STFC Committee Meeting

SUB-COMMITTEE ON TAX EQUITY FOR CANADIAN FAMILIES WITH DEPENDENT CHILDREN OF THE STANDING COMMITTEE ON FINANCE

SOUS-COMITÉ SUR L'ÉQUITÉ FISCALE POUR LES FAMILLES CANADIENNES AVEC DES ENFANTS À CHARGE DU COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 12, 1999

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[English]

The Acting Chair (Mr. Paul Szabo (Mississauga South, Lib.)): We resume the meeting of the finance committee's subcommittee on tax equity for Canadian families with dependent children.

I'd like to welcome our witnesses for this session, Joseph and Rachel Difonzo, Alan Schwartz, Cheryl Stewart, and Mel Tuck.

Welcome, all of you. Because of our time constraints, we'd welcome your comments for approximately five minutes so that we can have time for dialogue if there are questions or comments to be made.

We'll go in the order on the list, so I'll ask Mr. and Mrs. Difonzo to begin.

Mrs. Rachel Difonzo (Individual Presentation): Good afternoon, ladies and gentlemen. My husband and I are delighted to have this opportunity to address this subcommittee.

I'm going to keep my comments very brief. My husband likes to talk more than I do.

Some hon. members: Oh, oh.

Mrs. Rachel Difonzo: I'm speaking as a stay-at-home mother in a two-parent, single-income family. I am a teacher by profession, but 14 years ago I retired at the birth of our first child and have been at home ever since.

I accept the loss of income that this decision has resulted in—an income that would currently be in the range of $55,000 a year. I accept the fact that re-entry into my professional field after such a long absence would necessitate upgrading on my part and would be burdensome for me and for my family.

I do not accept the fact that the tax system penalizes me, my husband, and my family for my decision to stay at home and raise our children. The citizens of tomorrow are the children of today, and we believe that society benefits enormously when children are raised by their parents, who do it for love, as opposed to being raised by caregivers, who do it for money.

That's all I have to say.

The Acting Chair (Mr. Paul Szabo): Thank you very much.

We now welcome Joseph Difonzo.

Mr. Joseph Difonzo (Individual Presentation): To go from two incomes to one income is a financial sacrifice that many couples cannot make or choose not to make. To sacrifice this income for a greater good—that of caring for, nurturing, and raising your children to become responsible members of our society—is a sacrifice that we as a couple willingly accepted. We knew it was a lifestyle choice. It would mean, among other things, forgoing vacations, extending our mortgage commitment, living in a modest home, possessing a modest wardrobe, and a constant vigilance regarding budgeting. We understood and accepted all of this. What we did not realize, right away, was how we would be unduly charged or penalized by our tax system for making this choice.

It has become common knowledge, thanks to organizations like the C.D. Howe Institute, that stay-at-home parents are being treated as second-class citizens. Currently, a single-income family of four making $50,000 will pay approximately $9,589 in federal taxes, while a dual-income family of four making that same $50,000 will pay $5,790 in federal taxes, a difference of $3,799.

The decision to have one parent stay at home should at the very least be revenue neutral in terms of taxes. There is an obvious injustice in our tax system. Our present system does not seem to value the work of a stay-at-home parent. Our present tax system does not just encourage both parents to seek work for pay; it actually forces some couples to work for pay outside the home and thus require institutionalized care for their children.

All things being equal, young children are best served by one parent staying home to care for them. Society too is best served when children are parented by parents. Unfortunately, our present tax system does not appreciate the common good society reaps from the contributions made by stay-at-home parents.

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The pressures on the family, which is the cell of society, have never been greater. The erosion of the family is partly to do with government policies and tax laws, which have not all been well thought out. The federal tax system must be reformed to end the discrimination against single-income families with children. It's just an issue of fairness and justice. Economically and socially speaking, we live in one of the greatest countries in the world. We would like the federal government to fully support the work of families like ours that are making many sacrifices now for the richness of Canadian society tomorrow.

Thank you very much.

The Acting Chair (Mr. Paul Szabo): Thank you very much for your thoughtful comments.

Now we'll turn to Mr. Alan Schwartz. Welcome.

Mr. Alan Schwartz (Individual Presentation): Thank you, Mr. Chairman.

I would like to make my comments according to certain categories or outlines. I first want to comment upon an overview of our tax system, then speak about the equity issue, and then address a few social issues that relate to this issue of tax equity for Canadian families with dependent children.

Generally our personal tax system is based upon the individual rather than the family as the taxpaying unit. However, this general rule is modified in two significant ways. Firstly, there's a provision for certain credits to be transferred between spouses so that if one spouse doesn't have sufficient income the other spouse can utilize the other's credit. These include age, pension, and disability credits. The rules that permit a contribution to a spouse's RRSP are a similar modification from this principle.

Secondly, there are very far-reaching and very effective rules that prevent the splitting of income between spouses and children under 18. The opportunity for income-splitting arises for the most part not through constructed or contrived arrangements but through the orderly situation of both spouses being engaged in the workforce.

The distinction in tax burden between one working spouse and two is essentially a function of two factors. Income is split between the two working spouses so that less income is taxed at the top tax rates applicable to the upper bracket. Secondly, the working spouse can claim a modest deduction for child care expenses.

Let me now turn to the issue of equity. Horizontal equity is generally acknowledged to be the hallmark of a fair tax system. Horizontal equity generally means that taxpayers in comparable situations should be treated similarly and should pay approximately the same amount of tax. One can get into very emotional and subjective debate if one attempts to compare or value the responsibilities and the burdens of a “working” mother versus a “stay-at-home” mother with children.

However, there are clearly certain objective differences in the two situations. The family in which both parents work must incur child care expenses in order to earn the second income. Such a family also has other additional expenses of earning the second income, such as transportation to and from work, often clothing expenses that are additional, and perhaps additional costs of certain household chores such as laundering and house maintenance. The family with the stay-at-home mother does not have to incur the same child care expenses, and the tax system does not impose tax upon the imputed value of the work done by the stay-at-home mother in taking care of the children.

Thus, if one wants to treat the two situations the same from a tax perspective, there are two choices. One could allow a full deduction for child care expenses and certain other expenses. This would provide a certain form of tax symmetry because the provider of child care services is, as you know, taxed on the income earned. Alternatively, one could impose tax on the imputed value of the work done by the stay-at-home mother.

The former, I would expect, involves a material tax expenditure and loss of tax revenue. The latter would involve difficult valuation issues, and I expect it would be as politically popular as the excise tax that led to the Boston Tea Party.

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Apart from issues of equity, there are at least three social issues that should be considered. One must remember that for most families, a working mother is a matter of economic necessity. If one wants to treat the two family situations the same tax-wise, one must either reduce the taxes payable by the single-wage-earner family or raise the taxes payable by the two-wage-earner family. My fear is that because of the loss of tax revenue inherent in the former, the result will be to increase the taxes payable by the two-wage-earner family. This I would consider to be a very unfortunate result for those who have no choice but to have two parents engaged in the workforce.

In arriving at a tax policy on this issue, one should not overlook the argument that children have a higher chance of success and impose less of a social and economic burden on society when raised by a stay-at-home parent. Unfortunately, it seems to me that the greater culprit is a divorce in the family, or alternatively the economic necessity, rather than the tax system. I doubt if a tax system will affect the decision as to whether a parent enters the workforce or stays at home. In fact, imposing an additional tax burden on two working persons who have children may have the ironic effect on the issue of supporting the traditional family, in that one may find such persons avoiding a marriage and raising their children in a common law arrangement.

The last social issue I wish to comment on is the question of whether the reporting of joint income subordinates the independence of two partners in a marriage. It seems to me that couples today with separate careers, especially those in a second marriage, tend to keep their financial affairs separate. They maintain their separate bank accounts and agree between them to share certain expenses. In many situations one spouse doesn't even know what the other's assets are and what the other earns. This is particularly so where one spouse inherited assets. Requiring joint returns would involve a sharing of information that they may otherwise wish to keep confidential. However, it should be recognized, as I mentioned earlier, that there are many provisions in the act now that involve transfers of credit between spouses, which requires the sharing of this information or the knowledge of the joint family income.

Thank you.

The Acting Chair (Mr. Paul Szabo): Thank you, Mr. Schwartz.

I'll go to Mr. Mel Tuck. Welcome.

Mr. Mel Tuck (Individual Presentation): Ladies and gentlemen, when I was contacted and invited to appear before this subcommittee I was not told that the focus of the subcommittee investigation was to be upon tax equity for families with dependent children. As you'll see, my own interest in tax equity is far broader than that, but it certainly encompasses families with dependent children. I'm sure what I have to say will be relevant.

Thank you for the opportunity to participate in this process. I consider the exercise we're all involved in now to be a very important one.

At present we have an income tax system that is so unfair and illogical that it doesn't seem surprising to me to read that 55% of Canadians, according to a recent Compas Incorporated poll, indicated that they intend to hide income in the future to avoid paying tax. I don't believe the majority of Canadians are dishonest, but when you believe you're being cheated by a system that is badly flawed it becomes easy to rationalize taking steps to defend yourself. As more people come to understand fully just how much they're being victimized by that system, I would expect the percentage willing to evade taxes would go even higher.

While I'm sure it would be impossible to create a system that everyone would perceive as fair, I believe it is possible to eliminate one of the most obviously unjust features of the present system. I'm referring to the discrimination against families in which one spouse's income is significantly lower than the other's.

I will illustrate the discrimination to which I refer from my own experience. For most of our marriage my wife either stayed home with the children or worked part-time. Even when she worked full-time, her income was much lower than mine. A few years ago I calculated that we were paying approximately $4,200 more per year in income tax than a couple with exactly the same total income being earned equally by both partners. This year I did the calculation again. We're retired now, so the income is lower. The difference now between our income taxes and those of a couple whose total pension income is the same as ours but coming equally to both is only about $2,200. Under existing income tax law we're doomed to be penalized every year for the rest of our lives for the fact that our family income was earned mostly by one partner.

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I expect this information will not surprise you. Presumably you're all members of this subcommittee because of your interest in the issue of fair taxation. By now you must have heard of many experiences similar to mine and my wife's.

I did not come here simply to complain but because I have a constructive suggestion to offer. To simply allow spouses to combine incomes and each pay tax on half is a start, but this is not the whole solution. This would result in a great decrease in government revenue, which would have to be offset by having someone else pay more. Furthermore, it would still discriminate unfairly against those taxpaying couples who are cohabiting but who do not fit the definition of spouses.

I would propose that any couple of cohabiting adult Canadians should be allowed to be treated as equivalent to spouses for the purposes of taxation and also for sharing government benefits. These might be a married couple, a couple living common law, homosexual or lesbian lovers, siblings who choose to live together, a son or daughter with an aging parent, or even a couple of roommates. The nature of the relationship need have nothing to do with their taxable status. Each couple could file a joint tax return in which they would check a box declaring they're living together and would be taxed at the rate of two single taxpayers each earning half of their combined income. This would certainly address the issue of fairness and as a bonus would greatly reduce the number of tax returns Revenue Canada has to process.

I suggest that such a change would go a long way toward making Canadians feel we have income tax laws that are fair and should be obeyed because it is the right thing to do.

Again, thank you for inviting me to participate. I hope my contribution has been helpful.

The Acting Chair (Mr. Paul Szabo): Thank you very much.

We now welcome Mrs. Cheryl Stewart. Welcome and please proceed.

Ms. Cheryl Stewart (Individual Presentation): Thank you.

Good afternoon. I'd also like to thank you for the opportunity of being here today.

I couldn't help but wonder while I was preparing the brief for today why on earth I was coming once again to a committee such as this. As I thought through it, I realized that my motivation for coming here today was to see to it that my children's chance for choice in their lives and for the families they may have is not restricted or unfairly influenced or penalized by government, as mine has been. I'm even more determined to ensure that should my daughter ever have children and decide to stay at home and raise them, she will never have to be exposed to the type of public disparagement and humiliation that has been directed toward at-home parents by elected officials of late.

When I received my application to be here today I was asked to submit my title. I'm here today in the capacity of mother, and that is my title. It occurred to me that the crux of this whole tax mess is that over the years governments have consulted with every special interest group going about children's care and completely ignored the input of mothers and fathers. Here is a mother's version of what should be done to institute fairness for all Canadian families into the tax system.

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Here are the facts. First, one-earner families pay considerably more tax than two-earner families at the same income level. This is not news. Document after document has been produced for years confirming this tax code discrimination. Second, poll after poll has shown that the majority of Canadian women would prefer to be at home raising their children full-time. Third, with the ever-growing tax burden, Canadian families have less and less disposable income to feed, house, and clothe their children. And fourth, comments such as mothers at home are “elite white women”, mothers at home “have no self-esteem”, mothers at home “take the easy way out”, and “having mothers at home is nostalgic” are reprehensible and totally unacceptable to Canadians. The conduct of a number of our elected MPs has been reprehensible.

Here is what can be done:

(1) reduce government spending and reduce the tax burden placed on all Canadians;

(2) increase the basic personal amount deduction;

(3) increase the spousal amount deduction to be equal to the basic personal amount;

(4) allow parents who are providing direct parental care the option to contribute to the CPP;

(5) allow the option of joint filing for families, which would relieve the concerns of unfairness and inequity of the income-splitting option;

(6) institute one child benefit based on family income: either roll the child care expense deduction, child tax benefit, and a $213 supplement into a refundable child care tax credit, or roll the child care expense deduction and the $213 supplement into one child tax benefit. Either would be available to all families, recognizing that there are costs incurred in raising children regardless of how or where they are cared for.

The Acting Chair (Mr. Paul Szabo): Ms. Stewart, could you just quickly clarify? You say “based on family income”. Does that mean income-tested?

Ms. Cheryl Stewart: Yes. That's how the child tax benefit is now.

To continue our recommendations:

(7) institute a check-and-balance predictor for all tax and social policies to ensure that they do not favour or penalize one family's child care choices over another's;

(8) parents who have been at home for a number of years should be granted access to existing retraining programs, tuition subsidy applications, and other programs that currently would only be available to them if they had been unemployed or on welfare.

This committee should insist on formal public apologies from those elected officials who have made derogatory references toward women who devote themselves full-time to the nurturing of their children.

This committee should insist on the resignation of the minister responsible for the status of women. Many of her recent comments, including “Any measure targeted only at parents who stay at home to provide care for children would only further reinforce barriers to employment by reducing the incentive to engage in paid work”, are completely unacceptable from someone who is supposed to be responsible for issues concerning women. Her portfolio should include all women and all of their choices. At the very least, her title should be changed to the minister responsible for the status of some women.

This committee should also recommend that there be a concerted effort to end the dissemination and use of misinformation regarding family child care choices and women's work choices and situations.

And last, the government should take some of its own Liberal caucus's advice as outlined in the report of the ad hoc study group on valuing caregivers entitled Investing in Children and Valuing our Caregivers. There are some very solid recommendations in that report, which to date the Minister of Finance has chosen to completely ignore.

It is particularly important that I bring to your attention the passage of the following private member's resolution in the Ontario legislature:

Be it resolved that the government of Ontario urge the Federal Government of Canada to provide a fair tax and benefit option for childcare programs that provide parents with the opportunity to care for their children in the manner of their choosing, and that creates a `level playing field' where parents receive equal benefits regardless of the method of childcare chosen, including direct parental care.

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This resolution was passed 49 to 3 in October 1998. It was an honour for me to be present in the legislature that day to hear my MPP, David Tilson, present and debate this resolution and to see it passing with a clear vote of confidence.

During the debate it was acknowledged that the current federal tax structure is biased and unfair to single-income families and that all families should be honoured and respected for the child care choices they have made. It was stated that the federal government does not recognize at-home child care as honourable and that it has arranged tax and benefit options accordingly.

It was particularly interesting to see every Liberal MPP present that day vote in favour of this resolution, even though it was presented by a Conservative member. It was reassuring for me to see elected representatives act in an honourable manner to do what was right and fair for families.

I'd also like to bring to the attention of this committee the results of a 1997 Ontario poll of public opinion on child care, done by Compas Incorporated. First, Ontarians prefer by a large margin tax relief for families—72%—over investments in day care. Second, these feelings are associated with their strong preference for parental care—92%—over institutional care. Ontarians' preference for a parent staying at home is so strong that of parents who did not stay at home with their young children, 77% felt they should have. I trust the committee will bear in mind the will of the people of Ontario when formulating your recommendations.

I also want to remind the committee of the progressive steps taken in the recent Alberta budget to provide equity to families and their children. These initiatives also reflect the will of the people of Alberta. However, provinces should not have to initiate tax policies to minimize the unfairness of the federal tax system. Unfortunately we can't all live in Alberta.

In conclusion, the time has come. No more committees, no more depositions, no more papers, no more debates and empty rhetoric, and no more tax and social policies that pit one family against another. The time for fairness and equity for all Canadian families is now. It's in your hands.

The Acting Chair (Mr. Paul Szabo): Thank you very much for your presentation.

We have about 15 minutes left in total for all of the dialogue that has to take place, so it's probably not a good time to make amplified speeches. With just questions and answers, I think we'll all learn more.

We'll begin with Mr. Forseth.

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Thank you very much.

Specifically to Cheryl Stewart, I was particularly impressed with your presentation. It probably is most parallel to my views, of any of the testimony I've heard so far.

I would just like a couple of technical clarifications. In section 12, you say this resolution was passed 49 to 3 in October 1998. Do you recall who were the three members who voted against that or what party they were from?

Ms. Cheryl Stewart: All three were NDP, the only three NDP members present that day.

Mr. Paul Forseth: Okay.

On the next page you cite a Compas poll, and you say Ontarians' preference for a parent staying at home is so strong that of parents who did not stay home with their young children—the implication being that they were working—70% said they should have or would have.

Ms. Cheryl Stewart: It was 77%.

Mr. Paul Forseth: Which poll was that? Maybe you could get back to the committee and cite the specific Compas poll.

Ms. Cheryl Stewart: I could let you know. It was done by Compas Incorporated for the National Foundation for Family Research and Education.

Mr. Paul Forseth: All right.

Ms. Cheryl Stewart: Would you like a phone number or a reference for that?

Mr. Paul Forseth: Yes, maybe you could just provide the background of that.

Ms. Cheryl Stewart: Sure.

Mr. Paul Forseth: I was asking a lot of presenters the same basic question about what we'd heard from many Canadians, that the tax system seems to recognize purchased day care but does not address or value non-purchased parent child care. If we're going to say child care is child care, why should the tax system favour one method of child care over another? If we are to retain the child care expense deduction, then conversely, how do we also recognize non-purchased care fairly?

Perhaps I would just leave it at that and let any of you chime in if you want to amplify that particular question.

Ms. Cheryl Stewart: Can I address that?

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I've given a lot of thought to that, and I have to say that perhaps a year ago, I would have said I would have liked to see the deduction given to all families. I've also been exposed to the recommendation in the ad hoc committee study for a caregivers' tax credit for mothers who stay at home, and at first that was appealing.

But as I wrote this, going by my own advice on equal treatment for all families, I came to think whatever is implemented should not distinguish whether you are a working mother in the workforce or a mother at home. It should be a benefit recognizing that there is a cost to raising children, regardless of where they're cared for.

It should be an across-the-board thing, so that there's no more of this pitting one family against the other, or in the end, maybe a few more dollars are given to someone than to another. It should be a standardized thing, and it should not distinguish the type of care given and who gives it.

