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]

Tuesday, April 27, 1999

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[English]

The Chairman (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Good afternoon. Pursuant to the motion adopted by the Standing Committee on Finance, dated March 17, 1999, the subcommittee resumes its study on tax fairness for Canadian families.

On behalf of the committee members, I would like to welcome, from Human Resources Development Canada, Ms. Marta Morgan, director, children's policy, social policy and strategic policy; Mr. Alain Denhez, assistant director, tax policy and social policy; and Mr. Ron Stewart, assistant director general, labour market policy and strategic policy. Welcome on behalf of the committee members.

I see you're geared up to make your presentation. We will welcome your presentation if you take 10, 15, or 20 minutes. Time is not that urgent; however, we want to leave enough room for questions from members and engage in a dialogue that way. I would welcome you to commence your presentation, please.

Ms. Marta Morgan (Director, Children's Policy, Social Policy, Strategic Policy, Department of Human Resources Development): Thank you very much for inviting us here today to speak to your committee.

We understand that the mandate of the committee is to look at the tax and transfer systems and how they affect different kinds of Canadian families. In our view, it's important to look at the range of policies and programs that support families—policies and programs that families may benefit from at different times of their lives and different times of their life cycle, and depending on their circumstances.

We will look at three areas, the Canada child tax benefit, EI benefits and CPP provisions, that assist families in their dual roles, first of all, in earning income to provide for their families, and second, in caring for their children.

[Translation]

The Canada Child Tax Benefit is the main tool for helping families with children in Canada. By July 2000, we estimate that the government will spend some 7 million dollars annually under the CCTB. This benefit is paid monthly to families with children through Revenue Canada and it acknowledges the fact that the living costs of these families are higher than those of families without children.

The CCTB has four main components. The first is the basic benefit with an annual maximum of $1,020. The second component is the supplement for young children for whom the parents do not claim any child care expense deductions. It amounts to $213 a year. The third component is a 75-dollar supplement for the third and additional children. The fourth component is the National Child Benefit Supplement, which is for low-income families. The table on page 4 shows the various benefits and maximum amounts that can be paid to families, depending on the number of children they have.

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[English]

The CCTB goes to most Canadian families, and benefits are targeted so that low-income families receive higher benefits. In practice, this means that single-earner families, which is one of the main issues that this committee has been discussing, receive higher benefits under the CCTB whether they're single-earner parents or whether they're lone-parent families. And this is because their incomes in general are lower than the incomes of dual-earner couples. So as you can see in the chart on this page of the presentation, single-earner couples represent 32% of all filers who are eligible for the child tax benefit, but they receive 40% of the benefits.

Among the key features of the CCTB is the fact, first of all, that CCTB benefits are targeted. About half of the benefits under the CCTB go to families with incomes of under $20,000 per year. They're based on income and the number of children, and they're neutral with respect to the child care choices of families. In most cases, the payments go to mothers. And because the CCTB is calculated on the basis of family income rather than individual income, it recognizes more accurately the total resources available to families to provide for their children and the financial needs of families.

With the development of the national child benefit initiative, which is a federal-provincial initiative, the government has increased the CCTB considerably for low-income families. Under this initiative, as the federal government increases the CCTB, provinces and territories can adjust social assistance payments. I referred earlier to one component of the CCTB, which is called the national child benefit supplement. This is the part of the CCTB that's specifically targeted at low-income families. And as this benefit is increased, which began in July 1998 and will continue over the next two years, provinces and territories will adjust their social assistance payments accordingly and can then use those savings to create new programs and services targeted at low-income families.

This is levering a wide range of benefits and services that benefit low-income families in provinces and territories, including child care and development, income support, in-kind benefits and services to identify and assist at-risk children and families.

The NCB is designed to address the issue of child poverty. There's considerable evidence that child poverty has long-term negative consequences on children and that increased income and improved services can make a difference in children's early lives. It's also designed to restructure social programs, to tackle one of the problems that our current system has, which is that in many cases families earning low incomes are better off on welfare than they are taking a job. This is particularly the case when families have children, because of the benefits that are attached to social assistance systems for children, including income benefits, health benefits and that sort of thing.

The NCB is just in its first year, but the increase in the Canada child tax benefit has been a key element in helping this initiative to go forward and in making it successful. I think it also shows the increasing interdependency between tax programs, the tax transfer system, and other social programs and income programs. As the federal government and provincial governments increase their use of child benefits and earned income supplements and that sort of thing, the interrelationships between these programs are becoming even more important.

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Mr. Ron Stewart (Assistant Director General, Labour Market Policy, Strategic Policy, Department of Human Resources Development): I'm going to speak briefly on the employment insurance program, and the provisions of that legislation and that program that relate to families, particularly as they relate to maternity, parental and adoption benefits.

There are three categories of special benefits in the employment insurance program. There's maternity, which should really be thought of as pregnancy benefits. There are parental benefits, which can be either for the natural parent or an adoptive parent, and there are sickness benefits. To have access to any of these types of benefits a person must work 700 hours in the qualifying period, which is a 52-week period. Seven hundred hours translates into 20 weeks at an average of 35 hours a week. That's the basis for the 700-hour requirement. Under UI, the predecessor to the present EI program, there was a 20-week requirement, but as was noted, a week could be as few as 15 hours under UI. Under EI, a week is considered to be 35 hours.

The benefit rate is based on maximum insurable earnings. Premiums are paid on the basis of up to $39,000 of income per year. Dividing that by 52, we come up with $750 per week, and 55% of that is $413. So the benefit rate is 55% of the maximum insurable earnings. So it works out that the maximum a person can receive under EI is $413 a week. That's regardless of whether it's special benefits or regular benefits. That's the formula that's used to determine the maximum benefit rate.

Under special benefits, the employer, through something that's recognized by the Employment Insurance Commission as a supplementary unemployment benefit plan, can top these particular benefits up to sometimes in the area of 90% to 95% of the previous income. So in certain circumstances, people who are in receipt of either maternity, parental or sickness benefits see really no change in their take-home pay if there is a supplementary unemployment plan in place.

The special benefits that one receives do not affect the intensity provision of the EI legislation. The EI legislation has a provision that says that for every 20 weeks of benefits someone has received in the past five years, their benefit rate drops by 1% on a subsequent claim. So the number of weeks of benefits that someone receives under special benefits does not affect the intensity. They do not get added to the claim history for an individual.

The system is such that the maternity benefits are a maximum of 15 weeks. Parental benefits are generally 10 weeks. As I mentioned, either of the natural parents or either of the adoptive parents can access the parental benefits. What are called maternity benefits are really pregnancy benefits and are available to the mother only, the natural mother. They are effectively recognition of the physical incapacity that takes place in and around the time of childbirth. So it's a special provision solely for the natural mother. For the combination of the special benefits, because someone can take some sick benefits, then take maternity benefits or pregnancy benefits, and then take parental benefits, the total of these benefits cannot exceed 30 weeks in any one claim.

I'm using 1997-98 data because it's the most recent complete fiscal year data we have, although fairly soon we will have the first rough data for 1998-99. So I apologize for that. This is the only really clean fiscal year data we have at the moment on the program.

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In the last fiscal year we spent very close to $700 million on maternity benefits; $699 million in benefits were paid. Parental benefits to the biological parents, either the father or the mother, were $448 million. Adoptive benefits were a very small part of the program; that was only $5 million. Sickness benefits were $458 million.

The vast majority, as it says here, of people collecting parental benefits are the natural mothers, generally speaking. As you notice, the adoptive benefits are quite a small segment of the overall parental benefits. The natural mother, much more so than the natural father, tends to take the parental benefits. There has been a very small increase in the number of maternity claims over the past two years, and that's despite a declining fertility rate, or birth rate is perhaps a better term.

For a bit of international comparison, we're definitely ahead of the United States on maternity benefits. They don't have any specifically. If one looks at maternity and parental combined, as a potential 25 weeks of benefits for the natural parents, with that particular combination, we're ahead of the United Kingdom and the Netherlands, and we're essentially ahead of France. If you look at it in separate tranches, we're not ahead of some of those countries. So it really depends on what one wants to use as a point of comparison. But certainly we're reasonable in the level of benefits by international comparison, especially against our major partners. We don't have Japan in here either, and we're quite a bit ahead of Japan.

The other major employment insurance aspect that relates to families is the EI family supplement. It's really an EI program that piggybacks very much on the CCTB, which Marta just spoke about. We use the income threshold of the CCTB, the maximum for the full benefit, which is $25,921 at the moment.

For families—and this is a family item and we get the data from Revenue Canada. The EI program itself, except for this part, doesn't take into account family income. It's all individual-based. It's the individual who suffers the loss of employment or the separation from paid work for whatever reason, and it's that individual who has the right to the benefit. This is the only part of the program that really considers family income, and we receive that information directly from Revenue Canada as part of the way they administer the national child benefit. It allows a higher rate of benefits to the people below the $25,921. Instead of the regular 55% maximum benefit rate, in 1999 these recipients can have up to 75% of the benefit rate, depending on the number of children, etc., and in the year 2000 that maximum benefit rate will rise to up to 80% of the maximum insurable earnings. So that's a considerable benefit. In 1997-98 the average amount of the top-up was $29 per week for the claimant who was in receipt of this.

