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]

Monday, May 10, 1999

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[Translation]

The Chairman (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Good morning. In accordance with the motion passed on 17 March 1999 by the Standing Committee on Finance, the Subcommittee is resuming its study of tax equity for Canadian families with dependent children.

[English]

I would like to begin by saying that we have a replacement, a last-minute fill-in, who I'm sure is of equal calibre. Replacing Angela Schira, the secretary treasurer, we have Mr. John Weir, the director. I would like to welcome Mr. Weir to this committee.

We start today the first of five public hearings that will be held across Canada. The subcommittee intends to report to the full committee by the end of May or the beginning of June. We hope the report will then be implemented and folded into the final report of the consultation hearings on the pre-budget report in the fall.

Before we begin, I would like to introduce the members of the committee: from New Westminster—Coquitlam, Mr. Paul Forseth from the Reform Party;

[Translation]

of Sherbrooke, Quebec, Mr. Serge Cardin;

[English]

from Bras d'Or, Nova Scotia, Nouvelle-Écosse, Michelle Dockrill; from Fundy—Royal, New Brunswick, Mr. John Herron; and from Mississauga South, Mr. Paul Szabo from the Liberal Party. I am from Vaudreuil—Soulanges.

The format, Mr. Weir, is usually five to ten minutes to make a presentation, and we hope to leave enough room at the end for a good exchange. So welcome to the committee. I hope you get us on the right track. I would like you to begin your presentation, please.

Mr. John Weir (Director, B.C. Federation of Labour): Thank you, Mr. Chair, members of the committee.

I should start out by saying that I'm a very last minute replacement. I received the submission about an hour ago and drove from North Delta, which, as Mr. Forseth realizes, is probably about as much time as it takes to get here. So my suggestion would be to read the submission into the record and then to take any questions and respond to them in writing later on, since I'm not entirely familiar with this area. My colleagues who worked on this on behalf of our women's committee and our legislative and research committee are both away today. So I'd suggest that's the way I'll approach it.

For those of you on the subcommittee who are not familiar with our role in British Columbia, we represent about 450,000 unionized workers in a variety of sectors, and about half of our membership are women. Our affiliates are active in the workplace and in our communities. We recognize that improving living standards often goes well beyond the bargaining table and into legislative, regulatory, and social policy areas. We regularly participate in the standing committee's pre-budget consultations, and we welcome this opportunity to talk more specifically about issues related to tax equity.

I should say from the outset that the federation is a bit disappointed with the narrow focus of the terms of reference of the committee. Tax fairness is a critical issue and needs to be addressed in the country, and limiting this discussion does not allow us to get at a number of issues.

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For example, if you want to talk about tax fairness for families, we believe you should be looking at the shift that has taken place over the last couple of decades that leaves corporations paying less and individual taxpayers paying more. In 1997 over 81,000 profitable Canadian corporations paid no tax despite aggregate operating profits of $17 billion. Tax fairness, in our view, should address that kind of imbalance. If it did, I'm sure there would be less strain on ordinary Canadian families.

We certainly think Canadian families are feeling the strain these days. Average family incomes have fallen about 4.5% since 1989, and child poverty in this country is growing, up from 15% ten years ago to 20% currently.

We believe the main culprit in this has been unacceptably high unemployment and a passive attitude on the part of the federal government when it comes to active interventions to reduce unemployment. Recent declines in the unemployment rate have provided some relief, but for the first eight years of this decade unemployment in Canada averaged close to 10%. Throughout that period we did not see federal government policies to change that fact. In fact, there's lots of evidence that shows federal policies have made it somewhat worse.

So as a first step the federation argues that the emphasis needs to be placed on policies that help Canadian families earn decent incomes. The fact that more and more Canadian families need two incomes in order to make ends meet is just another symptom of this great deficiency in a national strategy.

We believe another important element in this discussion has to be a recognition that tax policy is not and should not be the only instrument used to address the strain facing Canadian families. We need legislation in this country that ensures that part-time employees, temporary workers, contract workers, all of these workers get access to benefits that are available to full-time employees.

We need a national child care program in Canada so that working parents, regardless of income, can access quality care for their children.

