The election of a Conservative minority government poses new challenges, but also opportunities, for further progress on the modernization imperative fac- ing Canadian social policy.

Canada must modernize its social security system to meet the heavy demands of a changing economy, society and political system. Conceived in the 1930s and 1940s and built largely in the 1950s, 1960s and 1970s, our social pro- grams require rethinking, reconstruction and (because some parts were never built) construction: We need a new ”œarchi- tecture” of social policy for the 21st century.

Building sound social infrastructure is essential for a robust economy as well as social justice: Strong social pro- grams contribute to a nation’s economic strength, produc- tivity and international competitiveness.

Modernizing Canadian social policy poses a surfeit of challenges, three of which are put forward here. The biggest challenge is to launch a comprehensive reform of adult benefits. Two other challenges identified here " building strong child benefit and quality early learning/child care systems " are not only crucial ingredients of modern social policy, but also essential for building a true system of adult benefits in Canada.

Reforming health care has dominated Canada’s public policy agenda, but an equally daunting and critical challenge has gone virtually ignored in recent years: pro- viding effective assistance to the unemployed and the work- ing poor. This is the job primarily of ”œadult benefits” " an inclusive term Caledon has coined to identify a large and important area of Canadian social policy that has no collec- tive name.

Adult benefits are intended first and foremost to replace or substitute for employment earnings " among any social security system’s oldest but still most important objectives. The twin pillars of Canada’s current adult benefits are Employment Insurance and social assistance (popularly known as welfare), both intended for unem- ployed Canadians who are expected to work. Additional programs include Canada/Quebec Pension Plan disability benefits, workers compensation, paid parental leave and social assistance for non-elderly persons not expected to be able to work.

A second dimension of adult benefits is measures intended to ”œmake work pay” for low-wage workers. These policy tools include wage supplements (offered in several provinces and proposed in the federal 2005 Economic Statement), tax breaks (e.g., refundable tax credits to ease the burden of EI premiums and C/QPP contributions, high- er income tax thresholds) and minimum wages.

A third dimension of adult benefits is employment- related services and supports, access to which typically is contingent upon receiving income programs such as welfare or Employment Insurance. These services include employ- ment services (e.g., training, upgrading, placement and counselling), disability supports (e.g., technical aids and equipment, personal assistance and accessibility measures) and supplementary health care (health, dental and drugs not covered by medicare and rarely supplied by low-wage employers).

Canada has no true system of adult benefits. Instead, the federal and provincial/territorial governments fund an uncoordinated and unconnected patchwork of income pro- grams and employment-related services that provides inconsistent and typically inadequate assistance.

Welfare " rooted in the Elizabethan poor law " is the negative social policy exemplar of medicine’s entreaty to ”œdo no harm.” Veteran Saskatchewan official Rick August has written that the welfare system in Canada ”œdeveloped into a subtle form of micro-colonialism of poor people by the state, disempowering them and deterring them from acting to improve their lives. Whether gene- rous or meagre, welfare is not progres- sive social policy.” Welfare grew from a last-resort safety net to a major front-line program that everyone dis- likes: voters, administrators, govern- ments and recipients.

The National Child Benefit reform has lowered that part of the welfare wall built by welfare-embed- ded child benefits. But the welfare wall remains in other significant ways, in the form of supplementary health benefits for welfare recipients that typically are not available to low- wage workers; disability supports tied to welfare; employment-related expenses (e.g., clothing, transporta- tion and child care) that burden the working poor; and low taxpaying thresholds (income and payroll taxes) that erode their low earnings.

Employment Insurance creams the unemployed, in the sense that it covers only employees with signifi- cant attachment to the workforce. EI excludes many workers who cannot accumulate enough insurable hours of work due to their type of employ- ment, own job preference and activi- ty limitations due to disabilities " including the long-term unem- ployed, the underemployed, new workers, part-time workers (including persons with disabilities and Canadians working part-time due to family care responsibilities), preca- rious workers and a growing group in the workforce " the self-employed.

Employment Insurance has bro- ken the social insurance contract that Canada’s social policy founders saw as a crucial element of a modern social security system. Virtually all em- ployees pay EI premiums, but only a minority can draw upon the program’s income supports and employment services when they become unem- ployed. The flawed social insurance contract effectively discriminates against low-wage workers, many of them in nonstandard jobs.

The first stage in addressing the challenge of reform is to sketch a con- ceptual architecture showing major building blocks " basic functions, objectives and structures " of a new system of adult benefits. Caledon is developing one possible model of a new adult benefits system intended to stimulate thinking on this complex and controversial issue.

An effective adult benefit system requires an effective child bene- fit " the second challenge discussed here. Child benefits " one of the important policy instruments to enhance family economic security " are among Canada’s oldest social pro- grams, dating back to 1918. Their core purposes remain just as valid in 2006: poverty reduction (helping fill the gap between low earnings and families’ income needs) and horizontal equity (providing some financial recompense for the fact that families with children face costs that childless households at the same income level do not).