Ms. Marta Morgan: In addition to provisions under EI, there are a number of benefits provided under the Canada Pension Plan that are targeted at families with children. Perhaps the most relevant to the mandate of this committee and the one that I would draw to your attention is the child-rearing dropout provision. As you know, one of the factors that families consider in deciding whether parents will stay home when the children are young is the long-term economic implications, whether it be for family income or for the future of accrued benefits, such as pension benefits.

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The CPP dropout allows time spent out of the labour force caring for young children under the age of seven to not be counted in determining CPP entitlements, which therefore reduces the penalties that could be faced, usually by the mother if she takes time off to care for her children when they're young.

Just to conclude the presentation, I want to leave you with a few thoughts on what we see as some of the key policy issues facing families with children and also some thoughts on some of the options we've looked at and provided to you in terms of how to support families with children in the programs and policies for which we have some policy responsibility at HRDC.

I guess the key issue at the core of this committee's mandate is how we support both the caregiving and income-earning roles of children and families. Underneath that issue I think is the issue of where the greatest opportunities are to improve child outcomes. We do know from the research that child poverty has a long-term negative impact on children, and that's one of the reasons the CCTB and the recent investments have largely been in the area of low-income families with children. We also know that there is increasing evidence about the importance of the early years in terms of determining long-term outcomes for children.

The policy ramifications of those statements are not necessarily straightforward because we do have quite a multi-varied system for supporting families with children, and families may take advantage of some of those programs over their life cycle as their children are at different ages and depending on their circumstances. It's just something to keep in mind.

Sorry, Ron, go ahead.

Mr. Ron Stewart: I think the key policy issue as it relates to the EI program is in the area of the maternity/parental benefits, because those are the key provisions as they relate to children and families under this program. To give you some idea of the numbers, in 1997-98 there were 173,000 maternity claims established. Again in 1997-98 there were 164,000 parental claims established. There's a slight drop-off. Some families just take the maternity and don't access the parental benefits. For whatever reason, they just take up to the 15 weeks of maternity benefits that are available. They must be returning to work because if they were staying home, I'm sure they would access the parental benefits. So there's a little bit of a drop-off that takes place right after the termination of the maternity benefit phase of a claim. But again it's still a sizeable number.

Among the biological parents, of that 164,510 who avail themselves of parental benefits, 156,000-plus are women. So the natural father has a very small take-up in this particular area.

But with the maximum duration of 25 weeks, with the maximum benefit rate of 55%, and the 700 hours entrance requirement, there are a lot of legislative parameters around this program. I think those are the three key questions. Is the coverage adequate? Are enough people covered by the EI program to get access to maternity and parental benefits? Is the benefit duration appropriate, 15 weeks of pregnancy benefits and generally 15 weeks of parental benefits? Sometimes that can go up to 15 if the child is ill. Is the benefit level of 55% and the maximum benefit of $413 per week adequate?

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Again, as far as that latter item on benefit levels goes, the average weekly benefit on maternity paid out is $275 a week, and the average weekly benefit under parental is $284 a week. So it's a slight increase, and that generally reflects the fact that some men are starting to access that program, and men generally have a higher income. Certainly, on the parental side, the average man is collecting $350 a week in benefits, while the average woman is collecting $281 in parental benefits. So neither grouping is really getting up to the $413 a week, although certainly with the man at $350 they're starting to get pretty close.

I think those are the three main policy questions relating to EI program and the family.

Ms. Marta Morgan: The last page of the presentation shows some options with respect to the CCTB. The CCTB has a number of advantages in terms of the support it provides to families. It is provided through the tax system, so it is quite an accurate reflection of family income. It is based on family income, so it takes into account the overall resources available. It is paid out monthly to reflect the fact that most families, particularly low-income families, who receive the bulk of the assistance currently, find it more helpful for their families to get that income on a regular basis.

So there's some responsiveness built in to reflect the fact that it has some elements of a social program as well as a tax program. Its actual design is fairly malleable, in a sense. There's a base benefit in place now, but there are options for how to look at changing that, if so desired.

We've put five options on this paper, with some estimates of how much they would cost for you. A number of these options have also been outlined and provided to you by the Department of Finance already, but I would just draw your attention to two of the options.

Under category A, enhancing benefits for all families, option B would be to increase the CCTB base benefit by $250 per child. The total cost of that would be $1.6 billion. The advantage of that option would be that it would provide assistance to families at all income levels—well, not all income levels, but over the existing income range. It would add some families to the income range, but it would not be at all levels. The trade-off is that the wider you make the benefit increase in terms of income levels, of course, the more it costs. You could do variations on this theme, depending on the actual level of the increase in the benefit.

The other option I would draw your attention to is option D, which is an option to increase benefits to the lowest-income families, for example, by increasing the NCB supplement. We haven't provided exact figures there, because it would depend quite a bit on exactly how that was designed and over what income range. But this provides a range of options for either enhancing benefits for most to all families, targeting at low income or additional support for young children, an option that was also provided by the Department of Finance by increasing the supplement that currently goes for children who are under the age of seven where the child care expense deduction isn't claimed.

That's the end of our formal presentation. We will happy to take questions.

The Chairman: Thank you very much for your presentation.

I would now like to turn to Mr. Forseth for ten minutes. Paul.

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

Thank you for coming.

You know what the mandate of this committee is, and you know the origin of why the subcommittee was struck. You're aware of the questions in Question Period, the news reports, and all the background that brought us to where we are today. In view of all of that, are you saying that page 19, in essence, is your answer to that backdrop?

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Ms. Marta Morgan: I think page 19 provides a range of options that could be used to provide further support to families with children. Some of these options have different advantages and disadvantages, depending on the kinds of priorities that the committee comes up with after its consideration of the issues.

That being said, I think that if we're thinking about supporting families in both their child care and income-earning roles, it is better to take an approach that looks a little bit beyond the tax and transfer system to the other kinds of support that we do provide, such as employment insurance and the CPP dropouts. That makes it a little bit more challenging to really say whether the system as it is currently is equitable, because you need to look at in what way it is equitable and for what family at a particular point in their life. Yes, I think these are all reasonable options that would assist families with children and, depending on which option you chose, would have different impacts.

Mr. Paul Forseth: Would any of the others have an additional supplemental comment to that? Mr. Stewart?

Mr. Ron Stewart: Again, we're talking within the realm of the programming that Human Resources Development Canada does. The two major programs as they relate to children, of course, are the national child tax benefit and the maternity/parental benefits under the EI program. I'm certain the questions that were just put forward were in relation to the national child tax benefit program, which we administer. We wouldn't be putting forward options for other departments, for example, or anything of that nature.

Mr. Paul Forseth: In your department, have any of your researchers or subcontractors produced any policy papers or exploratory memos, or whatever, related to the business that was going on in the House of Commons related to why we have this committee, such as looking at the social consequences of addressing the idea of social engineering, or perverse incentives or disincentives, and looking at those topics? Do you have any papers being produced within your department that perhaps might provide some general-background academic discussion to help us on the committee?

Ms. Marta Morgan: Much of the issue that led to the creation of this committee has been the issue around the child care expense deduction in particular, and as that is primarily a tax measure that's the responsibility of the Department of Finance, it's not an issue that has preoccupied us. Much of our focus in terms of our research work and also our policy work recently has been around the issues of low-income families with children, the impact of low income on families with children, some of the disincentives that are built into the current social support system for those families, and also issues around early childhood development and how we support families in those early years, which can range from income benefits and EI parental benefits to early child development initiatives such as are carried out at Health Canada. Those are the issues that have been more of a preoccupation for us lately in terms of our research and policy development work.

Mr. Paul Forseth: On page 7, related to the child tax benefit, there's a statement that the goal is “to promote attachment to the workforce by ensuring that families will always be better off as a result of working”. How is that so? Can you explain how that works?

Ms. Marta Morgan: Sure, I'd be glad to.

One of the things that happens in our current social support system for low-income families with children is that when families are on social assistance—and this comment is primarily directed at the incentives for families who are on social assistance and who are considering leaving social assistance to join the paid labour force, or families who are in the paid labour force but at quite a low-income job—those families face quite high hurdles and disincentives to enter and stay in the labour force.

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The reason for this is that while social assistance systems take into account the size of the family and base their programs and the resources they provide to families on the number of children in the family, jobs don't. So someone in a low-income job, compared to someone on social assistance, may not have the income benefits for their children that are currently available. They may not have, for example, the supplementary health and dental and optical benefits that are routinely provided to families who are on social assistance. They'll also incur additional costs such as child care costs, in some cases, or transportation or clothing.