Mr. Paul Forseth: The main defence of the child care expense deduction is that it's not particularly related to child care per se, but it's an employment expense, the cost of going to work—much like, I suppose, the specialized mechanic who has mechanics' tools has a cost. But of course they can't deduct the cost of those tools.

The defenders of that particular provision have called it an employment expense, but obviously you see it quite differently.

Ms. Cheryl Stewart: Yes. I would argue that if I were to sit down and add up the expenses that were incurred to me over the years in being at home with my children, it would come very close to the value of the child care expense deduction. A value has to be placed on that as well.

Mr. Paul Forseth: Thank you.

The Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Thank you, Mr. Forseth.

[Translation]

Mr. Cardin, please.

Mr. Serge Cardin (Sherbrooke, BQ): I would like to welcome you and thank you for appearing before the subcommittee.

I would like to apologize to Mr. and Ms. Difonzo and to Mr. Schwartz for not having the opportunity to hear their recommendations. My questions are more specifically for Ms. Stewart and Mr. Tuck.

The subcommittee's mandate stipulates that we do a study on tax fairness for Canadian families. People earn different incomes and are in different tax brackets depending on whether one or both spouses work. Through our consultations, we have come to believe that this inequality is not necessarily the biggest problem families with children face.

Mr. Tuck, you seem to be advocating an "at large" approach. You're saying that any two cohabiting people should be able to split their income in order to fall into a lower tax bracket. I don't see how this is fair. As you know, in reality, tax rates are based on individual income and they do take into account whether a person is cohabiting with someone else and whether they have kids. We know, however, that there is inequity in this area. We could implement a tax policy for families with kids to reduce the gap and even help stay-at-home parents.

I don't understand why you've suggested a solution which goes to the other extreme, that is, you'd average both incomes, or you'd split the income of the one working partner, irrespective of their type of relationship or whether there are children involved.

[English]

Mr. Mel Tuck: Obviously my own personal interest in this is as part of a married couple, and I would love to see us be allowed to file a joint tax return and split the income. That would be great for me. But I realize that's not fair to a lot of other differently constituted couples out there who are also Canadian taxpayers. The ones I've listed—gay lovers, a son or daughter with an aging parent living with them—why should they not be allowed to combine their income and be taxed as two individuals? If they are in fact living together, why should they not have the same rights that I would suggest for a married couple?

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[Translation]

Mr. Serge Cardin: The rights of married couples are primarily based on the fact that either spouse may raise and look after the children, so either spouse can stay at home with the kids.

Ms. Stewart, according to some studies, irrespective of their income, nearly one third of women stay home with their kids, whereas 77% of women wish they could do so. How do you explain this discrepancy?

[English]

Ms. Cheryl Stewart: I'm sorry, but I'm going to have to get you to repeat your question.

[Translation]

Mr. Serge Cardin: According to some studies, nearly one third of women, regardless of income, stay home to raise their children. You mentioned a survey which revealed that 77% of women want to stay home with their kids. How do you explain this discrepancy?

[English]

Ms. Cheryl Stewart: I would suspect that the big difference would be in the outcomes in our children. When they get older and they see perhaps the problems they're facing with their children, in retrospect they feel that they should have invested that time with their children when they were very small. That would be my number one assumption here. I don't have the entire question that was asked in that survey, and it would be interesting to look at that question.

I would assume that part of that is also women who had to work at that particular time in their lives. I had said earlier about challenging some of the statistics that are being used and misused, and I think that's one of the most common myths out there, that most women who are working are doing so because of economics. That is not the case. As you had mentioned earlier, there is an even distribution of working women among all income levels. So using that rationalization, that women are working strictly for economic reasons, doesn't fit the pattern.

I hope that answers your question. My first response would be what I would think would be the reason parents would have wished they had been at home.

[Translation]

The Chair: Thank you very much, Mr. Cardin.

Ms. Dockrill, please.

[English]

Mrs. Michelle Dockrill (Bras d'Or—Cape Breton, NDP): Thank you very much for being with us here in Toronto today.

I'd like to pick up on a point my colleague made, and I think you made a reference to this. In your presentation you talk about the use of misinformation regarding families, child care choices, and women's work choices and situations. I wonder if you could expand on that. Can you give me some specifics in terms of misinformation?

Ms. Cheryl Stewart: There are so many. Where do I start?

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I guess the statistic that has bothered me the most has been the total number of working women. I've seen quotes of that figure to be anywhere from about 62% to 77% of women. That is very misleading, because many of those women are only working part-time, and part-time is considered to be anywhere from five to thirty hours of work a week. It also considers workers such as bus drivers, who are usually trying to work around their families, farm women, other types of temporary employment, and that sort of thing.

For many years that was the standard percentage of working women, and it was really misleading. What I found to be very unfortunate was that this number was picked up by so many people, by so many special interest groups, to press for more and more day care, saying that 77% of women needed day care, institutional day care, and that simply wasn't the case. So that's one.

The other misuse of statistics is the one that we just discussed, about why women work. Of course the myth has been for so long that it's for economic reasons, but when you analyse the statistics on working women, that isn't the case. It is for some in the lower income bracket, but it's certainly not a pattern that shows true. There are other reasons for women working and other reasons for women not working.

Mrs. Michelle Dockrill: One of the figures we were given this morning, with respect to the province of Ontario, was that 15,000 children in this province are presently on a waiting list looking for child care. The figure was given also that there are 34,000 children in the province needing child care.

Another figure that we were given this morning—and, please, my colleagues may correct this, but this is the figure I have written down—is that in Toronto, $420 million is the figure they're using with respect to the underground child care economy.

You talk about choices. We've heard from some individuals, some mothers, who have said very clearly that in their economic circumstances they do not have a choice as to what form of child care they need for their children.

To go back on what you talk about with respect to the discrepancy in statistics in the number of working women, given the state of the underground economy in the country, do you feel that possibly is playing a role with respect to the number that are saying they are working but are not showing up in figures, in terms of individuals who are getting informal care in this country but are not showing up in any statistics as a working woman? Do you think that could have something to do with what you're calling discrepancies in the statistics?

Ms. Cheryl Stewart: Oh, I see, women who are caring for other people's children and not claiming it are technically unemployed.

Mrs. Michelle Dockrill: In terms of those people that we know are in the underground economy but are not showing up in the figures somewhere, could that be the reason for the discrepancy or the misinformation you're talking about?

Ms. Cheryl Stewart: I don't think it's significant enough to be warranted as far as making a huge difference in the layout of the statistics.

Mrs. Michelle Dockrill: I think the figure we were given this morning was $420 million for this cost.

Ms. Cheryl Stewart: And what was that?

Mrs. Michelle Dockrill: That was specifically for underground child care.

Ms. Cheryl Stewart: I think it's very unfair to put a figure on it like that, because I know many women who share free babysitting back and forth, and that sort of thing. That particular group may look at that and place a value on that, even though there's no money exchanged or anything. You're looking at babysitting co-ops, neighbours sharing off babysitting, and that sort of thing. I don't think it has a very big impact at all.

Mrs. Michelle Dockrill: You made a reference to the children and the results within society of having a stay-at-home parent. Do you believe child care given by a parent results in a more productive citizen of this country?

Ms. Cheryl Stewart: Are you asking me that question too?

Mrs. Michelle Dockrill: Yes.

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Ms. Cheryl Stewart: Okay. That's a very difficult question for me to answer in this committee today, because I do believe in choice. However, my personal feelings are that there is no replacement for a mother raising a child. You could never add up the financial benefits it reaps for society in savings in various areas, whether it be health care, the justice system, or that sort of thing. So my personal opinion is there's nothing better than a mother's care.

Mrs. Michelle Dockrill: Is your answer yes?

Ms. Cheryl Stewart: Yes.

Mrs. Michelle Dockrill: Okay.

The Chair: Thank you.

Mr. Szabo, please.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you.

Many of you have raised the comparison of a one-earner to a two-earner family with the same family income. Assume we have a $60,000 one-income earner with a stay-at-home mom and a two-earner family making $40,000 and $20,000. The day they have their child, the mother-in-law comes to live at their home to care for the child. So that stay-at-home mother, whose husband is making $60,000, goes into the workforce for a $20,000-a-year job. Now we have an $80,000 two-income family and a $60,000 two-income family. Why do you want to compare one family to another when in fact they're in totally different circumstances?

To put it another way, before we had children, my wife and I were both working. I made $30,000 and she made $20,000. Her net income was about $14,000. She withdrew from the workforce when we had our first child. Our gross family income dropped to $30,000. The comparison on the choice to stay at home or to work in the paid labour force is not comparing a $60,000 income to a $60,000 income. It's comparing $50,000 with both working to $30,000 gross with one working.

The real question is not whether or not we have a progressive income tax system that happens to tax higher incomes at a higher rate. That has nothing to do with children. The real issue is whether there is a benefit that is conveyed to a dual-income-earner family with a child who pays for third-party care, when there is no equivalent benefit to a family that chooses to have one provide that care without any direct external costs.

Most of you have tried to compare two different families rather than looking at a family and its two choices. Why?

Ms. Rachel Difonzo: I don't understand your question. I'm sorry. Could you restate that? I didn't understand what you meant when you started to talk about the mother-in-law.

Mr. Paul Szabo: If your husband makes $60,000 today, you want him to pay the same as if you both made $30,000. But if you go to work you're going to earn say $20,000. All of a sudden your family income is not still $60,000, it's $80,000. So you can't compare a $60,000 income to two $30,000 incomes. You'd be better comparing a $60,000 one-earner family to an $80,000 two-income-earner family. That's the economics. You can't compare two different families. You have to stay within your own family. Your family income goes up if you both go to work.

Ms. Rachel Difonzo: I don't think people are trying to compare families. I think people are trying to compare incomes. That was the impression I got from my husband's presentation. He was comparing family income, not families. But it's a family income where one person works and earns $60,000, and a family where two people work and earn $60,000.

• 1400

Mr. Paul Szabo: But why wouldn't you say that both husbands make $60,000? The real difference is whether you have an income or not. It's not comparing $60,000 to $60,000; it's $60,000 to $60,000 plus something.

Ms. Rachel Difonzo: But why can't the tax system be based on total family income?

Mr. Paul Szabo: For one reason: about one-third of those who pay income tax and families make less than $30,000 a year. They're already at the lowest possible rate, so splitting income would have no benefit whatsoever to about one-third of Canadian families. So why would you want to give a benefit to higher-income earners when in fact most of our social programs and the tax system are directed at helping low- and middle-income Canadians?

Mr. Mel Tuck: Mr. Szabo, I don't follow your suggestion that you can't compare two different families with the same total income.

Mr. Paul Szabo: You can mathematically.

Mr. Mel Tuck: Well, I'm suggesting you should, if you're talking about fairness and you want people to feel we have a fair tax system. If you have two full-time employees, let's say—

Mr. Paul Szabo: What do they make?

• 1405

Mr. Mel Tuck: Okay, let's say you have one family in which one wage earner makes $40,000 and another full-time employee makes $20,000, for a combined family income of $60,000. You have another family in which two people are each earning $30,000. If you compare the amount of taxes those two families pay, you'll find the one making $40,000 and $20,000 is paying a lot more taxes than the one making $30,000 and $30,000.

Mr. Paul Szabo: What's the difference? Answer me one question. What does it have to do with the existence of children?

Mr. Mel Tuck: Well, as I said when I came in here—

Mr. Paul Szabo: It doesn't. The difference in the tax burden has to do with the structure of our income tax system on a progressive tax rate system. It has nothing to do with the existence of children, therefore it's not relevant to our committee.

Mr. Mel Tuck: Mr. Szabo, I was invited to come here, and I wasn't told it had anything to do with children. I made my preparation and I came. What I propose is relevant to taxpayers with or without children. And particularly from my perspective now, it's relevant to pensioners.

This will go on for the rest of my life, because for most of my life my wife stayed home but worked part-time and didn't contribute to the pension plan. Now we'll be penalized every year for the rest of our lives.

Mr. Paul Szabo: Okay, thank you.

The Chair: Ms. Stewart, please.

Ms. Cheryl Stewart: I'm still not sure what Mr. Szabo is trying to get at with his question. However, I would like to say that in terms of families with children, I want to reinforce what I said in my brief today. Whether you have one or two children in the family, it doesn't matter what your circumstances are as far as working parents, whatever benefit this country decides we should deliver to our children should be fair and equal across the board, regardless of the structure of the family, whether it be a mother working, father working, mother at home working or a father working.

I think that is critical to this whole argument about benefits to children.

Mr. Paul Szabo: One of Ms. Stewart's recommendations was to roll the benefit of the child care expense deduction in with the supplement under the child.... Can you tell us how much the benefit of the child care expense deduction is?

Ms. Cheryl Stewart: I'm not a tax expert, but I assume you would look at whatever value or revenue is won or lost by the government each year through the child care expense deduction and roll that money into the child tax benefit, which would then go to all families.

Mr. Paul Szabo: It's $658—

Ms. Cheryl Stewart: Per family.

Mr. Paul Szabo: —per family claiming the child care expense deduction.

Ms. Cheryl Stewart: I suggest that should be rolled into one benefit.

If I could add to that, I think the biggest problem with the child care expense deduction is that it is more favourable to higher-income earners. When we talk about pitting families against each other, I think that is the biggest culprit that exists.

I'll use an example personally. As my family struggled to get by on one income, I had friends who had remained in the workforce, and their family incomes were well over $100,000. They were able to use that entire deduction for their children. In their particular cases, the woman or the husband did not have to work. They could have easily lived on one of those incomes.

Here I was, as were my other friends who were at home, watching these couples being able to use this deduction with those high incomes, taking their trips every year, having their fancy homes and having second cars. Those of us who are at home living on $30,000 or less are not able to access that particular deduction.

So I think in this committee that's one of the big issues you have to deal with.

• 1410

The Chair: We are trying to grapple with that. But if you look at the numbers, fewer than 50% of those who are able to claim the deduction have used it, and even those who have claimed and who could potentially claim $7,000 have only claimed on average about $2,600. Even those who have said we should introduce more measures have said it stating clearly that they don't want us to introduce new measures and take away from others.

If you're questioning the validity of the child care expense deduction and proposing to replace it with something else.... Those who have proposed to replace it with, for example, a child tax deduction have also said to keep the child care expense deduction, because it is a legitimate expense to those who are earning a second income. Based on that, I realize that one culprit, if you want to use that word—I don't like using it—that contributes to the appearance of the discrepancy or the discrimination in the taxation system as we treat two different configurations is that one group does have access to that expense deduction while the others don't. You can't quantify it, and we're desperately trying to come up with how you could quantify it for those who choose to stay at home.

The other problem is the fact that we have a taxation system—this was a policy decision that was decided decades ago—that bases taxation on an individual basis, not on a family basis. Unless you're stating to this committee that what we should do is change both of those philosophies, then, as Mr. Szabo has pointed out, if we tax on family income, for example, you're going to benefit the rich, the higher-income earners, and not necessarily target the area you really want to target. By joint filing, for example, the finance department has told us that it would be upwards of $4 billion, and I would question where that would really go. It wouldn't go to the lower-income families or to the needy children of this country. These are the things we're trying to grapple with.

Mr. Forseth, please.

Mr. Paul Forseth: I think a further explanation of what they were trying to say is that if two mothers each had one child, and if they were friends and they were both buying day care from the same place, each spending $2,500 a year, but it just happened that one earned a lot more money than the other, the resultant tax benefit from that same day care, from the same bill, would benefit the higher-income person a lot more because they were in a much higher tax bracket.

The Chair: Taxation's a miser, in that it only works one way. We're asking the richer to pay more, yet when there's a benefit we don't want it to be universal. Do you see the dilemma? They've contributed more also, taxation-wise. We're getting into debate.

If someone has any closing comments, I would welcome them.

Mr. Alan Schwartz: I disagree with the comment you just made that in a progressive tax system, if income is taxed progressively, then deductions should be enjoyed according to your income stream. There are certain exceptions we've moved to in our tax system. We do have credits that replace deductions in many areas. I think it's inconsistent with vertical equity that you should have one rule for income and another rule for deductions.

The Chair: But our system does that right now. I agree with you.

Are there any other comments? Mr. Tuck.

Mr. Mel Tuck: I have a question as to where you folks go with this and what sort of feedback we get as this percolates through the system.

The Chair: We are a creation of a full committee of the House of Commons, the finance committee. We're a subcommittee. We will report in the beginning of June to the full committee, and we are hopeful that our report will then be integrated in the full committee's public consultation at prebudget time in the fall.

Mr. Mel Tuck: Will your report be on your website?

The Chair: Yes, it will be.

Mr. Mel Tuck: Do you have a date by which you have to have that ready?

The Chair: Our mandate calls for reporting by June 15. We hope to do it the first week in June.

Mr. Mel Tuck: Thank you.

The Chair: Is there anything else?

Mr. Alan Schwartz: I just want to make the comment that I appreciate a lot of the sentiments that have been expressed by the other witnesses here today. My concern is that given the loss of revenues, the net result of the exercise would be that the two-wage-earner families would end up paying more tax in order to achieve this so-called equity, and it wouldn't benefit the stay-at-home mother. This would be a very unfortunate result for many working mothers, regardless of their reasons for it.

• 1415

The Chair: I can allay your fears. I don't think there's one committee member at this table who's proposing that at all.

Mr. Difonzo, please.

Mr. Joseph Difonzo: Yes, I have just one final comment, or thought, at least.

I'm not an expert on tax laws, credits, and deductions and all the rest of that, but I'm sure in your collective wisdom changes could be made that ultimately would benefit society as a whole. I come back to society as a whole because we're not talking just dollars and cents here; we're talking about what is best for the family as an institution today. I think any policy the government comes out with, regardless of whether it has to do with taxes or whatever, must put the family first.

How will this ultimately affect the state of the family in this century, in the new millennium? Over the last 40 years we've seen a terrible erosion of the family. We've seen the repercussions of that in society. I don't know if you can put a price tag on all of the social problems we have. Could these have been diminished with more focus being placed on the family when all policies are made? I like to think that it certainly could have been diminished. I think that has to be your focus: what effect does this have on the family?

The Chair: That was well said, and I think that's an excellent way to terminate this presentation. On behalf of the committee members, I would like to thank you very much for your input.

I'd like now to welcome, from the Canadian Association of Insurance and Financial Advisors, Mr. Karl Keilhack, a taxation consultant. Mr. Keilhack, if you could make your presentation between five and ten minutes and leave fifteen to twenty minutes for questions, I would appreciate it. I would like to welcome you on behalf of the committee.

Are you representing yourself or the association, Mr. Keilhack?

Mr. Karl Keilhack (Taxation Consultant, Canadian Association of Insurance and Financial Advisors): I'm representing the Canadian Association of Insurance and Financial Advisors. CAIFA appreciates the opportunity to be invited to participate in these hearings.

CAIFA's 17,500 voluntary members advise their clients on total financial needs of families, individuals, and small and medium-sized businesses. Our clients include Canadians in all social and income groups.

The April 20, 1999 news release by the Standing Committee on Finance indicates that the subcommittee will examine the fairness of Canada's tax and transfer systems as they apply to families with dependent children. In the transfer area, this would involve an examination of hardships experienced by low-income families. These financial problems are probably best resolved by social services outside the tax system. CAIFA has no expertise in the evaluation of social services and notes that your list of witnesses indicates extensive coverage of needs in that area.

