FINA Committee Report

Taxation of individuals and businesses enables governments to collect the revenues needed to provide public goods and services. The structure of the tax system can, however, also allow other policy objectives to be realized. For example, tax measures can be used to redistribute income or to alter the behaviour of individuals or corporations, and may be preferred to such other instruments of government as direct spending and regulation.

Canada has a progressive personal income tax system, whereby individuals with higher incomes pay a greater percentage of their incomes in taxes. The basic personal amount for 2004 is $8,012, and personal income tax rates for 2004 are:¹²¹

•	16% on the first $35,000 of taxable income;

•	22% on taxable income between $35,001 and $70,000;

•	26% on taxable income between $70,001 and $113,804; and

•	29% on taxable income over $113,804.

Personal income taxes are the most important source of revenue for the federal government, as shown in Figure 4.1. In 2003-2004, about 54% of total federal tax revenues and almost 46% of total federal budgetary revenues came from personal income taxes.¹²²

In 2000, the federal government announced a five-year, $100 billion tax reduction plan that lowered corporate tax rates, reduced personal income tax rates, changed the income tax bracket thresholds, increased the basic personal amount and the spousal/equivalent-to-spouse amount, eliminated the personal deficit reduction surtax, enhanced the Canada Child Tax Benefit and restored full indexation. In particular, personal income taxes, especially for low- and modest-income Canadians, were expected to be reduced by about $75 billion over the five-year period. By 2004-2005, federal personal income taxes will have been reduced by 21% on average, with the tax burden reduced by 27% for families with children.¹²³

Source:

Statistics Canada.

The tax-to-GDP ratio is an economic indicator that indicates the significance of a country’s taxes relative to its economic activity. Using taxes on personal income, Figure 4.2 presents this ratio for Canada, the United States, Australia, the United Kingdom, Sweden and the average for all member countries of the Organisation for Economic Co-operation and Development.¹²⁴

Source:

Organisation for Economic Co-Operation and Development.

In 1980, taxes on personal income as a percentage of Gross Domestic Product in both Canada and the United States were approximately equal to the OECD average of 10.4%. Since that time, however, Canada’s personal tax-to-GDP ratio has remained above that of the United States. In 2002, the ratio was 11.9% for Canada and 10.0% for the United States. The average among OECD countries in that year was 9.8%, a figure that is similar to the U.S. ratio.¹²⁵

Low- and modest-income tax filers may receive the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit, which is designed to offset GST and/or HST paid by them. The tax-free payment, which is paid quarterly, is based on the number of children for whom the tax filer has registered for the Canada Child Tax Benefit or the GST/HST credit; and family net income.¹²⁶

Finally, an amendment to the October 2004 Speech from the Throne advocated consideration of reduced taxes for low- and modest-income families.¹²⁷

While the Committee’s witnesses provided many ideas about changes that should be made to personal income taxation, their proposals often on tax rates and tax brackets. Some witnesses argued that tax changes should be targeted in order to assist low and middle-income Canadians. In their view, across-the-board tax cuts may be relatively costly and may not have the intended effects. As well, tax relief is needed by these families because they face the highest effective marginal tax rates once clawbacks are considered. The federal government was also urged to eliminate income taxes completely for low-income families with children; under this proposal, taxes would begin to be paid at $10,000 this year, with the $10,000 threshold rising by $1,000 each year for the next three years. It was also recommended that tax rates for the upper income thresholds be raised.

Across-the-board personal income tax rate reductions were advocated by some witnesses, while others argued for increases in the basic personal amount and the spousal/equivalent-to-spouse amount; one proposal involved an increase in the value of these amounts to $10,000 over two years and to $15,000 within five years, indexed to inflation. In the view of these witnesses, our personal tax burden — which is too high — is reducing productivity, deterring wealth creation and making Canada less competitive than the United States. They believe that the five-year personal tax reduction plan announced in 2000 has had a positive impact on the economy without depleting government revenues, and should be repeated.

Some witnesses on personal income tax bracket thresholds, rather than the income tax rates. For example, it was suggested that the upper threshold for the third tax bracket should be raised from $113,804 to $150,000. According to this view, such an increase would make the Canadian personal income tax system more competitive with the United States, which could halt the “brain drain” to the United States and could make it easier for Canadian employers to attract and retain American workers or Canadians who have been working in the United States.

Other witnesses advocated no changes in personal income taxation, feeling that tax reductions would decrease federal revenues to the point that the federal government would be unable to finance needed program spending.

As well, a broad range of other issues related to personal taxation were brought to the Committee’s attention, many of which were limited in application to a narrow group of taxpayers. These other proposals included:

•	income averaging over a five-year period for self-employed Canadians, including artists who can have highly variable income from year to year;

•	the deductibility of expenses for tools incurred by construction workers and by automobile mechanics;

•	changes to withholding taxes on dividends, interest and royalties;

•	an exemption for annual copyright income, up to a limit of $60,000;

•	an exemption for annual artistic income, up to a limit of $60,000;

•	measures related to the taxation of off-farm income and restricted farm losses;

•	a reduction in the administrative burden associated with taxation, including motor vehicle deduction expenses;

•	the elimination of the education and tuition fee tax credit for those earning more than $70,000;

•	a clarification of what constitutes a legitimate business expense;

•	the deductibility of interest and other expenses;

•	tax deductions for teachers;

•	the deductibility of meals for truck drivers;

•	the taxable benefit status of employer-subsidized transit fares;

•	the deductibility of forest management expenses;

•	the double taxation of dividend income;

•	tax discrimination based on marital status;

•	the taxation of large intergenerational transfers of wealth; and

•	the allocation of taxable income for those residing in a Hutterite colony.

Several witnesses commented on the personal tax treatment of dividends and withholding taxes on dividends and interest payments to non-residents. As well, the Committee was told about the double taxation of dividends paid by large and medium-sized businesses, with the result that dividends are taxed at a higher rate than are capital gains, and about the relatively higher rate of dividend taxation in Canada when compared to the United States. Finally, we were told that the elimination of withholding taxes on dividends and interest payments to non-residents could lead to increased inflows of foreign capital investment, which would benefit the Canadian economy.

EMPLOYMENT INSURANCE ISSUES

The Committee believes, like some of our witnesses, that the federal government’s five-year tax plan announced in 2000 has been beneficial. Lower personal income taxes have several benefits: they help alleviate what is often referred to as “the brain drain;” they reduce the tax burden on individuals, which means that the country’s citizens have a higher level of disposable income that they can then save or spend on the products that they want; and they improve incentives to work. On balance, we believe that personal tax reductions are stimulative, thereby contributing to economic growth.

The Committee believes that personal taxes on investment income have important implications for Canada’s capital markets and the ability of Canadian businesses to access the capital they need to form, grow and prosper. We trust the Recommendations 13 and 16 — recommending that the federal government review, respectively, the tax treatment of dividend income and non-resident withholding taxes as well as the tax treatment of capital gains — will address issues related to the personal taxation of investment income.

Like some of the Committee’s witnesses, we also feel that changes to the personal income tax system are needed in order to achieve a number of goals: to increase the degree to which low- and modest-income Canadians are supported by the federal government; to ensure that Canadians continue to be provided with the correct incentives to work and save; to increase personal disposable income as an aid to economic growth and to make the economy more competitive; to halt any “brain drain” that might occur; and to lead Canada to be seen — by its citizens as well as by the global community — as a desirable place in which to live and work. Consequently, the Committee recommends that:

RECOMMENDATION 24

The federal government undertake a comprehensive review of the personal taxation system in Canada, including:

•	the value of the basic personal amount;

•	the value of the spousal/equivalent-to-spouse amount;

•	the thresholds of the income tax brackets;

•	the income tax rates; and

•	differential treatment of dual- and single-income households.

•	This review should be undertaken with a view to ensuring that Canada’s personal taxation system is both fair and as competitive with other countries, particularly the United States, as possible.

Moreover, in the review of the personal taxation system, particular attention should be paid to how the system might be modified to assist those with low income.

As noted in Chapter Three, the Employment Insurance (EI) program provides temporary financial assistance to unemployed Canadians while they look for work or upgrade their skills, while they are pregnant or caring for a newborn or adopted child, while they are sick, or while they are providing temporary compassionate care or support to a family member who is gravely ill with a significant risk of death.

The EI program is financed by employer and employee contributions, with employers subject to a contribution rate that is 1.4 time the employee rate. For 2004, the employee and employer contribution rates are, respectively, $1.98 and just over $2.77 for every $100 of insurable earnings up to $39,000 in insurable earnings; consequently, the maximum employee contribution is $772.20 and the maximum employer contribution is $1,081.08.¹²⁸ As indicated in Chapter Three, the employee and employer contribution rates will be reduced to $1.95 and $2.73 respectively for 2005. As shown in Figure 3.4 in Chapter Three, EI premium rates have declined each year since 1994, when the employee and employer rates per $100 of insurable earnings were $3.07 and $4.30 respectively.¹²⁹

The annual maximum for insurable earnings applies to each job held by the employee with different employers; while overcontributions by employees who hold a number of jobs in a year are refunded to them, the same is not true for employers. Entitlement to benefits, and the duration of any benefit paid, depend on the employee’s hours of work. Benefits are subject to a maximum entitlement, and the amount of any benefit may be affected by earnings. As well, some benefits may have to be repaid under certain circumstances.

For many years, the Employment Insurance Account, established as a specified purpose account in the Accounts of Canada, has had a surplus, as shown in Figure 3.5 in Chapter Three. Benefits and administrative costs are paid out of the Consolidated Revenue Fund and are charged to the EI Account, and an account surplus receives interest at a rate established by the Minister of Finance. According to the Report on Plans and Priorities 2004-2005 for Human Resources and Skills Development Canada, in 2004-2005 the cumulative surplus is expected to reach $47.2 billion.¹³⁰

In the Auditor General of Canada’s December 2002 report, the federal government was criticized for accumulating surpluses that exceed the $15 billion target set by the Chief Actuary. The Auditor General urged the government to clarify the EI rate-setting process and to improve its transparency.¹³¹ The 2003 federal budget announced public consultations on a new rate-setting regime.¹³²

Finally, with an amendment to the October 2004 Speech from the Throne, it was recommended that an arm’s length, tripartite commission be established to ensure that employment insurance premiums are used only for workers’ benefit.¹³³

Chapter Three presents some of the comments made by witnesses about the Employment Insurance program, although many are worth reiterating. In general, the Committee’s witnesses spoke about the surplus in the Employment Insurance Account, premium rates, the sharing of program costs, participation in the program by self-employed workers, overcontributions by employers in certain circumstances and the notion of a yearly basic exemption analogous to that which exists within the Canada Pension Plan.

In addition, witnesses recommended that the Employment Insurance Act be amended to increase eligibility for benefits by introducing a uniform 360-hour qualifying requirement, and to extend the EI benefit period to one year to protect all earners, including low-income parents, when the economy is in recession. The Committee also heard suggestions that maternity/parental benefits should be increased to cover 75% of lost income and that they be expanded to cover self-employed parents and parents enrolled in educational or training institutions.

The Committee believes that the Employment Insurance program plays a critical role in ensuring that employees who are temporarily absent from the workplace for a period of time are provided with a source of income that enables them to meet their needs. In our view, it is important that EI program participants be able to access benefits when they need them, that the qualifying requirement be reasonable, that the benefits paid be adequate in size and duration, and that premium rates be set appropriately.

