SCYR Committee Meeting

SUB-COMMITTEE ON CHILDREN AND YOUTH AT RISK OF THE STANDING COMMITTEE ON HUMAN RESOURCES DEVELOPMENT AND THE STATUS OF PERSONS WITH DISABILITIES

SOUS-COMITÉ SUR LES ENFANTS ET JEUNES À RISQUE DU COMITÉ PERMANENT DES RESOURCES HUMAINES ET DE LA CONDITION DES PERSONNES HANDICAPÉES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 20, 1999

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[English]

The Chairman (Mr. John Godfrey (Don Valley West, Lib.)): Welcome. This committee functions, like many others, on parliamentary standard time, which means who knows when people drift in? But we have enough members. We're a little light in some areas, but we have enough members to start to discuss things. We never get it right. We never all show up at once.

I welcome our two guests.

Just to remind them and give them a bit of context, this committee has been focusing on first of all trying to understand what we know about the state of children in Canada and where the information gaps are. Secondly, the committee has been asking itself what we know about which programs work. I think this was Libby Davies' question at the very first meeting we had, and others echoed it.

• 1540

So we've been entertaining ideas brought forward by a variety of witnesses, which you probably know about. What we're really working towards for June is a report that would give us some way of better understanding outcomes, how we can tell what's effective and what isn't, both with regard to programs we've already put in place, such as the national child benefit system, and with regard to any future programs we might be contemplating in whatever area, whether it's service or income.

So today, to focus on the income side of the equation, as I understand it, because this is a leading-edge committee, as opposed to the finance committee's subcommittee, which is following behind, we have Mr. Horner coming to us first.

Some hon. members: Oh, oh!

The Chairman: Then after that, I think it's Thursday you're going to talk to the finance subcommittee, is it?

Mr. Keith Horner (Senior Chief, Social Tax Policy, Personal Income Tax Division, Department of Finance): I'm sorry; I'm not sure about—

The Chairman: It's the finance committee's subcommittee on tax equity for families, or whatever it is. I understood you were going to be appearing before them too at some point.

Mr. Richard Shillington (Individual Presentation): I am.

The Chairman: Oh, it's you.

Richard is going.

You will be, undoubtedly, Keith.

Mr. Keith Horner: My assistant deputy minister is providing a PowerPoint presentation to them tomorrow.

The Chairman: Oh, it's tomorrow. Okay. In any event, we're ahead of the curve here.

I welcome, from the Department of Finance, Keith Horner, who is the senior chief, social tax policy, personal income tax division; and Richard Shillington, who has long been associated with studying the statistical background of income and social programs in this country and has an elephantine memory for who said what back in 1983.

Welcome to you both.

Perhaps, because we got hold of Richard first to ask him to appear, we might ask him to go first, and then ask Mr. Horner for some comments and responses, and then move briskly over to the questioning.

Mr. Richard Shillington: We didn't talk very much about time. Would 20 minutes be too much for me to begin with?

The Chairman: I think.

Mr. Richard Shillington: How about 10?

The Chairman: Yes, 10.

Mr. Richard Shillington: I'll speak twice as fast then.

The Chairman: The translators are strapping on their—

Mr. Richard Shillington: I'm teasing.

The Chairman: They're looking exceptionally worried. This is not good news.

Voices: Oh, oh!

Mr. Richard Shillington: I know I can't be nearly as interesting as the meeting you had last week. I have read the transcript of what was said, and it was interesting reading.

I'm going to talk, as Mr. Godfrey said, about income and taxes. I'm not going to talk very much about services. I don't know very much about services for children and what works and doesn't work for services. I gather Fraser Mustard's report now has been received by the Ontario premier.

The Chairman: At 10 o'clock this morning.

Mr. Richard Shillington: So there will be more discussion, more grist for the mill, on services.

I'm going to talk mostly about the child benefit and how the tax system deals with families with children. If there's a theme I'm looking for, it's a return to balance, because my problem with the child benefit and the tax system is the extent to which it has become unbalanced.

I want to thank the clerk and the staff of the committee for translating my speaking notes. This is not a brief; these are just my speaking notes. Mr. Godfrey has seen them before, because I've given a very similar presentation before.

The second page of these notes, the one entitled “What Government said in Geneva about Canada”, is simply quotes from a presentation in Geneva by HRDC to the UN. I put them there because they're outrageous.

The second quote reads:

Mr. ...... said progress had been made for elderly women through various programs to supplement pensions.

I'm not sure what country he's talking about, but he says it's Canada.

Another quote mentions provinces expanding child care facilities or funding. I haven't seen a lot of cranes pouring concrete for child care in this country, but perhaps he has some particular facility in mind when he says that.

And the last one is certainly appropriate for today's discussion:

A new national child tax benefit would increase the economic autonomy of low-income families.

There are, I'm sure, cases where that's true. Broadly speaking, I'm not sure if single parents or on-reserve aboriginals or families with disabled adults have had their economic autonomy improved very much by the child benefit.

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I'll go ahead to the fourth page of my presentation, where at the top it says, “History of the Child Benefit System”. I've been involved in this policy issue since 1984, when I quit the federal government and became free to speak my mind about it.

Since 1984, we've eliminated universality and we've eliminated horizontal equity—the principle that families with children should pay less tax than families without children, even if their income is $80,000 or $100,000 or $120,000 or $200,000. In the May 1985 budget there was a proposal to cease indexing old age security and family allowance, and you all know that old age security won. It has been fully indexed, while family allowance has not been and the child tax credit has not been and the tax system in general has not been.

We all know that bracket creep and the erosion of support have increased taxes for all families. Taxes for families with children have increased more than taxes for families without children, because in addition to all the tax increases due to bracket creep, they had an additional deindexing of the child benefits. And the taxes of one-earner families have increased more than the taxes of two-earner families because of bracket creep.

We also know that the value of the child benefit has declined for virtually all families with children—poor families, unless they're working poor; social assistance families; modest-income families with incomes of $20,000, $30,000, or $40,000; middle-income families with incomes of $60,000, $70,000, or $80,000; and high-income families.

All of the public documents that described all these changes in the last 15 years talked about taking from the wealthy and giving to the poor, leaving the impression that the wealthy would be worse off and the poor would be better off. Most of the poor are not better off, and everybody else is worse off.

I've offered a couple of times in talks like this to buy lunch in the restaurant of your choice in Ottawa for anybody who can find a federal government document that acknowledges that modest-income families and poorer families have been made worse off by the changes since 1984, because I don't think they exist. So the casual observer has the impression that we took from the wealthy and gave to the poor.

My next page is entitled “Goals of Child Benefit System versus the Child Tax Benefit”. “Child benefit system” is a term we use to describe that whole tax and transfer relationship between government and families with children. Fifteen years ago it included family allowance, the child tax credit, and the child tax deduction. Now it is the child tax benefit solely.

In the left column of this table are the principles behind the child benefit system. It's an anti-poverty program. I don't think anybody would disagree with having some anti-poverty aspect of support for families with children. Another principle is parental recognition. The economic spending stimulus might be an old-fashioned idea now, a Keynesian idea. The last principle is horizontal equity, recognizing that children affect ability to pay.

The child tax benefit objectives are in the right column. One is to help prevent and reduce the depth of poverty—not the poverty rate, as we've been told frequently, but the depth of poverty. Other objectives are to promote attachment to the workforce and to reduce overlap and duplication.

