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How Finance Re-FormedSocial Policy

by

Ken Battle and Sherri Torjman

April 1995

Copyright © 1995 by The Caledon Institute of Social Policy

ISBN 1-895796-32-6

Published by:

The Caledon Institute of Social Policy1600 Scott Street, Suite 620Ottawa, Ontario, CanadaK1Y 4N7Phone: (613) 729-3340Fax: (613) 729-3896E-mail: [email protected]: www.caledoninst.org

Caledon Institute of Social Policy 1

A Watershed Budget for Social Policy

The Republican governors of Michiganand Wisconsin are spearheading a movement tofundamentally recast the American welfare state.The major American welfare program – Aid toFamilies with Dependent Children (AFDC),which is cost-shared by the federal and stategovernments – and many other federal socialprograms would be replaced by a system of‘block grants’ to the state governments. In returnfor less money from Washington, the stateswould have the freedom to design their ownwelfare systems and to experiment with welfarereforms.

The Republican majority in the Househas passed a bill advancing the block grantconcept, which fits comfortably with their ideo-logy and platform of shrinking government.However, the Gingrich Republicans want to domore than simply turn over control of welfareto the states. They also want to shape the bravenew world of welfare according to the toughmeasures proposed in their ‘Contract WithAmerica’ – a two-years-and-you’re-cut-off timelimit, work-for-welfare requirements and denialof benefits to teenage mothers. In addition towelfare, the Republicans want to block-grantfoster care, adoption and other child welfareservices as well as the national school lunchprogram for pregnant women and preschoolchildren.

It may be mere coincidence, but PaulMartin’s 1995 Budget contains a strikinglysimilar concept. Federal cost-sharing of pro-vincial welfare and social services under thevenerable Canada Assistance Plan, as well asexisting block-funding of health and post-secondary education under Established Pro-grams Financing, will be rolled into a single‘block fund.’ The new scheme has been dubbedthe Canada Health and Social Transfer (CHST).

In return for less money from Ottawa, theprovinces will have the freedom to design theirown welfare systems and to experiment withwelfare reforms.

The Canada Health and Social Transferis a watershed in the history of Canadian socialpolicy. It will formalize in new legislation whatthe Mulroney Conservatives initiated in practicethrough significant though not widely under-stood changes to the old federal transfer arrange-ments – a withdrawal of both federal dollars andfederal presence from the provincially-runwelfare, social services, post-secondary educa-tion and health programs that constitute a sig-nificant part of Canada’s social security system.

The Canada Health and Social Transfershould please the proponents of greater pro-vincial power over social policy. They have longargued that the provinces should have the solesay about health and human services that fallwithin their jurisdiction. They contend that theprovinces should be free to experiment and toreform their health and social welfare systemsso as to deal with the tough new problems thatare overwhelming the capacity of the currentprograms conceived and constructed in an earlierera. The provinces are ‘closer to the people’and should not have to deal with interferencefrom the federal government in far-away Ottawa.The decentralists would have us believe that thenew federal legislation will usher in a socialpolicy renaissance at the provincial level.

Without question, the Canada Healthand Social Transfer will give the provincesgreater scope to redesign their health care andhuman services. However, the future socialpolicy landscape across Canada is sure tobecome more uneven and more rocky in places.

Some provinces think that the way toreform welfare is to deny assistance to certain

2 Caledon Institute of Social Policy

groups or to force them to do sub-minimumwage work in return for their benefits; on thehealth care front, some provinces would love toreimpose user fees, shrink the range of insuredservices and privatize part of their health caresystem. Other provinces with a more pro-gressive bent may want to invest in strongerhealth and welfare systems, but will lack themoney to do so because federal payments underthe new Canada Health and Social Transfer willsteadily shrink and eventually dry up early inthe next century. In times of recession, whenwelfare caseloads and costs skyrocket, theprovinces will be hit hard because the federalgovernment no longer will pay its half of theirwelfare and social services bills; poorer pro-vinces could be devastated.

The Canada Health and Social Transferspells the decline and eventual end of federalsocial transfer payments to the provinces and,with it, the end of medicare and the welfaresafety net as we know them. The federalgovernment spent its way into the welfare andhealth business in the 1950s and 1960s bymaking the provinces an offer they couldn’trefuse – badly-needed cash to help build theirsocial and health systems. In return, the pro-vincial governments had to meet relatively fewbut very important conditions with respect totheir welfare and health care systems. NowOttawa says it can no longer afford its socialtransfers to the provinces, and has given noticethat it will be cutting back and eventuallywinding down this important form of financialsupport. Although the federal governmentclaims it will continue to enforce the five prin-ciples of national health insurance – universal,accessible, comprehensive, portable and pub-licly-administered health care – its capacity tomaintain medicare will wane as federal moneyto the provinces declines.

The 1995 Budget also heralds bigchanges to the old age pension system. It signalsthe move towards an income-tested elderlybenefit to replace the current collection ofincome security programs (Old Age Security, theGuaranteed Income Supplement and theSpouse’s Allowance) and tax breaks for theelderly (the age and pension income credits).This reform was proposed by the CaledonInstitute in 1993 and foreshadowed by thedecision in last year’s federal Budget to income-test the age credit. We applaud the FinanceMinister and his government for embarkingupon such a sensible, fair and necessary – thoughpotentially controversial – refurbishing of thepension system. Ottawa and the provinces alsowill be reviewing the Canada Pension Plan,which requires substantial future increases incontributions paid by employees and employersin order to meet rising demands from our agingpopulation. The federal and provincial govern-ments must act now to ensure that the publicpension system – which is vital to the economicsecurity of low- and middle-income seniors –remains strong and viable for future gen-erations.

The 1995 federal Budget is a turningpoint towards a new social policy for Canada.But the Canada Health and Social Transfer, thegeared-to-income elderly benefit and thephilosophy behind them are not inventions ofthe 1990s Liberals. The new social policy hasits roots in a succession of Conservative Budgetsthat date back to 1985.

The New Social Policy: The Tory Phase

Conservative Finance Minister MichaelWilson will be remembered as one of the chiefarchitects of a leaner Canadian welfare state,


transfers for 1990-91 and 1991-92. The 1991Budget extended the freeze through 1994-95,after which the GNP-less-three percentagepoints formula was to resume.

These technical changes to a programthat most Canadians have never heard of addup to many billions of dollars worth of cuts infederal social transfers to the provinces, withcash transfers dwindling to zero by the early partof the next century. Not only is this a massivewithdrawal of resources, but it means graduallybut surely whittling away the fiscal stick bywhich Ottawa enforces the conditions of theCanada Health Act that maintain Canada’suniversal health care system.

