We Need a Plan to Make Poverty History

Submission to the Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities

Hearings on the Federal Contribution to Reducing Poverty in Canada from the Canadian Make Poverty History campaign.

1. Introduction

Over 1 billion people live on less than $1 a day with nearly half the world’s population (2.8 billion) living on less than $2 a day.¹ Everyday, around the world, fifty thousand people die unnecessarily because of poverty.² Eight hundred million will go to bed hungry tonight.³

Over 3 million Canadians are living in poverty. Depending on what measure is used, 10.5% to 11.9% of Canadians are poor.⁴

1 in 4 First Nations children live in poverty and the unemployment rate in First Nations communities is four times the national average.⁵

It doesn’t have to be this way. Collectively we now have the resources, technology and knowledge necessary to end poverty, both globally and here at home.

We need a plan to make poverty history, both globally, and in Canada and for Aboriginal Peoples.

2. Global Plan to Make Poverty History

There is a global plan to reduce extreme poverty by half by the year 2015. At the Millennium Summit at the United Nations in 2000, world leaders committed themselves to the achievement of eight Millennium Development Goals (MDGs) by 2015. Both rich and poor countries agreed to work towards the eradication of extreme poverty and hunger, the elimination of gender inequalities, the prevention of environmental degradation, the prevention and treatment of HIV/AIDS, and the provision of education, healthcare and clean water.

Where there are stable, democratic governments committed to achieving the MDGs, where there is peace, where resources have been freed up as a result of debt cancellation and where donor funds have been invested efficiently in quality aid projects, real progress is being made. Although the global economic crisis, climate change and the food price crisis threaten to reverse the progress made so far and call for a renewed effort to keep moving forward, the success to date shows that developing and implementing a poverty reduction plan with targets and timetables can work.

3. Plan to Make Poverty History in Canada

Success in domestic poverty reduction also requires that we have a plan. That is why the Make Poverty History campaign in Canada is calling for the federal government to involve groups where poverty is predominant – such as Aboriginal People, women, minorities and youth – in the design and implementation of a domestic poverty reduction strategy.

The governments of Quebec, Newfoundland and Labrador, Ontario and most recently Nova Scotia have taken the lead in developing comprehensive poverty reduction strategies. Significant progress in reducing poverty is already evident in Quebec and Newfoundland. But provincial governments do not have jurisdiction over all of the policy tools required to reduce and eventually eradicate poverty. That is why governments at all levels, including federal, provincial, territorial, municipal and Aboriginal, need to be engaged. But leadership from the Federal Government is needed to engage all level of government in the development of a comprehensive poverty reduction strategy for Canada.

In 2007 the National Council of Welfare released a report on Solving Poverty: Four Cornerstones of a Workable National Strategy for Canada which recommended the Federal government develop a national anti-poverty strategy with a long-term vision and measurable targets and timelines.⁶

Poverty reduction strategies need to include a range of social and economic policies, including community economic development and job creation strategies, education and training programs, tax policies, as well as improvements to social programs.

Key parts of a poverty reduction strategy where the federal government could provide leadership include:

• Raising the Canada Child Tax Benefit to $5,100 per child and ensuring that all low- income children receive the full benefit of this program.
• Implementing a national housing strategy that would involve building a minimum of 25,000 social housing units per year (this will likely require expenditures of $1.5 billion annually);
• Implementing a national child care and early childhood education program, which will especially help low-income single parents in their ability to get jobs;
• improving the Employment Insurance program so that more of those who become unemployed can qualify for benefits and are prevented from falling into deep poverty, from which it can be difficult to escape;
• Reinstating a federal minimum wage and setting it at $10 an hour and indexing it to inflation to ensure that someone working full-time will be able to escape poverty;
• Ensuring a greater role for non-profit organizations, social enterprises and co-operatives in economic development. Social enterprises can play a crucial role in creating employment for disadvantaged residents of inner cities and rural areas, newcomers, persons with disabilities, Aboriginal Peoples and other founding cultures.
• Creating a national pharmacare plan that would provide first-dollar coverage for prescription drugs, removing a major barrier to employment for those on welfare.
• Implementing the Kelowna Accord or comparable plan to narrow the living standards gap between Aboriginal people and the rest of Canada by investing in health, education, water and housing in aboriginal communities and in community and social programs for aboriginal people living in urban areas.
• Increasing Guaranteed Income Supplement (GIS) benefits for seniors. • Creating a poverty reduction fund to support provincial initiatives.

When we talk about “poverty reduction” it is not the same thing as “welfare”. The aim is not just to keep people alive at a subsistence level but to invest in strategies that will reduce the number of people and children living in poverty by lowering and removing the barriers people face when they try to escape poverty. It will require some up front investment but there will be some big payouts down the road. Investment in poverty reduction and supporting participation in the labour market through positive incentives will yield many economic and social benefits, including boosting productivity, improving population health and lowering the costs of health care, reducing crime and the costs of incarceration and boosting the labour market supply to help address labour shortages that could arise down the road as a result of an aging workforce.

