This is largely based on a discussion paper by Michael Mendelson and John Stapleton for the Caledon...

This is largely based on a discussion paper by

Michael Mendelson and John Stapleton for the

Caledon Institute. Questions for the

future, the summary recommendation, and

new information on the Manitoba Child Benefit are not discussed in the

Caledon draft.

April 2007

The Ontario Child Benefit (OCB):

Now what?

A Summary Recommendation?The Cheques we’re promised…………………..

July 2007 Governments of Canada & Ontario

$3,500Pay to the order of: Ontario’s Children

_______________Three Thousand, five hundred dollars_______________ Prime Minister of Canada & Premier of Ontario



_______________Four Thousand, five hundred dollars___________ Prime Minister of Canada & Premier of Ontario

A Summary Recommendation?The Cheque we want…………………..July 2007 Governments of Canada & Ontario

$5,000+Pay to the order of: Ontario’s Children

_______________Five Thousand, five hundred dollars +_______________ Prime Minister of Canada & Premier of Ontario

The historical context

• The 2007 Ontario Budget announced the introduction of an Ontario Child Benefit (OCB)

• It will start in July with a down payment of $250 per child and increase over the next five years to $1,110 per child.


• The OCB will replace all cash child-related benefits within Ontario’s social assistance system except for those designed for housing needs of children.

The historical context• All low incomes families will be

treated the same under the OCB. • Families leaving social assistance

will keep their child-related benefits if their incomes remain low.


• With the introduction of the OCB, Ontario becomes the sixth province undertaking a restructuring process to remove child-related benefits from needs tested social assistance

• The OCB signals a fundamental change in income security in Ontario.


• Delivering child-related benefits outside of the welfare system was considered since the beginning of the modern welfare state.

• It was recommended in:– The Marsh report of the mid-1940s

[Marsh 1943]. – Ontario’s Transitions report [1988]


• The Transitions report recommended increasing social assistance benefits in advance of the broader structural reforms.

• The Peterson government chose to increase social assistance payments first, as recommended.


• The 1993 Rae government introduced the ‘Ontario Child Income Plan.’ This plan died under the pressure of deficits.

• Large increases in benefits and the deep recession resulted in caseloads reaching over 10 percent of Ontario’s population.

• The 1995 election featured a backlash against welfare, followed by deep cuts and changes.

BC, Quebec and Saskatchewan

• BC (1996), Quebec (1997) and Saskatchewan (1998) introduced programs that took child-related benefits out of welfare systems.

• These provinces replaced child-related social assistance with income-tested programs that reached working families, as well as families whose adult members were not able to secure employment.

BC, Quebec and Saskatchewan

• Initial and subsequent increases in the NCBS resulted in a change in the composition of the total child-related benefits

• More would come from Ottawa, less from the province

The National Child Benefit - 1998

• Ottawa introduced the National Child Benefit (NCB) to encourage the restructuring of child-related benefits.

• It consisted of a federal income targeted top-up to the Child Tax Credit, called the ‘National Child Benefit Supplement’ (NCBS), and a federal-provincial-territorial agreement about reinvestment of social assistance savings.

Newfoundland and Labrador; Nova Scotia

• Two additional provinces (NFL, 999; NS, 2001) responded by implementing broad-based provincial child benefit programs.

• NCBS increases did not offset provincial broad-based child-related benefits.

(N.S. restructuring resulted in losses to S.A. recipients.)

Canada’s five smallest jurisdictions (N.B., PEI and the 3 Territories)

• None of the territories and neither of the smaller provinces (PEI and New Brunswick) reformed their child benefit systems to accommodate the NCB initiative and have not to this day.

• The latter four all claw back the NCBS against social assistance.

Alberta • Alberta reduced its social assistance rates

every time the NCBS increased. Recipients experienced no net change in income.

• Alberta used its social assistance savings to help pay for the Alberta Child Health Benefit that provides prescription drug, optical, and dental services

• Since 2003, Alberta has been passing NCBS increases through to social assistance recipients without offsetting decreases in social assistance rates.

Manitoba and Ontario

• In Manitoba and Ontario, social assistance rates were left at existing levels, and the NCBS was deducted from social assistance cheques.

• The ‘clawback’ was evident on every social assistance calculation, and became a political issue in both provinces


• In 2001, Manitoba scheduled social assistance increases and by 2004, had exempted all NCBS income from welfare benefits,

• Recipients received full provincial child-related welfare benefits plus full federal child-related benefits


The result has been:• higher benefits for

welfare recipients in Manitoba, but

• Low-income working families have smaller total child-related benefits than those on welfare.