Finance Minister Wilson’s 1990 Budgetintroduced the now infamous ‘cap on CAP’which set a five percent ceiling on annualincreases in federal cost-sharing under theCanada Assistance Plan (CAP) for welfare andsocial services in Ontario, Alberta and BritishColumbia. This astute cost-cutting move savedOttawa an estimated $5.8 billion from 1990-91through 1993-94 as the recession drove upwelfare caseloads. The cap on CAP decapitatedthe Canada Assistance Plan, since the federalgovernment never will go back to the era ofwriting blank cheques for half of whatever theprovinces spend on their social welfare systems.

Unemployment Insurance

The Finance Minister pulled the plug onfederal funding for Unemployment Insurance(Ottawa used to pay for regionally extendedbenefits, fishermen’s benefits and benefits forpeople in training and job creation projects),leaving employers and employees to foot theentire bill – and requiring premium hikes in1990, 1991 and 1992. Unemployment Insurance

with geared-to-income rather than universalchild and elderly benefits and a reduced role forthe federal government in social policy. PaulMartin is simply finishing the job for him. Thecontinuity between these two powerful cabinetministers from different parties was furnishedby their officials at the Department of Finance,who skillfully designed and engineered thereform of federal social policy.

In successive Budgets, Finance MinisterWilson put in place changes that radicallyreduced federal transfers for provincial socialand health programs and, in the process, put anend to the ‘cooperative federalism’ that built thepostwar social security system in Canada. Healso made substantial cuts to UnemploymentInsurance and abolished federal funding of theprogram. He harnessed the power of inflationto siphon millions of dollars each year from childbenefits and to wring millions more fromtaxpayers in federal and provincial income taxes– the working poor included. He handed thepoor a leaky umbrella in the form of a partially-indexed GST credit that is falling steadily invalue each year and thus imposing a growingGST burden on those least able to carry it. Heabolished supposedly sacrosanct universal oldage pensions and Family Allowances, not witha bang but a clawback.

social transfers to the provinces

The Conservatives’ 1986 Budget limitedthe indexation of transfer payments to theprovinces for health and post-secondary edu-cation under Established Programs Financing(EPF) to the annual increase in GNP less twopercentage points (the formula used to be thefull increase in the GNP). The 1989 Budgetreduced the indexation formula by yet anotherpercentage point. The 1990 Budget froze federal


underwent two rounds of belt-tightening underthe Tories. In 1990, the government increasedthe number of weeks worked in order to qualifyfor benefits, reduced the maximum duration ofbenefits and imposed heavier penalties onworkers who quit their jobs without just cause.In 1993, UI benefits were reduced from 60 to57 percent of insurable earnings and people whoquit their jobs without just cause were deniedbenefits.

pensions

Old Age Security benefits are subject tofederal and provincial income taxes, whichmeans that higher-income pensioners in fact endup with smaller after-tax benefits than those withlower incomes. In 1989, the Finance Ministerannounced a surtax on Old Age Security bene-fits, better known as the ‘clawback.’ Seniorswith net incomes above a ‘threshold’ ($50,000in net income in 1989) now had to pay – inaddition to their regular federal and provincialincome taxes – 15 cents of their Old Age Securitybenefit. High-income seniors have to pay backall of the old age pension that they got the yearbefore, which is a pretty inefficient way tooperate a social program.

The clawback on Old Age Securityaffected only four percent of seniors when it wasintroduced in 1989, since relatively few elderlyCanadians had incomes above $50,000 and themeasure was phased in one-third at a time overthree years; only starting in 1991 did the claw-back remove all the old age pension from high-income seniors. In 1994, the clawback appliedto pensioners with net incomes of $53,215 orhigher, and removed the full Old Age Securitybenefit from those with net incomes above$84,195. These may appear to be relatively highincomes, and are seemingly higher than theywere in 1989.

However, the Tories were careful to onlypartially index the $50,000 trigger level for theclawback, to the amount of inflation over threepercent. As a result, the threshold is decliningsteadily in real terms each year and thus hittingmore and more seniors at lower and lowerincome levels. In effect, the Finance Departmentcapitalized on the fact that few seniors wouldcomprehend the need to convert the $50,000threshold to inflation-adjusted dollars, or haveat hand the formula required to make the con-version; recall that the same stealthy trick wasplayed on Canadian parents, whose childbenefits are eroding in value each year.

Between 1989 and 1995, the clawbackon Old Age Security fell from $50,000 to$45,620 (in constant 1989 dollars) and theincome level above which the entire old agepension must be paid back declined from$76,332 to $72,211. By 2000, the clawbackwill affect seniors with incomes over anestimated $41,400, and the income level abovewhich they have to repay their full Old AgeSecurity will be down to $65,532. If the currentsystem were kept in place, by 2020 the clawbackwould hit seniors with incomes of just $27,861and would remove the full old age pension fromthose with incomes of $44,100 or more. (Thesefigures are expressed in inflation-adjusted1989 dollars to allow comparison to the 1989amounts.)

Another failing of the clawback is thatit treats some upper-income households unfairlycompared to other upper-income householdswith a different mix of incomes. For example,in 1995 a senior with a net income of $85,000must repay all of his or her Old Age Securitybenefits through the clawback. An elderlycouple in which one spouse has an income of,say, $50,000 and the other spouse makes$35,000 – for a total income of $85,000, thesame as the single senior – is untouched by the


clawback and so keeps both spouses’ Old AgeSecurity benefits, subject of course to normalincome taxation. This unfair treatment arisesbecause the clawback on Old Age Security isbased on individual, not family, income. Otherincome security programs, such as the Child TaxBenefit, the refundable GST credit and theGuaranteed Income Supplement for seniors,avoid this problem because they are based onfamily income.

The main weaknesses of the clawbackon Old Age Security are its deliberate tactic ofdeceiving seniors by means of lack of fullindexation, its individual income base and thefact that some high-income seniors living abroadcan evade the clawback because they hide theirnon-Canadian income. Caledon has been highlycritical of the clawback for these reasons. How-ever, we support the concept of income-testingold age pensions on the basis of family income:In 1993, Caledon proposed a radical redesignof elderly benefits that would replace the currentfederal income security programs and federal/provincial tax breaks for the aged – Old AgeSecurity, the Guaranteed Income Supplement,the Spouse’s Allowance and the age and pensionincome credits – with a single, geared-to-incomeprogram that would provide fully-indexedbenefits to low- and modest-income seniors.In effect, our scheme would constitute a guar-anteed income for elderly Canadians.

child benefits

Child benefits also underwent significantchanges under the Conservatives. The children’stax exemption was replaced by a non-refund-able credit; the refundable child tax credit wasincreased; and the entire system was partiallyde-indexed in order to shave millions of dollarseach year from its budget, using the insidiouspower of inflation to gradually erode the valueof benefits.

