CANADA

TAKING THE HEAT

Ottawa’s social program reforms spark a storm of controversy

WARREN CARAGATA October 17 1994
CANADA

TAKING THE HEAT

Ottawa’s social program reforms spark a storm of controversy

WARREN CARAGATA October 17 1994

TAKING THE HEAT

Ottawa’s social program reforms spark a storm of controversy

WARREN CARAGATA

CANADA

As he launches a public debate on reform of Canada’s social programs, Lloyd Axworthy has a most peculiar task. The human resources minister must convince Canadians that he is not really Finance Minister Paul Martin. On the face of it, it should not be such a hard thing to do. They do not look at all alike, and have few apparent similarities. Martin is an adopted Quebecer articulate in both official languages and equally fluent in the language of business. Axworthy is a Winnipegger who speaks dogged French, a onetime university professor with a long pedigree on the Liberal left. But as the debate began last week on what could be the most fundamental overhaul of social programs since the end of the Second World War, there was a simmering suspicion that Axworthy is just a stand-in for the hard-pressed finance minister, that the exercise is not about reforming social programs as much as it is about cutting them to reduce the deficit. Axworthy himself admitted that the perception could imperil his endeavor. ‘We have to prove that it’s real reform,” he told Maclean’s last week.

Friend and foe alike believe that Axworthy’s ability to prove his reform credentials will help determine whether he can make good on his pledge to bring in legislation within a year to radically reshape federal funding for social programs, including Unemployment Insurance, welfare and postsecondary education. “I think he has a monumental task,” says John Fryer, a professor at the School of Public Administration at the University of Victoria and a member of the task force that advised Axworthy on the reforms. “He has to convince people that politicians can still be sincere.”

But dissension within Liberal ranks about the scope of the changes threatened to undermine the human resources minister. Only hours before Axworthy rose in the Commons last week to table his discussion paper, The Toronto Star published highlights of a leaked cabinet briefing note saying that

Rewriting the rule book

Lloyd Axworthy’s 89-page discussion paper calls for sweeping reforms in several critical areas of federal spending on social programs. Among the key options:

• Creating a two-tiered unemployment insurance system in which frequent UI claimants would receive lower benefits while occasional claimants would not be affected. Costs would be cut by lowering benefits and setting longer qualifying periods.

• Reducing federal grants to the provinces for postsecondary education, while improving access to student loans and requiring graduates to repay their debts only after they find work.

• Giving provinces more control over welfare and social services, with the aim of reducing federal transfer payments.

• Directing child tax benefits to the neediest recipients and setting targets for reducing child poverty.

® Improving wage supplements for the working poor to encourage welfare recipients to enter the workforce.

Axworthy and Martin struck a secret agreement to keep quiet about how much money the government intends to strip from social programs beyond the $ 1.5-billion annual cut in welfare and education funding promised in the last federal budget. The actual figure, the document suggested, could be an additional $7.5 billion. The friendly fire was not just limited to attacks from the shadows but included a public slap from Liberal MP John Nunziata. “For 10 years in opposition, we accused the Conservatives of trying to reduce the deficit on the backs of the disadvantaged in our society,” the Toronto MP said. “It appears that we’re doing the same thing.”

Axworthy downplayed the leak as the sloppy work of a lowly official, and dismissed Nunziata’s comments as the act of a malcontent. But he acknowledged that both events took some of the gloss off his long-awaited announcement. “I was a little ticked off,” he said. But while he insisted that he wants to improve federal programs so they provide more help for those who need it most, Axworthy readily conceded that part of the reason for reform is the federal deficit, expected to be $39.7 billion this year. The discussion paper, more than nine months in the making, lists affordability as one of three objectives, along with support for the needy and helping Canadians to get and keep jobs. “Until the fiscal situation of governments improves,” the document says, “there will be no new money for new programs . . . and existing expenditures must be brought under control and in some instances reduced.”

But the government is not saying exactly how much money must be cut over and above the reductions announced in the last budget. Axworthy said cabinet has discussed some ranges of reductions that could be made—but no decisions have been reached. One insider said the Liberals were gun-shy about spelling it out: “The political wizards decided that they didn’t want to scare the kiddies too much.”

Despite the Liberals’ best efforts to shift the debate away from potential cuts, that is exactly where critics zeroed in. “It confirms all the apprehensions we had,” said Bloc Québécois Leader Lucien Bouchard. “It’s a device to cut resources to people in need.” On the other hand, the Reform party and some business groups complained that more drastic cuts are needed to bring the deficit under control. “We’re mortgaging our country to pay for these programs,” said Alberta Reformer Dale Johnston.