Current arrangements, both formal and informal, do not facilitate re-entry into the labour force for many women.

We also need pay equity legislation to ensure equal pay for work of equal value. We're disappointed in the recent lack of leadership by the federal government, despite a decision from the Supreme Court, regarding pay equity in the federal government service.

We also need improvements in labour laws across this country that give real meaning to the right workers have to bargain collectively with their employer. Many of the problems we've described, such as part-time benefits and pay equity, could be resolved if more workers were able to engage in effective bargaining with their employer.

Nevertheless, your specific terms of reference raise a number of critical issues, and I'd like to respond to these. First of all, there's a suggestion that moving to a U.S.-style, family-based income tax system would help address tax equity for families. We think that approach doesn't work, because it assumes that income is shared between men and women within the household. We find that research today doesn't support that assumption. Many women retain independent financial relationships within marriage and within the family. Moreover, a family-based system means that the lower income spouse is taxed at the higher rate of his or her partner. Women are most often in the lower income category, and this move discourages women from working outside the home. We think the tax system should at the very least support the economic independence of women. The family-based model would act as an economic barrier to that independence.

Your subcommittee is also assessing the impact of the Canada child tax benefit, or CCTB. The current arrangement provides the highest benefit to low-income families and is gradually phased out as household income rises. If the objective of this measure is to help address low incomes and child poverty, we would argue for a return to the family allowance model that predated CCTB. There are number of improvements that should be added to that model, including much higher base support to cover the cost of raising children and revisions to the entire tax system to increase its progressive features.

In the absence of these kinds of changes, the current system should be modified to ensure the following:

First, social assistance recipients should be eligible for the full Canada child tax benefit, and the benefits should be paid regardless of income. These Canadians are at the lowest end of the income spectrum, and direct measures to help them go a long way toward addressing child poverty in this country.

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Second, the CCTB and the GST credit for children have to be fully indexed so that their real value is never eroded by inflation.

Third, the progressive features of our tax system must be improved. We could start by increasing the number of tax brackets. When we dropped from approximately 12 brackets in the late 1980s to four currently, we seriously undermined the progressiveness of our tax system. That needs to change, and we believe it needs to change quickly.

In regard to the current system for deducting child care expenses, we believe there's a problem with the fairness of the system. Because the expense is claimed by the spouse with the lower income, affluent families where the low-income earner is actually in the highest tax bracket receive a disproportionately high benefit. As well, the child care expense system does not work for thousands of families who have informal arrangements for their child care.

It makes more sense, in our view, to establish a common standard where everyone benefits. Instead of this current system, we need to introduce a national not-for-profit child care program.

There are a number of other issues we'd like to cover during the question-and-answer session. Unfortunately, I'm not in a very good position to do that, so I would certainly offer to carry forward any questions that you had and develop a response from our office.

Thank you.

The Chairman: Thank you very much, Mr. Weir.

We would like to turn to questions and answers for ten minutes. Mr. Forseth, please.

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

You have gone through somewhat of a traditional list that we've heard before. You represent the B.C. Federation of Labour, and I've heard similar arguments before, as you've mentioned, at the pre-budget hearings.

I just wonder if you could expand a little bit on what you talked about in reducing unemployment itself. Certainly, looking at the stressors on families, the economic pressures of unemployment, or the uncertainty of employment, it is one of the greatest stressors in family life. You said certainly as a broad social objective.... You tried to have it both ways. You talked about needing more benefits, but of course the very best benefit is not more EI or social welfare, it's a job and being able to earn a good income.

So could you just reflect a little bit about what would be some of the methods you would suggest to improve the unemployment situation? We are fairly clear on what you are suggesting on the social benefit side.

Mr. John Weir: Certainly I think we have to recognize the problem of women in the workforce, especially because of the jobs of the new economy.

There are a number of jobs that are very marginal and don't offer the stability and security that is essential, we believe, to decent family incomes. And women in particular are the people who are disadvantaged more by new forms of employment, which are, I guess, in our view underemployment. If you look at the distribution of employment and the growth of employment in the last ten years, many of the jobs working mothers are in do not pay decent incomes. Part of that is because of the weak bargaining power of women, and also the lack of firm legislative action to ensure pay equity and basic employment standards.

