Social programs pack powerful economic punch
TheStar.com – Opinion – Social programs pack powerful economic punch: Families with pressing needs are most likely to spend whatever they get as soon as they get it
December 22, 2008. Ken Battle, Sherri Torjman, Michael Mendelson
The main threat we face today is deflation – meaning falling prices and consequent mass unemployment. Most observers, from the International Monetary Fund to small-town car dealerships, agree this is the challenge of the hour.
While easing interest rates further will help, they can go only to zero – and already have in the United States.
The most effective weapon against deflation is fiscal stimulus, so this must be a key element of a new economic plan.
The Governor General has granted the Conservatives a reprieve and they are now busy preparing a budget for Jan. 27. The Harper government seems to be following through on its promise to seek the advice of a wide range of players – the opposition parties, premiers, think-tanks and individual Canadians on the key elements of its budget. Canadians need to let the government know what they want to see in this critical budget.
Not all economic stimulus packages are equal. Size matters, but no matter how big the stimulus, it has to pump money into the economy right away. Giving money to banks, which stash it away to improve their balance sheets, does little good. Investing in infrastructure is positive but much of it will take time to get off the ground. The stimulus will work best if the funds are promptly spent.
Social programs are made-to-order to put money directly into the hands of families with pressing needs, which are most likely to spend whatever they get as soon as they get it. By providing a safety net under us all, social programs have the added bonus of bolstering security in difficult times.
If the goal of stimulus is to circulate money quickly, while at the same time improve Canadians’ confidence, then social programs should play a prominent role.
Boosting three geared-to-income programs – the Canada Child Tax Benefit, the refundable GST credit and the Working Income Tax Benefit – would put additional money into the hands of lower-income households.
In addition, Employment Insurance must be strengthened to provide better income protection for jobless workers as unemployment levels climb.
Here is what needs to be done right now to help Canadian households:
First, raise the Canada Child Tax Benefit to a maximum $5,000 per child in low-income families, which will boost their benefits by about $1,670. This additional money should offset much of the anticipated increase in child poverty that will otherwise result from the recession. The Canada Child Tax Benefit is paid each month and benefits could easily be recalculated for the current year, so increased payments could be in bank accounts across the country within a few months.
Second, double the refundable GST credit to $484 for each eligible adult and $254 for each child. This boost would send a little extra spending money to all low- and modest-income Canadians. The enriched GST credit could be on the street within a few months through the Canada Revenue Agency.
The Harper government is justifiably proud of its new Working Income Tax Benefit for the working poor. It is intended to help make work pay. But the payment is so small and narrowly targeted that even someone working full time at minimum wage earns too much to be eligible for any benefits. The current maximums of $500 for single workers and $1,000 for couples and single parents should be doubled. Workers should be allowed to earn a lot more before their benefits are reduced. These improvements could be implemented in time for the first tax refunds in 2009.
Finally, and perhaps most important in a recession, Employment Insurance must do a better job. It should enable unemployed workers to feed their families and pay their mortgages while looking for hard-to-find new jobs or upgrading their skills to get better jobs. Fewer than half of unemployed Canadians qualify for Employment Insurance. In Ontario, coverage is even worse – just 29 per cent of the unemployed receive benefits.
Ottawa should immediately reduce the number of hours that must be worked to qualify for benefits. Eligibility should be extended so unemployed workers can collect benefits for a longer period. The wage replacement rate should be raised so that average workers get 70 to 75 per cent of their lost wages rather than the current 55 per cent. More generous provisions are needed to allow training for workers while unemployed. All of these improvements could be made as soon as the Employment Insurance Act is amended, with changes in place by the end of winter 2009.
These social program elements of a stimulus package could be delivered with almost no extra administrative cost, as the delivery systems are already in place and fully automated.
All of the additional money would go straight into the pockets of Canadian families and individuals who need it most and will put it to use immediately.
It may seem like playing Santa Claus in a post-Christmas budget, but there is sound economic reasoning in favour of making stronger social programs a central component of the economic stimulus package.
Ken Battle, Sherri Torjman and Michael Mendelson are all affiliated with the Caledon Institute of Social Policy.