• 1420

In the tax area, hardships are caused by the variation in income tax burden among different families with the same income. According to your news release, the subcommittee will consider the impact of current tax policies on different family configurations at various income levels. This includes one-parent families; dual-parent, dual-earner families; and dual-parent, single-earner families.

CAIFA said that an examination of the fairness of Canada's tax system as it applies to families with dependent children needs to be comprehensive. A solution limited to a specific tax provision, such as the deduction for child care expenses, would not be sufficient to remove the unfairness in the distribution of the tax burden among families with dependent children.

One example of the unfairness is the non-recognition of children for income tax purposes. Couples with dependent children, regardless of their number, are considered to have the same ability to pay income taxes as childless couples do. There is no recognition of expenditures incurred in raising children other than the deduction for child care expenses. It is similar for single parents. They can claim the equivalent to a spouse credit for the first child, but do not receive recognition for additional children. A single mother with three dependent children pays the same amount of income tax as a single mother with one child.

Another example shown in the memorandum reveals differences in the tax burden for families with $40,000 of family income. These differences will apply after the enactment of the 1999 federal budget proposals. The federal tax paid by the single-earner family will be 418% of the amount paid by the two-earner family. The $3,364 paid by one family is more than four times the $804 paid by the other family, and provincial taxes are added in the same multiple.

As my third example I would like to compare the income taxation of two almost identical families. Both are young dual-parent, dual-earner families with the same amount of child care expenses, work-related expenses, and annual family income at the national average of $60,000. Both couples share the household duties and have the same amount of free time for themselves and their families. In short, they would be considered to enjoy the same quality of life. The only difference is in the income distribution between the spouses. One couple has an equal distribution of $30,000 each, whereas the other has an unequal distribution of $20,000 and $40,000. The family with the unequal distribution pays an additional 9%, or $900, of federal income tax on the $10,000 of income that falls into the 26% tax bracket compared to the 17% tax bracket. Together with the consequential provincial income taxes, the difference in the tax burden is about $1,300 for the year. That creates a hardship for a family trying to raise children at an average income. The real quality of life differs because of the unequal tax burden.

CAIFA's memorandum examines the shortcomings of reasons given as justification for these differences in tax treatment. These reasons include differences in transportation costs, other work-related expenses, like clothing, child care expenses, and quality of life. Our memorandum reveals the arbitrary nature of these assumed differences. Transportation costs can be higher for the single earner than for the dual earners. A single-earner family pays higher income taxes than a dual-earner childless couple. And if the quality of life is going to be taxed, then a retired couple would have to be taxed more heavily than a working couple earning the same income. That's why we believe these reasons are not good justification.

• 1425

Previous attempts to find a satisfactory solution to this problem for a joint income tax return have encountered several objections. These include privacy problems, source deduction problems, impediments to women returning to the workforce, joint liability for taxes, and the so-called marriage penalty. These are also outlined in the memorandum.

CAIFA makes two recommendations to improve tax equity. One is to recognize the various costs of raising children through a tax deduction or credit. The other is an optional joint assessment. The tax system would essentially remain in its present form to avoid the problems noted for a joint return system. On filing their returns, each spouse would have the opportunity to elect a joint assessment. In effect, there would be a notional allocation of income to the lower-earning spouse so that the couple is taxed as if the spouses had earned equal incomes.

The purpose of this submission, Mr. Chair, is to demonstrate that a system for taxation of families can be implemented that is more equitable than the present system with features that critics of other proposals have found objectionable, and it's simple to administer. CAIFA believes that its proposed optional joint assessment meets these criteria.

Thank you for your invitation. I welcome your questions.

The Chair: Thank you very much.

Mr. Forseth.

Mr. Paul Forseth: Looking at the joint filing situation, basically you're talking about income-splitting there. As you're aware, because of the three levels of tax, the income-splitting doesn't necessarily mean that the combination winds up paying less tax. What do you think about maybe the other notion as getting at the underlying reason why income-splitting is sought, and that is to go to a flat tax, and if we had flat tax you wouldn't need income-splitting?

Mr. Karl Keilhack: Well, the problems I've outlined would be fixed by a flat tax. And Alberta's provincial budget has come up with a solution that works. In other words, the tax credit for the spouse would be the same as the individual tax credit. Therefore, a couple would have two tax credits of the same, regardless of how the income is distributed, because if the one spouse can't use it, the other can use it. Everything in excess would be taxed at the flat rate.

CAIFA has not developed a position either in opposition or in favour of a flat tax. We feel that for a jurisdiction that is not ready to introduce a flat-tax system, our recommendation would be the preferred option.

Mr. Paul Forseth: Looking at recommendation 23, do you have some evidence that this particular deduction is not generous enough? Because we have evidence that it's not being fully taken up by the population.

Mr. Karl Keilhack: No. As is indicated, that is a concern that has been raised by others. Listening earlier today to testimony, where it was indicated that the average is $2,600 that is being claimed, there may not be a problem. But we felt it would be worth while to state that if it's not sufficient, then it should be adjusted. We've seen the same with the lack of indexing or reduced indexing in some areas of the Income Tax Act.

Mr. Paul Forseth: Right. So it's a caveat just to watch bracket creep on this section as well as the negative consequences of bracket creep in other areas.

Thank you very much. I'm finished.

• 1430

[Translation]

The Chair: Mr. Cardin, please. You have five minutes.

Mr. Serge Cardin: You seem to advocate income splitting in any situation, even when a couple has no children.

[English]

Mr. Karl Keilhack: That's correct.

[Translation]

Mr. Serge Cardin: Taken to its logical conclusion, under that system you would treat a couple practically the same way as you would a business. A little earlier, someone else said that anyone cohabiting with another person should be allowed to income split, so there might be an advantage to the idea of simple association.

Our mandate stipulates that we do a study on tax fairness for Canadian families with children. Various entities are taxed, and sometimes both partners have to pay tax. Mr. Szabo said earlier that people tend to compare apples with oranges. Some people seem to want a system in which any couple earning $60,000 a year should pay the same amount in taxes, regardless of whether one or both spouses work. The idea is to take the total income and divide it by half. I have a hard time understanding and accepting how a couple with both partners working pays more tax than a couple where there is only one breadwinner.

If that is the case, some people would try to be with someone rich so they can have the luxury of more free time. I don't like that system.

I'm more concerned about the welfare of children and families. You touched upon this subject. Don't you think it might be better to add an exemption for children? This would acknowledge the real costs of raising a child and would vary depending on the child's age.

[English]

Mr. Karl Keilhack: Mr. Chair, I'll try to remember all the questions that were asked. If I miss out on some, please help me.

The first question dealt with the definition of the family unit. It's really something Parliament has to come to grips with. I believe in the same-sex area something would happen fairly soon, based on the Supreme Court decision. I was surprised not to see anything mentioned in the federal budget, but I assume something will come that affects federal legislation in all areas. The system I'm proposing would work for same-sex couples. I think if they are a committed family unit, they would be in the same position as currently heterosexual couples who decide to live in a common law relationship rather than getting married.

• 1435

To what extent that should carry on into other areas—for example, that there's no double dipping with pensions, that people don't say they're separate people and one gets welfare, and later on say they've been a couple for the last twenty years, and they want benefits—that would be a different issue.

The next one is the single parent. That is something I've addressed in the submission. Right now, a single parent gets the equivalent-to-spouse credit for a child. I think if a new system is introduced, the way it's proposed, the spouse and the child could be considered a family unit, just like two spouses. The income-splitting then would be with the child.

The next question related to an issue Mr. Szabo raised earlier about examples that affect a certain family. We have an example in our memorandum. It deals with a one-earner couple in which the one earner has a full-time job and makes $60,000 a year. They feel they want more family income, and a part-time job in the evening opens up. The two spouses have a choice of either the husband or the wife taking the part-time job. If the single earner takes the part-time job, it will be taxed at 29%, plus surtaxes on a federal and provincial basis. If the non-earning spouse takes the part-time job, there will be federal tax at 17% and probably no surtaxes.

• 1440

I believe this example shows that the tax system is not neutral, and it should be. Families are not free to make a choice. If this family decides that one parent would be better at feeding the children in the evening and putting them to bed than the other, but the tax situation would be bad, then they make the other choice. That's not right.

As far as the effort in work is concerned, I didn't quite catch the drift of it.

The Chair: Would you like to explain it?

[Translation]

Mr. Serge Cardin: I based my calculations on two couples each earning $60,000; one with one spouse working and the other with both spouses working. The person working 37.5 hours a week at $60,000 nets about $20 per hour after tax. But in the case where both spouses work, their net after-tax income is only $9 an hour. At first glance, it might seem that a family with a single breadwinner is at a disadvantage, but in terms of hours worked and hourly rates, both spouses are at a disadvantage.

[English]

Mr. Karl Keilhack: There will be differences in income that cannot be affected by the tax system. If a person takes a part-time job and it pays $10 an hour and another job pays $20, certainly there should be a difference in the amount of tax, because if one earns double, then the other gets more money. The ability to pay tax is there.

• 1445

As far as the work of the couple, the family, is concerned, if one person makes more money because he or she works longer hours or has a part-time job, the other one automatically has to take over more duties in the home. To me, a couple is a partnership where they share the duties to the best of their abilities and earning capacities and talents. In the end, they produce something that is rewarded as far as the income is concerned. If we wanted to go into the taxation of imputed income, we would have a tax system that's impossible to administer.

For example, if we take two neighbours who need plumbing fixed, one neighbour hires a plumber so that he can go out and play a round of golf. The other neighbour fixes the plumbing himself and with the money saved takes the family out for dinner. On an incremental basis, who has improved the quality of life more? What should happen? Should the one who hires the plumber get a deduction for it and then pay tax on the golf game, on the quality of life? Should the other one be taxed on the imputed income? Some of these suggestions make sense in theory, but in practice they just don't work.

The Chair: Thank you very much.

I would now like to turn to Mr. Szabo, please.

Mr. Paul Szabo: Thank you.

Mr. Keilhack, in the first sentence of your executive summary you say that inconsistences in the taxation of different family configurations have long been a concern to taxpayers and their advisers. To my knowledge, there is only one item in the Income Tax Act that directly has to do exclusively with children, and that's the child care expense deduction. The spousal amount is available to anybody—childless couples, empty-nesters, etc.; it's not exclusively for children. The equivalent-to-married exemption doesn't necessarily have to be a child; it could be another dependant, etc.

So the only single thing to do with children is the child care expense deduction, which the government spends. And based on 1996 data it cost them $500 million. If we took the child care expense deduction out of the income tax system absolutely, totally, would you still say there are inconsistencies in the taxation of different family configurations, since our income tax system is based on individual taxation and everybody would be treated identically?

Mr. Karl Keilhack: Mr. Chair, there would be the inconsistency that we have now where a couple with children pays the same amount of tax as a couple without children. If we believe that what's referred to as horizontal equity means taxes should be levied based on the ability to pay—and I've just seen new statistics out of Manitoba that say it takes $9,000 a year to raise a child in a family—a family incurring such expenses has a different ability to pay tax from that of a childless couple.

Mr. Paul Szabo: If we just leave children totally out of it, if nobody has any children, if we just have a couple, some are two earners, some are one earner, the inconsistencies that you describe occur when children don't even exist. Somebody's made a choice to have someone stay at home and perhaps simply manage the home and provide comfort for the two people, forgetting about children. The differential has nothing to do with children.

Mr. Karl Keilhack: That's right. If the income is distributed 30:70, they pay more tax than if it is 50:50.

Mr. Paul Szabo: Or if you have one earner or two.

Mr. Karl Keilhack: That's correct.

Mr. Paul Szabo: There are differences because of the progressivity in our individual taxes. I thought I'd point that out. For most people, they somehow think the difference is because the child exists, and it isn't.

• 1450

You're suggesting joint filing as a possible.... Do you have any idea what it would cost if we were to provide a situation where couples could split income or share income?

Mr. Karl Keilhack: No, I don't have the figures, and we do not have the resources to make those calculations.

Theoretically, it would be possible to make the change in a revenue neutral basis. And the previous witnesses said that this is completely out of the question, because it would mean that the ones who pay less than their fair share would have to pay more and the ones who pay more than their fair share would get a tax reduction.

With the federal government now in a surplus position, it might be possible to do it on a basis that nobody gets a tax increase. If the amounts are so large that it cannot be handled, then we should look at this as an indication that the unfairness of the tax system is so large that it goes into—

Mr. Paul Szabo: You're saying that the individual taxation and progressivity of the rate is unfair, because that's what gives rise to the differential in the tax burden.

Mr. Karl Keilhack: Our tax system started out on an individual basis. And certain parts, such as where it comes to taking the money from the individual taxpayer, calculating the tax payable, are still on an individual basis. If we look at GST credits, if we look at various provincial credits, if we look at the guaranteed income supplement, if we look at various other areas—

Mr. Paul Szabo: Based on need—

Mr. Karl Keilhack: —even medical expenses, charitable donations, we no longer have a tax system that's based solely on the individual as a tax unit. We have more provisions where the family is a tax unit than where the individual is a tax unit.

Mr. Paul Szabo: In all of your discussion you talked exclusively with regard to the Income Tax Act. You gave no consideration to the existence of the Canada child tax benefit, which would be higher for a one-earner family, on average, than it would be for a two-earner family with children. Why didn't you give some consideration to the value of that non-taxable benefit?

Mr. Karl Keilhack: If you take two successful women who are single parents, for example, they do not receive any child tax benefit. The one who has three children is taxed in the same amount as the one who has one child.

Mr. Paul Szabo: It's based on the tax system.

Mr. Karl Keilhack: Say the dependent children are teenagers and don't need child care any longer....

Mr. Paul Szabo: Thank you very much.

Mr. Karl Keilhack: You're welcome.

The Chair: Thank you very much, Mr. Szabo.

I'd like to thank you, Mr. Keilhack, on behalf of the committee for your recommendations. As you see, the challenges are great in front of us, but they're made easier by people such as you who have given us the benefit of their experience and their recommendations.

Mr. Karl Keilhack: You're welcome. I'd like to assure you I do not underestimate the challenges you have.

The Chair: Thank you.

• 1455

I am pleased now to welcome, on an individual basis, three presenters. First we have Ms. Shannon Brodie, then Wendy Racovali, and then Ms. Deborah Kusturin. They're all here on their own behalf, and we welcome their presentations.

I would like to start with Ms. Brodie. Thank you.

Ms. Shannon Brodie (Individual Presentation): Good afternoon. Thank you for your energy—I realize everyone has a great deal of travel under their belt—and for your interest in this hearing and for the opportunity to speak today.

My name is Shannon Brodie. I'm a university graduate and a mother of two preschoolers. In 1996, when my second child was born, my husband and I decided I would stay home with our children. With that decision came the realization that we were going to raise a family of four on $37,000 a year. We felt this was the best child care choice for our family.

All families who have children care for them. Caring is not something you can turn on or off. We care. All of us with children care all of the time. Physically, emotionally, financially, and through all of the decisions we make on their behalf, we care.

Do I believe everyone should make the same parenting choices I do? No more than I believe everyone should name their children with the names I chose for mine. Families are uniquely different. Their composition and their practices make them so. It is the government and the society in which these children live that must recognize and value each child as an individual and each family as an institution that cares for that child. By providing all families with the opportunity to make choices best suited to their family, the government is supporting the best possible framework for families to grow, develop, and become the responsible, caring taxpayers of our future.

The current programs the government has in place are intended to support families, such as the child care deduction, the child tax benefit, and maternal and paternal leave. I feel, however, the government has not assumed a position of neutrality within the tax system. The government promotes the return of both parents to the workforce by providing ever-increasing child care deductions. The criteria for administering the child tax benefit are based on a family's income, and not whether it comes from a dual- or single-income family. The child care deduction is based on a policy of exclusion. Only parents who are both employed in the paid workforce benefit.

The care of the child should be central to the government's policy on taxing the family. Why is paid employment of both parents a prerequisite of financial assistance for the care of the child?

Should the government finance the decision of people who choose to opt out of the paid workforce? No. Should the government finance the decision of people who choose to be in the paid workforce? No. The central element that alters these equations is the child.

I do not feel the child care deduction is a valuable mechanism that fulfils the needs of either the paid or the unpaid workforce. The people who most need financial support for their child care expenses cannot wait until they receive tax rebates in the spring to pay their child care providers. They often are faced with little or no choice in their child care options, using unlicensed care where no receipts are issued, eliminating the opportunity to receive child care deductions. Those people with sufficient disposable income to cover all child care expenses benefit from child care deductions, and no one else.

The policy is deficient in its scope and neutrality. I want the government to eliminate the child care deduction and replace it with a child benefit accessible to all families according to income. This new policy would enhance the benefits that dual families now receive under the child care deduction. It would also include those families that opt to stay at home and care for their children. By adapting this program and allocating the deduction as a benefit universally, all who incur expenses in the caring of their children will benefit.

I do not, nor should anyone, view this as a debate over who works harder or who is more deserving—parents in the paid workforce or parents who work at home. Our government needs to develop a tax system that places value on the child and those families raising children.

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There are undeniable additional costs incurred by families with children. We, as a nation and as a society, need to support and value all children regardless of where their parents work. The government's role is not to direct our choice of parenting. It should be to support our role as parents within the framework of a family.

The Chair: Thank you very much.

I call on Ms. Racovali, please.

Ms. Wendy Racovali (Individual Presentation): Thank you for allowing me to make this presentation before you today. My name is Wendy Racovali and I live in Whitby, Ontario. I'm the mother of three children, ages four to twelve, and have been out of the paid workforce for approximately ten years, taking care of our children in our home. My husband is the sole income-earner for our family.

I came here today to speak to you about some of the tax inequities I feel exist in our current taxation system concerning single-income families.

I strongly believe that families with a stay-at-home parent are penalized for their decision to provide care to their children. An equitable choice does not exist between single-income families where one parent stays at home and cares for their children and dual-income families where both parents work outside the home and pay for child care.

I agree that dual-income families incur costs due to child care expenses, transportation, etc., and I am not suggesting that these costs be ignored. However, as a single-income family, we are taxed at a higher level than a dual-income family with the same number of children. Because we do not pay for child care outside the home, we do not have these expenses to reduce our taxable income and benefit from the child tax credits that are available. Consequently we are taxed just as heavily as a family without children. There is no consideration for the costs our family of three children incurs. In the eyes of the government, they have little value. The tax system offers no support to any family with children once the income cutoff for the child tax credit has been reached.

Before having children, I earned two university degrees and worked full-time. I paid taxes on my wages and contributed to the unemployment insurance and Canada pension plans through payroll deductions. When I chose to stay at home and raise our children, I lost the right to contribute to these plans, in particular the Canada pension plan. My work and employment did not cease, however; it simply changed. I work caring for our children, but now in the unpaid workforce.

If I had chosen to work outside the home after my maternity leave was over, I would have placed my child in a child care program, and that caregiver would have paid into CPP. How is my job any different from theirs? I want parents who choose to stay at home to be given the right to contribute to this plan. I want a value put on the care given to children, whether it is inside or outside the home. If our children are valued, then the care they receive has to be of value also.

The Canadian government must acknowledge that a family can choose the type of care they want for their children. If their choice is for one parent to stay at home, they should not be penalized and lose benefits because they have made that choice. It must be recognized that staying at home with children is valid and has value.