Mr. Paul Forseth: Perhaps you could go to the child care expense deduction for where there is purchased day care with receipts, that whole category. You said it doesn't help all, and you cited some remedies other than having a national day care program, which probably is not in the cards for economic reasons and, as I also understand, because of the federal-provincial negotiations that would be required. So seeing that we're not likely to get a national program in the next year or two, what are some of the other suggestions you have around that particular category on the income tax return?

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Mr. John Weir: Again, I'm at somewhat of a disadvantage, having no dependants and not being very familiar with the system itself, but as I understand the view of our women's committee, in particular, there should be a way of recognizing the contribution that's been made by informal care programs, since there is certainly a lack of opportunities for people to place their children in formal day care programs and they have to rely on these programs. I think that's probably the most significant issue I'm aware of, but I could certainly ask them to provide you with more information.

Mr. Paul Forseth: Thank you, Mr. Chairman. I'll defer to the next questioner.

The Chairman: Thank you, Mr. Forseth.

I'll leave it at six minutes per presentation, because we only have half an hour. I gave you too much and you didn't use it, but that's okay.

[Translation]

Mr. Cardin, you have six minutes.

Mr. Serge Cardin (Sherbrooke, BQ): Thank your for your introduction. You said at the beginning that your association was disappointed with the narrow focus of the terms of reference of our Committee. Could you give us further details about your thoughts on this. Although our terms of reference may appear narrow, the submissions received by the Committee from the many witnesses who appeared, or who sent briefs, were anything but narrow.

[English]

Mr. John Weir: I believe that our federation would like a broader examination of the equity of the tax system and how well it provides equity within the system overall, and particularly with a view to incomes policy and how the various steps in the system provide adequate incomes for Canadian families. And the interpretation of the terms of reference put by my colleagues was that it was much more limited than that.

[Translation]

Mr. Serge Cardin: Broadly speaking, taxation could have no limits whatever. In setting out the terms of reference for our review of tax equity for Canadian families with dependent children, a specific taxation problem was circumscribed.

When you speak of equity, you are alluding to income equity for the whole population, opportunities for work and access to work. We may understand this point of view, but the issue of tax equity for families with dependent children is an important one. Some parents want to stay at home, while others would prefer to work outside the home.

In our review of equity, we are more concerned about the welfare of children from the time they are very young, and about ensuring that they will all have the opportunity to develop. We cannot expect to achieve tax equity at this level unless taxation policies to promote these aspects are introduced. Even though our terms of reference do not appear broad enough to you, I believe that it is relatively precise and important.

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When we speak of tax equity, we are talking about the needs of very young children, about factors that will mark them for life, and guide them, as my colleague, Mr. Szabo was saying, and that will contribute to their training and help them succeed later in life.

Do you not feel that these are good terms of reference?

[English]

Mr. John Weir: Again, I'm not the expert in our organization on these issues. I certainly wouldn't disagree with that, but it was the view I was asked to put forward.

[Translation]

Mr. Serge Cardin: Okay. Thank you.

The Chairman: Thank you, Mr. Cardin.

[English]

Mr. Weir, please realize that this is a subcommittee. We received a very strict timeframe and a very strict mandate on a very key subject matter, as has been expressed by some of the committee members, but in the fall the full committee will be travelling and again and will be hearing witnesses as to the full gamut of budget recommendations you or your association may have. You're free to attend those hearings and make your representation then. However, I'd encourage you, as you offered before, that with regard to this mandate, if you'd like to add anything else in writing, please forward it to the clerk of our committee. We'd welcome it.

[Translation]

Ms. Dockrill, please.

[English]

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

Mr. Weir, recently there has been some discussion with respect to Canadian women and the recent changes to the EI legislation and the effects those changes have had on women, whether it be qualifying for maternity benefits or women being able to have the option to stay at home with their children for at least a minimal amount of time. I'm wondering if you would agree with that, and if you have any idea of maybe any particular measures that should be reversed with respect to the changes there have been on women.