The Committee is reminded of the May 2001 report by the House of Commons Standing Committee on Human Resources Development and the Status of Persons with Disabilities entitled Beyond Bill C-2: A Review of Other Proposals to Reform Employment Insurance. Moreover, as indicated in Chapter Three, the Subcommittee on the Employment Insurance Funds of the House of Commons Standing Committee on Human Resources, Skills Development, Social Development and the Status of Persons with Disabilities is currently studying these issues. While we look forward to the Subcommittee’s report, we wish to make one recommendation at this time. Therefore, the Committee recommends that:

RECOMMENDATION 25

The federal government, while considering the forthcoming recommendations of the Subcommittee on the Employment Insurance Funds of the House of Commons Standing Committee on Human Resources, Skills Development, Social Development and the Status of Persons with Disabilities, amend the Employment Insurance Act so as to establish a transparent employment insurance rate-setting process.

ABORIGINAL CANADIANS

Almost every economic, social and health indicator suggests that Canada’s Aboriginal peoples generally experience a lower quality of life than other Canadians. Unemployment and prison incarceration rates are relatively higher, suicide rates among Aboriginal youth are the highest in Canada, and average life expectancies for Aboriginal Canadians are the lowest in the country. Moreover, Aboriginal labour force participation and employment rates, as well as median income, are lower and relatively fewer Aboriginal Canadians pursue post-secondary education.

Federal government support for Aboriginal Canadians occurs mainly through Indian and Northern Affairs Canada and Health Canada, although spending also occurs through other federal departments and agencies, as shown in Figure 4.3. In particular, each year, Parliament approves appropriations to Indian and Northern Affairs Canada for funding arrangements that support a range of programs and services in Aboriginal communities, including capital facilities, elementary and secondary education, social assistance, housing, health services and economic development initiatives. Most of the budget is managed by First Nations directly, while another portion is transferred to the provinces/territories for the delivery of services to Aboriginal Canadians.

Source:

Indian and Northern Affairs Canada, Reports on Plan and Priorities.

To recognize the health, education, infrastructure, employment and other needs of Aboriginal Canadians, the federal government has developed programs and allocated funding in a range of areas.¹³⁴

In 1999, the federal government initiated the Aboriginal Human Resources Development Strategy, with an allocation of $1.6 billion over five years to help Aboriginal peoples develop their skills as well as find and retain employment with the assistance of Aboriginal organizations across Canada. The 2004 federal budget indicated continued support of the Strategy, with funding of $125 million over five years. The 2003 budget provided $85 million over five years for Aboriginal Skills and Employment Partnerships to facilitate access to training and employment opportunities.

The federal government has also invested in the early years of Aboriginal children. In 2002, the government announced an investment of $320 million over five years to support and enhance the early childhood development of Aboriginal children; this initiative complements the 2000 Early Childhood Development agreement announced by First Ministers. The 2003 federal budget committed $355 million over five years for early childhood development, with a particular focus on First Nations on reserves.

Specific initiatives for Aboriginal children include: Aboriginal Head Start On Reserve; Aboriginal Head Start (Urban and Northern Communities); First Nations and Inuit Child Care; Fetal Alcohol Syndrome/Fetal Alcohol Effects; New Research Initiatives; and the First Nations Child & Family Services Program. The Head Start initiatives have six program components: culture and language; education and school readiness; health promotion; nutrition; social support; and parental and family involvement. The First Nations and Inuit Child Care initiative, which supports more than 7,000 child care spaces in 390 communities, is part of the Aboriginal Human Resources Development Strategy.

Education of Aboriginal Canadians also receives federal support. For example, the 2001 federal budget allocated $60 million over two years to the Special Education Program for Aboriginal children living on reserves who have special learning needs at school, and the 2003 budget allocated $35 million over two years to address issues such as the high turnover among teachers in some First Nations schools as well as the need to affirm and support the active involvement of parents and other family members in their children’s education. The budget also allocated $72 million to improve educational outcomes for Aboriginal peoples and to ensure they are provided with training and employment opportunities on major projects across Canada.

Specific educational support is provided through such initiatives as the Post-Secondary Student Support Program and the University College Entrance Preparation Program, which assist with education-related costs, as well as the Indian Studies Support Program, which supports the development and delivery of special programs. At the elementary and secondary school level, funding is provided to Band Councils or other First Nation education authorities through the Elementary/Secondary Education Program.

Programs also exist for Aboriginal peoples living in urban centres, including the 2003 federal budget’s announcement of $17 million over two years for cost-shared pilot projects that will explore ways to better meet the needs of urban Aboriginal peoples in select cities. The Urban Aboriginal Strategy was extended in the 2004 budget to 2006-2007, with a doubling of its total budget from $25 million to $50 million.

Specific support for Aboriginal infrastructure occurred in the 2003 federal budget, when the federal government committed $600 million over five years to upgrade, maintain and monitor water and waste water systems on reserves, as well as ongoing efforts to ensure that all reserve communities have dependable water systems.

Aboriginal health is also an important issue, and the 1999 federal budget provided funding for a First Nations and Inuit home and community care program and a First Nations health information system. One component of health efforts is the Adult Care Program, which assists registered First Nations individuals on reserves who have functional limitations resulting from age, health problems or disability and require care; in-home care, foster care and institutional care are provided. Moreover, the 2003 budget allocated $1.3 billion over five years to support the First Nations and Inuit Health Program as part of the First Ministers’ Accord on Health Care Renewal.

Other support includes:

•	$42 million over two years, announced in the 2003 federal budget, for the First Nations Policing Program;

•	$172.5 million over 11 years, announced in the 2003 federal budget, to support the creation and operation of an Aboriginal languages and culture centre under the stewardship of Aboriginal peoples;

•	additional support of $10 million annually, announced in the 2003 federal budget, to Aboriginal Business Canada;

•	$6 million over two years, announced in the 2003 federal budget, for the Office of the Federal Interlocutor for Métis and Non-Status Indians; and

•

access to such initiatives as the Canada Mortgage and Housing Corporation’s Residential Rehabilitation Assistance Program (RRAP) On-Reserve, the Conversion RRAP, the Shelter Enhancement Program, the On-Reserve Non-Profit Housing Program and the Loan Insurance Program On-Reserve with Ministerial Loan Guarantee.

Finally, the October 2004 Speech from the Throne noted the September 2004 meeting of First Ministers and Aboriginal leaders, where the federal government undertook to allocate $700 million for purposes such as: greater Aboriginal participation in the health professions; addressing chronic disease; and creating an Aboriginal health transition fund. The Speech also indicated that the federal government and Aboriginal peoples will develop specific quality-of-life indicators and a report card as drivers of progress and accountability.¹³⁵

The Committee heard from First Nations peoples — both those who live on-reserve and those who live off-reserve — the Inuit and the Métis. In general, they shared the same concerns with us about inadequate health care, inadequate and substandard housing, insufficient educational opportunities and support, infrastructure that is in disrepair, a lack of access to economic opportunities, insufficient early childhood development and child care, and inadequate skills training and labour market development assistance, among others.

Given their commonality of concerns, there was some similarity in what the witnesses advocated to improve the quality of their life. Moreover, as citizens of this country, it is not surprising that some of their needs mirror those of other Canadians, although their need is often more urgent. For example, the Committee was told that Aboriginal peoples need adequate housing, and the ability to repair their housing as required; a First Nations housing and infrastructure strategy was suggested, with a housing survey, inventory and inspection to determine the state of the housing and the funds needed to repair substandard housing, among other elements. As well, we were informed that infrastructure funds beyond those committed in recent federal budgets are needed to address the infrastructure deficit that exists with respect to water and waste water systems, and other infrastructure inadequacies.

While the Early Childhood Development strategy for Aboriginal peoples does provide some assistance, the Committee was informed that key elements are not included in the strategy, such as maternal health, parenting, services for special needs children and assistance for vulnerable families. Funding is also needed as children progress through school, since student assessment is needed in some cases, and First Nations culture and language programming in school must be enhanced. The Committee was told that additional funds are also needed for First Nations-controlled colleges, institutes and community learning centres, and for post-secondary student supports.

As well, the Committee heard that funding for Aboriginal health care must be adequate and must contain an escalator clause to recognize inflation, growing demands and increasing population; multi-year funding commitments should be made to facilitate planning. Mention was also made of the dental care needs of Aboriginal peoples.

The Committee also heard about the particular challenges faced by Aboriginal women who live on reserve and divorce their spouse. We were informed about problems associated with the division of matrimonial property in these situations. For example, because these women are unlikely to receive a 50% interest in the matrimonial home when the relationship is dissolved, they often must leave their community in their search for affordable housing.

Finally, witnesses — including some who do not represent Aboriginal peoples — advocated the commitment of resources to settle outstanding land rights obligations.

The Committee believes that Canada’s Aboriginal peoples are among the most disadvantaged and vulnerable individuals in our country. In our view, the prosperity and quality of life enjoyed by most Canadians must also be experienced by our Aboriginal peoples. Anything less than this equality is unacceptable.

Consequently, the Committee feels that federal funding for Aboriginal education, health and infrastructure — regardless of whether the Aboriginal peoples live on- or off-reserve — must be adequate and delivered in a manner that is as effective and efficient as possible. The governance concerns and divergent needs of Aboriginal Canadians must also be respected. In the event that the federal government determines that health, education, early childhood development, infrastructure and other investments should occur through general programs rather than through programs specifically targeted for Aboriginal peoples, we are concerned that funds not be allocated strictly on the basis of population. It is from this perspective that the Committee recommends that:

RECOMMENDATION 26

The federal government meet with Aboriginal Canadians and ensure that programs are designed and delivered in a manner that addresses their health, education, housing, infrastructure, early childhood development and care, and other needs.

In particular, these programs should:

•	respect the rights and governance concerns of Aboriginal Canadians;

•	be delivered within the context of the Canadian constitution;

•	be sufficiently flexible to meet the diverse needs of Aboriginal Canadians; and

•	permit funding allocations that reflect the relatively small population base as well as the size and geographically large and remote nature of their communities.

CHILDREN

The federal government supports Canadian children through a range of initiatives, programs and projects either funded directly by federal departments or indirectly through grants and research funds provided to community groups for specific goals and objectives related to child development.

In 1997, federal and provincial/territorial governments launched the National Children’s Agenda. Federal investments associated with this commitment include the Canada Child Tax Benefit (CCTB) announced in 1997, the National Child Benefit (NCB) Supplement (NCBS) announced in 1998, and the Early Childhood Development (ECD) initiative concluded by governments in 2000. The federal government has also extended and improved the parental benefit available under the Employment Insurance program and introduced the Child Disability Benefit (CDB) in 2003.

The CCTB provides a tax-free monthly payment to eligible families with children under the age of 18. The benefit was enhanced by the introduction of the NCBS, which provides additional monthly assistance to low-income families with children and is paid regardless of whether parents participate in the workforce or receive social assistance. The provinces/territories may reduce the amount they provide in social assistance to these families by the amount of the federal supplement, and re-invest the funds in provincial/territorial programs in five areas: child benefits and earned income supplements; child care initiatives; services for early childhood and children at risk; supplementary health benefits; and other services. The monthly Child Disability Benefit (CDB) assists eligible families with children suffering from a severe and prolonged mental or physical impairment.

