfers of tax
benefit from a stay-at-home spouse to a breadwinner
spouse. So instead of having a system where you
allow for transfers of tax benefits,
generally from women to men, you're actually setting up
a system where you're encouraging transfers of income,
generally in our society from men to women. I think
that's just one of the reasons this is a much better
system. There are a variety of reasons, but in terms
of gender equality, which is a valuable goal, I think
this set of proposals meets that objective much more
satisfactorily than moving in the direction of a spousal
unit and enhancing marital credit.
Those are my three proposals, and I should stop now. I think I've taken up my 15 minutes. Thank you.
The Chairman: Thank you. I had meant 15 minutes in all, not 15 minutes each. But, colleagues, maybe we'll take 10 minutes for questions. I'd ask you to be very brief with your questions in the interests of time, please.
Mr. Forseth.
Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Mr. Davies, I appreciate especially your presentation.
I recall that we got into the present situation of the income tax form considering parents and children largely as a period of tax increases, that we left some of the older regimes because there was an effort to save money. So in essence it was a tax increase, and as you quite rightly point out, the real burden of that has fallen on the lower-income individual. The marginal tax rates, because of clawbacks—we saw some charts on that from earlier presentations—were very steep.
Some of the things we've heard from the community is that what seems to stick in the craw of many is this somewhat simplistic notion. It's observed that the method of child care chosen is deferential by being recognized in the expense deduction. We've been wrestling with this question—how do we conversely also recognize the other child care methods, such as self child care rather than purchased care? You seem to have come up with somewhat of a solution in that regard. I've been asking basically the same question of many presenters, and their eyes have glazed over and they've said they understand the principle but they're not tax experts and they don't know how to do it. Maybe you have provided a way out here.
I would like you to expand a little bit on providing that recognition. There's indeed some recognition of a child care expense, or whatever, related to the child care expense deduction, but we were looking at giving some recognition for child care not just because it was purchased outside the home. I see, David, your solution also kind of addresses that. But maybe, Jim, you could go at that issue and just flesh that out a little bit more.
Mr. Jim Davies: All right. Well, I think the best way to think about this is that we're taxing people on their money income, and having children has all kinds of ramifications, but one of the ramifications is that there are out-of-pocket expenses. So if your kid is in day care and you have to pay for that, this is money that you're really spending on that day care. In addition to that, you're really spending money on food, shelter, clothing, and of course many other expenses that we have for children. I'm stressing the necessities.
I see the problem as recognizing just one of the important expenditures that people make out of their money income, and denying these other essential expenditures that people cannot escape. I think that's the best way to look at it.
Now, that doesn't say anything explicitly about what's happening when a spouse is staying at home and taking care of the kids by himself or herself. I could give an explanation of why I don't think that has any implication for tax treatment, but I don't know if you want to delve into that.
• 0950
Mr. Paul Forseth: We are trying to come up with a way of recognizing child care efforts, but also the expenses involved. It seems that the system recognizes child care if you purchase it elsewhere, because there are receipts involved, but if you don't happen to purchase it and do it yourself, you get nothing.
Mr. Jim Davies: Maybe I could make some comments on that. There's very good stuff in the Carter commission report on that subject.
People realize there's forgone income if you stay home and look after your kids. That is truly a cost of raising children. The way it's handled in our tax system is that the person who is staying home and taking care of the kids is producing in-kind income, or imputed income. So suppose you give up $20,000 of income you could have earned in cash in order to take care of your kids at home. It's as if you're creating a product that is worth $20,000 and your family is consuming it. So it's just growing some vegetables in the back yard and consuming them at the same time. Truly, in economic terms, it adds to your income.
You don't get taxed on this, of course. We don't tax people on the imputed income of the day care services they create at home. That means there's automatically a full implicit deduction for the opportunity cost people suffer as a result of taking care of their kids at home themselves. So the problem is already taken care of. By providing a child care deduction to people who purchase day care, you're providing a level playing field for the people who have these two different choices. That's how I look at that.
Mr. Paul Forseth: But you're—
The Chairman: Your five minutes are up. We're going to run out of time.
[Translation]
Mr. Cardin, please, very briefly.
Mr. Serge Cardin (Sherbrooke, BQ): Good morning, professors, and thank you for your presentation. You are both experts in your respective fields and the people who go to see you—groups, mothers and other stay-at-home women—have very specific demands. Although some of your recommendations are quite innovative, if they were added to some recommendations submitted by other people, we would arrive at a system that could probably better meet people's needs.
Stay-at-home parents, who happen to be mostly mothers, need to be recognized and supported. I have a feeling that what you are recommending doesn't really show any particular support for low- income families and there doesn't seem to be a recognition of children as much as a recognition of the parents' income—I mean, the money for the family, the global support extended to the family.
Would you have comments to make on the demands made by families per se, irrespective of their income levels, as well as comments on lower income families? Mr. Davies, you talked about income splitting. It is important in our tax system and many of your recommendations are directed mostly at people with a middle or high income.
[English]
Mr. David Duff: It's a fair point. The comments I was making would clearly apply. It would primarily be middle-income people, but the effect of the proposal I suggested would result in a form of middle-class tax cut. That may be coming one way or another anyway. I think structural changes to the system are advantageous.
The fact that I mentioned three proposals here doesn't mean I'm not also concerned with other aspects of the tax system. In the limited time, that's what I talked about. But I think this is absolutely right. The kind of proposal here would really not do anything to improve the situation of low-income people. They would not be able to benefit from this kind of income-splitting arrangement. So one does have to think through different kinds of policy measures for that purpose, and we do that.
• 0955
A variety of different policy goals are
pursued through the Income Tax Act. With children, for
example, it seems to me that there are at least three.
One is the idea of dependent exemptions that Professor
Davies has talked about, and I agree with that. Another
aspect is the child care expense deduction, which I
talked about a little. The third is a refundable child
tax credit directed at low-income families.
All these things can go on within the Income Tax Act, and should go on within the Income Tax Act. There are different policy objectives that have to be met in different ways. I haven't examined that in as much detail, but I think those are crucially important aspects of the tax and transfer system. I absolutely agree with you.
[Translation]
The Chairman: Thank you.
Mr. Serge Cardin: My time is over already, Mr. Chairman?
The Chairman: You were allowed three minutes.
Mr. Serge Cardin: Okay.
The Chairman: It's because we already are five minutes behind.
Mr. Serge Cardin: Fine.
The Chairman: Mrs. Dockrill.
[English]
Mrs. Michelle Dockrill (Bras d'Or—Cape Breton, NDP): Thank you very much for coming here this morning. David, I'm very pleased to hear your comments with respect to gender equality and how important it is. I also feel it's very important to recognize any public policies that hinder that. From my perspective, I firmly believe that income-splitting does that.
I just have one quick question for you, Mr. Davies. In your presentation you suggested that the child tax credit and the GST credit should be rolled into one, the current amounts being preserved, except that the clawback should be at a uniform low rate, to start at somewhat lower family income levels.
I think yesterday in Calgary we had a presentation before us by the Social Planning Council of Winnipeg. One of the things they talked about and acknowledged was that the child tax benefit made a significant contribution in equalizing the opportunities of children. But they voiced some real concern with respect to what they felt was discrimination on the basis of source of income. The figure they quoted was that only 36% of families with children at eligible income levels received the benefit in 1996, due to the taxing back of the benefits from welfare recipients. Only two provinces don't claw it back.
Mr. Jim Davies: So the issue is clawbacks within the welfare system.
Mrs. Michelle Dockrill: Yes. I just wonder if you wanted to comment on that.
Mr. Jim Davies: The child tax benefit resulted from a federal-provincial initiative and the idea was that the federal government would provide increased assistance. At least some of the provinces have opted to reduce their assistance. I suppose the notion was that welfare recipients, as a result of these offsetting changes, would not be made any worse off. Provinces that are not clawing back are being more generous.
I'm not really a social policy expert, so I probably shouldn't comment a lot further on whether or not that makes sense. It seems as if we are in a period where there is a little more money and maybe we can afford to be a little bit more generous in terms of transfer payments. Certainly any clawbacks for welfare recipients or low-income people have to be looked at very critically these days, because the clawbacks really tend to create this poverty trap situation.
Mrs. Michelle Dockrill: The reason for my comment and question is that when you look at the terms of reference for the subcommittee, we are talking about families with dependent children in this country. Unfortunately, a large number of our families in this country are living in poverty. I just want to know if you have any comments in terms of how the tax and transfer system, as it stands, affects those people.
Thank you.
The Chairman: Ms. Redman, please.
Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman.
I have found both your presentations highly interesting and I thank you for them. I'll ask both my questions and then give you time to answer them.
• 1000
Mr. Davies, it sounds to me as if you have no concern
over the one- and two-earner families, and the
progressivity and the fact that deductions are worth
more at the higher end than the lower end aren't really
a concern for you.
You talk about the child care expense deduction, and one of the points raised yesterday is that it is eligible up to age 15. Some presenters felt there was a bit of a conflict there, in allowing parents to deduct child expenses for a child who is eligible to babysit, because at age 11 they are able to babysit. Their question was on whether it would be better to limit that end of the expense deduction and maybe refocus and target the moneys that are going there to another group of Canadian taxpayers.
Mr. Duff, you talk about abolishing the spousal credit. I am glad to hear that you're very concerned with equity within the family unit, and one can't assume it's either functional or dysfunctional. That's really not the role of the tax system. But if we abolish the tax credit, we then deny spousal credit for people who are not parents or are empty-nesters. I'm wondering if you could comment on that.
Mr. David Duff: That's true. The implication of it is that without children or an independent source of income in one form or another, there would be no exemption or credit available to that person. The question then is what justifies those kinds of credits to begin with? I need to think this through a little more, but to me those credits for the personal exemption are justified as the cost—well, obviously they're justified—of just surviving, living. A certain basic amount should not be taxable.
When there's a stay-at-home spouse who has no independent source of income and is able-bodied, it seems to me a choice has been made not to participate in the workforce or not to participate in some kind of productive activity, which is a kind of consumption choice. I question whether in these circumstances it should be recognized for tax purposes. The purpose of these credits is to permit people to go back into the workforce and continue to work for themselves and exist. In this circumstance, no economic function is being performed.
Now, that's a tentative answer. I accept that there's a point here that I need to think through a little more. I don't know whether you can answer this. I'm sure you'd have a different answer from me.
Mr. Jim Davies: Perhaps I need more time too. But maybe I could respond to the question you addressed to me.
I wouldn't be in favour of reducing eligible expenses under the child care deduction. If single-earner families feel they haven't been very well treated—and I think they have very good reasons for feeling that way—the way to go is not to try to reduce the benefits that are being received by people who claim the child care deduction, but to create fairer treatment for the single-earner family. That's the type of thing I'm trying to suggest here.
In terms of deductions being more valuable to higher-income people, if you're in the top income tax bracket, in Ontario your marginal tax rate with provincial tax is about 50%, so the reason the deduction would be more valuable for me than for somebody whose income was $20,000 is that if I don't get this deduction I'm going to be taxed 50% on these non-discretionary expenditures I make on my kids. So the damage I'm suffering in dollar terms is greater than a person who is in, say, the bottom marginal tax bracket.