It has been a preoccupation of all governments for a while to make sure that families, if they make that decision, find themselves better off financially by having at least one member in the paid labour force to support their family. So that's what that comment refers to.

Mr. Paul Forseth: Is the child tax benefit taxable income? I've forgotten.

Ms. Marta Morgan: No.

Mr. Paul Forseth: Okay.

What happens to the child tax benefit when you have a Supreme Court order of divorce that says the parents have joint custody, joint guardianship—so they're equal and legal in law—and the parents from time to time change the percentage arrangement of where those children live in one household versus another? How is the child tax benefit assigned when you have a Supreme Court order that says certain things about parental responsibility?

Ms. Marta Morgan: The child tax benefit is administered by Revenue Canada. The child benefit can be split between parents if there's a joint custody arrangement, and it's my understanding that should the circumstances of the household in which the child resides change, for example, the child benefit is based on residency at the time the income tax return is filed. If it changes, Revenue Canada can be asked to change who the child benefit goes to midway through the year. They have administrative procedures in place to determine who that would be.

Mr. Paul Forseth: We have a difficulty. Parents may have joint custody and joint guardianship of a child, and the child actually may spend approximately 50% of the time in each household, and yet one household income is perhaps only half the other household income. Which household do you decide on to determine the level of benefit? Who gets to pick? You're saying that the size of the benefit is income contingent on that household, but you have two households and they're both about the same; they're both equally legally responsible. Which household gets to nominate...or does the department pick? What happens?

Ms. Marta Morgan: I'm not sure how that works in that kind of situation. We'd have to confer with Revenue Canada and get back to you on that.

Mr. Paul Forseth: Okay.

I'll end my questioning at this point.

The Chairman: You lead me into a question that I wanted to ask also.

You seem to be very strong proponents of the child tax benefit. We had testimony last week to say that you have concrete cases—and Paul brought one up, but there were other cases—where you would tie in the benefit based on tax returns. Very often the information on tax returns may not be available because, as in the case that we had last week, the husband didn't file and wasn't intending to file. In other words, there could be a lag time of up to a year, for example.

My question is this. It doesn't seem to reflect the changing circumstances in family incidence, and I'm wondering if you have suggestions on how that could be better reflected, or what your comments are. Obviously if you only rely on information that's one year old, it doesn't help some of the low-income recipients.

Ms. Marta Morgan: I think the child tax benefit does have some elements of responsiveness in it: it's delivered on a monthly basis, it can be adjusted if the residence of the child changes, and it can also be adjusted in the case of marital breakdown. Certainly there is an issue where, if a family has a dramatic change in economic circumstances from one year to the next, then in that case the child benefit would not be adjusted to reflect that until the following tax year. In those cases, it may not be as responsive as you might want it to be for more of a social assistance program. But in most cases where there's a dramatic change in the family configuration or that sort of thing, it can be accommodated within the Revenue Canada system.

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The Chairman: How long does it take Revenue Canada to react? Maybe it's a better question for that ministry.

Ms. Marta Morgan: It's probably a better question for Revenue Canada. I think it takes them in the range of two to three months, depending on how simple or complicated the issue is. They want to make sure the change is permanent, in a sense. It's not designed to be a social assistance program that adjusts on a weekly basis to the circumstances of that family, so they do have a short period where they wait to determine that this is a permanent change, and they would make that change administratively.

The Chairman: Thank you.

Mr. Paul Forseth: May I ask a quick question?

The Chairman: Sure.

Mr. Paul Forseth: Is it permissible for a provincial social welfare dollar to be deducted one for one, based on what a person gets and the child tax benefit?

Ms. Marta Morgan: Under the national child benefit initiative, which includes part of the Canada child tax benefit, provinces may adjust their social assistance payments to account for the increase in federal child benefits. The reason for that is this issue of disincentives to work that currently exists between social assistance and low-income working families and the replacement of child benefits in lieu of provincial social assistance benefits.

The idea is that when a family is on social assistance, they will get the same amount of income as they did before, but when they make the transition to the labour force, they will keep more of the benefits with them than they would have, had they otherwise received them through social assistance.

Mr. Paul Forseth: I thought the effect was the other way around, that when calculating what someone gets on social assistance, you look at income from all other sources and you get less social assistance because you're getting the federal money.

Ms. Marta Morgan: I'm sorry, I didn't understand.

Mr. Paul Forseth: One of my colleagues will take that question up.

[Translation]

The Chairman: Mr. Cardin, please.

Mr. Serge Cardin (Sherbrooke, BQ): Our sub-committee was established just recently. The presentation you gave us today was quite detailed, and even includes strategic issues and proposals. I assume that you are always working on these policies and that you chose a few of them to present to us.

I would like to know how your department goes about developing a new policy. How do you come to make such recommendations? Are the principles that you are proposing we implement in the near future generally supported by your department?

Ms. Marta Morgan: Our objective, rather, was to give you some idea of the type of initiatives you could undertake. There are only a certain number of things that can be done to improve tax benefits for children—we can increase the number of beneficiaries, increase the amount of the benefit, and better target low-income families and those with young children. We wanted to give you some ways in which you could improve the existing program and tell you how much they would cost.

Mr. Serge Cardin: You are talking about a number of factors and are working on many projects. You analyse possible politics and make recommendations to your minister. Consequently, the policies you have put forward today must not be unfeasible.

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Ms. Marta Morgan: We feel the suggestions we made to improve the current program are realistic. The government will have to establish its objectives and the improvements it would like to make to existing programs.

Mr. Serge Cardin: Last week, some witnesses recommended that the tax benefit be universal, that it be paid to all families, regardless of income. What do you think about that.

Ms. Marta Morgan: We presented Option A, under which the basic benefit of $1,020 a year per child would be paid to all families. That would cost the government $2.8 billion. So that could be done.

A universal family allowance of the type we used to have would be quite expensive, but it would help recognize effectively the horizontal equity between families with children and those without.

Mr. Serge Cardin: Thank you.

The Chairman: Thank you, Mr. Cardin.

You have the floor, Mr. Pagtakhan.

[English]

Mr. Rey D. Pagtakhan (Winnipeg North—St. Paul, Lib.): Thank you, Mr. Chair.

Thank you for your presentation. First, are these various options mutually exclusive of each other to address what is before the committee with respect to the issue raised when the child care deduction issue was first raised in the House, as you understood it?

Ms. Marta Morgan: Some of them are mutually exclusive. Some of them are trying to get at the same thing but in a different way, and some of them aren't. I'll go through them to answer your question.

Option A, extending a CCTB-based benefit, is really an option to have a universal child benefit that applies to all families. That option would be quite expensive: $2.6 billion at current levels for the base benefit, which is about $1,020 per child.

The second option would be to increase the base over the current income range by about $250. To a certain extent, that would overlap with the first option for that range of income, if you were going to extend the base at the same level to everyone.

The third option, to reduce the tax-back rate of the CCTB-based benefit, would also provide benefits but over the entire range of income. To some extent that would provide a lower level of benefits, but that would target those individuals who are over about $26,000 per year.

So option B and option C would both provide benefits to families with incomes over that range, but option B would also provide to low-income families. So they really do overlap a fair amount.

They're not necessarily mutually exclusive, though. In some cases, for example, with option D, which is to increase the benefit for low-income families, you could increase the benefit for low-income families and also reduce the tax-back rate on the CCTB-based benefit, option C. You could do some combination of things so that the benefit would be increased across the income range.

Mr. Rey Pagtakhan: In your estimation, which of the options singly best addresses the issue itself?

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Ms. Marta Morgan: It's a difficult question to answer, because there are a number of different issues at play here. From looking at the other sessions of this committee, one of the issues is how do we, as a country, value all families with children, and do we recognize the cost of raising children in all families. Another issue that's been raised by this committee is whether we adequately recognize families where parents stay at home. All of these options would provide assistance to those families as well. So it really depends on what the committee views as the most pressing issue, or the issue that would most benefit from new resources, if you had to pick and choose.

Mr. Rey Pagtakhan: I suppose it may well be the decision of the committee; I do not know. I cannot talk for the membership of the committee. The ultimate decision may come from knowing what can be done, because not knowing what can be done, we may not even arrive at the conclusion of what we would like to do. That is why I'm asking a pointed question.

So on the issue of one thing to ensure those who have chosen to work at home and care for their children versus those who have chosen to go to work outside.... Which of these options will best answer the question to these two groups of families, so there will be a levelling, a parity of benefits?

Ms. Marta Morgan: I guess that also depends on where you start, in terms of what the system is like now, and if you believe it needs to be levelled. The Department of Finance is better equipped to brief you—and they already have—on that issue in terms of the overall impact of the tax system now.

If you wanted to provide additional benefits that were largely targeted to parents, where one parent stayed at home, option E would allow you to do that, by increasing the CCTB supplement for children under seven, where no child care expenses are claimed. That would target people who either have a single earner in the family or have non-receiptable child care expenses. It could target both, but would be most directly targeted at that particular demographic group.