So there's a fair difference between the objectives of the child tax benefit and the objectives of the child benefit system. We've lost horizontal equity as an objective.

I've been at meetings with what's called the child benefit reference group, a consultation between HRDC officials and concerned parties, and I've commented on the objectives of the child tax benefit. I've said that by those objectives, we could take all the money away from families that aren't poor and give it to families that are poor and we'll advance those objectives. Where is the balance objective? What's the appropriate support level for modest-income families and middle-income families? I was told pretty directly that that was not one of the objectives of the child tax benefit.

The child tax benefit, we are told, is an anti-poverty program. On page 6 I make some comments assessing the child benefit as an anti-poverty program.

Who does it leave aside? It leaves aside social assistance recipients. If the child benefit were fully indexed to inflation, then social assistance families would be getting no less than they have in the past. But the child benefit is not indexed to inflation, and in fact the purchasing power for social assistance families is eroding. The UN, as you know, has commented on us not including social assistance recipients in the child benefit.

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The vast majority of single parents are not getting an increase in support through the child benefit. Those relying on unemployment insurance get no increase in support. Neither do those unable to work because of disability or those unable to work because child care is not available.

On-reserve aboriginals are a particularly interesting example of where we're clawing back the child benefit. I say it's interesting because in this town, Ottawa, when in the past we've asked for increase in support for low-income families, government has said, “Well, how could we stop provinces from taking it out of social assistance? How could we stop provinces from clawing it back?”

That is an interesting question and it is an issue to be discussed, but it doesn't come up for on-reserve aboriginals. We've clawed back the child benefit on reserves, on the notion, I guess, that the reason more individuals on reserve aren't working is that social assistance is just too generous on those reserves. That's a strange notion to me.

As an anti-poverty program, the child benefit is providing no increase in support, and in fact a continuation of 15 years of eroding support, for families with incomes between $25,000 and $45,000. These are not wealthy families.

The government approach to the child benefit with respect to the welfare wall has been to say, “Let's increase support for the working poor until the increase equals the support for social assistance, and after that we will advance both of them, step by step.” You could equally have said, “We are going to increase support for both kinds of families, but give more of the support to the working poor than to social assistance.” You'd get to the same spot, but without having to claw back support for social assistance.

My concern with the approach that's being advanced—that is, to equalize support between working poor families and social assistance families over four or five years, and then after that increase support for both—is that you may not ever get to the second stage. You could run out of political will, there may be a new government, or whatever.

What we are saying to social assistance families effectively is, “You wait until we've equalized support, and then you will get increased support.” Of course those children are going to be a lot older by the time we get there, and we're putting them at risk. And it's not necessary, because if we plan ultimately to increase their level of support as well, then we can simply do it by providing some support to them, more support to the working poor. You will have broken down this welfare wall without saying to Canadians that social assistance families are less deserving of support, which is another reason I'm opposed to the approach of equalizing and then advancing.

I guess in the 1999 budget we had something for absolutely every kind of family in Canada—tax reductions, increasing the child benefit, or increasing the income threshold for the child benefit—except for social assistance families. Every other kind of family in Canada got some kind of increase in their disposable income from the 1999 budget, except for social assistance families.

The support from the federal government is the child benefit, and it's not indexed to inflation. There was a private member's bill last year to index it to inflation, which actually passed, but I gather that has no force. Somebody can explain that to me later.

[Translation]

The Chairman: Nevertheless, the least we can do is acknowledge the efforts of those who pressured the government into taking some action.

Ms. Diane St-Jacques (Shefford, PC): We will continue to exert pressure, if possible.

[English]

Mr. Richard Shillington: I'll read you one sentence from the budget:

The purpose is to ensure that children in this country are always better off when their parents join the workforce.

That is an interesting comment. I don't have the time to go into it in detail, but I'm not sure that through the tax system or the child benefit, we can make sure children are better off when their parents are working. There's an awful lot more to being better off.

What you could do perhaps is make sure the family is better off financially. But I'm not sure we can say with confidence that a child is better off when their single mother gets up at sunrise, drops them off at day care, flips hamburgers for eight hours, and comes back exhausted, and we say, “Oh, well, at least they're not relying on the state any more.”

The last budget that increased support through the child benefit, including social assistance families, was the budget of May 1985. Since then all of the increases in the child benefit have been through the family income supplement or the new child tax benefit, which have been designed to exclude social assistance families.

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I'm on page 9 now, on the child benefit as tax fairness for parents. There was a pamphlet in the 1997 budget called “Tax Fairness”, which had several gems in it. Some of them are highlighted here on my page 9, such as: “taxes must reflect the ability to pay”, “the tax system must recognize special circumstances that affect the ability to pay”, and “the CTB recognizes that the costs of raising children reduce the ability of modest- and middle-income families to pay tax”.

So we have tax fairness for modest- and middle-income families with children, but not for higher-income families. In fact that tax fairness now ends at about $70,000 of income. It seems to me a principle such as tax fairness should equally apply to higher-income families with tax. Can you imagine if we were to ensure that when people are arrested, they get a fair trial, as long as they're low- or middle-income? The principle of tax fairness should not be income-tested.

The box in the bottom half of that page is from a letter to the editor that was written by Stanley Hartt, who was Deputy Minister of Finance for some time. He wrote this in 1994, when the RRSP limits were being increased. He wrote this in response to an editorial in the Globe and Mail, explaining how increasing RRSP limits wasn't something that was being done to benefit high-income people. That would be the effect, but that wasn't the purpose. The purpose of increasing RRSP limits was tax fairness.

So in the middle of a recession, at a time when the deficit was the highest it's ever been, the government found the funds to increase RRSP limits in order to deliver tax fairness to some people who were at no risk of being poor.

If you read the letter to the editor, it makes quite clear that we should deliver tax fairness to high-income people. I agree, actually. We should have tax fairness. But if tax fairness was important enough to deliver increased RRSP limits, why wouldn't the same tax fairness allow a tax deduction or credit for families with children?

I'm just going to make a couple of comments on the child care expense deduction. Most progressive voices have been calling for the child care expense deduction to be converted to a credit, and I've been one of the few, if I call myself progressive, who have said no. It's an employment-related expense. It should be a deduction. It's appropriately a deduction. It's not regressive that it be a deduction, because if you take into consideration that the income that was made possible by child care is being taxed at 50%, then it's not regressive that the deduction for the child care expense is also worth 50%, in my view. I'll just leave it at that.

The last page basically argues that a tax and transfer system for families should not just be an anti-poverty program. It should provide substantial support for low-income families. It should provide some reasonable support level and tax recognition for middle- and modest-income families. It also should provide some reasonable tax recognition for high-income families. The bottom half of that page is quite complicated, but I essentially suggest that we should be moving on all three fronts.

I read the testimony last week from the National Council of Welfare and Ken Battle, and I noticed that one was saying, “Let's do anti-poverty and nothing else” and the other was saying, “Let's do child care and nothing else”. I don't think we should be choosing between those things. Families need all of that. We need services, drug plans, dental plans, medicare, early childhood education, and sometimes breakfast programs. We need a fair tax system and we need income support.

If we do not have the political will to do all of them—because I don't believe it's that we don't have the money—then let's do all of them to a lesser extent, rather than choosing between them.