Thinking of deductions for children as a benefit is not the right way to think about them. You have to think about them in terms of creating fairness between families who are in roughly the same income brackets. So compare me to another family of similar income where they don't have any kids. Is there fairness between these families?
• 1005
Taking from the rich and giving to the poor is a
different issue. Economists and public finance
analysts will always say to address that by adjusting
the rates in the bracket, not by denying the deduction.
The Chairman: Thank you, Madam Redman.
I just have two quick questions, Mr. Davies. On the universal deductibility of the $2,000 per dependent child, should that be age-tested? In other words, are you saying the younger the child is the lower the deduction should be, or are you saying $2,000 across the board, no matter what the age? Plus, if somebody is claiming the child care expense deduction, should only the excess portion of the $2,000 then be claimed by that person and not both?
Mr. Jim Davies: Let me answer the first question first. It might be a good idea to fine-tune this a little. We were trying to get a simple message out there—$2,000 per kid and maybe more for younger children. But you have to think about the total benefit. You're going to have this kid at home for 18 years at least. What's the total benefit you would get? If your income is rising while the kid's around, you may be getting into a higher tax bracket. So it's not necessarily to your advantage over those 18 years to have larger deductions at the start and smaller deductions later on. It's kind of a fine issue of tax design.
What was the second question?
The Chairman: If someone is claiming the child care expense deduction, should we cap them? In other words, if we give the $2,000 in a universal program, should they only be able to claim the excess of the $2,000, not $2,000 plus their $4,000 in expenses, for example? Would the maximum be $4,000 of receipted expenses?
Mr. Jim Davies: Our proposal at the moment that is if your kid's under seven, you could claim $7,000 under the child care deduction.
The Chairman: Are you saying plus the $2,000 per child?
Mr. Jim Davies: No. We're saying roll back the child care deduction to $5,000 and then give everybody the $2,000. So they would get $2,000 for sure in that.
The Chairman: Great.
Thank you very much, gentlemen. I think you gave us an awful lot of food for thought. There are some great ideas in there. We'd like to thank you, on behalf of the committee, for being here this morning.
• 1007
• 1017
The Chairman: Our next guests are from the Child Poverty Action Group; we have the program director, Mrs. Christa Freiler. From the Children's and Youth Action Committee, we have Olivia Chow. And from the Ontario Coalition for Better Child Care Network, we have Kerry McCuaig. Welcome.
I'd ask you to present your guests. When you're making your presentation, if I could ask you to restrict it to five minutes or six minutes per group, that would leave us ample time for questions. Otherwise we're going to be pressed for time, as we were with the previous group.
Maybe we could start with the Child Poverty Action Group, Ms. Freiler.
Ms. Christa Freiler (Program Director, Child Poverty Action Group): Thank you very much.
I'm Christa Freiler, and I want to just quickly introduce the other four people who are with us. There are four parents from very different walks of life who are also prepared to answer questions, but we will be making the presentation: Molly Ladd-Taylor, a mother in the labour market; Dawn Archambault, a single mother; Deirdre O'Sullivan, a stay-at-home mother; and Michael Flanaghan, a father of four children.
The three presenters have decided to share the 15 minutes, so I will try to be as brief as possible. I'm going to provide a bit of an overview, and it'll be a change of pace from the previous discussion. We're not going to focus so much on the technical aspects of the tax system, focusing instead on trying to reframe the debate and trying to reposition the issue of tax fairness within the context of family policy, because it's our position that tax policy is an appropriate and powerful tool of social policy and it has the potential to either support or hinder parents in their job of raising children.
• 1020
We take the position that the
real problem for Canada's families is that this
country's tax system is a long way from supporting any
family adequately. I want to briefly highlight
three reasons that we think contribute to this.
First, we think Canadian public policy is ambivalent about the role of women, both in the labour market and in families. Because we don't know whether to support women as mothers, workers, or both, this has led to a form of policy paralysis in Canadian public policy and a sorely underdeveloped system of support to families with kids.
Second, in Canada raising children is still seen largely as a private responsibility, unlike in other countries that take a more collective view of children and the role of children in society. Here are a couple of examples: Canada's tax system is one of the few or perhaps the only one in the industrialized world that doesn't recognize the cost of raising children, even though we know it costs about $160,000 to raise children from the age of zero to 18, which is a huge financial sacrifice that most parents make; and the value of the child benefit in Canada is one of the lowest among the OECD countries for modest- and middle-income families.
The third factor contributing to Canada's underdeveloped system of family policy is that the federal government, which has never played a very strong role in family policy, has had its role diminish over the last few years.
An example is the family allowance. The Government of Canada used to support parents in previous generations much more than it supports young families today. We had a family allowance that was worth a fair amount of money relative to a male industrial-like wage. By the time it was eliminated in 1993, its value had diminished, and now we have no universal family allowance.
Public policies haven't kept pace with the changing reality of Canada's families, and they fail to protect families from a hostile labour market. There are lots of examples of that.
Finally, declining support for family-oriented public policy is leading to a struggle in which families are increasingly being pitted against each other. An example came up in the previous presentation, where the new child benefit is focused on working families. Working poor families are being pitted against social assistance families. One-earner families are being pitted against two-earner families. Our view is that public policies are needed to provide real options for parents of young children. The parents shouldn't have to choose between earning an adequate income and spending adequate time with their children.
My two colleagues will elaborate in developing the theme of equity and repositioning equity in an important way, and in giving a number of concrete policy proposals that we'd like to put forward today.
Thanks.
Olivia.
The Chairman: I welcome Ms. Olivia Chow. I understand you're a councillor for the city of Toronto.
Ms. Olivia Chow (Children's Advocate, Children's and Youth Action Committee): That's right, and I'm a children's advocate. The mayor decided to appoint me a year and a half ago.
Members of Parliament, you are spending time travelling across the country for one purpose. It's really not just an abstract notion about fairness; the one purpose is really about our children, children like Sylvia, who is here today with us. We need to focus on one core thing, which is our children, to make sure they're properly nourished, properly raised, and properly supported.
Your committee cannot deal with the whole notion of tax equity if there are children who are actually starving in this country—it's hard to believe. You cannot deal with the whole question of tax equity if there are children living in basement apartments with no light. You can't view a tax equity if the mothers and their kids are being evicted. We do have a mother like that here today.
Those of you who reside in southern Ontario will see kids who are in serious trouble. They are in so much trouble that they are worried about not having a home; they are worried about not having a pair of winter boots when it's icy and snowy outside. You simply cannot justify using the word “equity” when you have over a million children living in poverty, and many of these children's mothers are in fact single mothers.
• 1025
Equity: What is it? It's a desire to see justice done
for all families and fairness for all families,
fairness administered in a way that leaves no deficit
of children's basic needs—and I will talk more later
about this deficit of children's basic needs—no
deficit in housing, no deficit in care, no deficit in
food.
There is no desire to punish one mother so that other
mothers are better off, no desire for stay-at-home moms
to take money away from children whose mothers are
working. There shouldn't be any such desire if we are
talking about equity.
Equity means three key changes.
I brought some props. I used to be a teacher, and still am, in college, and I like props.
The first one is money. When you talk tax, you talk money. Equity means that every family should be recognized in its effort to raise children, so to make it really simple, there should be a child tax credit for all families. I believe the government began such a program two years ago. I congratulate you for that. You must contribute more for next year, the year 2000 that is coming up, and continue to contribute until that family, a child, receives $4,000 a year so that a child would not have to worry about food and housing.
That will eliminate child poverty only if you do not allow the province to grab your child tax credit from the mouths of children in Canada, but that's what's happening. They're taking it away. In Ontario, as in some of the other provinces, the poorest kids do not receive your child tax credit, so you should call the last two years' initiative a tax credit for children except for the poorest children. That's what it is.
So what good is a tax benefit? What good is it when you invest your money to reduce child poverty only to have some of your provincial counterparts take it away? Then as your child poverty grows, you get blamed for it. So what good is it?
You know, child poverty is going up. The numbers do not lie. So why don't you treat this benefit like you treat health care and set some national standards? Then you'll be fair to the stay-at-home mothers by recognizing their efforts so that they receive a couple thousand dollars a year. The stay-at-home mothers who happen to be on welfare right now don't get your child tax benefit.
The second change, which others talk a lot more about, is legislative change. Mothers and fathers needs long parental leave, paid leave to be with sick children, and the right—for parents of young children—to have a shorter working day. It makes it easier to combine motherhood or fatherhood with paid work.
There is one point, though. Cutting employment support for working moms does not help the stay-at-home mom at all; it just causes hardship on children whose mothers work. It's a “punish thy neighbour” concept or, in this case, punish thy neighbour's children. I don't believe that is what Canadians believe in.
So to be fair to all stay-at-home moms, not just those who have a husband working, there should be a tax credit—actual dollars in their hands, not just tax cuts. Tax cuts don't help those who are very poor, those who are on welfare.
The third thing is actually child care programs. And enough reports; you've seen the report about the benefits of a national child care program, and I believe only six years ago, in the red book, the Liberal Party said that is what is needed. I still believe that is fundamentally what you believe in.
• 1030
Witness how popular the $5-a-day program is in Quebec.
It is incredibly popular and it
helps parents, whether they're working or not working.
So give the incentive, give the standards, get the
provinces to follow. What better way to unite the
country, using the best children's model in Canada, a
Quebec model? Why not do that?
To recap, we have a children's basic needs deficit. You cannot talk about children without talking about this children's basic needs deficit, a deficit in housing, a deficit in care, a deficit in food, and you have to address it. Is eliminating this deficit too costly? Is it too expensive? No. It will cost our children a lot more if we don't do anything about it. The year 2000 is coming, so do something. Bring fairness to all families, eliminate this deficit on the children's basic needs deficit.
The Chairman: Thank you, Ms. Chow.
Ms. McCuaig, please.
Ms. Kerry McCuaig (Executive Director, Ontario Coalition for Better Child Care Network): There are universal tools that all parents require in their important job of raising children: time, income and child care. I'm going to deal with two of them in more detail, specifically time.
We're noting that fewer and fewer parents have access to paid maternity and parental leave. As a direct result of the changes to the EI system, fewer than 40% of working mothers now have access to paid maternity leave. Because the rate of pay has also been reduced, we find the average amount of time that new mothers are spending on paid maternity leave is 12 weeks. This represents a national health problem in terms of the health of the mother and child and also for the health of families.
One of the proposals that we're making to you is to improve Canada's system of maternity and parental leave and to in fact make it a universal system that all parents have access to, whether they're in the paid labour force or not. As a first step, we're recommending that leave for parents in the paid labour force be extended to one year, with 24 weeks for the mother and another 28 weeks to be taken by either parent. And to help encourage fathers to be active in parenting their children, a bonus of six weeks to be taken by the father or the non-birthing parent.