Mr. Rey Pagtakhan: Well, that was my estimation, as I was listening to and reading your presentation.

The question then is, none of these options, except E, comes close to answering the question of whether we can level the levels of benefits. I wanted to ask the question because it's not so much whether a philosophy has to be developed for that, but if it can be done. In other words, if this is not in any of the solutions and the committee decides, in its wisdom, to pursue that issue, then obviously the answer will lie not in these options but in options elsewhere.

As a non-expert, I would like to know if I am right in saying that none of these options except E—which comes closest to it but not quite—can address the issue of levelling the parity, if we can call it that, for those who choose to stay at home and care for their children and those who choose to work outside and get the child tax deduction or not.

Ms. Marta Morgan: If your goal is to provide benefits only to families who, in some documented sense, have one person at home and one person in the labour force, option E comes closest to doing that. It also would assist families who don't have declared child care expenses.

That being said, any of the options that increase the benefit itself also go disproportionately to families with one income earner, because they tend to have lower incomes. So that is an indirect way, but it would not go solely to those families.

Mr. Rey Pagtakhan: On the statement on page 7, because I'd like to pick up on what Mr. Forseth just said, you say “to promote attachment to the workforce by ensuring that families will always be better off”. We are in a political institution. If we say “better off”, I can look at it as better off socially, financially, philosophically, or on the basis of ethics. When you made this statement, I heard you say it refers to those on social assistance. Did you mean better off financially?

• 1630

Ms. Marta Morgan: Yes.

Mr. Rey Pagtakhan: Okay. At least we are clear on that question. The committee may decide we would like the issue to be better off socially, which is another issue altogether.

Why do you show those under the age of 18 as being children, while in some documents of the government they are no longer children? Didn't we file a unity of age limits in terms of long-term strategic definition planning for children?

Ms. Marta Morgan: We generally consider people between the ages of 0 and 18 to be children. I'm not sure what documents you might be referring to that would have another definition, but that's our operating assumption for planning purposes.

Mr. Rey Pagtakhan: I'd like to be assured on that.

You talked about the Canada Pension Plan being one way of benefiting families and children, because you would like the provision during the working time...caring for the child at home. When did this provision become effective? Is it retroactive if it became effective only recently?

Ms. Marta Morgan: I'm not sure when it became effective. I'd have to get back to you on that.

Mr. Rey Pagtakhan: I would appreciate that. Knowing how it now exists, would you say this will benefit mothers more in the future, and not necessarily the children today in a given home setting?

Ms. Marta Morgan: I think it allows the mother today to make a decision about staying at home or not staying at home, without compromising her future pension benefits.

Mr. Rey Pagtakhan: But in terms of receiving dollars in the family at this time, it has nothing to do with that.

Ms. Marta Morgan: It doesn't bring dollars into the family at this time, but those issues of long-term economic security and long-term economic impact affect families' decision-making about what to do today. In that sense, although it may not have a monetary value today, it could have implications for the kinds of decisions families make today.

I just got an answer to your question. The child-rearing dropout provision under CPP was introduced in 1977.

Mr. Rey Pagtakhan: That was about 11 years before I was sworn into Parliament. Anyway, that is good to know.

The Chairman: Are you assuming responsibility or denying responsibility?

Mr. Rey Pagtakhan: No. It's an interesting provision, because I may want to tell my wife about it. She stopped working for seven years and suffered with her pension plan, but we're only beginning to appreciate it now.

The other thing is this maternity benefit. Children, whether they are adopted or biological, are children. You indicated, Mr. Stewart, that the maternity benefit is related to pregnancy and the physical aspects of the issue, hence the benefit is for that issue. Is that stated in law as physical, or is there an emotional or psychological component to that maternity benefit?

Mr. Ron Stewart: Certainly when maternity benefits were introduced in 1971, it was a physical incapacity type of concept. I think medical advances over the age have certainly changed a lot of the thinking. There's different thinking now than there was in 1971. But certainly the standard rationale for the benefits was physical incapacity.

Mr. Rey Pagtakhan: But in light of the new changes in medical thinking that you alluded to, as part of policy development, do you think people who adopt children should be given as much maternity benefit—but certainly not zero—today?

Mr. Ron Stewart: That's very much a policy decision for the government. I really can't go there.

• 1635

Mr. Rey Pagtakhan: No, I realize that, but since you are with the policy group of the government, is it something that is worth pursuing as a potential policy debate?

Mr. Ron Stewart: Right now, for example, if we look at the well-being of the child, the parental benefits can be 15 weeks if the child is ill. So that is taken into account. It's standard 10 weeks of parental, although it can be 15 weeks if the child is ill.

There has been a steady progression in the thinking around maternity benefits. When they were introduced in 1971, it was very prescribed. They had to be taken eight weeks before the expected date of birth, because the paternalistic assumption at the time was that the mother couldn't work past that certain point. Things have changed considerably. There was—I don't know how to explain it—perhaps a mistrust in society at the time that doesn't exist now.

For example, there was something called the magic 10 rule, and this was that you could only be entitled to maternity benefits if you were working in the 10-week period surrounding the time of conception. The idea was that someone would get pregnant and find a job just to collect maternity benefits. So there was a rule put in place. That was in the 1971 legislation.

That stuff has all vanished over the years, but the basic concept of pregnancy benefits—because if we're going to be very accurate, that's what they would actually be called—are for the mother and the mother only.

Mr. Rey Pagtakhan: Can I have one last question, Mr. Chair?

This relates to persons with major work attachment, at least 700 hours.

Mr. Ron Stewart: Yes.

Mr. Rey Pagtakhan: Have we addressed the issue today with respect to mothers who would bear children every year or every 14 months, and therefore in between there would not be much opportunity to accumulate those attachment hours to the labour force? And if we have not, is it an issue we should investigate for fairness in policy?

Mr. Ron Stewart: It's an excellent question. I think we know the answer, and it is that generally speaking if it's that type of cycle where it's every 14 months, which is certainly not that uncommon, it's difficult. The mother certainly needs a full-time job in that intervening period. Part-time work will not get the mother the access to repeated maternity benefits again and again. That's a given, simply because on a part-time job there's not enough window between coming off parental benefits, for example, and returning to work and then going back, and then being confined for childbirth. Unless they're working full-time, there may not be enough time in there for the mother to accumulate 20 weeks of insurable employment.

With part-time work, four days a week, they'd probably make it at 30 hours a week. It really depends on how the father wants to intervene in the process with the mother. For example, if the mother takes the 15 weeks of pregnancy benefits and decides to return to work and the father takes the 10 weeks of parental benefits, then of course that's another 10 weeks the mother can work and possibly accumulate the hours towards it.

So it's not a clear-cut thing. However, if they're having children fairly closely together and the mother is working part-time, then there will be difficulty in qualifying the second time around and for every subsequent time.

The Chairman: Thank you, Mr. Stewart. Thank you, Mr. Pagtakhan.

Ms. Dockrill, please.

Ms. Michelle Dockrill (Bras d'Or—Cape Breton, NDP): Thank you, Mr. Chair.

One of the things I find interesting is when you do a comparison. I've had some research done myself, and I'm wondering if I can make some additions to what you have here.

When you note the Netherlands, 16 weeks at 100%, it's also a fact that they have universal family allowance covering 33% of the cost of raising a child, which I think is important to add there. Also, with respect to France, there is up to three years unpaid. Also, with that is the protection to return to the job. The other addition my research shows is that Sweden has 120 days of leave per year per child under 12 at 75% of income. I think it's really important, if we're going to put this kind of stuff out, that we put it all out.

• 1640

The 80% of families with children, that really concerned me. Notwithstanding the fact that the federal government gives it, in the case of those on social assistance the province takes it back; so in my eyes, they're not getting it if they're being given it and it's taken back. Out of that 80%, do you have a percentage of how many families, because of the clawback, are not receiving the benefit?

Ms. Marta Morgan: On your first comment, I think it's correct. Actually, there's a recent study out by Shelley Phipps for CPRN, and what her work shows is that really many of these programs and policies are quite closely correlated, so that countries that tend to have higher maternity benefits probably also have higher child tax benefits and that sort of thing. But countries do have a variety of mixtures of the kinds of instruments they use and the level of different benefits for different kinds of instruments.

Go ahead, Ron.

Mr. Ron Stewart: I would like to add to that also.

You're absolutely correct, this was done a little bit in isolation. I apologize. We did our EI material, comparing EI to EI. We didn't do the material taking everything together and comparing other similar things together, so you're absolutely correct.

Ms. Michelle Dockrill: My concern is—

Mr. Ron Stewart: I apologize. There was no attempt to mislead.

Ms. Michelle Dockrill: No, and just for our information, I'm concerned that when we don't have everything in front of us, maybe we could look at it and say, where does Canada stand with respect to these other countries if we're only getting a little bit of the information? That was the reason I raised it.