For 2004-2005, the annual CCTB payment is $1,208 for each child under age 18.¹³⁶ A supplement of $84 per year is paid for the third and each subsequent child, with an additional $239 payable for each child under age 7, although this latter supplement is reduced by 25% of any amount claimed for child care expenses. As well, a benefit reduction occurs if family net income exceeds $35,000. In particular, the reduction is 2% of the amount of family net income in excess of $35,000 for one-child families and is 4% for those with two or more children.¹³⁷

Moreover, for 2004-2005, the NCB Supplement is paid at the rate of $1,511 per year for one-child families, reduced by 12.2% of family net income that exceeds $22,615. For families with two children, the annual amount of $2,806 is reduced by 22.7% of family net income exceeding $22,615. Finally, families with three or more children receive an annual supplement of $2,806 for the first two children and $1,215 annually for the third and each subsequent child, with the total reduced by 32.5% of family net income exceeding $22,615.¹³⁸

The tax-free Child Disability Benefit provides, in 2004-2005, up to $1,653 annually to eligible families; that is, to those families having a child with a severe and prolonged disability. The amount of the benefit is calculated on base income, which is determined by the number of children for whom the CCTB is received. If family net income exceeds the base amount, the CDB is reduced by 12.2% of family net income exceeding the base amount in the case of one child qualifying for the CDB; by 22.7% in the case of two children qualifying for the CDB; and by 32.5% in the case of three or more children qualifying for the CDB.¹³⁹

Parents can also claim the child care expense deduction, which allows child care expenses to be deducted where those expenses were incurred in order to earn employment income, operate a business, attend school under certain conditions or carry on research or similar work for which a grant was received. Net income is used to determine who will claim the expenses, and claiming these expenses may affect the value of the supplement available under the CCTB for children under 7 years of age.¹⁴⁰

In 2000, First Ministers announced the Early Childhood Development initiative, under which the federal government agreed to transfer $2.2 billion in funds over five years to provincial/territorial governments through the Canada Health and Social Transfer to improve and expand early childhood development programs in the areas of: healthy pregnancy, birth and infancy; parenting and family supports; early childhood development, learning and care; and community supports. In 2002, the federal government announced an additional investment of $320 million over five years to support the early childhood development of Aboriginal children.¹⁴¹ Moreover, in 2003, the federal government indicated that, after 2005-2006, annual funding of $500 million would be provided.¹⁴²

As well, in 2003, federal and provincial/territorial ministers responsible for social services renewed their commitment to child development, and agreed to implement the Multilateral Framework on Early Learning and Child Care (ELCC), which is an expansion of the ECD initiative. Under this framework, the federal government agreed to provide $900 million over five years to provincial/territorial governments to improve access to affordable, quality and provincially/territorially regulated early learning and child care programs; this transfer, as well as the transfer associated with the ECD agreement, now occurs under the Canada Social Transfer.¹⁴³ Federal funding of this initiative was increased by $150 million in the 2004 federal budget.¹⁴⁴ Within the Framework, the federal government committed $35 million over four years for early learning and child care services for First Nations children living on reserves, an amount that was augmented by $10 million over four years in the 2004 budget.¹⁴⁵

The 2004 federal budget also extended the community research pilot project “Understanding the Early Years,” designed to provide research information to strengthen communities’ ability to decide on the best policies and programs to support families with young children. Started in 1999, the budget announced an extension of the project to more than 100 communities over seven years, with funding of $14 million over two years.¹⁴⁶

Finally, the October 2004 Speech from the Throne suggested that “[t]he time has come for a truly national system of early learning and child care, a system based on the four key principles [of] quality, universality, accessibility and development.”¹⁴⁷ Figure 4.4 shows the various means by which society can benefit from spending on child care.

Figure 4.4: Child Care and the Benefits to Society

Source:

Childcare Resource and Research Unit.

With respect to children, the Committee’s witnesses generally commented on tax measures and supports that they believe would assist Canadian children and their parents. Many supported the development of a comprehensive national system of early childhood education and child care, noting that new investments in child care are important because of the many positive economic and social benefits that result from such investments. The Committee learned that Canada currently spends about 0.2% of GDP on early learning, which is about one-half the average amount spent by other industrialized countries in the OECD. It was suggested that the federal government should substantially increase its funding for a national system of universal child care that is accessible in all regions of Canada — urban, rural and remote — and to all Canadians, including Aboriginal families who live on- and off-reserve as well as disabled children.

The Committee was also told that the federal government should make a commitment to annual increases in early childhood education and child care services, to reach $6 billion by 2008. Other witnesses urged the government to establish a schedule for federal funding to reach 1% of GDP by 2020. In their view, this schedule should outline goals and timelines for funding and service provision in five-year increments over a 15-year period. The 15-year plan would involve federal funding of $5 billion annually by the fifth year of implementation, $8 billion annually by the tenth year and $10 billion annually by 2020.

Many witnesses urged the federal government to enact legislation that would guarantee that governments would allocate funds in accordance with the principles of universal entitlement, high quality, inclusiveness, comprehensiveness, affordability, public/non-profit administration and accountability in the delivery of the services. It was also stressed that a national child care strategy should ensure the full inclusion of children with disabilities. Witnesses also supported the principle that parents should not contribute more than 20% of the overall cost along with a phase-out of the Child Care Expense Deduction. Moreover, it was recommended that the government enter into direct agreements with regional governments in the event that a provincial/territorial government decides not to participate in a national plan.

Not all witnesses, however, believed that the federal government should institute a national child care program. The Committee was told that rather than investing in institutional, universal, subsidized child care, the government should introduce a child tax credit or a personal income tax exemption for each child.

The Committee was reminded that paid employment does not provide a guarantee against poverty. We were informed that 56% of low-income Canadian children in 2001 lived with parents who were in the paid workforce. Consequently, it was recommended that a federal-provincial-territorial living wage commission be established to study and make recommendations on a range of issues affecting wages, hours of work, benefits, collective bargaining and barriers to employment.

Some witnesses were very concerned about child poverty, and told the Committee that, over the past 30 years, the child poverty rate has remained above 15%, despite strong economic growth since the late 1990s. This rate means that an average of one Canadian child in every six has been growing up in conditions of poverty during the past 30 years. To combat child poverty, it was recommended that the federal government commit at least 1.5% of Canada’s GDP annually to a social investment plan for children. Funding for this plan could come from a variety of sources, including federal budgetary surpluses or higher personal income taxes for high income earners.

Witnesses also suggested that the federal government should consolidate the Canada Child Tax Benefit and the National Child Benefit into a single program in order to eliminate the possibility of provincial/territorial clawbacks. It was also recommended that the maximum benefit be raised to $4,900 per child by 2007. If the increase in the benefit were phased-in over three years, witnesses estimated that an additional $4 billion in 2005, $3 billion in 2006 and $3 billion in 2007 in federal funding would be required.

Other witnesses proposed a different approach. They recommended that the rate of reduction — or clawback — for the National Child Benefit Supplement be reduced to 10% regardless of the number of children, and that the threshold at which the CCTB begins to be clawed back be raised accordingly. They stressed that in no instance should there be a simultaneous reduction in the NCB and the CCTB, since when the Supplement’s clawback rate is added to regular federal and provincial/territorial tax rates, as well as to contribution rates to the Employment Insurance program and the Canada/Québec Pension Plans and the reduction in the GST tax credit, families with low and modest incomes pay about $0.60 in taxes for every $1 earned between $30,000 and $35,000. When other expenses such as child care and other reduction rates applied to provincial/territorial tax credits are considered, it may be more costly for a parent to enter the labour force than it is for that parent to remain at home. This unintended consequence can be a significant deterrent for parents of young children to enter the labour market or to increase their labour force participation, resulting in a net loss for the economy and the federal treasury as well as a deterioration in labour market skills.

The Committee believes that governments must work together in funding and delivering initiatives that will meet the needs of children of all ages. Canadians expect, and deserve, this coordinated effort by governments. Such an approach will require a focus on measures to eradicate child poverty as well as early childhood development and care, in order that no child in Canada is hungry, inadequately housed or clothed, or unable to fully realize his potential.

Many of the initiatives require that the federal and provincial/territorial governments work together to implement needed solutions, since initiatives involve a shared jurisdiction. The Committee is confident that the federal and provincial/territorial governments — which share the same goals regarding Canada’s children — will be able to work together cooperatively. We caution, however, that in so doing, governments must focus on children of all ages and the full range of needs, and not limit their focus to younger children or non-disabled children. We also note that the budget making process involves making choices, and although a number of our witnesses recommended changes to the CCTB and the NTB, among other measures, we believe that such an increase is not possible at this time; instead, other actions — those of direct benefit to children and those from which children will benefit indirectly — should occur. Therefore, the Committee recommends that:

RECOMMENDATION 27

The federal government, along with interested provincial/territorial governments, at the earliest opportunity announce initiatives to reduce child poverty. These initiatives should include a national, accessible, affordable, high-quality, publicly funded, publicly regulated, not-for-profit child care system.

Provincial/territorial governments that decide not to participate in these initiatives — but that instead institute their own initiatives — should receive appropriate compensation.

DISABLED CANADIANS

Disabled Canadians often need support — financial and otherwise — if they are to participate fully at the workplace and in the community, and to have a quality of life and standard of living that is as similar as possible to that of non-disabled Canadians. Statistics Canada data indicate that, in Canada, more than 3.4 million people over the age of 15 reported some level of disability in 2001, representing 14.6% of the adult population. These figures can be compared to the 3.6 million Canadians in the total population with activity limitations, representing a disability rate of 12.4% in that year.¹⁴⁸

In terms of severity, the disability rate in the adult population in 2001 was 5.0% for a mild disability, 3.6% for a moderate disability and 5.9% for a severe or very severe disability. Among the adult disabled population, 34.1% reported a mild disability, 25.0% a moderate disability, and 40.9% a severe or very severe disability. In 2001, the disability rate was higher among adult women than among adult men, and the disability rate rose with age, as shown in Figure 4.5. The rate in that year was about 10% among adults 15 to 64 years, rising to 40% among those aged 65 and over. Moreover, at 13.3%, women were more likely in 2001 to report disability than men, at 11.5%. The incidence of disability for women begins to exceed that for men beginning at age 25.¹⁴⁹

Source:

Statistics Canada, Participation and Activity Limitation Survey, 2001.

Approximately 118,000 children aged 0 to 14 in 2001 were affected by a disability related to one or more chronic health conditions that cause activity limitations. Developmental delay was the most common disability identified in 2001 among children aged 0 to 4, while learning disabilities were most commonly identified among children 5 to 14 years; about 46,000 children aged 5 to 14 had a developmental disability. As well, in that year, 41,000 children aged 0 to 14 had hearing and vision difficulties. Moreover, about 67,000 children 5 to 14 years were identified as having a speech-related disability in 2001, and about 49,000 were identified by a parent as having activity-limiting emotional, psychological or behavioural conditions.¹⁵⁰

The income tax system is one mechanism used by the federal government to financially support Canadians with disabilities.¹⁵¹ Because of their disabilities, many disabled adults face additional costs that are not reimbursed by public or private programs that provide disability-related supports and services. As a result, federal tax expenditures — including the Disability Tax Credit and the Medical Expenses Tax Credit — assist these individuals in meeting some of the expenses incurred as a result of their disability.

The Disability Tax Credit (DTC) is a non-refundable credit that reduces the amount of federal income tax payable by up to $1,004.64 in 2003 when claimed by a person with a severe and prolonged mental or physical impairment. Part or all of the credit may be transferred to a spouse, common-law partner or other supporting person. The supplement for a child under age 18 may reduce federal tax payable by up to $586.08, since the value is reduced if child care and attendant care expenses exceeding $2,415 are claimed for the child.¹⁵² The attendant care expense deduction may provide tax assistance to those entitled to claim the DTC and who have incurred personal care expenses that are required in order for them to earn certain types of income or attend school. As mentioned earlier, the 2004 federal budget announced the creation of a $1,600 child disability benefit for families who receive the National Child Benefit supplement and who have a child that qualifies for the DTC.

