kids playing
Economic analysis

What a child benefit policy can and should do (beyond buying votes)

Let’s not forget that a well-designed child benefits policy can improve well-being, employment, and kids’ lives
By Kevin Milligan

kids playingThe delivery of the “catch-up” payments for the Universal Child Care Benefit this week became a bit of a political circus, culminating with a reference to “Christmas in July.” In that frenzied environment, it’s easy to lose sight of the principled role of child benefits. When well-designed, child policy is a constructive component of our tax and transfer system. Here are three reasons why:

1. Recognizes basic cost of living

Adults in our tax system can claim the Basic Personal Amount ($11,138 in 2014), which allows a minimum amount of income to be earned before the person faces income tax. This tax measure excludes income necessary for a very basic standard of living from taxation.

Kids also require basic sustenance to live, so they deserve the same treatment of their basic expenses.  Recognizing these costs through the tax and transfer system isn’t about rewarding parents, it’s about recognizing children as human beings.

2. Replaces child component of social assistance

In the 1990s, a single parent on social assistance faced a tough path back to the labour market. If she did find a job, she would often lose all of her social assistance income, drug coverage, dental subsidies and more.  Effectively, she faced a 100 per cent tax rate, leaving her little better off for all of her extra effort. This so-called “welfare wall” was an important policy concern.

Over the last 20 years, through concerted federal and provincial policy actions, large sections of the welfare wall have come down. Most provinces have replaced the child component of social assistance cheques with reliance on refundable tax credits to help children. Previously, if the single parent found work, she would completely lose the social assistance benefits for her children. Under the new child credit system, the single parent effectively keeps the child benefits as she enters the workforce. By taking kids off welfare, the reward for working was increased. My research with Mark Stabile demonstrated the large impact this change had on single-parent employment in the late 1990s and early 2000s.

3. Supports those in need

Canada has a multi-pronged income support system ranging from Employment Insurance to Old Age Security. Viewed as social insurance, we pay taxes to fund this system to insure ourselves against a negative life shock that leads us to have less income than we may have hoped.

Child benefit payments geared to income provide similar insurance for kids who, at no fault of their own, find themselves in low-income families. Those kids didn’t choose to have parents who are struggling, but our society can choose to ensure those kids get a fair shot at life. Recent research I conducted with Lauren Jones and Mark Stabile confirms previous findings that transfers to families with lower income improve the health and material well-being of children.

Political rhetoric on family policy is heating up as we enter the election campaign. But we should not be distracted from the fact that well-designed policy can improve well-being, employment and kids’ lives.

 

My disclosure statement is here.