I received a report from the taxation department giving information on how much I would receive in Canada pension benefits at the age of 65, based on my contributions to this plan to date. This amount in no way reflects the amount of work I have done over my life. There is no consideration for the care I've given to my children. For the time I have been at home, I have not been able to contribute to the plan, and I am 10 years behind others who chose to return to the paid workforce after having children. I will receive no benefits for the time I cared for my children, because my job as a caregiver is not recognized as work.

We need to recognize the value of unpaid work. If I were allowed to contribute to the Canada pension plan, I would look forward to the same benefits a dual-income family would receive. I am being penalized for making the choice to stay at home. I do not want to suffer in old age for the decision I made in the past to care for my family.

The ability to contribute to the Canada pension plan should be universal, regardless of where the work is done and whether it is paid or unpaid. This would help develop a national view that all types of child care have value and would not discourage parents from staying home to care for their children.

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Caring for my children in our home should not be viewed as a luxury. Buying a boat or a cottage or going on a vacation is. That work has value only when tied to the marketplace is unfair, and distances women who work outside the home from those who choose to stay home and care for their children. The proposed $2 billion program to help Canadians raise and care for their children must acknowledge that a variety of care choices exist and that they are treated equally and fairly with regard to taxation.

The Chair: Thank you very much.

Ms. Kusturin.

Ms. Debbie Kusturin (Individual Presentation): I would like to thank the subcommittee for giving me the opportunity to speak here today regarding the tax equity for Canadian families with dependent children.

It has been well documented that there are inequities in the tax system, and current policies do not recognize the costs associated with having a parent at home to care for children. It has been said many times that our children are our future, and that it is very expensive to raise a child.

Our tax system is supposed to be based on one's ability to pay. Yet there is no difference in the amount of taxes a single person would pay compared to someone supporting a family. Single-income families are not given any credit for supporting and caring for their children, especially when one parent remains home to care for them. The deduction for a spouse is less than the basic personal exemption, and there are no deductions allowed for dependent children who are cared for by a parent in the home.

What is also ignored is the tremendous unpaid contribution that a stay-at-home parent makes to society. Unpaid work in the home and community and the stability of family life create the social structures upon which formal economies depend. Society benefits significantly from the optimal care and nurturing of children and from healthy, functioning families. When this is lacking, all levels of government are forced to subsidize a variety of alternative child care initiatives in order to ensure that children are receiving proper care.

I would like to note that I have made two previous submissions to the Standing Committee on Finance during budget review hearings, once on October 28, 1997, and again on October 15, 1998. On both occasions I requested that the committee address the issue of the unfair taxation of single-income families with a parent caring for children at home. I would ask your indulgence if I'm being repetitive, but this issue is not a new one, and the finance department has been well aware of it for some time now.

In both submissions I referred to a working paper that was prepared by the finance department for a meeting with the provinces on taxation in September 1996. This report compares the difference between a one-earner family and a two-earner family. Table 1 shows that a one-earner family can pay up to 85% more in taxes than a two-earner family at the same income level. The most important source of the differential, particularly for families with incomes over $30,000, is the individually based progressive rate structure. The child tax benefit and other tax credits are phased out at a higher income level, yet the child care expense deduction is not income-tested, and its benefits increase substantially as income increases. That is not fair at all.

Additionally, I noted that the Standing Committee on Health published a report in April 1997 entitled Towards Well-Being: Strategies for Healthy Children. In this report, recommendations were made to re-examine tax laws and policies to ensure that they treat all families with children in a fair and equitable way. It also recommended that the Minister of Health, with the Minister of Finance, examine ways of providing equivalent tax benefits to families who choose at-home parental care and those with caregivers for their children. I just want to read a paragraph from it. It says:

Promoting Strong Families for Children

The Committee received evidence from the recent Statistics Canada report on children that reinforces the view that strong caring families have a greater probability of producing strong resourceful children. These children are less likely to become reliant on social programs, health care and correctional services. As part of its focus on preventive approaches aimed at children, the Committee sees a role for the federal government in promoting policies and programs that support parents and strengthen families. Included in its commitment to children and their families, the federal government should ensure that its tax laws discriminate in their favour, with assurances that children in families who stay together are no worse off than those in families who live apart.

This is a government document.

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Most recently a report entitled Investing in Children and Valuing our Caregivers was completed in December 1998 by the ad hoc study group on valuing caregivers. One of the recommendations made was that the child care expense deduction be replaced with a more fair and equitable benefit. It should be in the form of a non-taxable benefit for all families and be paid directly to the caregiver parent. It also makes reference to a 1998 report by the Canadian Institute of Child Health called The First Years Last Forever. This report discusses new brain research and the importance of secure attachments. I just want to read a little note from that:

Long-term benefits. According to Clyde Hertzman, MD, at the University of British Columbia, the period from preconception to age five can be referred to as the “investment phase” for child development. Research shows that this period is much more important than we ever realized before. Failure to provide optimum conditions for a child's development during this time makes a developing brain physically different from the brain of children who have been well nurtured, and these differences can have lifelong consequences.

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Once again, I sincerely hope that you will give your full attention to this matter, and examine how fairness can be achieved for all Canadian families who make the choice to have a parent remain home to provide child care during their children's early years.

Thank you.

The Chair: Thank you very much.

Colleagues, five minutes each, please.

Mr. Paul Forseth: I'm very impressed with what you might call the philosophical bent as to where each of you are coming from, and I have great sympathy with that.

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Debbie, you said that you've previously given evidence at various committees. It would be interesting to hear your comment on whether you really felt you were listened to and whether any of the results or recommendations ever reflected your contribution.

Ms. Debbie Kusturin: I'd love to know why we're here today. I really would.

Mr. Paul Forseth: Because.... Do you want to complete that sentence?

Ms. Debbie Kusturin: Do I...?

Mr. Paul Forseth: Do you want to complete that sentence?

Ms. Debbie Kusturin: Why do I wonder? Because we've been coming forward to these standing committees year after year. There has been all kinds of evidence and there have been all kinds of reports done over the years. I see them every year, and they say the same things. Yet here we are, sitting here again, doing another report. I'd love to know what the purpose is. Where are we headed? Where are going? Is something going to result from this or is this just lip service?

Mr. Paul Forseth: I guess part of it is some of the polling data or survey data that's been cited in this committee. A lot of Canadians are concerned or whatever and are questioning why we have the tax system the way it is. I think the existence of this committee has developed partly in response to that diffuse public concern and, in a more specific sense, to try to actually attach some dollar value to unpaid child care at home. Do you have a specific way you would suggest for that to be done? Once you recognize that it should be done, how, technically, could we do it?

Ms. Debbie Kusturin: My own opinion is that if the government were to allow one spouse to pay the other spouse for the work that they're doing, it gives it value, it gives that other person a sense of accomplishment, and it also reduces their tax break substantially because, as opposed to joint incomes.... You're penalizing people for being married or whatever. I know that Paul Martin said that. It's a deterrent for people to get married. The tax laws are already a deterrent for people to get married.

Mr. Paul Forseth: So if one could pay the other, then, perhaps they could also pay EI premiums and qualify in a normal way—

Ms. Debbie Kusturin: Yes. They would actually have an income, a value.

Mr. Paul Forseth: Okay. Other people have suggested that.

I was just wondering if either Shannon or Wendy have a very brief comment about how we would attach a dollar value to this unpaid child care at home.

Ms. Wendy Racovali: Personally, to sound different, maybe, I don't know whether you ever can attach a dollar value, and I'm not here today to ask you to do that.

I think the first thing you have to do before you attach any value to what we do in the home is to acknowledge that we do work in the home, and I don't think that has even been acknowledged. For example, when the census comes out and I put down what it is I do, there's no.... I know that Beverley Smith is talking about this. Let me acknowledge the fact that I work in the home caring for my children. To me, that's the first step. I'm not here asking you to say that I'm worth $50 a week or $500 a week but just to say yes, it is a valid job that I am doing and it is an unpaid job. I don't want money. I want the recognition of what I'm doing.

Mr. Paul Forseth: Shannon, do you have anything to add to that?

Ms. Shannon Brodie: It's difficult for anyone to assess the value of what they do. If I ask you to assess the value of what you do and give it a monetary figure, would you raise or lower the standard you're at now? It's impossible for me to lower the standard I am at now, so obviously I would elevate it. I think a lot of it comes down to societal perception of who we are and what we do. There has never been a better conversation stopper than to say “I'm a homemaker.”

Mr. Paul Szabo: If I may say something, I think Mr. Forseth is not asking what's the value of everything you do. The question is how do we value the difference between what two income earners get in terms of a tax expenditure and what you don't get? What's the inequity amount? That's what I think he's asking.

Ms. Shannon Brodie: If you look at the easiest possible option, if you are saying that you have the option to declare $7,000 for each child under the age of seven, then that's how much it costs to raise it. If you're giving the opportunity to claim that much money, then someone must claim it. Somebody must say that I'm paying, and I feel the care my child receives is worth $7,000. There's a dollar figure. Last year it was a $5,000 figure.

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I'm not beginning to suggest that is the figure that should be used, but that is one the government has put in place to say we are willing to recognize—and you may even recognize that care costs more than that—and we will compensate you for care up to a level of $7,000 a year, and recognize that is what that care is worth. That care is not the care I am providing, but it is care for a child. You as a government have instituted that dollar figure on it.

Now, was that arbitrarily chosen? I don't know where that figure came from.

The Chair: It's shown in receipted contributions.

Ms. Shannon Brodie: That's the figure that—

The Chair: The average number of people that claim it is less than 50%, and of those that do claim it, only $2,600 is actually claimed.

Ms. Shannon Brodie: I realize that, but where does the government get $7,000? Why did they pick that as the available amount of funds to be allocated to child care?

The Chair: That's the maximum, I guess.

Mr. Paul Szabo: The $7,000...it was raised from $5,000 to $7,000 to reflect what was determined to be the average cost of quality day care.

Ms. Shannon Brodie: That is an actual reflection of what has been proposed as the cost of quality care for a child.

The Chair: Deborah's comment was that we should recognize the value inherent in those who choose to stay at home, because there's care given to children who stay at home. Right? If you take the other one where you receipt it, no matter what the cost is, but just for argument sake let's say $3,000.... Spouse A goes to work, gets the $3,000 child care, while the receiver of that $3,000 has to declare that as revenue also, so they pay taxes on the $3,000, and the net effect for government is really....

If we were to recognize the same thing for a spouse, and use an arbitrary figure—I don't care—technically spouse A who's working would pay spouse B who's not working $3,000. But spouse B would also have to claim that $3,000 as revenue anyway. So the net effect on the family would be what?

Ms. Debbie Kusturin: You would still benefit from it.

The Chair: In which way?

Ms. Debbie Kusturin: You would still benefit, obviously, because it's reducing one income. It's levelling off the playing field.

The Chair: Then why not just propose joint filing or a form of income sharing?

Ms. Debbie Kusturin: Well, joint filing is different from splitting income. It's a lot different, because with joint-filing people will be penalized for being together, because obviously their family income is going to go up. Right now it's based on an individual income.

The Chair: It's the reverse.

Ms. Debbie Kusturin: That's what the other gentleman was talking about. He was talking about joint income. Some people will be penalized. If you're just talking about splitting income, if you have a single income at say $60,000 and they're allowed to pay their spouse to stay at home to care for their children, whatever it costs—$7,000 per child—that other person has their basic personal deduction to take off of that amount, plus now the first person is only paying in this bracket instead of in that bracket, and this person is only paying in this bracket. So it really makes the difference, and it balances things.

Mr. Paul Szabo: If you look at how they allow joint filing in the U.S., they don't pay on the same tax schedules as individuals. They in fact have a separate—

Ms. Debbie Kusturin: A different rate.

Mr. Paul Szabo: It's broader-based, so it's not exactly.... I think you've done quite well to explain it.

[Translation]

The Chair: Mr. Cardin, please.

Mr. Serge Cardin: Good afternoon, Madam, Thank you for coming.

Despite the fact that you said you are a little cynical towards the system, you probably still haven't lost hope since you are here today. What you said reminded me of what one of my colleagues said yesterday regarding businesses. When a spouse runs a small or a big business, he may split his income with his spouse. But there are certain conditions which must nevertheless be met, such as whether the other spouse really did do some work and whether the salary paid to that spouse is reasonable for the type of work carried out. So, yes, there is income splitting at that level.

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If you take daycare expenses into account, the Income Tax Act does provide for a minimum deduction for child care work. As I hear others repeat what you said, I feel the criteria for income splitting in a business also apply to this kind of situation, since the spouse who stays home to look after the children also does work. We've just talked about the value of stay-at-home work and how hard it is to put a dollar figure on it. But I believe the price of day care is a good basis for assessing the value of stay- at-home work.

In this situation, the breadwinner pays for a service which is truly rendered. It should make the stay-at-home spouse eligible for the Quebec Pension Plan or the Canada Pension Plan, as well as for employment insurance benefits.

There really is no difference between income splitting and paying a spouse to stay home with the children. Therein perhaps lies the solution. Of course, we would then have to adjust the basic deduction accordingly, and establish an income for the stay- at-home spouse, to make them eligible for RRSP's, employment insurance and a pension. What do you think of this idea?

[English]

Ms. Debbie Kusturin: Yes, when I was home when my daughter was an infant, I worked for the Region of Peel. I did day care for them. I was allowed to deduct household expenses, food, mortgage interest payments, and my utilities. All these expenses to run my home I was allowed to deduct while performing day care for other people. Basically, my income was almost nil because of the expenses that were incurred; it was a minimum amount of money I earned looking after these other children. So it pretty much was a wash, and that's basically what happens with the child care expense deduction. It's receipted care, but if anybody cares for children and gives receipts, they're also allowed to deduct all their expenses.

So I think if you were doing that, as well, if one spouse was paying the other spouse, you would have that same situation. Like you said, it would be like running a business. I know a lot of self-employed people have their husbands or wives or whatever as part of their employees or their partners, and they pay them salary and it comes right off the top of the revenue. All that is legal, and we're able to do that, yet for looking after your own children that's a no-no and you can't claim the child care expense deduction at all, and you can't claim any of your household expenses either. So if that were to change, if it would come under something like that and they would say you're home caring for your children, you have costs....

It also gives the other spouse the ability to perform their job even better. My husband now, because I'm home full-time—in his work he does a lot of travelling and things like that, so he's not home quite a bit—it's given him the benefit of being able to pursue his career. So he has more possibilities. When I'm working full-time, he has to pick up the kids, he has to do this, he has to do that. He can't be flying out of town because he has other responsibilities. So my being at home also helps him be employed.

The Chair: Thank you very much.

Mrs. Dockrill, please.

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Mrs. Michelle Dockrill: First, may I say, ladies, thank you very much for being here today. I think the passion you feel about the presentations is very obvious. Certainly we've heard from a wide range of individuals across the country.

I have just a couple of points. Debbie, in your presentation you mention that society benefits significantly from the optimal care and nurturing of children from healthy functioning families. Could you define for me your idea of a healthy functioning family?

Ms. Debbie Kusturin: Yes, my kids. No, I think when parents are home with their children, the kids have so much benefit. They have security, they have self-esteem, they're well adjusted.

We're seeing all kinds of problems. There's report after report after report on all the problems that are occurring now with school-aged children with behavioural problems. Parents don't know how to be parents. They're never around their kids. They don't have the time or the inclination to learn how to be parents. They're with them for a few hours a day and then they're gone. They depend solely on other people to raise their children, and I think we're starting to see some of the problems we're having.

It's a burden, it's a social burden. If the parents aren't there, then as a society we have to pick up the slack. So what are we more willing to pay? You're more willing to throw money at social programs to try to help these kids out after they're already in a mess, or give the money back to the parents and say “Here, be a good parent, be there for your kids, it's important, your kids are going to grow up great”?

The Chair: Ms. Racovali, do you have a comment?

Ms. Wendy Racovali: For me, I have seen on both sides of the fence—parents who are both working outside the home are excellent parents and parents who are working...we have one parent at home and perhaps that child should be in day care. I'm not passing judgment at all, but I think you can find examples for anything you want to find.

The whole premise for me, though, is the fact that I think my children are better off. I attend all of their games and things like that. Not to get personal, but I think for me and for our family that is the best choice. It works, and we have a healthy family. I think other people's choices are just as valid. It's not to take away from their choice, but I'm fighting for the choice here, that I should be viewed as the way we determined to set up our family being just as valid as if I had gone back to work. I don't want to have to be penalized because of that choice.

So I think healthy families exist on both sides. I think my children are better because I'm at home, but I couldn't pass judgment otherwise.

Ms. Shannon Brodie: I think this is where the government can't become hypocritical in this. What we're saying is it's unfair because I feel it's slanted toward parents returning to work. I do not feel they have made the wrong decision. They have made the best decision for their family. I feel I have made the best decision for my family. I simply feel it is easier to make the decision to return to work. I don't feel it's the government's place or my place to make moral judgments on anyone else.

I think, as Wendy has said, that you can have a happy, cohesive, wonderful family that is nurtured completely with care that you have sought and looked for and is being provided by someone else. It's not a question of who can raise better children, people who stay home or people who place their child in another environment for part of the day to be cared for. It is a question of whether there is opportunity open to everyone to make the decision they would like to make. You can't tell someone to raise their children the way you would like them to. You can't dictate what someone can do. But you can provide opportunities so they can make the best decision for themselves and for their family.

The Chair: Michelle, last question.

Mrs. Michelle Dockrill: On that, I would be remiss if I didn't throw in a personal observation. In my former life I didn't have a choice to stay home with my daughter so to as ensure that she had the life and support that my husband and I felt she deserved; I was forced to go into the workforce.

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It concerns me when we hear the possibility of assumptions of what constitutes a family, and therefore what constitutes a good, productive citizen. I feel that my daughter will turn into a very good, productive citizen within society and that the choices my husband and I made benefit her.

I agree with what Wendy is saying. I've seen single parents who have raised phenomenal children. I don't want to hear us say that this is the optimal. I think that's a little bit dangerous. The reality is that in the 1990s, the definition of Canadian families has changed. We have to recognize that the definition has changed and try to support those families in their choices.

A second point, going back to what I talked about from a personal perspective, is that when I returned to work, I didn't have a choice. I would not have incurred child care expenses had I not had to go back to work. I really agree with some of the presenters we've had over the course of the last few days. I see that deduction as an employment expense, because I would not have incurred that expense had I not been forced into the workforce. I think what we're attempting is to support or initiate public policies that will support individuals and their choices. As Wendy said, I think one of the things we have to look at is some kind of recognition for the work that is being done at home.

I know that in Nova Scotia there was recently a study done about the economic value placed on unpaid work in that province, and the dollar figure they put on it was $8.5 billion.

The Chair: Ms. Racovali.

Ms. Wendy Racovali: I had a glimmer of hope recently when the Ontario teachers went on strike and they determined that because our children were out of school for two weeks, I was worth $400. I didn't have to pay any tax on that money. People who worked outside the home got $400; I got $400. And for the very first time, regardless of whether it was $4 or $400, to me that was a precedent that was set. They didn't say that the person who had to take the child to child care was worth that, and I wasn't. That was my glimmer of hope that perhaps things might change.

The Chair: Did you get a cheque from the Ontario government?

Ms. Wendy Racovali: Yes, we all did. Actually, everyone was encouraged to give it back to the school system, but that was your choice. It was made out to me.

The Chair: Mr. Szabo, please.