Our second proposal is for a national infrastructure fund for early learning and care services. Canada does not have such a program. It's one of the things that makes us, compared with other industrialized countries, particularly Europe, a social laggard.
The point is that the jury is no longer out on the issue of whether good-quality programs are beneficial for young children. The research is overwhelming that children who have access to these programs greatly benefit from them in later life, in their social development, in their learning skills, and in their potential to be good citizens later in life.
We have a schizophrenia. This is another area in social policy where we have a schizophrenia. When we talk about child care, we sometimes don't know if we're talking about some transfer to dollars to mothers so that kids can be warehoused someplace so that parents can participate in training programs or work programs. On the other hand, when we say child care, people think of an early learning program.
This program, when delivered properly, delivers both and it delivers it in a simultaneous way. This is why we're calling for a comprehensive system that all parents should have access to for their children, regardless of whether they're in the paid labour force or not, and I hope that the other parents, when we get into the question and answer segment, talk about that. Some of these parents are not in the paid labour force, yet they make the financial sacrifice in order to provide these programs for their kids because they recognize the benefit of them.
• 1035
I want to touch very lightly on the child care
expense deduction. Our position is that this is a
legitimate working expense for parents in the paid
labour force. As such, it should not be taxed, because
it does not represent an increase in the well-being or
the discretionary economic power of the family.
However, it should not be confused with child care.
You cannot deliver a child care program though the
tax system.
We are joining with other organizations who are going to be calling on the government to make the first budget for the new millennium a children's budget. I would like to give you an idea of what we would like to see in it as an indicator that there is a real commitment on the part of the federal government to their newly released national children's agenda.
The first would be a $2 billion allocation for a national infrastructure fund for early learning and care services.
The Chairman: Was that $2 million or $2 billion?
Ms. Kerry McCuaig: It was $2 billion.
The Chairman: I was just checking.
Ms. Kerry McCuaig: We propose that $1 billion dollars be allocated out of the EI fund to begin the establishment of a universal system of paid maternity and parental leave. We also propose an additional $1.6 billion to expand the national child benefit for all low-, modest-, and middle-income families.
We make these proposals recognizing that they fall within the guidelines laid out by the Prime Minister to allocate budget surpluses equally to debt reduction, tax measures, and new program spending. In this case, we feel that our proposals here are in line with what has been proposed. Certainly I think it's time.... Canadian families have suffered greatly in order to deal with the deficit. Now that there's a surplus, we feel that surplus should go to families.
Thank you.
The Chairman: Thank you, Ms. McCuaig. The Prime Minister has always said it's much more difficult to govern with a surplus than with a deficit. Thank you very much.
We'll go with five-minute intervals, please.
[Translation]
We will start with Mr. Cardin. Five minutes, Mr. Cardin.
Mr. Serge Cardin: Ladies, gentlemen, I want to thank you for being here today. I think it is important.
You have presented many things in very little time that can be summed up by a figure of roughly $4 billions. Our chairman has told us that it is hard to govern with surpluses. Personally, I find it relatively easy, as long as it is possible to determine what our priorities are.
You say that there are economic priorities. Investing in training and technology is mentioned to create jobs and economic activity. You came here to tell us about children. You say that children are the most precious resources of a country, of a family and of society as a whole.
You have suggested many things. You say that some children are hungry, have no housing, live in poverty. We have been told by other witnesses before you that there are no poor children as such, that it is their parents that are having financial problems. You are suggesting we should be able to help parents, children, day care centres, and you even mention benefits.
You also mentioned fairness in various sectors. We have people coming here to tell us that they want to be able to make choices and that they want the government to support whatever the choice they make, whether it is to stay home and take care of their children or to go out to work. In your recommendations, you also mention help for early childhood.
Would your recommendations enable a woman who wishes to stay home to do it without being financially penalized for making that choice and would she be completely supported to care for her children regardless of her income, whether it be low, middle or high?
• 1040
[English]
The Chairman: Who would like to take that? Ms. McCuaig.
Ms. Kerry McCuaig: What we're proposing is what we think is the hub of a family agenda that addresses families no matter where they start. In the interest of income, we're recommending that, like other European countries, we need a substantive child benefit, and we're specifically recommending that the child benefit be increased to $4,200 per child and that it be graded so that modest- to middle-income families have a share of that benefit as well.
Again, talking about early learning and child care programs, this isn't solely a support for mothers in the workforce, and we think it would be a major mistake to look at this program as simply an employment support. This is a support for early learning. It's a major investment that we're making in kids.
Also, paid paternity leave and an expanded universal system of maternity and parental leave available for all parents would give all mothers the opportunity—not simply if they had another earner in the home that made that possible, but regardless of what their family's economic status was—to spend at least the first crucial 12 months out of the labour force.
It is also a mistake to look at parenting as being a static thing. We're all parents. We've all been in the labour force at some time. We've all been out of the labour force at other times. And this has very much to do with what stage of the parenting cycle we're at.
So simply to look at this as being a question of the stay-at-home mom or the working mom is a mistake, because we are all, at one time or another, stay-at-home moms and working moms. I hope that answers your question.
The Chairman: Do you want to add to that? Ms. Freiler.
Ms. Christa Freiler: I was just going to add that I agree completely with what she said, that the focus also is on time for many parents, primarily for mothers but increasingly for fathers too, so that the stay-at-home versus working dichotomy doesn't capture the fact that what all parents want is more time with their kids. That might include things like the labour market or the workforce adjusting itself to make that time available. We didn't put those proposals on the table, because to some extent the expanded parental leave will deal with it. But it isn't, as Kerry said, either in or out. It's whether you're in or out or in between, and how to make sure parents don't have to trade off adequate income against spending adequate time with their kids.
While not complete, I think the package of proposals we put forward is a good beginning toward resolving that dilemma.
The Chairman: Ms. Chow.
Ms. Olivia Chow: Let's assume I'm the working mother, and she is not working; she's staying at home. What she doesn't want is for government to take money from me and give it to her. What she wants is money for me recognizing my child, and money for her recognizing her child. So because of the fact that she raises her kid at home, she should have $4,200 for that child. And I should have the same, whether I'm working or not working. Of course, because I am working, I would also require the child care and all of that, which I then pay for. That's the first point.
The second is that in the actual research, there's little comparative evidence to support the idea that parents are spending less time with their children because a single mother, for example, goes to work. Studies in Britain and Sweden—and it's in a book called Single Mothers in an International Context: Mothers or Workers?—actually tell you that mothers working full-time now spend more time with their children than the full-time housewife three decades ago. It's on page 273 of that book, and it quotes international studies that tell you it's actually the time we spend with kids; whether we're working or not working, it's how much time we spend with children.
• 1050
The Chairman: Ms. Dockrill, please.
Mrs. Michelle Dockrill: Thank you.
First, may I say thank you very much for coming here today. I think it's really important. I think you talked about refocusing this committee with respect to exactly what our mandate is. Certainly from my perspective, when we're talking about the tax and transfer system as it relates to families with dependent children, that should be inclusive of all Canadian families. I think this is a very important point that we as a committee have to continue to remember.
When I looked at your presentation, the first line I read was “tax policy as family policy”, and it was really important because I think that's exactly what we're talking about. We're talking about families, we're talking about investing in our children and therefore investing in our future. You will get absolutely no disagreement with me that in order to do that I think one of our main priorities is to eliminate child poverty and to ensure all of our public policies have that goal in mind.
Another thing I saw in your presentation was about parents being pitted against each other. Certainly over the course of the last few days, travelling across the country, I have become concerned that this is what we see happening across the country, that it's a matter of us against them. I don't see it as that; I see clearly that you're talking about families.
A lot of the presenters of the last few days have talked about income-splitting and their sense that it's one way to address the inequities within the tax system. There have been other presenters who see that as a gender equality issue and detrimental in terms of women's participation in the labour force. I wonder if you would like to comment on your views with respect to income-splitting.
Ms. Christa Freiler: We're familiar with the concept, and it's one for which I could give you a reaction off the top of my head, which I would rather not do. I know there are people following us who are both connected with the family approach and also more up on the technical aspects of the tax system. In fact, maybe you should redirect it to a couple of the people representing Campaign 2000.
I don't think we've studied that. I know it's an option that is being looked at and that the pros and cons are very much like what you've said, but unless one of my colleagues wants to comment, I think we're not in a position to do that today.
Mrs. Michelle Dockrill: The reason for my question is that lone parents are not coming from a family with two incomes to split. Certainly this has been my concern with the suggestion of that income-splitting. That was the reason for my question.
You talked about the need of expanding maternal and paternal benefits. I don't know if you've seen a study that's been done by Shelley Phipps with respect to the international comparison. I've read it a number of times over the last week, and it seems every time I read it something else jumps else jumps off the page. I wanted to read you something and maybe see if you want to comment on it. It says countries that offer more generous maternity and paternal benefit systems tend also to offer other relatively generous transfers. There is a negative correlation between the generosity of these transfers and the incidence of poverty among families with infants. The study also shows that Canada is not by far leading the charge. I just wanted to know if you agree with the comment that she got out of her study.
• 1055
The Chairman: Who'd like to take that?
Ms. Olivia Chow: I wish we were in France or Sweden.
Mrs. Michelle Dockrill: I've asked this of a number of presenters, and I will ask you this question. Given the fact that there are a lot of policies and initiatives that have to be addressed if we're truly committed to dealing with the inequities as they relate to families with dependent children, would you like to see the subcommittee maybe used as a stepping stone towards a very serious commitment towards a national child strategy for this country?
The Chairman: Ms. McCuaig.
Ms. Kerry McCuaig: I want to do a quick follow-up on your last question.
Often child poverty is commented on in Canada as if it's accidental. People say, if only she hadn't got pregnant, if only she hadn't got pregnant with him, and on and on, or divorced, etc. Essentially, it's saying that if only she had a man in her life who was earning a good income we would not have to put up with child poverty.
But it's very much public policy that causes child poverty. You can take the same young woman, with the same specs, who gives birth in France and will have a healthy child and she herself will be healthy, she'll be able to combine work and family and there will be positive outcomes for her child. But you can take the same young woman born in Canada, and because those supports are not available, we deal with higher mortality rates, low birth weights and all of the problems that surround poverty. So we're really dealing not with an accident of individuals, but with a deficit in the social policy.
In response to your question, this is exactly what we were hoping. First of all, we were pleased with the statement, at least, of what the mandate of this committee was, that it was not only looking at very narrow tax measures, but it was also looking at the transfer system. This is what we decided to focus on with you.
There's also an opportunity here in that there has been the release of the national children's agenda, there is a growing call for the first budget of the millennium to be a children's budget. We hope his committee would take our thinking—and I know it will also be the thinking of many others who appear before you—and include these as part of your proposals. We're not dealing simply with a tax system that is unfair to families, we're dealing with a whole system of tax and transfers that are unfair to families.
Mrs. Michelle Dockrill: Thank you.
The Chairman: Thank you very much, Mrs. Dockrill.
Mr. Jones.