That's probably a good place to stop.

The Chairman: Well, it's a great place to start, and I'm dying to hear what Mr. Horner has to say.

Mr. Keith Horner: Thank you, Mr. Chairman.

I'm not quite sure whether to just try to outline some comments. I think I'll do that a little bit, but I'll skip over some of the things I'd written down and try to address one or two of the things Richard said, en passant.

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I'd like to first of all mention who I am. I worked at Health and Welfare for 10 years in the 1970s, and I've worked in Finance since then. I was directly, centrally involved with the development of the child tax benefit in 1992, and in more recent years I've been working with colleagues at HRDC and working group members from provinces and territories on the development of the national child benefit system. So that's my connection.

I think it would be helpful to start at the beginning of the child tax benefit, for example, and before that, to set the stage for comments about helping different kinds of low-income families.

For a long time there's been a concern that the tax transfer system treats low-income families with paid employment less generously than it does families on social assistance. For example, papers were written on this topic in Health and Welfare during the 1970s. There was a federal-provincial social security review on the same issues in the 1970s.

The basic issue is that, whereas basic social assistance for an adult might be at a similar level to a low wage, the ancillary benefits, taxes, and costs are all on one side. The social assistance recipient will have a child allowance for each child, under social assistance. Social assistance is tax-free and there are in-kind benefits, such as extended health benefits—for example, dental care and pharmacare—that help out.

On the other hand, the low-income single parent or couple in the labour force has wages that don't have any component that recognizes the child care responsibilities. They have wages that are taxable. They have EI premiums and Canada pension plan or Quebec pension plan premiums. They have child care costs and other work-related expenses. And they probably have to pick up most of their extended health costs, above medicare, on their own.

So when you take all those factors together, the system does not favour them. In many cases they're really the ones who are the poorest of the poor. It's that situation that has been recognized since the 1970s.

Moving ahead to 1992 and the introduction of the child tax benefit, the impetus for that was the desire to introduce an earned income supplement at the federal level. That was the starting point of it. At the same time, it seemed an appropriate idea to take a bunch of different child benefits—the family allowance, the dependent child credit, the refundable child tax credit, and the clawback of family allowances—and rationalize them. The result was the child tax benefit, a family income-tested benefit with an earned income supplement targeted at lower-income families with earnings.

I'd just mention that the idea of an earned income supplement had already been introduced in Quebec in the APPORT program, so this wasn't the first one that existed in Canada.

After the child tax benefit was introduced, my sense from looking at the press and following it afterwards was that it was quite well received, except for Richard Shillington and his concerns about horizontal equity at the high end, which I have to admit I share to a considerable extent.

But there were also criticisms. One example of the criticisms we had was from provinces, which said, “You in Ottawa are not really the best-placed government to be providing work income supplements. We are in a position, because we see clients throughout the year, to have a benefit of that kind that's more responsive, that can help people when their incomes and employment situations change through the year. We're not reliant on a once-a-year tax return for information.”

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At that time there were also proposals by provinces—for example, the Ontario child income plan—to integrate benefits better and to level the playing field, to provide more benefits outside social assistance to a broader group of families with children. That was also echoed in the proposal of the social security review of Minister Axworthy at that time.

Another force that helped to change things was the introduction of the CHST, which removed an incentive provinces had to target assistance to families through social assistance. Because they were getting dollars that were cost-shared by Ottawa, there was a strong incentive prior to that to use social assistance, even if they didn't think that was the best way to assist children.

So those are really the things that led up to the start of the national child benefit. As everybody here knows, I think, this was ushered in by a statement of first ministers that they wanted to jointly make child poverty a priority.

Under the leadership of social service ministers, including the Minister of Human Resources Development and his colleagues in the provincial and territorial governments, three goals were set out for the national child benefit: to help prevent and reduce the depth of child poverty, to promote attachment to the labour market by ensuring that families will be better off as a result of working, and to reduce overlap and duplication by harmonizing program objectives and benefits and simplifying administration.

Under that system, the basic way it works is the federal government increases benefits targeted at low-income families under the Canada child tax benefit, and the provinces adjust social assistance rates and then use the moneys to reinvest in programs aimed at low-income families.

We've had two phases of the program to date. There was a transition measure that started in 1997, but the first phase was in July 1998, with a significant increase in the low-income supplement to the Canada child benefit, a supplement that now goes to all low-income families with equal benefits, whether they're on social assistance or have employment income.

Then there was a round of provincial reinvestment programs. This last budget has announced the second set of increases to the Canada child tax benefit, which will bring the maximum benefits up to $1,975 for the first child and $1,775 for the second and additional children, and provincial adjustments and reinvestments will be announced this spring.

I'd end off with a couple of points about further action. First, the national child benefit system is admittedly complex, involving two different levels of government and interrelated program changes. As a result, a key component of it is public reporting of actions and outcomes.

Federal, provincial, and territorial governments are currently reviewing a first progress report that's proposed for release later this spring. It's too early for such a report to provide indications of the success of the program. It's really just beginning. But the aim of the progress report is to provide some baseline data that can be used in further reporting to actually look at what's happening under these programs, in terms of both government actions and the results of them.

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The Chairman: Can I just ask, as a point of information, do you have any idea when that document will be forthcoming? What's your best guess, from what you hear?

Mr. Keith Horner: There's a meeting of social service ministers in May, and I guess it depends on their judgment at that time as to whether they're ready to release it or want more work done on it. It's really a ministerial decision.

The Chairman: Do you know when the date of that meeting is?

Mr. Keith Horner: May 15.

The Chairman: Thank you.

A voice: Not before?

Mr. Keith Horner: No.

It's also recognized—and there have been meetings with different groups—that it won't be enough to just report statistical measures of what's happening with child benefits and what Statistics Canada shows is happening to poverty gaps and things like that. There will need to be evaluation studies. One needs to be able to try to separate out the effects of these programs from business cycle effects and other factors.

As a tax policy person, I feel the need to mention one other thing. There have been no further announcements of phase three or whatever, although groups such as Caledon have called for benefits of $2,500 or even higher levels.

In having further increases in the benefit, an issue that needs to be addressed is the question of the effect on marginal tax rates applying to people where the supplement phases out. Those marginal tax rates are already quite high, and there is a danger of doing what Ken described as taking a welfare wall and basically moving it over, rather than reducing it. The implications of that are that when there are further expansions of this benefit, there will also probably need to be an expansion of the range over which the supplement is phased out, and probably also adjustments in the tax system to avoid a situation where there are very high marginal tax rates on families with incomes in the $20,000 to $30,000 range, for example.

I'd like to finish by making one other point that is relevant to quite a lot of what Richard was saying about the concern that social assistance families have not benefited from this and have seen benefits cut back, not increased.

A study was done—and it's the only one I know of that's of any depth—of social assistance cases in British Columbia over the period 1980 to 1992. It looked at spells on social assistance, and the question was the permanence of social assistance for different groups of social assistance recipients.

One of the interesting findings was that social assistance seemed to be more continuous for single parents, as you would expect for somebody with responsibilities that would make it attractive for them to stay out of the labour force, having something important to do other than being in paid employment. But even with that, less than 50% of social assistance recipients were on welfare for a stretch that was six months long. The majority left welfare at less than six months. Under one-third were on for as long as a year.