Mr. Paul Szabo: Thank you all for your input. I want to compare your reaction to another group. I gave them some principles that should maybe guide our thinking, forgetting about how you deliver them. There are many ways to deliver a benefit. My principles are that our policies should be child-centred, have the best interest of the children first—

The Chair: Could you take one at a time? I think it's fairer.

Mr. Paul Szabo: Do you want to do that? Okay.

The Chair: Yes, instead of all five at once.

Mr. Paul Szabo: Does anybody have a problem with that?

Ms. Wendy Racovali: No, that's why we're here.

Mr. Paul Szabo: Number two is that we should presume that parents are the primary caregivers and that they are in the best position to determine what constitutes the best possible care for their children.

The Chair: For the record, they're nodding their heads.

Mr. Paul Szabo: Third, our policy should provide as much flexibility and as many options or choices as possible that will make it feasible for either parent to be the caregiver or to be in the paid workforce.

The Chair: Agreed.

Mr. Paul Szabo: Fourth, it should be inclusive and responsive to the social realities, circumstances, and preferences of parents and their children.

Ms. Wendy Racovali: Yes.

Mr. Paul Szabo: Social realities include such things as lone parents.

Ms. Wendy Racovali: Yes.

Mr. Paul Szabo: Finally, it should be fair and equitable and neither penalize nor compel specific caregiving choices.

Ms. Wendy Racovali: Yes.

The Chair: You've made Mr. Szabo's day.

Mr. Paul Szabo: I think we hear you. One of the biggest problems we've had to deal with...this all came about because of the child care expense deduction. There's no question.

Ms. Shannon Brodie: You just said inclusion. The child care expense deduction is a policy of exclusion, and that's where this comes from.

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Mr. Paul Szabo: Yes.

I'm not sure if you're aware of this, but only about a third of dual-earner families actually even claim it, and for those that do claim it, the average claim in 1996, when you could claim $5,000, was only $2,600—a little more than half of what they were eligible for. On average, the cost to the government for those 759,000 families was about $600 each.

Ms. Shannon Brodie: If the government was armed with that information, why then did it raise it from $5,000 to $7,000?

Mr. Paul Szabo: Because the cost of quality child care, if you went to get it, was $7,000, but people—

Ms. Shannon Brodie: Was it brought to your attention that you should raise it? Were there groups supporting raising the child care? Or was it just arbitrarily done?

Mr. Paul Szabo: No, I think it was basically an assessment. You review, for instance, RRSP limits or whatever on a periodic basis. It used to be that for $100 a week, child care could be obtained. That was no longer the case, so now it's $150 a week instead of just $90. So it was raised because it hadn't been looked at for some time.

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Because the deduction is worth more to high-income earners than to low-income earners, and because it depends on how much you actually spend and claim, the amount of the benefit in your pocket—the value of that tax expenditure—is all over the map. In the current year, if you spend $7,000 and the lower-income-earning spouse is at the highest marginal rate, it could be $3,500 in your pocket in Ontario. If you are at the lowest marginal rate—if the lower-income-earning spouse is below $30,000—in your pocket would only be $1,750. But if you only claimed $2,600, your benefit could be $300. The average benefit for all people who claimed it was under $700.

So what we're trying to do is this. People have told us they'd like a level playing field. They've said, if somebody is getting a benefit because they have children, shouldn't those who forgo income, pension benefits, and advancement and who do community service, school work, hospital visitations, etc., get a little recognition? Shouldn't there be an economic benefit that somehow makes it equitable compared to the tax benefit given to those where they choose to have two in the paid labour force?

We are having grave difficulty pegging down the number that the child care expense deduction actually represents. We know if we pick a number, it will be a lower benefit for some who claim it and a higher benefit for others, depending on their own circumstances. So we know somebody is going to be upset.

I have a feeling that since there's so much underground or informal caregiving, unreceipted caregiving, that has who-knows-what benefits and quality—I don't want to be judgmental about it, but I suspect it covers the broad range of quality—maybe, just maybe, the child care expense deduction is a jaundiced tax measure that really doesn't hit the target it was supposed to hit.

So maybe we should just eliminate it and say, “You know what? Parents are in the best position to determine what's best for their family. Why don't we just put the money in their hands, whatever we can afford and what taxpayers are prepared to subsidize parents with children, and let them make their choices?”

Are there any comments?

Ms. Debbie Kusturin: I agree.

Ms. Shannon Brodie: That's what I would like to see implemented. It's a policy of inclusion. And as with most tax implications, it would have clawbacks once you got into the higher incomes. Though it would be nice to give a standard—

Mr. Paul Szabo: Universal.

Ms. Shannon Brodie: —it's impossible to do so.

I'd like to see a policy of inclusion that recognizes children—the value of children and the value of caring for children. If you put your child in care for a portion of the day, you are still caring for your child for the remaining hours of that day and every other day. So everyone cares for their child and everyone incurs costs.

The Chair: Doesn't the child tax credit address that need, though, currently?

Ms. Shannon Brodie: The child tax benefit?

The Chair: Benefit, yes.

Ms. Shannon Brodie: Well, on a salary, it's—

The Chair: It's income-tested.

Ms. Shannon Brodie: It is income-tested.

The Chair: It goes directly to the children.

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Ms. Shannon Brodie: Those people who are eligible for child care deductions are also eligible for the child tax benefit. The child tax benefit is an inclusive policy. Everyone is eligible to receive that on a means income. Everyone is eligible. It's not a policy implemented for people who stay home, whereas the child care deduction is a policy implemented solely where both parents are income earners. So you have a policy of inclusion that we can take part in and a policy of exclusion that we can't take part in, whereas these people can take part in both.

The Chair: Wendy, please.

Ms. Wendy Racovali: It bothers me that the child tax benefit is calculated on your income after you've taken off RRSP contributions and child care expenses. For example, one year we moved. This year we don't get any child tax benefits for three children, but the year we moved we did. Now I don't know how moving was related to the care of our children. I don't know how putting money into an RRSP program relates to the child tax benefit either.

The Chair: We base everything on net earned income.

Ms. Wendy Racovali: Right, and I know when we moved we paid the money and then got a portion of it back. I'm sure there is an argument against what I'm saying, but it just didn't make any sense that the amount I was going to get was determined by something that was secondary and had absolutely nothing to do with the income and what the child tax benefit was based on.

Ms. Shannon Brodie: My husband and I lived abroad for five years and invested in pensions and had money abroad. With the devaluation of the dollar, we brought that money back last year, and that was the first year.... We took the money and invested it in RRSPs, thereby bringing down our income.

I'm a Canadian citizen and I just returned, but for the three preceding years we didn't get any income tax rebate and we couldn't contribute anything because all our money went to our family expenses. But when we brought money back we didn't earn in this time period and invested it in RRSPs, it brought our taxes down, we got a greater child tax benefit, we got RRSPs, we got a tax rebate cheque, and the world was our oyster.

The Chair: You were happy.

Ms. Shannon Brodie: But that doesn't happen for people; that's not reality. If you have lots of money, you can contribute to an RRSP and bring your income down. Then you can get greater benefits and have these things. But you need to have the money to put into these plans to be able to bring your income down.

There is nothing we could do, making $37,000 a year, to bring our income down. We had no excess money to direct anywhere to enable us to bring that income down so we could increase our benefits. I didn't qualify for the working family supplement at that time. That's a very small amount of money to have a home and raise children on and not qualify for things.

The Chair: Thank you very much.

I'd like to thank you on behalf of the committee. I believe the message we take home, as you've so well put it, Ms. Brodie, is it should be a decision based on choices—make sure Canadian families have the choice that's best suited to their needs and their immediate family, and make sure our tax system doesn't discriminate in favour of either one. That's the message I think you've delivered. I want to thank you for that message and wish you well in your future endeavours. Thank you very much.

Ms. Shannon Brodie: Thank you.

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The Chair: I'm pleased to welcome our next guest from the National Association of Women and the Law, Ms. Kim Brooks, member of the fiscal policies working group, as well as Lisa Philipps, chair of the fiscal policies working group. From Real Women, we have Gwendolyn Landolt, national vice-president, as well as Lorraine McNamara, national secretary.

In the traditional formula we allow you five to seven minutes each, leaving ample time for questions. I'll exercise a certain amount of flexibility, but I would welcome you to make your presentations. We'll start with the National Association of Women and the Law, please. Who would like to begin?

Ms. Lisa Philipps (Chair, Fiscal Policies Working Group, National Association of Women and the Law): It's great to be here. My name is Lisa Philipps and I'm from NAWL. I'm a volunteer with NAWL. I'm also a tax professor at Osgoode Hall Law School. Kim Brooks is also a volunteer with NAWL, and she is practising tax law at Stikeman Elliott, a law firm in downtown Toronto. Both of us have an intense professional and personal interest in the issues you're considering.

If you have a copy of NAWL's brief in front of you, I'd like to start on page 2, since we have limited time, and talk about tax discrimination, which we see as a red herring in this whole debate. NAWL's position is that the relative treatment of dual-earner and single-earner families under the current tax system is basically fair, at least with respect to heterosexual couples. There is simply no advantage for dual-earner couples at the present time once you factor in child care expenses, all of the other expenses of entering paid labour, and taxes.

It's really unfortunate that the whole debate has been framed in terms of tax discrimination, because it just distracts us from finding solutions to the real problems families are facing. We certainly agree there's tremendous scope to improve both the way women's caregiving work is valued and access to labour markets for women and men.

We hope the committee is going to affirm and celebrate the value of diverse family forms and family choices in Canada. We hope the committee is going to reject any proposal that is premised on one form of family arrangement being morally superior to another.

Moving on to recommendations, NAWL has articulated six policy goals it thinks should inform any reforms to the tax and transfer system. We've tried to respect the committee's terms of reference by focusing on tax measures, but one of our main assertions we'd like to make today is you really can't separate the tax system from other social policy and economic policy measures. It's very important to talk about direct spending programs as well.

The proposals that have been made in Parliament so far, in our view, suffer from some flaws. We're referring to a number of different proposals that I'm sure you're well familiar with, such as the idea of extending the child care expense deduction to families with stay-at-home parents who do not incur child care expenses in the marketplace. There are ideas for income-splitting, joint filing, and proposals to increase the spousal credit.

We definitely want to emphasize that we value the caregiving work women do in the home. We think those families need more support than they get right now. We do not think these proposals are the way to deliver that support. We think those proposals are flawed, for a number of reasons.

First of all, they all deliver tax benefits to breadwinners, not to caregivers directly. So they're a very poor way of valuing women's caregiving work or promoting women's economic autonomy. There are other ways to do it that would be much more effective.

The second major flaw is that they would increase the tax cost of entering paid work for a lower-earning spouse, most often a women seeking to enter or re-enter the paid labour force. They raise labour market barriers that women have struggled very hard to bring down, and women still do not have equal access to paid labour.

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The third major flaw is that they really only are designed to benefit people who are in couples. What about single parents, income-splitting, spousal credits? Those types of things do not benefit single parents, who have tremendous economic disadvantages, as I know you're aware. Income-splitting in particular has a very severe bias in favour of higher-income people. So income-splitting is only going to benefit couples in which there is a breadwinner with substantial means. It's not going to benefit people who have a breadwinner with a low income.

We think that the goals motivating those proposals are very worthy ones. They're important ones. We think there are much better ways to achieve those goals.

Our recommendations are organized under five headings. I want to touch very briefly on the first three, and Kim Brooks is then going to go on and talk about the last two.

On expanding the Canada child tax benefit, we concur with the recommendations we're hearing from many social income policy analysts that the child tax benefit is a very promising program but it really needs further enrichment to achieve its objective. We support the widespread call to increase the maximum benefit to around $4,000 per child. I think that would really help to take a serious bite out of child poverty. We support the extension of the CTB up the income scale to assist more middle-income families. We hear the call of middle-income families for some relief from low wages and increasing tax burdens. We realize that those families are under strain. We also call for the full indexation of the child tax benefit, both with respect to the benefits and the eligibility threshold, so that the value of that benefit is not constantly eroded.

Finally, we hope the federal government will urge the provinces not to claw back welfare when the child tax benefit is increased. That seems to be done on the basis that families on welfare are the non-working poor. And we think this actually flies directly in the face of the whole principle that people staying at home caring for children are working. Single mothers on social assistance are working. They're working to care for their children in the home. They shouldn't lose welfare benefits.

The second recommendation is that we need to preserve the child care expense deduction in its current form, but while we're doing that we need to build a national early years education and care program.

Child care is simply one of the costs of earning income if you need to enter or re-enter the paid workforce. A person who has a child and needs to be in paid labour has no net income until after they have paid for child care. The child care expense deduction recognizes this. It does not, however, come close to covering the full cost of entering employment.

Reducing the child care expense deduction from its current level would impact unfairly on women because it would heighten the barriers to women's paid work. Despite the need to retain that deduction now, we do agree that it is a terrible way of trying to provide access to child care services or to the paid labour force. It's simply very inadequate, and NAWL and many other women's groups have said this for quite a long time. The only reason why it's so critical for now is because we have such inadequate public day care programs.

So we would like to add our voice to what we see as a groundswell of research and opinion that Canada needs to make a serious investment in early childhood education and care. We are really lagging behind a lot of other countries. And we think this care should be available to children regardless of whether their parents are in paid labour or not. This is a matter of not just allowing people to go out to work but of child development and providing equal opportunities to all Canadian children. For single mothers in particular, single mothers simply will never equal access to paid labour or any real choices to act on until they have better access to child care services.

Some have proposed converting the deduction, the current child care expense deduction, to a credit, possibly even a refundable credit, to try to give more assistance to low-income people, particularly single mothers. We've considered that very carefully, because we are concerned about the maldistribution of tax benefit through a deduction. Our position is that changing to a credit really would not provide any greater help to low-income parents trying to get access to child care services or the paid labour force. The amount of any such credit is unlikely to approach anywhere near the cost of obtaining high-quality regulated child care. So it means that low-income parents are still going to be forced into other alternatives, lower-cost child care that often doesn't come with receipts so you can't claim any tax benefit.

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So whether it's a deduction or a credit, it does not create the affordable, accessible, high-quality spaces we need. There are other reasons why we think that conversion to a credit is not a good strategy and we want to see the deduction preserved in its existing form.

The Chair: Just to clarify, do you mean the credit or the deduction?

Ms. Lisa Philipps: The deduction needs to be—

The Chair: You use the two words interchangeably at times. What you're really saying is converting it to a deduction—

Ms. Lisa Philipps: No, it's currently a deduction. We're saying it should not be converted to a credit; it should be retained in its existing form as a deduction.

The Chair: I'm referring to your point three, universal child credit.

Ms. Lisa Philipps: That's my next point. I haven't quite got there, actually. That's a different thing.

The Chair: I thought that's what you were on. I'm sorry.

Ms. Lisa Philipps: No. That's okay.

The last point about child care expenses is that it's our strongly held view that it must be retained on top of any other child tax measure, in addition to any form of universal child recognition or credit.

The third recommendation is the universal child credit. It's important I think to distinguish between child care, the cost of child care services, making sure your children are cared for, and simply a universal child credit of some kind to recognize the benefits to society of having a child and raising a child. We're not strongly opposed to that by any means, but we think it's a lower priority than establishing an early year childhood education and care program.

One point that I want to highlight, though, is that we are strongly opposed to any universal child credit that would come at the cost of reducing the child care expense deduction, and I'm referring here to the brief of the C.D. Howe Institute. I know they've recommended having a universal child credit and reducing the child care expense deduction by a certain amount to finance that. We're opposed to that. Again, it's important to maintain the deduction on top of any other form of credit.

Kim Brooks is going to finish up.

Ms. Kim Brooks (Member, Fiscal Policies Working Group, National Association of Women and the Law): Hi, my name is Kim Brooks. I'm a little more of an informal speaker, perhaps, but I'm going to discuss the last two proposals there.

The first thing I'm going to address are a couple of the proposals that have been made: increasing the spousal credits, permitting income-splitting, and introducing some form of joint filing. We're concerned about all three of those proposals, many of them for the same reasons. I'll run through the joint filing example because I think it best demonstrates the potential dangers of all three of those proposals. Then if there's anything else I have to add about the other two, I'll just add it on at the end.

In terms of the neutrality of the tax system, I think joint filing is going to make the tax system more economically inefficient. If you have a high-income earner and a low-income earner who is currently working in a home who is trying to determine whether—it's usually she—she will enter the workplace, under a joint filing system she'll face a very high marginal tax rate, that of her husband or partner, and it's a real deterrent to entering the workforce. There are I think very good reasons why sometimes we want to encourage women to enter the workforce and at least permit them to have those chances available to them without discouraging them from entering the workforce, also recognizing that the choice to stay home and work in the home is a very important choice to have.

A second problem with joint filing that often gets raised, or a reason why we should introduce joint filing, is for reasons of equity. Often the argument I think we've heard about joint filing is that women who choose to work in the home don't receive any of the kinds of benefits that might be received if they worked outside of the home, and therefore they're taxed at a much higher marginal tax rate. They don't get to take advantage of these lower rates like they might if there were two income earners both earning $30,000. So to clarify that, if you had a high-income earner earning $60,000 and a person working in the home, and both spouses working, each earning $30,000, the person with the high income would be disadvantaged or treated inequitably compared to the two $30,000 earners.

My response to this is that for people working in the home, we don't tax them on what is called the imputed income of their labour in the home. The labour that often women provide in the home is very valuable. With the system we have now, what individual filing does is take into account both of those factors: that there's this higher tax rate on the high-income earning spouse, but there's also this tax break, in some sense, on the imputed income of the earner who stays in the home.

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Another concern we have is that the move to joint filing ignores the fundamental concept of tax principles, which is that we tax people on the basis of their control over income as opposed to true benefits from the income, which is how we would be taxed if we moved towards a joint filing system.

Our final concerns have to do with social policy kinds of questions. Joint filing is more intrusive and requires full disclosure on the part of both spouses, and some spouses don't choose to fully disclose their income. It neglects the autonomy of individuals. Our tax system now, because it taxes on an individual basis, recognizes each person as an individual and doesn't force people to align themselves within certain particular groupings. It also might reward or encourage certain kinds of family forms but not others, and I think in a society where we're moving towards seeing divergent kinds of families and recognizing divergent kinds of families in community groupings, that might not be a move we are interested in having the tax system support, if that makes sense.

With respect to income-splitting, generally the Income Tax Act prohibits income-splitting. Again, because we're not sure about who controls income-splitting, we don't think permitting income-splitting is a good idea. It provides support only to a very narrow group of families who have one income earner who has a very high income and one income earner who has a much lower income. We think if you're truly serious about supporting children you would look at a more broad base of families as opposed to quite a narrow base in terms of delivering different kinds of subsidies through the tax system.

The other element of our brief that I'm going to be talking about quickly is the positive measures to recognize the value of caregiving work, which we think is fundamentally important. As a society we all benefit from the work women do in the home and caring for children, and it's very important to recognize that work. Particular kinds of suggestions we have are to increase the access of women who work in the home to workers' compensation, disability, retirement pensions, retraining, job search programs—so the things they're interested in obtaining access to—extending and enhancing maternity and paternity leave, providing labour laws that provide for more part-time work or flexible-hour work if that's something that might be helpful for people who want to work out of the home but still spend quite a bit of time with their children.

We hope the committee will be able to see the bigger picture on those kinds of issues. The tax system in many ways is not a great place to deliver the kinds of subsidies that are required to recognize caregiving work, and we just wanted to introduce some other suggestions for ways the committee might consider doing this.

The Chair: Thank you very much.