Ms. Marta Morgan: As well, it is very difficult to summarize in a short form. But there are a number of good pieces written recently that deal with it.

Ms. Michelle Dockrill: I'll go back to my first question. Could you give us some sense of the percentage of families, because of the clawback in the child tax benefit, who actually don't receive it?

Ms. Marta Morgan: First of all, I should clarify, in terms of the child tax benefit and the social assistance offset, that all low-income families receive and keep the base benefit, so it's not that families on social assistance, who get this whole benefit, have the entire benefit reduced from social assistance. I wanted to make that clear in case there was any misunderstanding of it. But, no, we don't have available the total figures for the percentage that would have the offset.

What we do know is that the federal government has increased the benefit by $850 million over two years, July 1997 and July 1998; that the provincial/territorial reinvestments that have come from this investment are in the order of $300 million, and this does not include Quebec, where we estimate that the Quebec government has reduced its allocations familiales by about $150 million to correspond with the increase in the federal benefit and has put that money into $5-a-day daycare. In total, I would say a little over half of those benefits, the additional investment for low-income families, has been reinvested in provincial/territorial programs through social assistance savings.

Ms. Michelle Dockrill: The reason again is that I have concern with this kind of broad statement, that 80% of families with children—

The Chairman: No, but that includes the clawback, so it would be the full 80%.

Ms. Marta Morgan: Because that includes the base. The 80% includes everyone who receives the base, so they do currently all benefit from the base.

Ms. Michelle Dockrill: Yes. I just didn't like the way it.... When I first read it, my first thought was that I was a little concerned with it.

The Chairman: Nobody is trying to mislead you, again.

• 1645

Ms. Michelle Dockrill: I know, and if they do, I'll tell them.

Recently, we've seen figures indicating that 44% of mothers now qualify for maternity leave. When you do the math—I can't do my income tax, Paul, but I can do this math—that means 56% are not eligible. I'm just wondering if—

The Chairman: It could be a rounding problem.

Ms. Michelle Dockrill: —your department has looked at what has happened to that 56% of Canadian women.

Mr. Ron Stewart: I'm not familiar with that number, that only 44% are qualifying for....

Ms. Michelle Dockrill: It's a government figure. I wouldn't mislead you. Okay, let's take the figures out of it.

Mr. Ron Stewart: Okay. First of all, there has been a very significant increase in self-employment by women, and self-employed persons aren't covered under the EI program. For example, four out of every five jobs created by independent business in the last year were created by women, so self-employment by women is increasing significantly.

This is an EI program, so there has to be a sufficient work attachment in order to qualify for benefits. If people haven't worked, teenagers and what not, they're not going to get EI maternity benefits. If their period of time involves rapid childbirth and there is insufficient time in between to accumulate enough hours, there won't be an entitlement to benefits. So all these factors come into play.

Ms. Michelle Dockrill: Yes. Figuratively, you could work 20 years, have a child, get maternity benefits, and then end up getting pregnant two months later and not qualifying, having paid premiums for 20 years.

Mr. Ron Stewart: Yes, that's correct.

Ms. Michelle Dockrill: Okay. That is what I wanted to clarify.

Some of the witnesses we had last week, I think, talked about the possibility of addressing the inequalities between families by improving the transfers rather than the tax system. I just want to know if you want to comment on that.

Ms. Marta Morgan: I think in this case the transfers and the tax system are quite integrated in a sense. The tax system is mainly concerned with how to treat similarly situated families and how to raise revenue in a fair manner. But the main transfer for families with children is the child benefit. It's integrated into the tax system in the sense that it depends on the calculation of income, and it is technically a tax benefit. But it also has some elements, as the tax system does, that make it more progressive, more targeted. Because it's paid monthly, it means that families get it regularly when they need it. So it does have some advantages over, for example, looking at a tax measure that might provide a one-time credit or a one-time benefit to a family at tax time but not for the rest of the year.

Ms. Michelle Dockrill: I just have one more comment on something Mr. Pagtakhan said. I have to say that I agree with Mr. Stewart that, yes, maternity benefits were brought in because of convalescence and all that kind of stuff. When I was in the hospital seven months ago having my child, I could see that the mothers were very happy they had those 15 weeks to go home and kind of make sure they felt okay. I think we have to recognize that the cuts in health care mean that a lot of women really do need those maternity benefits for physical convalescent purposes because their stay in the hospital is sometimes not as long as it should be.

I just wanted to clarify that, because, as I said, I know of what I speak. Thank you.

The Chairman: Thank you very much.

I'd like to now ask Mr. Herron to ask his questions.

Mr. John Herron (Fundy—Royal, PC): Thank you, Mr. Chair.

My first question stems from one of the comments made by Ms. Morgan, where she said that in an indirect way one-income families do seem to benefit from the child tax benefit given that quite often their incomes are lower. I believe that to be a truism—which I think is one of the things that actually generated this committee, to start off with—the fact that some families choose to forgo a second income because their choice is to have one parent work outside the home and one parent work inside the home. I think that's a very important point to actually make when we're developing public policies and initiatives such as this.

• 1650

My question would pick up from the question that was asked earlier. You stated you haven't done any studies to be able to determine what the implication would be of not taxing family income versus taxing individual income. Yet some of the solutions you point out, such as option C, are tax-incentive-based issues, which would be a Department of Finance component, to address that issue. Have you looked at this from a holistic perspective in terms of what would be the better way to address this issue? I find it somewhat surprising that HRDC wouldn't do that study in the sense that maybe it's better to provide moneys from the Department of Finance.

I'm sorry for the length of my question.

Ms. Marta Morgan: The issue of a progressive, individual-based tax system is more the purview of the Department of Finance. They've briefed the committee on how it affects families with and without children. It also would have other implications in terms of social and tax policy, but it's not an issue we've really studied in a serious way.

The kinds of options we've put forward are options that build on a program we're quite familiar with and have shared policy responsibility for with the Department of Finance, because it has both tax and social policy, both purposes and mechanisms and intents. So we're quite familiar with it and do quite a bit of work around what the future of the CCTB should be. But the broader issue of an individual versus a family-based taxation system isn't something I could really comment on.

Mr. John Herron: Is the CCTB based on family income?

Ms. Marta Morgan: Yes, it is.

Mr. John Herron: But we don't use our tax system based on family. So how do you square the two, since they would calculate it in different ways?

Ms. Marta Morgan: Well, I think they have somewhat different purposes. I mean, the primary purpose of the tax system is to raise revenue and to do so in a manner that is determined to be fair, to look at similarly situated families or individuals and raise revenue from them in a manner that's according to their ability to pay. A number of judgments have been made over the years about what fair is, and also balancing off the kinds of incentives the tax system creates for taxpayers to pay their taxes and allow the government to raise revenue.

Part of the goal of the CCTB is to recognize the fact that families who have children have less ability to pay than other families. But it's also quite targeted to address the needs of low-income families, and because it's paid in respect of children and to meet the needs of children as well as to recognize the lower capacity of people to pay their taxes, it has a more mixed objective than the tax system does. Those objectives dictate, in a sense, how it has been designed and also how it's delivered.

The fact that it's delivered monthly is because it's paid not only to recognize the additional costs of having children, but also to recognize that those costs are incurred on a monthly basis. So it has aspects of both a tax and a social program.

Mr. John Herron: Maybe I'll shift veins here just for a second. I want to pick on something that Mr. Pagtakhan touched on earlier, the concern that some women may not be able to qualify for unemployment insurance given that the length of time between pregnancies may not be that significant. Also touched on was the fact that maybe one of the reasons is that women have proven to be very entrepreneurial in terms of setting up businesses for themselves.

• 1655

I would argue maybe two points. One is that given that we've recognized those two situations, firstly we shouldn't penalize women who choose to have their families during a closer period of time. I think that's a grave inequity in terms of timing, and it's almost, I guess, government engineering—what the space between your kids is supposed to be. So I have that concern.

Also I think the system should recognize that if women are going to be that entrepreneurial and be able to establish their own businesses, there has to be some kind of recognition on the part of the government that there will be some income support for these women entrepreneurs.

Mr. Ron Stewart: If I may deal with the latter one first, a special benefits plan for the self-employed could be implemented. If it were mandatory, the premiums could be collected through the tax system, through the income tax. Of course, the benefits would be universal to the self-employed should they become pregnant or adopt.

If it were to be an opt-in or opt-out program, of course the only people that would be opting in would be those apt to be collecting. For it to be a self-financing type of thing it would be very expensive for those individuals unless it were to be covered off through a more general use of other funds.

Some people choose to be self-employed, frankly, because they don't want to have as much to do with government. I mean, that's a valid reason. Some people choose to be self-employed for the tax benefits of self-employment. Some people buy private protection for various and sundry things.

Certainly special benefits for the self-employed is something that could be looked at. Whether the self-employed community as a whole would be receptive is a whole other issue.

Mr. John Herron: Okay.