Mr. Jim Jones (Markham, PC): I think the first presenter started off talking about the tax system and said it had a long way to go to support any family adequately. Can you explain what you meant by that?
Ms. Christa Freiler: We weren't singling out the tax system; I think we were talking as a package about the tax and transfer system. Compared to many other countries, and not just Sweden and France, although those stand out, Canada has a reputation as a family policy laggard. We're suggesting that this should be a source of particular embarrassment to this country in view of our proud achievements in universal health care and income security for seniors.
So it's more in the context of our lagging behind other industrialized countries in the level of support we provide for families with children. That's what I was talking about. That's what I meant by “a long way”; compared to those other things that we do do well and that we have every right to feel proud of, there's not much to feel proud of in the field of family policy.
So I'm using that broadly, and it includes both the tax and the transfer system. The one example I used was no tax recognition for children, and there are other examples; for instance, no universal system of early learning and care, and a very low-level child benefit for modest- and middle-income families.
• 1100
In the Shelley Phipps study that was referred to,
she's done a lot of work looking at how much child
benefits pay for modest-income families. I'm talking
about family incomes of $30,000 to $35,000. Canada is
10th out of 10 countries in the low level of support it
provides for struggling modest-income families. We
instead choose to pit poor families against each other.
We have so highly targeted our benefits that regular modest- or middle-income families are being totally left out. I'm not suggesting that we not be generous in our support for poor families, but that's a good example. In the name of greater targeting, in probably the last 10 years, we've targeted the national child benefit so much that the biggest losers, quite frankly, have been modest-income families. We're not talking about families at $100,000; we're talking about families where the combined income is between $30,000 and $40,000, for example.
All of those things taken together support our contention that we're not doing so well.
Mr. Jim Jones: I believe you also said that in Canada, raising children is the sole responsibility of the family or the individual, and other countries have state responsibility for raising children. Can you give me the tax rates and some of the characteristics of the countries you're talking about that take more of a state responsibility for raising children?
Ms. Christa Freiler: I can begin to do that.
I hope she won't mind if I tell you that Dr. Brigitte Kitchen, who's a social policy and tax policy expert, is going to be one of the people speaking on behalf of Campaign 2000. She can give you the details.
There are European countries that have higher tax rates, and that's one of the ways they support family policy, but we don't see tax revolts in those countries.
We need to pay for what we get, and I think Canadians understand that. In all of the polls we've seen, most Canadians say they're willing to pay taxes in the interest of providing the kinds of services they and other people benefit from. So this notion that people want tax money back I think represents the views of the elite in Canada. It does not represent the views of ordinary Canadian families, because they realize that in order to receive the benefits, we all need to pay our fair share of taxes.
Ms. Olivia Chow: May I add something? As a pure investment, if today you invest $1 in a child under six years old, according to an American study, you will get a $7 return 25 years later, because that child will be a productive member of society. In a Canadian context, from $1 invested now, you'll get $4 back. There are many studies. Economists can give those figures to you.
So from purely an investment point of view, you actually get a better return. How many mutual funds do you buy now where you can invest $1 and get $4 back? That's a very good investment, and we're talking about our children.
The Chairman: Ms. O'Sullivan, you had something to say.
Ms. Deirdre O'Sullivan (Parent, Children's and Youth Action Committee): Hi. I'm a stay-at-home mother. I have three children, and over the course of the year, I have child care expenses.
I believe in early childhood education and send my children to nursery schools and day care centres part-time. I also send my children to day camps during the summer. I volunteer in my community, so I require real child care and have to pay for that. Instead of seeing a deduction in our income tax, I personally think universally accessible child care and early education would be more beneficial to parents in my situation than a couple of thousand dollars off of our income tax in a year.
Mr. Jim Jones: Thank you.
The Chairman: Thank you.
Mr. Jones, make this your last question.
Mr. Jim Jones: Yes.
Somebody said working mothers have 40% access to child maternity leave. Can you give me the demographics or the characteristics of the organizations that are supplying maternity leave and the types of organizations that are not supplying maternity leave?
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Ms. Kerry McCuaig: No, what I was referring to is that 39% of mothers who pay into the EI system actually get to claim EI when they go on maternity leave. This comes straight from your HRDC studies. And on average, those 39% of mothers who take maternity leave only take 12 weeks. The exact analysis hasn't been done. We can assume it's because 50% of their previous earnings is not enough income, or we can look at what the workforce is like these days, where workers feel very vulnerable if they're out of it for any amount of time. They worry about job security.
Most provincial legislation is in line with what EI provides, which is six months. It says something about having a six-month program, so when Canada announces that in international forums, we sound relatively good. But when we actually look at how many mothers can access it and how long mothers are actually on it, it's quite embarrassing.
Also, fewer and fewer working women are paying into EI, because a lot of the growth in the workforce is in self-employment, and therefore they don't have access to it.
The Chairman: Thank you very much.
Ms. Redman, please.
Mrs. Karen Redman: Thank you, Mr. Chairman.
I really appreciate your interventions today. I thought it was interesting that Ms. Chow started out praising the Quebec model of child care, because just yesterday in Calgary we heard somebody who was highly critical. They said maybe it provided more child care, but not of a very high calibre. So it's interesting. You hear many voices and many opinions. I would contend that there is no simple solution to this, so we certainly appreciate everybody coming and trying to be part of the solution.
The previous panel of presenters brought up two interesting proposals that I'd like to get your reaction to. I'll go to you, Ms. O'Sullivan, because you were talking about child care costs despite the fact that, for all intents and purposes, people think you're home doing nothing but being at your children's beck and call.
Would the $2,000 child deduction that was suggested earlier go very far to addressing the concerns? The suggestion, as you probably heard, was that all parents of children would get the $2,000 deduction, so that any child care expense incurred by either the father or the mother, whether they were at home or in the workforce, would be able to be deducted.
Ms. Deirdre O'Sullivan: I don't know if I can answer that question for all women. For me, I don't think it would be that helpful, because by the time you see it, the money's been spent.
I wouldn't want to answer that question for other women, because everybody should have a choice. That's why funding programming, instead of looking at fiddling with taxation, is a better way of addressing people's choices.
The Chairman: Mr. Flanaghan wanted to add something.
Mr. Michael Flanaghan (Parent, Child Poverty Action Group): When it comes to deductions, unless you're earning so much money—and this is where many of us are at today—you really don't notice it coming off your tax refund or being included in your tax refund. We are dealing with that in Ontario now, where the Conservatives are giving us supposedly this tax break and this money coming back, but I think most of us just don't notice it, unless we're wealthy, and probably they don't notice it either. It's just not something you can say.
But by doing things where you're not having to put money out or you're getting some money and you can do something you feel is necessary—for example, child care.... I'm a supply teacher. I cannot go and supply teach for, let's say, $100 a day and then have to give $50 of that to the child care, the babysitter, or whoever it's going to be. It just doesn't make any sense. But if I had some way of putting that $100 in the bank and being able to do something with it, then it would make sense, and I would go and work, because all of it makes sense and we're able to do things.
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If you look at tax breaks as compared to benefits,
with benefits the money all comes back into the
system. People who are low-income earners spend back
into the system whatever it is they're getting.
If it's a tax break, nothing happens with that money.
That money is nowhere. It's like a dark hole and you
don't even know you've received it. With
respect to that, I think it's very important we recognize
those things.
The Chairman: Ms. McCuaig, weren't you recommending $4,200 as a tax deduction per child, or did I misunderstand that?
Ms. Kerry McCuaig: No. Our proposal is that the child benefit be increased to $4,200 per child. The only tax recommendation we're making here is that there should be some form of universal tax deduction for parents with children, which recognizes there's a difference between being an income earner with children and one without children, and that there's a social responsibility for us all to contribute to children.
The Chairman: Thank you.
Ms. Redman, please.
Mrs. Karen Redman: I was just going to clarify that it would be available to everybody. I guess the rub for me is the fact that it's a deduction, so if you don't have earned income....
Ms. Christa Freiler: Could I just very quickly respond to it? Without having seen the details, it's hard to respond fully. But my first reaction is that the universal tax recognition for children that we talked about and that Kerry has just referred to shouldn't be paid for only by other parents. That doesn't seem right. If the proposal is to reduce the child care expense deduction and then use part of that to pay for a more universal tax recognition for parents, that seems like the wrong way to do it. I mean, if we value children and we think we have a collective responsibility for children, all Canadian taxpayers should be paying for children; it should not just be redistribution from one set of parents to another set of parents. That's my first reaction.
The second is that we've argued that the child care expense deduction is not child care. The child care expense deduction is a work-related expense. So if it's child care you want to recognize, I think there are other ways of doing it, and we're talking about investing it in a system of services. I think that would be the second problem with that proposal.
Mrs. Karen Redman: I would also like to get your opinion on this. One thing that is actually quite startling when you look at the statistics is that only 17% of taxpayers who are eligible to collect the child care expense deduction actually do collect it. I'm wondering, as a group, whether you have looked at what you might think are the causes or the reasons why there's not a greater uptake on that.
Ms. Kerry McCuaig: There's a lack of child care services, and those parents who are able to provide receipts simply provide them through licensed child care programs or if they're direct employers of someone. But the vast majority of child care...let me give you a Toronto example. The Metro Toronto Children's Services estimates there's $420 million in underground babysitting costs. So that's $420 million that is circulating in this town alone, of which there is no record. So the money is bad enough; what's happening to that amount of money? But I think what we should be more concerned about is what's happening to kids who are being taken care of in an underground economy.
Mrs. Karen Redman: Just to follow along that line, and I think that's exactly the situation. What is causing that? Is it a lack of quality child care? Is it the fact that we're not paying ECE people who have university degrees more than $20,000 or $25,000 a year? Have you turned your minds to why that underground economy is thriving?
Ms. Kerry McCuaig: Because there are not sufficient quality, affordable programs for parents to access. Again, if we look at the situation in Toronto, it's because there has been no expansion in child care services in the last four years, so parents with the $1,000 a month to pay for an infant space can't find one. So then they're forced into the underground economy as well.
Ms. Olivia Chow: Just to give you some figures, in Toronto there are over 15,000 children waiting for child care, and with Ontario Works coming along, which is the workfare program for welfare mothers—mostly mothers—34,000 children will have to get some kind of child care and there isn't any at all in the city. So there's a huge deficit in need of child care.
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Mrs. Karen Redman: Just help me work through this a little more. Not to belabour this overly, if we're a dual-parent family and we're both working, then we have money, supposedly, and we should be able to access child care. You're telling me it's because of a growth in the part-time or the low-paying wage that parents are not able to afford quality child care?
Ms. Olivia Chow: That's right. If you're a working parent it's very difficult. Quality child care, licensed child care, by and large costs money. A lot of working families can't afford it—those under $30,000 in terms of taxable income. It's very difficult to afford it.
You can ask Michael and you can ask other people here. The province and the city subsidize 23,000 children, for example, in Toronto, so that we can pay the difference. They pay a large amount but we pay a small amount so that they can afford it. But because there is no such program nationally or in Ontario, you have a lot people where the only way is to find unlicensed babysitters.