Critics on both the right and the left found some common ground in complaints that the discussion paper was too vague—and far removed from the “action plan” that Axworthy promised last January. It sets out only options for change and does so with deliberate caution, the obvious result of compromises that Axworthy had to make to get it approved by his cabinet colleagues. It will be the task of a Commons committee chaired by Nova Scotia Liberal Francis LeBlanc to help turn the proposals into legislation. Axworthy wants the committee’s report by February.

The committee report will serve as the basis for what promise to be long negotiations with the provinces. While Ottawa has the power to make unilateral changes in many areas, it does not want to pick fights at a delicate time for national unity. Successful and harmonious social policy reform is necessary to show Quebecers approaching an independence referendum that federalism can work, said Intergovernmental Affairs Minister Marcel Massé. The initial soundings from provincial capitals were not promising. As expected, Quebec turned thumbs down, with Intergovernmental Affairs Minister Louise Beaudoin saying that the discussion paper amounted to a federal power grab that could be best blunted by independence. Ontario’s Bob Rae, facing an election within a year, said the proposals were so vague as to be an insult.

One area where the discussion paper goes beyond generalities is in suggestions for reform of unemployment insurance. Outside of health care and pensions, which are left for separate reviews, UI is the government’s most expensive social program, costing employers and employees $17.2 billion this fiscal year. It is a program that the government says has become almost fatally flawed: outdated, open to abuse and too expensive. The paper says the program could be rejigged by increasing the number of weeks required to qualify for benefits and by reducing the benefits themselves.

Most Canadians would see little change if UI was redrawn according to Axworthy’s prescription. People who make only occasional claims would get basic insurance benefits under rules similar to ihe existing ones. But it would be different for regular claimants—a number that has been steadily growing. Between 1988 and 1993, about 38 per cent of people on UI had claimed benefits at least three times. That accounted for a total of $6 billion—or about half of the money paid out in regular benefits. As an incentive to find more secure jobs, programs for the frequent laimants would be less gener us. Repeaters might also have to get job counselling or take a training course to get benefits. “In a time of limited resources, ° Canadians need to consider carefully whether income-tested benefits would make sense,” the paper says. It also discusses ways to change UI financing, with one option setting higher premiums for workers in industries with seasonal employment or frequent layoffs.

The government says it wants to spend more money to help the unemployed get back to work. But here it runs up against the deficit dilemma. Money for training and counselling would be taken from UI savings that result from lower benefits, but the government says it also wants to use some of the savings to reduce UI premiums paid by employers and employees. The problem, says Ken Battle, president of the Caledon Institute, a social-policy think-tank in Ottawa, is of the government’s own making because it refused to deal with pensions and RRSPs in the review at the same time as it dealt with UI and other social programs. It is a “fiscal straitjacket” that threatens to strangle the reform, says Battle, who served on Axworthy’s task force review.

Money problems are also at the root of the sketchy plans to combat child poverty, a task that could be complicated by disputes with the provinces, which have jurisdiction over welfare. Martin has already announced that he wants to trim some of the $8.2 billion that now goes to provincial welfare programs through the Canada Assistance Plan. The paper suggests that Ottawa could stop sharing the costs of general welfare and instead direct its money to benefits for children. Another option would see welfare benefits directed to children of all lowincome families—an idea that the discussion paper concedes would be expensive. A third option would sharpen the targeting of the child tax benefit, but that would mean less money going to middleincome Canadians, which could threaten what the Liberals believe to be middleclass support for the reforms.

Middle-class support is clearly in jeopardy because of Axworthy’s proposal on financing of postsecondary education. It would see Ottawa replace grants to the provinces ($2.6 billion this year) with direct loans to students—money that would be repaid when graduates find work. “It is true,” the government paper concedes, “that replacing federal transfers would put upward pressure on tuition fees.” Student leaders looked at that and shuddered. “This is a drastic regression,” said Guy Caron of the Canadian Federation of Students. “We will fight it to the death.”

Bolstered by such hostile public reaction to the Axworthy paper, the government’s political opponents were feeling a little cocky by week’s end. “I believe this reform is stillborn,” Bouchard declared. “They are hitting a brick wall everywhere.” But Axworthy said the critics and the criticism are predictable, and that realistic voices that recognize changes must be made have not yet been heard. “When you start a beachhead, the first reaction is from the snipers,” he said. “I think the sniping will certainly continue, but I don’t think it is going to stop the momentum.” That momentum depends mainly on how well Axworthy can convince Canadians that he can do more with less—and that he really is not Paul Martin. □