The second part of the question, if I could address that again, was the length of time between pregnancies. To be honest, as my colleague Ms. Dockrill just pointed out to me, some parents will only work part-time between pregnancies perhaps because they want to allocate that much more time in terms of their child care. So I think it really does close off a number of individuals.

I think statistics would bear out—I'm going to speculate—that one of the reasons so many women don't qualify for maternity benefits under EI in that regard is that they may choose to have their families with not much time between pregnancies, and given that they've worked part-time they wouldn't qualify from that perspective. I'm sure the committee would be interested in having some statistics put together on that, if that were possible.

Mr. Ron Stewart: Certainly we'll see what we can put together on that, and we'll send it to the committee. The UI program, the program that was in place until June 1996, required 20 weeks of work at a minimum of 15 hours a week. The EI program requires 700 hours. Now, people who work more than 35 hours a week are getting in more easily because every hour counts. It's interesting that there was a slight increase in the number of maternity claims between 1995-96 and 1997-98. There was actually a slight increase. There was a decline in birth rates, there was a significant increase in female self-employment, and yet there was actually a slight increase in claims.

• 1700

However, it is one of the questions that we put on the table as well: is the coverage adequate in this area? We will do some work and see what we can pull together in relation to situations where people aren't qualifying if they're have children close together and things of that nature. We'll see what we can find.

Mr. John Herron: Thank you, Mr. Chair.

The Chairman: Thank you, Mr. Herron.

What about allowing women to draw on future earnings to cover that time period where they don't qualify, for example, knowing that they're going to go into the workforce? Is it possible to allow them to draw on that?

Mr. Ron Stewart: That's certainly an interesting idea. We've heard proposals almost to the reverse of that, which is sort of accumulating a bank of earnings from when someone started.

I use the example that Madame Dockrill used, which was someone who worked for 20 years, took a bit of time off for maternity purposes, worked only a very short period of time, got pregnant again, went on maternity leave, and couldn't qualify because it had been that short period of time.

One thing that has been bouncing around for years and is certainly not a new concept is the notion of a bank. The 20 years of contributions would count for something more than one claim. If need be, that could be stretched.

What you're proposing is perhaps the other side of that. In the future you can be pretty sure that this person is going to be back in the workforce and is going to be contributing again. So it's certainly something that could be looked at in general.

We appreciate the ideas, because it gives us other things to look at, other thoughts and other concepts. It's a very interesting idea.

The Chairman: I have a technical question to which I don't know the answer—and I plead guilty here; I didn't really take note of the question, because it occurred more around a cocktail event than anything else.

I was told that if you are employed by a federally chartered company, you don't have the same level of benefits as you would if you were incorporated under Quebec laws, for example, by a non-federally chartered company, that the Quebec government gives added benefits or something like that. Have you heard anything of that nature?

Mr. Ron Stewart: I haven't heard that.

[Translation]

The Chairman: Have you heard about that, Serge?

[English]

I'll try to get more details, then, because that struck me as out of thin air. She was adamant that because she was a federal employee she was not eligible for the same type of coverage and the same length of coverage for maternity benefits as she would have been had she been a non-federal employee.

Mr. Ron Stewart: The employees of the federal government versus federally chartered companies are certainly entitled to the 15 weeks maternity, the 10 weeks parental, and that supplementary unemployment benefit top-up, which would bring them to 93% of their pre-EI earnings. Plus I believe the waiting period is paid through the supplementary unemployment benefit plan.

The Chairman: Okay.

Mr. Ron Stewart: I think it's basically 93% for 27 weeks.

For the federally chartered—for example, the national banks—I personally don't know. I would be surprised if they weren't entitled to six months off for child purposes. Perhaps it comes into the period beyond that, where, for example, the federal government says to a mother who's an employee of the federal government, you may take five years for care and nurturing leave. The first six months is fairly well remunerated at 93%. The other four and a half years are non-remunerated; however, your job is protected so that you can come back after five years and there is a job at your own group and level for you. Perhaps that is where the area of difference is. I just don't know.

• 1705

The Chairman: Thank you. I'll try to get more details.

Mr. Szabo, please.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you all for your intervention.

I'd like you to look at page 5 of your presentation, your deck. I did a little surfing on the web over the weekend to get some information, and the first point was that 3.2 million families receive $5.3 billion of benefits, and yet in the table you present there, the total is $5.8 billion. It's another $500 million. If you add it across, it's $5.7 billion.

So we have three different numbers on the table. Which is it?

Mr. Alain Denhez (Assistant Director, Tax Policy, Social Policy, Department of Human Resources Development): I think it's purely a question of rounding. These numbers are for 1998.

Mr. Paul Szabo: No, $500 million is not rounding.

Mr. Alain Denhez: This is for 1998. I suspect that the figures you have seen are probably for 1997.

Mr. Paul Szabo: They are the most recent numbers from Revenue Canada. In fact, at 3,229,120 families, the total number of families indeed agrees with what the Revenue Canada website shows. That's 3.2 million families.

The benefits, the $5.3 billion that you have here as of July 1998, which is based on the 1996 tax year, agrees. It's $5.264 billion. So according to the website of Revenue Canada, your first statement seems to agree with this document, but this chart below does not.

Mr. Alain Denhez: We'll certainly clarify that table for you, but at this point, my belief is that there is a typo and the $5.3 billion should be $5.8 billion. These figures do include the new national child benefit supplement, which is not yet in the Revenue Canada statistics.

Mr. Paul Szabo: So you have better information than Revenue Canada does.

Mr. Alain Denhez: These are simulated benefits, so we don't know precisely the actual figures at the end of the year. What I'm saying is that these are not administrative figures; these are simulated by our models. We believe we will have spent $5.8 billion in 1998.

Mr. Paul Szabo: Okay.

Mr. Alain Denhez: But I'll certainly follow up on these numbers.

Mr. Paul Szabo: Mr. Richard Shillington appeared before the committee at a prior meeting, and he provided us with a chart of Canadian parents of preschool children by husband's income, those where the husband's income is up to $10,000, $10,000 to $20,000, and right along the line. I thought what was really important about the chart was that it showed that across all income levels of a husband, the choices of the family to have two working, one working full-time and one working part-time, or one providing direct parental care was relatively consistent. In fact, the total worked out to be virtually a third, a third, a third.

It says to me that there is a constituency here that is not as represented by HRDC...as the working woman. In fact, in your chart you have grouped, under dual earners, full-time earners and part-time earners. I think it's very relevant to know what the split is, where you have two full-time workers, where you have one full-time and one part-time, and where there is only one income. I think the comparison is very important, because it will demonstrate a little bit that when you're going to work part-time, there becomes a threshold at which it makes no sense to be a part-time worker. You have to have in fact a fairly active part-time component, and I think it's important.

• 1710

So I'd ask if you have the ability to get the data split the way Mr. Shillington did, where it separates dual earners between where you have two full-time and one part-time. I don't know whether or not that's possible, but he has the data, so it's come from somewhere.

The $213 supplement on the Canadian child tax benefit is available where no child care expense deduction has been claimed. In a previous time, was there not a reduction based on the percentage claimed or amount claimed?

Mr. Alain Denhez: That is still there, yes. Generally speaking, it's not available to those who claim the child care expense deduction, but there is still this reduction of the—

Mr. Paul Szabo: It's not a flip-a-switch—

Mr. Alain Denhez: No.

Mr. Paul Szabo: —you have one dollar, you lose it all?

Mr. Alain Denhez: No, absolutely not.

Mr. Paul Szabo: It's interesting, I asked that same question of the Finance officials when they were here, and they said, no, it had nothing to do with child care expense deduction. That's interesting. We'll have them back, I'm sure.

There is a lot of information here, and I know that your department is very active on the issue of child poverty. Certainly I don't think I have to tell you about lone-parent situations and their contribution to the poverty situation. Lone parents represent a very unique group to be able to hit the target when you have national programs.

One of the things I'm finding, and I'd be interested in your comments, is that it is very difficult to take all families and compress them down into two or three pigeonholes, because there are so many variations you can come across, not only in structure and configuration, number of children, etc., but also with regard to choices of caregiving and income levels. So there is no simple solution.

Ms. Marta Morgan: No simple solution. I think that picks up on a couple of the points you've made. The choices families make are often quite complex and they depend on the opportunity costs that both of the spouses face for not working. They can depend on their own personal circumstances, and they depend a lot on the age of the child.

In this picture that Richard Shillington showed, in some ways the families within those bars aren't static either, because the family may move incomes; they may, while their children are young, have one parent at home full-time; as the children get older, they may move to part-time. So there's a lot of movement. They may be a dual-earner family and then one person becomes a lone parent. There's not a one-size-fits-all solution for those different needs and different families at different times of their lives.

Mr. Paul Szabo: Your department has been active as well with regard to early childhood development issues. I recall that there was a special forum before HRDC with experts on early childhood development issues. One of the presenters was Fraser Mustard, whom you know well. He described the first year of an infant's life, or what happens to the infant's brain, in one word, and it was the word “dynamite”. This is really where things happen.

