John Stapleton June 12, 2007
In 1929, any person age 70 years of age or older who had been a Canadian citizen for twenty years and an Ontario resident for five could apply for a strictly needs tested $20 a month pension ($240 a year). The first $125 a year in outside income was exempted and the two amounts together added to $365 a year. The program was called the 'dollar a day' pension and the name stuck. But it was a pension program in name only ‚ in reality, it was a welfare program for seniors.
Under the early Old Age Pension, adult children were obliged to take care of their fathers and mothers and try to the extent possible, to keep their parents off the program. By 1932, Ontario began filing claims against estates of deceased pensioners and all three Ontario political parties cited numerous instances of pension fraud in the Legislature, all in support of tighter rules. The Toronto Globe noted that
"Members of the Legislature are of the opinion that there should be a general tightening of the regulations of the Old Age Pension Act".
The economic mistakes of the great depression, the new ideas of Keynes and Beveridge in the U.K as well as Marsh in Canada, and a second world war that many believed would catapult the western world back into economic recession, resulted in a whole new attitude towards benefits for seniors and income security in general.
The Old Age Pension Act that survived into the post-war period was a partial answer to destitution among seniors and in no way responded to the persistence of poverty among Canada's senior citizens. When the final vestiges of means tested supplements to Old Age pensions were abandoned in Ontario during the post World War II expansion, Progressive Conservative Premier Leslie Frost faced the Ontario legislature in 1951 and noted that the supplements were "a huge mistake". He said
"With our experience, we will not do that again. There is nothing but tears and distress to try to do it the way we were doing it before. Never again would I want to get into the recriminations and misunderstandings which arose from that".
The campaign to remove means testing from Old Age Pensions marked the midpoint of a fifty year period from the later 1920's to the 1970's when a real answer to senior's poverty emerged in an integrated approach to income security for all Canada's seniors.
We took seniors off of welfare and, for the most part, took them out of poverty.
Turning to child benefits, it is clear that their history followed a very different path. They started with universal family allowances implemented in the immediate post war period, personal income tax exemptions and deductions and child benefits paid as part of basic welfare benefits (going back to the 1920's). But despite their different course of development, seniors' benefits and child benefits have ended up in the same place in the new millennium. Today the income security programs that support our children and seniors have the same DNA.
With the advent of the NCB in 1998 and the introduction of the OCB in Ontario, this same gradual process of removing children's benefits from welfare programs is firmly in place. In 1998, the federal government added an income tested benefit to child benefits that followed by twenty years the introduction of an income tested benefit for seniors, the Guaranteed Income Supplement (GIS).
Registered savings instruments were first introduced in the 1950's for seniors and then in the 1980's to support children's education. In the 1970's, RRSP deductions were popularized resulting in a real incentive to save for retirement. In the new millennium, the federal government added matching saving incentives through the introduction of the Canada Learning Bond and Canada Education Savings Grants. The final pieces of Canada's income security DNA were in place.
To recap, in Canada seniors and child benefits have four elements in common as they relate to federal benefits funded by tax dollars:
1) Meaningful base benefits
2) Registered tax instruments that provides incentives for children and youth and aged persons to save while they are in these age cohorts
3) Income tested benefits
4) Matching or Separate Contributions from Governments to reward individual contributions for seniors and children
The clarity of the four elements of federal benefits is somewhat obscured by the income security programs that developed through Constitutional change. The three Constitutional changes submitted to the British parliament were in support of Unemployment Insurance (1940), Old Age Pensions (1951), and CPP (1960 and 1964). These amendments were secured so that the government of Canada could require earmarked contributions for each of these programs (an area of exclusive provincial jurisdiction). The EI and CPP deductions remain to this day while payroll deductions for Old Age pensions have long since been abandoned.
Constitutional change for the purposes of income security reform is no longer considered politically possible. Accordingly, our remaining Constitutionalized programs (EI and CPP) tend to bear more of the earmarks of their vintage than other programs and policies that are more open to moving with the times.
