STFC Committee Meeting

SUB-COMMITTEE ON TAX EQUITY FOR CANADIAN FAMILIES WITH DEPENDENT CHILDREN OF THE STANDING COMMITTEE ON FINANCE

SOUS-COMITÉ SUR L'ÉQUITÉ FISCALE POUR LES FAMILLES CANADIENNES AVEC DES ENFANTS À CHARGE DU COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 11, 1999

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[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 now resumes its study on tax fairness for Canadian families with dependent children.

This afternoon we're pleased to welcome Mr. Thomas Schuck from NSWB, Barristers and Solicitors.

Mr. Schuck, we have approximately 45 minutes, so if you would like to make your comments in about 10 minutes and restrict it to that, then we will leave ample opportunity for the members to ask their questions.

On behalf of the members, I'd like to welcome you here and ask you to begin.

Mr. Thomas A. Schuck (Nimegeers, Schuck, Wormsbecker & Bobbitt, Barristers and Solicitors): Thank you very much.

As our material indicates, I'm a lawyer, and I practise in the area of taxation, in particular personal taxation, estate planning, corporate reorganizations, family trusts, wills, and estate administration. I'm also the husband of a full-time homemaker and the father of six children. I'm really pleased to have an opportunity to address the economic discrimination against single-income families through the tax system.

My CCH copy of the Income Tax Act and regulations is 2,500 pages. Unfortunately, notwithstanding the complexity of the Income Tax Act, at the end of the day, we end up with a system of taxation that can tax single-income families with children more than couples with the same amount of income and no children.

I have produced a schedule comparing single-income families with children versus double-income families with no children at all but with the same household income. In every instance, in above-average-income households—that's $40,000 and more—the single-income family with children pays more in income taxes. It really is a disgrace that a single-income earner who earns $75,000 and supports a spouse and seven children—that's nine people in all—pays more in taxes than a couple with no children and each earning half as much.

Taxation should be, wherever possible, neutral. The income of a person who supports four to eight people is not his income. It's the income of the family. Higher tax rates against families is discrimination against not only homemakers but every member of the family.

Raising and educating a family is an enormous task. Two of my sons have bachelor of commerce degrees, and both of them went on to get their law degrees as well. One son studied physiology for five years and now is in the College of Medicine. My daughter graduated from civil engineering. My son Paul is at the University of Calgary. Three of my children have grade 8 in music. At one time I had to license six cars to keep them all mobile.

When my fifth child was 11, I was giving suggestions to my wife as to other career opportunities. She decided she liked being a mother the best, so she had a sixth child, who is now 10.

My children have the potential to be high-income earners and high-paying taxpayers. They will be, I am sure, of value to Canada. They would not have done as well had it not been that their mother stayed at home and put the time and effort into raising them that she did.

I know family is most important to everyone, but it's very difficult to raise a large family in Canada with this kind of tax discrimination. I made sure my children know that by moving to the United States, they likely could have more children and they likely would make 50% more and pay one-third less in taxes. This is because of the oppressive taxation we have on our families.

I would like to say a few words about my wife, since it's homemakers who bear the brunt of this tax discrimination. My children did well because she was a full-time mother, providing emotional support, support for their studies, and support for their music. She's on the executive of her church's women's organization, plays the organ at church, and buries the dead. She collects door-to-door for the Heart and Stroke Foundation. She cares for an elderly lady, a 92-year-old who used to babysit for us, by driving her to doctors' appointments. She has been on the music festival executive for approximately 20 years.

While we have government programs aimed at raising the status of women, it's rather obvious that we are not talking about raising the status of women who are homemakers. For the women's organizations that the government funds, raising the status of women generally means creating career opportunities for them in the workforce. They are not talking about raising the status of homemakers.

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I appreciated the comments I heard this morning from Mr. Szabo, when he said one of the first things we have to do is recognize that homemakers have value. But it is a reality that my homemaker's economic fortune depends on me.

There is double discrimination against single-income families. First of all, our family income is half of what it would have been if Marilyn had worked on a career instead of raising children. We could have earned twice as much, but instead we get taxed more than couples with no children.

Then, to add insult to injury, we have the government implementing affirmative action programs for women, whose impact is essentially even more discrimination against traditional housewives, whose economic fortunes rest with their husbands.

The future of Canada depends upon capable parents raising children, usually homemakers, who could be high-income earners if in the labour force. Everyone knows there are fewer problems when children are raised by their parents and that children are more likely to go on to higher education if parents are college graduates themselves and to be high-taxpaying citizens of Canada. How can anyone think we can remain a strong nation for very long by penalizing families that raise children?

The following are some recommendations I would like to make.

Number one, recognize that children are more than just an expensive hobby of parents. Children raised by capable parents are the future of Canada. If the government continues the funding of interest groups, they ought to at least fund an interest group that can speak for single-income families and homemakers, to create some balance.

Secondly, a single-income earner ought to be able to split his income with his spouse so that the government is never seen as favouring one lifestyle over another. Even after children leave home, homemakers provide valuable services to the extended family in their communities. As one can see from the table attached, being able to split income with your spouse is worth more than all the tax credits and deductions there might be for children, all added together.

Third, families with children should receive large deductions, as opposed to tax credits, for every child they have. This is not a gift from government, but a recognition that some of the income a parent makes is truly the income of the child and should not be taxed. This is simply allowing families who are prepared to raise children to set aside a portion of their income for the child. Parents could use some of the benefit of this deduction to pay for child care or to compensate for the lost income of the parent remaining at home.

A tax deduction is a recognition that some of every parent's income is for the child. Without that recognition, it's inevitable that some middle-class and upper-middle-class parents will not receive some income free of tax for the child they are raising—income that is in reality the child's.

The reason for a deduction instead of a credit is so that a parent is not taxed on income the parent does not have. The deduction is deducted from the parent's income to reflect the fact that this is a basic, minimal amount that is not to be taxed, but to be set aside for the child. A tax credit has the effect of taxing the income that was to be set aside for the child and only giving a smaller portion back.

The state has no compelling interest in discouraging parents at any income level from raising children. If the government insists on conversion to tax credits, then at least make it a tax credit similar to the tax credit given for charitable donations, where the tax credit is 50% or comparable to the 50% tax bracket. One ought not to be taxed on income one does not have, and parents with children do not have the same kind of disposal income as parents without children.

This morning I heard a fourth matter I overlooked. Double-income couples with no children can also contribute twice to a registered retirement savings plan. If you take a look at my figures at the back of the submission I gave you, you'll see that is actually one more form of discrimination against single-income families.

Thank you very much. I hope I can answer your questions.

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The Chairman: Thank you, Mr. Schuck.

We'll get to that right away with Mr. Forseth for six minutes.

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Thank you very much.

As you are quite aware, the comparative differential between case A, case B, and so on, is, as you said, most significantly between a one-income husband and wife and a two-income husband and wife where neither couple has children. That is related to the progressive tax system. Sometimes income splitting wouldn't necessarily help if, say, spouse one is being taxed at the very highest rate and spouse two is being taxed at 17%. If they combined their income and split it fifty-fifty, it might bring them to be paying at a much higher rate. So it depends on where you're at and whether the income splitting means this particular case is on the cusp of going from one rate to another.

That is inherent in the tax system, and I'd be interested in hearing if you have any solutions to that. We've been hearing a fair amount of testimony about the other side of it, where the tax form gets involved with things for children. But let's take children off the table for a minute and just compare one-income versus two-income households, where there are no kids involved. There's a great tax differential between them. It's not necessarily discrimination; it's just the way it's set up. I'm wondering if you could provide some suggestions or road maps of how to get out of that particular problem.

Mr. Thomas Schuck: It seems to me if you have two households and they each have identical income, they should both pay the same amount of taxes. I don't have any problem with that.

Mr. Paul Forseth: But do you understand why they don't?

Mr. Thomas Schuck: I have trouble understanding why they don't; that's true. Whether you allow the high-income earner to split with the low-income earner or whether you add both members of the household's incomes together and tax them as one, which would in effect boost them up to a higher bracket, that's six of one and half a dozen of the other.

What I'm saying is a lot of times there are reasons that only one person in a family is working—they could even be health-related reasons—but the fact is you have two households with identical income. There may be some reason to discriminate in favour of the couple that has two jobs, because they may have additional expenses and inconvenience of going out to work, but at the end of the day, if you have two households and they have the identical income, why wouldn't they be taxed the same?

Mr. Paul Forseth: The reason is there's a difference between taxation and benefits. You're looking at the household as an economic unit, and yet they're taxed as individuals.

Mr. Thomas Schuck: That probably explains why we have fewer and fewer families. If the tax system were focused on families as opposed to individuals, you'd have more than—

Mr. Paul Forseth: You're talking about the perverse incentive situation.

Let's go to the child expense deduction, where if the parent purchases day care and they get a receipt, they can get some compensation or claim for that. The testimony we've heard here is that the flip side of that coin is that for a family that chooses a different style of day care where a parent stays home, it's very hard for them to attribute some money into their pocket in a similar way. It's easy to deduct receipts and account for that day care purchased somewhere in the community, but if you're purchasing that day care in your own home by your spouse, there's no way of accounting for that or valuing that. How do we, as a society, give monetary value to that lifestyle choice?

Mr. Thomas Schuck: You could do that by giving a tax deduction for the child, and then whether the parents worked or not really wouldn't matter. They would get the deduction whether they needed to use it for child care or did their own child care.

Mr. Paul Forseth: Okay, so what you're suggesting in your $6,000 credit or—

Mr. Thomas Schuck: Deduction.

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Mr. Paul Forseth: —deduction would be the elimination then of the other feature, claiming for receipted day care.

Mr. Thomas Schuck: Right.

Mr. Paul Forseth: Okay, thank you.

[Translation]

The Chairman: Mr. Cardin, please go ahead.

[English]

Mr. Thomas Schuck: I might say that just because you do some income splitting and have deductions for children does not mean you could not allow for some expenses for child care as well.

Mr. Paul Forseth: Okay.

[Translation]

Mr. Serge Cardin (Sherbrooke, BQ): You are a lawyer, an advocate, by training, and I think that I will play the role of the devil's advocate.

Some people may feel there is unfairness between the way that two-income families and single-income families are treated, but is it not possible they are forgetting certain important elements?

Let us take the case of an individual who earns, shall we say, $50,000; and I emphasize that I am talking about one person. The other example would be two people earning a total income of $50,000, but twice as much work has been done.

In your table, you took the example of a childless couple with husband and wife each earning $20,000, for a total of $40,000; then you take the case of a married couple with two children and a single income of $40,000. It would have been interesting if you had also shown the example of a married couple with two children, the husband and wife each earning $20,000, for a total of $40,000. We would have been able to see whether there was an advantage in that case.

In your third example, you show a large family with several dependent children on a single income. A couple with two children and a single income of $75,000 pays $27,942.67 in tax. The couple with seven children and a single income of $75,000 does not pay more than $22,091. There is a difference of $5,800 approximately, which is something positive, although we will not try to determine if this is enough to raise five more children. The fact of having children does have an effect on the amount of tax you pay.

I would say, however, that you are mixing matters somewhat in this table. We see a comparison between two incomes of $37,500 and a single income of $75,000. You cannot compare them, because what we have is individual taxation. As we have a progressive tax rate, the more you earn, the higher the marginal rate and the average cost.

You said earlier that income should be shared within the family, that a family should be considered a family business. There would be an income for the business as a whole and the same would apply to deductions. The family would be treated as a business.

As I have already asked other witnesses, would it not be better to have individual exemptions? We know that the basic personal exemption has to be adjusted. The exemption for the spouse who remains at home should also be adjusted, as well as exemptions for children which reflect the real costs of child-rearing.

[English]

Mr. Thomas Schuck: Yes, I really do believe they do need basic exemptions, to reflect how many people this wage earner is supporting. It's completely unrealistic to think a single-income earner with a family of nine to support should be paying more tax than a couple with no children. You might call him a single-income earner, and he is, but the income is not his to spend as he likes; it belongs to the family. Nine people depend upon him to support them and to spread the income and the wealth around.

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The problem with tax deductions is they got frozen in the Stone Age. I think the way it all started was with tax deductions. Eventually they changed them into credits, and then they said, well, gee, why do we have to give credits to people who are high-income earners, and they cancelled all the credits. The next thing you know, you have a situation where families with children are paying more in tax than families without any children. If this is a family-friendly country, those kinds of results simply shouldn't appear. Unfortunately, they do.

[Translation]

Mr. Serge Cardin: Thank you.

The Chairman: Do you have any other questions?

Mr. Serge Cardin: No. That is all.

[English]

The Chairman: Mrs. Dockrill, please.

Ms. Michelle Dockrill (Bras d'Or—Cape Breton, NDP): Thank you.

While listening to your presentation, I reviewed the terms of reference of the subcommittee. Certainly from my perspective it warrants repeating. It talks about studying the tax and transfer system as it applies to families with dependent children. I think it's really important that, within the terms of reference, we all acknowledge that Canadian families do not only consist of or fall into the categories of one-wage earner or two-wage earners. A large number of Canadian families out there are one-parent families. I think it's important to ensure that we're inclusive.

This morning one of our presenters made an interesting comment, and I wonder if you'd like to comment on it. She said it's futile to target parental activity. What we should be doing is recognizing the child. We've also had presenters who have talked about a universal program or benefit. Some have made reference to the old family allowance. I wonder if you'd like to comment as to your thoughts on that.

Mr. Thomas Schuck: I think I was here this morning when that was mentioned, as to whether it should go to the mother, the father, or the child. It seems to me that it doesn't matter where it's targeted; in most families it's going to go into the common pot. If it's targeted for a child, it will be spent for the child and free up income from other parents.

I appreciate your comment about single-income families as well, but I think if you're designing a tax system of universal application, you have to make sure, first of all, that you don't discriminate against the kinds of families you would like to encourage in Canada, because if you do—

Ms. Michelle Dockrill: I would like to think we wouldn't discriminate against any family.

Mr. Thomas Schuck: Right. Unfortunately, there has been a tremendous amount of discrimination against families that raise children, and if you look at Statistics Canada figures, the number of households with four children or more is less than 3%; for five or more, it's less than 1%; and for my kind of family, it's only four-tenths of one percent. So I can't imagine that any large deductions you give people for children are going to make a tremendous impact on the tax system and the revenue, generally, unless they decide to start having more children as a result of your actions.

To be honest, I think it would be a positive thing for revenue, to have parents who are capable of supporting their children themselves raising children. There's a tremendous amount of revenue that the government overlooks when they think simply short-term or immediate. It took a long time for me to raise my children, but they're going to be paying a lot of money into revenue. Certainly, the reasons the Canada Pension Plan is in so much trouble is because they projected a constant increase in the number of children, and that didn't happen. They keep on taxing in order to make up for it, and the number of children per family goes down.

Ms. Michelle Dockrill: One of the points that has also been brought up by some of the child advocacy groups with respect to this being an issue about the child is that Canadian family configurations can change from a two-earner to a one-earner to a lone-parent family. Therefore, if we were looking at something directly related to dependent children and being universal, it would cover those various changes.

Mr. Thomas Schuck: I'm sorry, I missed that.

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Ms. Michelle Dockrill: Something that would be universal and that would be targeted to the child would follow those various family configurations at various points in their lives. Would you agree with that?

Mr. Thomas Schuck: Wouldn't a tax deduction do that? Wouldn't that tax deduction be dependent on the child? In fact, it is possible to have a system where you give a larger deduction for people who have more than two children, a larger deduction for the third one. But essentially, tax deductions are targeted to the child. Right?

Ms. Michelle Dockrill: I'll go back to my original comment. Are we looking at parents, or are we really looking at dependent children? Certainly, from my perspective, this is about Canadian children and, being a responsible government, our ensuring that we support parents in their choices for their children.

Mr. Thomas Schuck: Right. I think I follow you, but I think it ought to be—

Ms. Michelle Dockrill: My comment is about the parental activity as opposed to the child.

Mr. Thomas Schuck: Right. I actually prefer to see it centred on the parents, because that's really where the responsibility is for raising the child. The primary responsibility is with the parents, not the state, and it's parents who decide whether or not they can afford to raise more children or whether they should have more. In fact, I find it rather unusual that we always hear about child poverty, when it's really a misnomer, because all children are poor, even the ones who have rich parents, if their parents don't share with them. So it's really families you're talking about, and it's discrimination against families that I think should be addressed.

The Chairman: Thank you, Mrs. Dockrill.

Mr. Herron, please.

Mr. John Herron (Fundy—Royal, PC): Thank you.

Do you find almost a strange paradox in the fact that most of the deductions that have been allocated toward children and child care are based upon family income and the family situation, as opposed to the fact that our income tax system is based upon individual income? We have a child care deduction based upon families who seek child care in that regard, but, conversely, we actually base our income tax system on a progressive basis on an individual taxation system. Do you think the fact that they're sort of working in different directions is one of the reasons we're naturally going to have inequity in the system?

Mr. Thomas Schuck: I think the result has been an inequity in the system, because it wasn't always thus. It used to be that every parent got a deduction for a child. It's only after they converted them all to credits and then started clawing back the credits from the high-income individuals that you ended up with a situation where large families paid more in income taxes than couples without any children.

The other thing that strikes me is that usually when you're talking taxation, you're talking about extracting money. But you're always wearing two hats, because you're also conscious of poor families that deserve or ought to have more financial help, which in turn takes you to refundable tax credits. Even though they might be run under one system, they are really two distinct concepts: one is to raise money, and the other is to help the poor.

One makes a real mistake in saying that we're going to penalize children or families who have higher income, in order to help lower-income ones in the tax system, because you end up with an inequity of families with a large number of children paying more in tax than a couple with no children but the same income.