The non-refundable Medical Expenses Tax Credit also provides tax assistance to disabled persons who have significant medical expenses on behalf of themselves or certain of their dependents. The amount of the credit is calculated by applying the lowest personal tax rate percentage, which is now 16%, to the amount of qualifying medical expenses that exceed certain amounts. The 2003 federal budget expanded the list of expenses eligible for the credit. A refundable medical expenses tax credit supplement may also be available.

Tax assistance intended to benefit caregivers include a supplement to the DTC for families caring for children with a severe and prolonged impairment, and the 2004 federal budget announcement allowing caregivers to claim up to $5,000 of the medical and disability-related expenses incurred on behalf of dependent relatives. Tax assistance related to disabled persons is also given through such tax measures as the Caregiver Tax Credit and the amount for infirm dependents.

Other tax-related measures that assist disabled Canadians and those who care for them include the 2003 federal budget announcement that will allow more infirm children to receive a tax-free rollover of a deceased parent’s or grandparent’s registered retirement savings plan (RRSP) or registered retirement income fund proceeds, and the creation for the 2004 taxation year of a deduction for disability supports incurred for purposes of education or employment.

Disabled Canadians are also often disadvantaged in the labour market for a variety of reasons, including: attitudinal barriers; the absence of workplace accommodations, such as workplace design and flexible working hours; inadequate training; the lack of accessible transportation; inappropriate tax treatment of disability-related expenses; and disincentives in disability pensions and insurance plans.

Beginning in 1997 with annual funding of $30 million, the Opportunities Fund for Persons with Disabilities assists disabled persons to prepare for, and obtain, employment or self-employment, and to develop the skills needed to maintain employment. Working in partnership with others, the federal government supports the integration of disabled persons into the labour market and addresses barriers to their labour market participation. The Fund is designed to assist in the return to work by disabled persons.¹⁵³

As well, the federal government plays a role with respect to the successor to the Employability Assistance for People with Disabilities initiative, the Multilateral Framework for Labour Market Agreements for Persons with Disabilities reached in December 2003 by ministers responsible for social services. The goal of this framework and the resulting agreements is improved employment situations for disabled persons through enhanced employability and increased employment opportunities.¹⁵⁴ Earlier in 2003, the federal budget had renewed federal funding for the Employability Assistance for People with Disabilities initiative and its successor. The funding commitment is $193 million annually.

Federal support for the employment and training activities of disabled Canadians also occurred in the 2004 federal budget, with the creation of a new deduction for disability supports mentioned earlier. The budget also increased funding for the Multilateral Framework by $30 million annually beginning in 2004-2005, and indicated that changes would be made to the Canada Pension Plan in order that Canada Pension Plan disability benefits could be reinstated if a former recipient is required to cease working for reasons related to disability within two years of returning to work.

Furthermore, disabled Canadians may benefit from the Canada Mortgage and Housing Corporation’s Residential Rehabilitation Program for Persons with Disabilities, which may provide financial assistance to homeowners and landlords modifying dwellings occupied by, or intended for occupancy by, low-income persons with disabilities.¹⁵⁵ As well, the 2003 federal budget announced the establishment of the Technical Advisory Committee on Tax Measures for Persons with Disabilities, which will advise the ministers of Finance, and National Revenue. It is expected that the Committee will provide a report to the ministers in December 2004. Funding was also allocated in the 2004 budget for a Participation and Activity Limitation Survey to be conducted as part of the 2006 census. Those who are students may benefit from the 2004 budget announcement of a grant for students with disabilities of up to $2,000 annually.

Finally, the October 2004 Speech from the Throne committed the federal government to improving existing tax-based support, to asking Parliament to consult nationwide on additional initiatives, and to assisting through the recommendations that will be made by the Technical Advisory Committee on Tax Measures for Persons with Disabilities.¹⁵⁶

Witnesses shared with the Committee an indication of both the challenges faced by disabled Canadians and measures that would improve their financial situation and enable them to contribute to the economic and social life of Canada, as well as to realize their potential. For example, needs related to disability supports, poverty, equality of opportunity and full citizenship rights were identified.

In addressing the issue of disability supports, several witnesses indicated that the priority is a commitment by the federal government to a long-term investment for disability-related supports. A long-term plan is required to advance the full citizenship and inclusion of people with disabilities. The Committee heard that the use of the tax system has limitations and that — at this point in time — direct federal spending would make a significant difference to disabled persons who are living in poverty, experiencing problems accessing the labour market and needing support. Several witnesses recognized that disability-related supports fall primarily within provincial/territorial jurisdiction and, consequently, suggested that any plan — such as a federal-provincial-territorial transfer — must be based on agreed priorities established at the provincial/territorial level through a process of consultation with the disability community.

Witnesses informed the Committee that people with disabilities generally have the lowest incomes of all Canadians. Therefore, according to them, the Disability Tax Credit would better assist disabled Canadians if it were a refundable tax credit. As well, witnesses identified a number of aspects of the disability component of the Canada Pension Plan that should be improved; these aspects of the Plan were indicated in the 2003 report by the House of Commons Standing Committee on Human Resources and the Status of Persons with Disabilities entitled Listening to Canadians: a First View of the Future of the Canada Pension Plan Disability Program. Witnesses said that the changes suggested would not impose a major financial burden on the federal treasury.

A recurring theme among the Committee’s witnesses who addressed disability issues was the need for an integrated approach to policy development for disability supports. It was recommended that the federal government initiate a review of federal programs and services to identify and remove barriers encountered by persons with disabilities. As well, witnesses outlined the importance of appropriate federal investments to ensure the full inclusion of children with disabilities and their families in a national child care strategy, and urged the government to develop an agenda to ensure that children with disabilities fully participate, and are fully engaged, in all aspects of community life.

Also brought to the Committee’s attention was the need for the federal government to develop a long-term national disability agenda. This agenda would support, among other things, the development of a strong research and knowledge network, a reporting and monitoring mechanism to track policy development and outcomes across key policy areas, a community forum to seek input from the disability community, and a policy table — modeled on the Technical Advisory Committee on Tax Measures for Persons with Disabilities — to develop specific policy recommendations.

Moreover, the Committee was told that about 10% of Canadians cannot access regular print due to a disability, and therefore require that material be translated from print to an alternative format, such as audio, electronic text or Braille. At the present time, however, 3% of published material is available in one of these alternative formats. We were informed that direct, ongoing federal funding is needed to support the production of library material in alternative formats for those who are unable to read print.

Finally, the Committee heard that the unemployment rate for persons with disabilities is markedly higher than the national average; many persons with disabilities are dependent on social assistance and, consequently, live in poverty. The federal government was urged to develop an employment strategy for persons with disabilities by becoming a model employer, by adopting inclusive labour market agreements with the provinces/territories, by addressing the employment and training needs of Canadians with disabilities, and by increasing funding for the Opportunities Fund and for the Multilateral Framework for Labour Market Agreements for Persons with Disabilities.

The Committee believes that disabled Canadians are not receiving adequate support, either in value or in type. This inadequacy often means that disabled Canadians are unable to contribute meaningfully to our economy, to enjoy the standard of living realized by most other Canadians and to participate fully in society. To us, this situation is unacceptable and must not continue.

The Committee recognizes recent federal initiatives designed to improve the circumstances of disabled Canadians, but believes that federal and provincial/territorial governments must continue to work together in order that disabled Canadians have the quality of life and opportunities to contribute that are taken for granted by most Canadians. This cooperation must occur on a number of fronts and in a number of areas, including in future discussions related to disability benefits under the Canada Pension Plan. It is for this reason that the Committee recommends that:

RECOMMENDATION 28

The federal government meet with provincial/territorial governments and groups representing the disabled with a view to concluding a federal/provincial/territorial national disability strategy and a labour market agreement, as well as to identifying options for improved labour market supports for those who are disabled.

Moreover, the government should review and implement, on an expeditious basis, the recommendations of the Technical Advisory Committee on Tax Measures for Persons with Disabilities.

Finally, disability benefits available under the Canada Pension Plan should be discussed at the next meeting of ministers responsible for the Plan.

SENIORS

In 2004, more than 4.1 million Canadians were aged 65 and over, comprising about 13.1% of Canada’s population, as shown in Figure 4.6.¹⁵⁷ By 2030, seniors are expected to represent about 25% of the Canadian population. Canada’s seniors have an interest in all major fiscal and social policy debates, since they often depend on income security programs, are consumers of health care services, reside in our urban, rural and remote communities, sometimes experience housing affordability concerns,¹⁵⁸ and contribute to Canada as taxpayers and perhaps employees.¹⁵⁹

Source:

Statistics Canada.

While seniors generally have a lower income than that of working-age Canadians, their economic situation has been improving. According to Statistics Canada, senior families had after-tax income of $43,400 in 2002, an increase from $39,000 in 1996. Growth in this period has largely been the result of increased market income, although government transfers are an important source of revenues for seniors. In 2002, an average of $20,200 in government transfers was received by senior families, which represents about 41% of their total pre-tax income.¹⁶⁰ The low-income rate among Canadian seniors continues to decline, as shown in Figure 4.7.

Source:

Statistics Canada.

In general, the Canadian retirement income system has three tiers: private pensions and other savings; the Canada/Quebec Pension Plan (C/QPP); and the Old Age Security (OAS), Guaranteed Income Supplement (GIS), Allowance and Allowance for the survivor programs.

Canadians may save for their retirement through tax-assisted retirement savings plans as well as through measures without tax assistance.¹⁶¹ The level of savings affects a country’s rate of capital formation, rate of economic growth and standard of living. Furthermore, some economists argue that a relatively high personal savings rate is important if a country is to experience rapid productivity growth and be internationally competitive. For most Canadians, savings are the means by which retirement is financed, homes are purchased, education is funded, and unforeseen financial needs are met.

In particular, the federal government encourages Canadians to save through such vehicles as registered pension plans (RPPs) and registered retirement savings plans (RRSPs), both of which are tax-assisted. The 2003 federal budget announced increases in RRSP and RPP contribution limits to $14,500 and $15,500 respectively for 2003. Thereafter, the limit for RPPs will rise to $18,000 by 2005 and for RRSPs will rise to the same amount by 2006. The limits will then be indexed to average wage growth for subsequent years.

As well, seniors may receive a monthly taxable retirement benefit from the CPP, which has been in effect since 1966.¹⁶² The CPP provides a monthly retirement benefit to plan contributors who are at least 60 years of age and who meet contributory requirements. This contributory pension plan, which requires employers and employees to make equal contributions on the basis of earnings above a basic exempted amount known as the Year’s Basic Exemption and up to a maximum amount known as the Year’s Maximum Basic Exemption,¹⁶³ is designed to replace about 25% of the earnings on which a beneficiary’s contributions were based; the actual amount of the pension depends on the value and duration of contributions to the Plan as well as the age at which the pension begins to be paid. Retirement benefits can be paid as early as age 60 and as late as age 70.

In determining the amount of the retirement pension, certain periods of low income, such as those associated with child rearing, are excluded from the calculation. The maximum monthly retirement pension in 2004 is $814.17. To qualify, the beneficiary must have made at least one valid contribution to the Plan and be either at least age 65 or between age 60 and 64 and meet an earnings requirement.¹⁶⁴ Benefits are increased annually in accordance with increases in the cost of living.

With changes in the late 1990s, the Canada Pension Plan is now considered to be financially sound. According to the 21st Actuarial Report on the Canada Pension Plan, the Plan is financially sound for at least the next 50 years at the current contribution rate.¹⁶⁵ Contributions by employers and employees are managed by the CPP Investment Board, which operates at arm’s length from governments and invests in financial markets in order to maximize the rate of return without undue risk of loss. Accountability to the public and regular reporting are required.