We're going to have to ask you to reserve any future comments to the question period, because you have already taken up more than 15 minutes.

I now welcome our next guest to make their presentation.

Ms. Gwendolyn Landolt (National Vice-President, Real Women of Canada): We are very concerned about the tax system, which does obviously discriminate against the single-income family. We know that only 11% of families take advantage of the child care deduction and they're the high-income earners. The dual-income earners are mostly people of the sort where the mother works or the father works part-time and they have a limited salary averaging only $10,000. Most people prefer to have child care of their choice not the receipted child care, so as a result the Canadian government at the present time is only paying out about $395 million a year per child care deduction, which only applies to 11%. The vast majority of families, 44% at least, have a single-income earner at the home.

After World War II, Canada did have a policy of being neutral to the single- or the dual-income earner. Now Canada of course is discriminating against the single-income earner, and that is the basic problem. Our view is that every child in Canada is of equal value, every child matters, and there should be fairness in the tax system for every child. And the child should be recognized. One way to do it is through the tax system. The parents are not doing us a favour; they in fact are making a tremendous contribution to society by raising children. It's the parent's choice how they'll care for the child; it's not up to the state.

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Statistics Canada indicates that only 10% of couples choose to have organized day care, simply because it's not what they choose for the child. It's up to the state to listen to the family and to let the family make the decision. For the government, for example, to dump billions of dollars into early-childhood education, which is unnecessary for the vast majority of families.... What we would like to see is that any tax distribution of money would go to the family and they themselves would decide how the child care money would be spent.

There are many errors in our system, and I think Canada has to catch up. For example, Australia and England are moving in to recognize the single-income family with the one mother at home. But it's the family itself that has the right and the privilege to determine how the children are cared for.

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To set up a national child care system, for example, is an insult to the Canadian public because the parents themselves would be knocked into a corner and the only way they would get any benefit would be setting up a national child care program. It does not deal with the individuality of the family or the individuality of the child itself.

There are areas, apart from the tax system, where the government can move in. One would be to extend maternity leave. Every family is different, and the family has to decide whether the mother will work or stay home or the father will work or stay home. But in those cases where there is a mother in the paid workforce, it's essential that there be an extended maternity leave, for example. Right now we only have up to 24 weeks, so the mother gets unemployment insurance only up to six months. We know from child care specialists that is exactly the wrong time for the mother to be separated from her infant. In France, in Germany, they have two years maternity leave with substantial payments. Why can't we, as a wealthy nation, do that to help the working mother?

Similarly, what we think would be the best approach would be to get a universal tax credit to every family. We do not want a tax deduction because that doesn't help the low-income family, because if you don't file taxes, you don't get it. To be even-handed and fair, we would strongly want to see the tax credit for children, and every child would be treated the same, regardless of the family and regardless of the choice of child care.

The other important point is we would like, very firmly, to see income-splitting. That is essential to help the single-income family. It's one way to solve the problem. To give you an example, if the mother chooses to stay at home...we all know what a worthwhile contribution she is making to society, to free the other partner to do his job, or vice versa, whoever chooses to stay home. That is essential to society, that the parent should choose what's best for them and their children. Income-splitting is one of the best approaches we can think of that would solve the problem. It seems that is the only reasonable approach, plus the child tax credit.

The third thing we would like to see would be the personal deduction raised. There would be an increased personal deduction. Right now, the spousal exemption is much lower than the personal exemption, and we'd like to see some equality in that respect.

Those are the basic outlines.

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I can tell you offhand that I chose to stay at home to raise my children. It was my personal decision. I'm the mother of five children. Lorraine is the mother of six children. Both of us forsook our careers. I'm a lawyer, but I decided that with five children, I would stay home and raise my children. So we gave up a tremendous salary, but it's a question of priorities.

Between Lorraine and me, we have raised 11 stable, well-educated taxpayers of the future. That is what you want to encourage. Children are of infinite value, inherently in their own right, but also for the future of this country.

If I had worked in the paid workforce, I would not have had the five, and Lorraine would not have had the six. It was what we chose; it was our personal choice. Other people would choose differently. My daughter, for example, is working full-time, not because she particularly wants to, but she has no choice. She is choosing for child care not the government-receipted child care, because she doesn't want her child in that setting. She chooses the unreceipted home setting for her child, for which she pays an enormous amount of money, because there's no recognition that she has this very valuable human being who she wants to be cared for in a particular setting. It's the personal decision of each parent.

Now I think Lorraine would like to go on about another aspect.

Ms. Lorraine McNamara (National Secretary, REAL Women of Canada): I did stay home for 23 years, and I went back into the workforce, again not by choice, but because of post-secondary school expenses. When you have six children and you're doing your very best to help them along with their education, it costs, especially when you live in a city that doesn't have a university, so they all have to go away to school.

I know the government does give some breaks with tuition and education expense, but believe me, it's nowhere near what the costs are, and there is really no recognition of what parents sacrifice there. We were on one income at the time. My husband is a teacher, and he made a good wage, but we never had any disposable income to put into investments. As one young lady mentioned earlier, the way to get your tax rate down was to buy RRSPs. We never did. We didn't have any investments in Canadian companies, nothing to bring the tax rate down. So we paid rather high rates, considering the number of children we were raising.

I'm proud of my family. We've done a good job. We made the choice to have the children, but we did sacrifice for them, and yes, we were discriminated against.

Thank you.

The Chair: Thank you.

We'll now turn to five-minute questions, and the five minutes obviously includes the answers too.

Mr. Forseth.

Mr. Paul Forseth: I could spend a long time reacting to the National Association of Women and the Law and their presentation here, but I'll just make a few comments. I hope they are as a responsible member of Parliament who reflects a community view, rather than my own personal bias.

I'm looking at page 7, where it says:

NAWL's view is that such a credit is a lower priority than providing the direct funding needed to establish a national early childhood education and care program.

When I see that as a major priority, I just simply ask why. Where is the polling data that says Canadian parents want it?

Then I go down to number 4 on page 7, where it says:

Proponents of such measures often say they wish to accord some value to the unpaid caregiving work that women do in the home.

This is a lot of the testimony we've heard over the last few days.

But the problem is they want to deliver tax benefits not to the caregiver spouse, but to the breadwinner. They simply assume that the economic benefit of tax relief would be shared with the caregiver.

Wow! I say it's the law.

Then I go to page 8 and I see this statement:

Statements made recently by Reform Party MPs in Parliament that the lower amount of the spousal credit treats dependent spouses as “second class citizens” or “less than a person” are misleading, inflammatory, and frankly ridiculous.

What I would like to say in that regard is that these were reflections of the community. This is what many of the parents—most of them mothers, but some fathers—were telling us they felt was the inherent message in that particular situation. It may have been overshooting, but that's how they felt because of the situation.

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Then I go to page 9, and it says in the middle:

A breadwinner who diverts income to a dependent spouse for tax purposes may do so only “on paper”, while still retaining practical control over the income. It would be unfair to tax the dependent spouse on income which in reality she does not control.

Again, I relate that to my previous comment: it is the law.

In view of some of the polling data that's been presented to us, I would say this whole presentation, although it has some value, is quite unrepresentative of where mainstream Canada is. In character, I see it as not child-centred, but as very much parent-centred, and on some particular parents.

We're trying to get at how we as a society value children and those who care for children. It seems there's a lot of defence of the status quo in this, rather than being prepared to really take a step back and say, “What are we doing in society and what inherent messages are we giving to parents who look after kids? How can we be more child-centred, rather than parent-centred?”

I'll end my comments there, and if there's any reaction, I'm prepared to listen.

The Chair: I'm quite sure there will be.

Ms. Philipps, please.

Ms. Lisa Philipps: Yes, I would like to respond to that.

I'm quite sure we disagree rather strongly on these matters, but I'm happy to be discussing them with you.

I really disagree with the perception of our brief as not child-centred. I know a lot of people have talked about their personal circumstances. I just had my first child a short time ago, and I can tell you I'm deeply concerned about valuation of caregiving work and children's opportunities and good care for children.

You mentioned that there isn't polling data that supports the need for a national early years program. You may be more in touch with polling data than I am, but it depends who you listen to. If you listen to the women around the country, we have been asking for this for a long time, and that's why the current government that's in power actually promised it in one of their election platforms. They weren't able to deliver on that for a variety of reasons, but there has been a lot of demand for this kind of program. I think a lot of women have given up, frankly.

We're pleased to see a whole body of new research being produced that talks about the need for this. It talks about Canada's disadvantage relative to other countries in developing an early years program. So there is a lot of substantiation out there for the need for that program.

Ms. Gwendolyn Landolt: Can I make a comment on that?

Ms. Lisa Philipps: Could I just finish responding to Mr. Forseth's comments?

The Chair: To clarify, Mr. Forseth is referring to a day care program, and you call it an early years education and care program. Is there a difference?

Ms. Lisa Philipps: Yes. This reflects my reading of the current research, which tries to shift the focus away from simply providing labour market access. That was the old discourse—that we just need somewhere to put the kids while we go to work. The new research is showing that what we need to be focusing on is child development. It is important for children in their preschool years to have access to high-quality programs, perhaps on a part-time basis, for some on a full-time basis, for some on a one-day-a-week basis, or whatever. All children need to have access to this kind of well-trained programming.

On the point about the sharing of tax benefits within a household, we argue that there is a misplaced assumption that tax relief to a breadwinner will necessarily be shared with the caregiver. It simply is not the law currently that one person's income as the breadwinner must be shared equally with a caregiver spouse. It simply is not the law. There are laws about division of marital assets on the breakdown of the family, and there are all sorts of critiques about how well they work. There is no law about sharing within a marriage or a household while it's existing.

We also have empirical research that shows that much less sharing happens than is typically assumed. It tends to be just an assumption we make that's not validated by empirical research at all.

Concerning the comments on page 8 about the remarks in Parliament on the lower spousal credit treating spouses as second-class citizens or as less than a person, I hear your comments about people feeling that's the message the system gives them. I think what's coming through there is that people don't feel appreciated. People who are doing full-time caregiving work don't feel respected or valued. Their work is not paid. They don't have access to all sorts of benefits that other people do. That is a serious problem.

• 1640

I don't think the way to address it is through a higher spousal credit. The reason for the lower spousal credit—and it's about 20% lower than the basic personal exemption—is the economies of joint living. If you're living together in a home, you do not have twice the basic personal expenses of two people living singly in two separate homes. That's the entire rationale behind it. It has nothing to do with second-class citizens or anything.

It's troubling that some people, in the heat of debate in Parliament, might inflame those feelings of not being valued, when the spousal credit is really not about that at all.

The Chair: Thank you.

Ms. Landolt, please.

Ms. Gwendolyn Landolt: It's really an insult to women to suggest that we all want early childhood education. Children are not machines; they're human beings. They need different kinds of treatment for every different child. They don't need access to so-called professional development experts. They need access to parents who love them and care for them.

Why should the taxpayers have to have all this money dumped into a special program for special people who want special development for children when their own parents can love them and care for them and bring them along just as well?

Second, in the vast majority of families, it's not his income and her income. The vast majority of families believe it's our income. It's our family income, and we share in the burden of raising the children. We share in the disbursement of the family income. On the question of control, it may be a problem in a very minor group of husbands and wives, but the vast majority of couples do not see it as anything more than family income. It's not a question of control. It is a question of caring about what's best for the family.

Again I'd like to emphasize that you have to look to the families themselves and let them decide how their children will be raised, not the state.

The Chair: Thanks very much.

[Translation]

Mr. Cardin, please.

Mr. Serge Cardin: Good afternoon, ladies, and thank you.

That was very interesting. Many situations are in complete contradiction with one another. It reflects the position of several people who said that it was not up to government to decide what choices women or couples should make; rather, it is up to the people involved to make those choices. It might not be the toughest decision in the world, but the government will have to decide where it wants to invest money to help people make the choice which is right for them, be it working outside the home and putting their kids in a good daycare, or staying at home and lovingly raising the kids. Of course, parents who send their children to day care also love them. So, that's not where the problem lies, but we have to make a choice and people should have the right to choose what is right for them without being financially penalized. This fact must be recognized.

You talked about income splitting. Some are for it and others are against it, but we have to find the right balance. Splitting income evenly between two spouses with children often has an impact on high-income earners. It also affects lower-income earners, but less so.

A little earlier, it was said that we should recognize the work done by stay-at-home mothers. If they were paid, that would be a form of income splitting. People can claim day care expenses, so why can't a stay-at-home spouse also claim some type of compensation, which could be used to calculate employment insurance and Canada Pension Plan benefits? This income would also make the stay-at-home spouse eligible for a tax deduction under her RRSP contribution. It would recognize the value of work done by stay-at- home mothers. I'd like to know what you think about this idea.

• 1645

[English]

The Chair: Ms. Landolt, please.

Ms. Gwendolyn Landolt: We certainly would like to see a woman at home have the option to contribute to the CPP and RRSPs. She should not have to be threatened by future insecurity because she's made this decision to stay at home to raise her children. She should have the option. That's why we like this idea of having a tax credit, so that there will be disposable income, which the parent can choose how to use.

I do want to emphasize that every mother and every father at home, even if one parent is at home full-time, does have tax expenses, and every income tax we have dealing with families should deal with what is in the best interests of the child. If the family chooses for the mother to be at home, it is very significant and important that there be some disposable income that the mother can put into her Canada pension plan or RRSPs. But again, the money should go to the family and let them decide.

I've heard other people say, “Oh, well, the family will spend it on beer or something like that.” In 1944 Canada brought in family allowance, and during all the time we had it, up until the 1980s, the studies indicate that in nearly every circumstance, the parents used that money for the benefit of the children.

Parents do care about their children and their children's future. Even though it was minor by our terms and our monetary values today, that money was usually put aside for the children. So if you give money to the family, give it to the family and let them decide how to dispose of it.

I know for myself, raising five children on a single income, there was no disposable income to think of my future and my re-entering the workforce as a practising lawyer. But we made that sacrifice.

I'd like to make it easier for my daughters, so that they have more flexibility than I had. I see the pain my daughter goes through, knowing that if she stops working, the family income will dry up and their future will suffer. I'd like that money to go to my daughters, or to my sons if they choose to stay home, so that there will be that discretion and that flexibility, which we never had in my generation, the same as Lorraine's. Both of us had to give up a tremendous amount.

We have to recognize the nobility of the work at home. It is noble work to choose to stay at home to raise your children, and an enormous sacrifice both professionally as well as sometimes personally. It's of great value to the government and the state for us to do that. We can recognize that by having flexibility so that the parents are able to make the choice and use the money.

I want to reiterate, please don't think the parents will waste the money on the beer parlour, because that hasn't been proven. Since 1944, when Mackenzie King brought in the family allowance, it hasn't worked that way.

The Chair: Thank you.

[Translation]

Last question, if you don't mind, Mr. Cardin.

Mr. Serge Cardin: Would Ms. Philipps like to say something?

Ms. Lisa Philipps: Yes, thank you.

[English]

It's an excellent idea to provide some form of allowance directly to unpaid caregivers. That would be a vast improvement over any system that provided benefits or tax relief to a caregiver via the breadwinner. It should be directly to the caregiver. That's an excellent suggestion.

However, it needs to be combined with programs to ensure the caregiver does have access to paid work if she or he chooses or needs to gain access to paid work.

So I see it as a two-sided thing. A caregiver allowance would be a terrific idea, but only if it's backed up with employment-enabling services and programs, such as an early years program to provide people with real access to day care. Then people will start to have a real choice about how they want to do this.

The Chair: Thank you very much.

[Translation]

Ms. Dockrill, please.

[English]

Mrs. Michelle Dockrill: Thank you.

First, Lisa, a lot of the issues you brought up today certainly we've heard from other presenters as recently as this morning. They believe the inequities, shall we say, cannot be solely solved within the tax system.

This is a credit to your organization. You did a wonderful job in your presentation.

• 1650

I don't know if you're familiar with a study that was done by Shelley Phipps in terms of a comparison internationally and how Canada fits with respect to the European countries, but one of the things they talk about, I think it's in Norway, is extension of parental and maternal benefits. I'll just give you an idea of what they've done there and tell me whether or not you think this might assist Canadian women.

They have available 42 weeks at 100% at replacement, or 52 weeks at 80%. The interesting thing, I think anyway, is that there's flexibility, which allows the mother to return back to work, if she would prefer, for 20 hours a week by staying home for 20 hours a week. I'm wondering if something similar...do you see that as assisting Canadian women?

Ms. Lisa Philipps: I think it's a brilliant idea, and it seemed so obvious, when I heard about it, that I can't believe we haven't thought of something like that. I think an awful lot of people would like to combine paid work and unpaid work in some other ways than simply full-time at one or the other. It is a complex decision and I think it's a wonderful idea.

I also think we really need to get rid of the two-week waiting period that currently exists for a maternity leave. I think we need to look at the exclusion of women from maternity benefits who work part-time, because reforms to the EI system in the last few years have made it more difficult for people. The qualification by hours rather than weeks worked have made it more difficult for a lot of people to qualify for those benefits. Ideally, in my imaginary Utopian world, I would love to see maternity and parental paid benefits available to all parents regardless of labour force attachment. I don't see why people with a certain history of labour force attachment should receive support for this period of intensive caregiving and others should not.

Mrs. Michelle Dockrill: I think this was a suggestion that was made this morning; it might have been yesterday, but I think it was this morning.

Gwendolyn, during your comments you referred to talking about child care and making the decision to stay at home with your children being a matter of priority. My question is, would you like to comment on those individuals who don't have that choice, who are forced into the labour market?

Ms. Gwendolyn Landolt: First of all, I'd like to comment about the Norwegian study. That was only implemented this past year, and certainly it is worthwhile considering. We would certainly support that too. We thought it was a very good move by the Norwegian government to encourage women to remain at home, but encourage them to go back to work according to whatever they wanted.

The second thing is, I thought I had made clear, and perhaps I didn't, that we believe every woman should have the choice...every family should decide whether the mother goes back to work or stays home. As I mentioned, in my own family, my daughter had no choice and went back to work. It depends on the family, their income, their value system—all sorts of things. My personal value was to practise law. If there was a trial the next day, I'd be there at 10 p.m. and I would say, what is the future? What's my priority? My priority was, I couldn't do both. I chose to be at home. Other mothers may choose differently. Other women, and lawyers I know, have made that choice. But it's up to the mother and the husband and the parents to make that decision, not the state, because everybody's values, everybody's financial situation, are so different. Our point is there should be a recognition for that choice and the dignity of choice.

We have a lot of concerns about the single mother. Certainly formerly, under the Canadian assistance plan, which we no longer have, but at that time.... Under the social transfer system now, the single mother is encouraged to go back into the paid workforce. Our opinion is, why is she treated so differently? Why can't she have the dignity to stay home if she chooses? Why is it that because she's single she's supposed to be out earning income? Maybe in her choice, when she's had a divorce, a separation, the children are in need, she's in need, she should be recognized as doing what she thinks is best and not being forced back into the paid workforce. Maybe she chooses that, but it's her business.

Our whole point is, let the family decide, and let every child be treated equally.

Mrs. Michelle Dockrill: I want to make a couple of comments.

The Chair: Very briefly.

Mrs. Michelle Dockrill: I want to say that being one of those individuals who didn't have a choice but had to return back to work had nothing to do with my value system; it had to do with the fact that I wanted to ensure there was food on the table for my daughter. I don't see one being connected to the other, and I think that's very important.