The implication of that is it's pretty simple to talk about two classes of low-income family, but there's a tremendous amount of movement back and forth off social assistance. While there's no direct income support increase immediately for social assistance recipients, what the national child benefit does is provide better options for social assistance recipients.

Ken Battle said it would be really important, and I fully agree with him, to have more than just econometricians fiddling around, saying what happened to this. There should be studies based on focus groups and talking to the people directly involved.

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I have only one piece of totally statistically invalid scientific evidence. I have a relative who's a case worker for social assistance in B.C. B.C. is a bit ahead of the game in terms of the national child benefit, because back in 1996 they replaced their child allowances under social assistance with the B.C. family bonus, in combination with the Canada child tax benefit.

My relative, the case worker, said she was astounded and fascinated to hear her clients talking about what better opportunities they had because of the introduction of the B.C. family bonus. They said, “You know, I could take a job now, and it will be worth my while.” That's one case.

I'll leave it at that.

The Chairman: Thank you very much. That's very helpful and adds a lot of value to what Richard's been saying.

Without hesitating and wasting our time, I'm going to move right along to Eric Lowther.

Mr. Eric Lowther (Calgary Centre, Ref.): Thank you, Mr. Chairman.

There's a lot of interesting material, and I'm sure there are lots of questions, so I'll also cut to the chase.

I need to get educated a little bit here. For Mr. Horner or Mr. Shillington, but probably for Mr. Horner, with his portfolio, I have a couple of quick questions.

Do we take tax dollars away from people who also get the child tax benefit?

Mr. Keith Horner: The Canada child tax benefit goes to about 80% of families with children.

Mr. Eric Lowther: Do those people pay taxes?

Mr. Keith Horner: Not all of them, but the majority of them would, yes.

Mr. Eric Lowther: If they're low-income and they have to supplement their income with the child tax benefit, why do we also take money away? Why don't we net out the difference and give them what they need? Why don't we leave the money they make with them and give them more, to effectively come up with the same net dollar?

Mr. Keith Horner: That's an interesting question. That goes back to the idea of having totally integrated tax transfer regimes where the tax threshold is equal to the place where you get exactly zero benefits. In a simple system, that would be ideal.

In fact we've always paid family allowances to people who pay tax. We've never netted that out. It's the same thing with old age security.

There's another factor too: this allows benefits to be paid monthly, and they're paid to the mother. The tax liability is something you don't know in advance. You find out at the end of the year. It can be quite variable. It depends on the incomes of both spouses, if they're in a couple. This allows benefits to be paid on a regular basis and not be subject to what happens at tax time.

It's probably less practical. It seems very sensible to do what you suggest, but when you get down to actually trying to implement it, there are probably a lot of practical difficulties.

Mr. Eric Lowther: Well, okay, I guess I can see what you're saying.

At the same time, though, as I understand the child tax benefit, my benefit or whoever's benefit is determined a year after. I work this year. At the end of that year, I file my income tax, and that determines what my child tax benefit will be.

I seem to recall that when I used to fill out my tax forms years ago, I could deduct at source. If I knew what I was making and I knew what my deductions were going to be, when I earned a cheque that month, depending on my dependants, I may pay no tax right at source. I'd have my money I earned to take home and support my family that day.

Whereas with the child tax benefit, I'd have to work for a year, paying taxes, and then at the time I file, that will determine whether I get any benefit, a year later—not the month I need it in, but a year later. My whole scenario may have changed by then.

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I still don't understand why we take tax away from people who we know have high expenses of child rearing and are low-income and all the rest, and then a year later say, “Gee, you had a rough year. This year we're going to give you the child tax benefit. Maybe you don't need it now, but because you had a bad year last year, we're going to give it to you now.”

It seems to me we should be moving to something that's at the point of at-source deductions so that people can benefit from the money they earn without paying it off to Revenue Canada.

Mr. Keith Horner: I have a couple of comments. One, just to be clear, the benefit does start when the child is born. You don't have to wait for a year afterwards. It depends on your prior year's income, you're quite correct, but there's no lag. That benefit is available.

Mr. Eric Lowther: But today's benefit is determined on the previous year's income.

Mr. Keith Horner: That is true.

The other important point is it's based on the combined income of a couple, and that makes a mechanism in which you depend on source deductions, not function.

The Chairman: Do you have a comment, Mr. Shillington?

Mr. Richard Shillington: One other argument in favour of mailing the cheque is that when you do the source deduction, the taxpayer gets the source deduction. The old family allowance cheque from 1947—I wasn't there—was mailed to mothers, who got to spend the money. For many mothers, that was the only cheque she had in her name. The child benefit is sent to mothers, if there's a choice.

Mr. Eric Lowther: Is this an issue that we don't trust fathers, so we therefore give the money to the mothers? Is that what this is all about? Or do we say, “Look, there's a family here trying to raise kids, and collectively they're making the money, so let them keep the money and use it how they wish to use it”?

Mr. Keith Horner: The predominant factor is the fact that it's based on two incomes, because we did look at source deductions as a possibility at one point.

Mr. Richard Shillington: But for some people, one of the arguments would be that you don't want to assume there's sharing within the family, and this is a cheque in her name that she gets to spend however she wants. I say “her” because it's predominantly going to be her.

One other administrative issue that some people on the committee might not be aware of—and this is an issue I called Mr. Godfrey about a month or so ago—is if you discover that you've been eligible for the child benefit for the last four or five years and you go in to apply, Revenue Canada will give you 11 months of retroactive payments—only 11 months. Ontario supposedly has discovered that tens of thousands of people have been eligible for the child benefit for years and have never known, because they don't file returns or there are language barriers or whatever. Revenue Canada, in its “generosity”, has said they'll go back 11 months for the child benefit.

I can file my income tax return, I think, retroactively four years. Is that right? You should know this. I can go back four years and discover that I was eligible for the equivalent to married or eligible for something I wasn't claiming. I can go back four years for that. For families that are eligible for the child benefit, we go back 11 months.

Mr. Eric Lowther: Do I have time for one more question?

The Chairman: One quickie.

Mr. Eric Lowther: I have a question for you, Richard. You say on page 11, in your little chart there, that a non-refundable tax credit recognizing tax fairness would benefit all taxpayers.

Mr. Richard Shillington: Yes.

Mr. Eric Lowther: How would a non-refundable tax credit benefit a taxpayer if one of the spouses determines they're going to stay home and raise the kids, and they don't have any incurred, receiptable expenses for child care?

Mr. Richard Shillington: No, this is not child care. I'm talking about bringing back a non-refundable tax credit because you are supporting children, regardless of whether or not you have child care expenses.

Mr. Eric Lowther: So this is a basic deduction for—

Mr. Richard Shillington: This is what they eliminated in 1992. You used to, once a year, write down the birthdates of all your children, and their ages. Regardless of receipted child care or child care, it's because you are supporting a child.

Let me also remind you that there was a time when, if you had a child over the age of 17 who was in post-secondary education, you got a child deduction for that. It was worth double the deduction that existed for a child under 18. That was eliminated in 1985 or 1986. Certainly anybody supporting a child over the age of 18 in post-secondary school has non-discretionary expenditures.

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The same tax fairness rules we use when we're defending RRSPs would imply that there should be a tax recognition for a child of any age actually in a dependent relationship with you, if you have a non-discretionary expenditure supporting that child.