4. What the Tax System Can and Cannot Do to Make Poverty History

While there are some tax measures that can be useful as part of a poverty reduction strategy, tax measures on their own are not a very effective way to achieve poverty reduction.

Tax measures can be a component of a Canadian poverty reduction strategy.

One anti-poverty tax measure in the last few Federal Budgets is the Working Income Tax Benefit. It provides up to $925 a year for individuals with the goal of helping to remove the barriers to employment for people on social assistance. This is a positive measure.

But $2.53 a day does not make up for loss of drug and dental benefits that those moving from social assistance to low-wage jobs face. It would be better to institute a national pharmacare plan that would deal directly with one of the major barriers to people moving off welfare.

In the absence of an above poverty line minimum wage, this program is also in danger of simply subsidizing low wage employers. The federal government needs to reinstate a federal minimum wage and set it at at least $10 an hour, indexed annually, to signal to the provinces the importance of raising minimum wages from the inadequate levels they are now.

Another tax measure that has a positive poverty reduction impact is the GST Credit which is a refundable credit paid out to low income Canadians. Raising the GST Credit as the 2009 Alternative Federal Budget proposed would have been a very effective way to deliver economic stimulus to those who were most likely to spend it on local goods and services which would benefit local businesses and local communities.

But they need to be carefully designed to contribute to poverty reduction goals.

The Child Tax Benefit and the Child Tax Credit illustrate how and how not to design tax measures to address child poverty.

The Child Tax Credit announced in the 2007 Budget, while providing a modest benefit to families with children who had taxable income, did absolutely nothing for the poorest children whose families have no taxable income. It will cost about $1.5 billion a year when fully implemented.

It would have been far better to apply this funding to improving the Canada Child Tax Benefit and the National Child Benefit Supplement which provides assistance to a broad range of families but provides more benefit to those in greater need, including those with no taxable income. The Make Poverty History campaign has been calling for increasing the Child Tax Benefit (or equivalent provincial benefit) to $5100 per child and ensuring that all low-income children5 receive full benefit of this program and not have part of it clawed back by reductions in provincial or territorial social assistance benefits.

Tax cuts are generally not a good way to reduce poverty because:

• Tax cuts are unfair - The rich almost always get more from tax cuts then the poor. Finance Department documents admitted, for example that tax cuts in the 2006 Federal Budget would provide less then $100 a year for families with incomes of less then $15,000 and over $1,200 for families getting over $100,000 a year (average tax savings for 2007). In other words, the richest families were expected to get twelve times as much as the poorest families.
• Tax cuts are often ineffective - Tax incentive based mechanisms have proven to be a very ineffective way to deliver social programs. Almost no day care spaces were created as a result of the federal government’s 2006 Child Care Spaces Initiative which offered corporate tax credits of up to $10,000 to businesses that created child care spaces. Registered Education Savings Plans (RESP) and Registered Retirement Savings Plans (RRSP) which are meant to encourage savings for education or retirement in order to prevent seniors poverty and make post-secondary education more accessible delivers little or no benefit to those who need help the most and achieves very little in terms of policy goals at a very large expense in terms of tax expenditures.
• Tax credits don’t help if you don’t pay taxes - The poorest Canadians, including many students, who don’t have enough income to have to pay taxes will get no benefit at all from the tax credits for textbooks, public transit passes or children’s fitness programs. This is because they are non-refundable, meaning they can be deducted from what you have to pay in taxes but if you don’t pay taxes you don’t get anything.
• Tax cuts reduce options - The most serious problem with tax cuts is that they reduce the amount of money governments can raise and therefore the funds they have available to spend on government programs. Tax cuts as a way to stimulate the economy are much more likely to create structural deficits than investments in infrastructure or improving Employment Insurance coverage as the expenditures for these will naturally go down when the infrastructure projects are completed or unemployment rates go down as the economy recovers. The government will be facing serious shortfalls in revenues in the next few years and this could provide the pretext for major and painful cuts in spending on programs such as funding for welfare and post secondary education that would have a detrimental impact on poverty reduction efforts.

Notes

¹ UN Human Development Report 2003.

² Reality of Aid Report 2004.

³ Food and Agriculture Organization, News Release: “World Hunger Increasing”, Oct. 30, 2006.

⁴ Human Resources and Skills Development Canada , Low Income in Canada: 2000-2006 Using the Market Basket Measure - October 2008 SP-864-10-08E.

⁵ Assembly of First Nations Fact Sheet.

⁶ National Council of Welfare, Solving Poverty: Four Cornerstones of a Workable National Strategy for Canada, Winter 2007, Vol. #126.