The Chairman: Thank you, Ms. Chow. We'll give the last word to Ms. Ladd-Taylor.
Ms. Molly Ladd-Taylor (Parent, Ontario Coalition for Better Child Care Network): Hi. I'm a professor and I have three kids. Two of them are in licensed child care at the current time.
I appreciate the question, and there are several aspects. One is that you're not one thing and then another. My kids have been in the underground child care economy, I've been at home, they've been in licensed child care, and I think that does speak to the point. It shouldn't be one group of parents against another. We're all in the same situation as we go on through our working lives.
One of the problems is that with the cutbacks to child care and the cutbacks to subsidies, full-fee parents such as me are put in a position of rising fees, so that when you have two or three children it becomes really prohibitive, even for people like me and my husband, who make pretty good salaries.
That's where something like a benefit or universal quality child care would be quite advantageous to somebody like me who's fairly well off as well.
I also wanted to speak to the point that Mrs. O'Sullivan raised, about the need for so-called stay-at-home parents to have child care and how much that would benefit somebody like me. For example, in my community, especially now with the cutbacks to schools in Ontario, we're finding that the schools are increasingly relying on parents to come in and help out in the schools and to raise funds and stuff. Parents are increasingly unable to do that work because of the labour force situation, lack of child care, and so on. So, for example, our school has cancelled its fun fair and crucial fundraising things this year.
These things are really important and quite dire. I'm extremely worried about my children, and I think this is where it's absolutely crucial for the stay-at-home parent to have resources so that they, as well as I, can have time and money to continue to do that support for children in our community, my own children as well as everyone else's.
The Chairman: Thank you very much. I think the average child care tax benefit you can claim right now is around $2,200. So you're asking to go to $4,200, which is a $2,000 increase. I just want to let you know that the Globe and Mail this week published a table of different alternatives, and if we want to give $1,000 credit directly to each child it's $7 billion. So you're asking indirectly for $14 billion.
That's why I said it's much more difficult to govern when you have a surplus. I'm not here to say the message I think our committee takes—
Ms. Kerry McCuaig: We're asking for it to be phased in, to be fair.
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The Chairman: The message that I'm taking personally—and I believe I speak on behalf of the committee—is your priorities and whether it's the $2 billion in infrastructure or the $1 billion in paid maternity or the expanded national child benefit. That's the message I'm taking. We'll try to deal with the numbers afterwards, based on the priorities in our upcoming budget. But that's the message that I will reflect.
I do want to thank you, on behalf of the committee, for bringing us your priorities and sharing with us a day-to-day average viewpoint that many Canadians face. The challenges for our committee are not easy, but your views certainly will help us make a decision a lot easier. So thank you very much.
Colleagues, we'll take the next witness right away. We will not suspend.
Our next guest is from the Ontario Christian Home Educators Connection. I would like to welcome its secretary, Mr. Jake Zwart.
Mr. Zwart, we'd ask you to make your presentation between five and seven minutes, leaving ample time for questions. On behalf of the committee, I'd like to welcome you and ask you to begin, please.
Mr. Jake Zwart (Secretary, Ontario Christian Home Educators Connection): Thank you.
As mentioned, I'm Jake Zwart. As for the other guy who was supposed to be here, Jack Baribeau, I know him, and for him it was a choice between feeding his family and coming here. He took the choice of feeding his family. He is a self-employed contractor. I'm self-employed as well.
So I'd like to start by saying a little bit about our organization. OCHEC, the Ontario Christian Home Educators Connection, is a non-profit volunteer organization aimed at serving home educators. It bases all of its policies and actions on Christian principles and takes the Bible as its moral and spiritual guide.
What is home education? I think most of us have heard of it. It's getting some media attention now. But that's where one of the parents, usually the mother, teaches the child at home in lieu of public education or private education. I realize this is a federal setting, but my taxes pay for public education and our family doesn't receive any direct value from those taxes for our children. But since it's provincial, I won't dwell on that one.
What does our membership look like? By and large, our membership would be dual-parent single-income families. By definition, to do home education, you need a parent at home. There are some single-parent families within the home education community, but by and large it would be dual-parent families. One parent needs to teach, so usually he or she doesn't work, although there are some who work part-time.
Some parents actually start family income ventures where the children assist in running the family business, which they can do because the children are taught at home and then there's additional time for family ventures. An example here is the curriculum vendors. When I go to home school conventions, quite a few of the curriculum vendors are family businesses, where the mother, who is the home school teacher, will come with her children to sell books on the weekend.
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A bit of background on home educators: The reason for
home education varies. We're a diverse group, but our
commitment to children is uniform. No one of us would
sacrifice the time, let alone the possibility of a
second income, to educate our children at home. We take
our responsibilities seriously. By and large, the
loyalty home educators have for their family they also
have for their country, for their church if they belong
to a church, or for other institutions they belong to.
They would also see a separate jurisdiction for the
family and for the state, and they would tend to be
very protective of their family.
The number of children home-educated in Canada is estimated to be roughly 1% of the population, and it's growing. At our convention a couple of weekends ago, roughly 40% of the people were either interested or in their first one or two years of home educating.
The second point of interest is that home educators have more children than the norm. In our membership, the average number of home-educated children and preschool children is 2.75 children per family below the age of 16. So that excludes children older than 16 or in some cases children who go to school and others who are home-educated. In fact, one of our board members is pregnant with her twelfth child now, so some of them are very big families.
The tax implications of home education: I haven't gone into the detailed numbers so much as trying to give an overview of where we're coming from. Most of the examples given in the media are for smaller families and are done by organizations such as C.D. Howe. For our organization, it would be good if they were extended to larger families, because there are still larger families in this country.
It's generally recognized that the tax deduction for the income earner is larger than for the spouse of the income earner in the case of a dual-parent single-income family. One obvious solution is to make that equivalent.
Our membership also would usually not have any eligible child care deduction, just by the nature of it being a single-income family. If that person were a caregiver at arm's length rather than a parent, there would be child care deductions that the caregiver could claim.
Also, I'd like to present some statistics. According to Statistics Canada, just over one in twenty youngsters from dual-income families live in poverty, compared with...I'm not sure if I got that quite straight there, but there are quite a few families that live in poverty. A poll done in 1991 by Decima Research showed that 70% of Canadian women would stay at home if given the choice. Another poll taken by Compas in 1997 showed that 92% of adults believe children are best brought up in full-time parental care. Yet the data shows that almost 71% of dual-parent families had both parents working in 1995.
Somehow there's a big discrepancy between what parents say they would like to do and what they're actually doing. There's probably a reason for this, and while it's hard to prove a quantitative relationship, the data are also hard to ignore: most parents would like to have one parent stay at home to take care of their children and have the other one earning the income. In a democracy, what we'd like is a family taxation policy that would be consistent with the desires of the family.
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Also, if we recognized that the future of Canada
belongs to children, we would want to encourage the
parents to maintain a family structure that encourages
them to be able to take care of their children as they
desire. That desire, as we mentioned, is to have one
parent stay at home.
The families our organization represents have made the decision that caring for children is their direct responsibility. That care goes beyond the preschool years and extends into the school year. They believe they can give their children a superior development morally, spiritually and educationally by taking the responsibility to educate them at home. They believe this so intensely that they are willing to give up a second income and a sizable amount of free time to train their own children. I dare say that most would continue to do this even if it degraded their standard of living further. They know that life is much more than economics. They would rather live in a spiritual, moral and cultural richness and financial poverty than the other way around.
To summarize, home educators are not the norm in everyday Canadian life, they represent about 1% of the children, they have larger than normal families, and they don't respond in the same manner to government incentives or disincentives for having large families. That being said, I believe the onus is much more on the government and on your committee to ensure that these people, who are willing to give so richly of themselves, are not penalized financially for the decision they make. They're investing in the future of our country by giving of themselves for their families and are being penalized financially for that. Finances are not what motivates them, but it sure helps them to eat.
Our recommendations are as follows:
The Income Tax Act should be changed to allow income-splitting between spouses and single-income families where one parent stays at home to care for the children or other dependent family members. This would allow a higher level of basic personal exemption for the stay-at-home parent and a lower tax bracket for the income earner. As an alternative, the taxation could be done on the family unit rather than on individual income that is split.
We recommend a universal child care exemption rather than one that is tied to family income level.
Child care expenses are borne by families with stay-at-home parents as well as by dual-income parents. Child care expense deductions should be applicable to both.
The final one is to reduce the overall level of taxation. Canadians in general, and our constituents in particular, prefer to be self-reliant than to have the government control their lives.
A recommendation to all levels of government is to recognize the money we are saving them by establishing a tax credit for the families that have opted out of normal government programs. An example here would be a tax credit for parents with children who have chosen an alternative to public education. I'm sure other examples can be found in the health care field and in many other areas.
Thank you very much.
The Chairman: Thank you, Mr. Zwart.
I have three questioners, so I'll allow 10 minutes for the total question period. We'll start with Mr. Forseth, please.
Mr. Paul Forseth: Thank you.
I'm particularly interested in your last recommendation, where you say:
Have you thought more deeply about that, to suggest perhaps some numbers around that, as to what level of deduction you would ask for at this point?
Mr. Jake Zwart: The quick answer is no, I have not gone into more detail on that. However, I think we all recognize that the average money per year that it costs to educate a child publicly is in the range of $5,000 to $6,000 a year. I'm told by people who have visited both school systems extensively that private education tends to be better and less expensive. So education goodness or quality of education is not tied to money spent, but tying that deduction to the amount that would otherwise be spent would be a good starting point.
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Mr. Paul Forseth: Have you looked at the British Columbia system? There is a partial recognition of spending for private education.
Mr. Jake Zwart: I haven't looked at their system in very much detail. My bias is that the one who holds the cheque in their hand last is the one who attaches strings to the money, which is why I would look for a tax credit rather than a voucher system, which would mean my tax money goes to the government. The government has its bureaucracy there that siphons off some of the money, and then they send a cheque back to me or to a private school and attach their strings. So I would encourage a tax credit where those kinds of strings would not get attached to the money.
Mr. Paul Forseth: I would just say, seeing that education is a provincial constitutional responsibility, perhaps some partial recognition, anyway, of spending on private education would be represented in the provincial portion of the income tax form rather than the federal side, and it would be a provincial decision to recognize that.
Mr. Jake Zwart: I recognize that, which is why I didn't want to dwell on that here.
Mr. Paul Forseth: Right. Thank you.
[Translation]
The Chairman: Mr. Cardin, please.
Mr. Serge Cardin: Thank you for your presentation, sir. I cannot resist this opportunity to say that you are asking basically for the possibility to withdraw from the public school system and to receive a tax credit for the equivalent amount. Other witnesses have dealt with some aspects of your recommendations, but they did qualify them. Do the persons doing the home teaching have the same qualifications as other teachers? Are they subject to some requirements regarding skills?
