The new Canada Child Benefit (CCB) unveiled in the 2016 federal Budget has been widely supported by progressives and anti poverty activists who have long favoured the expansion of income tested child tax credits. By contrast to the so called middle-class tax cut which favours the more affluent, the CCB will have a positive impact upon the lamentably high rate of child poverty in Canada (which stood at 16.5% in 2013), and will promote greater income equality among families with children.
Somewhat ironically, the new program is an unintended consequence of the regressive policies of the Harper government which opened up the needed fiscal room for progressive change.
The CCB is a big program by any measure. Starting in July, non taxable cheques totalling $23 Billion per year will be issued monthly to families with children. The maximum annual tax free benefit is $6400 for children under age six, and $5400 for children age six to seventeen. Families with more than one child get the same benefit for each additional child.
The CCB is also a redistributive program. Benefits phase out slowly as family income rises above $30,000, but remain significant for middle-class, two earner families.
A family with two children with a median or mid point annual income of $85,000 will receive about $6,000 per year. Benefits fall to zero only above a family income of about $200,000.
The CCB is roughly twice as large in terms of spending as the system of child benefits put in place by the Chretien and Martin governments. About one half of the cost of the new program is paid for by folding in the Canada Child Tax Benefit and the National Child Benefit Supplement, which are similarly paid out monthly, and are non taxable benefits based upon family income.
Another part of the cost of the big new CCB was made possible by folding in two large, signature Harper government programs, the Universal Child Care Benefit or UCCB (costing $6.8 Billion per year), and income splitting for families with children (costing $2.0 Billion per year) Getting rid of these programs meant that the net additional cost of the new CCB to the federal government is just $3 Billion per year.
The UCCB was originally introduced in 2006 to partly offset the costs of child care, and to legitimize the Harper government's decision not to proceed with a cost-shared national child care program. This program paid out as flat amounts of $100 per month for young children, so pre tax payments were not reduced for high income families, or increased for low income families. The benefit was increased and extended to send payments to all families with children below the age of 18 starting in July, 2015, just before the election.
Family income splitting for income tax purposes, introduced as a pre election measure in 2014, was designed to reward traditional families with a stay at home spouse. Studies by the C.D. Howe Institute, the Broadbent Institute, the Canadian Centre for Policy Alternatives and others found that most benefits, to a maximum of $2,000 per year, would go to families with a high income single earner in one of the top tax brackets.
The UCCB and family income splitting were widely criticized by progressives as programs that failed to take into account the fact that the great majority of families with children today have both parent working. These programs were also criticized for their failure to counter growing income inequality and poverty, and indeed the Conservatives failed to significantly improve income-tested child benefits during their watch.
The Conservative fiscal legacy to the new government was thus almost $9 Billion in annual spending on child benefits in the form of non redistributive programs which could readily be folded into the new CCB while benefiting the great majority of families with children. Working families with children earning between $30,000 and $100,000 will receive in the range of $1,000 per child per year more than they did in the system in place in 2015.
One can quibble a bit about the equalizing and anti poverty impact of the CCB. Low income families with children will receive a more modest increase than middle income families; the new benefit is not indexed to inflation until 2020; and action will have to be taken to ensure that benefit increases to families on social assistance are not clawed back by the provinces.
But the program is a step forward for progressive change, thanks in part to the Harper government's decision to spend big on questionable programs for children.
Andrew Jackson is Adjunct Research Professor in the Institute of Political Economy at Carleton University, and senior policy adviser to the Broadbent Institute.