Mr. Eric Lowther: Thanks for that clarification. I appreciate it.

The Chairman: I find it fascinating that you of course are in alliance now with the C.D. Howe Institute.

[Translation]

Ms. Gagnon.

Ms. Christiane Gagnon (Québec, BQ): Mr. Horner, you stated that there were three reasons why the government had decided to design a new national child benefit system: to further reduce poverty, to help more people enter the labour market and to reduce overlap and duplication.

I'd like to start by making an observation. The government is also using to the new child tax benefit to enhance its visibility. As you well know, the amount of the cheques has been increased in Quebec and reduced accordingly by the Quebec government, with a view to meeting essential needs which are defined on the basis of family make-up and income. I think this should also be seen as one of the government's goals.

You stated that the new child tax benefit leaves aside social assistance recipients. Many people have come to my office and told me that with the introduction of the new CTB, they now receive less money than before and that this new initiative hasn't benefitted them in any way. Could you explain this situation to me, because these individuals have spoken with federal and provincial government officials who have told them that this couldn't possibly be the case. Yet, I do know that this is happening in my riding. I see Ms. St-Jacques nodding her head in agreement, and several other members have told me the same thing. I'm trying to get an answer because it's hard to respond to people who already have very little money and who are well aware that their monthly cheques have been cut by $50 or $100.

[English]

Mr. Keith Horner: I think I know the answer, but I'm not 100% sure.

The Government of Quebec introduced the unified family allowance, or allocation familiale, in stages. One of the main introductions was in September 1997, ahead of the full introduction of the Canada child tax benefit. In introducing that benefit, Quebec moved away from a system in which the benefits per child varied quite differently between large families and small families. There was an incentive structure built in with extra benefits for larger families, with a pro-natalist objective originally.

In moving to the new benefit in 1997, they moved to a benefit that paid a maximum of $2,600 for the first child and $2,400 for additional children. There were some transition benefits so that the change didn't all happen at that one time, but what has happened is there's been some degree of redistribution. Large families who were getting much higher benefits than the average may have got fewer benefits afterward, whereas smaller families got substantially more benefits than they were getting before.

But this is not a change from the Canada child tax benefit. This is a change purely in the structure of the Quebec benefit.

[Translation]

Ms. Christiane Gagnon: You also said that the goal of the new CTB was to reduce duplication and overlap. If Quebec had had family allowances, wouldn't it have been easier to issue one big cheque to the government, thereby allowing it to increase family allowance payments? Then, officials wouldn't have had to make so many adjustments on the basis of the new CTB. I don't agree with you totally when you say that overlap and duplication has been eliminated to some extent.

Basically, the objective is the same. Again, I want to mention the government's unspoken goal of enhancing its visibility.

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[English]

Mr. Keith Horner: There are varying views on topics such as this, but when the premiers talked and when the social services ministers had their initial ideas of the national child benefit, the basic understanding was this. What the federal government can do very well is run Revenue Canada and provide cheques to a large number of people very promptly, on time. What they can't do so well are the services and things where you need direct interface and to see what a person's situation is this month that's different from last month.

Restructuring the benefits so that the federal government provides a platform of benefits that's the same across the country, on which the provinces can provide supplemental benefits such as the B.C. family bonus or the Quebec benefit or such as Saskatchewan has done, allows the province to tailor the system to meet the needs of the province in quite a simple way, while providing for a uniform base across the country and a large amount of federal support. That's the general view behind the benefit.

[Translation]

The Chairman: One last question.

Ms. Christiane Gagnon: You indicated to us that you do have some statistics, but that you are not in a position to assess the effectiveness of the program or to do regular follow-ups. The Auditor General made a similar comment in 1996. He observed that the government was not able to ensure the accuracy of its statistics on births and deaths and that it wasn't certain how many people were entitled to benefits, given all of the variables affecting eligibility. In that same report, the AG seemed to be saying that in order to do some studies, while this was not part of their mandate, Revenue Canada or the Department of Finance—

Mr. Keith Horner: It was Revenue Canada.

Ms. Christiane Gagnon: Thank you. He observed that Revenue Canada faced a formidable challenge. On looking at the range of measures initiated by the government to eliminate poverty, we note that approximately 40 separate programs have been implemented, the CTB and the GST being the two main ones. However, the government doesn't have the means to analyse effectively the impact of these programs or to follow up on them. I have suggested that we appoint a poverty commissioner to gather all of this information, including the testimony of the witnesses appearing before the committee. This commissioner would operate somewhat at arm's length from government and from the minister. He could give parliamentarians a true account of the prevailing situation. We who are concerned about poverty want to provide as much assistance as we can. Whether we will take the approach Mr. Shillington advocates, well that remains to be seen. We need to step back, do many more in-depth, timely studies and appoint a commissioner who would not have his hands tied by the department. Only then will the kind of studies we are calling for be possible. We are often left frustrated by the answers we receive to our questions in the House.

We are out there on the front lines and we often hear the lament that there isn't enough money. Even workers with two or three children earning over $30,000 or $40,000 are not wealthy by any means. People have less and less money and it's harder for them to make ends meet.

You commented on the poverty statistics. If the poverty rate declines by five points when a new measure goes into effect, does this actually mean that there are fewer children and families living in poverty? No, it doesn't. It doesn't mean either that the government is re-injecting money into the system when the levels fall. I'm rather sceptical about the government's willingness to invest more money and to implement programs to fine tune the system. In any event, that's my opinion.

The Chairman: Was that a comment or a question?

Ms. Christiane Gagnon: Although we're trying to find a solution, I'm not convinced the committee will succeed. Your observations are certainly very useful to us. However, even so, it won't be easy to find a solution and my concern is that whatever we come up with, the government's going to do as it pleases. It's not easy pinpointing the root of the problem. This exercise is enlightening, but nothing more. While I'm not trying to be critical, admittedly you don't have all of the answers either.

You just said that a new program is in the works. What will it entail? We've already had forty or so new programs designed to help children. Am I to conclude that existing programs have failed to meet their stated objectives? We need a program to address the situation. However, if families had more money and higher incomes and if their taxes were lower, we would already have resolved a big part of the problem. It takes a lot of time to administer all of these programs and I don't think we can analyse all of them.

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[English]

The Chairman: Mr. Horner, you might want to hold on the answer, given that we have other questioners. I'll move along, if I may, to Ms. Davies.

Ms. Libby Davies (Vancouver East, NDP): Thank you, Chairman.

We've had a couple of discussions about the child tax benefit at the main committee, and we're getting into it here. I always feel like we're just barely scratching the surface and getting beyond the rhetoric and the public relations information.

I want to thank you, Richard, for laying out what the child benefit system was and what some of its goals were vis-à-vis the child tax benefit, because it really shows us how public policy begins to shift. Unless we keep track of these things, we really don't get a sense of how much things have dramatically changed.

One thing we have to know is that the more we look into the child tax benefit as an instrument of public policy, the more we realize it's highly discriminatory. Even your list of who isn't included is very illuminating. It seems to me there's more and more evidence to show it creates problems. Even the Auditor General's report today talks about lack of transparency, lack of accountability, and the fact that there are no targets. These are very serious issues that we won't even have time to get into.

I have a couple of questions, one to each of you.