Mr. John Herron: Given that, as was pointed out, perhaps only one in three families that are eligible to claim the child care expense deduction actually claim it, and that the net benefit in terms of in-pocket benefit is about $700, wouldn't it be more equitable to go into the refundable tax credit situation such as we had with the family allowance, with a similar type of monetary value?

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Mr. Thomas Schuck: I don't know about refundable, but it would certainly be more equitable to be a tax credit. Refundable gets into the area of charity and helping the poor, but if we're dealing with the tax system, I think a tax credit should go to everybody. Why shouldn't a parent get some financial help if they have an extended family and a grandparent to help out? I'm sure extended families don't do it for nothing either. I don't know why the government would think they should favour private child care organizations over extended family. What's the burning issue? So I agree as far as tax credits are concerned.

Mr. John Herron: Okay, thank you.

The Chairman: Mr. Szabo, please.

Mr. Paul Szabo (Mississauga South, Lib.): I'm going to split my time with Mrs. Redman. She's going to go first.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you.

I appreciate your presentation and the fact that you're coming from the viewpoint of a parent of many children but also as a single individual.

I need to seek some clarification around your seventh point, where you say:

Then, to add insult to injury, we have the government implementing affirmative action programs for women whose impact is even more discrimination against traditional income families and housewives who are dependent upon their husbands. If the husband of a homemaker loses a promotion due to an Affirmative Action Program for Women, it may be a homemaker who also loses financially.

Can you flesh out a little bit exactly what you're referring to in that?

Mr. Thomas Schuck: I have a sister who has six children and is a homemaker. Her husband is a professor of medieval history. If they have an affirmative action program to get more female history professors, it's truly going to have an economic impact on my sister as a homemaker.

Similarly, in my own career, there seem to be many people who wish to appoint judges based on gender. Obviously I'm not going to be the next Supreme Court judge if I'm the wrong sex, and that has an impact on promotion in my career and on my spouse, who is dependent upon me and my career, and essentially has sacrificed her career, in part for children but also in part to ensure that I become a better lawyer. It has a negative impact on her financially.

Mrs. Karen Redman: So from your perspective, despite the fact that 52% of the population is female, there's no need to attend to people who are professionally qualified in certain areas to achieve any kind of reflection of the fact that those are the demographics of this country?

Mr. Thomas Schuck: I think we ought to move away from discriminating against people and thinking that the justice you get from a female is different from a male, or whether the president of the company is male or female makes any difference.

But economically, women who don't raise children are more likely to be the beneficiaries of this economic discrimination against people who raise families. I would venture to guess that the next Supreme Court justice you appoint is not going to be somebody who raised five or six children. Their values are not going to be as reflective of my wife's as a man who has raised a family and shares the values of this woman who happens to be my spouse.

It is values that I think you should focus on, not the appearance.

Mrs. Karen Redman: But if you were the at-home half of your family unit and your wife was the lawyer who was going to be the Supreme Court judge, you're saying because you are the at-home parent, you would then have a greater stake of better experience, more experience as the at-home parent than your wife, who has been part of the legal system?

Mr. Thomas Schuck: I will tell you what I would like. I'd like to see you appoint somebody to the Supreme Court who is a lawyer but has raised four, five or six children at home. But we all know that won't happen, because generally, and probably the reason I wouldn't be on the Supreme Court, in raising six or seven children I sacrifice my career as well. I'd probably be better able to go forward if I spent less time with my family and more on the legal affairs. What I'm trying to get you to see is that despite appearances, it's economic discrimination against family, even though it might look nicer.

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Mrs. Karen Redman: Your seventh point to me smacks of a whole lot of other issues. You mentioned that your wife, Marilyn, opted to stay home and as a matter of fact went on to have another child.

Part of where I'm coming from, and it's a little bit of what Mrs. Dockrill was hitting upon too, is the fact that we need to try not to make choices for people. Your choice as a family was to stay home. It was your wife's choice to stay home and be the at-home parent.

From some of your comments it almost seems to me that you're saying if the Income Tax Act treated family units as a family, or the single- versus the dual-income earner, that would make people make different choices as to the number of children they had and whether or not a marriage stayed intact. I'm wondering if I interpreted your comments correctly in assuming that's what you were saying.

Mr. Thomas Schuck: I think a tremendous number of women would love to stay home and have four or five children if, economically, the system permitted it. But there's a tremendous pressure on couples to ensure you have two wage earners to split income, because of the tremendous savings you get under the tax system. I am saying that women don't really have that many choices. You can tell just by looking at Stats Canada: more than 3% of the women in our country would like to have four children or more.

The Chairman: Paul has indicated that he has split enough time with you already, so you could give him some time.

Mr. Paul Szabo: Thank you, Mr. Schuck. I looked at your schedule very quickly, and I think if you look in the third example under total tax payable and you work out your numbers, you're going to find you're a few thousand dollars out on the tax burden of a married person with two children. But you know what? It doesn't matter, because you have a premise here that I think we have rejected, and that is that you have to compare, for instance, a $60,000 one-income earning family with two $30,000 earners. It is an intellectually dishonest economic analysis of the situation.

In fact, the real economics—and I want you to comment on this. For example, we have a couple who are working in the paid labour force and they make x and y dollars. Then they have a child. Now that family has to sit down and do the mathematics. Do I hire someone to care for our new child, pay the child care expenses and get the deduction, or does one of us withdraw from the workforce and provide direct parental care?

The situation in numbers would be if one were making $60,000 and one were making say $25,000, as a starting point. The question is, does one of us withdraw, say the lower-income earning spouse, forgo the $25,000-a-year job, have a family income of only $60,000, and provide direct parental care? The comparison then is between $85,000 of gross family income with a child care expense deduction, or $60,000 of income and a stay-at-home parent. The only benefit the stay-at-home parent gets is that the spousal amount, the non-refundable tax credit is transferable to the spouse working in the paid labour force.

The economics, no matter how you cut it, is that when someone withdraws from the workforce and gives up a $25,000-a-year job, what they're giving up is a net pay cheque, real cash in the pocket. That's the real cost of direct parental care. If they go back into the labour force, they're going to get probably about $15,000, even after they pay their child care expenses for one child.

It's about depending on the level of income you choose. It's worth $10,000 to $15,000 for an average job. That's one, the forgone income. Number two would be the forgone career advancement opportunities. Number three would be the forgone pension accrual opportunities. Let's put it this way. Those are the financial ones. Then you get the non-financial, the community service, the volunteering, the charity, and all that.

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So you have some economic values and some intrinsic or social values that have value to everybody, in different amounts. I really want your comment. Do you really think we should be comparing two families with the same total family income, with just different family choices, or should we be analysing one family and looking at the two directions in which it could go?

Mr. Thomas Schuck: I don't think it matters which one you look at. I think at the end of the day.... Do you think it's fair that a family of nine should pay more in taxes than a couple with no children with the same income?

Mr. Paul Szabo: I'm going to say to you that if you compare two $37,500 incomes to one $75,000 income, with no children involved anywhere, there is going to be a difference.

Mr. Thomas Schuck: Right, but it should be in favour of the—

Mr. Paul Szabo: No, no, there are no children. In the example, $75,000 compared to two making $37,500. In our tax system there is a difference and the reason is that we have progressive income tax rates. What you've raised with us today has absolutely nothing to do with children and it has nothing to do with our mandate.

Mr. Thomas Schuck: Well, l think it does.

Mr. Paul Szabo: No, it doesn't, because your complaint is that as you go up in income, you go into higher income tax levels.

Mr. Thomas Schuck: No, I don't think that's true.

Mr. Paul Szabo: What don't you think is true? Don't you think it's true that...? Mr. Chair, let me give it to him.

For a person making $75,000, the first $29,590 is taxed at 17%, for a federal tax of $5,030. For the second $29,590, it's at 26% for $7,693. For the final $15,820 of the $75,000 income, it's taxed at a 29% federal rate. The total of all that is $17,310. The personal amount and the spousal amount—the non-refundable tax credits—are worth $2,959, giving a total federal burden of just over $14,000. You can add about $7,000 for provincial tax. The total tax burden for a $75,000 earner, whether he's married or not—because we have an individual tax system—is about $21,000, not $27,000, as you show on your chart. If we split it in two—

Mr. Thomas Schuck: That's with two children. I have a computer printout—

Mr. Paul Szabo: If you split it in two—$37,500—the same calculations show that an individual making $37,500 is going to pay—

Mr. Thomas Schuck: Wouldn't you agree with me that a single-income earner family supporting a wife and seven children, earning $75,000, pays more in taxes than a couple with no children and the same income? Are you disputing that?

Mr. Paul Szabo: The differential is $2,200, which is more than made up by the child tax benefit. Your figures are wrong. I'm going to sit down with you after this session and we're going to get your printout. You can show me your calculations—

Mr. Thomas Schuck: It went through Tax Prep, one of the largest computerized—

Mr. Paul Szabo: That's wonderful. I can assure you—

Mr. Thomas Schuck: I have a tax credit right there, $4,000 for the family of seven—

Mr. Paul Szabo: —I can assure you—

Mr. Thomas Schuck: —and that is subtracted from the tax bill.

Mr. Paul Szabo: —I can assure you that there is a differential and that the differential has more to do with progressive income tax rates than it has to do with children.

Mr. Thomas Schuck: Let's see if I can get it straight, though. Are you saying that a couple with no children pays more in tax than the single-income earner with seven children?

Mr. Paul Szabo: No.

Mr. Thomas Schuck: You're not disagreeing with that, are you?

Mr. Paul Szabo: All I'm suggesting to you is let's forget about any children at all in this equation.

Mr. Thomas Schuck: Well, I think we're talking about children.

Mr. Paul Szabo: A $75,000 earner is going to pay more tax than two earners making $37,500 each.

Mr. Thomas Schuck: And what I'm saying is that if he's supporting nine people, it's patently unfair. And if your vision of fairness causes you to reject that premise, well then of course I'm in difficulty.

Mr. Paul Szabo: I hear you and I understand what your complaint is with regard to the progressivity of the tax rate, not with regard to the children. That's how I read it.

The Chairman: I think that'll be the last time I'll allow you two to split your time. You've taken twice as much time.

Mr. Schuck, from your presentation I understand that you're in agreement with the child care expense deduction in principle, as a legitimate deduction, are you not?

Mr. Thomas Schuck: I don't have any real complaint against that, no.

The Chairman: So if we're trying to get assistance down to the child level, whether it's in the form of a tax deduction—

Mr. Thomas Schuck: To the family.

The Chairman: —or a credit, what do you think the appropriate amount should be in order to make an impact at that level? We heard testimony before that the disability exception, for example, translates to about $400 a year, and some people seemed to shrug that off as being insignificant.

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I'm trying to get a feel for what you feel we should do as a government to make a significant contribution, in terms of concrete tangible amounts that we could look at.

Mr. Thomas Schuck: I'll start off with saying you should allow some income splitting, allow a husband to write a cheque to his spouse and give her a T-slip, so she reports some of it and he gets the deduction. But if we set that aside, then I think you need substantial deductions for children.

I guess instead of pulling figures out of the air, an appropriate way of handling this would.... Just take a look at Statistics Canada and see how many parents think they can raise four children. After you look at those figures, consider setting the deduction for a child at $4,000 or $6,000. Then you can come back in five years and see if it's made any difference to the fertility rates in Canada. If it doesn't, you know you are not giving enough of a—

The Chairman: It won't make a difference with fertility rates. In Quebec, $8,000 was given as outright cash for the fourth child, and it didn't make any difference to the fertility rate. These programs we know won't work.

Mr. Thomas Schuck: That's right. Well, as soon as I had my last son they cancelled the family allowance, and I was going to insist on the money up front before I had another.

The Chairman: All right. I guess it's the principle that we will take home with us, and we'll try to work out some of the details.

Mr. Thomas Schuck: I think it has to be a rather significant deduction to make up for it, so that you do not end up in a situation where large families pay more in taxes than couples who are childless.

The Chairman: That's where the dilemma lies. If we're going to give $1,000 in tangible benefits to a family per child—

Mr. Thomas Schuck: Yes, but you're not giving anything. You're just allowing the parent to keep the money to raise his own children.

The Chairman: But the thing is no matter whether you do it in a credit or a deduction, the tangible amount the people have in their pockets.... If we were to give the $1,000 in a tax credit, for example, a refundable credit that directly goes to the family, that's a major expense—$7 billion—and I don't think we have the wherewithal to be able to sustain that. That's all I'm getting at.

Mr. Thomas Schuck: Right. And I might say that maybe you have to focus on whether or not you want Canadians to have children. You can't rely on immigration forever to keep our population steady. Once you determine that children have value, then maybe you'll bite the bullet and take the half billion dollar hit.

The Chairman: Okay. Thank you very much for your presentation again.

I'd ask Mr. Guy to begin. Mr. Guy is a team leader in asset optimization from Numac Energy Inc., but he's here as an individual. I welcome you, sir. If you could make your presentation and allow for some questions at the end, I'd appreciate it.

Thank you.

Mr. Kerry S.B. Guy (Individual Presentation): First of all, let me say thank you very much for allowing Canadians this opportunity to provide input on what I think is an important issue. I guess I'm testimony to the fact that if you send enough e-mails to enough MPs, you'll eventually get an invitation to come and speak at one of these forums. However, I think you're going to get a little bit of the same medicine you received a few minutes ago. I think I know some of the response already, but I will proceed anyway.

I do want to point out that my title was listed in the documentation, but I am here as an individual and do not represent any organization, simply myself. We do represent a single-income household, me, my wife, and two teenage daughters. My presentation today won't take more than five to ten minutes.

I'm just going to deal with two issues today, and you've already heard one of those issues. I'm sure you've heard more in the past and you'll hear more in the future.

The first is a pretty widely known issue and it deals with the overall level of taxation of one- versus two-income households. While at first this does not appear to relate directly to the dependent children issue, in practice it very much does, as in the case of my own household. My wife was employed full-time outside the home before we had children, but upon arrival of our children, she became a stay-at-home mom, now not employed outside the home, and is functioning as the primary caregiver of our children.

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This is certainly a choice we have made in our household, and I'll point out today that I believe the existing tax structure provides an inequity relative to households where it's been decided that both spouses will work outside and third-party child care will be used to raise the children. I think a single-income family has an inequity situation there.

The second issue I'll deal with, which I've found in my discussions with colleagues and peers, is the lesser-known issue of retirement planning within the family unit, where you have a single-income earner versus a two-income earner, and that's the inequity that today's RRSP rules impose upon households such as mine, specifically single-income households.

To demonstrate the point I'd like to make, I've modelled three types of households. Now I have to tell you I am an engineer, not a tax accountant. I used my CANTAX program to draw me a picture and that's the picture I'm going to present to you today. The only things I have modelled are gross family income and child care expenses. I have looked at three sorts of households. I represent household A, being a single-income, four-person family with two dependent children. We do not have any child care expenses in our household.

I modelled a second household of two equal incomes—perhaps that's not exactly correct, but that's what I modelled for purposes of demonstration—with two dependent children and no child care expenses. In my example, I have two dependent children, but they're both teenagers, so even if my wife were to work, I wouldn't have child care expenses.

Household C would be two equal incomes, again adding up to the same total household income, two dependent children, with child care expenses of $7,000 per year.

What I've presented in the way of a chart is just the total federal tax burden and child care expenses for a varying number of household incomes. Specifically I have presented $30,000, $40,000, $50,000, $75,000, $100,000, $125,000, and $150,000 of total income. Just by way of an example, household A at $50,000 would earn an entire income from a single source. Household B would earn that source from two $25,000 incomes, but incur no child care expenses. Household C would earn the $50,000, again by way of two $25,000 incomes, but also incur $7,000 of child care expenses during the year.

It can be seen that at lower income levels, below $75,000 of total household income, if child care expenses are incurred to earn the income, even with the current deductions allowed for such expenses, the household has a higher burden when you look at just federal taxes and the child care expenses themselves, than a household with no child care expenses. It doesn't matter whether the income comes from one source or two sources; it would appear that those families are worse off. I also admit that is not a conclusion I was going to try to make here today because it doesn't affect me personally, but I felt it was a very significant one that was worth pointing out.

At higher income levels the situation is somewhat reversed. Single-income households pay significantly higher taxes—as was debated in the last witness account—than two-income households, even when you take into account that child care is provided by a third party. This chart, of course, is limited only to the federal tax system. However, since most, if not all, provinces are currently basing their own tax payables as a percentage of the federal, the inequities at higher incomes are further widened if you look at total tax, which I've presented on my next graph.

I've used a rate of just 50% of federal tax there. That would be overstating the total tax payable in the province of Alberta, but would be understating it in other provinces, such as Newfoundland and Labrador, where the percentage is much higher. I refer to those provinces because they're the only two I've ever lived in and paid taxes while I lived there.

It's in considering this total tax situation that the plight of the single-income household can be more fully understood. After all, when we fill out our tax returns, we are only concerned with the final bill. We really don't care who takes what dollars; we're just concerned about how many dollars we have to pay in total.

The higher dual-income household has a significantly lower overall tax burden than a single-income household. My CANTAX program told me that at $50,000, one way or two ways, the tax saving is $3,000 annually. At $100,000, it's $7,000. At $150,000, it escalates to almost $10,000.

• 1405

Keep in mind that this is not an issue of rich Canadians versus poor Canadians. This simply says that if two members are working outside the household while paying a caregiver, they are significantly better off than a single household where it has been elected to leave one spouse at home, perhaps because of the luxury of having a higher single income, as the primary caregiver, all other things being equal in terms of total income. That represents a significant inequity.