Manitoba and OntarioWith the 2007 Budgets:• Ontario has taken an

alternative route to solving the ‘clawback’ problem.

• Manitoba plans to introduce its own version of a provincial child benefit, called the Manitoba Child Benefit.

“In 1998, the federal government introduced a National Child Benefit for low-income families, but this benefit was clawed back at the provincial level from families on income assistance. Our government corrected this injustice by ending the clawback and fully restoring the National Child Benefit, allowing almost $14 million annually to flow to families in need.

Mr. Speaker, today’s budget takes another major step forward by introducing a new Manitoba Child Benefit for low-income families as part of Rewarding Work. The new benefit will provide more money for low-income working families to help with the costs of raising their children. For families on income assistance, a separate Child Benefit will replace a portion of their existing child-related assistance. This is a significant step in breaking down the “welfare wall,” by ensuring that families retain supports for their children when they move from income assistance to work.”

The Ontario Child Benefit (OCB)

• The OCB will provide equal payments to all children under age 18 in low-income families. It will help families move from social assistance to work as their OCB will not be reduced until their income reaches $20,000 a year.


• In July of 2007 the OCB will be initiated by a $250 payment per child.

• The $250 OCB payment will be ‘tapered-off’ by 3.4 cents for every dollar of family net income over $20,000.


Example:A family with two children has $30,000

income ($10,000 above the $20,000 turning point)

The two child maximum OCB of $500 is reduced by 3.4 percent of $10,000; i.e., $340.

Thus, the family’s OCB will be $500 - $340 = $160.


• In July 2008, the max OCB will be $600 per child, and will taper off at 8 % of adjusted net income over $20,000.

• The max payment level will increase annually until 2011.

• In 2011, the $1,1000 per child OCB will phase-out at $33,750 for a 1-child family, $47,500 for 2 children and $61,250 for a 3rd child.


Figure 1: Maximum annual Ontario Child Benefit per child

$250

$600

$805$900

$1,100

$0

$200

$400

$600

$800

$1,000

$1,200

2007 2008 2009 2010 2011

The OCB will cover 1,270,000 children in low-income

families. • Of these 270,000 now get the

Ontario Child Care Supplement for Working Families (OCCS).

• The OCCS is a provincial child-related benefit that is paid to families with children under 7 years of age, who earned income of more than $5,000.


• 200,000 are in families on social assistance.

• The OCB will be paid to 800,000 low income families that did not get any provincial child-related benefit before.


Figure 2: Number of recipient families with children by income security program

116 172

604

196271

1,267

0

200400

600

800

1000

1200

1400

Socialassistance

OCCS OCB

Number of families and children (000s)

Families

Children

Note: Social assistance excludes Temporary Care Assistance and Assistance to Children with Severe Disabilities. Source: 2007 Ontario Budget Chart 3.

Current system 2006 With mature OCB


• Recipients of the OCB will receive benefits from the Child Tax Benefit (CTB) and the NCBS.

• Figures 3, 4 and 5 show the way benefits under the three programs stack up for a one child, two child and three child family respectively.


• The Figures only show the income targeted child benefit system per se.

• They do not include the cumulative effects of other recent add-ons.


• Ontario has set its turning point below NCBS.

• Its phase out income level is close to the NCBS for families with one child and higher than the NCBS for families with more than one child.

The Ontario Child Benefit (OCB)Figure 4: Two Child Family

Child Tax Benefit (2007), National Child Benefit (2007) and Ontario Child Benefit (2011)

$-

$1,000

$2,000

$3,000

$4,000

$5,000

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CTB NCB OCB

The Ontario Child Benefit (OCB)Figure 5: Three Child Family

Child Tax Benefit (2007), National Child Benefit (2007) and Ontario Child Benefit (2011)

$-

$2,000

$4,000

$6,000

$8,000

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CTB NCB OCB


• Most other provincial child benefits are targeted at incomes below the turning point for the NCBS.

• Provincial child benefit supplements phase out completely at about $20,000 income.

• This design is illustrated in Figure 6.


Figure 6: Illustration of an Alternative Design for the Provincial Child Benefits in Relation to Federal Benefits

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

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Alternative design for provincial child benefits


• The Ontario design has the advantage of providing full provincial child benefits to many more low income families, since the turning point is higher.

• Many low income families may never face any reductions in their OCB as their income increases as it may never exceed the turning point.

