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Dear Minister: Help low-income families by acting now, not in 2020

Published on 31/10/2016

Minister of Finance Bill Morneau announced that the Canada Child Benefit will be indexed to keep up with inflation…in 2020. Choosing to delay erodes the value of the benefit. It is a stealth cut that will be felt most by the low-income families that can least afford it. In this open letter to Minister Morneau, Maytree and the Caledon Institute urge him to reconsider.


The Honourable Bill Morneau, PC, MP
Minister of Finance
Centre Block, Suite 435S
House of Commons
Ottawa, Ontario K1A 0A6

October 31, 2016

Dear Minister,

Your first budget earlier this year introduced the Canada Child Benefit, one of the most important poverty-fighting measures in a generation. The new program is more generous and better targeted to families that need it the most. The benefit is already reaching the large majority of families, working effectively to reduce poverty and improve the well-being of middle-income Canadians.

Given the importance of the Canada Child Benefit, our two organizations raised concern, through a pre-budget submission and in an op-ed in the Globe and Mail, that the new program was not indexed to inflation. We were therefore disappointed to see your announcement on October 25 that the Budget Implementation Act, 2016, No. 2 will not remedy this concern. Instead, it will freeze benefits at 2016 levels until 2020, after the next federal election.

The decision to freeze the Canada Child Benefit means that its purchasing power will decline steadily each year. Benefits worth $6,400 today will fall in value to about $6,030 in 2020, based on the latest Bank of Canada inflation projections.

As you point out, families rely on child benefits to buy healthy food and outfit their children with warm clothes for winter. Eroding purchasing power of the Canada Child Benefit will make it harder for them to do so. For households in the bottom 40 per cent of the income distribution — the families that need this benefit the most — that lost purchasing power is equivalent to about one month of groceries. This might even underestimate the impact on these families, as the costs of many essentials including food, housing, and childcare have been increasing at a higher rate than general inflation.

Year (projected rate of inflation) 2016 2017 (1.9%) 2018 (2.0%) 2019 (2.0%)
Real value of Canada Child Benefit in 2016 dollars $6,400 $6,278 $6,153 $6,030

Rising costs for families is a pressure that affects all Canadian families, not just those in expensive cities with high housing costs. The University of Guelph’s Food Institute estimated that the average Canadian household spent an additional $325 on food in 2015 and will see a further increase of about $345 in 2016.

Introducing automatic indexing of the Canada Child Benefit into legislation to ensure that it keeps pace with inflation in the future is the right thing to do. It is consistent with Canada’s practice in most other programs. Old Age Security, the Guaranteed Income Supplement, Employment Insurance, the Canada Pension Plan, the Working Income Tax Benefit and tax brackets generally are all set to automatically adjust to inflation each year.

Your recent statement emphasized the importance of making sure that the Canada Child Benefit’s value is not eroded by inflation. Unfortunately, your decision to freeze benefits at 2016 levels for four years will do the opposite, cutting them by a cumulative six per cent by the time indexing will take effect.

While we recognize that a low-growth economy and other important commitments present challenging fiscal pressures, we urge you to avoid cost-saving measures that disproportionately hit low-income families. Given that households spend child benefits locally on necessities, these payments will circulate quickly through the economy, stimulating economic activity.

To preserve the value of the Canada Child Benefit and continue the momentum on poverty reduction, we recommend that you amend the Budget Implementation Act so that automatic indexing takes effect in 2017, next year. This measure should apply to both the value of benefits and eligibility thresholds.

You have rightly identified compelling reasons to introduce the Canada Child Benefit and to index it to inflation. But you must act and introduce indexing as soon as possible. Choosing to delay is to erode intentionally the value of this important investment. It is a stealth cut that will be felt most by the low-income families that can least afford it. We urge you to reconsider.

Alan Broadbent
Chairman
Maytree
Ken Battle
President
Caledon Institute of Social Policy
Elizabeth McIsaac
President
Maytree
Sherri Torjman
Vice President
Caledon Institute of Social Policy

Summary

Choosing to delay to index the Canada Child Benefit is a stealth cut that will be felt most by the low-income families that can least afford it.

Topic(s)

Income security, Poverty