The second issue I would like to speak to today is retirement planning. I believe current RRSP rules favour dual-income households with dependent children, as opposed to households where the decision is made that one spouse will remain at home and look after the children. This issue really only affects households where total income rises above $75,000, because at that level the single-income earner has an RRSP contribution limit cap of $13,500. Beyond that, if you wish to save additional for retirement for both spouses, you must do so outside the registered RRSP program, where you receive no tax benefits and capital growth is taxed as income.

To model this—engineers love models—I've pretended that most households strive to save 18% of their salaries. I know we do, but perhaps not all households have that luxury. In my model I've taken each of those families at various income levels, sheltered as much as possible in registered programs, and then reduced the total cost of those savings by the tax benefits that will be payable to the families, or rebatable to the families, by way of them making RRSP contributions.

As you can see, the total cost to save this 18% level significantly favours dual-income households as soon as household income rises above $75,000 per year, and the inequity increases the higher you go. It should be noted that this is in addition to the already higher tax levels the single-income earning household has to endure at these higher income levels.

In summary, I've made three points today as I see them. First, at lower income levels, households with child care expenses are significantly worse off than households with identical incomes and no such expenses. The tax deductions that are provided for child care do not offset the cost of child care.

At higher income levels, single-income families are worse off than dual-income families earning identical total incomes. Also, in higher income households, the current RRSP contribution cap results in inequitable treatment of single-income households, when compared to dual-income households. Again, I stress that's only the case for higher income households.

In conclusion, while I know that the intent of the subcommittee is not to evaluate whether or not Canadian families are better served by having a stay-at-home primary caregiver—and I certainly couldn't present the hard evidence today to indicate so anyway—I do believe it warrants stating it is unfortunate that the current Canadian tax structure provides such significant incentives for Canadian families to make a choice to have both parents work outside the home, even if it means that child care must be contracted out to a third party.

That concludes my presentation.

The Chairman: Thank you very much.

Five minutes, please.

Mr. Paul Forseth: In your various models, did you perhaps try to cite a variety of examples where you actually compare apples with apples rather than apples with oranges? Let's give the scenario here of comparing a single-income family with a single-income family. The problem, as I outlined to the previous presenter, is a lot of the inequities have to do with single-income couples versus dual-income couples with no children involved between the two, and the 17%, 26%, and 29% rates, depending upon what each of those earn.

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It's because of the progressive tax situation that we get those disparities between a $100,000 household with a single earner and no kids and another $100,000 household with dual earners, where maybe the second income is just a part-time income that's only at 17%, depending on where the cusp of the second income is and whether it's on the different rate.

The thing is to factor those out, discount that and see if we want to try to get at valuing parenting and looking at the various permutations that are available when children are involved. You have to discount all the disparities, you might say, that are available because of the progressive tax system.

So we've come to basically the same question I've asked the others. We have this child care expense deduction for the second earner to go out and earn an income. They have kids at home, so they purchase day care. It's easy to calculate that because there are receipts. It's a purchased service.

Some people are asking how, on the flip side, do we value or attribute money or whatever to a parent who, instead of purchasing the service, does it themselves? How can we somehow give recognition to that style of child care? In other words, there shouldn't be tax differentials or whatever just because of the choice of the style of child care chosen. Have you come up with anything in that regard?

Mr. Kerry Guy: That was not an example I modelled. If I could just reiterate so I understand, you're really talking about a single income with most of the income earned by a single spouse and whether or not you would be better off to have additional deductions so a second spouse could stay home, versus having that spouse going out and being employed and purchasing third-party child care. Is that what you're really talking about?

Mr. Paul Forseth: Yes. The problem is we have two sectors to the issue of differences in tax paid. One has to do with the progressive tax system, dual income versus single income, and has nothing to do with children at all. There is a tremendous difference there. When you throw on top of that the mix of child tax benefit, the expense deduction, parental leave on EI, and all the rest of it, it gets much more complicated.

So in your projections, you have to try to discount the front side of it, which perhaps is the greatest monetary difference, and try to at least look at the provisions that are provided for parents, so there is no disparity just because of the style of child care chosen, whether it's purchased or non-purchased. That's something I would like to focus on.

Mr. Kerry Guy: I agree with you 100% with respect to valuing the choice of one parent to stay at home to be the primary caregiver. I think of my own situation at my income level, which is in excess of $100,000 per year. At this time I get no child deductions whatsoever, so whether I had dependent children or not, I would pay the same amount of tax. However, my wife's decision to remain at home was specifically made on the basis of providing child care to my family. So at this time, we really don't see any compensation for that decision. If she had decided to work outside the home, that would be different.

Mr. Paul Forseth: So after your kids have left home, if you were self-employed or had a company, you could arrange to pay $18,000 to your wife and take less for yourself. Then you would be a two-income family. But she will be paying tax at the 17% rate, whereas you'll be paying at the higher rate. So the total household tax you will pay on $100,000 will be less than before you rearranged your affairs, when you were receiving the same amount of money but only in your own name.

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So that's really where the disparity comparisons are in your model here, and the model really has nothing to do with children. The child provisions just add into the complicated part of the mix. So we're looking for some advice, at least on the child side.

Mr. Kerry Guy: Okay.

Mr. Paul Forseth: You might want to consider that and maybe send us something further. It's fairly obvious what's on the front end, and the only way to fix that is through a high basic personal exemption and a flat tax, which is perhaps beyond the scope of this committee.

I'm finished, unless you have a further response.

Mr. Kerry Guy: No.

The Chairman: Okay.

[Translation]

Mr. Cardin, please.

Mr. Serge Cardin: I am sorry, I had to leave for a moment. My comments will probably not do your document justice.

In your first table, you gave an example of three families: one with a single income, the second with two incomes and child care expenses and the third with two incomes but no child care expenses, and you compare the total cost of taxes and child care expenses.

For a family with two incomes and two children, the cost is higher when there are child care expenses, but eventually, the costs are the same. If we speak about an income of approximately $100,000, the costs are pretty much equal.

I would have to say that there would be some unfairness if one tried to share income fairly. Two spouses have no other choice but to work with an income divided fairly between them. The family does not have a choice; there may be a single income of $100,000 or two incomes of $50,000 totalling $100,000. People often have different incomes. I do not think that the fact of trying to show it as a total income divided by two proves the unfairness of the system.

Here we end up with the same amount. The couple would not have the choice of changing their income, even if they had a single income. At a certain level there is no longer any choice. Eventually we come face to face with realities which have to be accepted.

I will move on from this so-called unfairness in the system. We know that it is simply due to the marginal tax rate which should be found in direct assistance to children. As I have said earlier, there should be more realistic exemptions for people who work, for those who stay at home and for children who need support, whether it is provided by a spouse or by child care services outside the home. That is what I think. I would like your comments on this matter.

[English]

Mr. Kerry Guy: I'm getting a general gist of what the reactions are from the subcommittee. I guess my reaction is that I feel there's insufficient credit given in the current tax system for a decision to have a spouse stay at home. Again I'm not a tax expert. I can't sit here and say there's this loophole in the tax system, this credit should be greater, or there should be this deduction over here.

It's just that when I look at the standard of living my household has versus other two-income professional income households with child care, I just know I'm behind the eight ball more than they are. That is an inequity, and I'm not exactly sure where it has to lie. Perhaps it lies specifically with looking at the dependent children in the home and asking how we fully value the fact that a stay-at-home spouse is making that decision and that this family does not have to pay a significant amount of money for making that decision to have one parent stay at home, versus having to contract out child care. That's really the crux of my argument. We seem to be a little caught up in the fact that I've chosen to model single-income versus two-income families, and I understand your comments in that regard.

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The Chairman: Mr. Herron, please.

Mr. John Herron: The whole issue really comes down to the issue of fairness. You don't want to perceive that you're paying into a national taxation system and that certain families receive a deduction, a credit, or a benefit and certain families don't. That's one of the issues in terms of the child care expense deduction.

The system should actually promote choice. If one family says it's better to provide direct parent care, that shouldn't be penalized. And you shouldn't be compelled to do it another way in that regard.

You'll hear perhaps from some other colleagues that one in three persons who are eligible to claim that deduction actually do. What they usually end up claiming on average is a net benefit of about $2,600. That means they usually benefit from about $700 actually in their own pocket.

So the debate is that this is a children's issue as opposed to an income issue. Perhaps it's better to provide a refundable tax credit similar to what we have in terms of family allowance so that families with dependent children benefit to the same degree. That's a debate we can actually have. What's your impression of that?

Mr. Kerry Guy: I'm not exactly sure I followed your question. If your question was specifically about whether a tax credit for dependent children is a solution, that's one step towards a solution. It doesn't solve my second issue, which is a bit of a sticky point with me, and that is the decision to have a stay-at-home spouse to look after my children. I believe it is a children's issue.

Mr. John Herron: It is.

Mr. Kerry Guy: My ability then to plan for retirement for that same spouse and myself is encumbered by that decision versus having her go out to work and pay for third-party child care. She would then have an ability to contribute to an RRSP. That's something the current system does not allow.

Mr. John Herron: On that same note, with respect to the income-splitting debate that has been talked about throughout the process, something that has come to light is that one of the reasons why people don't favour income splitting is because it's considered to be progressive in the fact that it benefits people in the middle to the upper end of the taxation system.

However, there are certain situations where professionals—it's not every doctor, it's not every dentist, but those kinds of professionals—will end up having their spouse on the payroll. And they get to be income split and middle income Canada; family Canada doesn't get to do it.

Mr. Kerry Guy: That's correct.

Mr. John Herron: The Department of Finance said it would cost about $4 billion for us to provide income splitting with—

Mr. Kerry Guy: Was that all families or just families with children?

Mr. John Herron: Good point. I don't remember.

The Chairman: So what's the question then?

Mr. John Herron: The Department of Finance had $4 billion for income splitting. Is that only when children are engaged or—

The Chairman: No, that's for all.

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Mr. John Herron: So having said that, this doesn't seem to be that excessive a tax break compared to some of the things we're discussing. You said before that you thought the committee wasn't keen on that concept. I for one am a little more keen on it than unkeen, if that's a permissible way to say it.

The Chairman: Okay. Did you want to comment on that, Mr. Guy?

Mr. Kerry Guy: Do you mean with respect to the mandate of the subcommittee?

Mr. John Herron: You're concerned when you're actually comparing things to your neighbours. Is it the income splitting or do you think that would provide more equity with respect to your neighbours? Is that something you'd be interested in? Would you have thought the system would be more equitable if that were permitted a lot of the time?

Mr. Kerry Guy: If it means that my family's decision to have one spouse stay at home to look after the children as opposed to farming out to a third party for child care...then I would be interested in that. To say I'm interested in income splitting for the sake of income splitting could be construed as saying that if there were no children involved, this is my way to have one person stay at home and do nothing.

So to me, income splitting would be one step towards it, but even I would acknowledge that such income splitting just couldn't be done across the board. It really has to be along the lines of valuing the family's decision about how we're going to arrange our household to look after the children.

Mr. John Herron: Okay. Thanks.

The Chairman: Thank you, Mr. Herron.

Mr. Szabo, please.

Mr. Paul Szabo: Thank you, Mr. Guy, for your presentation. You heard the previous dialogue, so we're not going to go into comparing family incomes. When it gets down to it, the thing that ordinary Canadians understand is that if two parents work there is a tax deduction. The child care expense deduction is worth something. It helps them put a little more money in their pocket. If it wasn't there, they would have to pay a little more tax. So there's a perceived benefit. The actual benefit to families is a lot lower than it could otherwise be, because very few people claim as much as you're allowed.

So they've asked us for two things. One is to please tell us that you recognize or acknowledge the value of unpaid work or the fact that we're doing something there and it's entitled to a little bit of respect. That's more a social acknowledgement.

The second part is we really should level the playing field. If they get a benefit to help with their child care costs, shouldn't we have some modest recognition? I guess the question to you is that if that tends to resonate to the question before most Canadians, do you think a stay-at-home parent who forgoes an opportunity to earn economic gain and other things should be acknowledged socially and economically by some benefit, even if it is just $500?

Mr. Kerry Guy: I don't know if I would be prepared to agree that a certain dollar figure would be appropriate. Certainly, I concur with your observation that I believe the stay-at-home parent should be acknowledged socially. I find it rather disturbing that my wife cannot contribute to an RRSP. I can contribute to her RRSP, but it's part of my deduction, whereas if she were to go outside and work and contract out third-party day care, she would be afforded some ability to pay for her retirement. When we're old and grey and living in a trailer park in Kelowna, we're going to have the same expenses as anybody else.

Mr. Paul Szabo: I agree with you. Determining what the number might be...$500 is just to throw out a number. We know there is a caregiver benefit for those who provide care to an aged parent. That was introduced a year ago, and it's worth approximately $400 in your pocket. So we know that for this kind of thing we would say okay, perhaps it's in the ballpark as a starting point, as an entry level, until we see how our fiscal situation is going. It could be at least a benchmark against which to compare.

With regard to the RRSP, obviously, if you have no earned income it's difficult to determine or impute what level of RRSP you'd be eligible to buy. Even if you could buy RRSPs, you have no income against which to deduct it and get the deferral of taxes.

• 1430

What you're saying to us is that unpaid work should be recognized as work and it should in fact create an opportunity to provide for pension income.

Another way to achieve this other than through RRSPs might be to allow a stay-at-home parent to earn credits in the Canada Pension Plan system and to buy them when they re-enter the workforce or when the children leave the nest and the family has a little more disposable income. Perhaps they would be able to purchase past years of service and in fact effectively earn pension benefits through the existing Canada Pension Plan.

Mr. Kerry Guy: That's certainly one way, yes.

Mr. Paul Szabo: Do you like that?

Mr. Kerry Guy: Do I like that?

Mr. Paul Szabo: Let's put it this way. If we were to say to stay-at-home parents that we're going to give them a chance to ultimately participate in the Canada Pension Plan, do you feel that would be a recognition of the value of their work in saying that this unpaid work is in fact work?

Mr. Kerry Guy: I would agree with that with one proviso. I'm 25 years from receiving my Canada Pension Plan, and I don't really think I'm going to see it at my income level.

Mr. Paul Szabo: You know that changes were made. Today's pensioners actually receive $8 for about every $1 they put in. We've provided very generous benefits because we've had a lot of workers for a low number of retirees.

As that changes, obviously, the burden becomes heavier and they have increased the pension contributions. The actuarial report, as you should know, came out. The chief actuary provided a report. In fact, the premium schedule has been prescribed to keep it whole so that you get all your money back, plus a 3% to 5% return, depending on how well the investment fund does. So the actuarial report says it's healthy, provided we do the premium schedule that's been proposed.

With that proviso, granted...I know I hear it a lot that we have unfunded liabilities in there, but it's only because when the plan started during the Depression years, people didn't provide for any retirement income, and couldn't. When they retired in the 1960s they had nothing. So today's workers give them something for nothing and that's why we're always refunding it on an ongoing basis.

I appreciate your thoughts, though. It's useful, and I think we're probably on the same wavelength.

The Chairman: On behalf of the committee, I'd like to thank you for your presentation. Your input is very valuable, and we look forward to mulling over some of your concepts and massaging more directly some of your numbers. We will certainly take your viewpoint to heart. Thank you very much.

Mr. Kerry Guy: Thank you very much.

The Chairman: Would Mr. Frankel come up, please.

Our next guests from the Social Planning Council of Winnipeg are assistant policy analyst, Mr. Scott DeJaegher, and board member, Mr. Sid Frankel.

Welcome, gentlemen. Is there going to be one presentation or two, or will you share it?

Mr. Sid Frankel (Board Member, Social Planning Council of Winnipeg): We'll share it.

The Chairman: I'd ask you to restrict it to about 10 minutes so we'll have plenty of time for questions.

Mr. Sid Frankel: We're very pleased to have the opportunity to provide our point of view to you this afternoon. In fact, we hope this subcommittee's work represents a first step in examining the many issues of fairness in Canada's taxation and transfer system.

We feel there are important issues of horizontal equity in the treatment of families contributing to the social good by caring for children, elderly, or disabled family members who are bearing costs that might otherwise have to be borne by a public authority.

We also feel there are important issues of vertical equity in the degree of progressivity in our taxation and transfer systems that should be considered in an effort to enhance fairness.

As a council, we're very concerned that the idea of across-the-board tax cuts will decrease the fairness of the system by differentially benefiting high-income earners.

We'll focus on three aspects of fairness. First, the taxation and transfer system should equalize the developmental opportunities of children in lower income families towards those in high-income families.

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Second, child rearing should be recognized as a socially useful enterprise, and therefore the situation of families with and without children at similar income levels should be equalized.

Third, the additional costs of parents who choose to work should be recognized, not as an inducement to work but as a recognition of additional costs not borne by families in which parents are not working.

We'd like to begin with an acknowledgement that the Canada child tax benefit has made a significant and major contribution in equalizing the opportunities of many children growing up in low-income families. However, we'd like to join with the National Council on Welfare in identifying some unfair treatment of some family types under the benefit.

First, there is discrimination on the basis of source of income. Due to the taxing back of the benefit from welfare recipients in all provinces except Newfoundland and New Brunswick, only 36% of families with children at eligible income levels received the benefit in 1996. This discrimination occurs because of the desire to equalize the use of government transfers between the working and the welfare poor in order to limit disincentives to work. We feel, however, that the overriding fairness issue involves equalizing the income-related developmental opportunities of children, regardless of the source of income. This is the kind of fairness that speaks to limiting the lifelong cognitive, social, and emotional effects of child poverty. It's the very purpose of the benefit, and it will yield the future greatest dividends to society.

Furthermore, research on the guaranteed income has found the presence of only very small disincentive effects, and largely for second-income earners. However, we do agree that the working poor should be the target of an increased public investment that may involve an earned income supplement, higher minimum wages, more generous day care subsidies, and so on.

