NATIONAL

GETTING TO WORK

Ottawa’s breakthrough welfare program earns praise, but it’s qualified

PETER SHAWN TAYLOR January 21 2008
NATIONAL

GETTING TO WORK

Ottawa’s breakthrough welfare program earns praise, but it’s qualified

PETER SHAWN TAYLOR January 21 2008

GETTING TO WORK

Ottawa’s breakthrough welfare program earns praise, but it’s qualified

PETER SHAWN TAYLOR

Canada’s federal social programs can be a regular alphabet soup of acronyms. There’s the CCTB (Canada Child Tax Benefit), the NCB (National Child Benefit) and the recent UCCB (Universal Child Care Benefit). Nothing exactly rolls off the tongue, though the newest—WITB (Working Income Tax Benefit)—at least has a nickname. Ottawa bureaucrats are calling it “Whitby,” which just happens to be Finance Minister Jim Flaherty’s home riding. The minister is reportedly pleased as punch. He may be the only one. Despite the fact that the WITB is perhaps the most significant new federal social policy in a decade, even supporters of the concept are being deliberately qualified in their praise.

The WITB is designed to tackle the dreaded welfare wall—that bane of anti-poverty groups, governments and economists, to say nothing of actual low-income Canadians. Anyone looking to move from welfare to work faces substantial disincentives, says Don Drummond, chief economist at TD Bank. The welfare cheques stop coming and other benefits like subsidized housing, drug benefits or child care, might also cease or be clawed back. And of course workers have to pay taxes on their income, in addition to new work expenses like clothing and transportation.

“It creates an extraordinarily high effective tax rate for someone who is trying to leave welfare,” Drummond says. The welfare wall can be as high as 78 per cent—that is, for every dollar earned 78 cents are lost to taxes and clawbacks.

Beginning this month, WITB will provide low-income, working Canadians with a cash benefit of up to $ 1,000 to help them over the welfare wall. Liberal Prime Minister Paul Martin first unveiled the idea in 2005; it was Stephen Harper’s 2007 budget that made it reality. But the notion of paying people to choose work over welfare has a long and successful track record in the U.S.

The Earned Income Tax Credit (EITC), a program similar to WITB, is Washington’s favourite anti-poverty program. “By any standard it has been a very effective program,” says Robert Lerman, a senior fellow at the Urban Institute, a U.S. think tank. The US$40billion EITC reaches one fifth of all American

families and is credited with lowering the child poverty rate by 25 per cent. Its maximum cash benefit is US$4,716, although it pays out partial benefits to families with incomes all the way up to US$40,000. And because it was invented by the Nixon administration in 1975, and greatly expanded by Bill Clinton in the 1990s, both Republicans and Democrats can claim it’s theirs.

The WITB borrows heavily from the EITC, but subsidizing work for low-income Canad-

‘IT’S HARD TO GET EXCITED ABOUT A CHEQUE THAT MIGHT TAKE 16 MONTHS TO ARRIVE’

ians was also the subject of one of this country’s largest social experiments. The Self-Sufficiency Project, undertaken from 1992 to 2002, involved 9,000 single mothers in New Brunswick and B.C. SSP nearly doubled the employment incomes of participants who found a job. Compared with their peers, SSP recipients got jobs sooner and stayed employed longer. And since they were off welfare and paying taxes, the net cost was far less than the subsidies themselves.

Both left-wing policy advocates and rightwing economists agree the WITB is good news. Yet no one is entirely satisfied. “I would call it modest, perhaps even modestly modest,” says Michael Mendelson, senior scholar at the Caledon Institute of Social Policy. Since WITB benefits decline as incomes rise, and run out at just $21,167 in annual earnings, the impact on the working poor is limited. “If you are working full-time at a minimum wage job, you probably aren’t going to get much out of this. It’s too small and too narrowly focused,” he says.

Mendelson also quibbles with Ottawa’s decision to deliver the WITB through the tax system. “If we’re trying to create an incentive for people to leave welfare and find a job, it’s pretty hard to get excited about a cheque that might take 16 months to arrive,” he laments. Ottawa should have let the provinces run the WITB through their welfare systems, which would permit monthly payments, Mendelson says. “But the feds want to run their own program so they get the political kudos for it.” William Scarth, an economist at McMaster University in Hamilton, also has qualified praise for the new plan. “It stimulates employment rather than subsidizes people not to work,” he says. “So it’s a fundamental and beneficial change.” Yet Scarth too would prefer to see a much larger WITB. This could not only provide cash to more low-income Canadians, but also supplant other federal policies. “If you look at the experience in the U.S., the EITC has been expanded to the point where they’ve been able to eliminate a lot of their less effective social programs,” he notes. For instance, Scarth would prefer to see the WITB take over from Employment Insurance—replacing the flawed El with something that actually promotes employment.

Both Scarth and Mendelson hold out hope that the WITB’s small $550-million annual budget is merely a test run for something that will grow over time. The fact that both Conservatives and Liberals claim the idea as their own, as is the case in the U.S., may bode well for the program’s future. Last year’s Throne Speech saw the Harper government make specific mention of the program. And in a recent speech unveiling his own poverty platform, Liberal Leader Stéphane Dion promised a massive expansion of the WITB.

Right or left, Liberal or Conservative, everyone seems to agree it’s a step in the right direction. It just ought to be a bigger step. M