I would like to know whether or not, in your opinion, our extending of benefits to families with children should recognize or somehow give special attention to the fact that the value of investing at a period during an infant's life is probably greater in the first year than, say, when they reach age five or six.

Ms. Marta Morgan: I think there's no question that the first few years of a child's life are really important in determining a whole range of capacities, be it their cognitive capacity, their ability for emotional self-control, or for emotional attachment. Where you break that off, in terms of whether it's at one year or two years, or three years or four years, I really don't know. But certainly in terms of prevention, in terms of preventing problems later on, and in terms of giving kids a good start in life, I think the evidence is quite overwhelming now that those early years are quite important and the kinds of stimulation and the kind of care that kids get in those early years can make a real difference.

• 1715

Mr. Paul Szabo: You're probably aware that the Canadian Paediatric Society has endorsed the World Health Organization guidelines on breastfeeding, which is a one-year recommended—

Ms. Marta Morgan: It's not an issue I know much about.

Mr. Paul Szabo: In any event, you may want to reference that—the importance and the health benefits and outcome benefits of breastfeeding.

I've dwelt here on the early childhood development issue, and I raise it because I wanted to set up this question: have you considered the possibility of extending parental leave options for an additional 27 weeks so that parents, between the maternity and the paternity options, could have the full first year of their child's life with one of the parents providing care?

Mr. Ron Stewart: We haven't considered...we have an idea of what it might cost. Right now we know that each paid week of maternity benefits is $48.5 million. We know that each paid week of parental benefits is a little higher, about $49 million. So if one wanted to perhaps double the period of time wherein one would be able to do that, we'd be looking at approximately $1.1 billion more.

Mr. Paul Szabo: But the benefits are in fact paid for by the participants in EI?

Mr. Ron Stewart: Correct.

Mr. Paul Szabo: So all things remaining equal, it basically is the participants in the program who fund the benefits.

Mr. Ron Stewart: True.

Mr. Paul Szabo: So it wouldn't be new spending for the government, theoretically. Cashflow considerations are one thing, but in terms of ultimate expense....

Mr. Ron Stewart: It's like any other question; is it the single place one would choose, first, to spend $1.1 billion?

Mr. Paul Szabo: Fair enough.

On the CPP, the child-rearing dropout provision, I thought it was interesting. We don't want to penalize someone in the labour force who withdraws for direct parental care purposes. I'm wondering, when you consider the public compassion for unpaid work, why it is that there should be not only not a penalty but maybe an opportunity for those who temporarily withdraw from the paid labour force to continue to earn benefits because they're in fact working.

Ms. Marta Morgan: There have been proposals around for awhile about having some form of homemaker's pension that would reflect the kind of idea you're talking about.

Mr. Paul Szabo: For someone who had been employed and then withdrew for a couple of years to provide direct parental care, in fact their pension benefit is going to be less than if they had continued to work throughout and had no children. And the issue is that even though there is a child-rearing dropout provision, it means they still have lost the opportunity to earn another two years of pension credits.

Ms. Marta Morgan: I'm sorry, I'm not sure I follow that question.

Mr. Paul Szabo: If a mother is out of the paid labour force for two years to raise a child, how does her ultimate pension benefit compare to somebody who had no children and worked for the same duration, say the same forty years? One worked 38 and one worked 40. It's different. There is a penalty.

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Ms. Marta Morgan: I think what the child-rearing dropout does is affect the maximum benefits that a person can earn so that their income isn't averaged. Their lack of income during those years isn't counted in terms at looking at their maximum CPP contributions.

Mr. Paul Szabo: Is the issue of unpaid work at all of relevance to your department's consideration of policy measures?

Ms. Marta Morgan: One of the issues that's of great interest to our department is children and the issue of child outcomes and child well-being, and how children are doing and how parents can support their children in many different ways.

Mr. Paul Szabo: Okay.

I have two more areas I want to cover. I am, I think, in listening to departmental officials from a variety of departments, sensing that there is, in the language and in the presentation of material and in other indirect ways, this flavour that we have to have incentives or disincentives for people to do or not do certain things. It's describing things as, if you do this it will be a disincentive to work; we need to provide this so there's an incentive to work. It's what we have been talking about as social engineering and what is the responsibility....

I don't think there's anybody in the room, for that matter, who wouldn't agree that if you choose to go out and take the opportunity to earn economic gain, even net of child care expense deductions and any other costs associated with it, the family income in your pocket is going to be greater. You're going for additional cashflow in the family pocket. There is a choice to be made.

If you agree that there is a complex array of family configurations and choices and income levels, etc., that we can't possibly nail down, why are we somehow trying to make parents' decisions for them or be judgmental about their decisions by having any incentives or disincentives to do anything?

Ms. Marta Morgan: When we use the words “incentives” and “disincentives”, I think we see them from more of an economic perspective as the inevitable by-product, or one of the inevitable results, of any kind of social support program. To the extent, for example, that you have a universal child benefit and provide more child benefits to all families, you make it easier for families to have children. You reduce the costs. You subsidize their having children, and we maybe refer to that as an incentive. To the extent that you have benefits, that you have systems where, when someone tries to leave social assistance and enter into the workforce, the very fact of providing social assistance means that at some point when a person enters into the workforce they will be balancing the cost and benefits of that decision. Maybe it's in the terminology we use.

As in any social program, I think there are incentives and disincentives. There are subsidies to incite certain kinds of behaviour or to discourage it that are almost inevitable and really depend on the way the program's designed and how it's targeted.

I don't know if that answers your question, because I sense that maybe it's a more philosophical question.

Mr. Paul Szabo: It's in your brief on page 7, where you use the language with regard to the national child benefit, “to promote attachment to the workforce”. Now, I understand that the national child benefit is available to those who aren't on social assistance; there is an offset in most provinces. I don't think Newfoundland and Saskatchewan effectively get the national child benefit to social service recipients. Even saying that families will always be better off as a result of working...but this isn't true. It is just a false statement from the standpoint that we know there are working poor who in fact would be better off on social assistance because they have social, health, and dental benefits and other things.

If you have these incentives and people are on the margin of whether they should work or not, and you give them a little incentive and push them in there, what you do is push them into being working poor. If we're going to get people into the paid labour force, I think we have to make sure that with the broad range of supports we provide, they aren't worse off working than they would have been under social assistance. So this sort of general statement about let's have a little incentive to get more lemmings to go off the cliff is just not a good idea.

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Ms. Marta Morgan: It may be in the language we've chosen, because I think the initiative we were trying to communicate—actually, you've communicated what it's about, which is trying to make sure that when people do get into the labour force they are legitimately better off. That's really all we were trying to say.

Mr. Paul Szabo: Okay.

Mr. Chairman, the last thing I really wanted to cover was that I would be interested in.... On page 19 you referred to unreceipted child care. This really causes me some grief, terrible grief, only because to me it says that if you pay me cash and I don't claim the income, and you won't claim the deduction, then everybody's happy, right? What we're talking about is the underground economy, and it's rampant in regard to child care remuneration. This is a very casual description of what's happening here. In fact this is fraud. Unreceipted child care is fraud.

Ms. Marta Morgan: Perhaps a better word would be informal child care. There are many families who do rely on family members or that sort of thing to take care of their children, and they would also benefit from this provision.

Mr. Paul Szabo: But if I paid my sister to care for my kids, I could claim the child care expense deduction. If I paid her under the table, if I didn't claim the exemption, and she didn't declare the income, you're saying that is acceptable. Because it's a family member, I don't have to pay them. I think the fact is that no matter who you pay, regardless of who it is, it really is income to that person who's providing care.

In fact, it's so important because we have all kinds of other social benefits that are subject to clawbacks, and if somebody claimed an additional dollar of income they might lose an EI benefit or have a clawback, or an OAS benefit. The tracking of income is really important here. This concerns me because of its lack of recognition or maybe condoning of the fact that it is okay to pay under the table.

Ms. Marta Morgan: I think it's an unfortunate choice of words, and if we wrote this again we would say unpaid, informal child care. I agree with you that it's an—

Mr. Paul Szabo: My point is that—

Ms. Marta Morgan: The initiative is not targeted at recipients of unreceipted child care.

Mr. Paul Szabo: But the point still remains. Even if it's unpaid, there is an economic transaction that took place and it should be claimed. There is income transfer. It may be an account payable, but it certainly was revenue earned, because caring for kids is a real job, regardless of who you are. It's not discretionary whether you declare income, and the amount of pay is subject to reasonableness. But when you look at the figures, that 759,000 of the dual-income earners...and you told us there were 1.3 million, that's about 58%. Only 58% of dual-income families, roughly, are actually claiming the child care expense deduction. Fifty-eight percent—that means that 42% are doing something else.