Secondly, this discrimination on the basis of source of income results in discrimination on the basis of family configuration. Again using estimates from the National Council on Welfare, only 17% of poor, single-parent households receive the benefit as opposed to 59% of poor, two-parent households. The situation is even worse for non-parental caregivers. Only 9% of them receive the benefit.

Third, since more than 90% of poor, single-parent families are headed by women, this effectively constitutes discrimination on the basis of gender.

Fourth, a particularly troubling form of discrimination on the basis of source of income should be looked at. Even families with earned income are ineligible for the benefit if they receive any welfare income at all. We feel this makes no sense.

More generally, looking at the benefit, we would like to argue that the capacity of the Canada child tax benefit to equalize the developmental opportunities for children of families at lower income levels is seriously limited because the benefit levels are not income eligibility thresholds or indexed to inflation. This will become a less effective instrument of fairness as inflation accumulates year over year.

Finally, we're concerned that the benefit is not comprehensive enough or large enough to have the necessary impact in equalizing opportunities for low, modest, and middle-income families. In this regard we support the Campaign 2000 recommendation of a benefit of $4,200 per child, reduced after $18,000 quite drastically by 10% to 30%, depending on the number of children.

I would now like to move to an issue you've talked about with the last couple of presenters and also this morning.

We believe it's fundamentally unfair to tax families raising children at the same level as families without children receiving similar incomes. This is due to the expenses accrued in child rearing and the social necessity of the activity. Therefore, we support a universal element, like a universal deduction, available to all families raising children. Such a deduction would involve an important symbolic element, recognizing the responsibility of all Canadian society in supporting the development of our main source of replenishing the population. It also will have a practical impact, especially at lower income levels. If it is introduced, Canada will no longer be the only industrialized country that does not recognize the need for this kind of horizontal equity in the taxation system.

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We would support the maintenance of the child care expense benefit. It is equitable recognition of an additional out-of-pocket cost to working parents that is not experienced when one parent remains at home. However, we are sympathetic to the issue of unrecognized and unremunerated work within the family related to child rearing, homemaking, and so forth. We don't, however, think this calls for ignoring the legitimate costs of working, but rather calls for a comprehensive examination of how we can socially validate useful work not remunerated in the labour market.

We think this will become a larger and more important issue as our economy continues to change. It hasn't changed quite as quickly as the Rifkinesque thinkers thought it would, but I think we are moving to a situation where paid labour will have a less important role. So we'd like to see this consideration include voluntary work in the community as well as non-remunerated work in the family.

Scott.

Mr. Scott DeJaegher (Assistant Policy Analyst, Social Planning Council of Winnipeg): I'd just like to pull some recommendations from that. I'm going to be brief in the interests of time.

We'd like to recommend, first of all, that the current child tax benefit be applied to all low-income families regardless of the source of their income. Families who obtain all or part of their income through social assistance should gain full access to the benefit without a corresponding deduction in the provincial welfare rates.

Second, in regard to the issue of inflation, we suggest that the Canada child tax benefit payment eligibility test be fully indexed to allow the system to be most effective in providing equal opportunity for low-income families and their children.

Third, we would like to suggest a more comprehensive child tax benefit be introduced that would attempt to equalize the developmental opportunities for children in poor, modest, and middle-income families with those in upper-income families. As to the rate of decline in the amount of the benefit based on family income, we'd also like to see this adjusted to allow for a slower decrease in rates as income rises.

The next recommendation is that the child care expense deduction be retained for families in which all parents are working, recognizing this as a legitimate cost of earning income.

The second last recommendation is that issues of socially recognizing non-remunerated volunteer, community or family work be the subject of a comprehensive review.

Finally, as already mentioned, we'd like to lend our support to a universal deduction for all families raising children. This would be recognition of the symbolic and socially useful value of being a parent in today's society.

Thank you.

The Acting Chair (Mr. Paul Szabo): Thank you very much.

We'll start with Mr. Forseth.

Mr. Paul Forseth: On page 6, I'm looking at the recommendation that the child care expense deduction be retained for families in which all parents are working. Child care expense deduction is obviously for child care that is purchased and for which there are receipts.

You heard my questions to previous presenters about how to socially recognize the flipside of that coin. Just because a parent chooses the style of day care, there's a significant financial implication to that. If you put your mind around that to somehow.... You may not fully compensate, but somehow you may come up with a mechanism to also recognize that child care choice.

Mr. Sid Frankel: In a way, I think we'd agree with one of your presenters this morning who talked about the technical difficulty of assessing parental activity. For example, a parent and spouse who stays at home to care for a child is doing more than child care. They are maintaining a home, etc. We would argue that these, in essence, are best considered as two separate problems: the problem of recognizing the social benefit of caring for children, so we think there should be some universal element, perhaps a deduction.... But thinking about staying home as a child care choice, we don't think is technically valid, if you will.

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Mr. Paul Forseth: What do you mean by technically valid?

Mr. Sid Frankel: In the sense that, first, it's hard to believe that families really make that choice, in terms of one way or another, to care for children as being the only element of the choice. Second, that a stay-at-home parent is performing a whole range of duties. Third, that the status and role can change, often quickly. So it seems to be difficult to think about how to technically connect recognition to the child caring activity per sé. However, we'd agree that there should be broad recognition for all families.

Mr. Paul Forseth: And the broad recognition would be done, technically, how?

Mr. Sid Frankel: We would recommend through a universal element, like a universal deduction for all families.

Mr. Paul Forseth: Can you give us a suggested number?

Mr. Sid Frankel: We really haven't done the work to come up with the number, I'll admit.

Mr. Paul Forseth: At one time we had $400 or $500, and we had a presentation earlier today about $6,000 per child, so there's quite a variance. But you're not in a position to suggest a number at this point.

Mr. Sid Frankel: I don't know if this is an answer to your question, but looking at the various policy goals here and where new resources might be allocated, first of all, income-related developmental inequity, we think, is the most important, and most new resources should go there. After that, we think there should be some recognition, perhaps at the lower range you're talking about, to the horizontal equity issue, to the issue that all families raising children are performing a socially necessary function.

Mr. Paul Forseth: Yes. It's just a matter of trying to get at the larger societal issue. If we start recognizing child care in an economic way, we've got to do it in a socially equitable way that recognizes the value of parenting and the value of caring for those children, not kind of pick some winners and some losers depending on other permutations. If you care for a child, you shouldn't be penalized because of the particular style of that care, whether you purchase some of it and do some of it on your own or whether you do all of it on your own. That's a somewhat philosophical plea from the community, and I'm asking you if there's any way of responding to that social concern.

Mr. Sid Frankel: In a sense, part of our argument would be that there are several elements to this. One element is the universal social benefit, and we think that should be universally recognized. Second, we recognize that parents who make the choice to go out to work do have a legitimate palpable cost that parents or one parent who chooses to remain at home doesn't experience. On that basis, we would—

Mr. Paul Forseth: Some would say they experience a tremendous cost in the income they forgo. But I guess that's part of the circular argument.

Mr. Sid Frankel: Yes.

Mr. Paul Forseth: Okay, I'll leave it at that for now.

The Acting Chair (Mr. Paul Szabo): Mr. Cardin is going to be our next questioner.

[Translation]

Mr. Serge Cardin: I will not go back over everything which has been discussed today. You are opening the door rather wide, however, when you talk about the unpaid work of spouses who remain at home—although, of course, we have been hearing about it since the beginning of these consultations. You are opening the door even wider when you talk about recognizing volunteer work.

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I was an alderman for 12 years in a town of approximately 75,000 inhabitants with a budget of close to $100 million. At the time I was involved in community recreation services, and we tried to calculate the value of the volunteer effort. If we had paid those people even minimum wage or less, the amount would have been considerable and our town would never have been able to pay it.

You are really opening the door rather wide. I am wondering what happens to the spirit of giving to society, of giving of oneself, of love for one's neighbour and, to get back to the family, the love of one's children. Essentially we are trying to define basic values in terms of dollars. What do you think of that?

[English]

Mr. Sid Frankel: I have two responses. First of all, we would argue that the main issue you're dealing with, unremunerated child care work at home, is just one example of a whole class of unremunerated work that's socially beneficial, and that it should not be considered in isolation. It's not even the only kind of socially beneficial work that occurs within the family context.

Secondly, we'd argue that this is a door that should be at least notionally opened at this time. It's a difficult problem that should receive careful consideration, and we realize the gravity of trying to make these kinds of suggestions of how to value and recognize work, which is not valued in a labour market. However, as I said, the Rifkinesque scenario has not happened quite as quickly as the Rifkin thinkers thought it might. But we are moving slowly, gradually, we think, to an economy where wage labour will become less and less important, and we're really seeing that in the long term we have to think about what the role of the voluntary sector and the family may be in terms of being the context of labour in the future.

[Translation]

Mr. Serge Cardin: In your opinion, the trend is to move away from paid activities towards activities which are increasingly social. We hear a lot said about savings nowadays. That is what we hear most often. Nevertheless, we must not neglect social values.

When you talk about paid volunteer work for people caring for their children, practically speaking, it is all part of this great family. If adjustments or interventions are necessary, apart from certain technical adjustments, for example the possibility of contributing to an RRSP for the spouse who stays at home or of being covered by the Canada Pension Plan or the Quebec Pension Plan, it becomes increasingly clear that this must be done in terms of the children and their needs, and that parental participation will always remain a choice. People who want to stay at home have to make a choice between important basic values and economic values. We know that both may be present because you still have to have the means to support your children and educate them.

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You seem to be indicating that measures should be aimed rather at the children. There could also be technical elements for parents who stay at home.

[English]

Mr. Sid Frankel: I certainly can't disagree. As I said, I think this is a very large issue, and perhaps the place to start looking at the value of unremunerated work is as it affects children. And of course it affects children, both within the family and outside the family, because much community-oriented voluntary work is also aimed toward children.

[Translation]

Mr. Serge Cardin: You are talking about universal deductions. Taxation itself is the redistribution of income by managers and leaders. You seem to be saying that there should be universal deductions, whatever one's income level, rather than credits which would decrease according to family income. As a result of this, taxes are said to represent the fairest possible way of sharing personal income.

If we had universal deductions, without taking into consideration the income, we would have to make up the difference somehow because people with higher incomes would benefit from greater deductions. There would have to be taxes to pay for these universal benefits.

Do you have any comments on that?

[English]

Mr. Sid Frankel: Yes. We recognize that this is a difficult problem, this trade-off between horizontal and vertical equity. We're simply saying we think there should be some element that benefits all Canadians regardless of income and that becomes a substantial element in their household economies. So we understand that this kind of horizontal equity does have a cost, and we think it is a reasonable thing to do to acknowledge this principle.

[Translation]

The Chairman: Mr. Cardin.

Mr. Serge Cardin: I have no other questions.

The Chairman: Mr. Herron, you have the floor.

[English]

Mr. John Herron: The concern I have is on page 2 of your draft. You have three principles you want to follow, the third of which is

that the additional cost of parents who choose to work should be recognized, not as an inducement to work; but as a recognition of additional costs not borne by families in which a parent is not working.

To be consistent, you go on to have as one of your principal points that you support the maintenance of the child care expense deduction.

How do you square this with those who say that—and I know you're trying to have as much equity and fairness as possible, especially for those people on the margins of our society—the individuals who benefit most from the child care expense deduction are people who are likely to be more affluent in terms of actually claiming the actual deduction itself? Also, from a fairness perspective, what about the folks who are perhaps forgoing a second income and don't receive any kind of financial reward for the raising of their children?

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Mr. Sid Frankel: Again, our view would be that the different elements would have to be implemented to serve the different elements of fairness. So, for example, if some of the progressivity of the system is lost because of the child care deduction, we think the solution lies perhaps in more progressivity in the basic tax rates. If there should be acknowledgement, and we think there should be, of the social benefit of raising children, we would support some universal element that recognizes this. I realize there's a complex set of equity goals here, and we think there will have to be this kind of complex mix of elements.

Mr. John Herron: So you would support aiding those parents who have one parent work inside the home and one parent work outside the home by having an additional complementary universal system.

Mr. Sid Frankel: Universal in the sense that it would be a system that would bring benefits to all families raising children, yes.

Mr. John Herron: Thank you.

The Chairman: Thank you.

Mrs. Dockrill.

Ms. Michelle Dockrill: Thank you.

First, may I say thank you very much for your presentation. I think one of the things I was glad to see was the fact that you were very inclusive of single parents. I think sometimes we've gotten a little bit off track in terms of thinking there are only two sets of families in this country—one-wage earner and two. So I thank you for that. I think it's very important.

Along that line, given the recent figures we've seen with respect to the increase in child poverty—and we've heard various comments from my colleagues here that this is really an issue about children—when I look at the figures you have here, 90% of poor single-parent families are headed by women.

You talk about the discrimination on the basis of welfare income. Do you have any other suggestions within the present tax system and transfer system that you feel need to be addressed in order to help eliminate child poverty? As we know, child poverty has a direct relationship to women who live in poverty.

Mr. Sid Frankel: Now we're dealing with a complex problem, I think, that can only be partially dealt with in the tax and transfer system. As you see from our presentation, we were very glad to see the introduction of what was the child tax benefit and now is the national child tax benefit. We were very sorry about some of the elements that lead to the benefit not making enough of an impact on child poverty. Of course, this is the announced purpose of the benefit.

We were most concerned with the fact that in most provinces the agreements between the federal and provincial governments have allowed the provincial governments to tax back welfare payments to the value of the child tax benefit. So the poorest of poor children, the children being most damaged by poverty, do not receive this benefit. This is a very major concern we have, and we're glad to see that two provinces have not agreed with the federal government to tax this back. We're very concerned with the eight provinces that have. This really does blunt the impact of the child tax benefit on the depth of poverty because it won't have much of an influence on the prevalence of poverty, but it can have a major influence on the depth of poverty. That's one major concern we have.

The lack of full indexation of both the eligibility test and the benefit is another concern, so this will become a less and less effective benefit over time. We'd like to see the benefit larger, of course. We'd like to see it have more of an impact on the depth of poverty. As an organization that's part of Campaign 2000, we would have liked to have seen the $4,200 maximum benefit. We think this is a good mechanism and we think it's a good start, and we should see it improved in these kinds of ways.

Of course, looking at the competing types of equity, we think this developmental inequity on the basis of income is the most socially damaging and the most important type of equity, and we hope the committee does look seriously. I think most of the other remedies we need to be looking at are remedies not in the tax and transfer system, but in the labour market and in the provincial social service systems, and so on.

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Ms. Michelle Dockrill: I have one more question.

In your brief, you also touch on parents and making the transition from welfare to work. We heard today, and on numerous occasions, that this is about choices and supporting Canadians in their choice. I think it's important to note that while we also support those parents who would prefer to stay at home with their children, we have to acknowledge that there are individuals who, given the opportunity to return to the workforce part-time, would like to do that.

Do you see the changes that have occurred over the last couple of years with respect to maternity and parental leave as enhancing that choice for women or hindering it, in terms of the flexibility?

There have been some presenters who have said, if given the opportunity following the birth of my child, I would have really preferred to have gone back to work part-time and still been at home with my child part-time. The sense I'm getting from those individuals is that the system is not there to support that.

Mr. Sid Frankel: Let me first look at the presumption upon which your question is based.

The notion of supporting choice is an income condition notion. Parents who are recipients of provincial welfare, single parents especially, do not have this choice, except when the children are very young. The programs require those women to seek work, and so on, so it's an income condition choice.

Looking at the larger issue for all women, for all men, for all parents, whether they be parents by adoption or other means, we think there should be a larger range of options, supported options, put into place. We have more and more evidence that enhancing the attachment of parent to child in the very early years pays off dividends for a very long time. We would think there is clearly a public interest in being able to support flexible arrangements upon birth of a child or entry of a child into a family through adoption.

Ms. Michelle Dockrill: We've all talked about the obstacles and recognize the inequities in the sense that there's not going to be one size that's going to fit all. Would you like to see this subcommittee be a stepping stone for a serious national child care agenda or strategy, the beginning of that process?

Mr. Sid Frankel: Certainly, and it's hard to remove the taxation issue from the child care issue, because of course these are simply different routes to delivering services to families. I think many of the issues you're considering as a subcommittee are better framed as policy issues related to child care, related to day care and early childhood enrichment, thinking of the taxation and benefit systems more as a means than an end.

Ms. Michelle Dockrill: Okay. Thanks.

The Chairman: Thank you, Mrs. Dockrill.

Mrs. Redman, please.

Mrs. Karen Redman: Thank you, Mr. Chair.

One of the questions I want to ask relates to something Mrs. Dockrill touched on, the taxing back of the welfare benefit and the fact that there are two provinces that don't. Federally, it's permissive that they do this, not demanded that they do it, and those moneys should be redirected to that same group of people.

You're nodding your head, so you're already aware of that.

On the fact that it is being seen to be a mechanism to not create a disincentive to work, I wonder if you would comment on whether or not in fact you think that is effective. If it is truly a disincentive to go to work, because you'd lose all these benefits, how can we as a government make it attractive to go back to work?

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Mr. Sid Frankel: I think we can look at it in a couple of ways.

First of all, evidence of the disincentive effects is greatly overplayed. So even when we look at the most careful experiments of the guaranteed annual income that had, given their times, in the 1960s and 1970s and into the 1980s, very generous guarantee levels, we see really quite a small disincentive effect. This fear of a disincentive effect for the welfare poor is really born of mistaken notions that the welfare poor are somehow different from everyone else. So I think the disincentive effect is overplayed.