When we talk about the child tax benefit being to promote attachment to the workforce, first of all, there's an assumption that those jobs are there somewhere. So let's say there are jobs there. They're generally very low-paid jobs, which is why we have a problem and why we have working poor. I just wonder, in terms of public policy....

Here we have this benefit. The bottom line is it could amount to a subsidy to employers. Why wouldn't we have strategies of saying there should be much better minimum wages, for example—liveable wages? This is so related to a job strategy in terms of trying to ensure that there is full-time, quality work. That really bothers me, because there's a contradiction. We're providing a massive amount of money for what in effect is a subsidy. Maybe you'd like to speak on that.

The other question is to Mr. Horner. There are also big issues around tax fairness, and I think that's come out a little bit today in terms of what this benefit does in taking us further down the road of inequities within the tax system itself. So I'd like to ask Mr. Horner, how do we justify, or how does the government justify, taxing back social benefits in a different way from how we tax back other benefits? For example, capital gains has a reduced rate of taxation, but when it comes to social transfers, people are taxed at a higher rate. There are all these kinds of inequities.

How do you justify that? How do the people in your department who are involved in these policy decisions justify that, in terms of trying to promote a tax system that does have some notion of fairness? Why wouldn't we just say every dollar is a dollar and we should be looking at tax rates based on fairness and equity, and not saying, “Well, if there happens to be a capital gain, we'll give you a break, but if it's some sort of social benefit, we might yank it all back”?

The Chairman: Mr. Shillington.

Mr. Richard Shillington: There are several issues there.

The purpose of the child benefit was to make sure, to the extent we could, that people were financially better off employed than on social assistance. I will reiterate, our goal should be the best possible environment for the raising of children. That's not necessarily the same thing.

The government has tried to change the poorest of the poor from welfare to working poor families. There are certainly going to be circumstances where families are better off financially on social assistance than working poor, and we probably should do something about that and fix it.

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But if you look at surveys such as the national longitudinal survey of children and youth, I challenge anybody to find a survey that shows that generally, welfare children are doing better than the children of working poor families. On the whole, welfare children do less well than children of working poor families at the same income. So to have a program that says the poorest of the poor in fact are the working poor and we're going to help them is....

If you really want to improve the employment prospects of parents because you think that's the best thing for the children, first of all, pause, but second of all, yes, the child benefit may potentially do that. It could be part of a really good program, but by itself, it's not everything it's being described as.

Instead of simply doing all of this giving and then taking away from welfare families, what if we had simply extended the in-kind benefits—the dental, the optical, the drug plans—to working poor families that we provide to social assistance families? What if we had simply done that? What if the federal government had said, “We will share the cost if you will do that”? You wouldn't have this giving to welfare families and taking it away.

That would have been a great idea, and it would have been very visible. Welfare families would know that if they took a job, they would keep the drug plan and the dental plan and things like that. But instead we're doing this.

The Chairman: Isn't that basically what they're doing now in New Brunswick?

Ms. Libby Davies: And also in B.C., I think, they've started doing that.

The Chairman: Yes, and in British Columbia.

Mr. Richard Shillington: I don't know.

Mr. Keith Horner: Extending health benefits is one of the reinvestment programs in B.C. and in Alberta. New Brunswick didn't change its social assistance rate, so it's a different dynamic there, but that's definitely one of the kinds of programs, along with child care and other child credits.

Mr. Richard Shillington: Could I add a 30-second comment?

I read in the transcript a question that was asked last week, and it came up again today: How do we know if any of this is going to work? Well, in fact, we actually have the social experiment going on. The difference between this welfare wall approach and others is the assumption that by increasing the financial incentives....

Well, in the four Maritime provinces, two have opted in and two have opted out, right? So if the government is right and this approach is going to move a lot of people off welfare and into the labour force—and you're right; they're going to be a poor labour force—you should be seeing the effect in P.E.I. and Nova Scotia, but not in Newfoundland and New Brunswick, I think.

The Chairman: Are there any early indications?

Mr. Richard Shillington: I haven't looked. Nobody's paying me to look. As soon as somebody's willing to pay me something with a contract—and it has to have at least one comma in it—I'll look.

The Chairman: I hear the Department of Finance stepping up to the plate. No.

Voices: Oh, oh!

The Chairman: Speaking of the Department of Finance, Mr. Horner, you may comment on any of the foregoing, plus the question Ms. Davies put to you about tax equity.

Mr. Keith Horner: In terms of the question you posed to Richard, I just wanted to talk about the word “promote” for a second.

In my remarks I mentioned at the beginning that there is quite a good case that the system we've had, which has focused a lot on social assistance as a way of aiding low-income families and providing them with ancillary benefits, has in fact made it very unattractive to leave social assistance.

It's really aiming toward more of a neutral choice there. We're not saying that even if you have three kids and you could very usefully be employed looking after them, you must go into a job. We're really saying you should have a reasonable choice. The system shouldn't be so biased against that that you lose that opportunity to gain work experience, etc.

In terms of tax fairness, Richard alluded earlier to the fact that in 1993, when we moved from a more or less universal system of child benefits that went without income, there was a big choice. We sacrificed some degree of horizontal equity for higher-income families in order to have more resources to provide the working income supplement and so on. This was back in a time when the fiscal situation was pretty bad.

The question of the benefits going to middle-income families is definitely an issue for that other committee that's looking at tax fairness, and I think our minister has asked that committee to provide ideas on how the government can better support families at all income levels.

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In terms of taxing back and different rates for income, it's a different thing to say, “Here's a tax rate we apply to your income and here's a benefit, but I'm going to target the benefit to lower-income people.” That's not really taxing income. It has a marginal tax on income, but it's a different thing to confer on taxpayers in general a benefit raised by taxes, as opposed to taxing income.

In the case of capital gains, if you look at a pure definition of income, you wouldn't tax the inflation component of income, because that part of an investment return is just keeping the person where they were before. One can look at the three-quarters inclusion of capital gains as a kind of ad hoc way of taxing real income.

The Chairman: I'll hear one very quick, but I feel pointed, response from Mr. Shillington before I move on to Madame St-Jacques.

Ms. Libby Davies: I'm not a tax expert or anything, but from what you just said, warning bells go off. If you can justify that.... In reality we have the child tax benefit, which is deindexed, and people are rapidly losing pace. I don't know how you can defend that at all.

The Chairman: I'm aware that time is short. We need conversational equity here too, so I'm trying to preserve that in the room.

Mr. Shillington.

Mr. Richard Shillington: Keith is absolutely right. A fair tax system would not tax the part of capital gains that is illusion, which is inflation. It would also not tax the part of investment income, the part of bank interest, or the part of wage increases that is illusion.

It exempts the capital gains illusion but taxes all those other illusions.

Mr. Keith Horner: No, there's a different thing. The comparison with bank interest is valid. The comparison with wages is not. You're talking about in one case a movement of income from one year to another, and that's not occurring in the case of wages. There's quite a difference.

The Chairman: I detect a note of skepticism in the room, but I also detect the fact that Madame St-Jacques and Ms. Minna have been waiting patiently.

[Translation]

Ms. St-Jacques.

Ms. Diane St-Jacques: My first question is for Mr. Shillington. It's already been over a year since my motion calling for the indexation of the national child benefit was adopted in the House of Commons. I've met twice with the Minister of Human Resources Development, and I've also held discussions with the Finance Minister. They informed me that increases in benefit levels had offset any losses associated with the higher cost of living. Would you care to comment on this observation?