Old Age Security benefits have been paid in Canada since 1927, and are currently financed out of general tax revenues.¹⁶⁶ Monthly taxable benefits are paid to those aged 65 and older who meet residence requirements, and are adjusted quarterly in accordance with increases in the cost of living. Employment history and status do not affect eligibility, although higher-income OAS recipients repay at least a portion of their benefit because of the social benefit reduction tax. The amount of the benefit is determined by how long the recipient resided in Canada.

Low-income seniors may also be eligible to receive the income-tested Guaranteed Income Supplement.¹⁶⁷ This monthly non-taxable benefit may be paid to those who are receiving an OAS pension and who have little or no other income, although eligibility for and the amount of the benefit is related to marital status and family income. With one exception related to situations where only one spouse or common-law partner in a couple is a pensioner and the other receives neither OAS benefits nor the Allowance, there are two basic rates of payment under the program: for single, widowed, divorced or separated pensioners; and for legally married couples and couples in a common-law relationship where both are pensioners. GIS benefits cease to be paid if income thresholds are surpassed.

The monthly non-taxable Allowance may be paid to the low-income spouse or common-law partner of an OAS pensioner and GIS recipient, provided the spouse or partner is aged 60 to 64 and certain residence requirements are met.¹⁶⁸ If the spouse or partner is deceased, the non-taxable Allowance for the survivor may be paid.¹⁶⁹ Like GIS benefits, these benefits are income-tested and are adjusted quarterly in accordance with changes in the cost of living. The Allowance and Allowance for the survivor cease to be paid in a variety of circumstances, including: once age 65 is reached, since the OAS pension and possibly GIS benefits become payable; separation or divorce; GIS benefits cease to be paid to the pensioner spouse or common-law partner; income thresholds are surpassed; and remarriage or involvement in a common-law relationship for at least one year.

For December 2004, the maximum monthly OAS benefit is $471.76, for the Allowance is $836.97 and for the Allowance for the Survivor is $924.04. Maximum monthly GIS benefits are $560.69 for single pensioners and the spouse of a non-pensioner, while the maximum is $365.21 for spouses of pensioners and spouses of Allowance recipients. Pensioners with individual net income exceeding $59,790 for 2004 repay at least a portion of the maximum OAS amount, and the full OAS pension is eliminated if net income exceeds $97,074. GIS and Allowance benefits also cease to be paid beyond certain income levels.¹⁷⁰

A range of other supports and services also exist for seniors. For example, Canada Mortgage and Housing Corporation’s Home Adaptations for Seniors’ Independence Program assists homeowners and landlords in financing minor home adaptations designed to lengthen the time that low-income seniors can live in their own homes independently.¹⁷¹ Furthermore, Canada’s seniors may benefit from the 2004 federal budget’s announcement of $8 million in 2004-2005 and $10 million annually thereafter for the New Horizons for Seniors Program. The stated intention of the Program is to “support a wide range of community-based projects … that enable seniors to participate in social activities, pursue an active life and contribute to their community.”¹⁷²

Finally, the October 2004 Speech from the Throne committed the federal government to exploring “means of ensuring that we do not lose the talents and contribution that seniors can make to our society.” It also announced that benefits under the Guaranteed Income Supplement program will increase.¹⁷³

Witnesses spoke to the Committee about a range of issues that would help seniors in particular, but they also shared their views on social and fiscal issues that affect all members of Canadian society. This approach is not surprising, since health care, housing, charitable giving and volunteerism, taxation and the state of federal fiscal finances affect seniors, as they affect all Canadians.

The Committee was told that additional increases in Guaranteed Income Supplement payments are required to help low-income seniors address the rising cost of living. As well, we heard that the income threshold at which GIS benefits cease to be paid should be increased. More specifically, in the view of witnesses, GIS recipients should be allowed to earn up to $4,000 above the low-income cut-off threshold without loss of GIS income. It was also recommended that the GIS program be reformed to ensure that single low-income seniors would be able to retire with a guaranteed income of $15,000 per year, and that qualification requirements should be based on the net worth and needs of individual applicants.

Witnesses also argued that Old Age Security payments should be increased, especially for those recipients who have no other income than the GIS, because the combined benefit amount is not high enough to provide satisfactory living conditions. Several witnesses also expressed frustration about the “double taxation” of OAS, since OAS benefits are taxable and are subject to partial or full recovery based on the income level of the recipient.

Despite recent increases in annual Registered Retirement Savings Plan and Registered Pension Plan contribution limits, some witnesses believed that tax-assisted retirement savings limits should be increased, perhaps to $20,500 in the next federal budget, followed by annual increases until the contribution limits reach $27,000; at that time, the limits should be indexed to inflation. The Committee was told that Canada lags the United States and the United Kingdom in terms of the maximum amount that may be saved in retirement savings plans. Similarly, several witnesses suggested that the federal government should increase the defined benefit pension limit from $1,833 to $3,000.

Many witnesses urged the early adoption of Tax Pre-paid Savings Plans (TPSPs). The fundamental difference between TPSPs and RRSPs is that TPSP contributions are taxable in the year that they are made but withdrawals are tax-free, whereas RRSP contributions are deductible from taxable income in the year that they are made but withdrawals are subject to taxation. It was argued that TPSPs would encourage Canadians — especially low-income individuals — to save more for retirement.

Several witnesses commented on the age at which RRSPs must be converted into Registered Retirement Income Funds (RRIF). Although the 1996 federal budget reduced the age limit for RRSP contributions from 71 to 69 in order to better align the age limit and the age at which Canadians retire, the Committee was told that longer life expectancies may mean that some Canadians may outlive their retirement savings. Consequently, they advocated an increase in the age limit for RRSP contributions to 71, with consideration given to whether it should be increased to age 73.

The Committee realizes the importance of savings, both to individuals and to the economy, and believes that Canadians should be given appropriate incentives to save, particularly for their retirement. While savings incentives would involve a short-term cost to the federal government, we agree that long-term benefits would accrue through relieving future fiscal pressures: allowing individuals to accumulate savings and capital would lessen their reliance on government-financed retirement income programs. Moreover, forgone tax revenues are recovered, to some extent, when workers retire and begin to spend their retirement savings.

At a more fundamental level, the Committee believes that seniors should be provided with incentives to save for their retirement, but in the event that this saving does not occur, or occurs but is not sufficient to meet their income needs in retirement, then federal support must be forthcoming, including through such programs as Old Age Security, the Guaranteed Income Supplement, the Allowance and the Allowance for survivors. Seniors who have served their country well must know that they will be able to live their retirement years in dignity, and with the supports that they need. Certainly, providing disability assistance, health care, strong communities and affordable housing will help ensure that this outcome occurs.

Like some of our witnesses, the Committee believes that a review of the full range of mechanisms that might be used by the federal government to encourage saving by Canadians should occur, since saving has benefits for both the individual and the nation. As this review is undertaken, it is important to bear in mind that individuals save not only for their retirement, but also for home purchase and the acquisition of other assets, education for themselves and their children, and for a variety of other reasons. Moreover, a comprehensive review of the federal programs that provide financial and other assistance to seniors is also required. It is from this perspective that the Committee recommends that:

RECOMMENDATION 29

The federal government implement, on a priority basis, increased benefits payable under the Guaranteed Income Supplement program. As well, the government should make every effort to identify — and compensate — those Canadian seniors who are eligible for Guaranteed Income Supplement benefits but have not received them.

The government should also undertake a comprehensive review of incentives for saving and the Canadian retirement income system to ensure that the financial and other needs — both current and future — of Canada’s current and future seniors are being met. This review should be completed by 30 June 2005.

HEALTH CARE

In recent years, the state of Canada’s health care system has been at the forefront of the public’s consciousness. An effective and efficient health care system is an essential contributor to both Canadians’ quality of life and their standard of living. This attention culminated in several studies, perhaps most notably the November 2002 report by the Commission on the Future of Health Care in Canada, known as the Romanow Commission. Many of its recommendations were, in turn, included in the First Ministers’ Accord on Health Care Renewal, signed in February 2003. This accord built on the agreement on health reached by the First Ministers in 2000.¹⁷⁴

Specifically, the First Ministers’ Accord and the 2003 federal budget provide that federal support to health care will increase by $17.3 billion over the next three years and by $34.8 billion over the next five years, to include:

•	$9.5 billion in transfers to the provinces/territories over the next five years;

•	a $2.5 million investment through the Canada Health and Social Transfer (CHST) supplement to relieve existing pressures;

•	$16.0 billion over five years to the provinces/territories for a health reform fund targeted to primary health care, homecare and catastrophic drug coverage;

•	$5.5 billion over five years in health initiatives, including diagnostic/medical equipment, health information technology and the creation of a six-week compassionate family care leave benefit under the Employment Insurance program; and

•	$1.3 billion over five years to support health programs for First Nations and Inuit peoples.

In the 2003 federal budget, the government also indicated planned levels for total cash transfers to 2010-2011.

In February 2003, the First Ministers also agreed that:

•	an enhanced accountability framework to report on the progress of reform would be created, involving a health council that would monitor and report annually on the implementation of the Accord, particularly its accountability and transparency provisions;

•	the federal government would set out a long-term funding framework to provide the provinces/territories with predictable, growing and sustainable support for health care and other social programs;

•	the federal government, effective 1 April 2004, would create the Canada Health Transfer (CHT) and the Canada Social Transfer (CST) to increase transparency and accountability; and

•

by the end of 2005-2006, Canadians — wherever they live — would have reasonable access to catastrophic drug coverage, and that First Ministers would take additional actions to promote optimal drug use, identify best practices in drug prescription and better manage the costs of all drugs, including generic drugs.

In his appearance before the House of Commons Standing Committee on Finance in November 2003, the Minister of Finance announced that up to $2 billion of any federal budgetary surplus realized in 2003-2004 would be transferred to the provinces/territories for health care spending. The 2004 federal budget confirmed additional funding for the provinces/territories of $2 billion, an amount that brings funding provided under the First Ministers’ Accord to $36.8 billion.

The 2004 federal budget also announced the establishment of the Public Health Agency of Canada, with the appointment of a chief public health officer, and $665 million over three years to improve Canada’s readiness to deal with public health emergencies. The funding will be allocated in the following manner: $100 million for frontline public health capacity; $300 million for new vaccine programs; $100 million for improved surveillance systems; and $165 million over two years for such other initiatives as strengthening preparedness against infectious diseases, creating health emergency response teams, replenishing the national emergency stockpile system, investing in federal laboratories and surveillance systems, and establishing National Collaborating centres for public health.

The federal government’s commitment to health care was confirmed in the October 2004 Speech from the Throne, which noted the September 2004 agreement reached with the provincial/territorial First Ministers on a Ten-Year Plan to Strengthen Health Care.¹⁷⁵ Elements of the Ten-Year Plan include:

•	a commitment to achieve tangible results, for example with respect to wait times for health services;

•	a requirement to establish evidence-based benchmarks, comparable indicators, clear targets and transparent reporting to the public;

•	accelerated reform and better access to key tests and treatments, including an increase in the number of doctors, nurses and other health professionals;

•	improved access to homecare and community care services;

•	improved access to safe and affordable drugs;

•	a commitment to substantial, predictable long-term funding; and

•	measures to address the challenges of delivering health care services in Canada’s North, including medical transportation costs and innovative service delivery.