I think there is an issue of supporting the transition from welfare to work. When we look at the issue of the transition and the disincentive effect, we have to remember that the best information we have is that one-quarter or less of those on welfare at any point in time are long-term recipients. Some are very short-term recipients. Some are cyclical recipients, in and out of the welfare system in the marginal labour market.

So we need to think of how to support more long-term attachment to the labour market, and we need to think of that in terms of supports that will override disincentives: maintaining medical benefits and medication benefits, which many provinces are beginning to do; providing access to child care, which many provinces claim to do, but the supply of subsidies is so low that in practical terms it doesn't occur; providing for counselling and social supports; and so on. There is evidence that this is a very good short-term kind of investment that will yield longer-term attachment, much better evidence than for workfare kinds of programs, where there is very poor evidence of the effect of those kinds of programs on long-term attachment.

Mrs. Karen Redman: Thank you for that.

Has the Social Planning Council looked at all at other aspects or vehicles available to the government, such as having at-home parents look at EI retraining funds when they want to go back into the workforce, again as a transition from being an at-home parent to being in the workforce, as well as possibly contributions to CPP?

Mr. Sid Frankel: No, we haven't looked at that in a concerted way. We will after today.

Mrs. Karen Redman: Great. Thank you very much.

Mr. Paul Szabo: On page 6 of your presentation, there's a recommendation for a more comprehensive child tax benefit that attempts to equalize developmental opportunities for children of poor, modest, and middle-income families with those in upper income families. It says:

The rate of decline in the amount of the benefit based on family income should be adjusted to allow for a slower decrease in rates as incomes rise.

To me, that seems to indicate that what we want to do is provide a greater opportunity for higher income earners to have some child tax benefit, which actually is contrary to the philosophy of the Canada child tax benefit, which is basically as a poverty measure.

Mr. Sid Frankel: We probably put that quite badly. There are points beyond which we don't want that benefit to stretch. Actually, we have done work on that and we can send you a more specific statement.

Mr. Paul Szabo: In the world, whatever the size of the pie, the more you give to somebody else, the less you have to divide up. So if you don't income-test things, although you may be equitable to all, you may not be hitting your social objective targets very efficiently.

Mr. Sid Frankel: We're certainly not asking for a redesign of the national child tax benefit away from an income-tested program. We're asking for a change to the income test so that the benefit is attenuated not to upper income levels but into middle income levels.

Mr. Paul Szabo: Thank you.

The Chairman: Thank you, Mr. Szabo.

Mr. Frankel, you support the maintenance of the child care expense deduction for all families, and you also espouse the universality of deductions, to be made available to all families raising children.

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I have a hard time as to how I can help you with your previous statement, that you believe it to be unfair to tax families raising children at the same level as families without children with similar incomes. To me, part of that discrepancy is attributable directly to the fact that one group has access to the child care expense deduction whereas the other one doesn't. As well, the majority of that discrepancy, in my opinion, would be attributable to the fact that we have a progressive tax system that taxes people on individual incomes as opposed to family incomes. How do we resolve all that to make your frustration less evident with regard to the unfairness, or your perception of it?

Mr. Sid Frankel: Point taken. I think that sentence is badly put. We certainly would like to see the progressivity of the tax system overall maintained and probably increased. What we're really arguing for is that there should be a small universal element that recognizes the social benefits of child rearing.

The Chairman: And that should be made available to everybody—

Mr. Sid Frankel: Yes.

The Chairman: —even though that might exacerbate the problem.

Mr. Sid Frankel: Yes, even though it might exacerbate unfairness in a more vertical view.

The Chairman: Right. Okay.

Yes, Mr. Forseth.

Mr. Paul Forseth: One quick question. You said you'd actually like to see the progressive tax system made even more progressive. Then, obviously, you reject notions of a flat tax. Maybe you can explain the philosophical reasons why you reject a flat tax rate.

Mr. Sid Frankel: Generally, the council would be supporters of the principle of progressivity; we would like to see those who earn more pay more.

Mr. Paul Forseth: The flat rate does that too.

Mr. Sid Frankel: Okay, I may not be familiar with the—

Mr. Paul Forseth: Well, if everybody pays at 22% of their income, if you have $1 million of taxable income, you pay a heck of a lot more money.

Mr. Sid Frankel: Yes.

Mr. Paul Forseth: You're paying 22% of $1 million instead of $10,000.

Mr. Sid Frankel: Yes. I was defining progressivity as those at higher incomes paying a higher rate.

Mr. Paul Forseth: That's right. We have three rates. At one time we had five or six rates. You're saying you'd like to maybe turn back the clock and have more rates.

Mr. Sid Frankel: Yes.

Mr. Paul Forseth: Can you just give me a tight answer about why?

Mr. Sid Frankel: Generally, our argument would be that we've seen balanced budgets on the backs of those at the lower end of the income scale without much consideration of how to balance the budget, not by cutting programs aimed at the poor but by receiving more revenues from the rich, to put it in one term, and we think it's time to reverse that.

Mr. Paul Forseth: Make the rich pay.

Mr. Sid Frankel: Yes.

Mr. Paul Forseth: Okay, thank you.

The Chairman: Thank you, Mr. Forseth.

We're five minutes over, but if you ask your question, I will allow it.

Mrs. Redman.

Mrs. Karen Redman: This government has provided $16.5 billion in tax relief and it has not been on the backs of the poor. I'd just like to make that clarification.

The Chairman: I agree with the policy of always giving the last word to our guests. Therefore, you can continue.

Mr. Sid Frankel: The tax relief has not been on the backs of the poor; the cuts to transfers have.

The Chairman: All right. Thank you, Mr. Frankel and Mr. DeJaegher. We appreciate you taking the time to share your views with us this afternoon.

Thank you, and we wish you a safe journey home.

Our next guest is from the National Foundation for Family Research and Education. We have the pleasure this afternoon to welcome to our committee its executive director, Dr. Mark Genuis.

Welcome, Dr. Genuis.

[Translation]

Mr. Mark Genuis (Executive Director, National Foundation for Family Research and Education): Thank you, Mr. Chairman. Good afternoon and welcome to Calgary. I'm happy to appear before you today on behalf of the National Foundation for Family Research and Education.

[English]

To start with I'll do everything I can to stay within the 10 minutes. Then I'd be very honoured to answer any questions the committee has of me.

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The Chairman: If you feel you have to exceed that, I'll—

Mr. Mark Genuis: Oh, sir, don't say that to me.

Let me start by congratulating you all for being here and doing this work. The National Foundation for Family Research and Education has seen this as a core issue to the stability and health and productivity of our nation since our inception in November of 1994. It's quite a celebration for us to see the government sincerely grapple with this issue at this level in this manner. We congratulate you and ask you and beseech you to continue on in this manner, because this current debate, we would argue, will go a very long way to developing a secure, stable, productive, and healthy nation, and building it right from its core. It's in that spirit that I make the following presentation for your consideration.

By the way, you do not have a written submission from me. The reason for that is that we've made an agreement to provide a full written submission to the committee over the next couple of weeks. We have a number of events going on at the same time—we're very small on staff—so please forgive us.

The Chairman: I'll ask you to do that over the next couple of weeks, since we have to report to Parliament the first week of June. Therefore, if we have it—

Mr. Mark Genuis: You'll have it shortly.

The Chairman: —by the end of May, I'd appreciate it.

Mr. Mark Genuis: The mandate of this committee is to determine whether or not Canada's current tax system and transfer system treats differently configured families with dependent children in an equitable fashion. That's the mandate.

As stated in the instructions from the committee, real tax fairness presumes that whatever choice parents make with respect to the care of their dependent children, they should neither be privileged nor penalized by the tax structure.

A couple of points. In November of 1997, the National Forum on Health is quoted on page 7 of the “Investing in Children and Valuing Our Caregivers” document in the report of the Ad Hoc Study Group for Valuing Caregivers to the national Liberal caucus social policy:

The National Forum on Health pointed out that Canada is the only western industrialized country that does not take into account the cost of raising children when determining how much tax families with children should pay compared with those without children.

The other element is that the committee, in their preliminary report, also stated there was considerable inequity and discrimination—they used the word “discrimination”, I believe—against families with full-time stay-at-home parents, and they recommended in that report that that be changed.

In 1998, a standing committee examining children's issues out of the Department of Health—and some of the present members were actually on that committee—also made a recommendation stating that they wanted to see tax fairness for families regardless of their choices of child care.

In previous presentations to various committees, the foundation has also recommended the critical need for tax fairness, with the objective being maximizing choice for parents, not trying to, if you will, engineer one way or another, because we live in a democratic country. With respect to that, we agree with the mandate of the committee that families should neither be privileged nor penalized according to the options they choose for their own families.

Currently, it's our understanding that Canadians are taxed as individuals. Although at first glance this appears to be the most appropriate system, where individuals become families and share their resources, they continue to be taxed as individuals.

The development of a family unit includes significant changes, wonderful changes, in lifestyle. Personal financial sacrifice in support of the positive development of the unit and other individuals within that unit are changes that do occur. Taxing income as if the parents were each individuals simply puts significant strain on the family unit, depending on the choices and sacrifices they make for the positive development of their dependent children.

It's been well documented by numerous think tanks that single-income families with equivalent incomes to dual-income families of equivalent structure pay significantly higher taxes. So the unequal treatment of these families serves as a clear example that families are being penalized by the income tax structure. And this—not, I'm sure, with any intent—by default makes an important social statement about—and again, not as a conscious effort—and I don't want to use the word “agenda”, but about a push, if you will, or promotion of a particular lifestyle. Again, I don't want to say that's motivated, but that's inherent within the system the way it is.

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It's also most important to note that through numerous polls approximately three-quarters of Canadian dual-income families state that if they had more of a choice they would not be dual-income families. I think that makes a very important statement about the psyche of Canadian families. They're saying, you know, we're not exactly living our lives in the manner that we think is best for our family, that we would choose, if we had more of a choice.

The other is that two-thirds of Canadian families consistently state that they can't afford to structure their family life in the manner they think best for their children. For example, many families have said their number one stress is that they can't spend enough time with their children even to do basic parenting in the manner that they see most important.

So they've made some very strong statements. While the committee is not focused on child welfare but on fair tax treatment, it is our belief that in the concept of fair treatment there is a desire to do two things. First, allow families maximum lifestyle choices within their means, and, second, minimize the amount of interference from the public sector in those choices.

Accordingly, the issue here is equality, freedom, choice, and respect for the ability of Canadian parents to opt for a lifestyle that best meets their own families' needs for healthy, productive, and unified development of this most central unit in Canadian society.

It's often argued that the child care expense deduction is the root of discrimination against single-income families, and while this deduction does contribute significantly to differential treatment between family lifestyles, it's not the only element within the tax structure worthy of examination by this committee.

While dual-income parents do incur expenses for child care, for the care of their children when they are gainfully employed, the single-income family also incurs substantial expenses for the care of their children. Examples of the expenses of stay-at-home spouses...they forgo professional advancement; they forgo full salaries, full benefits, pensions—all to serve their family and to serve society. Please, make no mistake. The amount of research we have indicates very clearly that full-time parenting provides a significant and critical service that we all rely on and we all benefit from. It's appropriate that we dignify that role and respect the tremendous work and efforts these people make.

Furthermore, it bears repeating again that the vast majority of dual-income families would prefer to be single-income families, and they clearly have recommended that the tax system discourage this option in their lives.

There are just a couple of other possible considerations or areas for the committee to consider as ideas. Other possible avenues that could be examined for the removal of discrimination and to maximize opportunities for families to care for themselves in the manner they feel best include the following. For example, there was some talk prior to the last election about taxing families as a unit rather than as individuals. There is, to my understanding—I don't have the specific stats with me, and I apologize for that, but there is some precedent regarding giving families an option of whether to be taxed individually or as a family unit.

You're in a province right now—Alberta—that has proposed having a flat tax within a couple of years. One of the projections from the government estimates is that while the actual families and everyone in the province will be paying lower taxes, they're expecting considerably increased revenues, or at least a stabilization of revenue for the provincial government on that. I would argue that's something that perhaps should at least be seriously considered and examined.

Furthermore, we talk a lot about brain drain, and we hear about it all over the place. We hear about productivity and so forth. It particularly affects us here with some significant companies looking to move into the United States. A flat tax may increase the competitive nature and competitive advantage of Canada in relation to that if it does continue to provide for stability in the country.

A third idea is to examine the possibility of reindexing the basic personal exemption as well as the spousal exemption, bringing it up to current rates, which would make it about $11,300 per person, and then reindexing it from there—not partially indexing it—so that the deduction at least keeps track with inflation so that we don't have things like bracket creep, which does hurt many low-income families. And these are the people who are hurt. A flat tax, I would argue, is a low-income support because these families end up paying considerably less tax and have much more money in their own pockets.

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I appreciate your consideration. These are the points I wanted to raise with the committee today, and I would welcome any questions and discussion from the committee.

The Chairman: Thank you very much.

We'll go with five-minute rounds.

Mr. Paul Forseth: Thank you very much. It's interesting. A number of your publications or some of the surveys you've been sighting or producing or collating for others have been quoted by many other groups who have come forward to this committee. I'd just like to advise you that your work is seen to have value and is being quoted by others.

Mr. Mark Genuis: Thank you.

Mr. Paul Forseth: In your surveys you talk about a considerable Canadian view that idealizes or would like family life to be a particular way, which is not particularly reflected in the income tax form I just filled out last month. I take it that this desire that they wish things were different has a lot to do with the economy; they're saying, well, if we had more money we would live differently. I suppose if I had a lot of extra money I would live differently. I wouldn't live in a 15-storey high-rise; I would do other things.

So there's the reality of lifestyle based on available money, but part of that, I suppose, is a blame on the government, saying the government takes too much of my money and therefore interferes with some of my lifestyle choices. In that regard, we then look at some of the items that direct where the government gets involved in how a parent would care for their children.

We have some consideration, within limits, to consider economic relief for purchased child care. How do we similarly give consideration for personal child care? It's the flip side of the coin. Just on that one item alone, without looking at all the other inequities in the tax form, how do we give some economic regard...? It may not be a total reflection or an accommodation of that parental choice, which seems to be reflected by your surveys, as a great desire, predominantly, of Canadians. How do we get around the technical problems of, on a comparative basis, considering that choice of self child care instead of buying it?

Mr. Mark Genuis: There are two issues I'd like to draw on in relation to your question. Thank you for it. I'm flattered and honoured that other organizations would use some of the information that NFFRE has put forth and worked on over the years. Let me say, though, that I think there are two very distinct issues. That's why I think this committee was wise in stating its mission and mandate the way it has. One issue is the parental care versus child care issue as a social issue and parenting choice and so forth. There's a lot of research around that, and that is one issue.

However, the taxation issue, I would argue, is in fact a separate issue. We live in a free and democratic society, and we just don't feel it appropriate to try to tell people how to live their lives. Certainly it's our responsibility as a research organization to share the information, but when it comes to providing tax options, I think it's important to provide maximum choice and opportunity for people so they can make the choices that work best within their own families.

How do we get around that? There are a couple of ways. With the child care expense deduction, one opportunity is to turn it into a tax credit and make it available for all families. That will do a couple of things. Right now, the way the child care expense deduction is set up, it is the high-income earners who actually save and can deduct more money on that deduction as opposed to lower-income earners. If you turn it into a tax credit and perhaps increase the amount, all families are eligible, whether they're the income earner or non income earner, or higher or lower income earner. So you provide more flexibility for families. Everyone is eligible; everyone can claim it. It flattens out the system and removes any discrimination.

Another opportunity, I would argue, is with regard to two other things I said. One of them is the single income tax form for the family, if that's an option. The second one is in relation to reindexing the basic personal exemption and the spousal exemption. The reason these two work is because reindexation and allowing one to claim one's spouse as a deduction essentially combine the income earner and the non-income earner, the care-providing parent, into one unit. That will provide a very fair way of evening out the discrimination.

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The other way is with regard to allowing the family to say, listen, if we're a single-income family, we'll fill out a joint tax form. It's going to lower our taxes. It's going to maximize the amount of money in our pockets so we can have choices and make the most of what we have within our own means, with what we earn.

For the dual-income family, they may or may not decide to do that. They may decide to fill out a form individually so they can do the most with what they have. In a way it also provides a choice. From the precedence that we understand does not have government suffering overly with regard to revenue...and provides maximum opportunity and choice for families within the option they choose that works best for their own particular situations.

Mr. Paul Forseth: Thank you, Mr. Chair.

The Chairman: Thank you, Mr. Forseth.

[Translation]

Mr. Cardin, you have five minutes.

Mr. Serge Cardin: Good afternoon, Mr. Genuis. You said that the tax system does not take into account what it really costs parents to raise their children. According to you or your organization, what mechanism would allow our taxation system to take into account the real cost? For all intents and purposes, that would be the only way to ensure fairness. These real costs could include child care expenses, whether or not a parent remains at home. Would you suggest a deduction or a credit?

Mr. Mark Genuis: Thank you for your question. I apologize, but my mastery of the French language is not quite good enough to allow me to answer your question in that language. I am trying to learn French, and the next time that I appear before you, I will be able to answer you in that language.

Mr. Serge Cardin: Next time, I will also be better able to understand you when you speak English.

[English]

Mr. Mark Genuis: I appreciate the struggle, because again, the focus is very clear. How do we minimize the discrimination and work both sides of the equation? First of all, I don't think we can ever fully recognize the contribution to society that a parent makes. We all benefit from that in so many ways. The family who has an at-risk child, who dedicates resources and time to pull that child out of risk, provides such an enormous savings socially, tax-wise, by contributing to tax, and cost-wise, by bringing the child away from the system they would drain. I don't think it's possible for us to fully recognize the tremendous contribution the parent makes.

