National programs and tax credits cannot be all things to all citizens, and they may conflict with provincial initiatives.
Ottawa’s lofty ambitions for solving some of Canada’s more thorny policy issues, including plans to redesign the social safety net, are on full display in Budget 2018. But good intentions and great ideas must also take into account the challenges of intergovernmental coordination.
Take, for instance, the 2018 budget’s changes to the Working Income Tax Benefit (WITB). It was created in the mid-2000s to help reduce the challenges Canadians face when transitioning from social assistance into the workforce. For many Canadians, the decision to take up work is penalized: low-income workers face losses in take-home pay as income-tested government transfers, like social assistance, get clawed back. This challenge, commonly known as the “welfare wall,” erodes rewards from earned income and discourages work.
The original WITB program, designed in 2007 as a refundable tax credit, was supposed to help supplement low-income workers’ earnings and counter these negative incentives. It originally supplemented income by giving 20 cents for each dollar earned above $3,000 in annual earnings, up to a maximum credit of $1,000 for families, with benefits phasing out at higher income levels.
This year’s budget renames the WITB the Canada Workers Benefit (CWB) and will allow automatic enrolment for those who file taxes, eliminating the need to check boxes on tax forms. One of the most expensive changes proposed, it is expected to help out an additional 300,000 low-income workers in Canada. The government deserves full marks for this change, which will help many workers gain traction in the labour market.
Also, the benefits are larger — for individuals and families — while clawback rates are lower, ensuring more people have access to benefits than previously. This too is a modest move in the right direction.
However, the success of these changes is complicated by how provinces and territories, independent of the federal government, pursue policies to reduce poverty and support low-income workers.
For instance, changes to provincial-territorial minimum wages impact the ability of the CWB to reach targeted groups. In 2007, the range of minimum wages across the provinces and territories was roughly $7.25 to $8.50 per hour, meaning that a full-time, full-year worker would make between $12,700 and $14,900 annually, depending on where he or she lived.
Figure 1 plots the federal benefit in 2007. The estimated range of annual earnings for typical full-time minimum wage workers is shaded. Full-time workers in families earning at the low end of the minimum wage range would have qualified for about $1,000 ($20 for single individuals) of benefits, and those with annual earnings at the high end of the range would have qualified for about $940 ($0 for singles).
Contrast that with the situation next year, when provincial-territorial minimum wages will range from a low of $10.96 to a high of $15.00 per hour, representing annual earnings that range from $19,200 to $26,300 for typical full-time workers. Figure 2 illustrates that workers in families earning the low end of the minimum wage range would qualify for around $2,071 ($367 for singles) of benefits, compared with $1,219 ($0 for singles) for workers who live in the region with the highest minimum wage. Typical low-income workers in jurisdictions with a low minimum wage are more likely to qualify, and for greater benefits. The highest benefit available no longer catches those earning minimum wage.
Compared with the range a decade ago, today’s greater range in minimum wages — driven by variations in regional labour markets, economies and industrial composition — further challenges the ability for a uniform federal worker’s benefit to target the varied needs of low-income workers across all provinces and territories.
Further, a uniform CWB cannot easily take into account any changes to provincial social assistance clawbacks and benefit thresholds, nor important differences in regional costs of living. The CWB will end up providing relatively more benefits to part-time, part-year workers than to typical full-time, full-year workers in provinces or territories with high minimum wages, simply because full-time and full-year workers in those regions would be less likely to qualify. In jurisdictions with low minimum wages, more full-time and full-year workers would qualify for benefits, so the mix of workers who qualify would be different. This speaks to the CWB’s challenges in meeting the needs of all provinces and territories.
The interaction of the CWB, social assistance and minimum wages is but one example of how federal and provincial-territorial programs stack on top of (and interact with) one another. There are many examples where provincial-territorial income-tested programs (social assistance, disability, child benefits) overlap with federal programs such as employment insurance and the low-income housing benefit.
Going forward, intelligent improvements to social policy design will be contingent on collaboration with the provinces and territories. Such collaboration would enable them to adjust CWB program parameters, such as maximum benefits, benefit phase-in and phase-out rates and what share of total benefits gets directed toward singles or toward families.
Collaboration on this score has been the exception rather than the norm. Nonetheless, Quebec, Alberta, British Columbia and Nunavut have changed the parameters of the federal benefits to better meet local needs. Notably, Nunavut decided to establish a lower maximum benefit while greatly increasing the earnings range at which people would qualify for benefits: in 2017, families with children in Nunavut qualified for benefits with annual earnings up to $45,000, compared with about $29,000 under the standard federal plan for most Canadians.
Encouraging and supporting greater variation in regional program parameters is not easy work for the federal government: it will require regular efforts to keep provinces and territories engaged to align the desired objectives of the CWB with ongoing changes to both provincial-territorial and federal programs.
In a similar vein, nowhere will defining the appropriate federal and provincial-territorial roles be more complex than with respect to the national pharmacare plan to be brought forth by a newly formed advisory council, chaired by Eric Hoskins, Ontario’s former minister of health. True, numerous studies have highlighted other nations’ success in creating universal coverage for drugs and the important role of bulk purchasing and formulary decisions in creating cost-effective coverage plans. But what has not been appropriately discussed in the Canadian context —except in the 2003 Kirby Report, from a Senate committee on health — is how a federal government could stickhandle the complex variations in provincial, territorial and private plans to encourage greater coverage without causing undesirable economic or political risks. That will be the massive challenge for the Advisory Council on the Implementation of National Pharmacare to address when it reports back in spring 2019.
Although the federal government has the ability to design numerous policies that bolster the social safety net, many, if not most, of the policy levers remain with the provinces and territories. Single, national programs cannot be all things to all citizens in a country as regionally diverse as Canada, and they may conflict with local programs. Overall, Budget 2018 is rightly cautious in redesigning enhancements. Yet, given the breadth of the budget’s ambitions, there is always a risk of overstretching the federal role. Success will require greater coordination of efforts across senior governments and appropriate navigation through thorny political arenas.
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