In 1993, the three major child benefitprograms – Family Allowances, the non-refundable child tax credit and the refundablechild tax credit – were combined into a singleChild Tax Benefit that operates like the oldrefundable child tax credit, though it is paidmonthly like the old Family Allowance. TheChild Tax Benefit pays a maximum of $1,020per child per year, plus an additional $213 foreach child age 6 and under and $75 per year forthe third and each additional child in a family.Maximum benefits go to families with netincomes under $25,921. Families with modestand middle incomes get a partial benefit that getssmaller as incomes get bigger, and upper-incomefamilies (e.g., $75,241 and above in the case offamilies with two children under age 7) getnothing. The Child Tax Benefit also provides aWorking Income Supplement of up to $500 perfamily for working poor families with children.Neither the Child Tax Benefit nor its incomethreshold for maximum payments ($25,921) isfully protected against inflation, which meansthat the value of benefits is declining steadilyand the income level for maximum payments isbeing pushed farther and farther below thepoverty line each year.

The Tories put an end to 75 years of taxassistance for families with children and 48 yearsof universal Family Allowances. Upper-incomefamilies with children now receive no tax breakor cash benefit to recognize their child-rearingcosts and responsibilities. Canada stands alonein the industrialized world in treating high-income taxpayers with children the same ashigh-income taxpayers with no children tosupport.

the tax system

Tax policy and social policy are inter-twined. The Tories made fundamental changesto the tax system.


The little-admired Goods and ServicesTax (GST) at least provided some measure ofprotection for low-income Canadians in the formof a refundable credit for adults and childrenintended to offset any increase in taxes thatoccurred when the old federal sales tax wasreplaced by the GST; however, the GST creditdoes not fully remove the GST burden. Unfor-tunately, the credits and their income threshold(the same $25,921 as for the Child Tax Benefit)are only partially indexed, to the amount ofinflation over three percent, which means botha declining income level for maximum creditsand an erosion in the value of the credits. As aresult, the Tories imposed a rising GST burdeneach year on the one group in society that canleast bear it – the poor. The Liberal governmenthas kept the flawed GST credit in place.

The Conservatives also lowered the mar-ginal tax rate for upper-income taxpayers andenriched several tax breaks that most benefit thewell-off: They introduced a $100,000 lifetimecapital gains exemption, increased the childcare expense deduction, substantially boostedthe tax deduction limit for contributions toRRSPs (only affluent Canadians benefited fromthis change) and removed the limit on the taxdeduction for contributions to Registered Pen-sion Plans. On the other hand, they took animportant step in the direction of a fairer incometax system when they replaced personal exemp-tions and most deductions with non-refundablecredits, which generally provide equal or similartax savings to claimants in different incomegroups. They also expanded the range ofdisabilities eligible for the disability credit andincreased its value, which helped taxpayers withdisabilities (though not the many Canadians withdisabilities who are too poor to pay income tax).

A significant and unfair tax changemade in Finance Minister Wilson’s first (1985)Budget that has gone virtually unnoticed was

the partial indexation of tax brackets, exemp-tions and credits. This retreat from full index-ation results in a hidden and automatic incometax hike each year for all taxpayers, includingthe working poor and modest-income Cana-dians. It also causes a gradual lowering of theincome tax threshold – i.e., the income levelabove which taxes kick in – which has fallenfrom $9,772 in 1980 (in constant 1994 dollars)to a shamefully low $6,541 in 1994 for a singleperson. The Liberals have left this sorry pageof the Tory legacy intact.

social policy by stealth

Just as significant as what the Con-servatives did to social and tax policy was howthey did it. They relied on ‘social policy bystealth’: the use of arcane and poorly understoodtechnical changes to programs, such as par-tial deindexation and clawbacks, which wereimposed on the Canadian people without theirknowledge or consent. Major changes to socialprograms, such as the removal of universal oldage pensions and Family Allowances and themassive cuts in social transfer payments to theprovinces, were made with no advance noticeand little effective public debate. Whatever onethinks of the substance of the Tory record – wesupport some of their changes, such as the endof universal child and elderly benefits, the crea-tion of the Child Tax Benefit and the conversionof tax exemptions and most deductions to credits– their style of policy-making was reprehensibleand undemocratic.

Another important development underthe Tories was the ascendancy of the Ministerof Finance and his officials in social policy.Traditionally, power over federal social policyhad been shared between the Ministers of Healthand Welfare, and Finance. This made sense,since social programs constitute a large – and


growing – portion of federal spending. However,the influence of the Department of Finance onsocial policy increased during the 1970s, whenit effectively pulled the plug on the Minister ofHealth and Welfare’s Social Security Reviewbecause its proposal to create an income supple-mentation plan for the working poor was deemedto be too costly. During the Wilson era, Financecame to rule decisively over social policy-making, outflanking and overshadowing Healthand Welfare.

The New Social Policy: The Liberal Phase

It may seem premature to pass judgmenton the Liberal record on social policy before theyhave completed their second year in office.However, the changes they have made to dateand those announced in the 1995 Budget wouldindicate that the Liberals are basically followingthe Conservative road toward the new socialpolicy – with a diminished role for the federalgovernment, more power to the provinces, cutsto UI, greater variability in provincial socialwelfare systems and the continuation ofinflation-induced reductions in child benefitsand GST credits and hidden increases in incometaxes.

no more stealth?

The Liberals set out determined to usherin a new era of public policy. The federalgovernment would be more open and responsiveto the public, and would conduct a thoroughreview not only of the purposes and design ofits many programs but also how it delivers them.

Finance Minister Martin’s 1994 Budgetspeech vowed an end to the Conservative“tactics of stealth.” Lloyd Axworthy, the newMinister of Human Resources Development (a

superministry created by the Conservatives justbefore they left office) launched a highly-publicSocial Security Review that was to considersweeping reforms to a large chunk of federalsocial expenditures – Unemployment Insurance,training and other ‘employment developmentservices,’ child benefits and federal transfers tothe provinces for welfare, social services andpostsecondary education. Axworthy appointeda Task Force to advise him on the preparationof an ‘Action Plan’ on social security reform,subsequently – and significantly – downgradedto a ‘Discussion Paper.’ The new Standing Com-mittee on Human Resources Development wasgiven the important job of canvassing Canadiansfor their views on the arguments and ideaspresented in the Discussion Paper; the Commit-tee subsequently traveled to 24 cities across thecountry and received more than 1,250 briefsfrom organizations and individuals before deli-vering its own report to the House of Commonsin January of 1995.

