Ms. Diane St-Jacques (Shefford, PC) moved:

That, in the opinion of this House, the government should review the level at which the child benefit is indexed.

Mr. Tony Valeri (Parliamentary Secretary to Minister of Finance, Lib.): Mr. Speaker, I appreciate the opportunity to speak to this private member's motion which recommends that the government review the level at which the Child Tax Benefit is indexed.

I am unable to support the motion and in the few minutes available to me I would like to explain my reasons. Before I begin I want to emphasize that the government continues to place a very high priority on making assistance available to families with children, particularly those at the low and modest income levels.

Let me take a moment to explain how the indexing provisions work with respect to the child tax benefit. Under the Income Tax Act the child tax benefit is partially indexed on an annual basis. It goes up each year by the amount the consumer index exceeds 3%. Many of my colleagues will recall that this policy of partial indexation was introduced to help address the severe fiscal problems facing the federal government.

Partial indexation of the child tax benefit is consistent with how other elements of the personal tax system are treated. For example, the basic personal credit, the spousal credit and the tax brackets are all partially indexed. This is a policy which applies broadly across the tax system.

The Income Tax Act has been amended a number of times to allow for the child tax benefit discretionary increases. In actual fact the motion before us today should be considered as a proposal to amend the Income Tax Act and move to full indexation of the child tax benefit base and threshold.

As hon. members know the only realistic alternative to discretionary increases is the full indexation of the child tax benefit. While the government fully supports the broader goal of increasing assistance to families with children, let us not forget that with an inflation rate of 1.6% per year, restoring full indexation of the child tax benefit would cost the federal government about $160 million per year. In addition, it would be difficult to restore full indexation to some tax parameters and not others.

Interesting that you can full-index the Seniors Benefit but not the whole tax system but they say they can't do it for the Child Tax Benefit

- Richard

The federal revenue implications of moving to full indexation of all tax parameters are quite substantial, with a cost of $850 million a year. The cost is cumulative, so it means that it will be $850 million in year one, $1.7 billion in year two, and so on. Such revenue losses could threaten the government's program to restore fiscal balance. Because of these potential fiscal costs the government is unable to support the motion.

Full-indexation of the income tax system would not mean revenue losses but rather a loss of this hidden and dishonest revenue gain.

- Richard

However, I assure the House that the government will review the policy of partial indexation once our fiscal position makes it possible to do so. In the meantime the government is committed to targeting additional assistance to priority areas like families.

In the last two budgets, for example, the government increased by $850 million the assistance provided to low income families through the child tax benefit. Since July 1997 over 720,000 low income working families have received increased benefits as a result of restructuring and enriching the working income supplement.

The vast majority of this $850 million dollars replaces funds removed by inflation since the LIberals were elected in 1993.

- Richard

Maximum benefits increased from $500 per family to $605 for the first child, $405 for the second child and $330 for each additional child. Next July these benefits will be extended to all low income families as part of the joint federal-provincial initiative known as the national child benefit system.

The national child benefit system has three key objectives: to prevent and reduce child poverty, to improve work incentives and to simplify administration.

Under the national child benefit system the federal government will assume a larger role in providing basic income support to families with children. The provinces and territories will make corresponding reductions to the child component of their social assistance payments and reinvest all the savings in complementary programs and other benefits and services for low income families. For the lowest income families the proposed increases in the child tax benefit represent a 50% increase in federal benefits.

Before closing I remind hon. members the government has promised a further enrichment of child benefits of the same magnitude during its mandate. As I stated earlier, these actions demonstrate that assistance to families with children, particularly low and modest income families, is and will continue to be a priority of the government.

This second $850 million dollars promised "during this mandate" will replace funds removed by inflation between 1997 and 2002.

- Richard

Let me repeat that the government will review the policy of partial indexation once it is fiscally appropriate to do so. For these reasons I am unable to support the motion before the House. I encourage all my colleagues to do the same and not support the motion.

Private Members Business
Child Benefit
Feb. 5, 1998

Mr. Bryon Wilfert (Oak Ridges, Lib.): Madam Speaker, the motion before us recommends that the federal government review the level at which the child benefit is indexed. I believe this is a laudable goal. The Government of Canada fully supports the broader goal of increasing assistance to families with children.

The government initiated a national system to prevent and reduce child poverty more effectively than ever before when it introduced the national child benefit system in the 1997 budget, scheduled to take effect on July 1, 1998. The system has been designed to co-ordinate child poverty programs across Canada and to provide additional assistance to low income families working to provide for their children.