[English]
Mr. Jake Zwart: That's a good question. There are studies that have been done on home-educated children that show that home-educated children, by and large, meet or exceed the level of children who are educated in the public system. There are other studies that say the education level of the mother, who is the primary home educator, does not impact the quality of education.
I think what you're looking at here is not a matter of education levels but a matter of dedication. It's the dedication of people who say “I'm putting my children first” that determines the outcome of the children educationally.
I know I mentioned a tax credit for home educators. I recognize that is a provincial matter, so what I'd like to do here is focus particularly on things at a federal level that would tend to assist in a family structure like we represent. Where you can help home educators would be especially in recognizing families with dual parents and single income, by and large, and providing some sort of relief to those families.
I would encourage you to look at that. I would encourage you to look not only at the traditional 1.8-child family or two-child family but also at the implications for larger families, because our country still has larger families. I would also like you to look at it in a manner that leaves the jurisdiction of the family intact yet provides some sort of recognition for what they're doing and that they are raising the next generation of Canadians.
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The Chairman: Thank you.
Mrs. Redman, please.
Mrs. Karen Redman: Thank you, Mr. Chairman.
I have two questions. First, you talk about splitting income between spouses, and I wonder if your intent is only for people with children or if you would see that being available to all families, and if that is something they could opt in or out of. As well as that, you make the point that they both would be able to claim the basic personal exemption. Would you then see the spousal amount being phased out or eliminated for those cases?
In your fourth recommendation, the point you're really making is the total antithesis of what the previous group presented, because they are talking about funding for a universal child care and taking the taxes and redistributing the services being paid for by the public sector at large. I wonder if you could give us some feedback on their presentation. I'm assuming you were in the room to hear what they had to say.
Mr. Jake Zwart: In terms of your first question on income-splitting, I'm not sure how I would go about that, whether it should be for all families or just families with children. I haven't put a lot of thought into that, so I'd rather not answer that one.
I think income-splitting would automatically take care of the difference in basic personal exemption for the income earner versus his spouse.
You're right with your second question on whose children they are. As I view my responsibility as a parent, I was the one who decided to have children and I am responsible for raising them. I don't see it as the government's responsibility to raise them. I don't see it as the government's responsibility to provide child care if I decide to go to work. The government has elected to do that, and in that way they are discriminating against those of us who take our responsibility to raise our children by parents. I think that discrimination needs to be addressed.
So you're right, in a lot of respects I am the opposite or antithesis of the previous group that was presenting here.
Mrs. Karen Redman: Thank you.
The Chairman: On behalf of the committee, Mr. Zwart, I'd like to thank you for bringing to us another viewpoint and sharing with us the benefit of your experience. I would like to thank you again for coming today and wish you a safe journey back home.
Mr. Jake Zwart: Thank you.
The Chairman: I'm pleased to welcome our next presenters. From the C.D. Howe Institute, we have its policy analyst, Mr. Finn Poschmann; and from Campaign 2000, we have its chairperson from the Toronto campaign, Mr. Colin Hughes, as well as Dr. Brigitte Kitchen, professor of social work from York University. Welcome to the three of you.
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I'll ask Mr. Hughes or Mr. Poschmann, whoever is
ready, to please go ahead. Try to limit your
presentation to around five to seven minutes, as that
will give us ample time for questions and answers.
Mr. Poschmann.
Mr. Finn Poschmann (Policy Analyst, C.D. Howe Institute): Thank you, Mr. Chairman.
I'll have to fly a little under the circumstances.
First, thank you for having me here. There are a few rather basic points about our tax system, and especially our tax rates schedule, that bear on the issue of family taxation. The marginal tax rates, the tax rates applying on the next dollar of earned income, will be a recurring theme in my comments here.
I'll start with the observation that almost all of the difference in federal tax payable—that is, between single-earner and dual-earner families—is the product of individual filing combined with a basic progressive-rate federal tax schedule. I know you've heard that point made a few times over the course of these hearings.
This is illustrated in the first figure in my package, which I have taken from a recent C.D. Howe Institute book on family issues. It shows the differential impact of the progressive rate schedule for families at different levels of household income. In each case, the comparison is between taxes bearing on one-earner versus two-earner households.
The only source of the tax differences, other than the rate schedule, is the differing values of the individual or spousal personal exemptions or credit. These values have differed only since 1973, and then it was never more than a couple of hundred dollars in tax impact.
Mr. Paul Forseth: Could you slow down a little bit, please? The translator has been having a tough time keeping up. I saw her coming up for air at one point.
The Chairman: Take all the time you need to make sure you get your points across.
Mr. Finn Poschmann: Okay. Thank you, Mr. Chairman.
In the presence of children, however, with receipted child care, there would be much more difference in tax payable but less difference in disposable income because of the paying for child care, as noted by finance department officials who appeared before this committee a couple of weeks ago.
We can come back to that in more detail later if members are interested. I mention the child care expense deduction as a matter of completeness. I do not intend to criticize the CCED.
The general point is that the progressivity of the federal tax brackets attaches high tax rates to individuals not very high up on the income scale, which makes child rearing more difficult to afford for many people.
Individual filing isn't a necessary part of an equitable personal income tax system, and the use of joint filing would go a long way toward responding to the criticisms of the tax system that led to the creation of this subcommittee.
Among the leading merits of a joint filing system is the simplicity it brings to household decision-making. It doesn't matter who takes an extra shift at work or who pays the household bills versus saving for the children's education. The big point is rebalancing the tax burden on single- versus two-earner families.
The United States uses joint filing for these reasons, and France and Germany use income-splitting mechanisms that achieve much the same effect.
There are two usual criticisms levelled at joint filing. One alleges that it reduces women's social and economic independence. The other is that it wrongly exposes secondary earners to their spouse's higher marginal tax rate.
On the first point, we need only compare Canada with the United States. To sustain the argument, you would have to believe that Canadian women are socially and financially more independent than American women, and that this difference is because of how the Canadian federal tax rate schedule is designed. You do have to believe both halves for the assertion to make any sense.
Parenthetically, female labour force participation in the U.S. is slightly higher than in Canada.
On the question of marginal tax rates for secondary earners, it's again useful to look at the U.S. First, the threshold at which taxpayers face each higher tax rate is much higher in real value in the U.S. Second, if couples are filing jointly, the thresholds are much higher yet—$61,000 and $148,000 Canadian for the first two steps up, which are 28% and 31% of the U.S. federal rates, versus $29,590 and $59,180 for Canadian taxpayers.
The point is, under joint filing you wouldn't use the same brackets as we do today. Each bracket would be broader so that more couples face the same tax rate. The system would appear to couples much flatter than otherwise.
This point about flattening the system is really the heart of the matter. It leads in a profitable direction. I say this because it isn't necessary to use joint filing to make the tax system fair to families, since the same goal could be mostly achieved with a flat or flatter rate schedule, meaning a schedule that doesn't ramp up so quickly.
Let's talk about flatter taxes, then. Like joint filing, most of the gain from flat-rate taxes comes from the simplicity they bring to family decision-making and family choices about work, savings, and investment. I won't dwell on their extreme popularity; or their obvious common sense; or the fact that they would end most fuss about whether to tax singly or jointly; or that a flat rate would end most of the fuss about whether something, or anything, should be a deduction or a credit. It wouldn't matter.
• 1155
The same merits can, in a general sense, be attached
to flatter taxes, which you can get by doing very simple
things like lowering the federal middle rate and
raising the threshold at which first the middle and
then the top rate kick in. The middle rate could go
from 26% to 23% for a start, and the higher rate could
kick in at a high income, not $59,180. Eliminating
the rather absurd temporary high-income surtax would
help as well in this regard.
Why do some people resist flat taxes or flatter taxes? Usually it's the result of a misconception, for example, that flat taxes mean higher taxes for poor people and lower taxes for rich people. But this is just a matter of tax design. Any desired degree of effective rate progressivity can be achieved through good choices on personal exemptions and the marginal tax rate. It's just a matter of getting the arithmetic right.
The other reason some people argue against flat or flatter taxes is that they believe there is a philosophically or economically good outcome from taxing the incremental dollar of well-to-do people on the margin at higher rates than the less well off. The idea, according to a nineteenth century utilitarian philosopher, is that society as a whole feels better off in doing so. The assertion is that the incremental satisfaction derived from an extra dollar available for consumption by the rich is less than when that dollar is consumed by the poor. It doesn't matter that this assertion is ultimately unprovable.
• 1200
What I would like to point out is that if anyone in
the Department of Finance, HRDC, or in the current
government believes this assertion to be true, they
haven't allowed it to play a meaningful role in setting
tax policy.
This is provable, and the evidence is in my second
figure, which shows federal marginal effective tax rates
by income level and number of children. The marginal
tax rates bearing on low-income families are wildly
higher than those facing high-income families, so those
old-fashioned liberal philosophers are really right out
the window.
We should note a couple of things about this figure. The first is that these are federal rates only. Were we to include provincial taxes and the national child benefit system, the picture would be much worse—much, much worse, as I expect you heard from Professor Richards earlier this week. In Ontario those plateaus at the bottom end would be around 70%, even after promised tax reduction, and in Saskatchewan there's a substantial range where the marginal rate is over 90%. Do remember these are effective tax rates facing ordinary working families in low incomes. These are not social assistance clawbacks.
The other thing to note is that were we to look at two earners as opposed to the single-earner family that I've illustrated here, the general shape wouldn't change. The federal child benefit is tested against family income already. So those horrid peaks would remain right where they are, and the rest of the profile would be pushed down and to the right. We're talking about upper-income families here, since if the income were earned by two taxpayers, the effective marginal rate from the combined income would rise more slowly.
Flattening tax rates in the post-modern era would include lowering tax rates for low-income families, lowering tax rates for middle-income families, and making sure high tax rates are not reached until someone reaches high income. But let's lay out a package of tax reforms that would speak directly to this committee's ambit.
A starting point for tax fairness for families of all types would include an exemption for dependent children. Professor Davies went over the philosophical case for that this morning, and beyond mentioning that we had a dependent exemption right through to the olden days of 1992, I would just emphasize that carving out from the newly increased child care expense allowance room for a universal deduction of $2,000 would help one-earner families without harming two-earner families.
This brings me to my last two exhibits, which speak to the income distribution of one- versus two-earner families. The third illustration in my package is from the Boessenkool and Davies paper from last fall, and it shows that among the top 40% of Canadian families, four out of five are two-earner households. This is the extremely surprising result of the fact that two-earner families tend to have much higher incomes than one-earner families, as shown in the following excerpt, my last illustration, from Statistics Canada's The Daily. Families who in 1996 had two full-time earners made an average of 60% more than single-earner families. So people looking for a class warfare issue had best look some place else, because it isn't here.
To fix the absurdly high tax rates that face low-income families would require serious tuning of the child tax benefit. I suggest folding the basic and per-child supplementary amount as well as the relevant GST credit into one credit that is phased out at a lower rate for most families, but starting at a slightly lower income.
