In the lead up to the 2019 federal election, poll after poll has pointed to affordability as a top concern among Canadians. As such, many policy ideas have been proposed to address this key concern.<\/p>\n
Among the proposals, the Conservative Party of Canada and the Liberal Party of Canada \u00a0have put forward plans to reduce the amount of tax paid by new parents on their Employment Insurance (EI) benefits. The Liberals are proposing to make it tax exempt at source<\/a> (so parents never pay any tax on their maternity\/parental EI benefit), while the Conservatives are planning to introduce a non-refundable tax credit<\/a> (so parents can claim back what they paid when they tax file). Both plans would cost $1 billion a year.<\/p>\n While the idea of providing greater support to new parents sounds like a good policy goal, \u00a0a closer look shows that both proposals fall short of good public policy.<\/p>\n The problems start with using maternity\/parental EI as the basis for the proposed tax exemption or non-refundable tax credit (depending on the party). To claim maternity\/parental EI benefits, a new parent outside of Quebec must have accumulated at least 600 insured hours<\/a> of work in the previous year, which is about 86 full-time work days. (New parents in Quebec would also be eligible for the proposed tax credit, though the province has a separate system of maternity and parental leave benefits, the Quebec Parental Insurance Plan).<\/p>\n There are certain workers, however, who contribute to EI, but who do not have enough hours to qualify for maternity\/parental EI benefits. This includes those who are arguably most in need of EI benefits, such as people working part-time or the precariously employed. Around 30 percent of mothers<\/a> with newborns do not qualify for maternity\/parental EI benefits. Often, these families have lower incomes.<\/p>\n Among those who do receive maternity\/parental EI benefits, the amount they can receive increases as their insured earnings rise. In 2019, the maximum maternity\/parental EI benefit<\/a> a new parent could receive was $28,095, or 55 percent of the worker\u2019s earnings, whichever is lower. However, as women\u2019s average earnings were $37,000<\/a> in 2017, a new mom with average employment earnings would get about $20,000 in EI maternity\/parental leave benefits.<\/p>\n Anyone receiving an EI maternity\/parental leave benefit in a tax year with no other income would have to pay 15 percent of the benefit amount in taxes. In that case, these two proposals would mean that a family could receive a tax exemption or tax credit of up to $4,214.<\/p>\n It\u2019s important to remember lower-income families would not receive this much even if they were to qualify for EI maternity\/parental leave benefits. Below, in table 1, we show how much new parents could receive through either proposal, based on their income. An analysis by Jennifer Robson<\/a> at Carleton University shows that under the current tax rate structure, a quarter of families receiving maternal\/parental EI earn less than $32,867 before starting leave. This means a quarter of new parents would qualify for no more than $2,609 from the proposed policies. Meanwhile, the maximum benefit of $4,214 would be available only to those earning over $53,100 before starting leave and with no other sources of income during their leave (employer top-ups, for example). If the Conservative Party were to also implement its Universal Tax Cut<\/a> proposal, the maximum tax credit amount would be lower.<\/p>\n