In this post, Canada Fact Check examines the different proposals put forward by the three major parties regarding personal taxes and family policy.
The NDP has proposed a $15-a-day national child-care strategy, the Conservatives’ family tax package features income splitting, and the Liberals have released a proposal that creates a new Canada Child Benefit.
The Liberals: A revamped child benefit and a more progressive personal income tax system
The biggest Liberal family related proposal by far is a new $22-billion initiative—the Canada Child Benefit—aimed at lower and middle-income families with children.
What will the proposed Liberal Canada Child Benefit do for families?
First, the proposed benefit would be geared to the level of family income. In other words, unlike the Conservative’s UCCB (see below), the Liberal’s Canada Child Benefit is means tested. For children ages 5 and under, maximum benefits would be $6,400 a year ($533 monthly). Payments would decline as incomes rise, and would be completely phased out at a family income of $192,000.
The maximum benefit for children ages 6 and over would be $5,400 annually ($450 per month) and would also fall with increases in family income. The benefit would be completely phased out at an income of $160,000/yr.
How will the Liberals find $22 billion annually to fund their initiative?
First, the Liberals would fold three existing child benefit programs into their new benefit: the National Child Benefit Supplement, the Canada Child Tax Benefit (CCTB) and the Universal Child Care Benefit (UCCB).
According to the 2015 budget, the existing child benefits total $18 billion per year, so $18 billion of the $22 billion is covered right off the start. And because the Liberals will get an additional $2 billion from cancelling the income-splitting Family Tax Cut, it would only take $2 billion more to reach $22 billion.
With the Liberals’ proposed plan, the benefit would not be taxed. In contrast, the existing Universal Child Care Benefit (UCCB) is taxed by the federal and provincial/territorial governments and so is worth less than its face value. Moreover, couples must pay full tax on their UCCB but single parents have options to reduce or completely eliminate taxes flowing from the benefit.
The Liberal Canada Child Benefit, by contrast, is a nation-wide program that would treat all families equally. The result is a benefit that is substantially larger than the existing package of child benefits for most families with $160,000 of income or less.
The Liberals have suggested that their new child benefit is only one part of their family platform and that additional initiatives will be included when their complete platform is released. If that’s true, it is for the good because there are some real shortcomings in their tax and child benefit package released to date. Most importantly, low-income earners without children are largely ignored in the existing proposals. The NDP has suggested that it plans to enhance the Working Income Tax Benefit (WITB) and that would be an excellent place to start. More on the WITB later in this post.
Moreover, the Liberals have been vague about their plan to create more child care spaces, with only a line in their Infrastructure Plan saying that: “We will also fund the creation of thousands of new child care spaces, enhance their quality, and ensure that affordable child care spaces are available to more families who need them”.
Bottom line: While it has some significant shortcomings, the Liberal family package stakes out some important ground: when combined with the Liberal’s middle class tax cut and a new tax bracket on individual income over $200,000, the tax system under a Trudeau government would be considerably more progressive than is presently the case.
The NDP: Quebec style child care and some modest help for the working poor
$15/day child care
The NDP’s main family initiative is an ambitious proposal to create a million childcare spaces at a maximum cost to parents of $15 a day.
It promises to achieve this by funding 370,000 child care spaces across Canada by 2018-19 at a cost of nearly $1.9 billion a year. The $5-billion/yr. plan wouldn’t be fully implemented until 2023.
According to the NDP, there are currently 500,000 children who have regulated child care and 800,000 who don’t. A million spots at $15-a-day would still leave up to 300,000 children with childcare costing more than the NDP’s maximum.
Mulcair proposes that Ottawa cover 60 per cent of the new government spending on the spaces, and the provinces 40 per cent. This raises questions regarding what will be counted towards the provincial contribution – a concern of the Ontario government in particular.
The NDP seems to be leaning towards leaving the program details to the provinces. For example, while the NDP favours not-for-profit care, Mulcair has said that for-profit centres wouldn’t be excluded from the NDP program. As such, in Ontario, where the system is about 25% for-profit, one might expect 25% of the new funding to go to for-profit centres.
Furthermore, giving low-income parents priority access to the new spaces—a controversial idea among advocates of a universal system—might be allowed.
$15/hr. federal minimum wage
The NDP is pledging to “reinstate a federal minimum wage and increase it to $15/hr.”
Minimum wages are set by the provinces for over 90% per cent of workers, including those in hospitality and retail, and the NDP’s increase wouldn’t affect these provincially regulated workers. The federal government only sets minimum wages for the less than 10% of the labour force who work in in industries such as rail and air transportation, telecommunications, banks, uranium mining, Crown corporations and those on First Nation reserves.
While it may be true that over 90 per cent of minimum wage earners wouldn’t be helped by the NDP plan, it is also true that there are many more federally regulated workers who earn between the provincially set minimum wages and the $15 mark the NDP is targeting.
The NDP’s own estimate is that 100,000 low-income workers will get a raise under the NDP’s federal minimum wage plan. A more accurate figure may be in the 50,000 – 75,000 range. Nevertheless, the federal NDP proposal sends a strong signal to the provinces that the much larger number of provincially regulated minimum wage workers need a raise.
Working Income Tax Benefit.
The NDP has announced that it will close the tax loophole currently enjoyed by senior corporate executives on stock options. Those funds would be re-directed to low-income families through an enhanced Working Income Tax Benefit (WITB) and an enhanced National Child Benefit Supplement (the existing means tested child benefit – not to be confused with the universal UCCB).
“This will be a dollar-for-dollar transfer in benefits from those who need it the least – to those who need it the most,” says NDP Leader Tom Mulcair. “Helping families out of poverty and into the middle class is good for our social fabric, as well as supporting a vibrant economy – and that’s good for Canada.”
