Child benefits cut tax rate for families in Canada, OECD report finds

Posted on April 13, 2017 in Social Security Delivery System – ROB/Economy
Apr. 11, 2017.   RACHELLE YOUNGLAI – Economics Reporter

Improved child benefits under the Conservative and Liberal governments have pushed the effective tax rate to rock-bottom levels for middle- and lower-income families, according to a report released on Tuesday.

A one-income couple earning $51,000 a year with two children in Canada had a net personal average tax rate of 1.2 per cent last year, according to an annual tax report by the Organization for Economic Co-operation and Development (OECD).

That was higher than the previous year’s 0.2 per cent when the Conservative government of Stephen Harper expanded its universal child care benefits and boosted federal transfers to couples with children.

“It is a good thing to reduce child poverty,” said Alexandre Laurin, director of research with think tank C.D. Howe Institute. “The benefit system is very generous for children compared to what it was in the late nineties.”

The only other country surveyed that had a lower rate was Ireland with a minus 1.6-per-cent rate, according to the tax report.

At the turn of the century, a single-income family with two children in Canada had an effective tax rate of 14.2 per cent. That rate fell below 10 per cent after the Great Recession and dropped dramatically over the past two years.

The OECD, a group of 35 countries that promotes economic development, calculated the net personal average tax rate by subtracting the family benefits from the personal income tax and social security contributions and dividing it by gross earnings.

Over the same period, the net personal average tax rate for a single worker remained above 20 per cent. Last year, a single worker earning $51,000 paid the government 23.1 per cent of his or her earnings in income taxes and social security, according to the report.

The Conference Board of Canada’s chief economist said the government should also take into account the plight of the single worker, given the wave of job losses in traditionally higher-paid industries, such as manufacturing and natural resources.

The expanded child benefit “will have a meaningful impact on reducing child poverty in the country but we need to ensure that we don’t lose sight of the workers that are facing struggles that don’t have kids,” Craig Alexander said.

The OECD used $51,000 for the average gross wage for all types of families from a single worker to a two-income family of four.

“It’s not a very large income if you have two children,” Mr. Laurin said. “You just have to file a tax return; that is why they are better than other programs, they are your guaranteed early income.”

The federal government has touted the child benefits as an alternative to so-called basic income, which would give people money to pay for the basic needs regardless of whether they have a job.

Free cash has become a hot topic among tech leaders, who are worried about a future without jobs.

Finland has rolled out a guaranteed income pilot and Ontario is expected to unveil its own version later this year.

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