A Problem with the Design

• The downside of the overlap of the NCBS and the OCB is that for those caught in the relevant income ranges where there is overlap – e.g., $20,000 to $35,000 family income; there will be additive marginal tax rates.


• Ignoring income tax and other programs, a family with one child will have a marginal tax rate of up to 20.2 % due to the OCB and NCBS.

• For a two child family, the max marginal tax rate will be 31.0 %

• For a three or more child family the marginal tax rate will be up to 41.3 %.


• The cumulative marginal tax rates are shown on Figure 7. The additive rates become worrisome for families with 3 or more children.

• Ontario has said that the OCB will not be reduced by future increases in the NCBS.

A solution to the design problem

• It would be desirable to replace some or all of the OCB with an increased CTB, cateris parabis

• If there are increases in the OCB beyond those currently planned, the taper-off rate should not be increased.

• The federal gov’t should consider increasing the base CTB with its much lower marginal tax rates.


Figure 7: Combined Marginal Tax RatesChild Tax Benefit (2007), National Child Benefit (2007) and Ontario Child Benefit (2011)

0%

5%

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1 Child MTR

2 Child MTR

3 Child MTR

Phase-in and delivery

• The initial $250 OCB will be paid as an additional benefit to social assistance and OCCS recipients, without any offsetting reductions in their existing benefits.

• In July 2008 the OCB will replace child benefits in the Social Assistance system, except those related to shelter, and the OCCS.


• The OCB is to be delivered through the personal income tax system, allowing it to be integrated with the federal Canada Child Tax Benefit in a single cheque.

• In 2008, monthly OCB payments will be paid out as a separate line item of the Canada Child Tax Benefit statement.


• A single cheque will be less confusing. The federal Canada Revenue Agency will administer the OCB.

• Almost all of the OCB will go to recipients, with negligible administrative cost

• The first payment in July 2007 will be a lump sum of $250 in the form of a separate cheque.

Phase in and Delivery Problems and Issues

1. RestructuringThere are 48 separate child rates under the

current social assistance programs, which vary by:

• Birth order (three different rates),• Two adult and one adult families • Age of child • Program type (Ontario Works and the

Ontario Disability Support Plan):and • Shelter type (boarder vs. renters and

owners).


A Restructuring Solution• One OCB rate, means

complex and careful work will be required to replace the current social assistance child rates while ensuring that base rates for adults and shelter combine with the OCB to not reduce any family’s total assistance.


2. Social Assistance Rate Reductions

• In July 2008 the OCB will partly replace social assistance benefits.

• The OCB will displace up to $350 a year of child-related welfare on July 1, 2008, so that recipients are left with the net additional $250 income they received in 2007.


2. Social Assistance Rate Reductions• Ontario Works recipients with children under

13 will receive the higher welfare benefits as those with children aged 13 and older.

• Similar kinds of adjustments and fine-tuning will be required until child-related welfare benefits are fully replaced by the OCB.

• In 2011, the net result for social assistance recipients will be an additional total income of about $600 per child.


2. Social Assistance Rate Reductions

• While this gradual process may result in the perception that social assistance is being clawed back – this time to be replaced by the OCB rather than the National Child Benefit Supplement.

• This is a danger of which the government should be aware.


Solutions regarding Rate Reductions (Caledon)

• To not be accused of further clawbacks, the government should implement on a three year schedule.

• There is then one year to design the restructured social assistance schedule and two years to implement it.

• The computer system for social assistance might make even a three year implementation challenging.


3. The Ontario Child Care Supplement for Working Families

• The OCCS will also be phased out as the OCB is increased.

• The OCCS was initially financed by the savings in welfare due to the introduction of the National Child Benefit Supplement.

• The OCCS pays up to $1,100 annually to two-parent families and $1,310 annually to one-parent families.


The Ontario Government’s Solution

• The Budget says that the OCCS will be phased out beginning in July 2008, and provides the assurance that wherever the OCCS would have resulted in a higher payment than the OCB, the higher payment will prevail, to ensure that no family is worse off.


The Ontario Government’s Solution

• The Budget states that “Once the OCB is fully implemented in July 2011, the OCCS would be phased-out over seven years.”

• This will entail grand-parenting present recipients and admitting no new applications for OCCS, so that when grand-parented recipients’ children reach age seven, there will be no remaining recipients.

Ending the NCBS clawback

• The Ontario government of the day (the Harris government) did not take the necessary steps to reform its own system when the NCB was introduced.

• Instead, it introduced the OCCS and then deducted the amount of the NCBS from each monthly welfare cheque.

