A challenge to social principles

Carol Goar November 26 1984

A challenge to social principles

Carol Goar November 26 1984

A challenge to social principles

Carol Goar

Debbie Hughes, a 33-year-old single parent who lives in Ottawa, is about to participate in a national economic debate. Although she admits to knowing little about government finances, she does know how it feels to support three children on welfare. And she thinks that Finance Minister Michael Wilson needs to hear from people like her as the Conservative government embarks on its review of the $40 billion it spends annually on social benefits for Canadians. “I’m afraid,” says Hughes. “If family allowances go, what’s next? Medicare?”

Hughes, who works as a community liaison officer for the National Anti-Poverty Organization (NAPO), can be expected to make a small but compelling contribution to the national debate as Prime Minister Brian Mulroney’s 11-week-old government embarks on the most fundemental review of the nation’s social security system since the first old-age pensions were introduced in 1927. The process got under way when Wilson met over breakfast with a group of about 30 business, labor and social agency leaders less than 24 hours after presenting a financial statement to Parliament that foreshadowed sweeping changes in federal social services.

Wilson has asked cabinet ministers responsible for the network of federal social programs—ranging from children’s benefits and unemployment insurance to maternity welfare and subsidized housing—to prepare outlines of possible spending cuts. After further reviews by parliamentary committees and special task forces, some of the proposals will find their way into Wilson’s spring budget. But others will probably take years to implement. Said a senior financial department official: “Mr. Wilson has fired the starting gun. Some of the races will be 100-yard sprints, some will be marathons, and some will be 500-yard dashes with hurdles.”

Perhaps the most imposing hurdle confronting Wilson is the costly, but popular, feature of universality that is inherent in key social programs. The policy extends benefits to citizens with-

out a means test proving need and is one of the legacies of successive Liberal governments. All parents with children under age 18 living at home are automatically entitled now to a monthly cheque from Ottawa under the 1944 Family Allowances Act. And virtually every Canadian over 65 is eligible for monthly payments under Ottawa’s 1951 Old Age Security program.

During last summer’s election campaign Mulroney declared that he, like his Liberal predecessors, considered universality “a sacred trust.” But once in office and determined to reduce the federal deficit, the Tories appeared to think again. That became evident after a poll conducted by Goldfarb Consultants of Toronto showed that 86 per cent of Canadians support the idea of eliminating or reducing social benefits for families with annual incomes of more

than $40,000. Said Wilson: “Refusing change is no longer an option for Canada—and some of the changes necessary for an economic turnaround are strong medicine.”

Wilson has promised that the medicine will not be forced down the throats of Canadians. And finance department officials were busy last week contacting economic and social groups to invite

their opinions. But as interest groups began staking out positions, spokesmen for the poor and the aged complained that the disadvantaged could not hope to compete with the wellfinanced business lobby that argues against universality. “We have this feeling of being behind the eight-ball before we even get started,” said Patrick Johnston, executive director of NAPO, a nonprofit agency representing 160 low-income groups across the country. Such fears are justified, according to Richard Van Loon, a University of Ottawa political scientist who is advising the two-year-old MacDonald commission on Canada’s economic future. “The people who really need to be heard,” said Van Loon, “are the ones who’ll never be heard at all.”

Wilson insists that the disadvantaged will get a fair hearing, even though there are no plans so far to hold public sessions. Jake Epp, minister of health and welfare, said he will be the advocate for the millions of voiceless beneficiaries of his department’s programs. “I speak for those people,” declared Epp. “That’s an obligation and a responsibility I have.” In the meantime, Epp has assigned his officials to calculate the impact of various changes in universal welfare programs on the 3.6 million parents receiving family allowances and on 2.5 million beneficiaries of old-age security. Epp plans to make those figures public. In the end, however, it

may be the untutored eloquence of a woman like Debbie Hughes that touches most Canadians. Recalling her eight years on welfare, which ended in April when she joined NAPO, Hughes said: “Family allowance cheques are different from the others. They just come—nobody asks you about your divorce or your kids or tells you that you’ll be cut off if you live with a man.”