Mr. John Weir: Certainly the data I've seen about the impact these changes have had indicate a disproportionate effect on working women. I haven't actually examined the interaction between the tax system and the recent changes to the employment insurance. It used to be my portfolio, and I appeared a number of times before the committee up until 1990 on those issues. But certainly in looking at the situation, I think it's had a very significant impact on the family incomes of working families in terms of their ability to acquire and maintain a decent income.

Again, looking at the kinds of new employment that are available where we talk about job creation, in fact half of these jobs are part-time jobs, so moving to the hour system has certainly made it much more difficult for people to qualify, as I understand it, and has had a fairly significant impact. And especially looking at people who are at the age where they have dependent children, where they are generally entering the labour force, I think that notion of the issue is sometimes overlooked, that this is during a particularly challenging economic phase of people's lives. I know that people are having children when they are somewhat older now, but still they're actually entering the labour force when they're somewhat older as well.

So while people are faced with these challenges of supporting the families and dependent children, at the same time they're faced with major difficulties in obtaining what I would say are decent family-supporting jobs.

Ms. Michelle Dockrill: On that, do you believe that one of the things that maybe should be looked at with respect to the effects the changes have had on women is that flexibility is required for women to give them the option to stay home with their children for a longer period of time in terms of the benefits that are now available?

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Mr. John Weir: I think there are a number of conflicting goals we have to try to achieve in the system. But I think there's increasing...I should say there's a subjective feeling that we need to provide more support for families and more opportunities for people to play a better parenting role while still having a decent income to support themselves.

Ms. Michelle Dockrill: You've made reference to a national child care program. My colleague, Mr. Forseth, has made mention that he believes that's not possible for maybe another two years, and I hope I can disagree with that. If it is two years down the road, do you see that as being detrimental with respect to supporting families—the lack of a national child care program?

Mr. John Weir: Well, just from my own personal experience, I know a number of people who have faced real difficulty even in accepting employment because of the problem they've had in getting child care. Again, this is drawn from my own personal experience. But I do know that people, especially outside of the non-standard hours of 9 a.m. to 5 p.m., Monday to Friday, which we used to think was the ideal way to work, have a very difficult time trying to obtain formal child care during that period. The other aspect of it, I guess, is the increasing number of families where both spouses are working shift work. This has raised a new set of problems for people in trying to provide for child care.

Ms. Michelle Dockrill: I just have one more question, Mr. Chair.

You talked about your concern with respect to the committee's mandate and its restrictiveness. I'm just wondering if you think this committee possibly should be a stepping stone for the federal government with respect to a national child care strategy that would be inclusive of all of the issues that certainly we've heard from you today and we've heard from other witnesses.

Mr. John Weir: I think that a more expansive look at what we're doing in terms of programs to support families is probably better than a piecemeal approach to looking at, for example, tax equity for families with dependent children. As one part of the process, I think you disaggregate some of the pieces that have to go together to look at what kind of breaks we can give to people who are trying to raise families today.

Ms. Michelle Dockrill: Thank you.

The Chairman: And hopefully maybe the rest of the provinces will model our home province of Quebec in emulating a child care program. This program was started in our home province. It's the first year, and it's been very, very, well received, although there were some growing pains, I'll admit. But the initiative was there.

Mr. Herron, please.

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

One of the things that we have heard on numerous occasions throughout the subcommittee's hearings is that establishing a family assessment of income versus a progressive tax system would be perhaps discriminatory against women with respect to encouraging them to enter the workforce.

Another public policy debate out there is that.... You referenced the new economy in that regard. I almost think that philosophy can be a little bit sexist in that regard, given the new economy that we are heading into, since the decision for one parent to work at home and one parent to work outside the home has usually been based upon who has the most upward mobility in terms of being able to secure a given income. That's usually how families or partners make that decision. But I'm saying that in the new economy of the information age, it's just as likely that the female in that relationship would have the same kind of capacity to earn more income. So I want to know what the B.C. Federation of Labour would think about that debate.

Mr. John Weir: One of the issues we're looking at quite closely, and in fact are having a conference about this fall, is what's really happening in the new economy. The post-industrial economy has certain features, and I think people are really taking a hard look at what the reality of it is. I think there is a certain level of mythology that's not borne out.