The recent federal funding increases to health care will contribute to a continued upward trend in health spending in recent years, as shown in Figure 4.8. Since 1998, federal and provincial/territorial government investments in health care have increased at a higher rate than the rate of economic growth. As well, recent federal increases will be in addition to the tax transfers and equalization funds that are used by the provinces/territories to provide health care, as well as direct federal spending and tax measures in support of responsibilities with respect to, for example, First Nations, Inuit and veterans’ health.

Source:

OECD Health Data 2004 and Statistics Canada.

Witnesses who appeared before the Committee to speak about health issues shared their views about elements of the recently signed Ten-Year Plan to Strengthen Health Care and about what future actions should be taken now that a ten-year plan has been reached. Some concerns were voiced about the specific targets and reporting mechanisms that will let Canadians know that progress is being made with respect to their health care. Others felt that more details are needed on how funds will be allocated to and among various components of the Ten-Year Plan.

Several witnesses spoke about specific aspects of the Canada Health Act. While witnesses generally support the principles contained in the Act, there was concern that some of the principles are not being respected and that information provided to Parliament is not accurately indicating the degree to which privatization initiatives are underway in several provinces. In particular, it was recommended that the ministers of Finance, and Health fully enforce the accountability mechanism in the Canada Health Act and that provinces/territories be required to provide information on the mode of delivery of health care services, in particular for-profit and investor-owned versus public and not-for-profit. Comments were also made about provincial/territorial protection of privacy as it relates to health information.

Some witnesses identified key elements that they believe are missing from the recently signed Ten-Year Plan, including funding for chronic long-term care, investments in the determinants of health, a health human-resources strategy that addresses the issue of culturally sensitive health services, the integration of disease prevention and health promotion as part of a health care strategy, the exemption of public health care from international trade agreements and regimes, greater support for publicly funded basic medical research, measures to close the gap between the health status of Aboriginal peoples and the Canadian public, measures to recognize and address the interprovincial mobility of health workers, subsidized tuition costs for health care workers, dental care and vision rehabilitation services.

Witnesses also recommended that, in order to align tax policy with health policy and the sustainability of the health care system, the federal government increase the GST rebate for publicly funded health care institutions and clinics to 100% and zero-rate GST on publicly funded health services provided by independent health care providers. They also spoke about the need for increased funding for the Canadian Strategy on HIV/AIDS. In their view, an increase to $100 million is needed.

Other witnesses commented on dental care, urging the federal government to continue tax incentives in this area of health care and to create a social safety net to provide oral care services to those Canadians who are socio-economically disadvantaged. These witnesses also recommended investigation of financial options that would encourage access to dental care, including — for example — the establishment of a medical savings plan, and urged consideration of oral health funding or delivery models that respect such principles as: the freedom of patients to attend the dentist of their choice; the ability of dentists and patients to make treatment decisions free from third-party interference based on coverage; and recognition that dentists are the only health care providers able to diagnose and develop full oral health plans for patients. As well, greater federal support for dental schools was advocated, with a link made to the provision of affordable dental care to low-income individuals and families.

Finally, the Committee also heard recommendations about vision care. In the view of witnesses, vision loss is common and often preventable, and can be rehabilitated; appropriate and timely vision rehabilitation services are needed in order to reduce the negative effects and costs of severe vision loss.

The Committee believes that an effective and efficient health care system is an essential contributor to both Canadians’ quality of life and their standard of living. We also feel that everyone in society benefits when citizens are healthy; certainly, the individuals themselves and their families benefit, but so too does the rest of society, including the businesses that employ them. As a single-payer system that provides coverage to all Canadians — regardless of their income or wealth — we are of the view that the Canadian health care system is, in part, an expression of what it means to be Canadian.

Recognizing the recently concluded Ten-Year Plan to Strengthen Health Care, the Committee — like many of our witnesses — believes that the important requirement now is ensuring that all partners to the Ten-year Plan respect their obligations under the Plan. Everyone must be vigilant — and ensure that responsibilities are met — in order that, as we move forward, Canadians can benefit from the health care they both expect and deserve.

With the signing of the Ten-Year Plan, the Committee feels that the focus should now shift somewhat. It is generally thought that prevention is better than a cure, and perhaps this adage is particularly true with respect to health. Like some of our witnesses, we believe that the focus should be directed to preventative measures in such areas as nutrition, sport and physical activity. As a society, we should not limit our focus to helping people once they are sick; we should also focus on helping them avoid sickness, including chronic disease. As a society, we need to take action now — to promote better nutrition and to encourage a more active lifestyle — in order to halt if possible and, if not halt then better manage, obesity, diabetes and similar health conditions within our nation. It is for this reason that the Committee recommends that:

RECOMMENDATION 30

The federal government — working with provincial/territorial governments, the Canadian Institutes of Health Research and health agencies — develop a public awareness program designed to educate Canadians about preventative measures, including those related to disease prevention and health promotion, to improve their health outcomes.

HOUSING AND HOMELESSNESS

Access to adequate shelter is a basic necessity for individuals if they are to contribute meaningfully to society, whether at their workplace, in their community or in their household. Data for 2001 suggest that while most Canadian households had dwellings that were in adequate condition and were suitably sized,¹⁷⁶ and the number of households unable to access acceptable housing declined over the 1996 to 2001 period, many Canadian households are in “core housing need.” That is, they are unable to afford shelter that meets adequacy, suitability and affordability norms, and spend more than 30% of their gross income on rent. Most households in core housing need are renters rather than homeowners,¹⁷⁷ and in 2001, renter households were 3.5 times relatively more likely to be in core housing need. Homeownership increased over the 1996 to 2001 period as a consequence of income growth and lower interest rates.¹⁷⁸

According to Statistics Canada, and as shown in Figure 4.9, just over 1.7 million Canadian households, or 15.8%, were in core housing need in 2001; these figures represent declines from the almost 1.8 million Canadian households, or 17.9%, in core housing need in 1996.¹⁷⁹ Over that period, housing affordability improved for most Canadians, as household incomes grew more quickly than did shelter costs in all regions except Saskatchewan.¹⁸⁰ The incidence of households in core housing need declined in all provinces and territories except Newfoundland and Labrador, as indicated in Figure 4.10.¹⁸¹

Source:

Canada Mortgage and Housing Corporation.

Source:

Canada Mortgage and Housing Corporation.

The primary determinant of core housing need is affordability. In 2001, this determinant was the only contributing factor for 75% of households in core housing need.¹⁸² In that year, these households generally had income gains that were relatively lower than those of other households.¹⁸³

Some Canadians are at particular risk of being in core housing need, including Aboriginal peoples, immigrants, seniors aged 65 or older and living alone, and lone parents. In 2001, Aboriginal Canadian households in core housing need spent about 46% of their income on shelter and had average before-tax income of $17,712. Moreover, Canada’s immigrant population is highly urbanized, and housing costs are usually higher in large urban centres. Data from 2001 suggest that more than 75% of recent immigrants to Canada settled in Toronto, Montreal and Vancouver, and the incidence of core housing need for this group was, on average, 4.8% higher than the incidence for non-immigrant households.¹⁸⁴ In 2001, about 53.3% of seniors living alone in rented accommodation were in core housing need, a figure that was 56.3% for senior female renters living alone.¹⁸⁵ Moreover, 48.8% of all lone parent households with children under age 18 living at home in rental housing were in core housing need in 2001; there has, however, been some improvement over time, since this figure was 57.0% in 1996.¹⁸⁶

While homelessness is visible, ascertaining its breadth and its depth can be difficult. It does, however, affect people of any age, of both genders, of varied ethnic backgrounds, resident in communities across Canada and living in a range of family relationships. This diversity requires a range of supports. It is thought that homelessness is growing in Canada’s major urban centres for such reasons as inadequate affordable housing units as well as reduced levels of income support.

In 1999, in response to what some Canadians saw as a homelessness crisis, the National Secretariat on Homelessness was established within Human Resources Development Canada to develop and implement the policy and framework for the National Homelessness Initiative. Announced by the federal government in 1999, the Initiative allocated $753 million over three years to alleviate homelessness as well as to help the homeless achieve and maintain self-sufficiency. The 2003 federal budget announced a three-year extension of the Initiative to 2006.¹⁸⁷ Figures 4.11 and 4.12 show the allocation of funds among its elements for the 1999 to 2003 and 2003 to 2006 periods respectively.

Source:

National Homelessness Initiative, Progress Report, 1999-2003.

Source:

National Homelessness Initiative, Business Plan 2003-2006.

When the National Homelessness Initiative was announced in 1999, the following elements were identified:¹⁸⁸

•

the Supporting Communities Partnership Initiative (SCPI), which provided $305 million to local community groups in 61 communities across Canada and cofunded such measures as emergency shelters, transitional and supportive housing, support facilities and services such as food/clothing/furniture banks and drop-in centres, capacity building and public awareness;

•	the Residential Rehabilitation Assistance Program (RRAP), which provided $268 million to preserve and create low-cost housing, including for conversion, rental and rooming house initiatives;

•	the Youth Homelessness Component, which received funding of $59 million to alleviate the growth in the number of youth living on the street;

•	the Urban Aboriginal Strategy, which was allocated $59 million for the benefit of Aboriginal peoples living in urban centres;

•	the Shelter Enhancement Program, which received funding of $43 million to provide capital assistance to repair, rehabilitate and improve existing shelters and to acquire or build new shelters for the benefit of women and their children, youth and men who are victims of family violence;

•	the Surplus Federal Real Property for Homelessness Initiative, which was allocated $10 million to compensate custodian federal departments and agencies for making surplus federal real property available at nominal cost to community-based organizations addressing homelessness; and

•	planning, research and related activities, which received funding of $9 million to undertake such activities as developing community plans to address homelessness and supporting research directed toward increased awareness and policy development.

The additional funding allocated for the three-year extension of the Initiative is expected to be directed to:¹⁸⁹

•	the Supporting Communities Partnership Initiative, with funding of $258 million;

•	the Homeless Individuals and Families Information System, with funding of $6 million to collect and manage a national electronic database for the benefit of shelter service providers;

•	the Surplus Federal Real Property for Homelessness Initiative, with funding of $9 million;

•	the Urban Aboriginal Homelessness Component, with funding of $45 million to be used with the Urban Aboriginal Strategy to support integrated, culturally appropriate strategies and projects in eight cities;

•	the Regional Homelessness Fund, with funding of $13 million to support small and rural communities in implementing measures to prevent at-risk individuals and families from becoming homeless and to stabilize their living conditions;

•	the National Research Program, with funding of $7 million to support research and policy development as well as knowledge transfer and the sharing of best practices; and

•	operating funds, with an allocation of $67 million.

The 2001 federal budget announced the Affordable Housing Initiative, a five-year program with an investment of $680 million. Through a partnership between the Canada Mortgage and Housing Corporation (CMHC) and provincial/territorial governments, private and non-profit developers are provided with funds to stimulate the construction of affordable rental housing. An additional $320 million investment over five years announced in the 2003 federal budget increased funding of the Initiative to $1 billion by 2007-2008.¹⁹⁰

Moreover, the 2003 federal budget extended the RRAP for three years, with a contribution of $128 million annually.¹⁹¹ At present, in addition to the RRAP initiatives for Aboriginal peoples, disabled Canadians and seniors mentioned earlier in Chapter Four, the following programs exist:

•	Homeowner RRAP, which provides low-income households who own and occupy substandard housing with assistance for dwelling repair in order to reach a minimum level of health and safety;

•	Rental RRAP, which assists landlords of affordable housing to finance mandatory repairs to self-contained units rented by low-income tenants in order to meet minimum levels of health and safety;

•	Rooming House RRAP, which assists owners of affordable rooming houses renting to low-income tenants to finance repairs, including structural, electrical, plumbing, heating and fire safety; and

•	Conversion RRAP, which assists in the conversion of non-residential properties to affordable rental housing units or bed-units for low-income renters.