The Liberal government of the late William Lyon Mackenzie King was pri-

marily concerned with promoting the welfare of the children of low-income families when it introduced family allowances 39 years ago. But as the Second World War came to an end, and servicemen began returning from overseas, the newly introduced allowances began to serve another purpose. Canadian women who had worked in wartime jobs had become accustomed to having incomes of their own—and the family allowance cheques helped ease the transition as they returned to their roles as full-time wives and mothers. The “baby bonus” system has been altered several times since then, with the most significant changes coming in 1973, when payments became taxable, and in 1979, when child tax credits augmenting the allowance were introduced for low-income families. But no government has ever challenged the entitlement of every mother—or single father—to the basic monthly payment. It now stands at $29.95 per child. This year the program will cost the government $2.4 billion, of which about $450 million will be taxed.

Family allowances have been the principal target for opponents of universality. The Royal Bank of Canada, the Canadian Chamber of Commerce and the Canadian Manufacturers’ Association have all called for a re-examination of universal family allowances. William Mulholland, president of the Bank of Montreal, declared recently that he would be happy to see his family’s entitlement—more than $400 for those among the nine Mulholland children who are under 18—go to “people who really need it.”

But defenders of the universal baby bonus maintain that the existing system makes it easy to administer. They argue that any savings gained by making the

program selective could well be eaten up by increased operating costs. They also object that depriving middleand upper-income Canadians of family allowances could invite a political backlash against the existence of such a program. “If a family in [Toronto’s] Don Mills doesn’t benefit,” noted NAPO’S Patrick Johnston, “why should it support any increase in the payments?”

On the other hand, some economists

argue that it would make more costsaving sense to adjust the income tax system than to tinker with baby bonuses. Th'is year the government will give up almost $800 million in revenues by allowing taxpayers to deduct $710 from their pre-tax income per child. But exemptions like that benefit high-income families the most, while Canadians too poor to pay any tax get no relief at all.

For his part, Wilson has put forward a range of options that include phasing out the child tax exemption and eliminating or reducing family allowance payments for households over a certain income level. Another alternative is imposition of a higher tax rate on family allowance payments to upper-income households, to the point where the rich pay back 100 per cent of their benefit in taxes. As well, Wilson has raised the question of realigning child-support programs so that the family allowance and child tax exemption would be scaled down and some of the savings directed into Ottawa’s five-year-old child tax credit program, a $1.4-billion system of tax refunds for low and middle-income parents.

Wilson will ask Canadians to take an equally hard look at the old-age security system, which will cost the federal government $8.3 billion this year. For 33 years the right of every Canadian to receive a government pension when he or she reaches retirement age has been unquestioned. That automatic entitlement now stands at $272 per month. As well, elderly citizens who can prove their need are eligible for supplementary benefits of as much as $323 per month ($211 for married applicants). The combined cost of the two programs is $11.1 billion. Because of the high costs and the fact that pensioners constitute a rapidly growing segment of the population, Ottawa is anxious to contain benefits for the elderly.

But once Wilson begins examining the system carefully, he may discover that there is little room to cut. Only 15 per cent of Canadians over 65 have incomes of more than $30,000 a year, and the average single pensioner has a private annual income of only $6,000. The dilemma facing Ottawa is that a decision to cut off old-age security payments to the more affluent 15 per cent would save only $1.2 billion, while any move to reduce benefits for pensioners at the lower end of the income scale would almost certainly be politically unacceptable. “We’re going to see more and more militant pensioners,” said Van Loon. ’’You’d want to be very sure those people didn’t turn against you.” That clearly is a political danger that the Mulroney government will strive to avoid as it embarks on its study of a system that millions of Canadians regard as a birthright.