The Finance Minister’s first (1994)Budget immediately cast a long shadow overthe Social Security Review. He introducedmajor changes to Unemployment Insurance andthe age credit and announced substantial cuts tofederal social transfers to the provinces – allbefore the Social Security Review even got offthe ground. Unlike his Conservative predeces-sors, who acted first and rationalized theirdecisions after the fact, Finance Minister Martinmade it clear from the outset that he would bemuch more than a silent partner to LloydAxworthy in reforming social programs.

Although much has been made by somecommentators of Lloyd Axworthy’s step into theshadows while Paul Martin took centre stage inthe months leading up to the 1995 Budget, infact it was abundantly clear from the outset thatsocial policy reform was to march smartly tothe tune of the government’s antideficit cam-


paign. The Finance Minister’s 1994 Budget set“firm ... savings parameters” for the SocialSecurity Review in terms of changes to Unem-ployment Insurance and transfer payments to theprovinces, and stated that these were minimalcost-cutting goals.

The Liberals’ changes to social policyhave been relatively upfront, though they havegone much farther than indicated in the RedBook and – with the new Canada Health andSocial Transfer – than suggested in either theDiscussion Paper on Social Security Reform orthe Human Resources Development Commit-tee’s Report on the same subject. They say theywill consult the public on changes to old agepensions, though they did not do so when theyincome-tested the age credit or changed theschedule for increases in the tax deduction limitsfor RRSPs and Registered Pension Plans. Signi-ficantly, the government has retained key ele-ments of the Tories’ legacy of social policy bystealth – the partial indexation of child benefits,the tax system, the GST credit and federal socialtransfers to the provinces.

social transfers to the provinces

Social transfers to the provinces andterritories were significantly cut by the Tories.The Liberals’ first (1994) Budget went furtherand gave Canadians a preview of what was instore in the draconian 1995 Budget.

In return for re-establishing “fiscal par-ameters and a predictable funding environ-ment,” the 1994 Budget announced there wouldbe additional cuts to social transfers to the pro-vinces. Entitlements to the provinces under theCanada Assistance Plan and the post-secondaryeducation part of Established ProgramsFinancing – or their successors – were to be nohigher in 1996-97 than they were in 1993-94.

Clearly, even if “no higher” meant “the same”and not “lower” (the Budget was careful not topreclude the latter), in real terms this wouldmean a cut since transfers would have increasedunder the old system. The 1994 Budgetprojected savings to the federal treasury fromthese restraint measures of at least $466 millionin 1995-96 and $1.5 billion in 1996-97.Significantly, “if social security reform fails toachieve these savings by 1996-97, alternativemeasures to take effect in 1996-97 will be imple-mented to ensure that the savings are realized.”

The 1995 Budget went farther than the1994 Budget had foreshadowed. The CanadaAssistance Plan, which since its creation in 1966has allowed the federal government to share halfthe cost of pro-vincial welfare and social ser-vices – and in 1990 was hamstrung by the Tories’‘cap on CAP’ – will be dismantled. Ottawa alsowill wind up Established Programs Financing,the 1977 legislation which provides a federalblock grant to the provinces for health and post-secondary education. In their place will be thenew Canada Health and Social Transfer (CHST)– a single mega-block fund for provincial healthand human services that will allow the pro-vinces to spend their federal money where andhow they see fit.

The new Canada Health and SocialTransfer will arrive with even deeper cuts thanproposed in last year’s Budget. When it is putin place in 1996-97, the CHST will pay theprovinces $26.9 billion – $2.5 billion less thanthe $29.4 billion that would have been spentunder the present system (CAP and EPF). Inits second year, 1997-98, the CHST will transfer$25.1 billion – $4.5 billion less than the $29.6billion the provinces would have received underthe old regime. These reductions amount to 8.5percent for 1996-97 and 15.2 percent for 1997-98, and total a hefty $7.0 billion.


The Canada Health and Social Transferwill continue the current approach wherebyOttawa divides its social transfer (‘entitlement’)into two parts – cash transfers and ‘tax points’(i.e., the income tax power that the federalgovernment gave up to the provinces when itintroduced EPF back in 1977 and which it stillcounts as part of its transfers to the provinces).In 1994-95, the total entitlement under EPF/CAPwas $29.4 billion, made up of $17.3 billion incash transfers (59 percent of the total) and $12.1billion in tax points (41 percent of the total); in1996-97, the total entitlement under the newCanada Health and Social Transfer will havefallen to $26.9 billion, of which $12.9 billionwill be in the form of cash transfers (48 percentof the total) and the remaining $14.0 billion (52percent) in tax points. The cash portion of thetotal entitlement will fall from 59 percent in1994-95 to 48 percent by 1996-97. While thetotal entitlement in 1996-97 will be 9 percentlower than in 1994-95, the cash portion will fallby a much larger 25 percent during the sameperiod.

But there is more to the grim prognosisthan the cuts alone would suggest. If – as seemsalmost certain – the new Canada Health andSocial Transfer is only partially indexed, thedissipation of federal cash transfers to the pro-vinces that was started by the Mulroney gov-ernment will continue. Assuming the newCanada Health and Social Transfer is partiallyindexed using the established GNP-less-threepercent formula and also adjusted for changesin provincial population, then Caledon estimatesthat federal cash transfers under the CHST willdisappear by 2011-12 (Scenario 1 in the graph).The federal cash would end two years sooner,in 2009-2010, if the CHST did not adjust forprovincial population growth (Scenario 2). Ifthe federal government were simply to freezeits entitlement at its starting level of $26.9 billionand provide no annual adjustment, then the

end to cash transfers would come in 2006-07(Scenario 3). Note: The 1996 Budgetcommitted Ottawa to a cash floor, preventingthese scenarios – at least for the next 5 years(see graphs at the end of this paper).

The projected date for the end of federalcash transfers under the CHST varies to someextent from one province to another dependingupon several factors – the relative size of cashtransfers as a percentage of total entitlements,the growth of provincial revenues and changein population. Using the assumptions of the firstscenario in the previous paragraph, federal cashtransfers would end in Quebec in 2005-06; underthe second scenario, in 2004-05; and in 2002-03 under the third scenario. The end arrivessooner in Quebec than other provinces becausefederal cash transfers are a smaller proportionof entitlements (only 46.5 percent in 1994-95,compared to 57.5 percent nationally) since thatprovince chose to take part of its CAP transferin the form of tax points (known as the ‘abate-ment’). Using the same assumptions, in Ontariofederal cash payments under the CHST wouldend in 2013-14 under the first scenario, 2010-11 under the second scenario and 2006-07under the third scenario. The latest the cashwould run out is in the Northwest Territories –2019-20 under the first scenario. Projecting thedemise of federal cash to individual provincesand territories is complicated by the fact thatprovinces’ revenue yields vary, and are hard topredict 20-odd years into the future

The precise date when federal cash ends,which will depend on such factors as the adjust-ment formula chosen for the Canada Health andSocial Transfer, the performance of provincialtax revenues and growth in GDP, is in any eventacademic: The rapid diminution of federaltransfer payments surely will cripple if not killfederal influence over provincial health andhuman services years before the money runs out.


