Social Policy in Ontario

Caledon statement on the Family Tax Cut

Posted on October 31, 2014 in Child & Family Policy Context

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CaledonInst.org – Announcements
October 31, 2014.

The Elephant Not in the Room  < http://www.caledoninst.org/Publications/PDF/1056ENG.pdf >
Ken Battle and Sherri Torjman, October 2014

This commentary is a response to yesterday’s Family Tax Cut and related child benefits announcement.

ISBN – 1-55382-633-7
Family Tax Cuts: How Inclusive a Family?  < http://caledoninst.org/Publications/Detail/?ID=1055 >
Jonathan Rhys Kesselman, November 2014

This forthcoming study undertakes a systematic assessment of the Family Tax Cut for income-splitting by couples proposed in the Conservative Party of Canada’s 2011 electoral platform. The analysis confirms earlier assessments of the revenue costs and distributional tilt of the policy favouring high-income families. The average income of families that would receive any benefit from the Family Tax Cut exceeds $123,000; and this remains the case for the modified scheme announced by the government after the completion of the study.

Fewer than 13 percent of all households would receive any benefit from the Family Tax Cut, and most of them would receive less than $1,000; those facts remain true for the modified scheme. Moreover, while the revised Family Tax Cut continues to claim its original $50,000 limit on the income that can be split between spouses, the cap of $2,000 on annual benefits implies that the effective amount of income shift has been reduced to about $14,000.

The original Family Tax Cut is found to suffer from many deficiencies in addition to the revenue cost and distributional tilt: faulty implementation of the horizontal equity criterion; assuming that couples fully pool and share their incomes; ignoring scale economies enjoyed by couples; lack of conditionality on the at-home spouse’s activity; barriers to women’s working and associated economic inefficiency; marital and cohabitation biases; and violation of gender neutrality and individual autonomy. While some of these are moderated by the reduced cap on splitting in the modified Family Tax Cut, none of the deficiencies is eliminated.

The study canvasses a range of alternative tax cuts and benefit hikes for families having the same revenue cost as the Family Tax Cut. It assesses their distributional impacts and other attributes. The study concludes that numerous policy options alternative to the Family Tax Cut could distribute the benefits more widely and effectively in support of a far more inclusive notion of Canadian families.

ISBN – 1-55382-632-9
If you don’t pay, you can’t play: the Children’s Fitness Tax Credit  < http://www.caledoninst.org/Publications/PDF/1054ENG.pdf >
Ken Battle and Sherri Torjman, October 2014

On October 9, 2014, the Prime Minister reiterated his 2011 election campaign pledge to boost the Children’s Fitness Tax Credit, one of his government’s growing arsenal of ‘boutique’ or targeted tax benefits. The maximum amount of fitness-related expenses that can be claimed will double from $500 to $1,000. In addition, starting 2015 the program will be made refundable to expand its reach to more low-income families, hitherto excluded.

These changes may look good on the surface. In fact, the Caledon Institute has recommended that many of the current targeted tax credits be changed from non-refundable to refundable to ensure greater fairness among Canadian households We commend the government for making this important advance in the architecture of the Children’s Fitness Tax Credit.

But dig deeper into the announcement and we find that the Children’s Fitness Tax Credit remains a limited benefit that may or may not be smart politics but is flawed public policy. To qualify for the Children’s Fitness Tax Credit, families first must spend money on fitness-related programs. Many low-income families cannot qualify for the credit because they cannot afford to shell out any of their limited income on fitness activities.

There is also a more fundamental question: Are tax measures the most appropriate policy instrument to achieve the social objectives of targeted tax credits such as the Children’s Fitness Tax Credit? The critique presented here suggests that Ottawa should jettison the Children’s Fitness Tax Credit and explore another approach – investing in community programs and amenities rather than individual income benefits.

Some functions in society are best carried out through social investment rather than individual tax breaks. Tax benefits targeted to certain groups do not build a country with public amenities that can be enjoyed by all citizens, regardless of income.

ISBN – 1-55382-631-0

< http://caledoninst.org >

Tags: budget, child care, ideology, participation, standard of living, tax

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