While programs have existed to assist low income families, the system has created disincentives and barriers to working. In the past when parents chose to leave social assistance and join the job market they lost badly needed social services such as health, dental and prescription drug plans. This clearly is a disincentive and is not acceptable.

The national child benefit system is an enriched and improved federal child benefit which will complement provincial-territorial programs to provide more effective assistance for low income families. These services will be made available to all low income families, the working poor and those on social assistance. I applaud the objectives of the national child benefit system to prevent and reduce child poverty, to improve work incentives and to simplify administration.

Governments have clearly recognized there is a significant problem in terms of child poverty. It has increased about 50% since 1989. The motion before us asks for a feasibility study on indexing child tax benefits.

The difficulty is that the potential fiscal costs of such a measure cannot be supported at this time. The financial impact of the proposal with the current inflation rate of approximately 1.6% per annum would cost the federal government about $160 million per year of indexation, that is $160 million in the first fiscal year, $320 million in the second and so on.

The child tax benefit allows for partial indexation to help address the severe fiscal problems facing Canada. The policy applies broadly in the tax system to spousal credit, basic personal credit, tax brackets, et cetera.

It would be difficult to apply full indexing to some tax parameters and not to others. It is estimated that the cost would be about $850 million per year. This would have a major impact on the government's ability to restore fiscal balance.

Interesting that you can full-index the Seniors Benefit but not the whole tax system but they say they can't do it for the Child Tax Benefit - Richard

The government, however, has made a commitment to review the policy of partial indexation once it in a fiscal position to do so. In the meantime, the government has made it clear that it is targeting additional assistance in priority areas.

The prime minister stated in June 1997 that the government will double spending aimed at reducing child poverty once the government gets it fiscal house in order. He stated “We would like to double the funding when we have the means”.

The 1997 budget created a child tax benefit at a cost of $850 million. Since July 1997, over 720,000 low income working families have received increased benefits as a result restructuring and enrichment of the working income supplement.

They didn't create it; it was increased by $850 million. The vast majority of this $850 million dollars replaces funds removed by inflation since the LIberals were elected in 1993.

- Richard

Maximum benefits increased from $500 per family to $605 for the first child, $450 for the second child and $350 for each additional child. For the lowest income families the increases in the child tax benefit represent a 50% increase in federal benefits. Starting July 1998 these benefits will be extended to all low income families as a result of the national child benefit system.

The federal government is assuming a larger role in providing basic income support to families which children. We are moving in the right direction. We are assuming our responsibilities.

We believe in a society that is compassionate and cares for the less fortunate. It is interesting to note that Campaign 2000, a non-government anti-poverty organization, has abandoned its goal for the elimination of child poverty by the end of the century. It is taking up the need for sound fiscal management and furthering the interests of children. In November 1997 it stated that the social policy community in Canada had a high stake in becoming public interest guardians of the fiscal stability of federal finances.

The discussion paper he refers MIssion for the Millenium (which I co-authored) is not offical Campaign 2000 policy. It does recognize that we can'go back to deficits to figh child poverty.

Campaign 2000 has consistently called for full-indexing of the Child Tax Benefit. He never mentions this.

- Richard

Campaign 2000 commended the government for being particularly articulate and passionate in its concerns for children. It went on to say that strong fiscal stabilizers are an essential part of a sustainable social investment strategy for children and youth.

Campain 2000 has commended the fine words and sentiments and has said that its time for government to put its money where its mouth is.

- Richard

The government has demonstrated that it is committed to this important issue. Ken Battle of the Canadian Institute of Social Policy stated in February 1997 that a national child benefit system has the potential to be the most important social policy innovation since medicare.

Ken Battle, of the CALEDON Institute, has said that partial-indexation is the Achilles' Heel of the Child Tax Benefit.

- Richard

The Globe and Mail stated in May 1997 that in difficult times it made sense to focus government generosity on those who most need it. The proposed child benefit is a good way to do it.

Yes, the government recognized the plight of those families that need support. The government has chosen to act, to demonstrate its commitment that this is a priority. A full review of the policy of partial indexation will take place once it is fiscally appropriate to do so. This is a commitment. This is our promise to the Canadian people. For those reasons, I cannot support the motion before us.

I believe I have demonstrated that this government is moving in the right direction, that it is the beginning of a process, not the end. We will see our obligations to the end.