The three provinces which have beensubject to the cap on CAP since 1990 – Ontario,Alberta and British Columbia – will get noredress for their past losses. The new CanadaHealth and Social Transfer will allocate itstransfers among the provinces in 1996-97 in thesame proportion as they receive under combinedCAP and EPF transfers in 1995-96. The mostrecent estimates from the Ontario governmentput that province’s cumulative loss from the capon CAP at $7.7 billion from 1990-91 through1994-95; Ottawa now shares only 29 percent ofOntario’s welfare and social service costs ratherthan its traditional 50 percent. Ontario estimatesits losses in 1994-95 alone from the cap on CAPto be $1.7 billion, with another $2.9 billion cutresulting from the various limits placed on EPFin recent years.

What about national standards? TheBudget’s rhetoric is strong on health care, weakwhen it comes to welfare and social services,and silent concerning post-secondary education.But reality is another matter altogether.

The Canada Health Act attaches fiveimportant conditions to federal payments to theprovinces that maintain our national healthcare system: Publicly insured health care in allprovinces and territories must be universal(covering all legal residents of the province whoare eligible for coverage after no more than threemonths of residence); accessible (provincialhealth plans must provide reasonable access tonecessary hospital and physician care withoutfinancial or other barriers); comprehensive(covering all medically necessary services per-formed by doctors or in hospitals); portable(people who are temporarily absent from theirhome province or territory or have moved toanother province must be able to receive medicaltreatment in another province without having topay out of their own pocket); and publiclyadministered (on a non-profit basis by a public

authority accountable to the provincial govern-ment). The only way that Ottawa can continueto enforce the conditions of the Canada HealthAct is by withholding dollars for non-com-pliance with the Act. This leverage will disap-pear as the dollars disappear. Despite the factthat the Finance Minister publicly swore hisallegiance to the Canada Health Act, there is noprotection for medicare without federal dollars;the dollars provide the enforcement clout.

As far as welfare is concerned, only oneof the existing requirements of the CanadaAssistance Plan was explicitly attached to thenew Canada Health and Social Transfer. Pro-vinces cannot impose minimum residencyrequirements for welfare.

The Budget was loudly silent on the twoother important conditions of the CanadaAssistance Plan. The first is the all-importantrequirement that income assistance be providedto all people in need, regardless of the cause ofthat need: CAP requires the provinces to providean income safety net that is open to all who needit, whatever the reason and whatever their‘category’ – e.g., ‘single employable,’ ‘disabled,’‘single parent.’ The loss of CAP invariably willmean the loss of that protection. Provinces willbe free to provide financial assistance to which-ever ‘deserving’ applicants they so choose.

The third condition of CAP is that pro-vinces must put in place an appeals system toallow welfare recipients to question decisionsmade with respect to their cases. Will someprovinces decide to dismantle or weaken theirwelfare appeals procedures? Only time will tell,though presumably in post-CAP Canada theycould do so if they wish. But even if they keeptheir welfare appeal systems, under the bravenew world of the Canada Health and SocialTransfer, provinces will be able to deny benefitsto certain categories of people or to attach


conditions – such as work-for-welfare – to thereceipt of benefits. The appeals system will beof no help to needy people that some provincesmay decide to define as ineligible for welfare.

Nothing was said about conditions forpost-secondary education because the existingsystem (EPF) imposes no requirements of anykind on how the provinces spend their moneyin this sector.

As far as social services are concerned,CAP funds for this important sphere of socialpolicy come with few strings attached. Cost-shared social services must be delivered topersons deemed to be in need or likely to be inneed – though this is more an eligibility criterionthan a standard of service. However, CAP doesnot identify any benchmarks for the quality ofsocial services.

The Finance Minister chose his remain-ing words very carefully on the critical matterof national standards. The Minister of HumanResources Development “will invite all pro-vincial governments to work together on devel-oping, through mutual consent, a set of sharedprinciples and objectives that could underlie thenew transfer. In this way, all governments couldreaffirm their commitment to the social well-being of Canadians.” Note the use of theconditional “could underlie.”

It seems unlikely that the new block-funding arrangement will impose more condi-tions on the provinces regarding welfare thanthe few that already exist, or any conditions atall on social services (which have almost no con-ditions under the present arrangement). Afterall, one of the main arguments for scrappingCAP and moving to the CHST is to give theprovinces more freedom to design and delivertheir social programs as they see fit. The bestwe can hope for is that Ottawa and the provinces

succeed in creating a system of voluntary com-pliance with the “shared principles and objec-tives” for welfare and social services. Ideally,the two levels of government could work outsome standards of adequacy and quality forwelfare and social services, though that pro-bably is wishful thinking on our part. This isnothing to sneeze at; but there is a world ofdifference between enforceable conditions onthe one hand, and lofty principles and fineobjectives on the other.

The loss of enforceable conditions is notthe only threat to the future of welfare and socialservices. Just as troubling are the implicationsof the new mega-block CHST for welfare andsocial services as the years go by and federalfunds decline, made all the worse by the ruinousresults of recessions. It is not difficult to imaginewhat might happen as federal funds graduallydry up and the provinces come to terms withtheir new-found freedom.

Rolling the money intended for welfareand social services into a larger block fund alongwith health care and post-secondary educationis almost as bad as providing no money at allfor welfare and social services. They will getlost in the mix and will never have the impor-tance accorded to services intended for thegeneral population. Already the poor cousin ofsocial policy, welfare and social services willrank consistently at the bottom of the prioritylist.

Some people would argue that this ishow it should be – that programs which do nothave high Gallup Poll approval do not deservepublic funding. This is a dangerous and appal-ling presumption; it means that programs forpeople who are poor or vulnerable no longer willbe deemed worthy of public support. Canadianswho do not require income assistance will notwant to fund it for those who do. Canadians


who are well-off will buy their own socialservices as they do now – nannies for their chil-dren, counselling in the event of marital orfamily problems, and private caregivers forelderly parents. There will be no desire topurchase these services on behalf of others.

Another strength of CAP is that itprovides matching funds to the provinces. Byvirtue of the fact that costs are shared withOttawa, the provincial governments must makethe initial contribution to welfare and socialservices. While this may be difficult for most‘have-not’ provinces, at least the arrangementrequires some degree of provincial commitment.The new Canada Health and Social Transferguarantees only a fixed amount of federal moneythat, moreover, will dwindle over the years:What the provinces put into their health andsocial programs will depend upon their fiscalcapacity and political predilection.