The NDP’s late-March promise was seemingly confirmed in last Wednesday’s release of the NDP’s platform costing document which indicated that $500 million would be saved from ending the stock option loophole. The costing document went on to say that “We will redirect the savings from ending this unfair tax break into measures to lift children and the working poor out of poverty.”
There were no further details on how the NDP would enhance the WITB or National Child Benefit Supplement contained in the 7-page costing document released Wednesday.
Some background on the little known Working Income Tax Benefit (WITB) .
The WITB is intended for low-income individuals and families who have income earned from employment or business.
The WITB was introduced in the 2007 federal Budget. The WITB pays benefits to single persons and an enhanced benefit to families. It also pays an additional amount to workers with disabilities. Ottawa allows the provinces and territories to vary WITB’s parameters to better mesh with their income security systems and policy priorities. So far Quebec, BC, Alberta and Nunavut have chosen to redesign WITB for their workforce.
For single individuals without children, the maximum amount of WITB ($1,015 for 2015) is paid if working income is between $7,060 and $11,525 for 2015. The WITB payment is gradually reduced when net income is more than $11,525 and is eliminated when net income exceeds $18,297.
For families, the maximum amount of WITB ($1,844 for 2015) is paid if the family’s working income is between $10,376 and $15,915 for 2015. The WITB payment is gradually reduced when family net income is more than $15,915 and is eliminated when family net income exceeds $28,210. Disabled persons are entitled to a supplement. These amounts vary slightly for residents of Alberta, Quebec, Nunavut and British Columbia.
The WITB was launched as an extremely modest program that paid a maximum benefit of just $500 for single persons and $1,000 for families, and was so limited in reach that it excluded many of the country’s working poor. While the Conservative government boosted WITB’s benefits and reach in 2009, it still requires a significant enhancement if it is going to make a real difference to low-income earners.
There are several options the NDP may be considering in enhancing the WITB. One set of options would provide a benefit boost within the existing income thresholds. The second set of options would maintain the current level of benefits but would increase the net income threshold in order to include more recipients and extend maximum benefits. A third set of options would both boost maximum benefits and increase the WITB income thresholds.
Bottom line: While Liberal proposals are considerably more ambitious in terms of re-jigging the personal income tax system in a more progressive manner, the NDP has put forward a superior (and very credible) child care proposal that tackles the chronic lack of affordable child care in Canada head on. And in their minimum wage and Working Income Tax Benefit proposals, the NDP has put forward some positive – albeit extremely modest – initiatives to assist the working poor.
Conservatives: Income splitting and a universal child benefit
Enhanced Universal Child Care Benefit
The Conservative’s are running hard on thier recently enhanced Universal Child Care Benefit (UCCB), which now pays $160 per month (up from $100/month) for every child under age six. And starting in 2015, each child between the ages of 6-17 receives $60/month for the first time.
The main criticism of the UCCB is that it provides benefits to all families – including wealthy families.
Another significant shortcoming of the current UCCB is that it is not indexed to inflation, so the purchasing power related to the benefit is diminished every year. In contrast, the proposed Liberal Canada Child Benefit (see above) would be fully protected from inflation.
Also, despite its title, the Tories’ Universal Child Care Benefit (UCCB) is not in any way tied to the actual use of child care: Families can spend the money as they wish. Indeed, the Conservatives made this explicit when they recently extended the benefit to households with children ages 6 to 17 who are beyond the child-care stage.
Mulcair says he won’t tamper with the Conservative’s UCCB, even though it is often criticized by early-childhood experts for not directly funding new daycare spaces.
As indicated above, the Liberals would eliminate the UCCB and replace it with a new, means tested Child Care Benefit.
Under the Conservative Family Tax Cut (or income splitting), one person receives a credit (up to $2,000) based on the tax they would have saved if income had been transferred from the higher income earner to the lower (up to a maximum of $50,000).
In order to claim the credit, both partners must file a tax return. However, only one person can claim the Family Tax Cut (FTC).
The FTC provides the most benefit to families where one partner earns all the income.
For example, if one person earned $100,000 and their spouse did not earn an income at all, this couple could ‘transfer’ up to $50,000 to the lower-income earner, at which point they would both be taxed at $50,000. The credit caps out at $2,000.
However, the best case scenario described above is not the only situation that results in tax savings.
In a scenario where one spouse made $100,000 and the other made $75,000, the savings would be an estimated $484. With $50,000 and $40,000, the savings would be $277.
Whether you would benefit from the FTC depends on your tax brackets. For instance, a couple earning $70,000 and $50,000, respectively, would not benefit from the FTC because they’re in the same tax bracket.
Beyond being eligible only to families with young children living at home, the FTC has come under fire as being a tax measure for the rich.
In a recent report, Canada’s Parliamentary Budget Officer said the vast majority of Canadians won’t benefit from this tax change.
“The FTC benefits about 2 million households, or 15 per cent of the Canadian total,” says the PBO report, mostly middle and middle-high income earners.
Increased child care deduction
The Conservatives argue that if one of the main goals of the NDP child care policy is to encourage mothers of preschool children to enter the workforce, the easiest way to accomplish this is to effectively lower the cost of daycare by boosting the existing maximum federal tax deduction for child care expenses. The Conservatives recently raised this deduction to $8,000 (from $7,000) for each child who is under seven years of age at the end of the year.
Bottom line: In their family policy, as in so many of their tax-related policies, the benefits of Conservative policy tend to tilt towards the better off. This is most noticeable in their income splitting proposal but even more neutral initiatives such as the UCCB and enhanced child care deduction make no attempt at redistributing after-tax income towards lower-income Canadians.