• 1655

You talked about your daughter, and you referred to child care. You made the remark “that setting”. I would like you to clarify. What are you seeing as “that setting”?

Ms. Gwendolyn Landolt: That setting would mean she had a choice of getting receipted child care, but she chose not to accept that particular setting for her child because she doesn't want her child to be in that kind of huge group. She didn't want her children to be in a room with another 15 children at that age. She preferred the family setting. She got a neighbour across the street to look after her child, for which she received no receipts. It's an enormous investment of money for her, but because it was her value system that she didn't want her child to be in a government-run or privately run day care system she chose a family setting, as opposed to the group setting at child care, as a personal decision.

• 1700

I'd like to go back to what you said. Values do have a great deal to do with choices as well. Lorraine is an example. It was perhaps more difficult financially for her to remain at home than it was for me to remain at home. But her value system was such that she would make the greater sacrifices. So values are tied into that, depending on the family. What do you want for your children? What do you want for your family life?

My daughter's reaction was she had no choice, just like you. She had to have bread on the table. There was no choice. But she did what she thought was best.

Mrs. Michelle Dockrill: I want to go back to something that concerns me personally . When you talk again about “that setting”, as a mother who has had third-party care...my children have been looked after in my home. I'm getting the sense of an institutionalized care. I think we have to be clear here about quality care, whether it's in a day care of 30 or whether I have an individual come into my home and look after my children. I don't like this sense of “that”. I just wanted to clarify that.

Ms. Gwendolyn Landolt: I think I want to make clear that if you have a universal child care program, or if you want to call it early development, that's what you're going to get, because it costs $8 billion.

Mrs. Michelle Dockrill: I don't know if that's what I'm going to get.

The Chair: I'd like to turn to Mr. Szabo, please, because we have a flight to catch.

I'm sorry, Mr. Jones.

Mr. Jim Jones (Markham, PC): I have a question for Lisa. I look at your brief here. Have you costed out what it would cost the Canadian taxpayers if all of these were implemented?

Ms. Lisa Philipps: No. I have to say that I haven't costed it out, and obviously Parliament has to and the government has to set priorities. I understand that. If I were going to choose the one thing I would like the government to start with—I realize not everything can be done at once—I would like to see a serious investment in the next budget in an early years childhood education and care program.

The Chair: Could you give us a figure of how much you think we should invest?

Ms. Lisa Philipps: I have seen the National Council of Welfare's recent proposal, which does contain cost estimates. They look at a final cost, ultimately over several years' implementation, of about $7 billion to $8 billion, I believe, shared amongst parents, federal government, and provincial government. I believe the federal government's share...I can't say. It would be off the top of my head.

Mr. Paul Szabo: But you should be clear: that is only for children over age three.

Ms. Lisa Philipps: I didn't realize that. Okay.

Mr. Paul Szabo: It's non-inclusive. Fraser Mustard and the U of T did their study. The full cost is about $8 billion.

The Chair: Mr. Jones, please.

Mr. Jim Jones: I have one other question. Is having children considered an expense or a loving investment?

The Chair: In 20 seconds or less, please.

Ms. Gwendolyn Landolt: I think most parents regard it as a loving investment. With that comes the sacrifices expense. It's a side issue. But we look upon having those children as a great and unique joy to society and a great benefit to society.

The Chair: Thank you.

Mr. Szabo, please.

Mr. Paul Szabo: On the first item of increasing the Canada child tax benefit up to $4,000 or $4,200, that one is worth $12 billion. The second recommendation you're making is in the range of about $8 billion. So forgetting about everything else, we're up to $20 billion. That's two departments of defence.

Realistic, achievable, affordable, priority driven, etc.—that's nice to have, but I think we're going to have to be a little bit more targeted here.

• 1705

Mrs. Landolt and Mrs. McNamara, I enjoyed your enthusiasm for the family...[Editor's Note: Technical Difficulty].

I'd like to pass on a question in writing, so that at least you can maybe give some thought to the question. The question is this. To put it very simply, say you have a lower-income-earning spouse at the highest marginal rate—anything over $65,000—and another family where the lower-income-earning spouse is making $29,000. Say they live next door to each other, they both send their one child to the same day care or third-party care, and it costs them each the same amount—$5,000—to this party that's going to provide care for each of their children.

Assuming the employer has deducted all the taxes that have to be deducted, when they file their income tax returns, the taxpayer who makes an income level at the highest marginal tax rate, over $65,000, is going to get a refund cheque of $2,500, basically 50¢ on the dollar, because that's the effective marginal rate. The lower-income-earning spouse who's at the lowest marginal rate is only going to get a refund cheque of $1,250, basically 25¢ on the dollar.

So even though they paid the same for the child care, there is a greater benefit, a greater subsidy, to the higher-income earner, for no other reason than that they just happen to have the opportunity to earn a higher level of income.

In your view, does that represent fairness or equity?

Ms. Lisa Philipps: No, it is not fair. The main reason it's not fair is that for neither person does it come close to allowing them to have real access to child care.

Furthermore, converting it to a credit, which is the reform most often suggested to fix this problem, would do no better at providing them with access to child care. It's still not nearly enough to cover the costs of entering paid employment.

My concern is, if this is converted into a credit, it will be converted at the lower amount. It will be converted, and the amount of the credit will be determined by reference to the lowest marginal tax rate, like all of the other personal credits in the tax system, at 17%, rather than at the highest marginal tax rate of 29%. So we'll actually see a reduction in support for child care services for a lot of families, rather than fairer distribution.

Those are the problems I have.

Mr. Paul Szabo: I understand that, but the point is that the subsidy is inequitable based on level of income. As for how we deal with it, you could pick a credit. Obviously if you pick a credit, it's going to be an equal benefit for all those who choose to have third-party care, and since these two tax levels have different levels of benefit currently, theoretically one is going to go down and the other one is going to go up. There will be a winner and a loser; there's no question about it.

On the matter of where you put the credit, you could say let's give it at the 29% federal rate, and therefore the low-income earner would get a much higher value than they're currently enjoying. But the credit would still at least give all taxpayers the same level of tax subsidy based on the same level of child care expenses.

Ms. Lisa Philipps: You could even make it refundable, which would make it truly universal.

Mr. Paul Szabo: Absolutely.

Ms. Lisa Philipps: The problem is I fear that's not how it will be done, and the credit will make it much more vulnerable—

Mr. Paul Szabo: The real issue is that there is an inequity that has to be dealt with or should be dealt with.

Ms. Lisa Philipps: I think the real issue is that you cannot deliver access to the paid labour force through child care expense deductions or credits. It does not work.

Mr. Paul Szabo: I do understand that. In your presentation as I heard it and as I scanned through it, and in your comments about it, something does not give them true access to care.

The signal you've given me is that your policy or your approach is more woman-centred than it is child-centred, that we need to do something for women, rather than asking what we can do to provide the best range of choices for families so that they can choose the arrangement that best suits the needs of the child. I think that's the difference in the approaches people would take to this. We've had it before.

• 1710

Ms. Lisa Philipps: I regret that's how NAWL is perceived, because it's certainly not my view. I think children can be extremely well cared for in a variety of different arrangements. One of the important factors you must take into account, when you're trying to reform the tax and transfer system to make sure that happens, is gender equality. I think it is underplayed. Perhaps it comes across as my only emphasis; it's not. It's one factor I want to make sure you—

Mr. Paul Szabo: Just a very quick last one. Education, day care, preschool programs, nurseries, etc., are all provincial jurisdiction, are they not?

Ms. Lisa Philipps: Yes, I hear you.

Mr. Paul Szabo: So the recommendation to the federal government that we have to do something in early childhood development necessarily would be principally a provincial thing. You're suggesting the feds should maybe take an interest because there would be possibly some benefits flowing to all Canadians.

Ms. Lisa Philipps: Yes. I'm saying the federal government has to take a leadership role in order for this to be—

Mr. Paul Szabo: In provincial jurisdiction?

Ms. Lisa Philipps: Yes, it would be done in the same way you've done it with the national child benefit.

Mr. Paul Szabo: Okay.

Ms. Lisa Philipps: Lots of people said that couldn't happen, but it's happened. It's a model for federal-provincial cooperation in a grey area.

Mr. Paul Szabo: Thank you.

The Chair: [Editor's Note: Technical Difficulty]

Ms. Yvonne Choquette (Individual Presentation): Thank you.

My name is Yvonne Choquette, and I'm here both as an individual and on behalf of a group I have called Mothers for Kids. We are largely mothers who have been through separation and divorce. I want to bring to you the perspective that the tax laws and the tax structure we have in Canada also affect families that are separated or divorced. Perhaps you will find that the impact the laws have are revealed most clearly when you look at a divorced family because those structures play a role in what people do about custody.

I sent a letter to Jason Kenney and Carolyn Bennett about this issue and they suggested I should speak as a witness.

I do not have a brief today for you, but I would like to give you some of the comments I have on what I perceive. I am also an accountant and have worked with the tax return on my own and with other people.

The Reform Party has stated that the family unit is of importance in our country and is the cornerstone of our society. I believe I would like to see that supported in our laws. I'm going to suggest we have a law that says we do not support the family structure. In fact, we have a law that moves toward families in separation and divorce. Laws that create a greater financial incentive for separation of the family unit cannot function in the best interest of the family or the child.

• 1715

So I'm going to suggest, as parliamentarians and lawmakers, your first step is to decide whether you're going to uphold the family. If the answer is yes, then enact laws that will uphold the family. If you're not supportive of the family unit, that's another story. I'm hopeful that as a society we want to take that into consideration and develop tax structures that support the family unit.

I will lay out several views about the tax structure and what I see as impacting on the divorce and separation area. The first area is the equivalent-to-spousal amounts. The taxpayer claims for a spousal amount if the marriage is intact. If a person is divorced, the child can be claimed as an equivalent-to-spousal amount. Either way, the spousal amount is claimed if that spouse does not earn over a certain amount. So in a divorce situation it is clearly a claim, a deduction on your tax return. The child is claimed as a deduction under the equivalent-to-spousal amount. In a marriage it may or may not occur. So there is inequity in the laws that exist because in one situation it's definitely a deduction; in the other situation it's a maybe.

The other point I'd like to make about that is it is available to all divorced taxpayers who have children. The fine print says you may not deduct this amount if the claim is for a child for whom you can deduct support payments or for whom you are required to make non-deductible support payments. In other words, where there are support payments flowing one way or the other about the child, you may not use the deduction.

The case I would like to bring to your attention is that if you do not have support flowing one way or the other, the issue about custody becomes a concern. I'm going to suggest later that some people use these financial incentives as part of their package on divorce and separation. It plays a major role for some taxpayers. What's the financial end result or benefit of divorce and separation? There are actually financial benefits. Custody plays a role, because if you have custody of your child, you have an automatic deduction.

The next area I would like to cover is the child care deduction. If you're a single parent, the claim is—

Mr. Paul Szabo: Do you mean lone parent, as opposed to never married?

Ms. Yvonne Choquette: No. I'll just finish the picture here. For the single parent who is claiming the child care deduction for a nanny or day care, this deduction is available. It's there. If you're in a marriage situation—husband and wife—and the marriage is intact, you may or may not claim that child care expense on your tax return. So we have an inequity in our laws, because in a divorce situation this deduction is available and the person may pay for a nanny or other child care expenses and write the entire amount off on their tax return.

The Chair: I thought that was only to earn a second income.

Ms. Yvonne Choquette: No. I'm talking about a single parent. The person who is the custodial parent—

Mr. Paul Szabo: A lone parent is eligible for the child care expense deduction.

Ms. Yvonne Choquette: A custodial parent pays the nanny, pays for child care expenses, and perhaps even has a housekeeper who's rarely there with the children. But that amount is written off up to a certain amount, depending on the number of children on your tax return. So this amount is available. There is no second income.

• 1720

The person is a single parent. It's a one-parent family. The children are custodial there. That person can use the child care expenses for the nanny or housekeeper and write them off on their tax return. In a marriage that's intact with a stay-at-home mom, there are no child care expenses, or very minimal ones. You need the second income, and there are certain restrictions about whether you're going to use them or not.

So the inequity is that it's a definite deduction available to the divorced taxpayer who has children and expenses. It's a maybe on the side if you have an intact family. So there are laws that support, to a greater financial extent, the family that is divorced and not the family that is intact.

The Chair: I would have to agree with you.

Mr. Paul Szabo: I'll get my chance.

Ms. Yvonne Choquette: I'm just suggesting it may be useful, as lawmakers, to look at that segment of our society to see what the impact is, because there are no separate laws for families that are divorced or separated—there is one, actually. I'll mention it at this committee. On the child support issue, the law has changed so the person who receives the child support does not pay the tax. When the tax is taken off at the source, it usually means the tax is paid at the higher rate rather than the lower rate. That differential in tax rates from what we had previously is now going into the Revenue Canada fund. It's not available to the child. There's a difference there, and divorced parents are noticing this. There are concerns about the extra money that's going into the tax revenues rather than for the children's needs.

Mr. Paul Szabo: Suzanne Thibodeau—

The Chair: You'll get your chance later.

Ms. Yvonne Choquette: The other point I have is there is no financial recognition for caregiving done by mothers—or it could be fathers, as there are fathers who stay home to do caregiving. It's perhaps unfortunate in our society that we need to recognize it at a financial level in order to have the recognition happen.

But speaking as a mother, and on behalf of other mothers, the lack of recognition of stay-at-home parenting, caregiving, has had an impact in our courts. When we do not recognize it financially, whether it is through the tax structure or otherwise, that style of thinking carries on throughout our society and into the courts. There are many mothers who are not caregiving after separation and divorce because of financial reasons and because of the lack of recognition in the past. I would also add that it may include fathers who are in a similar situation if they've been the caregivers.

I'll just wrap up to say that if we're child focused, there's a huge area of philosophy and theory about where we go from here, because it impacts not only on the tax structure, but on the entire picture, including courts and divorce. I hope that as we look at the tax structure we will make positive steps toward supporting families rather than divorce situations.

Thank you.

The Chair: Thank you, Ms. Choquette.

Mr. Sarlo.

Professor Chris Sarlo (Professor, Department of Economics, Nipissing University): Thank you.

I just want to say, to begin with, that I'm not a tax expert. I'm a professor of economics. My research background is in the area of poverty and Canadian living standards. However, in the course of doing this research, I have had occasion to examine income tax implications for families of different compositions and have noted some degree of inequity, especially as regards the treatment of single-earner families with children.

• 1725

As would be typical with economists, I'd like to give you some illustrations. I've also got a table that I will refer to in a little while. Let me give you a very brief illustration of the idea that I mentioned, that the treatment of single-earner families has some degree of inequity connected with it.

Imagine a single man earning $60,000. The income tax that person would pay would be $17,476. That's based on 1998 in the province of Ontario. If that man was married and his wife was not employed—so the family is still earning a total of $60,000—the income tax bite falls somewhat by about $1,400 to $16,037. Going further with this, imagine the same family, the man earning $60,000, the wife not employed, but they have one child. The income tax paid is still $16,037. Imagine the same family having two children. The income tax is still $16,037.

Mr. Paul Szabo: Look at the Canada child tax benefit.

Prof. Chris Sarlo: I'll come to that in a moment. That same family with three children has the same tax bite in terms of income tax paid.

As I mentioned, and Mr. Szabo correctly pointed out, that's not the end of the story. There is a child benefit that is paid, and we would have to take account of that, but it doesn't fully account, obviously, for the additional cost of children.

What I'm saying is that the tax system does not account for the cost of raising children. Whether it should or not is another issue, but it simply doesn't at this point in time.

I wanted to draw that little illustration to your attention. In terms of income tax paid, the addition of children is not accounted for in the tax system. It is in the child benefit system, to some extent or other, depending on your income tax level.

What I've done is to try to put together some scenarios...[Editor's Note: Technical Difficulty]...that are referred to in the terms of reference of this subcommittee. Essentially, I have put together a table that I hope has been distributed to everyone, and I'll make reference to that table.

All of the families in the table are families of four. In terms of comparison, I wanted to make it as much of an equitable comparison as possible. I'll begin with the three cases in the top part of the table that refer to middle-income families. I want to compare each of the family configurations in this section on a fair basis. The first case is the dual-parent, dual-earner family. They have two small children and they pay out-of-pocket child care costs of $5,000 per child. This is an assumption simply to build in some factual illustrations of the case. Their gross income is $70,000, and I'm assuming a $40,000-$30,000 split. So their net income after child care costs is $60,000. The taxes paid in this case will be $12,898.

It's appropriate, however, not to leave it at that. I know some of the people who have complained about tax inequity just leave it at that. They say the tax paid by the dual-earner, dual-parent family is much less than it would be for a single-earner family. But I think we do have to point out the other aspects of the larger tax transfer system.

Therefore, I have looked at the overall living standards of the family in terms of the implications to the tax system, that is, after tax, after child care costs, and including the child benefit and including any other tax credit. We've included in there the GST tax credit and, if relevant, any provincial tax credit. Again, my illustrations are all for the province of Ontario. To return to that case, then, for the dual-parent, dual-earner family, the overall living standard is $47,438.

If we go to the next case, we have a dual-parent, single-earner family. That family earns a gross income of $60,000, and because there is one parent staying home to care for the children, there are not those child care costs. So the net income is also $60,000. The tax paid by that family would be $16,037. I've mentioned this already a few times earlier.

• 1730

Again, this is not the end of the story. We have to include the other aspects of the tax transfer system, and we end up with a net living standard of $44,725, leaving the dual-parent, dual-earner family with a living standard advantage of about $2,700.

If we take the third case that, again, has been part of the terms of reference of this committee, the single-parent, single-earner family, in this case it would be a family of four. The parent has three young children. I'm assuming in all cases that the children are young so that there are child care costs associated with them. The single-earner parent would have to make $75,000 to net out $60,000. The tax bite is the same, $16,037, and the overall living standards, when you include the child tax benefit and all the other tax-related implications...$45,394, resulting in a tax advantage to the dual-earner, dual-parent family of about $2,000.

• 1735

That gives you, perhaps, a quantitative estimate for a roughly middle-income family. I tried to pick something in about the middle of the pack for families, and I think that is roughly a ballpark estimate.

The picture really changes when you go to the low-income side of things, and I hope we're not getting too tediously into detail here. But I want to run very quickly through several low-income scenarios for you, where I've done the same kinds of comparison. I have basically said they all have the same net income and they all have the same resources after they've paid child care costs. I've assumed, by the way, that for the low-income family, the child care costs are somewhat less than for the higher-income family. I've assumed $2,500.

My reading of it is that this is reasonably realistic, that child care costs tend to be connected to one's income. So I've made that assumption. There may be a little bit of a quibble with that, but essentially you have in this particular table, surprisingly...and I've added one case to the three that are in your terms of reference. The final case would be single-parent, no-earner, because as we know, at the bottom of the income distribution we start to find this particular case cropping up, the case of a family where there is no earner, where the adult in the family is receiving either social assistance or receiving support payments. In that case I have left the dual-earner advantage column blank because there is no dual-earner advantage when you get into low-income categories. I would think this is not unique to the $25,000. I would expect that at some point between $60,000 and $25,000 you are crossing a threshold and there is no further dual-earner advantage.

I won't go through the details. I've basically walked you through the earlier examples. But essentially you have an advantage for the no-earner, in a sense, in this table. My comment to that would be to say that if there is concern that there is a dual-earner advantage, it is only at middle-income and above. It certainly doesn't appear at the lower end of the scale.