A block fund is much more palatable tothe provinces than cost-shared arrangementswhich ‘tie their hands.’ Provinces can take themoney and run. And that is precisely the pro-blem. The monies intended for human servicescould be used, at the end of the day, for whateverpurposes the provinces desire. If the federalfunds go out with no stipulations attached totheir use, these dollars are no different thanequalization payments which are intended sim-ply to compensate for fiscal imbalances. Theremust be some way of ensuring that transfersintended for services to people are not trans-ferred to some other purpose.

The loss of CAP also means the loss ofbuilt-in cyclical protection. When provincialcosts rise in the face of higher welfare caseloadsresulting from recessions, federal costs rise aswell because Ottawa pays half the tab, no matterhow large the bill. This makes sense in that

welfare caseloads and costs are linked directlyto economic performance; they go up with highunemployment because they are intended to actas safety nets in the event of high joblessness.Federal cost-sharing over the past three decadeshelped provinces respond to the economictroughs which forced their costs to rise, andhelped cushion the effects of recessions onCanada’s economy by providing at least aminimal income for people with nowhere elseto turn. CAP is an important instrument offederal economic policy as well as social policy.

The next time we enter a recession, pro-vinces will have to cope with the pressures ofrising welfare caseloads entirely on their own:There will be no assured federal offset to com-pensate for higher costs. At best, provinces willcut welfare benefits; at worst, provinces will cutoff welfare recipients. Their other alternative –to raise provincial taxes, most of which areregressive consumption and property taxes – isalmost as undesirable from a fairness point ofview and politically unlikely given tax fatigueon the part of the electorate and the policy of anumber of provincial governments not to hiketaxes.

To make matters worse, recent andanticipated changes to UI inevitably will add towelfare caseloads because some unemployedworkers no longer will qualify for UI and so willhave to turn to welfare instead. At the very timethat the provinces will face the loss of 50-50cost-sharing and steadily diminishing federaltransfer payments, they also will have to contendwith the fallout of measures to tighten up UI.

Most Canadians are unaware of the factthat provincial welfare programs provide essen-tial goods and services to help people with dis-abilities and many elderly persons live indepen-dently in communities. Without these supports,


there likely would be hundreds or even thou-sands of citizens who would require an insti-tutional setting because they are simply unableto live on their own.

The Canada Assistance Plan providesfor two major types of aid: basic assistance andspecial assistance. Basic assistance refers to thefinancial aid that provinces provide in the formof welfare payments. Basic assistance coversessential items including food, clothing, shelterand utilities; some provinces provide a smallclothing or personal allowance as part of theirbasic assistance package. Special assistance,by contrast, helps offset the costs associated withseeking employment, or with disability- orhealth-related needs. The latter include, forexample, wheelchairs, prosthetic equipment,special eyeglasses, hearing aids, medications,medically prescribed diets, homemaker servicesand attendant services. Special assistance maybe provided in the form of a cash payment, theactual item or a service.

Persons with disabilities may qualify forbasic and/or special assistance depending upontheir needs and the special assistance that hap-pens to be available in their respective juris-diction. Much of the help provided throughwelfare systems is delivered as ‘income-in-kind,’such as technical aids and equipment. In fact,welfare systems play a quasi-health role bypaying for and supplying many of the goods andservices that are not supported under medicare.

The loss of the CAP legislative base andrapidly dwindling dollars from the humanservices sector will mean the loss of many spe-cial assistance goods and services – the veryitems that help maintain the elderly and personswith disabilities in communities and out of costlynursing homes and institutions.

Human Resources Investment Fund

The Budget was so bold as to make theunleaked announcement that several programsfinanced through the Consolidated RevenueFund will be combined into a Human ResourcesInvestment Fund which will “focus on activelyhelping unemployed people find and keep jobs,combating child poverty and providing assis-tance to those who need help most.” Onegenerally expects a new ‘fund’ to come withdollars attached. This fund will likely come withdollars detached. Because there will be no newmoney for any of the government’s stated objec-tives, it is difficult to imagine that the fund willserve any purpose other than creative financing.

The Human Resources Investment Fundmay simply act as a vehicle for combining thedevelopmental uses of Unemployment Insurance(training and other employment programsfunded by employer and employee premiums)and the Canadian Jobs Strategy or CJS (fundedthrough general tax revenues) under one roof –and then shrinking the size of the house byreducing the CJS monies. There could be verylittle government contribution to the new fund;employers and employees will basically pick upthe tab for employability enhancement initia-tives, as they now have to for UI benefits. Sothe ‘fund’ could be a cover for cuts.

Another possibility is that Ottawa willuse the fund to pay for the Working IncomeSupplement, which currently provides up to$500 a year to working poor families withchildren, under the Child Tax Benefit. Thefederal Discussion Paper included an option todouble the Working Income Supplement, whichcould be financed by cutting the Child TaxBenefit paid to upper middle-income families.But improvements to the Working Income Sup-


plement instead could be paid out of the newHuman Resources Investment Fund, in effectusing employer and employee contributions tohelp “combat poverty.” An added bonus is thatthe federal government could trim its ownbudget by shifting part of the cost of the ChildTax Benefit onto employers and employees, asit did with UI in 1990.

Unemployment Insurance

The Liberals cinched the UI belt eventighter than did the Tories. The 1994 Budgetannounced that, as of July 1994, employees haveto work a minimum of 12 weeks to be eligiblefor UI if they live in a region with an unem-ployment rate of 13 percent or higher; before,the minimum qualifying period was only 10weeks (for a regional jobless rate of 16 percentor more). Unchanged is the feature that thelower the unemployment rate in a claimant’sregion, the longer he or she must work to qualifyfor UI, ranging from 12 weeks for a regionalunemployment rate of 13 percent or higher to20 weeks for a regional unemployment rate ofsix percent or less.

Also changed was the method of cal-culating the maximum length of time that UIbeneficiaries can draw benefits, which dependson two factors – how long they worked beforethey lost their job and the unemployment rate intheir region. Before the 1994 Budget, recip-ients could collect benefits for up to 35 weeks,depending on how long they worked; this wasreduced to 32 weeks. And whereas previously,they could draw benefits for up to 32 weeksdepending on the regional unemployment rate,the maximum is now 26 weeks. The Budgetdid not alter the maximum length of time thatsomeone can remain on UI, which is 50 weeks.