[English]

The Chairman: I think Mr. Shillington should have a go at this one.

Mr. Richard Shillington: Last year when this committee met, there was an official from HRDC, and one member of the committee asked that official whether or not it was true that the total spending on child benefit was less than in 1984, after adjusting for inflation. That official claimed ignorance and said they'd have to check.

There's no doubt that even with the second $850 million, the total spending on families with children through these programs is less than it was in 1984, certainly less than it was in 1993. So yes, the $850 million they put in is more than one year's indexation, but it takes the total spending back to 1993 perhaps.

That still means that the vast majority of families with children, including many who are not rich, are getting less now. The $850 million put in only went to working poor families. You effectively took money from a whole range of families with children and gave it to the working poor families with children. So when he says the $850 million compensates for indexation, well, yes, for the working poor, at the expense of other poor and modest-income families.

[Translation]

Ms. Diane St-Jacques: What's next after the $850 million? Nothing further is planned. At least there haven't been any announcements. If the benefit isn't indexed, families will continue to lose money.

[English]

The Chairman: Mr. Horner.

Mr. Keith Horner: I'd just mention that there was another change to the Canada child tax benefit in this budget that did increase benefits by $92 for one-child families and $184 for two-or-more-child families, in the income range of $26,000 up to where the benefit phases out at $70,000. So that does provide some compensation for past inflation and makes a start at improving benefits for middle-income families.

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Mr. Richard Shillington: And that $180 increase is wiped out by inflation in less than two years.

[Translation]

Ms. Diane St-Jacques: My second question is for Mr. Horner. Our party has struck a committee on poverty which travels to different provinces to meet with people who live in poverty and with those who work with the poor. We've been told many times that one interesting option would be to consider bringing in a guaranteed annual income and eliminate all other programs. This would allow us to scrap various programs that don't seem to be working and have never contributed to resolving the problem of poverty. Have you ever considered this option and what kind of impact do you think such a program might have on poverty?

[English]

Mr. Keith Horner: That's a very large question.

First of all, a guaranteed annual income is the structure of the assistance the federal government provides—and provincial governments, with top-ups—to seniors, through old age security and the guaranteed income supplement. There are also elements of a guaranteed annual income.

A full guaranteed annual income would involve folding social assistance into a refundable credit, for example. We certainly haven't gone that far, but there are elements of the guaranteed annual income approach in the Canada child tax benefit in the sense that it's a family income-tested benefit based only on family income, not on assets, and it goes to all kinds of low-income families. It does start with the group of people—families with children—for whom there's the greatest concern.

So there are some parts of the idea of a guaranteed annual income, but certainly not a full one.

The Chairman: Ms. Minna.

Ms. Maria Minna (Beaches—East York, Lib.): Thank you.

I'm trying to sort out the pieces. I want to ask Mr. Shillington a question first and then move on to Mr. Horner, just to get my pieces together. I know what's happening today. I can see that. But I'm trying to sort out what's happened so that I know where we might go.

Did the child benefit system evolve after the family allowance was eliminated, as well as the child deduction from the income tax forms and whatever else?

Mr. Richard Shillington: Our current child tax benefit was essentially created as a result of the 1992 budget, when family allowance and the child tax credit and the non-refundable child tax credit were all folded into one program.

Ms. Maria Minna: Everything was eliminated and this was put in. What do you mean when you say the child benefit system is different from the child tax benefit? Aren't they essentially the same thing?

Mr. Richard Shillington: Now they're effectively the same thing. Now the child tax benefit is the program where the federal government recognizes children. The child benefit system is a term for what was once family allowance and the child tax credit and the child tax deduction, which were three pieces.

Ms. Maria Minna: Okay, it's the old system. That's what I was trying to figure out.

Mr. Richard Shillington: They had three different goals. One was anti-poverty, one was support, and one was a tax recognition. Then they put them into one program, which evolved into strictly an anti-poverty program.

Ms. Maria Minna: Okay. I was just trying to understand, because sometimes we've used the term “child benefit system” for the current system. People tend to use the two terms interchangeably.

Mr. Richard Shillington: Yes.

Ms. Maria Minna: It's difficult to follow which one we mean when we're talking. That was just a clarification. That helps me to understand.

Mr. Horner, you were involved with this changeover. I'm trying to understand why the government of the time did that. What was the philosophy behind eliminating the family allowance, which was a universal program—and it was taxed back at the top end anyway—and the ability to deduct children from your income tax system and whatever else existed at the time? What was the rationale for doing that at the time?

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My understanding is it was working reasonably well. Maybe not, but one could have looked at restructuring rather than.... I'm trying to understand what was the rationale at the time and where they wanted to go with it. I'm trying to see whether in fact we did go there.

Mr. Keith Horner: It was a time of considerable budget constraint. There was a desire to do more for families at the low end, to introduce a work income supplement, and there weren't any other resources, so there was a restructuring that did reduce the benefits going to high-income families.

Ms. Maria Minna: Why wasn't it indexed to inflation, as other...?

Mr. Keith Horner: It wasn't an indexed benefit at that time. The great majority of tax parameters are indexed to CPI minus three, so no change was made to that.

Ms. Maria Minna: I've talked to enough people and the minister and so on about the new child tax benefit. I'm trying to understand why we allowed and agreed to the clawback at the provincial level with respect to welfare recipients. I don't support that. I was very angry that it happened, and I'm still trying to get rid of it, or at least certainly improve the whole system.

The problem with agreeing to these things is you never know what the provinces will do once you've agreed on a system. In Ontario the province has cut welfare recipients by 21%. Those who live in the metropolitan Toronto area cannot afford to pay their rent or buy food with it, so they're at the food bank and some of them are in hostels, because there's no affordable housing. It's a vicious circle. What I'm trying to understand is why did we do that? Why did we agree for the provinces...?

Well, somebody has to tell me. Maybe it's a political question, but—

The Chairman: I agree.

Ms. Maria Minna: Sometimes advice is given and sometimes there's discussion.

From your analytical point of view, was there a rationale for allowing and agreeing to the clawback? I know the money is supposed to be used for reinvestment, but did we in any way try to tie the provinces down with respect to a minimum of income for all families?

Maybe Mr. Shillington has done some research. My problem is that every province is doing something different, and I would like to see some uniformity across the country for children in Canada.

Mr. Keith Horner: In terms of reinvestments, there is a reinvestment framework. The moneys have to go back to low-income families with children, and the moneys should be used in programs that advance the goals of the national child benefit system. In the case of Ontario, a considerable part of the money has gone into a child care credit supplement for low-income families.

In terms of the social assistance adjustments, what's being attempted here basically is to provide child benefits, not through social assistance, but through a program where you don't lose your benefits if you change from social assistance to working or back. You stay having the same benefit. It's also to encourage provinces to have other programs, such as child care and extended health benefits, available to a broader range of low-income families with children, rather than just social assistance families, so that these programs are more effective and provide better support—so that you're not tying people to social assistance in order to get health coverage, for example, and things like that.

The Chairman: Do you have a comment on that, Mr. Shillington?

Mr. Richard Shillington: You asked if you can force the provinces to meet basic needs. We could until 1995. Under CAP, provinces had to meet needs. You're nodding; you already know this.

