The upside of Stephen Harper’s fatally flawed child-benefit scheme

Posted on October 31, 2014 in Child & Family Policy Context – News/Canada – The Conservative government’s plan to expand the baby bonus is an example of unintended social democracy.
2014/10/31.   By: Thomas Walkom, National Affairs

Stephen Harper’s latest tax and spending measures make for good politics. That is a given.

When the governing Conservatives head into the next election, the child and family breaks just announced by the prime minister will stand them in good stead.

But do they make for good economics? Critics of the government may be surprised to find that in some cases they do.

Harper’s announcement Thursday contained two key promises.

First, he pledged to increase and expand the universal child-care benefit, also known as the baby bonus. That’s a scheme whereby the government sends cheques each month to families with young children.
The net cost to Ottawa of expanding this program works out to about $2.6 billion a year.

Critics point out that even in its expanded version, the universal child-care benefit does little to defray the real costs of child care. The most a family would receive under the new proposal is $160 a month per child — which isn’t much.

This is the downside of the Conservative universal child-care benefit: It has virtually no relationship to the reality of child care.

The upside is that it is universal — it is a social investment in children that goes to not just the poor but to all.

Back in the late 1980s, when another Conservative government was eliminating that era’s baby bonus scheme, New Democratic Party leader Ed Broadbent explained why universality was so necessary.

Social programs, Broadbent said, have legitimacy only if the broad middle classes who pay for them can also use them.

To eliminate the universal program then known as the family allowance, he argued, was to threaten all universal social programs, including medicare.

Under this logic, Harper’s 2006 decision to re-introduce the baby bonus, and his decision this week to expand it, can be seen as curious examples of unintended social democracy.

I expect the prime minister’s real long-term motive is not to replicate Sweden. I expect he wants to use up all available funds from Ottawa’s expected surplus now and thus forestall any future government from creating a real child-care program.

The NDP, for instance, has proposed spending up to $5 billion a year on an ambitious national child-care scheme that would charge parents only $15 a day. Party leader Tom Mulcair has promised not to increase personal taxes to pay for this.

Harper’s actions make Mulcair’s twin aims harder, but not impossible, to reconcile.

The NDP leader could, for instance, boost his projected daily user fee from $15 to $23, under the presumption that participating parents would use their child-care benefit cheques to pay for child care.

Harper’s second promise Thursday was his pledge to let couples with children split their income for tax purposes. That would cost the federal treasury $2.4 billion this year.

The critics say income splitting helps mainly well-to-do families where one spouse works and the other stays at home. The critics are right.

As social policy, income-splitting is retrograde. Ideologically, it is designed for a world in which families rather than individuals are the fundamental units. Practically, it is designed to benefit wealthier members of the Conservative base.
The economics of income-splitting though are more interesting. It acts as a disincentive for a stay-at-home spouse to enter the paid labour force.

As a result, it reduces the supply of available workers competing for scarce jobs and, over time, has the potential to push wages higher than they might otherwise be.

I expect that is one reason why economic conservatives, including former finance minister Jim Flaherty, disapproved of income-splitting. Economic conservatives believe the economy can prosper only when all impediments to driving down wages to market levels are eliminated.

Is Harper trying to reduce what Marx called the reserve army of labour? I doubt that this is his motive. But strange things happen when governments play with the tax system.

PS: Ontario Finance Minister Charles Sousa complained this week that income-splitting would cost his province’s government more than $1 billion. Federal Finance Minister Joe Oliver said he’s making technical changes to the income tax act to ensure this won’t happen. The details released Thursday suggest that Oliver is right.

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