Ending the NCBS clawback

• Over time, the deduction became a cause celebre for most social activists in Ontario.

• When combined with the earlier 21.6 percent cuts in rates and restrictive regulations, the clawback seemed to be part of a wider plan to target social assistance recipients in Ontario.

Clawback Discussion • The NCBS was not designed

to add to the net incomes of welfare recipients but to substitute a federal for a provincial source of income: while equalizing child-related benefits for all low income families.

• Ontario took federal money away from welfare recipients via erosion through inflation.

Clawback Discussion• With Ontario’s rate cutes,

substitutions and funnelling reinvestment funds from recipients, the election promises to end the clawback and introduce a child benefit of some description was obvious.

• The election of a new Ontario government saw the clawback frozen at its 2003 level with all subsequent NCBS increases passed on to welfare recipients.

How the Budget claims to end the NCBS

clawback over timeUsing the example of a lone parent with one

child age 0-12, the Ontario Budget ends the NCBS clawback of $122 as follows:

• In 2003 the lone parent’s base rate was $957 a month.

• By 2007, it was $1,008. • By November 2007 it will be $1,029 • This results in a social assistance rate that

is $72 a month higher than it was in 2003.

How the Budget claims to end the NCBS

clawback over time• In 2011, the lone parent will net $50

a month out of the $92 a month OCB. The $72 previous increase and the $50 net OCB increase equals $122.

• At some point the deduction of the NCBS from welfare cheques will end.

• Together with the previous net income increase and the OCB increase, the government will have fulfilled its promise to end the clawback.

Differing Interpretations of

Ending the Clawback• Some activists have their own criteria for

‘ending the clawback’: Only income over inflation and income that goes to welfare recipients can ‘count’ as off-setting the clawback.

• Other approaches (Caledon et al) would agree that the government has ended the clawback allowing social assistance rate increases to ‘count’ in the calculation of the ending of the clawback

Comment• There is no objective standard for

ending the clawback.• No participating province or territory

could be said to have ended the NCBS clawback

Comment• Every jurisdiction would be

retrospectively offside and even those congratulated for having ended the clawback (e.g., Manitoba) would be reinterpreted as having not done so.

• The fact remains that many believe that the clawback continues based on shared sets of criteria.

• The Ontario government can therefore anticipate continued objections based on failure to end the clawback.

Comment• This will be

exacerbated by the phase in period, when bits and pieces of welfare will be replaced by a partial OCB.

• It will be difficult to explain why ‘welfare is being cut’ and the ‘OCB is not going to the poorest of the poor.’

Now What?

The Road to Resolution of the Clawback Issue: a possible meeting of minds?

• Ontario and Manitoba are heading in similar directions toward integrated child benefits in various forms – along with BC, NS, NB, Nfld. and the 3 Territories – some have stopped the clawback mechanism, others not

The Road to Resolution of the Clawback Issue: a possible meeting of

minds?

• As of July, 2007, the integrated child benefit in Ontario will be $3,243 + $250 = approx. $3,500

• In July, 2011, the integrated child benefit in Ontario will be $4,600, still short of the $5,000 recommended by almost all stakeholders.

A simple campaign could be based on three

cheques:The Cheques we’re

promised…………………..July 2007 Governments of Canada & Ontario


_______________Three Thousand, five hundred dollars_______________ Prime Minister of Canada & Premier of Ontario



_______________Four Thousand, five hundred dollars___________ Prime Minister of Canada & Premier of Ontario

A simple campaign could be based on three

cheques:The Cheque we want…………………..July 2007 Governments of Canada & Ontario

$5,000+Pay to the order of: Ontario’s Children

_______________Five Thousand, five hundred dollars +_______________ Prime Minister of Canada & Premier of Ontario

Next Steps after Resolution of the

Clawback • Our hope is that the OCB will not be the

end of reform in Ontario’s welfare system• All low income Ontario families need

access to the drugs, dental and other health benefits that currently go only to social assistance recipients.

• Benefits for adults remain out of synch with the labour market and in some cases impossible to sustain life without cheating.

• Demeaning rules remain in place.

Next Steps after Resolution of the

Clawback• There is no harmonization at all

between provincial social assistance benefits for adults who are out of work and the federal Employment Insurance program.

• Ontario should work with the other provinces, territories and the government of Canada towards building a modern income security system for Canada, for adults as well as for their children.

This is largely based on a discussion paper by Michael Mendelson and John Stapleton for the Caledon...

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Transcript of This is largely based on a discussion paper by Michael Mendelson and John Stapleton for the Caledon...