In 1995 the federal government voluntarily gave up the right to force provinces to meet needs as a condition of cost-sharing. So yes, we had that right before; we now don't have it.

In terms of reinvestment, I don't know what it means when.... If Ontario has—I don't know what the figure is—$100 million that it's obligated to reinvest, we have no way of ensuring that's all new money. Ontario can take $1 billion out of welfare and then reinvest $100 million and say that's the reinvestment for it.

• 1700

Ontario can take $37—or was it $35?—per month out of the pockets of pregnant welfare mothers. That doesn't net out. That doesn't affect.... As long as they can create a new program and put a little binder around it and say that's their reinvestment, they've fulfilled their obligation, as far as I know, and they can do anything they want outside that—cut rates, cut programs—and that doesn't affect whether or not they're reinvested.

I wasn't in the room, but that's my understanding, as an outside observer.

The Chairman: I'm mindful of the fact that parishioners are leaving and that we have votes coming up. I'm wondering if I can possibly, as chair, ask three questions that will try to link a couple of things together.

Two questions arise from this new report by Shelley Phipps from Canadian Policy Research Networks, in which she does an international comparison and makes two generalizations about policy.

One, in terms of reducing child poverty, what happens before you give cash? It's really the issue of cash versus tax transfers, and she argues very strongly that cash wins hands-down in terms of effectiveness. That's an observation she makes. I'd be interested in your comments on it.

Mr. Keith Horner: Sir, could I just have a clarification? Is that tax or in-kind?

The Chairman: Well, I guess it's cash benefits versus tax reductions. I guess that's the best way of putting it. In other words, actually cash benefits seem to work better in meeting policy objectives.

The second point she makes is a larger issue. She talks about Norway and says that generally, in countries that get out of the targeting business and into the universal business, at some expense, the whole population lifts, as you'd expect, but it actually is the most effective way of tackling poverty, at-risk, lower-income, and the whole.... All boats rise. As opposed to targeting, the whole society is better off.

My final question is about the outcomes. This is the issue: the effectiveness. The Auditor General's report talks about this in chapter 6. How do we know and how long will it take us to know, or will we ever know, whether provincial reinvestment strategies under the Canada child tax benefit system are working? Indeed, even on the quick-and-dirty test of two Atlantic provinces versus two Atlantic provinces, how long will it be before we can make some kind of comment about that particular sector, regardless of the business cycle and local peculiarities?

I'm sorry I've asked three questions, but there they are. The first one is the tax-versus-cash argument. Do you have any comments?

Mr. Richard Shillington: If your goal is anti-poverty, cash is always going to work better than tax, because low-income people don't pay tax or don't pay as much tax. So if that is your sole goal, if you have an anti-poverty program, in the first instance, cash is going to be better than tax.

Let me jump to the second issue about the universality.

The Chairman: Yes, versus targeting.

Mr. Richard Shillington: You do find yourself in these perverse situations occasionally. I remember that back in the mid-1980s, C.D. Howe and the Business Council on National Issues were calling for the elimination of universality. They wanted to reduce benefits for high-income people and give them all to the poor. “Anti-poverty” groups were saying, “No, no, keep giving money to rich people”, which sounds totally perverse. Why would anti-poverty groups be wanting to do that? Part of it was just that they wanted this to be related to children, not just anti-poverty, but also part of it was the idea that if higher-income families did not get a child benefit, there would be no political support for the program.

Certainly 15 years later, we were told over and over again that we were going to take from the wealthy and give to the poor. We didn't give it to the poor. We took from the wealthy. Now we're taking from the middle. Now we've divided the poor into some poor and not poor, and we're taking from some of them to give to the other ones. This is targeting beyond decency, actually.

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I don't know to what extent it's a cultural thing. I'm not sure if universality defends the program really, but I do know that what we have done so far hasn't been what we were told was going to happen.

The Chairman: On the final point about outcomes, how long will it take to know?

Mr. Richard Shillington: Oh, you'll never know. It's like, “Was free trade good for Canada?” You get some economists, some heavyweight economists and some lightweight economists, and you see what....

The world is not going to stand still. First of all, you don't even know who's really reinvesting and who's not, because we haven't done the base case spending. If you really wanted to know whether or not Ontario is reinvesting, you'd have to know how much they used to spend on families with kids and how much they're spending now.

The Chairman: Is that knowable?

Mr. Richard Shillington: Probably roughly. Public accounts are there. It's not simple, because all provinces keep their public accounts quite differently. But you don't even know in each province what they were spending before, let alone whether or not they're spending more now. They say this, but I'm not at all confident they are.

So if you can't even tell whether or not they're increasing their spending, how can you know whether or not it's had an impact?

The Chairman: Right.

Mr. Horner, do you have any thoughts on those three subjects?

Mr. Keith Horner: In terms of cash versus tax reductions, I'd make the obvious point that while the Canada child tax benefit is a tax measure, it's a monthly cheque provided to mothers, so I'm not quite sure I see the issue there. It is a cash benefit, essentially.

Quite difficult decisions were made about the creation of the child tax benefit back in 1993. With luck, if economic conditions continue positively, we're beginning to be in a different era now, and I would agree that a broader-based benefit is a better benefit if you can afford it. It's certainly a goal for expanding benefits.

As for outcomes, obviously public scrutiny within each province and across the country is an important part. That's partly a political question of individual politicians having to live up to their own promises.

[Translation]

The Chairman: Do you have one last question, Ms. Gagnon?

Ms. Christiane Gagnon: Yes, thank you. Could you tell us more about the child program you are setting up and which sector it will be targeting? Weren't you the one who mentioned this program? Perhaps I misunderstood.

Mr. Keith Horner: I think you may have.

Ms. Christiane Gagnon: I thought you mentioned it in your opening statement.

[English]

Mr. Keith Horner: I was involved in the creation of the child tax benefit in 1992, in Finance.

[Translation]

Ms. Christiane Gagnon: Fine.

One last thing. I have tabled a bill calling for the appointment of a poverty commissioner who would be responsible for answering all of our questions, such as: how much money was earmarked for the program, how much do we now spend and what impact have the different programs designed to reduce poverty had? I've collected the signatures of 100 individuals who are seeking answers to these tough questions. I asked researchers at the Library of Parliament to do a study of the 40 existing programs and they were unable to tell me how much the government had invested and whether or not these programs had had the desired results. Poverty is an ever-growing problem. We have less and less money to work with. Even families earning $40,000 are feeling the pinch. We are stymied by this situation. Statistics alone won't help us to find the best possible solution.

[English]

Mr. Keith Horner: I'll try to answer.

It probably is more difficult to try to study the effect of a specific program, particularly the smaller it is. One could start out by asking, what seems to be the situation of families? Perhaps you can't do it in one year, but a few years after this change in the delivery of benefits, you could look at the big picture and then also look at information from talking to the families themselves.

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So it's a more global attempt to look at the results, starting from the large indicators and then going backwards into smaller.

The Chairman: Well, we've imposed on your time a great deal. We thank you both very much for appearing. It made a good, lively discussion to have two different perspectives. On behalf of all of us, thank you very much indeed. We will probably get back to you with further questions at some point, but until then,

[Translation]

thank you and goodbye.

[English]

Class dismissed.