• 1205
This is discussed in Boessenkool and Davies and set
in a broader package of reform measures in Jack Mintz's
and my paper from February of this year. Our goal in
that paper was to set out a longer-term direction for
the personal income tax system based on what we
understood its failing to be and to set out reforms that
were clearly affordable in the medium term.
The interesting thing about this paper, from my perspective, is that a number of recommendations directly address issues raised in this committee, yet those recommendations had their origins in what we thought was sound tax policy. In no sense did we set out specifically to look at the family tax question.
That is where I'll leave off. I invite members to have a look at the papers I mentioned for more detail on why and how to reform the tax system and of course, in time, to ask any questions they see fit. If anyone is short of the papers I mentioned, I can circulate them as need be.
Thank you.
The Chairman: Thank you very much, Mr. Poschmann.
Mr. Hughes is going to be presenting next.
Mr. Colin Hughes (Chairperson, Toronto Campaign, Metro Campaign 2000): Thank you.
I should thank Dr. Brigitte Kitchen for joining us today with Metro Campaign 2000. Dr. Kitchen was a commissioner with the Ontario Fair Tax Commission in addition to being a professor at York University and a long-time policy advocate around children's issues and rights.
I'll begin with describing who we are. We're the Toronto community partner in Campaign 2000, which is a pan-Canadian coalition of groups and organizations seeking implementation of the 1989 House of Commons resolution to end child poverty by the year 2000.
In seeking tax fairness for families, one might think we would look at how the tax system and its counterpart, the transfer system, might be better designed to assist Canadian families with the expensive and important job of raising children. Indeed, our disgracefully high rates of child poverty alone indicate that in Canada there is not much fairness for families. Unfortunately, the discussion about tax fairness has been narrowly and divisively framed, pitting two-earner families against one-earner families, or, more specifically, working mothers against stay-at-home mothers.
Staying at home to care for children is completely legitimate, but in Canada most women with children are employed, often just to maintain family income and to prevent or alleviate poverty. Fewer than one-third of women with preschool children and less than one-quarter with school-age children are not in the workforce. Within this group are one-earner families with sufficient income for a parent to stay at home and families who are on social assistance.
The controversy has centred on the child care expense deduction and the perception that the deduction benefits two-earner families with child care expenses over one-earner families without child care expenses. This is hardly the case. The stay-at-home parent and her spouse are not taxed for the value of caring for her children. The woman who is employed has to net enough earnings to pay to replace her care of the child. The expense deduction provides for an employment expense that should not be taxed.
To reduce or eliminate the child care expense deduction would be in fact putting working parents on less equal footing. For example, the C.D. Howe's proposal to reduce the child care expense deduction by $2,000 and to replace it with a $2,000-per-child tax deduction will create a tax inequity against two-earner families.
The one-earner family would not only have the total amount of the imputed value of their self-provided child care untaxed, but it would also receive a $2,000-per-child tax deduction. This would put them even further ahead in relation to two-earner couples. Moreover, a per-child tax deduction that is not refundable does nothing for poor and low-income families, and this is grossly unfair in a country where one child in five is poor, and in a city like the city of Toronto, where one child in three is poor.
Parents on welfare are the most disadvantaged. And the treatment of these stay-at-home parents is a clear example of the differential treatment of mothers in different class positions. They are being punished for being at home with wretched welfare benefits and with the 100% tax-back of their child tax benefit supplement from social assistance, a supplement intended to fight child poverty.
This main clawback is also applied to people on welfare who are not even expected to work, such as disabled parents, parents with very young children and even welfare foster children.
• 1210
If we want greater
fairness, we must find ways to support the costs and
choices of all families in raising their children no
matter what the family configuration or financial
circumstances. Child income benefits should be
increased substantially. The current level of up to
$1,625 per child per year is a far cry from the actual
cost of raising a child. If the purpose of the tax
benefit is to share the responsibility of raising
children, then it should also include upper-income
families by making it universal and by so acknowledging
the costs they have.
The clawback of the child benefit supplement from welfare should be rescinded. It is a disgrace that the supplement, which is intended to fight child poverty, effectively benefits only one out of three poor families because of the clawback. The best option in terms of the child care expense deduction would be to phase it out once it is replaced with a universal system of quality early childhood care and education available to all children on a full- or part-time basis, whether the parents are working or are at home.
Greater provisions should also be made through employment insurance to expand maternity and parental leave. That would extend the choice to spend more time with their children to many more parents, not just to those who could afford it. An expanded maternity and parental leave program could also provide an alternative subsistence level of social assistance in order for the parent to remain at home with a young child.
Thank you very much.
The Chairman: Thank you.
We'll go with five-minute rounds, please, Mr. Forseth.
Mr. Paul Forseth: Mr. Poschmann, as part of the mix of the new recipe you're prescribing, you also said you would raise the personal basic exemption quite a bit. Have you done some calculations in the recipe that you provide on where that threshold should be moved up to?
Mr. Finn Poschmann: In my work in this area I haven't focused on raising the personal exemption. The comment I made here was that if you are concerned about effective tax rates under, hypothetically, a very flat tax system, you would want to have a larger exemption, so that the total tax burden faced by someone in the $20,000 income range wouldn't be any larger than it is now. So the number you choose pops out of the arithmetic. You set an income level where you would like to equalize the tax burden, and you then just let the number pop out. So if you're looking at a federal marginal rate of around 23%—and again this is a hypothetical flat tax scenario—you would look at a personal exemption of something like $11,000 or $12,000.
Mr. Paul Forseth: Based on what you said, we've heard a lot from Canadians that the tax system seems to recognize purchased day care; it does not address non-purchased parent child care. Child care is child care. Why should the tax system favour one method of child care over another? If we are to therefore retain the child care expense deduction, how do we recognize the non-purchased care fairly? Does your recipe address that philosophical point of view?
Mr. Finn Poschmann: It does in two ways. In the first part, I would agree with the comment from Mr. Hughes that care provided in the home isn't taxed. We don't tax home production. You have to pay attention to that fact in making decisions about when and under what conditions you would allow a deduction for expenses on child care.
That being said, because of the ramp-up in the federal rates at fairly low income levels, the option of providing in-home child care is less affordable than it ought to be. It's certainly less affordable than it has historically been. So what one might look to do is roll back the clock a little bit so that we don't hit high tax rates so soon, and we would have a substantial deduction for dependant care.
• 1215
The $2,000 figure that I mentioned takes us back
roughly a generation in real value as to the value of
the child deduction. Having that sort of
recognition of the fundamental costs of raising
children, which is a cost that is not properly in the
tax base and ought not to be taxed, would help finance
the in-home provision of child care.
Mr. Paul Forseth: I take it one of you would like to respond to this, in addition to what I've said.
Dr. Brigitte Kitchen (Metro 2000 Campaign): Yes. As far as I understand it, your mandate is to look at how the tax system is impacting on families with children. There is one group you have totally not covered here, or I haven't heard any mention of them this morning, and this is the people who don't have children. In Canada right now parents with children are taxed in the same way as parents without children, and that is because we don't have a tax exemption for children any more. So this is the number one question.
On the second question, on the value of the imputed income of home-produced child care, I apologize, but I am quoting from the tax literature. In the tax literature the assumption is made that in order to have equity between stay-at-home parents and both parents in the workforce, you would have to tax-exempt the cost of child care for the parent in the workforce.
We don't do that. We only compensate for a portion of the actual child care costs. The argument is made that the child care deduction, of course, because of the progressivity of the Canadian tax system, benefits higher-income earners more. You also have to understand that if you have a high-income earner...in Ontario the top tax rate margin is 54%. If this woman has child care costs of $10,000, she will have to earn $20,000 to be able to pay for her child care costs.
If you remove the child care deduction, not only are you treating her unfairly, because she doesn't have the amount to replace her costs of child care in the home to substitute for her costs, you are also now slamming her with a tax increase. So you're hitting her twice. This argument of trying to eliminate the child care deduction expense doesn't make any sense at all from a fair tax point.
Mr. Paul Forseth: I wasn't arguing that. We do have comments from the community that certainly we have the expense deduction to recognize some child care, but child care is child care. What about the tax system not deciding what method is preferred or what method is going to get recognized so if you do it yourself in the home it's still child care? Why does the tax system pick a winner and a loser?
Dr. Brigitte Kitchen: It doesn't. What you have to understand is that child care is child care. If the parent is at home, and they're mostly women, so she is providing the child care, when she leaves the home to take up a job, she has to pay to substitute for the child care.
So the present system simply recognizes this—and doesn't do it properly, because only a portion of the substitute cost is recognized by the tax system. If you wanted to have total fairness, then you would have to pay her the total amount of her substitute costs, and that's why groups like ours support the Ontario Coalition for Better Child Care view that actually a program, a service, would be the more equitable way of dealing with that problem.
• 1220
Mr. Paul Forseth: Thank you.
The Chairman: Ms. Dockrill, please.
Mrs. Michelle Dockrill: Thank you, Mr. Chair.
First, may I say thank you very much for coming here this morning. I think we have heard a lot of issues that I would certainly agree with talked about here this morning. I have a couple of comments and I'll throw them at you, Dr. Kitchen and Mr. Hughes.
One of the presenters that we heard from in either Vancouver or Calgary, I'm not sure which, made an interesting point. What she said was that she thought it was futile to target parental activity, that we should be really targeting the children, or the child. That's one thing I'd like you to comment on.
A lot of presenters we've had before us have talked about income-splitting. They feel income-splitting is a possible way to eliminate the inequities that we all would agree exist.
The third point, Dr. Kitchen, you might want to elaborate on. I refer to the former presenters on Shelley Phipps' study in terms of Canada and where we stand in comparison internationally. I assume you're aware of Shelley's study, and perhaps you would like to comment in terms of where you see us as Canadians and where we really should be striving to go.
Dr. Brigitte Kitchen: So you want me to start with Shelley Phipps' observation? Well, let me take it back to her making the connection between the tax system and the treatment of families with children under the tax system and then transfer programs and social service programs supporting families. She said in the European countries there is a clear connection, and they are far from homogeneous in their approach—some prefer the tax transfer mix and others have more of an emphasis on programs. But since this is the finance committee maybe I should start with the tax system.
One of the most interesting developments actually comes from Germany, where the high court has decided that government has no right to tax the amount of income necessary, the basic amount necessary, to raise a child, which we have heard is, in Canada, $7,000. So instead of having an increase in the personal income tax deduction, if we followed what the German high court has recommended, it would mean adding a $7,000 tax exemption for children.
Now, of course this proposition has not gone unchallenged, and there is a big debate going on now—should the court order be followed through a tax deduction or should this amount be added to the universal family allowance? There you have a difference of opinion. Interestingly enough, Germany now has a Social Democratic government, and this government in the past has supported increases to the family allowance, but now since they are the government and Germany has a high tax budget deficit, they are much keener on adding this amount to the tax system. But it is a very interesting concept, and it has come from the courts, and it's this question of what amount of non-discretionary expenses a government should take away from people to reduce their personal income.