A long series of incremental changes throughout the 1980s and early 1990s culminated in a single income-tested federal Child Tax Benefit. The National Child Benefit launched a more fundamental reform by creating an integrated child benefit disembedding provincial/territorial child benefits from welfare and replacing them with income-tested child benefits that treat welfare and working poor families equally. But further increases in the federal Canada Child Tax Benefit are required to achieve an adequate child benefit that can meet the basic child- rearing costs of low-income families (roughly $5,000 per child) and also improve income support to non-poor families, especially modest-income families for whom childrearing expenses are a significant burden. We are well on the road to an adequate child benefit: The maximum benefit for one child under seven will reach $3,179 in July 2006.

The new Conservative govern- ment intends to create a ”œChoice in Child Care Allowance” that, despite its name, is really a universal child benefit not dedicated to child care " a born-again baby bonus. The Caledon Institute’s analysis of the plan (figure 1) shows it to be badly flawed in design, with a net benefit (i.e., the amount left over after fed- eral and provincial/territorial income tax increases and reduced income-test- ed benefits) substantially below the $1,200 gross payment. In violation of both the poverty reduction and hori- zontal equity objectives, the scheme will produce an irrational and unfair distribution of net benefits among income levels (modest-income fami- lies will get least, and less than upper-income families will get) and family types (most one-income families will get more than will single parents and two-income couples).

The Canada Child Tax Benefit is a proven and efficient program sup- ported by the federal Conservatives, Liberals and NDP, and provincial/terri- torial governments. The new Conservative government should deliver its Child Care Allowance through the existing CCTB, thereby increasing payments progressively to families at all income levels and treat- ing all family types the same. In one brilliant stroke the new Conservative government could make a significant improvement in family economic security by bolstering both the anti- poverty and horizontal equity objec- tives of child benefits.

The third social policy challenge identified here is the controversial area of early learning and child care "a hot social policy issue during the 2006 election campaign that likely will erupt when the new Conservative government tries to implement its plans. While the plat- forms of the Liberals, Conservatives and NDP all promised to invest billions of federal dollars in child care in the coming years, their visions of Ottawa’s role are very different.

The Liberals and NDP espouse a supply-side approach that focuses on creating a system of quali- ty, affordable early learning and child care services financed largely by the tax- payer " much like earlier generations of Canadians built sys- tems of public education and health care in every province. This philoso- phy underlies the ”œframework federal- ism” model of the Chrétien and Martin governments, under which Ottawa helps the provinces build early learning and child care systems pursuing the ”œQUAD” objectives " quality, universally inclusive, accessible and developmental.

The Conservatives advocate a demand-side approach that delivers direct cash payments to families to help them buy their own child care. However, they would also allocate a small share of their funding to increase supply through a one-time $10,000 per space tax credit offered to employ- ers and communities.

The Conservative proposals have drawn criticism on several grounds. The Liberals, NDP and child care advocates were quick to point out that the $1,200 Choice in Child Care Allowance will not buy much if any choice in child care and will do noth- ing to increase the supply of quality regulated spaces " the most pressing need of all, in their view. Caledon’s analysis dug deeper and showed the plan to be a classic ”œsocial policy by stealth” scheme that will deliver less than it appears to (once extra income taxes and benefit reductions are taken into account), help modest-income families least and favour one-earner couples over single parents and two- earner couples.

Child care experts contend that the $10,000 tax credit is flawed as well. It will meet only a fraction of the cost of creating a child care space in urban areas, which can run in the $40,000 range in a large city like Vancouver where land and construction costs are high. It is a one-time startup subsidy that will not cover ongoing operating expenses. Most workplace-based child care is provided by sector employers that would not be able to use tax credits. Similar schemes in Ontario, Saskatchewan and New Brunswick have not been successful.

The Conservatives plan to aban- don Ottawa’s bilateral agreements with the provinces at the end of their first year, redirecting their invest- ments to the Child Care Allowance and employer tax credit. Ending the federal-provincial agreements will kill hopes for building an early learning and child care system in Canada and leave the provinces high and dry, without the multiyear federal funding they have counted on to implement their investment plans. Billions of dol- lars required to create many thou- sands of child care spaces over the years are at stake.

But at what political cost to a new government committed to increasing provincial fiscal and policy power? If it follows through on its plans to axe the child care agreements, the Conservative government will risk straining federal-provincial relations. It will have to make the case that provinces can use some of their (as yet unspecified) new fiscal capacity to spend on child care if and as they see fit (though with no federal strings attached).

The new Parliament could forge a common front on two of the three social policy challenges discussed here, though it would require some compro- mise by all parties. The reform of adult benefits is a bold project that was not on the election agenda, and which the new government could launch in part- nership with the provinces and territo- ries. The Senate might also play an important role in helping spark and encourage thinking on this tough challenge, as it has with health care.

The NDP and Liberals doubtless will oppose the Conservatives’ cash-to-parents and tax-credits-to-employers plans, and will push to sustain the bilateral agreements on early learning and child care, if not (an NDP priority) enshrine them in federal legislation. It is difficult to see any compromise on this contentious issue. But at least the new government could create a stronger child benefit by delivering its new $1,200 bonus through the existing Canada Child Tax Credit, which suffers from none of the failings of the pro- posed Child Care Allowance and whose increase presumably would be support- ed by the Liberals (who created and grew the CCTB) and the NDP (who campaigned on boosting it by $1,000).