Secondly, it's important that parents want to make more of an effort in this regard, not less. The one cry from parents is, let us get our hands more dirty with our children; that's what we want to do.

So within the confines of saying we can never really do it fully, I would presume to recommend looking at again.... Right now we have had a number of tax reductions from the Government of Canada; however, with bracket creep we have particularly seen lower income people, I would argue, not reap the benefits of that. That's why I continue to come back to the concept of reindexation. It's very important, particularly at the basic personal exemption level, because that provides people at the lower end of the scale the support they need, frankly, to not pay tax so that they'll have more options to live more fully within their means.

The second element is that we appear to have an increasingly stressed middle class, and that's why I would recommend either allowing people to combine their income so that they can maximize what they have.... That way, again, a family using external child care can maximize their benefit. The family with one full-time parent at home can maximize their situation.

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So again it's a removal of pushing one lifestyle over another, yet it's saying, listen, you are parents, you have to have options, you have to make sacrifices for the good of our society. We respect that, we dignify that, and this is the way we see best to provide you with that option and respect. This is just one recommendation.

An alternative is to flatten out the tax system. The flattening of the tax system would have to come with the increase in basic personal exemption. It's important that we put that on the record. The tax system, from my understanding and examination, cannot work unless the lowest income people are taken off the tax rolls, because it hurts them. If you increase the basic personal exemption, if you flatten out the spousal exemption, it can work very nicely. This will provide the maximum benefit.

These are a few specific ways I would present you with. From the work we have done and from what we have seen, these work best. I would caution against looking at a way of paying benefits back to families, because that gets overly complex. Just from the work we've done and from the polls we've conducted, our understanding is that families are more interested in having the money just stay here, rather than have it go out and a portion of it come back after it's gone through administration. So that's the information we've been able to ascertain that I can share with you.

[Translation]

The Chairman: One final question.

Mr. Serge Cardin: You said that families prefer to keep their money. That may be true for families who have paid higher taxes over the year, but we must not forget lower income families who pay less tax but who should be able to benefit from some type of payment.

[English]

Mr. Mark Genuis: Yes, of course...and if we want to speak specifically about lower-income families, let me give you an example. We have worked closely with the Government of Alberta, seeing as our head office is here. A couple of years ago they instituted an Alberta family employment tax credit specifically for lower-income families, and they were kind enough to quote us in the budget document.

They said there was a refundable tax credit per child, so if you didn't pay tax, you would get a cheque back for this amount per child. It provided families at the lower end who were paying a little bit of tax to have that saved. Families with children who weren't paying tax would actually get a cheque back from the government. It's a very simple system.

I would argue it wasn't significant enough, but at least it was a step in a direction that tried to provide some choice for the families, particularly at the lower end. So, yes, I would agree with you.

[Translation]

The Chairman: Thank you, Mr. Cardin.

Ms. Dockrill, please.

[English]

Ms. Michelle Dockrill: Thank you, Mr. Chair.

You talked about the child care deduction. I was just wondering if you would like to comment on some of the presenters and some Canadians whom I've talked to from my part of the country who say due to the increase in part-time “McJobs”, shall we call them, and to the decrease in the full-time, good-paying jobs, they don't see themselves as having a choice with respect to both parents having to work to ensure that their children are looked after in a manner they feel they should be. They therefore see that child care deduction as an employment expense. I just wonder if you want to comment on that.

Mr. Mark Genuis: As the director of the foundation, one of the parts of the job that I have the joy and honour of doing is hosting a weekly radio program that's Alberta-wide and throughout the Internet.

Dr. Hedy Fry came on the program about a month and a half ago and stated twice that we have many families in Canada who are dual-income families against their will. So I would agree fully.

The child care expense deduction in that sense...yes, but again that's where I keep coming back to giving these people an option to do the best they can within their means.

There are two things in relation to it, however. The way the child care expense deduction is currently set up it doesn't help low-income earners that much. It helps high-income earners much more. So I don't know that this is entirely equitable, particularly for the type of people you're talking about. If there were a way to restructure it...for example, if there are two McJobs in the family, that family probably wouldn't be paying any tax if we reindexed the basic personal exemption and the spousal exemption right now. That tax would be gone.

We agree on the focus here. I just think this might be a creative and perhaps simple way of helping these people very directly, right now, rather than in a complex way through the deduction. It is helping the wrong people. This is not to say the high-income earners don't deserve help or anything, but the people who really need it aren't quite getting what they could use most.

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Ms. Michelle Dockrill: Would you agree that for those family configurations, child care is in fact an employment expense, because you don't have any choice?

Mr. Mark Genuis: For parents who don't have any choice, while yes, I would agree with that, I would argue that it's incumbent upon us to ask if there is a role to be played to help families live within their means and be able to have a choice. So I would urge the committee to look to the next step and to see through different possible routes if there is perhaps a way to help provide some choice to these families. That's a very worthwhile question to be struggling with.

Ms. Michelle Dockrill: Do you see a difference between the child care deduction in comparison to say a mechanic, as somebody said here the other day, who is able to deduct the total cost of the tools he has to use with respect to his job?

Mr. Mark Genuis: If you're going to look at it that way, I would argue then that it's the same with a family who gives up a full income and benefits and CPP to care for their child. If the child is an asset, then the child is an asset, not only if the child is an outside asset. There are many families who have one McJob. They're living in a small place because they just absolutely refuse to go a different route. So I would argue that the child is an asset is an asset is an asset. The recognition should go to both sides to be able to equate the equation.

Ms. Michelle Dockrill: My point is that the mechanic is not able to perform his job without those tools. For those families within this country that are forced to enter into the labour market, they cannot leave their children at home. It's an essential aspect of their having to enter the labour force.

Mr. Mark Genuis: The family staying home with the child couldn't do that unless they gave up a significant income, pension, and benefits. So while I agree with you, I continue to urge you to look to the next step to see how we might be able to provide choice.

Ms. Michelle Dockrill: I think what you're talking about on one hand is a choice, and on the other hand there's no choice.

Mr. Mark Genuis: That's right. And where there's no choice, I'm hoping to make one. Where there isn't a choice, as I say, we want to provide maximum opportunity for them.

Ms. Michelle Dockrill: Okay. Great. Thank you.

The Chairman: Thank you, Mrs. Dockrill.

Mr. Herron, please.

Mr. John Herron: I just want to go back to the child care expense benefit. It has been a bit of a lightning rod in terms of where some of this debate is actually coming from. It provides a credit or a benefit to one group of families and it doesn't for the single-income family. Would you go so far as to say that it's clearly a discriminatory initiative, that we should move towards something more universal in that regard?

Mr. Mark Genuis: I would say it's discriminatory on two levels. I would say, one, it's discriminatory, of course, against families who give up significant incomes and so forth, as I have said earlier. Secondly, it's also discriminatory against the working poor, because the working rich get a larger deduction.

Mr. John Herron: That's my next comment. It benefits individuals on the upper end level the most.

Mr. Mark Genuis: I have no issue with people making a lot of money, but for the people who need that deduction most, they should get at least an equal deduction.

Mr. John Herron: When it comes to income splitting or joint filing, whichever term you choose to use, some people argue against that, because they consider this approach to be regressive as well. It would potentially benefit those individuals on a medium-end or upper-end income scale.

It has been flagged to the committee that there are certain circumstances where professionals—perhaps a dentist, a doctor, or an accountant with a private practice—may actually have his or her spouse on the payroll. So that very elite group gets to income split. However, the middle-income family in Canada doesn't.

So would you go so far as to say that the government, by not permitting income splitting, is almost even more discriminatory, even more regressive?

Mr. Mark Genuis: I wouldn't say that not allowing income splitting is more regressive. I would say it's an option that should be looked at on the universal scale as one of a possible few that I've outlined. I would agree with you that it's very important for the government to go in that direction.

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Just to make sure I'm understanding your point clearly, the case with regard to higher-income people including their spouses on payrolls or paying them for certain work is generally in professional businesses, where presumably the spouse would perform some function for that business, so they're being paid. That essentially works out as income splitting. Families who may be lower income—they may also be higher income—where they are specifically employed and don't have their own company—shell company, whatever—don't have that option. So yes, they don't have the same options as other people in independent businesses would.

If that's what you're getting at, I would agree with you that it's incumbent upon us to look to the direction.... That's why I recommend one of the options for serious consideration would be the joint filing. I do think that yes, it's very important we look to that and/or one of the other recommendations I've made. These are not small challenges. This is an extremely important direction to go to. We have a lot of people in this country who are not living their lives in a free manner, who are very stressed because they feel they're not giving their children what their children deserve. At the same time, we have challenges...we have the third highest preteen suicide rate in the industrialized world. Not all of it is preventable, but some of it is.

We have had an increase in youth violent crime in the past 10 years that doubles the rate of increase of the United States. Not all, but some of this is preventable, and some of this is preventable through families. Families know this. So any measure that we can go to that will expand the options is extremely important.

Mr. John Herron: I have a last comment, if I may. One of the arguments against income splitting is the fact that it doesn't perhaps help those individuals on the early end of the income scale, because they're already paying the lowest amount of tax in that regard.

I must compliment you on your approach in terms of raising the basic personal exemption itself. If we say the poverty level is $21,000, I think it says something very negative about our values as a society when we tax persons who make $14,000 less than the poverty line, given the basic personal exemption.

Mr. Mark Genuis: I appreciate that. I would agree. We did a written submission to a federal-provincial committee for social development when the honourable Stockwell Day was chairing that committee a number of years ago, and we made that exact point.

One of the things we were asked was to provide a recommended definition of “poverty” in Canada within the Canadian context. One of the things we said was that we have one; it's called the Income Tax Act. We have a progressive system, and when we hit the first bump up, that's probably family poverty level. Any family below that probably should be paying very little or no tax. So I would agree.

Mr. John Herron: Thank you.

The Chairman: Thank you, Mr. Herron.

Mrs. Redman, please.

Mrs. Karen Redman: Thank you, Mr. Chairman.

I really appreciate the energy you brought to your presentation. At this time of day, it's easy to start feeling flat, when we've listened to a lot of really thought-provoking interventions.

I don't have your written submission, so I just jotted down some of the things you were saying that I'd like to clarify.

You talked about the child care expense deduction, and inherent in the context in which you gave that was the fact that it really impacts on the values and the choices that couples are making. I really have to question.... What you're saying is that the decision within the family context of whether to have two working parents or one working parent—and this obviously is outside of the lone-parent situation—

Mr. Mark Genuis: Yes.

Mrs. Karen Redman: —is based largely on economics. Is that what you're telling us?

Mr. Mark Genuis: Well, at the rate Canadians are taxed, provincially, federally, and so forth, economics begin to play an important role, yes. I would argue that it's not so much one deduction, it's the overall amount they have to live with. One family said to me about a week and a half ago that they just keep trying to make more so they can keep up. As everyday families, they never think about the amount they're paying out in taxation. They said, you know, if that were changed a little bit, it would make a tremendous difference to our ability to make choices.

So yes, I would argue that the economics have become an important factor in the equation.

Mrs. Karen Redman: One of the really interesting presentations we had was by Mr. Shillington, and he showed us that the uptake of working parents versus parents who stayed home is basically a third, a third, and a third. Those were people who chose to be in the workforce full-time or part-time, or to stay at home full-time. That was independent of income level. I thought that was a striking illustration for me personally, because one tends to think that it's the lower- or middle-income people, and what his statistic clearly showed us was that it was absolutely independent of whatever income bracket they were in, and obviously that's impacted by the amount of tax they pay. It really was independent. Those choices seem to be consistent right across the board.

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Mr. Mark Genuis: Yes. A point I made earlier is that there are families who are at the absolute bottom of the income scale who absolutely refuse to have any other lifestyle regardless. So there will be people across the income scale doing this. But the point I would humbly make and that we have found is that if there were more money left over in the pockets of Canadian families, there would be significantly more people making that choice. People make choices for different reasons and people have different tolerance levels all over the map. It appears quite strongly that economics have reasonably advanced now in determining the choices and have passed the tolerance level for many Canadian families. We can discuss the social element of that at length, but that appears to be what we found consistently.

Mrs. Karen Redman: I do look forward to your written submission.

The other issue I want to visit briefly is the flat tax issue. You talked about raising the basic personal exemption. But the middle class gets hammered in a flat tax. It has to. If you have lowered the rate of the highest tax rate and quite appropriately raised the basic personal exemption to get those people who ought not to pay off, who is paying the bulk of the tax except the middle class? It is exactly that group of people from whom we're hearing a call for a personal income tax reduction.

Mr. Mark Genuis: In the examinations that we have done, if you increase the basic personal exemption, the people of greatest concern are off the tax roll, so there's some significant support there. Certainly, the people at the very top of the scale will have the greatest numerical reduction—that's very, very true.

Mrs. Karen Redman: Right.

Mr. Mark Genuis: However, the people in the middle will also have an important reduction in the amount of tax they pay. In the reports that we have had a chance to look at, as well as the most recent reports coming out of the province, through this combination of the increase in the basic personal and spousal exemption—it becoming indexed—and the family unit tax system, the middle actually seems to do very, very well. But yes, it is true that the largest numerical deduction happens at the highest level. That is true.

Mrs. Karen Redman: Is there a presumption that it is revenue neutral? Or is the province then running a deficit in order to finance this flat rate?

Mr. Mark Genuis: No, the province expects to do very well with it for a number of reasons. There appear to be a number of factors that play into it as opposed to just the flattening of the economic activity. What appears to be is that there are more younger families in the province who have more hope about being able to start their lives here—and they may move back to their roots, if you will, after a number of years. We have a fairly high percentage, as compared to other provinces, of young families here in the province. The province is anticipating, just from their estimates, improved economic activity that will turn back, through both personal and corporate taxes, to be able to actually improve the state of the province's tax base.

Mrs. Karen Redman: But those are all presumptions and speculation. That's not something.... Basically a year or two from now you're going to understand whether or not that comes to fruition.

Mr. Mark Genuis: While that is true, what they have experimented with over the past four years are various elements of this through specific tax reduction programs, and as the province has gone to these specific tax reduction programs they have reaped a significant windfall. I'm sure everyone knows how well Alberta has done financially. Even while the oil prices dipped quite low, they did well. In the recent Ontario budget, there appears to be a bit of, I think, healthy competition between the two provinces as to how they're taxing families. When the Minister of Finance in this province started the discussion a year ago December, the point he made was that the purpose of this was to try to provide Alberta families options so that they could choose whether or not to have one or two incomes in the family. That's gone on record as the first objective the minister had as he started out the process, and through the year and a half of inquiry and examination, this is where they've ended up. So while there is some speculation, it's based on associated trials, if you will, over the past few years, that have been successful for them.

• 1600

Mrs. Karen Redman: I happen to be from Ontario, and despite some of the good news that appeared to be in the budget, Ontario has yet to balance its budget and is still running a deficit.

Mr. Mark Genuis: Alberta would like that very much.

The Chairman: We envy those who live in Alberta, especially those of us from Quebec. We'd like to have some of the tax incentives you give out here.

Mr. Mark Genuis: My wife is from Quebec and...yes.

The Chairman: Are there any other questions?

Mrs. Karen Redman: No.

The Chairman: All right. That leaves me just the pleasure of thanking you for taking time out and making your viewpoints heard and known to us.

Mr. Mark Genuis: Thank you.

The Chairman: We look forward to your written submission. If you feel you should add anything, please, by all means include it in your written submission. I ask you again to do it by the end of May, if possible.

Mr. Mark Genuis: You will have it by then. I'm most grateful for your time. Should anyone have any questions, please feel welcome to communicate with me at any time. Thank you very kindly. It's been an honour.

The Chairman: Have a safe trip back.

Mr. Mark Genuis: Thank you.

The Chairman: We will now continue. I'm pleased to welcome, on behalf of the committee, Ms. Beverley Smith, here on an individual basis. We welcome you to this committee, Ms. Smith. Please take about ten minutes to make your presentation and then leave some time for questions. Some of us have a plane to catch. Welcome. Please begin.

[Translation]

Ms. Beverley Smith (Individual Presentation): If I may, I will speak in both French and English.

[English]

The Chairman: It's a bilingual country.

Ms. Beverley Smith: I'm currently a high school teacher who was at home for 23 years raising my children. I always wanted to teach school. I love the dynamic of 30 minds in the room at once and the electric feeling of a good discussion. But when I had my first child I had a new love. I loved his little fingers. I couldn't take my eyes off him. I wanted to be the one to show him how autumn leaves crunch underfoot and to cut alphabet letters out of cheese to teach him to read. So I had a dilemma. I wanted to be in two places at once.

Every parent in Canada has the same dilemma. The paid labour force asks an arm and a leg of you with breakfast meetings, working late nights and weekend conferences. You know that personally. The baby has no concern at all that you might need sleep and he may want to eat at 2 a.m. or get a fever at 3 p.m. and need the doctor. Both roles take a lot of energy. Both benefit society and they complement each other, and I dare say that both roles are work.

A person can do her paid job best knowing that someone trustworthy is keeping the baby from putting his spoon in a light socket, and the unpaid labour force can do its job best knowing that while giving the baby strained peaches, there will be money for strained pears tomorrow.

[Translation]

Unless we manage to clone parents, the problem will remain the same: parents cannot be in two places at one time. You can't work in an automobile manufacturing plant and diaper your child at the same time. However, Canadian families have become quite resourceful at solving this problem: the mother can take her child to the office, as Michelle Dockrill has done; the mother can have her office in her home, as a number of writers do; the father can work during the day and the mother at night, and they can take turns looking after the baby at home; the mother can work part-time and the grandmother can take care of the child; the father can look after the child at home, while the mother works at home; the parents can both work at home and a nanny can take care of the child; or the parents can both work at home, while the child is in a day care centre.

