Surveying US and Canadian
Welfare Reform

5 Welfare in Canada

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The growth of government in Canada and its involvement in welfare-related assistance during the twentieth century mirrors the expansion in the United States. Caring for the poor in Canada, as in the United States, had been the responsibility of religious organizations and the community historically. The federal government did not assume an active role in mitigating societal poverty until 1927 with the passage of the Old Age Pension Act. This act set in motion the adoption of future shared-cost programs through which the federal government aimed to achieve national objectives in areas of provincial jurisdiction.

The seeds of the Canadian social welfare state were laid during the early part of the twentieth century and culminated in the expansion of the social welfare state in the 1960s and 1970s. In 1945/1946, Canadian governments at all levels spent $6 billion, in inflation-adjusted 1996 dollars, or 4.7% of GDP on all social programs. The total reached $92 billion or 14.3% of GDP by 1980, then $154 billion or 21.1% of GDP in 1992/1993, and dipped slightly to $153 billion or 19.5% of GDP by 1994/1995 (Battle 1998). Provincial and municipal spending on welfare was $2.8 billion in 1980/1981 (0.9% of GDP), rising to $8.6 billion in 1990/1991 (1.3% of GDP), and peaking at $14.3 billion in 1993/1994 before dropping to $10.8 billion in 1998/1999 (1.2% of GDP). The middle and late 1990s marked a shift in focus and priority for federal and provincial governments as they wrestled to control expenditures.

History

As a result of the Great Depression, federal and provincial governments placed emphasis on developing social security through the implementation of unemployment insurance and the introduction of limited health insurance. In 1943, the debate concerning social policy in Canada broadened as a result of the Whitton and Cassidy Reports. Both of these documents stressed the need to erect a public assistance system. Nevertheless, proposals detailed by the federal government in its 1945 Green Book ignored the recommendations of both reports and continued to espouse targeted assistance to groups such as pensioners.

During the same year, Canada's system of child benefits was expanded to include a universal base of family allowances to serve all families with children irrespective of income. The child-benefit system was created around the time of the First World War and originally offered a tax exemption targeted at those families with taxable income. This system provided financial assistance to help low- and middle-income parents provide for children under the age of 18.

Following the 1945 reforms, the next major overhaul of the child-benefit system, which introduced a refundable child tax credit for lower- and middle-income families came in 1978. This credit was accompanied by increases in family allowances and full indexation of benefits and thresholds.

>In 1958, the Canadian Welfare Council in its policy statement, Social Security for Canada, called for improvements in public assistance by pointing out what they saw as deficiencies in social-security legislation like the Unemployment Insurance Act of 1940. Other committees and provincial governments expressed similar concerns. Hence, by the early 1960s a consensus had developed among provinces for a stronger fiscal commitment in the area of social welfare on the part of the federal government.

At a Federal-Provincial First Ministers' Conference in July 1963, several premiers expressed the desire to pursue joint federal and provincial action and cooperation to assist all needy persons inadequately protected by other available social security programs in Canada. When the same group met again later that same year, a joint Working Group was established to review systematically the operations of all "categorical" welfare programs such as Old Age Assistance and report on ways of improving their operation.

The proposals of this group were presented for deliberation at Ministerial Conferences between 1964 and 1966. In July 1966, royal assent was granted to the Canada Assistance Plan (CAP), a bill designed to allow the federal government to enter into agreements with provinces and territories to share in the costs that they and their municipalities incurred as a result of providing social assistance and services to those in need or likely to become needy in the future. CAP also consolidated the four categorical federal programs (Old Age Assistance, Blind Persons Allowance, Disabled Persons Allowance, and Unemployment Assistance) and included a prohibition against the creation of residency requirements by provincial governments. Three other requirements ensured that welfare would be available to all on a needs basis, that an appeals process would exist, and that provinces would provide specified program information to the national government. All provinces quickly ratified CAP.

The growth in the number of people on welfare rolls across the nation (table 7), coupled with growing acceptance of the need for fiscal restraint,and the often poor relationship between the two levels of government as a result of fractious federal-provincial negotiations led to calls for reform of social assistance funding. As a result, the federal government's 1990 Budget ended the era of "cheque-book federalism." It introduced a "cap on CAP," which imposed a 5% limit on annual increases in federal cost-sharing under CAP for social assistance and social services for the three relatively wealthy "have" provinces of Ontario, Alberta, and British Columbia from 1990/1991 through 1994/1995. This ceiling on CAP made it clear to all provinces that the era in which the federal government would reimburse half of all provincial expenditures on social assistance was over.