Other assistance for low-income homeowners and occupants is also available, such as the Emergency Repair Program, which assists those in rural areas to make emergency repairs required for continued safe occupancy in their dwelling.¹⁹²

Finally, the October 2004 Speech from the Throne committed the federal government to extending and enhancing the Affordable Housing Initiative, the Supporting Communities Partnership Initiative and the Residential Rehabilitation Assistance Program.¹⁹³

Witnesses reminded the Committee that low-income families, social assistance recipients and many low-income seniors must allocate a significant portion of their income to housing. We were told that approximately 200,000 Canadians are homeless, and 1.7 million are in core housing need. Furthermore, we were informed that Canada is now the only industrialized country lacking a national housing program.

As well, the unique needs of women — across Canada and both on- and off-reserve — for adequate shelter were identified, including for recent immigrants, those who are recently separated, and those escaping violence and abuse. The Committee was told that homelessness and inadequate housing for women brings with it certain risks, including loss of their children, the possibility of violence and sexual assault, and health-related illnesses.

Many witnesses urged the federal government to develop an adequately funded national housing strategy. In the view of some of the Committee’s witnesses, the government should commit $2 billion annually in each of the next five years for building 20,000 to 30,000 new social housing units to address the current shortage of affordable rental housing units. The creation of a national rent supplement program was also encouraged, with some witnesses suggesting that the Canada Mortgage and Housing Corporation’s current surplus should be invested in social housing and rent supplement programs.

Others witnesses emphasized the importance of stimulating private investment in new and affordable rental units. The Committee was told that changes in the income tax treatment of rental housing since the 1970s have significantly reduced the attractiveness of private rental investment; consequently, reform of the income tax system to encourage private sector involvement in affordable housing was advocated.

The Committee heard a wide range of other suggestions as well: allowing a full GST rebate on new rental housing projects; increasing the capital cost allowance rate to 5% for new rental housing; extending the opportunity to deduct capital cost allowance losses against other income to all investors in rental housing projects; allowing landlords of smaller properties to qualify as small businesses; creating a new tax credit modeled after the tax credit available through labour-sponsored venture capital corporations; restoring the deductibility of land carrying costs; and allowing tax-free withdrawals from RRSPs for renovations generally and to meet the needs of seniors.

Several witnesses commented on the success of the CMHC’s Residential Rehabilitation Assistance Program (RRAP), and recommended that it be extended beyond 2005-2006. It was also recommended that the upgrading of secondary suites — which are a significant source of affordable rental housing — to meet safety standards be included as a category for RRAP funding.

The Committee believes that homelessness in Canada must end. In a country such as ours, it is not acceptable that anyone — including seniors, social assistance recipients and income earners — is homeless or living in unsuitable or substandard housing.

While a number of federal measures to address homelessness and affordable housing appear to be working well according to our witnesses — and according to us — there are some measures that should be reviewed in order to ensure that they are working as intended. As well, there are other measures that should perhaps be considered. With a problem of this type and magnitude, the solution is likely to require a variety of programs to meet a variety of needs. Consequently, the Committee recommends that:

RECOMMENDATION 31

The federal government review — together with provincial/territorial governments, advocacy groups representing the homeless, and private and not-for-profit developers — the measures that exist with respect to housing and homelessness. This review should be undertaken with a view to ensuring that funds are adequate in size and properly allocated, and to identifying programs that should be changed or implemented.

Moreover, the government should, on a priority basis, extend and enhance the Affordable Housing Initiative, the Supporting Communities Partnership Initiative and the Residential Rehabilitation Assistance Program.

LIFELONG LEARNING

A highly educated, and well-educated, population is an important contributor to a nation’s prosperity and the quality of life of its citizens. In general, a higher level of education can mean higher levels of productivity and more rewarding employment opportunities for employees. It can also mean higher-paid jobs, with the payment of higher taxes, which in turn enables the funding of the public goods and services that citizens desire. Canadians must embrace lifelong learning in order to maximize their potential as individuals and as employees, and in order for Canada to continue to compete effectively in the global marketplace.

Consequently, it is important that Canada’s citizens have literacy, numeracy and other skills that at least meet — and ideally surpass — basic standards. In a society such as ours, literacy and numeracy are basic prerequisites if citizens are to participate fully in life. People with weak literacy and numeracy skills are relatively more likely to be unemployed, to work in lower-paying jobs and to live in a low-income household. Raising adult literacy and numeracy rates is generally thought to be an important goal.

While primary and secondary education in Canada are generally funded by governments, post-secondary and continuing education are funded from both private and public sources. In addition to financial assistance provided to the provinces/territories by the federal government for post-secondary education, the federal government provides loans and grants for qualifying students, grants to assist those saving for post-secondary education, student loan debt repayment and interest relief, and programs to help the unemployed re-enter the labour market, among other measures. Moreover, as discussed in Chapter Three, the federal government provides assistance through research granting councils.

The cost of post-secondary education continues to rise in Canada, although the rate of increase in undergraduate tuition fees slowed in 2004-2005. According to Statistics Canada, undergraduate university tuition fees increased 3.9% from 2003-2004 to 2004-2005, the smallest rate of increase in three years and markedly lower than the annual average rate of increase of 9.7% during the 1990s, although greater than the rate of inflation, as shown in Figure 4.13. For this academic year, undergraduate tuition fees are expected to be, on average, $4,172. By profession, average tuition fees in medicine will be $9,977, in law will be $6,471 and in dentistry will be $12,331 for the 2004-2005 academic year, although students in law and medicine experienced the largest tuition fee increases over the previous year, at 7.9% and 9.2% respectively. Graduate tuition fees also increased for the 2004-2005 academic year, reaching $5,475 on average; this level represents a 4.3% increase over 2003-2004, but is the smallest rate of increase since 1995-1996.¹⁹⁴

Source:

Statistics Canada.

Moreover, Statistics Canada figures indicate that higher tuition fees and increased federal government grants resulted in higher revenues in 2002-2003 for Canada’s universities and degree-granting institutions, the largest growth in three years. In that year, student fees accounted for 20.5% of revenue and government funding for 56% of revenue; revenue was $18.6 billion. Grants and contracts from all levels of government continued to increase for the fifth consecutive year, as shown in Figure 4.14, and totaled $10.4 billion in 2002-2003. Of this amount, the federal contribution was just over $2.2 billion, and was mostly allocated to support sponsored research.¹⁹⁵

Source:

Statistics Canada.

Despite the rising cost of education, in the next decade the demand for university education is expected to rise as a consequence of a number of factors: a population surge of 18- to 24-year olds; and increased participation rates triggered by a growing number of university-educated parents, student responsiveness to labour market demands, and recognition of the economic and social benefits of a university education.

Since 1 April 2004, the federal government provides funding to the provinces/territories for education through the Canada Social Transfer (CST), which is to be allocated for education, social assistance and other social services in whatever proportions the provinces/territories deem to be appropriate. Unlike the Canada Health Transfer, the CST does not have specific conditions attached to its use; that is, there is no requirement that a certain proportion of the funds be allocated to education rather than to social assistance and social services, and accountability with respect to the funding allocated by the federal government for education is limited.

The federal government has a long history of supporting education, and of providing incentives to save for education.¹⁹⁶ In 1972, the first Registered Education Savings Plans (RESPs) were introduced to assist families in saving for education and, over time, changes have been made to encourage increased saving. For example, the 1996 federal budget increased the annual limit on contributions to RESPs to $2,000 from $1,500, and the lifetime contribution limit was increased to $42,000 from $31,500.

Moreover, changes to RESPs announced in the 1997 federal budget increased the annual limit to $4,000 and removed the requirement that all RESP income be used for the purpose of education; consequently, contributors whose children did not pursue post-secondary education could transfer their RESP investment to a Registered Retirement Savings Plan (RRSP) or, in the event that RRSP contribution room was unavailable, could receive the income directly with a charge of 20% in addition to taxes payable. As well, according to the 1997 budget, other siblings could benefit from income accumulated in a group RESP.

Federal support for education-related saving also occurred with the 1998 federal budget, when Canada Education Savings (CES) grants were announced. At that time, the grant was a contribution to an RESP by the federal government in the amount of 20% of the first $2,000 in annual contributions made in respect of a child up to age 18, to a maximum annual grant of $400 per child and with unused grant contribution room carried forward to future years. The maximum lifetime contribution by the federal government for a given beneficiary is $7,200. If no child benefits from the RESP, the full amount of the grant reverts to the federal government.

In the October 2004 Speech from the Throne, the federal government committed itself to introducing legislation that would implement the Canada Learning Bond (CLB) announced in the 2004 federal budget.¹⁹⁷ Consequently, on 8 October 2004, Bill C-5, An Act to provide financial assistance for post-secondary education savings, was introduced in the House of Commons. Designed to assist low- and middle-income families to save for the post-secondary education of their children, the measures in the legislation encourage families to establish a RESP and become eligible to receive the Canada Learning Bond.

As noted earlier, CES grant contributions are made by the federal government in respect of RESP contributions made from 1998 onward, and maximum annual and lifetime contribution limits exist. Under Bill C-5, the existing CES grants — which are not dependent on income earned in a given year — are retained, and a new CES grant is also available for low- and middle-income families making RESP contributions from 2005 onward. Low-income families are defined as those earning no more than $35,000 in a given year, while middle-income families are those earning more than $35,000 but less than $70,000 in a given year; they are entitled to new grants of no more than $100 and $50 respectively. The new grant is calculated on no more than the first $500 contributed to a RESP annually, with a 40% and 30% matching rate for low-income and middle-income families respectively. The total amount of CES grant money in respect of a particular beneficiary over that beneficiary’s lifetime continues to be $7,200, and the $35,000 and $70,000 threshold amounts are indexed to inflation in accordance with indexation of personal income tax brackets.

The legislation also provides for the payment of a CLB, provided certain eligibility criteria are met. For example, on application, the federal government can contribute to a RESP: in respect of someone who is a beneficiary under a RESP; if the beneficiary was born in 2004 or later; and if the beneficiary is under age 21 at the time of application for a CLB. The beneficiary is required to be under age 15 and a person for whom the National Child Benefit or a special allowance under the Children’s Special Allowances Act is payable for at least one month of that year.

An amount of $500 is payable as a CLB in respect of the first year in which the person meets the entitlement criteria, with $100 payable for each successive year in which the criteria are met until age 15. The maximum lifetime amount contributed by the federal government is $2,000.

Federal support for education is also provided through the Canada Student Loan Program (CSLP), which has existed since 1964 and provides needy students with interest-free loans while they are in school and gives a six-month period after leaving school before interest payments are required. The provisions of the program have changed over time, and students have benefited through measures that have enhanced interest relief and the Debt Reduction in Repayment Program, among other initiatives; however, the goal of promoting accessibility by lowering financial barriers for needy students remains unchanged.

For example, the 2003 federal budget increased the CSLP annual exemption for in-study income and scholarship to $1,700 from $600 for income earned in school, with a separate $1,800 exemption for merit-based scholarships. It also enhanced the Debt Reduction in Repayment Program by increasing the income eligibility thresholds, removing the restriction limiting debt reduction to 50% of outstanding debt so that borrowers are eligible for an initial loan remission of up to $10,000 and an additional reduction of up to $5,000 one year after the initial debt reduction if the borrower is still in financial difficulty and a further reduction of up to $5,000 available two years after the first reduction for those borrowers who remain in financial difficulty. As well, individuals who default on their Canada Student Loans or who have declared bankruptcy have access to interest relief. Finally, the Canada Student Financial Assistance Act was amended to make protected persons, including Geneva Convention refugees, eligible for Canada Student Loans.