• 1605

[English]

So people have a lot of choices, and they're making those choices. I'm grateful that your committee does not favour any of these in particular, but simply asks for equity and fairness for all of them.

When we wonder how government can help, we need to remember basic tax principles. One, the whole point of taxes is to be a caring society, where we each contribute for the common good. Two, we pay taxes according to ability to pay—the rich pay more.

[Translation]

Thirdly, in a democratic country, you can't tell people where to live or where to work. A number of choices are available. In a park, you don't confine people to the tennis courts, but you allow them to swim in the pool or to use the bicycle path. People are given a choice. One of the essential elements in the common good, even if it isn't always convenient, is that free choice is celebrated.

[English]

We do, however, despite being unbiased, intervene to show sympathy for special circumstances. If a person is ill, laid off from paid employment, or forced to travel 2,000 miles for the job, we give tax breaks for that because we know this is not in the person's control and we're a caring community.

Five, we also intervene to show a bias for certain voluntary choices people make. If a person contributes to a charity, this benefits society, so we give a tax break for it. We notice that when we give a tax break for a voluntary choice, it acts as an incentive to make that choice. People can choose to enter the category that gets the tax break, and we're encouraging them to do so.

[Translation]

Sixth, we might wonder whether we should interfere with the voluntary choices made by parents. No one is forced to have a child. Some people will say: "It's your child, not mine. It's up to you to take care of it." They don't want their taxes to pay for schools or to help children that don't belong to them. However, the majority of people recognize the importance of children for the survival of our society. These are the children who will take care of us when we are sick, who will build our roads and pay taxes that will go towards our pensions. It's for the common good that we ensure that people will have children and will be able to take care of them.

[English]

The question then is, how should government help those who raise kids? That's why you're here. My observation is simply that the answer is contained in the first principles already mentioned. On raising children, first we must adjust taxes according to ability to pay. Second, we must, as a democracy, give parents free choice about how to raise their children.

The problem is the present tax system does not adjust for ability to pay. All G-7 countries, except Canada, give tax breaks to anyone raising kids. We also do not adjust taxes according to the very obvious fact it costs more to feed and clothe a teenager than a toddler, and it costs more to feed and clothe three children than one child, and they probably need a bigger home. A tax system based solely on amount of income does not notice the number of people depending on that income, and that is a vital factor affecting ability to pay.

Second, we currently discriminate between ways of raising kids. We give tax breaks if you use day care and nanny care, but no breaks to the 80% of families who make other arrangements. I think this is unfair.

How we raise our kids is a personal choice and the state should not have a preference. All kids are equal. I've been told the tax break is given not for kids, but to offset the costs of working. This logic is flawed. As noted, both roles of parenting are work. The state should not favour one role over the other.

Raising a child is not a business expense, like buying a filing cabinet. It is, however, an obvious expense, but we all bear it. Tax breaks should flow with the child because expenses exist wherever there is a child.

[Translation]

I dare say that the present taxation system is discriminatory in certain ways. As I have already indicated, if a deduction is granted for a voluntary choice, this choice is encouraged. If a deduction were given to skiers, a greater number of people would take up the sport. When you allow a divorced man to deduct the support payments for his child, and you don't allow a married man to do the same thing, then you are favouring divorce. There should be some other system that would force him to assume his role as a parent, even if he is absent, or else all parents should be allowed to deduct the cost of raising a child.

• 1610

I find it sad to see that present laws force married or divorced parents to both work, without taking into account the needs of the children. I don't think the marital status of a parent should have an effect on the choice that parent has with respect to the care of his or her child.

[English]

Being married is a voluntary choice. For many it is related to raising children. The state could favour marriage, ignore marriage, or punish marriage. Oddly enough, present tax policy punishes marriage. Seniors get less pension if they are married compared to what single people get. Child care expense deductions and RRSPs are based on family income and not individuals. We get the oddity of taxing differently households with the same incomes and dependants, according to who earned the money and how unequally it was earned.

I feel these are not relevant variables for the tax system. It would be fairer to decide if we are to be taxed as individuals or families and be consistent, or to at least give us each a choice about which way we would like to be taxed, as it is done in the United States.

When we see parents storming Parliament Hill with baby strollers arguing for good day care, they argue with the same passion as mothers who want to raise their kids at home but get no tax breaks. Whenever you talk about kids, emotions run high. The one thing we have in common is we want the best for our kids. We don't agree on what it is, but we could agree to value our disagreeing. We could agree to respect all styles of child rearing and be proud that in a democracy we can do that.

We should not continue the catch-22 of many parents today. You can be with the child and suffer financially, or you can do fine financially but have to leave the child. I request that tax policy be adjusted so when parents are torn about fulfilling those dual roles of parenting, they're equally assisted in all options.

I'm glad your committee description reads:

real tax fairness presumes that whatever choice parents make with respect to the care of dependent children, they should neither be privileged nor penalized by the income tax structure.

Given that we agree on that, I think we're making real progress.

You don't know my child and I don't know yours, but I know you are the expert about the needs of your child. I trust, given the means, you will choose what is best for your child, and I would like a tax system that enables that choice for everyone.

The Chairman: Thank you for that very sincere presentation.

I would ask colleagues to limit it to six minutes, please.

Mr. Forseth.

Mr. Paul Forseth: Thank you, Mr. Chairman.

I will basically ask the same question I've been asking all day, and it is a fairly simple one, related to the child care expense deduction that tries to respond or socially recognize the issue of a parent who goes to work and purchases child care. How can we respond to provide some sense of equity or fairness to those who provide their own child care? They look at one parent who gets some kind of recognition, compensation, or whatever for purchasing child care, and if the parent chooses to perform their own child care, there's no commensurate recognition for that. So we've been trying to come up with some kind of mechanism to do that.

I've been basically drawing a blank from all the presenters as to what a possible response can be on that side. Maybe you have wrapped your mind around that with some possible suggestions of technically what we can do. Do we actually send a cheque to that caregiver, or eliminate the claim for receipted day care and bring in some other compensatory program? Maybe you can just give us some ideas on that point.

Ms. Beverley Smith: In 1970, the Royal Commission on the Status of Women solved that problem, I think. They said there should be a universal deduction or credit for anyone raising a child. It would be given per child. How the child was raised would be up to the parents, with no receipts required.

That's basically what you're saying. I would wipe out the CCED in its current form and have a universal program.

Mr. Paul Forseth: What was the number that was recommended at that time? Do you remember the level?

Ms. Beverley Smith: The amount?

Mr. Paul Forseth: Yes.

Ms. Beverley Smith: No, but I'm talking about the principle here anyway. Whatever you're giving, give it equally. Whatever you can afford, give it equally.

Mr. Paul Forseth: Okay. So it can be costed and perhaps might even be means-tested in some respects.

Ms. Beverley Smith: My basic argument is that we should not have extra sympathy for people who choose to be away from their children, because being with your children deserves as much government concern and care about that child, all children being equal.

• 1615

Mr. Paul Forseth: Yes. Okay. Thank you.

The Chairman: Should there be a universal program, or means-tested, as Mr. Forseth said?

Ms. Beverley Smith: I strongly believe children are equal, and even the children of the rich are as good as the children of the poor. I would not have it means-tested when you give it out, but you can tax it back if the person receiving it also has income.

The Chairman: Thank you.

[Translation]

Mr. Cardin, please.

Mr. Serge Cardin: Thank you, Ms. Smith.

You have touched a nerve; your comments are of concern to everyone at every level.

You spoke about the workplace that demands a great deal from employees with children; we know that this is difficult to reconcile. We know that today the first thing a business leader talks about is the economy and productivity. We often forget what the real treasures or the real values are, that is the family. Of course, there are costs involved.

I would like to come back to what I said earlier. It will be necessary to adjust personal exemptions, for spouses and children, so that they reflect what it costs to raise a child: not only day care costs but also costs that are assumed when the parent looks after the child in the home. Do you think this would be an effective way to eliminate the unfairness that people perceive within the taxation system?

You went even further; you spoke about universal elements. We should be able to move towards something universal, whether it be credits or exemptions that are adjusted, according to the real cost of raising a child at different stages. These exemptions could be adjusted according to the age of the child. As you said, it is cheaper to raise a child who is young as opposed to someone who is a teenager and about to undertake higher education. So the exemptions could be adjusted. That could be done by granting a credit.

When an advantage is universal, at a given time, somebody has to pay for it. What would you consider? An increase in the tax rate to pay for this universal benefit? According to how it is organized, it would be more profitable for the less fortunate.

Ms. Beverley Smith: If I understand your question, I believe what is important is to have a universal program for households. We need not think of what it would cost for day care, for a nanny or for some other type of child care. It would be up to the parents to decide. It would not be necessary to have receipts.

The decisions made by a couple are personal. To me, what is important is the child. Changes must be made to the taxation system for the sake of the child.

Does that answer your question?

Mr. Serge Cardin: Yes, but what I have to suggest, in essence, involves the child. At different stages in his life, the child represents different costs. A child costs something, but it also requires a presence. We might say that when people work and send their children to day care, there are average costs and not specific costs. We are asking for exemptions for children. We could consider a number of elements. If the exemptions are greater, they can, of course, be of financial benefit not only to the child but also to the parent who remains at home to raise that child.

Ms. Beverley Smith: Are you saying that what is important is the money that is earned? No?

• 1620

Mr. Serge Cardin: No. Everyone says that the taxation system is unfair. People say that couples with one income and couples with two incomes are treated differently. They say it is unfair to allow dual income parents, who work outside the home, to be able to deduct their child care expenses.

I would suggest something that would level out these differences. As far as I am concerned, at the present time, technically, there is no unfairness in the system.

When two people work more than 37 hours per week each, and have a combined income that would be equivalent to that of one person, there are two people making the effort to work; if they get a little bit more at the end of the day, I don't think that is unfair.

Moreover, to those people who want to stay at home and be recognized, directly or indirectly, we would have to give supplementary exemptions for children, which would better correspond to reality.

Ms. Beverley Smith: You want me to comment?

Mr. Serge Cardin: Yes, that's right. I would like to know what you think.

Ms. Beverley Smith: According to what I have understood, you think that those who work at home make greater efforts and we should find some way to help them to stay at home. Is that it?

Mr. Serge Cardin: I would almost have to start over. Here, most people...

Ms. Beverley Smith: I will listen to the interpretation because I might not have properly understood what you were saying.

Mr. Serge Cardin: Mr. Chairman, will you allow me to proceed rather quickly?

The Chairman: OK.

Mr. Serge Cardin: People say that the taxation system is unfair for people who want to stay at home, and we are trying to eliminate this unfairness.

I was simply suggesting that the basic personal exemptions be adjusted, those given to the spouse, but also those for dependent children, so that they might be closer to what it really costs to raise a child, to send that child to school and to day care. A supplementary exemption would allow the family to benefit from greater tax breaks. I simply wanted to know how you felt about that.

Ms. Beverley Smith: That is another idea. I had not considered it. I think there would probably be more red tape. It seems to me that there are simpler ways to do it.

Mr. Serge Cardin: Is that so? I thought I had found a simple solution.

That's it, Mr. Chairman. I will now give the floor to Mr. Herron or Ms. Dockrill.

[English]

The Chairman: Madam Dockrill, please.

Ms. Michelle Dockrill: Thank you.

First, welcome, Beverley. When I heard you mention my name, I found myself thinking, my God, it seems like such a long time ago that I took my son to work, as you stated.

In one of the presentations you made, you suggested that government policies are forcing single parents to return to work or to school when their children are at a very early age and that's really not in the best interests of the child. I wonder if you could tell me if you favour making it financially possible for single parents to stay at home with their children full-time.

Ms. Beverley Smith: As I was trying to point out, I feel that the marital status of the parent is not the business of the Government of Canada. If they have a child, that child has value and it should get equal tax breaks.

Ms. Michelle Dockrill: Are you in favour of making it financially possible?

Ms. Beverley Smith: Yes, absolutely, if you really do care about the kid and not trying to get a paycheque out of the woman.

Ms. Michelle Dockrill: One of the problems or concerns that we've certainly heard from various groups with respect to one parent working in the home is the lack of recognition for the unpaid work. I'm not really sure that taxing the parent in the workforce at the lower rate addresses the problem. I wonder if you think it might be more effective to put measures in place that directly benefit the parent who's working in the home.

Ms. Beverley Smith: By taxing at the lower rate, are you talking about a family tax, about income splitting and joint filing and stuff like that?

Ms. Michelle Dockrill: Yes.

Ms. Beverley Smith: And was the option to that what you're saying now?

• 1625

Ms. Michelle Dockrill: I'm not sure if that's the answer, and I'm just wondering if you think it might be more effective to put measures in place that will benefit the stay-at-home.

Ms. Beverley Smith: No, because you know what? Most people don't work full-time in the home. It would be such a nightmare to give tax breaks. Well, how many hours were you home this week? Okay. Well, knock that down a little bit. It would be just too hard to work.

It's the same problem with Mr. Szabo's idea of a tax credit for women in the home. I'm sorry. It's a really nice idea, but it's not completely workable. Women are home, say, for 38 hours. Did they work two outside...? It's just too much red tape.

Basically, I would suggest more like the income splitting, the joint filing, where we let parents decide how to divvy up their time and their money.

Ms. Michelle Dockrill: Since you mentioned income splitting, there have been some presenters who have made the case that they feel this is a gender equality issue, given the fact that it doesn't have any effect on a lone parent. I'm just making that as a comment.

I think you referred in your presentation about the child care deduction and the choice of being with or without your children in terms of staying home. I wonder if you'd like to comment on those family configurations in the country that would say they don't have a choice as to whether to be home with their children or not, perhaps because of low-paying jobs, and do you see that child care deduction as an expense of employment or that participation in the labour force?

Ms. Beverley Smith: It's exactly why I'm here, because of that sentence, “They don't have a choice”. You can fix that. You can give them a choice. You can make it so that it's affordable for them to be home. Obviously, if you're weighing all the stuff on one side, you get the pay and government will pay to raise your kid, versus stay-at-home, where you get no pay and the government won't help you. I mean, you haven't levelled the playing field. If you equalized at least your benefit to raise the kid, then they'd have a choice, possibly. At least it would help them have a choice.

I don't know what expression you currently are using, but some of the others are using it and I just have to say it; both roles are working. Earning money and working are not the same animal.

Ms. Michelle Dockrill: Yes. Certainly, what I've heard and what I've referred to, I think, to a previous presenter, is that there is some sense from Canadian families that due to the decrease in good-paying full-time jobs there is a necessity for the parents to be out in the workforce in order to support their children.

Ms. Beverley Smith: Which you guys have created by your tax system.

Ms. Michelle Dockrill: Well, I didn't. I want to clarify that.

Ms. Beverley Smith: I'm sorry. The Canadian government has made it—

The Chairman: And the NDP will do it again, so—

Ms. Michelle Dockrill: Okay, okay. I'm driving you back into the arms of Saskatchewan, I think.

Ms. Beverley Smith: Why would we do that? It's like saying we have to cope with this horrible situation by giving into it and buying into it and continuing it forever. I'm saying fix it. Why would we make mothers leave their babies because they don't have enough dollars?

Ms. Michelle Dockrill: Do you feel we have an impossible task in terms of trying to find a one-size-fits-all policy in terms of the inequities that families are facing?

Ms. Beverley Smith: No. I think it's great that you're here, that you're looking at it, and nothing's impossible.

Ms. Michelle Dockrill: Right.

Ms. Beverley Smith: I think you're dealing with a tax system that has become adjusted over many, many decades. It's very full of problems, and I think if we simplified....

As you know, Alberta's doing the flat tax. I don't know if it's going to work, but there are simplification measures, I think. In a way, the government system doesn't trust people much to make their own decisions; it indicates that by biasing so many of their decisions. If you gave us back some autonomy and trusted us, we could maybe make some good decisions about marriage, about divorce, about raising our kids, and you didn't get your hands in there except to help us, whatever we're doing, and endorsing the idea of wanting us to have a good life anyway.

Ms. Michelle Dockrill: So you believe there are other policy changes that need to take place to ensure we're supporting the choice of families.

Ms. Beverley Smith: For example, the Divorce Act. I mean, when you require a woman to leave her kid because the man walked out, that's cruel to the kid. So, yes, it's way more than the tax—

Ms. Michelle Dockrill: Yes, that was my question.

Ms. Beverley Smith: Exactly. It's a big package.

The Chairman: Thank you, Mrs. Dockrill.

Mr. Herron, please.

Mr. John Herron: Thank you, Mr. Chair.

• 1630

To summarize some of your points, given the fact that the child care expense deduction is discriminatory, would you—-

Ms. Beverley Smith: Did you say that?

Mr. John Herron: I'm actually saying that.

I just want to emphasize that. Given that that particular initiative is discriminatory insofar that it benefits only one type of family versus another type of family who would have a one-earner income and choose to provide direct child care, combined with the fact that we tax family income at different rates, whether we have one-earner or two-earner income families, you're advocating, basically, almost an entire overhaul in how government intervenes with respect to children. How much do you think this policy is driven by...? I'll quote from a document you may be somewhat familiar with. It's from the response of the Government of Canada to the communications of Beverley Smith.

The Chairman: Thank you. That would be nice.

Ms. Michelle Dockrill: I've got mine here.

Mr. John Herron: Do you think that too much of this agenda could be potentially driven from the fact that...? I think there's almost reverse sexism here, to some degree, where we have a situation where from a gender equality perspective, income splitting between the paid workforce and the stay-at-home parent raises several concerns. One, they point out, would be that “it would require the establishment of an employer-employee relationship between spouses, with the male partner most often being the “employer”'. Why I read that—and I think of my own spouse in that regard—is that the average benefit that.... I can't see that that marginal amount of money would drive individuals, females in this case, home like drones, in order to actually quit their jobs. So—

Ms. Beverley Smith: Did you say droves or drones?