Federal welfare reforms

The late 1980s and the 1990s witnessed federal reforms to social assistance that affected all levels of government. In 1988, the children's tax exemption was converted to a non-refundable tax credit as part of a package of federal income-tax reforms. In 1990, the federal government instituted the "cap on CAP." In 1993, the three major child-benefit programs (family allowance, the refundable child tax credit, and the non-refundable child tax credit) were eliminated and replaced with a single income-tested Child Tax Benefit (CTB).

In July 1998, the National Child Benefit Program was introduced. This program eliminated the old Child Tax Benefit and Working Income Supplement and replaced it with the Canada Child Tax Benefit (CCTB) and the National Child Benefit Supplement (NCBS). The CCTB is a means-tested tax-free monthly payment provided to families to help them with the cost of raising children under 18 years of age. As a result, provinces and territories were able to reduce their welfare benefits on behalf of children by the amount of the increase in federal child benefits although not all chose to do so. According to Finance Canada, approximately 80% of all children in Canada are covered by the CCTB (Finance Canada 1999). The CCTB is expected to cost $7.8 billion in 2001 (Finance Canada 2000b).

Currently, an experiment in welfare reform that creates financial incentives for welfare recipients to find full-time jobs is underway. The Self-Sufficiency Project (SSP) was launched in 1992 by the Innovations Branch of Human Resources Development Canada (HRDC). It encourages single-parent welfare recipients who have been on welfare for at least one year to find full-time employment by offering them up to three years of supplemental earnings. While collecting the earnings supplement, participants cannot collect welfare benefits; however, the supplement effectively doubles what the average participant earns from a minimum-wage job or welfare.

HRDC claims the early research results are encouraging in that "people who were eligible for SSP worked more, had higher earnings, and received less welfare than a control group of similar people who were not given access to the supplements" (Lin et al. 1998: ix). However, the fact that those receiving the supplement report higher earnings and less welfare is not surprising considering the supplement effectively doubles what a recipient would earn from a minimum-wage job or welfare. It should be noted that in the short run, SSP increased total transfer payments.

In May 1999, the early findings from the SSP Applicant Study were released. The applicant study is similar to the main SSP study outlined above but the participants in this experiment are those who had recently applied successfully for Income Assistance. Results from the applicant study were similar to the main study except in this case it led "to no increase in net public transfer payments" (Card, Michalopoulos, and Robins 1999: ES-21). Nevertheless, Jeffery Smith, economist at the University of Western Ontario, is "doubtful the program will pass a `cost-benefits analysis' once it is known how many job-takers went back to welfare when the supplements expire [next year]" (Heinzel 2000).

The 1995 federal budget announced the creation of the Canada Social Transfer that replaced the CAP and the Established Program Finance (EPF) programs. The EPF consisted of transfers for health care and education. In 1996, the Canada Social Transfer was renamed the Canada Health and Social Transfer (CHST). The CHST is the largest federal transfer to provinces and territories. It provides them with cash payments and tax transfers in support of post-secondary education, health care, and social assistance and social services. It is a single block transfer that reduces expenditures on social assistance by the federal government and the number of conditions it attaches to provinces receiving these funds. The only remaining condition for receipt of federal funds for social assistance and services is a ban on provincial legislation creating a residency requirement for eligibility. Moreover, in order to provide a degree of fiscal certainty for provincial treasuries, the federal government included a cash floor of $11 billion, which was raised to $12.5 billion in 1997. Estimates for 2000/2001, put the CHST cash transfer at $15.5 billion (Finance Canada 2000).

The CHST marks a significant development for social-services delivery and social policy in Canada. It has greatly reduced the influence exerted by the federal government on provincial social-assistance programs and, at the same time, reduced the amount of monies available to fund provincial welfare programs. As a result, provinces have initiated limited initiatives for restructuring social services in an attempt to address the fiscal realities confronting them.

Table 7: Number of welfare beneficiaries (including dependents) by province and for Canada (000s)

* NT and NU combined in 2000

Source: Cost-Shared Programs Division, Human Resources Investment Branch, Human Resources Development Canada

Table 8: Number of welfare beneficiaries (including dependents) as a percentage of population by province and for Canada

* NT and NU combined in 2000

Source: Cost-Shared Programs Division, Human Resources Investment Branch, Human Resources Development Canada

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