• 1225
After all, at the moment what is
happening in Canada is we're treating children
basically as consumption items or as pets. When I was
on the Ontario Fair Tax Commission, one of the
presenters, when I was listening to presentations,
said, “Well, you know, children are not elephants,
and they should be
treated differently from consumption items.”
I also heard a previous presenter talk about the fact that he made a decision to have children and the children should be taken care of by him; he didn't expect government to step in and help him raise his children. Well, I would say that as widely different as the tax policies and social policy programs in the European Community are, they have one thing in common. That is a clear recognition that children are the shared responsibility between parents and the state, and their government. They also recognize that if you accept that principle you can't say, when you've reached a certain amount of income, as we do in Canada with the present child benefit, then children are your own responsibility. Either they are a shared responsibility or they are not. We would really call upon you to at least be logical in your treatment of children.
Mrs. Michelle Dockrill: I just wanted to know whether or not you'd like to comment on your views on income-splitting.
Dr. Brigitte Kitchen: Oh, I think you mentioned that Germany has income-splitting. It's an interesting concept. So if you have one income earner with $60,000, then they could....
It really does discriminate against the second income earner if it is a two-income-earner couple. You can play around with the figures. It could actually be designed in such a way that you could give an encouragement to bringing more women into the labour market, but you can't really separate it as a tax measure then from the child care tax deduction. It just makes the whole thing even more complicated than it is already. In a way, I would argue that we already have income-splitting because the couple filed two separate income tax declarations based on their income. So the couple have a form of income-splitting.
The Acting Chair (Mr. Paul Forseth): Thank you.
Mr. Szabo.
Mr. Paul Szabo: The child care expense deduction is only claimed by about one-third of dual-earner couples who are eligible to claim it. So it means there's an awful lot of so-called unreceipted care going on.
The average claim for dual-earner couples in 1996 was $2,600. At the time, for a preschool child the benefit level was $5,000, not the current $7,000; it changed. But it's pretty clear that the value of that benefit has been well overstated, because it's not being used. In fact, the average benefit in the pocket for a dual-income-earner family that claimed it was only about $700 a year.
The Government of Canada in 1996 expended about $500 million to fund the child care tax expenditure. All of the solutions that people have proposed to deal with this possible inequity involve billions and billions of dollars—billions. A $1,000 refundable tax credit is $7 billion dollars. If you simply eliminated the child care expense deduction, which seems to be abused or creating other abuses—possibly people don't want to claim the income because it would claw back other things they're getting. It seems to me to be a very, very messy situation.
• 1235
I'm interested in having your views as to whether the
Canada child tax benefit system is in fact child
care related or a poverty reduction initiative on
behalf of the government.
Mr. Colin Hughes: There was a lot. How about if I go back to the child care expense deduction?
Yes, we're talking billions of dollars, but let's get real. When we start talking about things like tax cuts, we're talking billions of dollars. Here in Ontario, around $6 billion went into that tax cut. If you took that on a national level, how big would that be? So it seems to me, yes, the numbers are fairly big, but then what is at stake is incredibly large too.
As to the whole thing around the child care expense deduction, I don't think there are lots of people within the child care community, which I've worked within, who are wildly enthusiastic about that as an approach to early childhood care and development. It clearly is pretty much an employment measure.
We have to recognize, though, that it's virtually the only thing left in the federal government where the federal government is contributing to child care. When the Canada Assistance Plan was pretty much tossed out, away went any kind of contribution to child care. The only other area where the federal government is contributing to child care is indirectly through the child tax benefit, through the money that is clawed away from families that are on social assistance, and when that money goes back into some form of child care in the—
Mr. Paul Szabo: We're getting into too many subjects.
Let me give my last question. It has to do with principles. I think you'd both agree that there are many changes that could be done to re-engineer or reconfigure existing programs, benefits, deductions, credits, and so on. Delivery is not a problem; it's the principles that have to be reflected in the changes. So I'd like to give you five principles or guidelines that may be something we should consider, and I want to know whether or not you have any obvious problems with the principles.
First, our policy should be child-centred. The best interests of the children should be our first priority.
Second, we should presume that parents are the primary caregivers and that they are in the best position to determine the best possible care arrangement for their children, given their family economic circumstances, and so on.
Third, our policy should seek to provide as much flexibility, options, or choices for families with children and make it feasible for either parent to be the caregiver or to be in the paid workforce.
Fourth, the policy should be inclusive and responsive to social realities, circumstances and preferences of parents and their children—that is, take into account the fact that one in six families are lone-parent families.
Finally, the policy should be fair and equitable and neither penalize nor compel specific caregiving choices.
• 1240
Dr. Brigitte Kitchen: I think we have no problem with number one, that the policy should be child-centred.
With the second one, we already run into problems. Yes, the parents are the primary caregivers. The problem, however, is that in order to make a living, many families need both parents in the labour market. So the question of choice does not exist for a great number of people.
Mr. Paul Szabo: We were given data by Mr. Shillington that showed, regardless of whether the husband's income was $10,000 a year or over $100,000 a year, regarding the choice of caregiving, that in one-third, both were working; in one-third, one spouse was working part-time and one full-time; and one-third had one full-time caregiver in the home. In other words, the choice of care had nothing to do with income. It was income-insensitive, which really contradicts what you just said.
Dr. Brigitte Kitchen: Well, I haven't seen Richard Shillington's data—
Mr. Paul Szabo: HRD also confirmed those numbers of one-third, one-third and one-third, right across the income spectrum.
Dr. Brigitte Kitchen: Are you saying we have a two-couple family with an income of $10,000 and one-third of those are—
Mr. Paul Szabo: Your point was that both parents must work.
Dr. Brigitte Kitchen: Well, in a lot of cases they do.
Mr. Paul Szabo: But in the entire population that is not true, based on what actually happened.
Dr. Brigitte Kitchen: You said yourself that a lot of people do not claim the child care tax deduction. I would think that for economic reasons they would try to make all sorts of child care arrangements, mostly through family members, that may not be in the best interests of the children. You said your number one principle is that the policies should be child-centred. Sure, you can buy cheap underground economy child care.
Mr. Paul Szabo: Okay, number two just says that parents are in the best position to determine the best possible care arrangement for their children.
Dr. Brigitte Kitchen: You see, I don't think it's as easy as that, because there is an economic background. You have to look at what—
Mr. Paul Szabo: Who is better than the parents to determine what's the best possible care for their children?
Mr. Colin Hughes: Part of that depends on what kind of choice you have in terms of your care too. For example—
Mr. Paul Szabo: That's number three.
Mr. Colin Hughes: Let me just give you a very concrete example.
In Toronto, Ontario Works, which is Ontario's workfare program, the city offered parents who had to participate in Ontario Works a choice between licensed and unlicensed care. Given the choice, 98% of them chose licensed quality care. I'm not saying that would apply across the board all across Canada, but I'm trying to point out you're not going to get those kinds of choices in other areas because those kinds of options aren't available. So the state does have a role—
Mr. Paul Szabo: So our policy should promote those choices.
Mr. Colin Hughes: It should promote those kinds of options.
Mr. Paul Szabo: That's what number three says. So you agree; that's all you have to say.
Mr. Colin Hughes: That's number three, yes. I would really qualify that, though, because our current provincial government ran on saying “choice for child care”. Well, 98% of those recipients did not want informal care, and the province wouldn't support them. So choice is a bit of a buzzword around market stuff.
I'd also like to go into number two, which Brigitte was speaking to. I think parents are the primary caregivers, but somewhere in those principles something has to be said about society having a responsibility to contribute to the well-being of our children. What's missing in the equation, from what I've heard, is that nothing is said about that. This constantly leaves parents on the hook and society off the hook for the care of kids.
I work for the Children's Aid Society. Day after day we see families who are pushed into our system because our society does not provide the resources, choices, options and tools they need to properly raise their children. So I think much more emphasis has to go on that. The other principles I'm not—
• 1245
Mr. Finn Poschmann: I'm with you all the way on three, four and five, and I think two as well, but we've seen how quickly number one bumped into number two. The first thing Professor Kitchen said was that sometimes parents use family or grandparents or make their own unpaid arrangements, and that might not always be the best thing. That's quite a judgment.
What your principle number one really implies, or can be made to imply, is that government tax policy should favour a particular form of child care. The implication here is that paid child care outside the home is necessarily going to be best. Certainly there are underlying economic realities, but those underlying economic realities are the ones parents are working around.
The fact that parents are working around these realities is the source of the interesting figures you mentioned Mr. Shillington presented. Those figures are right. They're telling us that an awful lot of parents, even if it requires tremendous sacrifice in terms of market income, find providing in-home child care for their own children to be the preferable route. So when you're looking at government tax dollars here—
Mr. Paul Szabo: Number one, about it being child-centred or in the best interests of children, was prompted more by the fact that, for instance, the Status of Women would say any benefit extended to a stay-at-home parent would be a barrier to women entering the workforce.
Mr. Finn Poschmann: They can say that.
Mr. Paul Szabo: They were thinking more about the woman—don't give the benefit to a stay-at-home parent because it would make more parents stay home than go to work. What it doesn't take into account is that if the second parent chooses to go into the labour force, there may be direct child care expenses. But in the vast majority of cases, there is a second income and a net pay cheque that increases the total family disposable income. So there are choices, pension entitlements, career advancement, and all this other stuff.
When you have that other situation, obviously you forgo the direct parental expenses or the child care expenses, but you're also forgoing the net pay, which could be $10,000, $12,000 or $15,000 in the pockets of the family.
So the economics is not so much whether one gets a child care expense deduction or not. The real cost or the real economic consideration for a family in deciding this is, what is our value system with regard to our children? Am I prepared to give up the net income of $10,000 to $15,000 to be able to provide that care, because it happens to be my children?
Mr. Finn Poschmann: I agree with everything.
The Chairman: One moment, please, do you have any questions for Mr. Szabo?
Dr. Brigitte Kitchen: I really have to add something to that. If you want a child-centred focus, we had a program like that. We can still have it. It was the universal family allowance. It didn't matter whether the parent was in the workforce or not, the money came in. It wasn't taxed. That was the most beautiful child-centred program we had. Maybe it's time you took another look.
Mr. Paul Szabo: That was point number five, by the way, to neither penalize nor compel parents' choices.
Dr. Brigitte Kitchen: Yes. Go back to it. Bring it back.
Mr. Paul Szabo: I agree.
The Chairman: Mr. Poschmann, please go ahead.
Mr. Finn Poschmann: I just want to add that I agree with pretty much all of what Mr. Szabo said. I would just again add my hesitation about how quickly the phasing of child-centred policy can lead you into conflict with some of the other goals being proposed. The reason again is that people can put this quite easily in conflict with, say, more freedom of choice for parents in their decisions.
The Chairman: Thank you.
This leads us to the task of thanking you for being here this morning and making your viewpoints known. Our task is a little lighter because we've heard testimony this morning, but nonetheless it's still very challenging. I thank you for taking the time this morning to share your viewpoints with us.
Mr. Finn Poschmann: Thank you very much, Mr. Chairman.
The Chairman: We'll adjourn until 1 o'clock.