A real fix for poverty

Posted on December 16, 2009 in Social Security Debates

NationalPost.com – FPComment – A real fix for poverty: Canada’s welfare system is stuck in the Victorian era, wasting billions. It’s time to drop the old, failed approach
Posted: December 15, 2009.   By Hugh Segal

Any company, domestic or international, that invested $150-billion annually in a specific project and saw no change in the quality of results would initiate a serious review or serious staff changes at the top. And if it did not, investors, both individual and institutional and shareholders generally would justifiably complain. That is where the federal and provincial governments now find themselves on the challenge of poverty.

StatsCan reports that Ottawa and the provinces have, since 2007, spent $150-billion annually on transfers in a range of income security programs unrelated to education and health care. This is serious taxpayer coin — funds that might better be used in tax cuts, defence, research and development and other productive investments for economic or national security in the future.

The challenge here is to be brutally blunt about the size of the failure — and the real costs it engenders. The number of Canadians living under the poverty line (pick any measure — from the Low-Income-Cut-Off to the Fraser Institute’s standard) has not decreased in the last decade. Since the 1990s, our net expenditures are measured in trillions only.  Seniors are truly better off since the introduction of automatic tax-based income supplements; the poor in other age categories have made almost no progress at all.

The business issue is clear. Huge extra tax burdens are generated by a large poverty market segment in areas like health care, prisons, unemployment and law enforcement. The hard facts on the ground are clear: Poor people get sick earlier and stay sick longer; the poor drop out of school earlier and are among the functionally illiterate; the poor are wildly over-represented in prisons and judicial systems — adding massively to health care, law enforcement and unemployment-based taxpayer burdens. And, our un-businesslike approach to poverty is deeply wasteful and unproductive.

In Ontario alone, there are 800 rules Ontario Works and income security recipients must follow. This translates into thousands of civil servants to manage and enforce those rules; some of which actually entrap people in poverty and frustrate their individual efforts to break out of the poverty cycle.

A single mother on assistance who gains entry to a post-secondary institution, will have her benefits slashed if she obtains a student loan to help cover fees. This is just one example where the rules actually choke initiative out of the system and keep the welfare roles unnecessarily expanded.

There is a conservative response here, one that attacks the real problem without gathering armies of public servants to add to the burden or increasing costs.

The Ontario-originated GAINS income supplement, begun in the mid 1970s by Finance Minister Darcy McKeough, automatically tops up seniors whose income is beneath a low-income threshold, without rule books, extra civil servants and through existing tax forms. Milton Freedman got it right when he supported a similar negative income tax by asserting that “a set of social institutions that stresses individual responsibility, that treats the individual … as responsible for and to himself will lead to a higher and more desirable moral climate.” The GAINS program in Ontario and its analogous forms in other provinces and Ottawa do not have 800 rules or thousands of civil servants to administer, oversee and enforce programs that fail, entrap, waste and frustrate.

The “nanny state” is manifest in many ways. Undue discretion to civil servants, annual roll-over of inefficient social expenditures without any zero-based, bottom-up impact and value for money analysis and concurrent tax grabs form part of the same “nanny state” momentum — curiously unaffected by party in power, provincially or federally. (As Milton Friedman said, “If you put the … government in charge of the Sahara Desert, in five years there’d be a shortage of sand…”) Poverty, its durable perpetuation by rules-based programs, its huge contagion cost impact on health care and other social cost bases, is not the canary in the mineshaft, it’s the 600-pound gorilla blocking the path to equality of opportunity vital to an enterprise-based competitive society. Canada ranks well down from the top among our OECD competitors regarding serious progress on this front. Our systems are antiquated, our approach does not work and the costs of failure are rising.

In Calgary last year, some business and community leaders undertook a homelessness eradication plan through a private charitable foundation that will see homelessness eliminated within a decade in that city. Their approach is tied to hard measurement, return on investment disciplines and practical innovation rather than civil service enforced rules-based orthodoxy. They are ahead of schedule in progress to date.

Governments have a rare opportunity to break out of the old path dependency on Victorian-age welfare programs and embrace a simpler, tax-based radical re-cast of how we address poverty. No government can do it alone. But we have seen cooperation before. Conservatives, Liberals, Pequistes and New Democrats have collaborated across federal and provincial lines on Canada Pension Reform, the Unified Child Tax Credit and vital trade negotiations, in ways that enhanced efficiency and our economic interest.

It is time for poverty spending to be given the same overhaul. There is a strong business case for welfare reforms.  There is no case for letting the gorilla continue to occupy more space that the Canadian economy needs for growth, efficiency and productive investment.

Financial Post.   Hugh Segal is the deputy chair of the Senate subcommittee on cities. Its report on reforming poverty and homelessness programs was released last week.

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