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If you read something like The Rise of the Network Society, I think chapter four is about the transformation of work. It really says that some of these assumptions we're making about what kinds of work and work arrangements there are in the post-industrial North American economy are simply not borne out by the statistics.

So some of the assumptions we're making here are probably true for highly educated women who are in those situations, but I'm not sure they're broadly true. I think that's one of the things that's very important to look at, to get a firm handle on what's going on with jobs in the new economy.

I was looking at some statistics earlier this year, and although women had been closing the gap, so to speak, up until about 1992, that seems to have reversed itself, and their participation rate or the increased participation rate has been declining. So there are some changes that are taking place, and I think the trends that have just begun to appear in the last few years need very close examination.

Mr. John Herron: I guess the catalyst of this subcommittee is based upon the issue of fairness. I liked one of the lines you used in your presentation, where you want to develop tax policies or common standards where all families benefit. We're in a society now where the Ward and June Cleaver model doesn't exist in that regard, but what we're looking at doing is being able to provide families with choice.

Currently, in the taxation system benefits, where the federal government will intervene or engage is when both parents work outside the home. But for those families that may have an equitable amount of income as a family unit, where there may be, potentially, informal child care, or a choice where the family has elected to have one parent work inside the home and one parent works outside the home, the federal government doesn't engage in terms of the same degree of the child tax benefit.

In your assessment in that regard, given that they only engage in one regard, meaning where both parents work outside the home, would you consider that system to be inequitable?

Mr. John Weir: I think we have to pay attention to the value of unpriced labour as part of family income, and that's an aspect of the issue that needs to be examined. Certainly I think people gain choices by having decent family income policies. Choice is really an issue of economic independence. Although Ward and June are long in history, I'm sure there are a number of families who would like to have that option available to them. Our view is that isn't possible, or certainly is less possible within the existing system, within the kind of economy we have today.

Mr. John Herron: So would I be clear in saying that there needs to be more flexibility to recognize the choices parents make in terms of caring for their children, where there should be equitable treatment when they have one parent work inside the home, and also to recognize the informal child care situations with grandparents or those kinds of situations as well?

Mr. John Weir: I guess part of it is how you're describing work. I'm always kind of cautious in that definition. I would not describe people who don't have a job in the formal economy and are at home as not working.

Mr. John Herron: I'm sure I said “work inside the home.”

Mr. John Weir: The other aspect of it is that you see people who are working at home in fact accepting an incredible burden of not only trying to carry on some kind of income-earning economic activity at home, but still being responsible for doing a large part of the work supporting the family, in terms of unpriced labour.

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You have to look at the different scenarios that are possible and try to formulate a plan that tries to make sure these things aren't a barrier for people, and in fact at the end of the day allow people to have a decent life as a family as well.

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

The Chairman: Thank you, Mr. Herron.

Mr. Paul Szabo, please, to conclude.

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

Thank you for coming. I understand it's awkward to carry somebody else's ball for them, but it's good you did it.

Mr. Chairman, there are substantially more points here. I assume the report has been attached to the record, but many of them have not—

The Chairman: That's the next one.

Mr. Paul Szabo: Was that the next one?

The Chairman: Yes.

Mr. Paul Szabo: Oh, okay. There was a comment at the beginning that there was a report, though.

The Chairman: We don't have a copy of that yet.

Mr. Paul Szabo: We just don't have it yet?

Mr. John Weir: I have some written notes that I'll leave.

Mr. Paul Szabo: Okay.

First of all, you mentioned the problem between corporate tax and individual taxation. I believe the number was 87,000 corporations that had income but didn't pay tax. You said we should deal with that, and that will take care of a lot of problems. If that's true, it probably would. Do you know why 87,000 corporations that had income didn't pay any tax?

Mr. John Weir: I certainly know there's a variety of reasons that profitable companies are not paying taxes, and some of them obviously are—

Mr. Paul Szabo: Could you give me one example?

Mr. John Weir: Not off the top of my head, no.

Mr. Paul Szabo: Okay. I can.

The Chairman: Surprise.

Voices: Oh, oh!