There would be other policy concerns you might have about this particular result. You have in fact an advantage of about 21% for the no-earner family. This perhaps would be of concern regarding work incentives, that built into your policies, the tax system and the benefit system and so on, would be some concern about the work disincentive. You've got families here, some dual-earners and some single-earners, earning money, and in fact all have the same net income, but you have an advantage once everything falls out, once the dust settles out of the tax transfer system. It's a considerable advantage. It's $5,500, which is not inconsiderable for families in that low-income category.

• 1740

Economists and policy-makers would obviously be concerned about the work disincentives of that particular gap, and the issue of the dual-earner family advantage would obviously not be there.

I want to summarize by saying there is a clear dual-earner advantage at middle-income and higher-income levels, although the margin of advantage falls once other aspects of the tax system are accounted for. I don't think you would really want to only look at the tax bite; you'd want to look at the entire picture. There's clearly no dual-earner advantage at lower income levels.

In terms of modifying the tax system to account for the cost of raising children and treating single-earner families, at least middle-income and above single-earner families, more equitably, I'm personally going to be of limited use to this committee. I don't have the expertise to give you a suggestion. I think you've heard some suggestions from other witnesses.

However, I think one of the things you should look at would be the Boessenkool-Davies proposal, the universal child deduction, in the recent C.D. Howe paper. Again, I'm going to suggest that...obviously, I've heard, from having been here a little earlier, that reference was made to that. So you're well aware of that. It's one of the pieces of literature that I've looked at. Again, I am not steeped in this literature, so I can't recommend anything to you. I simply thought I would bring forward some examples that might assist you a little bit in the discussion.

The next to final thing I want to say is that in my view the way families configure themselves is a very personal and private matter. In general, I think the state ought to remain neutral on the way people configure themselves. Obviously, you can't stay neutral in all cases. If there's concern about children and child welfare, there needs to be some body, some organization, to step in. However, in general, the way people configure themselves certainly is a private matter, and the state certainly shouldn't bias itself or bias its policies, including tax policies, in favour or against particular configurations. And they certainly shouldn't bias themselves against single-earner families where one parent stays home to care for children. It seems to me that the state should be neutral, in general, on those issues.

Finally, I hadn't planned to say this, but having heard the first speaker—I agree with many of the things she said—we certainly shouldn't have policies that bias choices away from intact families. So if there is something in your deliberations in which you find evidence that there are policies that move in the direction of bias against intact families, I would think that would be detrimental to children. So I would urge you to think about that as well.

Thank you.

The Acting Chair (Mr. Paul Szabo): Thank you very much.

Mr. Forseth.

Mr. Paul Forseth: Yvonne, I found your comments about marriage and divorce quite interesting. As one of the authors of the special joint Senate-Commons committee report on child custody and access, which was recently shot down in flames by the justice minister, we're going to be dealing with that in the future. It was most resoundingly shot down in flames.

Mr. Sarlo, we are quite aware of the differential in the outcomes of taxes to be paid at the end. The interesting thing is to look at where we're kind of mixing apples and oranges, where we've got a one-earner versus a two-earner family to compare. Then you add the single earner with two people there, and we jump to the assumption that it's a caregiver.

• 1745

The real differential in outcome is between a one-earner family and a two-earner family, where kids are taken right out of the equation. Maybe the second person at home doesn't have a child but they want to paint, write, or do something else. They're doing a lot of community service. But you find the real differential. So the only way to respond to that would be with a flat tax rate, which is kind of beyond our committee.

So we try to wipe that off the table and just look at the part where the Income Tax Act begins to fiddle with issues where children are involved—trying to provide benefits and incentives for that child care person to get back into the workforce and all of that. That's where there's the perception out there in the community of some sense of unfairness. So we say, okay, what do you recommend to kind of fix that part of it, seeing that at this point we're not going to fix the front end part of it, with the three rates we have of 17%, 26% and 29%?

Obviously, depending on how a two-income earner would split up their income, you would get quite different results. But if we can get that aside and just look at the differences related to children, what would be some of your recommendations there to fix what appears in the community to be disparity?

Prof. Chris Sarlo: Again, I find it a little bit of an awkward position because I'm not a tax expert. I've been dealing with issues of poverty and inequality in living standards, so I haven't given a lot of thought to that. I did run across the C.D. Howe paper and I thought that was a reasonable approach. In fact, I did some calculations in a paper I did along those lines. But I think I would just be talking from the top of my head if I were to throw something out.

Mr. Paul Forseth: Yvonne, it's interesting that we had some previous presentations where a gentleman was almost quoting in pejorative language right out of the Income Tax Act around the whole issue of equivalent-to-married exemption and then how it assumes it's female. Of course, it's only available to someone who's receiving child support payments, but if you're paying one, you can't get it. Then we look at the combination of parents who may both be receiving child support payments from one family and paying in another. There appears to be a real tax mess in that whole problem.

Some folks have even said that if there's a real discomfort in the marriage, or whatever, the way the numbers are jigged is the final straw that pushes one over the edge to have a family breakdown. I'm not saying that's the cause, but it's almost like they're paving the highway to make it a lot easier to dissolve families, and that really doesn't work in the interests of children.

Ms. Yvonne Choquette: I fully agree with that statement. It certainly seems as if a lot of people are motivated by financial reasons, especially as you move into higher incomes, where there are professionals and mom has been staying at home to support the family while the other parent has been busy with an occupation outside of the home. Yes, the financial impact is great. You've said that it paves the way. Sometimes it does. This is reality. People are motivated by financial means, and the tax structure is part of that picture.

It is important to look at this entire picture. We don't have a separate tax return for people who are separated or divorced, and there are a lot of families who are in that situation. On the support issue, when you have people who have married for a second or third time and there are considerations of income and custody, these factors play a role in the entire picture.

Mr. Paul Forseth: Thank you.

[Translation]

The Chair: Mr. Cardin, please.

• 1750

Mr. Serge Cardin: I would like to begin by thanking you and congratulating you for the work you all did to help analyze and delve into this situation. We've heard from many witnesses, but just because we've heard a lot, it doesn't mean we're going to stop talking at a certain point. However, please understand that we are progressively enlightened as we hear from more and more people.

We were shown graphs which try to demonstrate the unfairness of the system. I have a hard time going along with this, because a lot of factors are not included. For instance, take the first line of your presentation: two parents, two incomes. You start from the premise of an income of $70,000 and of a net income of $60,000, but we have no idea of where the $70,000 come from. There are many likely scenarios. Also, why did the second spouse choose to work outside the home or to stay at home? I think your graph doesn't do very much to help us identify the unfairness in the system. Our committee, with the help of its research assistants, will have to closely examine all factors which, according to some people, contribute to making the system unfair. That's the issue we will have to explore. People make many choices which affect the amount they pay in taxes and therefore how much disposable income is left. For instance, a single parent who is the sole breadwinner may choose to spend $15,000 to send her three children to day care, whereas another parent, who earns less money, may choose to spend $7,500. People have their own reasons for choosing what they do.

Your work is good, since it identifies a potential problem, but we will have to do even more research and delve even deeper into the issue.

That's all I have to say.

Ms. Choquette, you also told us about how unfair the system is. At first glance, we may wonder why, but there are also important factors at play, like the spousal-equivalent deduction. A single father or mother raising their child alone has an advantage. You may call it an advantage, but this tax deduction helps them run a whole household. The person is not living alone, but with other people, and this involves basic expenses.

Here as well we have an important responsibility, namely to define and clearly identify an iniquity as such. There are various factors that explain why the legislator decided in a given situation to implement the Income Tax Act in such or such a way.

You say that tax advantages may help in making family choices and may even, in extreme cases, provoke separations or divorce. I have some trouble with that. Personally, it seems to me that in the case of a union between a man and a woman which children, the thing that is lacking in this important family cell of our society is not so much tax advantages but love, compassion, hope for the future and so forth. So I have some trouble with that.

As I said, the committee will be taking a look at all these unfair practices that are important for lots of people to determine how significant they are.

Those are my comments at the end of the day.

• 1755

[English]

Ms. Yvonne Choquette: May I respond to your comments? I would just like to point out that I believe many and probably most parents are more intent on the love and care of their children than financial benefits. But I would also say there are some who look to financial benefits in the end. The amounts are not inconsequential. For child care for an equivalent-to-spousal amount, we're talking about thousands of dollars, and people look at that. It doesn't happen all the time, but it's there. Our tax structure goes back a number of years, and the number of children and families that are involved in separation and divorce has increased in the last 5 to 10 to 15 years. The numbers have become very great.

When I was in a marriage situation I did not even think past the equivalent-to-spousal amount. The point I was making about the dismantling of the family and the impact is that not only individuals but courts and judges should also consider the lack of recognition of the caregiving role a parent can play in a child's life, because we don't have money attached to it. I don't know what we should do about this problem. It's bigger than me. It's unfortunate, but if we're looking at the tax laws and tax fairness, this is the place to bring it.

In closing, the picture is that if the mother, for example, does not have the financial resources to care for the child, a judge—I don't want to be presumptuous that all judges.... In some situations mothers will sign custody over to the fathers because they don't have the financial resources. They're willing to go so far as to remove themselves from being the caregivers of the children because they do not have the financial resources because they did not work during the time their marriages were intact. Thank you.

[Translation]

Mr. Serge Cardin: Mr. Sarlo had some comments to make.

[English]

The Chair: Do you have any comments, Mr. Sarlo?

Prof. Chris Sarlo: No. My table was intended to be illustrative. I understand you have to take a lot more into account than simply these basic cases. There's a lot more to do. I certainly agree with you that the choices people make are very complex. I would just say that where people make private choices, the state certainly shouldn't intervene in those choices unless they're harmful choices. The state certainly should not be biased in their tax policies, in favour or against one particular family configuration.

I guess I'm leaning in the same way as the other witnesses. I certainly wouldn't want to see the state leaning in the direction of making it easier for families to break up, with the bad consequences for children of family breakups. We know that family breakups are very prevalent these days. All kinds of things are happening for what seems to others to be very flimsy reasons. So we don't want to give any additional impetus at the margin.

Obviously a strong family is not going to break up for financial reasons, but there are a lot of families where there are difficulties, and we don't want the state to have policies that are biased in a particular direction. That's all I would add, but I certainly agree with you, it's a complex issue.

The Chair: Madame Dockrill, s'il vous plaît.

Mrs. Michelle Dockrill: Thank you, Mr. Chair.

First I want to thank both of you for coming. I think it's important to note that all of the presenters we've had over the course of the last three days, including yourselves, have pleaded passionately about their commitments to their specific issues.

It's not an easy task to listen to such commitments and make a decision on a solution. I think we all agree there's not going to be a one-size-fits-all solution.

• 1800

Yvonne, on the comment you made that people are motivated by financial means, in an article in the National Post a couple of months ago, there was a remark made. I'd like to read it and maybe get both of your views on this statement:

...the main problem facing parents isn't whether to stay at home or not, but figuring out how to pay 1990s size debts with pay cheques that have barely seen a real increase since the late 1970s.

I want to know both of your views on that statement.

Prof. Chris Sarlo: I'm aware of the problems with family income. Real family incomes have been relatively stable over the last 20 years, so I don't disagree with that. What I also know is there's an awful lot of underground economic activity and unreported income. Stats Canada has done its best to try to estimate that, and we're talking about many billions of dollars. I don't know whether we're getting a full picture. If in fact hidden income is exactly that, it's hidden from the statistical evidence, then we don't get a full picture of the real resources available to people. But I certainly agree.

I study this sort of material myself and I understand that.... Families, of course, are getting smaller as well. That's another consideration. Over the last 20 years we've had a slight decrease in family size. But obviously incomes are stable and expectations are higher, so I'm sympathetic to some extent. I'm not too sympathetic to middle-income families who say “We have to have both parents working or we can't make it.” We have this sort of statement coming from people who are making $50,000 to $70,000 combined income or more. I'm not too sympathetic with that.

You certainly don't need to have two incomes. In fact, there's never been an easier time in Canada's history to make it on one income. I think to a large extent the problem is expectations. But at the lower end of the scale, I would certainly agree it's very difficult for families to make a go of it on $20,000 to $30,000. Those are low incomes, and that's where I would be more sympathetic to that line of argument.

Mrs. Michelle Dockrill: Just before you answer, Yvonne, I want to pick up on that. Some of the presenters talked clearly about the change in the labour market and the fact that there has been a significant increase in what people have referred to as McJobs—you know, $10,000 jobs. Therefore, there are requirements for some families to have two people working in order to end up with a $20,000 job. We see an increase in those part-time low-paying jobs and a decrease in full-time jobs.

Prof. Chris Sarlo: There certainly has been an increase in the service sector. I'm in the service sector, so there's been an increase in teachers and professors and an increase also in fast food outlets. It's on both ends of the scale.

There was another part of your question.

Mrs. Michelle Dockrill: There has been an increase in part-time work, but some people sense there's been a decrease in full-time good-paying jobs. I'm kind of tying that in.

Prof. Chris Sarlo: I would suggest the committee really look at that very carefully and look at, for example, dual-earner families. Are they largely low-income families? If there's a justification that's based on need, you would expect that to be the case. Are they largely in the middle income and higher?

I can't pull anything out of my pocket to give you right now. It's the sort of thing I'm interested in as well. But I would want to look at that. I would urge you to commission something like that. You should be able to get that fairly readily.

My concern is you might find more dual earners at the higher level. It's just a possible concern that it might be, so that would affect that particular comment.

Ms. Yvonne Choquette: I just have two comments about the National Post article. One is that this may in fact be true. The tax bite, which is the place to address this, is significant. I have to say at a tax committee that the taxes we pay are substantial. We work until June, and that hasn't changed. The tax bite has been increasing, so there's definitely some effect there.

• 1805

The second thing I'd say, on behalf of non-custodial parents and parents who are in separation and divorce, is that those numbers are increasing. Perhaps the fabric of our society is changing such that there are more two-household families that have to furnish a house, have to find a place to live, and the children have two sets of clothes, and so on. Those things cost money, and nobody has addressed in the tax situation the cost of living for families where they are separated. But maybe it's time to realize that the fabric of our society has changed and a large number of families with two households does exist.

Thank you.

The Chair: Thank you.

Mr. Szabo, please.

• 1810

Mr. Paul Szabo: Mr. Sarlo, I was interested in your calculations, and I only wish you had provided them eliminating the impact of progressivity and the individual taxation system. It would help us then to focus on the impact of parental choices with regard to caregiving, which is the mandate of the committee.

Yvonne, from what I gather, you're not comfortable with a divorced person getting the equivalent-to-married non-refundable tax credit for a child in their custody. That's one of the concerns you'd like to have dealt with. How about an unwed parent? Do you have a problem with the unwed parent getting the equivalent-to-married?

Ms. Yvonne Choquette: There are a lot of factors there to—

Mr. Paul Szabo: If it's a teen mom who made a mistake and has a child—

Ms. Yvonne Choquette: Sure.

Mr. Paul Szabo: You don't have a problem with her getting the equivalent-to-married? How about a widow or a widower getting the equivalent-to-married for a child?

Ms. Yvonne Choquette: There are factors there, depending on age, and so on.

Mr. Paul Szabo: How about an abandoned parent with a child?

Ms. Yvonne Choquette: An abandoned parent?

Mr. Paul Szabo: Yes. If one parent just walked off the face of the earth, walked away from the marriage, do you have a problem with the remaining parent with the custody of the child getting the equivalent-to-married?

Ms. Yvonne Choquette: Yes.

Mr. Paul Szabo: Okay. How about a single person caring for a dependent relative, like an aged mother?

Ms. Yvonne Choquette: It's slightly different. You have a dependent deduction there.

Mr. Paul Szabo: No, you get equivalent-to-married. That would be okay?

Ms. Yvonne Choquette: Sure.

Mr. Paul Szabo: How about an abused woman whose husband abused her and then she was separated or divorced? Do you think she should be able to claim equivalent-to-married?

Ms. Yvonne Choquette: We're talking about the divorced category.

Mr. Paul Szabo: Whether they're divorced or not, they're no longer together.

Ms. Yvonne Choquette: I put it under the divorced category. My feeling is that everything that involves a courtroom, some determination about custody—that whole picture needs to be addressed much more clearly than it is right now.

I don't know if I have the answer. I don't think I have the answer. It's a difficult decision, because if you're creating one law for all, maybe one size does not fit all. Maybe you want to have a separate category; you want to eliminate that from the divorced parents picture.

• 1815

Mr. Paul Szabo: Okay. Under the old divorce law, the reasons for divorce would be adultery and abuse, and you could get an automatic divorce. Obviously, that wasn't a mutual choice of the two. There was a victim involved and it allowed for automatic divorce. We now have no fault, which I think is where you're coming from. You really don't like to see anybody who was in a married relationship that has broken down to get an equivalent-to-married benefit for their child.

Ms. Yvonne Choquette: That's right. I think we involve children almost in a pawn situation when we have that.

Mr. Paul Szabo: Finally, then, your whole presentation was laced with this position that people are motivated by dollars and the equivalent-to-married...it was formerly $6,456. With the recent increase it's going to be $7,206, and it's a non-refundable tax credit. It will be worth, in Ontario, approximately 25¢ on the dollar, or $1,800. You said thousands of dollars, but in fact it's $1,800. Do you really believe people divorce so they can get $1,800?

Ms. Yvonne Choquette: We can also add the child care expenses. If there are one, two, or three children, we are talking thousands of dollars.

Mr. Paul Szabo: They get that anyway. They get the child tax benefit anyway.

Ms. Yvonne Choquette: Not the child tax benefit; the child care expense deduction.

Mr. Paul Szabo: The child care expense deduction. If they were both working they would qualify, and in the lone situation they would also qualify.

Ms. Yvonne Choquette: That's why there are certain—

Mr. Paul Szabo: The only differential is equivalent to marriage—

Ms. Yvonne Choquette: —restrictions that are involved, but if a marriage were intact, the spouse was not working, was caring for the children, and there was no nanny or child care expense, that one doesn't apply.

Mr. Paul Szabo: Okay. Thank you.

The Chair: Is your main concern the fact that you're saying that in the awarding of final judgment for compensation, the children, because of their value to one parent or the other, are used as pawns and that's why you would like to eliminate it?

Ms. Yvonne Choquette: Yes. Essentially—

The Chair: Is that your bottom line?

Ms. Yvonne Choquette: As I was saying, too often children are used for financial reasons. It's reflected in our child support, the battle that goes on about the 40% rule. If the child is 40% with the other parent, there's no child support that needs to be paid. It's unfortunate but true. The battle about children that the joint Senate committee addressed recognized that this battle that involves children is substantial. The heart-rending witnesses who came forth at that time showed there is a battle that is going on about children's lives, and the financial side has an impact on it. The 40% rule is just one example where people want to have a 40% parenting time with their child—

The Chair: They don't have to pay.

Ms. Yvonne Choquette: Unfortunately, there are expenses that the non-custodial parent has to put out to have the child. You need to have a bedroom, you need to have some bedding, etc., to care for the child, and that is part of the picture. It is part of the picture.

The Chair: Thank you very much. I'd like to thank you for sharing your thoughts and ideas with us, and especially your time. It is very valuable and we appreciate your input.

Ms. Yvonne Choquette: Thank you.

The Chair: Thank you.

The meeting is adjourned until tomorrow at 9 a.m. in Halifax.