Poverty and The Canadian Welfare State: A Report Card
JANUARY 27, 1998
The Canadian welfare state included three main elements at the beginning of the l990s: (1) government funding of basic services (notably health care and education), intended to provide universal access to such services regardless of ability to pay; (2) social insurance programs (Employment Insurance and the Canada Pension Plan), financed by premiums and intended to provide insurance against loss of income due to unemployment and age; (3) means-tested programs to provide income support to low-income Canadians (social assistance, guaranteed income supplement for low-income seniors, and the child tax benefit).
Between l990 and l996 there was a rapid erosion of all three elements of the Canadian welfare state. First, there were growing inequities in access to both health care and post-secondary education for low-income Canadians, resulting from a significant decline in real public funding for these services (see NAPO report, January l998). Second, there was an approximately 40 per cent cut in Employment Insurance (EI) benefits ($6 billion annually) over the l990-l996 period. Deep cuts in EI, combined with changes in the labour market, have resulted in a sharp fall in the proportion of the unemployed who are able to receive EI benefits (the ratio fell from 83 per cent in l990 to 43 per cent in l997). Third, many provinces in recent years have tightened eligibility requirements for social assistance and/or cut benefit rates. (see NAPO reports, October l996 and March l997).
The number of poor people rose considerably over the l990-l996 period. By l996 poor Canadians were much worse off in economic terms than they were in l990. They were also significantly worse off in comparison to more affluent Canadians. The extent of income inequality in Canada in l996 was at its highest level in a generation. According to Statistics Canada, the richest 20% of Canadians saw their average incomes increase $2000 between l995 and l996, while the poorest 20% saw their average incomes fall $500. This was the result of decreasing government transfer payments (cuts in social assistance and employment insurance benefits), combined with lower real labour market earnings.
The erosion of the Canadian welfare state in recent years, and the resulting significant increase in poverty and income inequality, have been primarily driven by the agenda of rapidly reducing and eliminating government budget deficits. The cost of implementing this objective has been disproportionately placed on the back of the poorest and most vulnerable citizens in our society.
2). Some New Initiatives: The Past Year
By l997 the financial situation of the federal government, and of most provinces, had improved significantly. There are indications that this is leading to the restoration of the first element of the Canadian welfare state, namely public funding to ensure universal access to basic services regardless of ability to pay. Many provinces have announced significant increases in their funding of health care and/or education for l998 (notably Alberta, Saskatchewan, Manitoba, Ontario, and New Brunswick). At the federal level, the Millenium Scholarship Fund (scheduled to be introduced in 2000) will provide additional federal funding for student grants (based, however, not only on need but also on academic merit). While these initiatives are generally encouraging, it is important to note that the over-all level of real public funding for both health care and education is still significantly below what it was at the beginning of the l990s.
In the case of EI, there was no indication in l997 of any restoration of the benefits that were drastically cut over the l990-l996 period, despite the fact that large surpluses are accumulating rapidly in the EI account (the cumulative surplus is forecast to reach $20 billion by the end of l998). The percentage of unemployed receiving EI benefits continued to fall in in l997, to about 42 per cent nationally (30 per cent in Ontario) at the end of the year. Over the long-term, the drastic reduction in EI will undermine its ability to ensure against unemployment and will further increase the incidence of poverty, especially in any future economic recession.
As regards income support, the one major new initiative announced in the past year was the enriched federal child tax benefit.(CTB) The federal government has committed itself to increase the CTB for low and modest income families by $850 million annually, effective July l998 (from $5.1 billion to $5.95 billion annually). The March l998 federal budget also promised an additional $850 million annually, to be implemented in the l999 and 2000 fiscal years. The intended beneficiaries of the enriched CTB are working poor families, since the provinces plan to claw back from social assistance families the full amount of the increased federal benefit. The provinces have committed themselves to reinvest this "freed-up" money "to other programs targeted at improving work incentives and supporting children in low-income (working) families". Several provinces are planning to extend additional health and child care benefits to working poor families (notably Alberta, Manitoba, Saskatchewan, Ontario, Quebec, and Newfoundland).