Mr. Paul Szabo: It's very interesting that a lot of people will look at an annual report and look at the accounting income, but if you were to look at the tax return, either you would find zero taxable income, which is a different figure from the annual report number, or you would find taxable income offset by loss carry-forwards, because they lost a lot of money last year. In fact corporations can carry losses forward seven years. There's nothing illegal going on here, and in fact they've paid exactly what the tax return says they should pay. So a lot has to do with loss carry-forwards.

The other part of it has to do with faster write-offs for tax purposes than are permitted for accounting purposes. It's called deferred taxes. Deferred taxes are an accounting concept, not a tax concept. So none of those 87,000 companies actually owe any money to the government currently. It would show that they likely will have to pay more money in the future, because of the deferred amount.

I wanted to clarify that, because it sounded as if there was a simple solution to our money problems, and I don't believe there is.

The Chairman: Why don't you let him comment, maybe, Paul?

Mr. John Weir: First of all, that's a very interesting issue. It's too bad some families don't have carry-forwards when they have very low incomes in a year. They could carry forward and average their taxes.

The Chairman: You do with capital gains.

Mr. John Weir: Well, we do with capital gains, but most working families aren't worried about capital gains.

Mr. Paul Szabo: And self-employed activity as well.

Mr. John Weir: Self-employed activity accounts for about 20% of the labour force.

Mr. Paul Szabo: I want to get on to the issue we're dealing with.

I was happy you raised the point about the child care expense deduction benefiting high-income earners more than it does low-income earners, simply because of higher marginal rates. To me it seems a discrepancy, simply because you would expect that tax benefits would go more to lower- and middle-income earners versus higher-income earners, and it's in fact quite the reverse. It's certainly something I'd like to see looked at more carefully and at least made level for all Canadians, regardless of income.

The only issue I want to cover with you is that a lot of your comments seem to be premised on the idea that the child care expense deduction is necessary, because it's an employment expense, it's necessary to help women get into the labour force, etc.

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We found out that less than one-third of dual-income families who have children under age 18 actually even claim the child care expense deduction, and the average claim is only $2,600 in the last year they have information for, which was 1996. This shows there's very little demand or need for this deduction, when you consider that less than a third of the people even use it.

You made another comment that most families need two incomes, Ward and June Cleaver are history, and all that other stuff. We also found out that regardless of the level of income of, say, a husband, the distribution of full-time, part-time, and working in the home was virtually identical right across the spectrum. In other words, one-third of women with children and a husband working decided to work; one-third had some amount of part-time income, casual income; and one-third were in the unpaid workforce full-time, with no earned income.

If you look at that distribution, it seems to me it would be fair to say that even some of the part-time employment income was probably very casual, and in fact those mothers were still probably providing a substantial portion of the child care. That says to me almost half of women choose to provide some amount of direct parental care. That to me sounds as if a choice is being made regardless of income and regardless of the tax deduction.

So I ask you—and if you can't answer the question, maybe we could ask your group—to look at the actual numbers of who's participating, what tax breaks they're getting, and what choices are being made, and maybe reconsider whether or not your position on the equitableness between those who choose to provide direct parental care and those who choose to work and have somebody else care for their children should be looked at.

Mr. John Weir: It's very interesting to talk about the statistics. I used to do that a lot in collective bargaining, and my motto used to be “What do you want it to cost?”

You can toss around averages, but it is important to look at the features of the one-third of the population who are making that claim you referred to. To look at the statistics generically without actually looking at the family situations more specifically is.... Obviously they can give you some insight into how a system might be more appropriately applied, and I'm certainly always interested in what the averages tell us, but I usually find them of pretty low value.

Mr. Paul Szabo: Statistics Canada does report—and it's been presented to us by Status of Women and also by the human resources development department—that one-third of families with children have a parent in the home providing direct parental care, with absolutely no income. That's one-third. It's not just statistics; it's a fact. It's part of a constituency.

Very briefly, could you tell me what “informal arrangements” are? You said something about informal arrangements.

The Chairman: That was your last question, Mr. Szabo.