The method of calculating the level ofUI benefits was changed to introduce a form ofneeds test. The Conservatives had reduced theamount of UI benefits from 60 percent to 57percent of insurable earnings for all recipientsas of April 4, 1993. The Liberals went back tothe two-tier arrangement that had been in placebetween 1971 and 1976 in order to provide moreassistance to low-income UI recipients withdependents to support. UI recipients who earnhalf of maximum insurable earnings or less($390 a week or $20,280 a year in 1994) andwho have dependents now get 60 percent of theiraverage insurable earnings – back up to whereit was before the Tories lowered it in 1993.However, the remaining 85 percent of UIclaimants had their benefits reduced furtherfrom 57 percent to 55 percent of their averageinsurable earnings. The maximum UI benefitfor recipients with low earnings and dependentsincreased from $222 a week to $234 a week;the maximum benefit for other recipients(i.e., the benefit for those with the maximuminsurable earnings or more) fell from $445 aweek to $429 a week.

The 1994 Budget. projected savingsfrom these UI changes totaling $5.5 billion overthree years – $725 million in 1994-95, $2.4billion in 1995-96 and $2.4 billion in 1996-97.The UI premium rate, which would have risento 3.3 percent of insurable earnings for 1995under the old scheme, was lowered to its 1993level 3.0 percent of insurable earnings. Thesechanges were billed as “interim measures” untilthe Social Security Review came up withproposals to reform UI, with “further significantreductions in ... expenditures” to take effect by1996-97.

The 1995 Budget handed Lloyd Axworthyadditional specifications for his forthcoming


reform of Unemployment Insurance, with newlegislation planned for the autumn of 1995 andthe changes to take effect no later than July 1,1996. “Funds will be channeled from thoseaspects of the benefit structure that createdependence and stifle the economic energy ofthe country to investments in people to makethem more employable.” Presumably this meansmore badly-needed resources for employmentdevelopment services. But it also means thatUI will be tightened up once again, by increasingthe qualifying period and, possibly, reducing themaximum duration of benefits as well as thelevel of benefits. The latter might be accom-plished by introducing a stepped benefit struc-ture, whereby recipients’ level of benefits declineif they use the program frequently. UI expen-ditures are to be at least 10 percent less – aforecast $700 million – as a result of Axworthy’sreforms and an expected improvement in thejobless rate: The unemployment rate already fellfrom 11.2 percent in 1993 to 10.4 percent in 1994and is projected to decline further to 9.5 percentin 1995 and 9.4 percent in 1996.

Employee and employer premiums willbe kept at their current level 3.0 percent ofinsurable earnings for employees and 4.2 percentfor employers. The combination of no reductionin UI premiums and the improving economicsituation is expected to move the UI Accountfrom a $6 billion deficit in 1993 to a $5 billionsurplus by the end of 1996. Ottawa wants tomaintain the UI Account surplus at this level tohelp offset the need for future increases inpremiums when the next recession hits.

The 1994 Budget cut a projected $5.5billion from UI from 1994-95 through 1996-97.The 1995 Budget calls for another $700 million(at least) in savings for 1996-97. The total reduc-tion in UI expenditures, then, will amount to atleast $6.2 billion under the Liberal government.

pensions

The 1994 Budget also took a small butfirm step on the rocky road to pension reform.It imposed an income test on the age credit,which reduces the federal income taxes ofelderly taxpayers by up to $592 a year and theirprovincial income taxes by, on average, $343for a total average tax savings of $935. Themaximum age credit now is available only toelderly taxfilers with net incomes under $25,921(the same income threshold as for the Child TaxBenefit and refundable GST credit); it is reducedby 15 cents for every dollar of net income above$25,921, which means that seniors with netincomes over $49,100 no longer qualify for anyage credit.

The 1995 Budget took two more stepstoward a geared-to-income old age pension. Itsaid that the government wants to apply a familyincome test to Old Age Security, while main-taining the income-tested Guaranteed IncomeSupplement and full indexation of all benefits.It also announced that, starting in July of 1996,the clawback on Old Age Security will beapplied before cheques are sent out to seniors,on the basis of last year’s income, rather thanafter the fact (through the income tax form) asis now the case. Unchanged for now are thethreshold for the clawback, which is $53,215;seniors with net incomes between $53,215 and$84,195 pay a partial clawback that still leavesthem with some Old Age Security benefits, butthose with net incomes above $84,195 do notqualify for any old age pension. Old Age Secur-ity recipients who do not live in Canada will berequired to file a statement of their total income(including sources outside Canada) to ascertainif they are subject to the clawback; at present,high-income non-residents receive favorabletreatment because they can avoid the clawback.


The Caledon Institute supports thesemeasures because they respond to our 1993proposal that Old Age Security, the GuaranteedIncome Supplement, the Spouse’s Allowance,and the pension and age credits be replaced by asingle geared-to-income benefit for poor andmodest-income seniors – a super-GIS, in effect.Old Age Security costs are the single andsteadiest cause of rising social spending. Theaging of the population, coupled with the growthof low-wage jobs and insecure employment, willadd up to a large increase in the number of lower-income pensioners in the decades to come. Theshift to a single geared-to-income elderly benefitforeshadowed in the 1995 Budget will savebillions of dollars in future increases in Old AgeSecurity expenditures, though even with thesechanges the aging of the population still willpush up pension and health care costs. Reformof elderly benefits is essential if Canada is tomaintain an adequate level of basic income sup-port for the rising ranks of low-income seniorsin the next century.

The 1995 Budget also reminded Cana-dians that the federal and provincial financeministers will convene this autumn to conducttheir regular five-year review of the financingof the Canada Pension Plan. Contributions fromemployers and employees are being graduallyincreased to handle rising claims on the CanadaPension Plan and the Quebec Pension Plan. Therecent recession and an increase in the num-ber of people receiving disability benefits haveforced an upward revision of projections offuture contribution rates. As a result, the financeministers will discuss ways to deal with this pres-sure – such as a more rapid increase in contri-bution rates than previously planned and, pos-sibly, a reduction in benefits.

child care and child benefits

The Human Resources Investment Fundmay also be used to house the dollars that hadbeen set aside for child care – conspicuous inthis year’s Budget by its absence. The LiberalRed Book committed the government to expandchild care in Canada by 50,000 new quality childcare spaces in each year that follows a year ofthree percent economic growth, up to a total of150,000 spaces. This election promise wasbacked up by dollar allocations for child care inthe 1994 Budget which had designated $120million in additional funds for 1995-96 and $240million more in 1996-97.

The line for the child care allocationseems to have slipped off the ledger sheet in Mr.Martin’s most recent Budget. If child care getsany funding at all, it will not be in the mannerenvisaged in the Red Book or in the context ofbuilding an infrastructure of service for allCanadians. Rather, it probably will be merelyan adjunct to a given individual’s employabilityenhancement program. Perhaps the Liberals stillplan to invest in a child care system at somepoint; they simply could not proceed with a goodnews announcement at a time when the creditrating constituency was demanding a bad newsBudget.