It is staggering, because when you look at it, the total deduction claimed by those 759,000, based on Revenue Canada's numbers, is $2 billion. The average claim is $2,600 and that's not just for one child, that's for however many children they have. In 1996 the deductions were $5,000 and $3,000, not the current $7,000 and $4,000. So at $2,600, that means there's an awful lot of stuff going on under the table.

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It's significant, because that cost to the government is only $500 million for the child care expense deduction. It's only $500 million, and if we use one of your let's-give-everybody-a-break approaches, what you're going to do is allow the underground economy to still operate and give them all, in addition to that, some sort of additional child tax benefit. I mean, this thing is so complicated and so sensitive that somebody has to start doing some thinking about how we address the fact that informal care is happening under the table to the extent of probably over 40% of the cases.

The Chairman: I knew you'd get to the question eventually.

Mr. Paul Szabo: I was just setting up my point.

Ms. Marta Morgan: There could be a variety of explanations for those figures in terms of what kinds of care those families are using. It could be subsidized child care, where they're not actually paying and therefore not receiving receipts. It can be informal within-family child care. It can be parents working shifts and taking turns taking care of their children. There is a variety of possible explanations for the difference between people who actually claim a benefit from the CCED. It could be parents whose income is not taxable because it's quite low. So there are a variety of explanations for that.

Mr. Paul Szabo: Finally, I'd like to read to you very quickly five criteria for policy development that I would suggest for consideration, and I would be interested if you had any comments.

One, our policy should be child centred and promote the best interests of the child to the greatest extent possible.

Two, it should presume that the parents are the primary caregivers and that they are in the best position to determine what constitutes the best possible care for their children.

Three, it should provide flexibility, options, and choices that will make it feasible for either parent to be the caregiver or to be in the paid workforce.

Four, it should be inclusive and responsive to the social realities, circumstances, and preferences of parents and their children.

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

Is there anything in there that you have a problem with?

Ms. Marta Morgan: No. I think that's an interesting list of principles and I think the interesting piece will be figuring out what actually responds to those principles. In many cases there would be a number of different ways to interpret each principle or there may be trade-offs among principles, but on face value, just hearing them very quickly, it sounds like a good list.

The Chairman: You made his day.

Mr. Pagtakhan, just a very short question.

Mr. Rey Pagtakhan: In pursuit of the last question, when you interpret these principles, which I will call them at this point in terms of duties or assumptions, you will need data as to the child health outcome. Do we have data on child health outcome, following the early years of caring, from families where one parent was the only caregiver available and chose to work versus the group of families where the one parent chose to stay at home to be the caregiver? Do we have data on that in terms of the child health outcome?

Ms. Marta Morgan: To my understanding of the research, there is no conclusive evidence on that issue. Children seem to do equally well, whether their parents are home or whether they're in child care, depending on the quality of the child care. The bigger determinants of child outcomes seem to be factors such as income and the things that are correlated with income. Another thing that also may be important is the kind of parenting the child receives. On this issue of child care versus staying at home, I think there's been quite a bit of research done, and it's not really conclusive in tipping the balance one way or another.

Mr. Rey Pagtakhan: The real question, Mr. Chair, relates to costing. When you calculate cost, there is such a thing as cost for the program, and I am trying to relate this to so-called real cost. In other words, you take into account inflation. Now, in this instance, is it a good policy principle that when you calculate costs for a given social program, you actually also calculate the cost for not having such a program? Therefore the differential is the effective real cost, which may in fact be a saving and not a cost. Is that part of policy development when you calculate costs?

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Mr. Ron Stewart: Where one can do it, yes. For example, intuitively, we all know that if you take a group—let's call them youth at risk—of high school kids who could maybe go one way or the other, if they go the wrong way we're going to be paying a lot of costs down the road through the criminal justice system, through health, through the penal system, and what not. Intuitively, we know that, but we can't measure it because it's in the future.

Where we can make certain assumptions on behaviour change, the point Mr. Szabo has picked up.... How does something induce a changed behaviour? How do we think a number of people will change that behaviour, to either do something or not do something because of the incentives/disincentives that come into play in doing things? Then try to put a number on that. We try where we think we wouldn't look foolish. But it is a bit of crystal-balling and applying your best judgment and the experience of the academic community and the research community and the international experience, trying to gather that information and put it in our context and try to make judgments on it.

I personally believe that if you succeed with a group of youth at risk, you're probably saving five times the investment in savings down the road. But we don't know. That's just my opinion.

Mr. Rey Pagtakhan: Thank you.

The Chairman: Thank you, Dr. Pagtakhan.

Closing remarks, Ms. Dockrill?

Ms. Michelle Dockrill: I just have a couple of comments. To pick up on one Paul talked about with respect to the underground economy, my concern is that when I hear us talk about one wage earner as opposed to two wage earners, a large number of society out there do not fit into either of those. We see the increase in terms of the underground economy because of those people who are on provincial assistance, because of the clawbacks we have. They need them to supplement their income.

I just want to pick up on something Mr. Stewart said before. You talked about there being an increase in maternity in 1997-98. That 44%, by the way, was in a presentation by another government department to the committee. You say it's gone up. I'd be really interested in what it was. The 44% bothered me. I'm really concerned that you're saying “But that went up”. So I'd really like to know what it was before it went up.

Mr. Ron Stewart: I did say it went up slightly.

Ms. Michelle Dockrill: I just have “it went up”.

Mr. Ron Stewart: The 173,240 maternity claims in 1997-98 is a 0.4% increase over 1995-96. But everything else was going down. Birth rates were going down and incidents of female self-employment were going up. In a sense, the smaller pool did better.

Ms. Michelle Dockrill: I have one last remark. Correct me if I heard you wrong, but you talked about the increase in self-employed women. Certainly from my perspective, I think there is a sense that that's happening because there is not the availability of good-paying jobs, as we would like to think or would like to have. I want to know if you think that plays a role in that increase of self-employment. It goes right back to what you talked about, Paul, about the underground economy.

Mr. Ron Stewart: I think we are seeing certain things in the workplace. There is more of a tendency for businesses to bring people on, and government too, for short periods of time. People are doing multiple jobs during the course of a year. It's been a trend in employment. A lot of these are done through contractual arrangement—a contract for service as opposed to a contract of service. In the Revenue Canada lingo, one is insurable for EI purposes and another is not insurable for EI purposes.

• 1740

So I think there's no question that some of that is taking place. The small business sector is where the jobs are being created in this country. There's no question about that. A lot of those small businesses are single-ownership, sole proprietary businesses. I believe four of five new businesses last year were created by women.

Ms. Michelle Dockrill: The reason I say that is that I'm not comfortable with the sense that that has increased, because as a government we have done everything in our power to support them in that. Certainly the people I talk to...there are not the good-paying jobs out there, so you have to have a day care in the basement of your home where you look after four kids. Well, that's being self-employed. I just wanted to make sure we're clear on that, that it wasn't all honey and sunshine, shall we say.

Mr. Ron Stewart: I don't think anyone would pretend that they are all wonderful jobs, no.

Ms. Michelle Dockrill: Okay. Thanks.

The Chairman: Mr. Pagtakhan.

Mr. Rey Pagtakhan: On the dropout provision, if I may, you alluded that you maximized the benefits. I would like the committee to be assured that the dropout provision, versus the proposal by Mr. Szabo, in the end will give the same benefits to the person concerned, or will there never be a catch-up of benefits in the end?

Ms. Marta Morgan: I'm sorry, I didn't quite follow the question.

Mr. Rey Pagtakhan: You have a dropout provision.

Ms. Marta Morgan: In the CPP?

Mr. Rey Pagtakhan: Yes. In a sense it sort of eliminates some of the penalties in terms of formal application. The proposal is to allow for a contribution, which is a direct investment, and potentially with a matching program from whomever, perhaps including government, or just the contribution itself. The question is, if there is a catch-up after a given period of time, then the proposal to contribute no longer becomes a viable option after a certain period of time. If there is no catch-up whatsoever between the two approaches as envisioned, then there is a need to consider if we will make the conclusion that we would like to truly maximize and equalize the benefits for those who stop working. My question, is do they ever catch up? Would they ever catch up? If not, let us know.

Ms. Marta Morgan: I'll get back to you on that. I think your question is, does the CPP dropout provision fully compensate someone who drops out vis-à-vis someone who doesn't drop out?

Mr. Rey Pagtakhan: Yes, or allow contributions during that time, or even those who don't drop out. It's the same thing.

I would appreciate a reply to the committee on that.

Ms. Marta Morgan: Okay.

The Chairman: Thank you.

I prefer that very short answer. I'm learning more and more to be really aware whenever a politician says, I have just a short question.

I'd like to thank you, Mr. Stewart, Mr. Denhez, and Ms. Morgan, for a very insightful presentation. Our work has just started, as I said before, but it's certainly important and relevant to our recommendations that we will report to the full committee. They will integrate the recommendations, hopefully, in their pre-budget consultation reports in the fall.

We await some of the responses to some of the questions that were raised. Thank you very much.

The meeting is adjourned.