In the case of Unemployment Insurance, the renamed Employment Insurance program is becoming less and less relevant as the job market changes. With its convenient placement as a cash cow for the federal government, real change is unlikely without concerted efforts from stakeholders. After all, the federal government is in the envious position of having no funding role in an eroding program where it can set its own rules for coverage while guaranteeing the flow of employer and employee contributions to its own coffers.
In contrast, the Canada Pension Plan is perhaps the only federal program that has not been subjected to real or intended cutbacks since its inception. Protected by the Constitution in respect of large scale change and similarly immune to smaller changes thanks to an amending formula (that requires a two thirds majority vote among the provinces, CPP has neither had to worry about wholesale cutbacks (compared to those made to UI and EI), or consider important improvements.
Consequently, both EI and CPP are effectively exempt from the day to day policy and political machinations that alternately reduce and improve our other income security programs. They follow their own remarkably different trends of behaviour from the other programs funded from government revenue sources. This means that neither program exhibits the policy and program DNA that characterizes government funded programs today.
However, this does not exempt either program from doing its part in support of an anti-poverty strategy for Canada. For example, the MISWAA report Time for a Fair Deal called for significant changes to EI. Disability groups are calling for overhauls to both CPP-D and EI sickness benefits. Unions are calling for significant expansions of coverage under EI and a rebalancing of EI revenues that would respect both the needs and rights of contributors. Despite the Constitution and its concomitant amending formulas, these programs are far too large to be outside the scope of a poverty reduction strategy.
Until 2007, working age Canadians had the following programs benefits or policies available under the same four pillars:
EI benefits available to less than 40% of the unemployed and as low at 22% in Toronto
None : A tax prepaid savings instrument or other type of tax-deferred instrument that would be available during working years does not exist
None
Therefore, before the Budgets of 2007, working age adults had:
Limited income security through welfare, EI and modest refundable credits; and
However, in the Federal Budget of 2007:
Arguably, Mr. Flaherty has introduced in one Budget, two elements of the same income security DNA that we find in the success story of our children's and seniors' benefits.
Three days later in Ontario and several days later in Manitoba, child benefits designed to replace the welfare portions of children's benefits were introduced paving the way for income security reform of adult benefits in the same way as we have reformed children's and seniors benefits.
We are taking children off of welfare and helping to end child poverty. The next logical step is an adequate set of benefits for all low income children to end child poverty and strong enough base child benefits to guarantee the support of the program by Canadians. We are not that far away from a low income child benefit of $5,000 a year.
Canada may have discovered the DNA for income security reform and has replicated it successfully for both seniors and children. If true, attempting to restore income security, tax and transfer system and welfare benefits to some prior year point through welfare increases is not a recommended course of action.
The point of this essay is that it may be a good starting point to investigate changes to the income security system that would provide working age adults similar benefits to those available to children and seniors. A model that would replicate this DNA could result in calls to:
Others may argue that replicating this DNA for working age adults would not take into account the fundamental difference between working age adults vs. seniors and children ‚ that seniors and children are effectively not expected to be in the work force and working age adults are expected to work. Accordingly, income security for working age adults that would compliment work may look very different from the suite of programs provided to those not expected to work. One good example of an income security system designed to support and compliment work is available from the Caledon Institute at www.caledoninst.org in their income security architecture series.
The common element to solutions offered by Caledon and other think tanks and the approach noted as a starting point here is that welfare approaches may be a partial answer for destitution but no answer to poverty. We learned this lesson through the history of our income security programs for seniors and children. We learn it again every time we disallow social assistance recipients to build a nest egg to help them leave social assistance through restrictive assets tests. We learn it again every time we reinforce the stigma inherent in any welfare program that defines its integrity through rules that restrict it to the neediest as opposed to defining integrity through its capacity to help people succeed.
But we also learned that we can put in place a meaningful suite of programs and tax incentives that Canadians support. Perhaps the starting point for solutions for working age adults are right in front of us and we have failed to recognize it. Let's take adults off of welfare just as we did for seniors and our now doing for children. The structures have now been introduced to do so. We can take adults off of welfare and end working age adult poverty in Canada.
We now need to put the rest of the structure in place by re-conceiving our programs and to retool our models of governance so that they support work to support labour force attachment and deploy income security and service programs in the cause of a decent living.