As noted above, the enriched CTB, coupled with provincial reinvestments, will provide some additional income support and in-kind benefits to working poor families. However, there are several reasons to be skeptical with respect to the extent to which these initiatives will reduce the rate of child poverty which has increased rapidly in the 1990's. First, the enriched CTB will do nothing to reduce child poverty amongst the nearly two-thirds of poor children in welfare families (an estimated l million poor children live in welfare families, compared with about one-half million children in low-income working families). This is true because, as noted earlier, all provinces intend to clawback the enriched CTB from welfare recipients, through reducing social assistance benefits by an equivalent amount.
Second, even in the case of working poor families, the impact of the enriched CTB in reducing poverty may be minimal. The amount of new funding is relatively small, and the real value of the enriched CTB will be gradually eroded over time because it is not fully protected against inflation (over the 1984-1997 period the real value of the CTB declined by about $1 billion). Furthermore, the real beneficiaries of the enriched CTB may turn out to be low-wage employers rather than working poor families. This is true because the enriched CTB, coupled with cuts in social assistance benefits, may increase the supply of low-wage labour (by forcing some of the welfare poor into the ranks of the working poor), thereby lowering the price of labour. There is little evidence to date that this will be prevented by provincial government intervention to raise minimum wage levels (the real value of minimum wages across the provinces has eroded considerably over the last two decades, an average of 26% from 1976 to 1995).
3). Continuing Erosion of Social Assistance: The Past Year
Overall, the report card on the Canadian welfare state for the past year is discouraging. While there has been some increase in public spending on health care and education, the level of expenditures is still significantly below what it was at the beginning of the l990s in real terms. Furthermore, as noted above, none of the deep cuts in Employment Insurance have been restored in the past year, nor is the enriched child tax benefit likely to greatly reduce poverty.
Within this context, the program of last resort for the majority of low-income families and unattached individuals remains social assistance. As an appendix to this report (Appendix 1) we attach an up-dated version of previous NAPO reports on recent cuts and changes to provincial social assistance programs.
The main points that emerge are four-fold: first, the real value of social assistance benefits continues to fall in most provinces, rather than recovering from the cuts that were made in recent years; second, many provinces have drastically cut special benefits to social assistance recipients; third, a number of provinces (most notably Alberta) have significantly tightened eligibility requirements; finally, cuts in social assistance benefits have been especially severe in provinces where benefits had been higher than the national average (such as Ontario, British Columbia, and Prince Edward Island). There appears to be a race to the bottom approach to social assistance amongst the provinces, partly as a result of the virtual disappearance of national standards for social assistance since the introduction of the Canada Health and Social Transfer.
There has also been an increasing erosion in several provinces of the right of appeal of social assistance recipients from unfair decisions by welfare administrators (for example, in Ontario the right of appeal has been considerably restricted under new legislation enacted in December l997). This is part of a general trend toward increasingly mean-spirited administration of welfare and toward depriving the welfare poor of basic human rights.
Continuing erosion of social assistance, within the context of a greatly weakened welfare state compared with the beginning of the l990s, means real suffering and increased hardship for a growing number of poor Canadians. Surely Canadian society, as we move to the next millenium, should be more caring and compassionate than this.
Canada has not been unique in the erosion of its commitment to social justice during the l990s. Viewed in the international perspective many countries have seen a rapid growth in inequality of incomes. The dominant ideology of our time seems to put more and more emphasis on the market place, with minimal government intervention to protect the interests of the poor and to ensure the provision of access to basic services as a matter of right rather than ability to pay. At some point, however, there will inevitably be a backlash against this trend. History shows that democratic societies which fail to maintain a balance between social justice and individual liberty are at risk of losing basic civic and human rights.
Much of the recent emphasis in Canada on balancing budgets at the expense of social programs is predicated on the assumption that this will provide an environment that facilitates economic growth, reduced unemployment, and improved income levels for Canadians. There has been some improvement in the Canadian economy in the past year (the unemployment rate has fallen and the economy has grown more rapidly). Nevertheless average levels of real income are still well below the level of l989. Moreover, in the case of low-income Canadians specifically, their share of the national economic pie has grown much slower.
The challenge for all levels of government in Canada is to find ways to reverse the dramatic increase in poverty and income inequality that has occurred in the l990s, while providing appropriate incentives for economic growth and fostering individual initiative. The report card to date, on meeting this challenge, is unfortunately not encouraging.
For Chart of Changes to Social Assistance by Province,
Please Contact NAPO at Telephone # (613) 789-0096
Copyright © 1997 The National Anti-Poverty Organization (NAPO)