The 2015 Deficit-of-Ideas Budget

Posted on in Social Security Policy Context

CaledonInst.org – Publications
April 27, 2015.   Ken Battle, Sherri Torjman and Michael Mendelson

For the first time in years, the federal Budget does not have a deficit.  The Budget posts a small surplus of $1.4 billion for 2015-16.  Unlike previous Conservative budgets, this one moves out of deficit territory – at least in the usual fiscal sense.

From a social perspective, however, the story is much different.  The Budget is in full deficit mode – running a deficit of good ideas and a surplus of bad ones.

The government’s chief social policy initiative involves child benefits, which unfolded over the last year and is hammered home again in this Budget.  There are four programs at issue.

The endlessly advertised Universal Child Care Benefit (UCCB) is being enhanced, with benefit increases and an extension of eligibility from the current age 5 and under to children ages 6 to 17.  The UCCB is a flawed scheme that should be scrapped and the money used instead to boost the well-designed and effective Canada Child Tax Benefit.

The government claims that the UCCB will increase by $720 a year.  But when the decision to abolish the Child Tax Credit is taken into account, the increase amounts to just $375 in the case of a single-parent family with a child under 6.

The UCCB is taxable at the hands of both Ottawa and the provincial and territorial governments, so families end up with less once they return part to Revenue Canada at tax time.  But single parents are exempt from taxation on their benefits.  The UCCB is not indexed, so every year automatically loses value to inflation.

The Family Tax Cut, government-speak for family income splitting, is a regressive scheme targeted to upper-income families with one earner, as well as two-earner couples in which one spouse has much more income than the other.  Only 13 percent of Canadian households will qualify for the Family Tax Cut, payable as a non-refundable tax credit worth up to an annual $2,000.

Finally, the Child Care Expense Deduction will enjoy a $1,000 boost to its contribution limits, which will make the program even more regressive, disproportionately favouring the well-off.

The government has over the years launched a plethora of ‘boutique tax credits’ targeted to specific groups (of voters, some would argue).  The Children’s Fitness Tax Credit will be doubled and made refundable, so that low-income families with children in approved physical activities will receive their benefit in the form of a cash payment rather than a tax reduction.

But even with refundability, another design problem remains.  Families must first pay for specific fitness-related goods and services for their children before they can receive the credit: you must pay in order to play.  The up-front payment is a problem particularly for low-income households.

We have argued that it would be preferable to invest in recreational infrastructure nation-wide in order to benefit all Canadians rather than pad the pocketbooks of individuals.  Private households cannot possibly build and maintain through their individual contributions the facilities and programs that communities require.

A virtual doubling of the Tax Free Savings Account limits is another blockbuster announcement in Budget 2015.  The Finance Minister announced that the maximum annual contribution limits will jump from $5,500 to $10,000.

The tax savings resulting from this measure will go disproportionately to higher-income households.  They are the only ones that can afford to sock away these increased savings.  These funds could instead be used, both now and in future, for a wide range of purposes.  From a social perspective, there are many far more pressing needs.

In the troubled area of First Nations education, Budget 2015 resurrects some measures first developed as far back as 2008 – the First Nations Student Success Program and the Education Partnerships Program.  These have been useful, but do not add to the core funding of on-reserve schools; all the work in schools supported by these programs is time limited.

The Budget announced $12 million over three years for Indspire, which provides financial support for indigenous post-secondary students, and allows for the continuation of multi-year infrastructure financing for school buildings.  But this is not enough.  We agree with the National Chief of the Assembly of First Nations that Ottawa should restart negotiations on federal support for education on reserve.

The Employment Insurance program and its Operating Account is still being used as a piggy bank, as in earlier years.  Premium rates and EI benefits fall and rise according to the political needs of the government in power, and not to the needs of unemployed workers or the Canadian economy.  The time is long passed for a comprehensive and independent review of all aspects of the EI program – both its financing and its benefit structure.

Infrastructure is another hot area with high expectations, but little substantive to show. A new Public Transit Fund looks good on the surface, but the funding won’t come on stream until 2017 – two Budgets off, and more millions to come until $1 billion a year in Budget 2019, just before another next election.

There were some positive announcements in a variety of areas that are discussed on our Budget response.  These include help for caregivers by extending the duration of the Employment Insurance Compassionate Care Leave provisions from six weeks to six months.  A new Home Accessibility Tax Credit will be available to persons with disabilities and seniors to help offset the costs related to accessibility and security in their homes.

Other Budget items include training and labour market development, non-profit and cooperative housing, Canada Student Grants and the innovative Working Income Tax Benefit for welfare recipients and the working poor.

Budget 2015 is a wide-ranging document with a few good ideas, but not much for key social policy measures such as child benefits, which took the wrong route.  Income splitting, enhancement of the Universal Child Care Benefit and boosting the Child Care Expense Deduction will be a waste of money.  They represent a substantial bleeding of scarce funds that could be spent on the real challenges facing Canada, especially poverty and inequality.

The fiscal deficit may be gone for now – and forever.  But the deficit-of-ideas straightjacket remains alive and well because it is the product of politicized policy.  The 2015 Budget seals the deal and leaves us trapped in a time warp.  Its impact could haunt us for years to come.

< http://www.caledoninst.org/Publications/Detail/?ID=1063 >

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Ken Battle, April 2015

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