Mr. John Herron: Drones—in drones or droves in that regard. I'm not really putting this question very well. Maybe it's a good thing.

Ultimately, do you think it's the gender equality issue that's preventing the Government of Canada from actually changing, in terms of public policy directives, permitting income splitting? The cost of the initiative, the Department of Finance is saying, is only supposed to be $4 million.

Ms. Beverley Smith: I'll never sympathize with that because whatever it costs to be fair is worth spending. I know that sounds stupid, but I don't get it about the gender problem. I mean, if we're going to split income, why does that assume the guy's the boss and I'm dependent? Actually, we've got that situation now. Income splitting would solve it because we share.... Actually, income splitting, the way I understand it, says this is ours, while the current tax situation says this is mine. It says $5,000 of it is yours and the rest of it's mine. I see that income splitting would actually recognize that sharing takes place in a marriage.

Mr. John Herron: I agree. My last comment is something I think I've touched on a couple of times with other witnesses. We're into a new economy, to a large degree, with the information age, and I think because of the type of work that men and women will both be seeking on a very equitable basis, it's quite possible that the female in the relationship will have more upward mobility from an income perspective and yet we'll have more situations in the newer economy where the male will actually stay at home.

Ms. Beverley Smith: Really?

Mr. John Herron: So I really don't buy the issue that it's a gender equity issue whatsoever. Would you concur with that?

Ms. Beverley Smith: Well, I laid my complaint in the UN under the discrimination against women department—obviously, because it's the traditional role of women—but I don't think it has anything to do with gender, because there are a lot of men who would like to be home with their children. On the other hand, I think what you may be getting at—I'll bring it up in case you aren't because I want to bring it up—is there is a feminist agenda that is really resisting what I say. That is because there are many feminists who define their feminism as wanting women to be independent financially—which I think is great—and they can only do that by leaving home and leaving traditional roles. I believe that feminist agenda is from the 1960s. Daughters of feminists are saying, wait a minute, if you say women can do everything, why are you making us leave being homemakers? What if we want to to that? The third wave of this feminism is saying, we want to be wherever we want to be. So there's a feminist agenda against me, but to me they're misinterpreting true feminism, which is to value women wherever they are.

• 1635

Mr. John Herron: Thank you for your patience with my four questions.

Ms. Beverley Smith: That's fine.

The Chairman: Mr. Szabo.

Mr. Paul Szabo: Beverley, thank you very much for coming before us. I can't imagine there would be anybody else who's more familiar with the principles we've been talking about here, because you've been talking about it for over twenty years. You've carried it to the UN, and few Canadians will ever experience carrying it that far. I suspect you don't need papers to talk about this thing because it comes more from your knowing it so well.

In the government response to the UN there was a financial or an economic analysis done, which basically compared a one-earner and a two-earner family making the same family income. It concluded that in the take-home pay of the one-earner family there was a $4,000 differential. This is page 22.

Ms. Beverley Smith: More.

Mr. Paul Szabo: Well, when they get minus signs.... But it was interesting how they did it. A one-earner paid more.

How did you respond or how did you feel when you saw this as being representative of the fundamental issue, or the principle, you were bringing before the UN?

Ms. Beverley Smith: You probably are aware that the UN agreed with me, that the Canadian response didn't turn their opinion. I feel that little chart may have helped, because that chart is like leaving a movie halfway through. You don't know how it ends, and that certainly didn't know how it ended. They didn't notice that you might have to have some expenses raising your children with your take-home pay if you're a single-income family. With the dual-income family child care deduction, you already paid all those bills before you walked out with your take-home pay.

So they haven't paid all the bills with that chart. If you had continued the chart so they had paid all the bills, you would have seen that the single-income family obviously is less well off, which is perfectly obvious. How could two be less than one?

Mr. Paul Szabo: At the bottom of the page the position was that any new measure targeted only at parents who stay at home to provide care to children would only further reinforce barriers to employment. This came up with Dr. Genuis earlier. I'm curious whether, even if anybody can determine what the average value of the child care expense deduction was, dollars are really the motivator for people's decisions to make child care arrangements for their children.

We had some evidence that regardless of the husband's income ranging from $10,000 a year to over $100,000 a year, the average distribution of parental choices was that one-third were full-time two-parent workers, one-third were part-time—the spouse worked part-time—and one-third were in the home. It appears that parental choices are insensitive to the level of income of the family or of the husband. Does that lead us to conclude that if we were to provide a nominal benefit to a stay-at-home mom this would automatically make a bunch of people change their decisions and polarize to do something, as opposed to what they're doing today? Is it really down to dollars and cents, or in your experience has it really come down to people's choices being driven by a lot more than simply what the tax break might be worth?

Ms. Beverley Smith: You obviously agree with that. I actually think you're talking about what people are doing and assuming that's their preference, which is dangerous, because if you have a broken leg and you're wearing a cast, you can't assume people prefer wearing casts; they prefer wearing casts when they have a broken leg.

• 1640

I think in this situation we aren't giving people enough money to make choices, so it's hard to know what they would do if you were fair. You're not fair right now. Obviously, when you make a decision about child care for your own children, you don't think just of money. Most women who work in the paid labour force say, I have to work and that means I have to earn money. Who knows what they believe privately, but publicly they're saying, I need the money.

If you would like to say it really doesn't matter how much money you give moms at home, it's just going to be a token amount and then they'll feel better, I don't agree with that, because I believe it has to be a substantial amount that is equal to what you're giving everybody else. But obviously there are more considerations than money.

Mr. Paul Szabo: Yes.

In terms of the analysis of comparing family incomes, we've been talking about how the real decision has to do with looking at a family, a couple, and all of a sudden a child comes along and now they have to do the economic analysis of what is it going to mean to them if they hire someone to care for their new child, compared to what if one of them withdraws. It seems that the child care expenses aren't the major consideration. It is the net income you have to decide whether you're going to forgo, coupled with the consideration that you may be out of the paid labour force long enough that you might be forgoing opportunities for career advancement, and certainly to earn pension entitlement, and on top of that, you may all of a sudden become not only a caregiver to your child, but you're going to be more active in community, charity, hospital work, etc. The big item, in terms of economics, though, seems to be the net paycheque.

So to me, and I have to tell you, I really feel that parents who.... If you have somebody making $25,000 a year and they gave it up, they're probably losing $10,000 to $15,000 of cash in the family pockets. That's more a substantive issue than if I stay and get my net paycheque, I'm going to have to pay $3,000 or $4,000 in child care expenses. It doesn't matter; you're still getting $11,000 net pay.

It really seems to me that somebody seems to be thinking that the tax benefit associated with the child care expense deduction is a barrier; that if it wasn't there people wouldn't go into the paid labour force. I just can't believe you would do it for the modest amount it represents.

Ms. Beverley Smith: I agree. That's why when we were seeing in your definition of tax that you're addressing tax of dependent children and the child care deduction, basically, the issue is partly due to the single versus dual-income problem, children or not. And loss of income is the major factor, yes.

Mr. Paul Szabo: Sure.

Thank you very much. I'm absolutely sure that the only reason we're here today is because of you.

Ms. Beverley Smith: Thank you.

The Chairman: Mrs. Redman, please.

Mrs. Karen Redman: Thank you, Mr. Chairman.

I have to ask, are these four good reasons sitting in the front row while you stayed home all those years?

Ms. Beverley Smith: Yes.

Mrs. Karen Redman: Welcome.

Ms. Beverley Smith: Would you like to meet them?

Mrs. Karen Redman: Yes, we would like to meet them.

Ms. Beverley Smith: Is that okay?

My son, Jacob, is working on an MD PhD at the University of Calgary. My daughter, Sara, is in third year of art classics at the University of Calgary. Deborah is in first year of journalism at Mount Royal College—she just graduated. And Rebecca is in first year of law at the University of Calgary.

Mrs. Karen Redman: Welcome.

The Chairman: Congratulations.

Mrs. Karen Redman: It's nice to see your investments pay off.

My overriding prejudice coming to this is the fact that we ought not to be social engineering, and while I realize that we have a specific mandate, there are other things outside of the Income Tax Act that we can be using. I'm wondering if you've turned your thoughts to or would like to comment on the availability to people who have opted out of the workforce for access to training funds when they want to get back into the workforce, or the fact that they may have credits to pay into CPP so that they would have benefits when they retire at the end of their working career. Are those kinds of things, in your opinion, compelling?

I have to tell you, I'm convinced that in my own life, and in those of the people I know, it's much more than a dollars-and-cents issue for most people. It's value-laden, and a lot of times people make decisions based on what they choose for their family and how they want to raise their children. I guess I'm still trying to get at what is the greatest availability of choice that we can ensure, for both mothers and fathers, because I certainly have at-home dads in my neighbourhood who are looking after the kids.

• 1645

Ms. Beverley Smith: Yes, it is a much bigger issue. I think someone noted that the biggest problem between Dr. Hedy Fry and me is that we disagree on how to value women.

One of the things I've obviously got a big hang-up about is how you define work. If you would like to be polite, you could change government documents so as not to use those horrible expressions about dropping out of the labour force, or don't you work, and stuff like that, which is so massively insulting to women who are putting in 18-hour days. That doesn't cost you anything, and that stops alienating three million homemakers. That's one.

As to a pension, yes, I think some countries have considered a homemakers' pension. Italy has. I really find it offensive that the Government of Canada thinks it's so great that it doesn't count your years at home against you. It might not give you credit for them, but it doesn't hit you for them. I think we have to have a homemakers' pension to recognize the value of that work.

I'm unhappy when the first thing people think of in how to help homemakers is how to help them stop being homemakers. When you're trying to think of retraining programs to get them away from there, that is not recognizing being there.

Mrs. Karen Redman: I will qualify where I'm coming from on that. In regard to opting to work within the home, I have had friends who said they felt that they had no option but to go back because of the retraining, the ramping up, the fact that if you're not at your desk using your computer and you go back five years from now, your skills may be absolutely obsolete. For them, it's not dollars and cents or finding good child care; it's the fact that five years from now they may not have a skill set for which anybody wants to employ them. Therefore, by offering that kind of retraining, what you're saying is if you choose to work in the home, you choose to be the full-time parent, we will help you when you decide that you want to make a different choice.

Ms. Beverley Smith: Are you going to be helping women in the paid labour force if they want to make the decision to be home? Are you giving training for that too? We have to think of what I mean by equality.

If we didn't downplay and insult homemakers so much, we wouldn't have them thinking, oh my goodness, I can't do anything any more; I don't know how to do anything.

Regarding women who are working in the home, a friend of mine said yesterday that we have to have somebody who's a homemaker balancing the budget of Canada, because they know how to pinch pennies; they know how to cut all the frills. Really, we have become money managers. We are organizers. Pardon me, I don't mean to have a halo, but I think it's really sad that we consider homemakers stupid people you had better train. I know that's not what you're saying, but this is an impression that we get from government documents and from all those initiatives that are so anxious to train these women.

Mrs. Karen Redman: Where I'm coming from, because I really did appreciate your presentation, but you did admit that it's philosophical, is how do we take the philosophical and, through legislation, while avoiding social engineering, offer the most amount of choice? I'm going on my personal experience and women I have talked to who have said this is an impediment for me making a free choice.

Ms. Beverley Smith: So you would like to give retraining programs?

Mrs. Karen Redman: I'm saying that offering that access, offering perhaps one year of parental leave might offer choice to parents. Some countries do that. I believe in Sweden or Denmark there's a year, and the first six months can be used by the mother and the second six months by either parent.

Ms. Beverley Smith: I think that would be wonderful. I understand that Norway or one of those countries offers six years.

When you have kids who in their teenage years get really upset, feeling unsupported, and they go on some sort of shooting spree—pardon me for saying it, but I think it's pretty naive if you think the first year is going to save the kid. There is a lot more to parenting than that first year. When you're considering that you'd like to fix a problem by maybe giving money to parents to be home until the kid is one, but you're going to give money to day care users until the kid is 16, you're not looking at equality.

You want something affordable. I'm telling you it is philosophical, but I really believe in fairness. To move into the practical, I think whatever you give, give the same to every parent in Canada.

Mrs. Karen Redman: Although you would go along with taxing back at the higher end? You'd be comfortable with that?

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Ms. Beverley Smith: If you want to talk about family income versus individual income, the Government of Canada says you tax on the individual, and yet you don't give money back to us based on the individual; you do it based on the family, which is a little inconsistent.

If a homemaker has no money herself, personally, and you're trying to give her worth and dignity, then it doesn't matter what her husband earns. Do you know what I mean?

Mrs. Karen Redman: Yes.

Ms. Beverley Smith: This is her money. It's not going to be much, but it's hers, so don't tax it back, regardless of what he earned, if you're going to be consistent with the individual tax. If you're going to be consistent with the family tax, then tax it back. If her husband happens to be rich, then she gets nothing, I suppose, but then let them have a family-based tax with a separate scale for families.

Mrs. Karen Redman: Would the family tax be something you could, as a family, choose to do or not to do—

Ms. Beverley Smith: Yes.

Mrs. Karen Redman: —or something that should be done universally?

Ms. Beverley Smith: Absolutely it should be a choice, because some of the arguments raised against it are very logical, such as what about a single mom?

It's a choice. If it's to your tax advantage to go on a separate scale, being a family, then do that. If it's to your disadvantage and you'd prefer to be taxed as individuals, then do that. There's another area where if you trusted people, that would work.

Mrs. Karen Redman: Okay, thank you.

The Chairman: Thank you.

You say what you give to somebody you should give to all. Does the reverse apply? If you take away from somebody and it renders it equitable, are you satisfied with that? I'm referring to the child care expense deduction. That seems to be a source of irritation for many people. So if we were to remove it for everyone, would that, in you mind, restore the inequity?

Ms. Beverley Smith: Do you mean restore the equity?

The Chairman: Well, we're not giving it to stay-at-home parents, for example. So if we're saying nobody gets it, is that better?

Ms. Beverley Smith: I think you're asking me if I would be willing to alienate all the people who can use day care deductions and have them get less, because they'd be mad.

The Chairman: Eliminate it totally.

Ms. Beverley Smith: Right. Well, yes, they'd be mad. I mentioned that to Paul Martin in a phone call, because obviously he doesn't want to alienate anybody. His reaction was that he would like to reduce taxes for everybody, and that would be a time to address inequity. That was probably politically a good thing to do.

But in the end, if you have someone getting $7,000 and someone getting $200 and we point out to them that it might be a bit unfair, then wouldn't it be fair for them each to get $3,500? Obviously they would be furious, but they should examine the privilege they've had.

The Chairman: I'd like to look at the Quebec model, because in an awful lot of ways, Quebec, our home province, is avant-garde. They do recognize the value of the contribution of a spouse, so much so that in law, if you divorce, for example, even though the one spouse has not worked at all—

Ms. Beverley Smith: Outside the home.

The Chairman: —the distribution of assets is based on a fifty-fifty partnership. In a few other areas they're very avant-garde.

Mr. Paul Forseth: It's the same across the country.

The Chairman: Is it?

Mr. Paul Forseth: Yes, the division of assets is.

The Chairman: It's fifty-fifty too?

Mr. Paul Forseth: Yes.

The Chairman: All right.

The other thing is they also give a child tax exemption, and they allow you to even subtract from any revenues a child earns any expenses related to their education. If we were to remove the CCED, for example, in favour of a child tax exemption for everyone, a universal one, do you feel that would redress some of the inequity?

Ms. Beverley Smith: It sounds good, except I understand Quebec has universal day care.

The Chairman: Right, but you're also allowed an exemption per child, different exemptions depending on the age of the children and the number of children.

Ms. Beverley Smith: What I'm concerned about with that—and I don't know how it works—is do you get this deduction for day care? Well, actually, no, the state pays for your day care. It's $4 a day or something like that, right?

The Chairman: It's $5.

Ms. Beverley Smith: Okay, and then, besides that, you would have this universal program, so basically the day care people still get the advantage?

The Chairman: That's right.

Ms. Beverley Smith: And you're asking me if that makes me happy?

The Chairman: One is subsidized day care and the other one is recognition of the contribution and the expenses associated with raising children.

Ms. Beverley Smith: And are they equal?

The Chairman: I don't see how it discriminates, but I—

Ms. Beverley Smith: So are you paying me $5 a day to be home with my kids?

The Chairman: Those parents who are at home also have access to day care facilities.

Ms. Beverley Smith: Oh, pardon me.

The Chairman: I'm just giving you—

Ms. Beverley Smith: It's equal because you can do it my way?

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The Chairman: No. I'm asking for your opinion. I don't want to get into a debate and questions. I'm just asking your opinion.

Ms. Beverley Smith: My opinion is that it's not fair.

The Chairman: So then how do you redress some of the...? Many people have said we should move towards the old system of family allowance or making a contribution, an expense deduction for children, for example. You don't feel that would address some of the problems then?

Ms. Beverley Smith: It addresses some of them, yes. If you give anything at all, that's better than nothing, but it doesn't address all of them.

The Chairman: So do you have a figure in mind that we should be targeting? Is it $1,000 per child?

Ms. Beverley Smith: No, because I'm not a tax expert. My ideal figure is equal; that's it.

The Chairman: Okay. We'll leave it at that.

Ms. Beverley Smith: Okay.

The Chairman: I'd like to thank you very much for taking the time to share these thoughts with us. We have a meeting tomorrow morning at 9 o'clock in Toronto, and some of us are taking a flight in half an hour.

Ms. Beverley Smith: Thank you for coming.

The Chairman: Thank you.

The meeting is adjourned.