Mr. John Weir: It's having a grandparent or another family member care for a child, and increasingly even for a senior. Basically it means outside of external placement with a day care agency.

Mr. Paul Szabo: For pay?

Mr. John Weir: In some cases there may be some compensation.

Mr. Paul Szabo: But they don't declare the income. It's under the table.

Mr. John Weir: Well, I'm not too clear.

Mr. Paul Szabo: Okay.

The Chairman: Thank you, Mr. Szabo.

Mr. Weir, I know you're going to be responding in writing, or your association is. I'd like you also to address one issue you brought up, which is that you don't believe family-based income is the way to go.

The committee is looking at ways of addressing fairness and equity, and if you take a look at tax benefits—for example, the GST tax credit, the child tax credit, and the seniors' clawback—quite a few of these benefits are based on family income. One other thing we were discussing was the possibility of income-splitting, for example. All this is with a view to trying to address the appearance of inequity or the inequity that may exist.

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So if you're going to respond in writing, I'd like you to touch on those two aspects and give us your comments also.

On behalf of the committee, I would like to thank you. I know you're like a clean-up batter at the last minute, and you did very well. I'd like to thank you very much, on behalf of the committee, for taking the time and sharing your comments with us.

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

The Chairman: Thank you.

I will invite the next guests to come to the table. This morning we have, from the Canadian Centre for Policy Alternatives, a research associate, Marjorie Griffin-Cohen, as well as Margot E. Young; and from the Campaign Life Coalition of British Columbia, the president, Mr. John Hof.

I'd like to continue the format and ask the Centre for Policy Alternatives to make their presentation, followed by Mr. Hof.

Welcome.

Ms. Marjorie Griffin-Cohen (Research Associate, Canadian Centre for Policy Alternatives): Thank you very much.

I'm Marjorie Griffin-Cohen. I chair the Centre for Policy Alternatives in B.C. We are an economic research institute that focuses on economic and social justice in social and economic policy. So we're particularly concerned with issues of fairness.

With me today is a professor of law from the University of Victoria, Margot Young. I am also an economist and a professor of political science and the chair of women's studies at Simon Fraser University.

I want to apologize for the fact that our brief is not in French. We did not have time to do that; I'm sorry.

The Centre for Policy Alternatives applauds Parliament for its recognition that issues of tax fairness for families are important questions of fiscal and social policy. However, we too feel the questions have been framed in a particularly narrow, and in fact a destructive, way.

It is true that the distribution of after-tax income among families has become more unequal during the 1990s, and this is a very serious concern for us. Middle- and low-income families have been particularly hard-hit by government policy over the period of this whole decade, but this is not because families with children and two working parents have received some recognition in the tax system of the costs of working outside the home for pay.

Since 1994 the ratio of after-tax income between the richest and poorest families has escalated to the highest point since 1973. The change has occurred since the disastrous budget of 1995, when very drastic changes were made in the federal government's policies. In particular the cuts to transfer payments and the scale-back of the provision of public goods have hit the poorest families and youth the hardest.

The issue of fairness in the entire tax system is extremely important. Over the past ten years this system has become decidedly more regressive as the tax burden has shifted from corporations and the wealthy to middle- and lower-income individuals and families. There are many things we can point to, but I just want to draw your attention to a few of these.

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In 1988 there was a massive change in the personal income tax system where we reduced ten brackets, which began at 6% taxation for low income and went up to 34%, to three that went from 17% to 39%. We also introduced the goods and services tax, which is a very regressive tax and hits families hardest, particularly those on the lower income levels.

We've seen quite substantial reductions in corporate income taxes. We've seen the deindexation of all kinds of tax credits and personal tax exemptions. We've seen the elimination of the family allowance in 1993. We've seen the taxation of immigration applications, which is a huge burden on people who come to this country who are poor. We've seen the crippling at the national social housing funding. We've seen salary freezes for government employees who have families.

So the framing of tax fairness as one of tax discrimination against the dual-parent family with a female full-time caregiver is a false and dangerous antagonism that is being created between single- and dual-career families. The claim of tax discrimination against families with full-time female caregivers is ill-founded and misdirects this debate.