Changes to the Canada Student Loan Program also occurred in the 2004 federal budget, which increased — from $165 to $210 per week — the ceiling for Canada Student Loans, provided a 5% increase in the income thresholds used to determine eligibility for interest relief, and increased — from $20,000 to $26,000 — the maximum amount of debt reduction for students facing financial difficulty.

As well, the federal government assists students through a number of other tax and spending initiatives. For example, Canada Study Grants may be available for needy part-time students, women in certain doctoral studies, students with dependents and students with permanent disabilities. As well, the Canada Millennium Scholarship Foundation, created in 1998, allocates $285 million annually in bursaries, with assistance awarded to full-time students on the basis of need and merit. Federal tax measures that either directly or indirectly support students include the ability to withdraw Registered Retirement Savings Plan funds for lifelong learning, the education tax credit, the tuition and education deduction, and the tax credit for interest on student loans.

As well, the 2003 federal budget created a Canada Graduate Scholarships program supporting 4,000 new scholarships at program maturity, with the scholarships distributed through the federal granting councils according to the proportion of students in each discipline. The budget allocated $225 million annually for the indirect costs of federally sponsored research at universities, colleges and research hospitals, and increased funding by $125 million annually for the three granting councils — the Canadian Institutes of Health Research, the Natural Sciences and Engineering Research Council of Canada and the Social Sciences and Humanities Research Council of Canada — beginning in 2003-2004. It also provided $100 million for the creation of the Canadian Learning Institute to help improve the quality of information available on our education and learning system. Annual support for the indirect costs of research and for the three federal granting councils was increased in the 2004 budget, with $20 million and $90 million allocated respectively.

Moreover, the 2004 budget established a grant of up to $3,000 for first-year, post-secondary students from low-income families, extended the education tax credit to employees pursuing career-related studies at their own expense and, as mentioned earlier in Chapter Four, created a grant for students with disabilities of up to $2,000 annually.

Assistance is also targeted to meet the education needs of Aboriginal Canadians. In recent years, and as noted earlier in Chapter Four, the 2003 federal budget allocated $72 million to improve educational outcomes for Aboriginal people and to ensure they are provided with training and employment opportunities on major projects across Canada, and the 2004 budget increased support for the Aboriginal Human Resources Development Strategy and the Urban Aboriginal Strategy.

Because of the importance of ensuring that all of Canada’s citizens can contribute, and recognizing the critical role that will be played by immigrants in the future, the 2003 federal budget allocated $41 million over two years to attract and facilitate the integration of skilled immigrants into the Canadian labour market and society. In particular, funding was provided for a fast-track system for skilled workers with permanent job offers from Canadian employers, the processing of study permits for foreign students, approaches to attract skilled workers to communities across Canada, foreign credential assessment and recognition, and seed money for the delivery of labour market language training on a pilot basis.¹⁹⁸

Finally, in the October 2004 Speech from the Throne, the federal government noted the need for investment in helping workers to enhance their skills in light of constantly changing workplace requirements. It indicated that the government will develop a new workplace skills strategy, which will include a focus on enhanced apprenticeship systems, literacy and other essential job skills, training facilities, and labour market agreements developed with the provinces/territories, unions and sectoral councils. Moreover, it noted that efforts will be increased to help integrate new Canadians into the workforce.¹⁹⁹

Witnesses spoke to the Committee about a range of lifelong learning issues, including tuition fees, student loans and student debt, the Canada Social Transfer, employment training and foreign credentials.

Regarding tuition fees, many witnesses were concerned about the recent rapid increase in tuition fees for post-secondary education in the last decade. In their view, accessibility to education has been harmed, since many students can no longer afford to pursue post-secondary education. Tuition fees were characterized as the single largest cost for students. It was proposed that federal transfer payments targeted for post-secondary education be increased in order to alleviate the pressures resulting in tuition fee increases.

Several witnesses commented on the manner in which the federal government supports students, and argued that the low-income grant should be available to low-income students throughout the duration of their studies, rather than just in their first year. As well, the Committee was told that many students begin university only to discontinue their studies for financial reasons. It was also proposed that the value of the low-income grant be increased from 50% of tuition fees to 100% of tuition fees, while eliminating the $3,000 ceiling. We also heard a proposal whereby students could apply their education and tuition tax credit to the principal of their Canada Student Loans after each year of study.

It was also recommended to the Committee that the federal government establish an independent task force to investigate the financial and non-financial barriers to post-secondary education and to propose ways in which access might be increased for low-income students, persons with disabilities, visible minorities, Aboriginal peoples, residents of rural and remote communities, and mature students. Furthermore, it was recommended that the Canada Education Savings Grant and the Canada Learning Bond Programs, along with the Canadian Millennium Scholarship Foundation, be discontinued, with the funds allocated instead to a needs-based grants program providing assistance to qualified students in all years of their program of study.

The importance of post-secondary education was noted by many witnesses. It was proposed that the federal government take a leadership role in working with the provinces/territories to create a Pan-Canadian accord on post-secondary education. As well, it was recommended that federal funding for post-secondary education be separated from the Canada Social Transfer and restored to its 1992-1993 level adjusted for inflation and demographic growth, and that a post-secondary education Act be legislated.

A number of recommendations designed to increase awareness of Registered Education Savings Plans were made, and changes to RESPs were proposed, including: allowing unused contribution room to be carried forward beyond the year in which contributions are made; removing grant restrictions for contributions on behalf of children aged 16 and 17; removing the $5,000 cap on the initial education assistance payments made to beneficiaries; and increasing the contribution limits beyond the current lifetime limit of $42,000 and the annual limit of $4,000.

From a different perspective, some witnesses urged that the RESP program be replaced with a needs-based grant program. In their view, RESPs have the most benefit for families who can already afford post-secondary education.

Finally, the Committee was informed that, according to Statistics Canada, as many as eight million Canadians do not have the literacy skills needed to meet the demands of today’s rapidly changing society and economy. A national strategy for improving the literacy skills of Canadians was advocated.

The Committee believes that lifelong learning is critically important: to individuals themselves to enhance their quality of life and their employment options, and to employers who want the well-educated and highly skilled employees that will contribute to productivity and prosperity. The challenge is designing the proper incentives and supports to ensure that lifelong learning is embraced by individuals and employers.

In the Committee’s view, there is a relatively vast array of programs and initiatives designed to support education in the country. It is not entirely clear to us, however, that we are experiencing the desired outcome: not all individuals have the opportunity or desire to engage in lifelong learning, literacy and numeracy skills are too low in some instances, and employers may not be able to recruit employees with the right skills and may not offer the training that is needed. In our view, the outcomes that we seek might be better realized if the Canada Social Transfer was split into two components: education, and social assistance and social services. We believe that this change would enhance outcomes with respect to each of the two components. It is from this perspective that the Committee recommends that:

RECOMMENDATION 32

The federal government review — with provincial/territorial governments and groups representing universities, colleges and students — the financial assistance measures for post-secondary education.

Moreover, the government should, on a priority basis, split the Canada Social Transfer into a Canada education transfer and a Canadian social assistance and services transfer.

Finally, the government should ensure that adequate measures exist or are implemented to address literacy and lifeflong learning issues in Canada.

FOREIGN AID

Canada has a long history of providing foreign aid to help the world’s poorest countries.²⁰⁰ Many developing countries have levels of foreign debt that are not sustainable. High debt payments, which sometime exceed the funds received in foreign aid, limit development since the funds that could be used for domestic economic development leave the country in the form of interest payments.

The primary multilateral measure providing debt-forgiveness is the World Bank’s Highly Indebted Poor Countries (HIPC) initiative, which was started in 1996 and augmented in 1999. Countries may also take unilateral action. For example, the Canadian Debt Initiative was announced in March 1999 and expanded in February 2000; in January 2001, an immediate debt payment moratorium for HIPC countries committed to the goals of good governance and poverty reduction was implemented. Canada has forgiven Official Development Assistance debt to more than 45 developing countries since 1978.

At present, although Canada’s foreign aid is below the target of 0.7% of Gross Domestic Product set by a United Nations committee chaired by former Prime Minister Lester B. Pearson, it is increasing, as shown in Figure 4.15. The 2003 federal budget increased Canada’s international assistance by 8% annually through 2004-2005, with a view to doubling it by 2010. A portion of the increase is targeted to Africa as part of Canada’s support for the New Partnership for Africa’s Development and the G-8 Africa Action Plan adopted at the June 2002 Kananaskis G-8 Summit. Other areas that will benefit from this increase include: debt relief through the Heavily Indebted Poor Countries initiative; the G-8 Partnership Against the Spread of Weapons and Materials of Mass Destruction; land mine elimination; and the International Development Research Centre, which supports research aimed at finding innovative solutions to challenges facing developing countries.

Source:

Canadian International Development Agency, Reports on Plan and Priorities and Department of Finance, Budget Plan 2004.

The 2004 federal budget also provided an 8% increase in international assistance for 2005-2006, and reiterated the Kananaskis G-8 Summit commitment to devote at least 50% of all international assistance increases to Africa. It also announced that the federal government would proceed with legislation to provide anti-HIV/AIDS drugs and other drugs at low cost to African countries. Bill C-9, which received Royal Assent in May 2004, amended the Patent Act and the Food and Drugs Act to facilitate access to pharmaceutical products in the developing world in order to address public health problems, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics.

Witnesses reminded the Committee how fortunate Canadians are to be able to benefit from their relatively high standard of living. Several witnesses pointed out that, in other parts of the world, large numbers of individuals live in extreme poverty. For example, we were told that 50,000 people die each day from preventable, poverty-related diseases, 800 million people suffer from hunger and 1.2 billion people live on less than $1 per day. It was pointed out that, as a nation, investing in international development is a good investment from many perspectives: reducing poverty; contributing to sustainable development; strengthening our reputation in the world; reflecting Canadian values around the world; and ensuring Canada’s own long-term economic well-being.

Although witnesses generally supported the announcement of annual increases of 8% in Canada’s international aid budget, many witnesses argued that the level of international aid must be increased beyond the current federal commitment in order to meet the target of 0.7% of gross national income for international aid, an objective that was part of the Millennium Development Goals established by the United Nations in 2000 and that Canada has endorsed. It was proposed that the federal government commit to increasing international aid by 12% for the next three years, and by 15% thereafter to 2015; this proposal would require an investment of $2.6 billion over the next three years, which represents $1 billion more than currently planned. In the view of witnesses, increases of this magnitude would allow the government to reach the target of 0.7% of gross national income directed to international assistance by 2015.

As well, witnesses urged the federal government to provide tax incentives that would encourage pharmaceutical and medical companies to provide — and, if necessary, manufacture — significant quantities of long-dated medicines that are most urgently required in accordance with World Health Organization guidelines. The Committee was told that a comparable tax deduction is available in the United States.

Finally, it was pointed out to the Committee that Canada has devoted 11% of its international aid to infrastructure at a time when the World Bank and African leaders have advocated that more international aid be devoted to building basic infrastructure services which would contribute greatly to increasing the standard of living for those experiencing extreme poverty. We heard a proposal whereby the federal government would re-establish balance in its international cooperation portfolio by reinstating funding for sustainable physical infrastructure investments in the developing world, and would move away from its recent shift towards providing aid in the form of monetary transfers to international financing institutions and governments, institutions and enterprises in developing countries.