The Budget introduced no measures toreduce child poverty, such as improvements tothe Child Tax Benefit. This is a travesty, giventhat the government could easily have foundsome money in the billions spent on tax breaksfor high-income Canadians that it chose not totouch. At the very least, the federal governmentcould have stopped the erosion in the value ofthe Child Tax Benefit by restoring full indexationto benefits and the income threshold.


the tax system

The 1994 Budget trimmed and slimmedseveral tax breaks in the personal and corporateincome tax systems. It closed down one of theworst of the Tories’ tax changes – the crea-tion of a $100,000 lifetime capital gainsexemption. This was a phenomenally regressivetax break that even some financial journalistsand tax experts deemed devoid of merit. Asnoted above, the 1994 Budget income-tested theage credit. Employer-paid private group lifeinsurance premiums under $25,000 worth ofcoverage used to be exempt from taxation; now,employees will have to pay income tax on thefull amount of such coverage. Changes to thebusiness income tax included reducing thededuction for meals and entertainment, elimi-nating the preferential tax rate used by largecorporations and cutting regional investment taxcredits. These and other tax measures will yieldan estimated $3.5 billion in additional revenuefrom 1994-95 through 1996-97.

The 1995 Budget dealt far largerspending cuts than tax increases. Its tax changeswill raise an additional $3.7 billion between1995-96 and 1997-98, as opposed to $25.3billion in savings from cuts to government pro-grams and bureaucracies. The most lucrativeof the tax increases was regressive – a 1.5 centsper litre hike in the federal excise tax ongasoline, which will raise $1.5 billion over thenext three fiscal years. By contrast, the increaseannounced in the tax rate on large corporationswill yield a total of $460 million; the corporatesurtax will go up to bring in another $350million; and a temporary increase in the capitaltax levied on Canada’s profit-starved banks andother large deposit-taking financial institutionswill garner a deficit-crunching $100 million.

The Budget’s changes to tax assistancefor retirement savings were a cop-out. The

Finance Minister could have substantiallyreduced the tax deduction limit for contributionsto Registered Pension Plans and RRSPs orchanged the deduction to a credit. Such changeswould not affect modest-income and middle-income taxpayers but would reduce (though noteliminate) generous and costly tax breaks forthe well-off. Instead, he merely reduced themaximum tax deduction for contributions toRRSPs from $14,500 in 1995 to $13,500 for1996 and 1997, after which the limit will riseby $1,000 a year to reach $15,500 in 1999; itwill be indexed in the years to follow. Taxpayersare presently allowed to over-contribute up to$8,000 in their RRSP accounts without penalty;as of 1996, this amount will be reduced to $2,000in 1996. The tax deduction limit for contri-butions to money purchased pension plans willbe lowered from $14,500 in 1995 to $13,500for 1996, but then will rise by $1,000 a year toreach $15,500 on 1998, and indexed thereafter.The maximum limit for the deduction of con-tributions to defined benefit pension plans willbe frozen through 1998 and then indexed in1999.

These changes to tax breaks for retire-ment savings will save the federal treasury $15million in 1995-96, $95 million in 1996-97 and$160 million in 1997-98. To put this in per-spective, the latest estimates from the Depart-ment of Finance show that the federal gov-ernment spent $8.7 billion on the tax deductionsfor contributions to Registered Pension Plansand RRSPs in 1992.

High tax deduction limits for retirementsavings translate into many millions of dollarsin tax breaks to upper-income Canadians wholeast need a subsidy from government to savefor their (already) golden years. When the taxdeduction limit for RRSP contributions reaches$15,500 in 1999, only taxpayers who earn$86,000 or more will be able to claim the


maximum deduction, which will save themabout $7,100 in federal and average provincialincome taxes – six times what Ottawa pays inChild Tax Benefit for a poor child.

Conclusion

Aside from the forward-looking pensionproposals, it is no exaggeration to say that theLiberals brought in a Budget that harks back halfa century to a time when the federal governmentplayed a much smaller role vis-a-vis the pro-vinces and when charity and the private marketplayed a much more prominent role in socialpolicy. The future of Canadian social policy maywell resemble the past more than the present.

The Tories tried to make the poor goaway by rewriting the definition of poverty. TheReform Party proposes a Brady-Bunch approachto social policy in which we send them backhome to their families.

The Liberal response is to get out of thebusiness; it simply isn’t profitable. This nodoubt will please the international financiersin Tokyo, New York and London – but raisesserious questions as to why we have a federalgovernment and its role with respect to its owncitizens, particularly the most vulnerable. Thefuture of Canada’s income safety net for the poorand its health care system for everyone is beingtraded off in the frenzy to please the Wall Streetmen in suits – who chalk up the numbers on aledger but have absolutely no interest in thewell-being of people, especially poor Canadians.

These are difficult political times andOttawa is seeking ways of ‘renewing’ itself andits relationship with the provinces – especially

in light of an impending referendum in Quebecwhich threatens to break up the country. But toconclude that the federal role in shaping the basicsocial contours of this country is passe is terriblywrong. In a world which values creativity,innovation and initiative, it is all the moreimportant that these ‘thousand points of light’are bound together by a common set of prin-ciples. Yet the Budget promised only that theCanada Health and Social Transfer could – notwould – have a set of associated principles andobjectives, and it does not even mention con-ditions.

Admittedly, there is nothing inherentlycreative about the federal government. It is theprovinces – not Ottawa – which have taken thelead in terms of innovation and creativity withrespect to human services; the example ofSaskatchewan’s pioneering of medicare is fre-quently cited as proof. This should come as nosurprise, given the fact that provinces haveconstitutional responsibility for health and socialservices.

But we should also remember thatmedicare would never have spread from Sas-katchewan to the rest of Canada without federalfinancial assistance and leadership. Moreover,it has become all too clear in recent years thatsome provinces are committed to high-qualityhuman services while other provinces are simplyideologically opposed. The each-house-hold-for-itself mentality has taken hold in certain partsof the country. The problem is not diversity;the problem is diversity in the absence ofnational principles and basic standards whichensure that being a Canadian brings certainrights of citizenship, regardless of province ofresidence.


The 1995 federal Budget represents afundamental turning point in Canadian socialpolicy. It was the Liberals who created thefoundation of our social security system in the1950s, 1960s and 1970s. It was the Con-servatives who fundamentally weakened thatfoundation in the 1980s by putting federal trans-

fer payments to the provinces on a downescalator. It is now the Liberals of the 1990swho are shaking that foundation to the core –making it smaller and extracting the federalcement that holds the essential building blocksin place.

how finance re-formed social policy - maytree · how finance re-formed social policy by ken battle...

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