We feel that the tax system's relative treatment of the two family types you are looking is basically fair, at least as it pertains to heterosexual couples. We do not feel it is fair in other regards.

I would like to point you to the commitment Canada has, to the world and various bodies, to women's equality and access, and through that access to paid work. Women's equality, including women's equal access to the paid labour force, is a fundamental value recognized in Canada's domestic law through such things as Canada's Charter of Rights and Freedoms and federal and provincial human rights legislation. Canada's international obligation under such human rights instruments as the International Covenant on Economic, Social and Cultural Rights and the Convention on Elimination of All Forms of Discrimination Against Women also commits the Canadian government to active realization of women's equality.

The need for a child care deduction to ensure women's equal access to the paid labour force really meets some of these needs. The child care expense deduction is an important measure for removing the financial barriers to paid work for women. We want to stress that this is an employment expense. It is one of the very few employment expenses people who receive salaries are allowed to have. So in this sense it is distinct. The child care expense deduction does not increase discretionary spending into earner families. It merely offsets, to a small extent, the cost of someone working in the labour force who has a child.

I think it's quite important that while a stay-at-home parent does forgo a cash income, this person is able to produce goods and services for her family unit that have a very important economic value. Economists refer to this as imputed income, and we note that such goods and services have a material value and enhance the family's economic capacity and standard of living. Two-earner families forego this economic benefit.

We also want to point out there are very high marginal costs to having a second parent within a family unit enter paid employment. The two-earner family must purchase many goods and services on the market to replace those generated by the household production of a stay-at-home parent. There are also employment-related expenses that would not otherwise be incurred. This remains true, despite the presence of the current child care deduction, as the child care deduction alone does not cover the full cost of typical full-time care for a preschool child, let alone all the additional costs occasioned by working in the paid labour force.

Since it is disproportionately women who bear the primary responsibility for child care work, increasing the marginal cost of entering the paid workforce by reducing the tax recognition for child care expenses would discriminate against women. It would constitute a barrier for those women who choose or need to enter the paid labour force.

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We feel there is a better solution to this, and that is a universal public child care provision. You have heard this, I am sure, many times, because women's groups have repeatedly demanded it for at least 20 or 25 years, but we do need publicly provided day care. If this were provided, if this were universal, if it were accessible, the child care expense would be less essential for many women, although we do feel if you did have universal child care it would be necessary for some women to retain the ability to have child care expense deductions. This is primarily for women in remote areas who would not, however we use the term “universal”, have access to child care. We're thinking of farm women and other kinds of women in remote areas. So this is part of what women's groups have been calling for for a very long period of time.

The problem with the deduction does not lie in the fact that it is not provided to stay-at-home parents, but rather because many people cannot access this deduction, and because there are not available spaces for all kinds of people who need child care spaces. So what we would call for very specifically is that the deduction itself be less restrictive in terms of the number of women in the paid labour force who are able to meaningfully access it. Right now there are very strict restrictions on this, so many people use child care and pay for it who can't access it.

We are calling for assistance to public day care that would ensure opportunities for high-quality care for all Canadian children. However, until such an important progress is realized—and I'm amazingly heartened to hear that it might happen in two years—we still recommend that we maintain the child care expense deduction, despite the implementation of any other tax measure.

I want to now turn this over to Margot Young, who will explain the rest of our brief.

The Chairman: Just before you start, Ms. Young, we do have a limited time, and we only have about 25 minutes left. We also have Mr. Hof to make a presentation, and I'd like to leave at least 20 minutes for questions. I've looked at your brief, and it's quite long, so maybe you could just take five minutes or so.

Ms. Margot E. Young (Research Associate, Canadian Centre for Policy Alternatives): I'll do my best to hit the high points, and rely upon the brief circulating.

The Chairman: Thank you.

Ms. Margot Young: I'm going to continue with the points we make on page 3 and talk a bit about some of the criteria that are essential for other tax measures that may be introduced to address the issues of tax fairness and welfare in Canadian families.

I'll point to paragraph 17 in our brief, which mentions that we would recommend the following criteria should a new child tax measure be introduced. First, we recommend that it be a refundable credit. This is in reflection of the fact that non-refundable credits or deductions discriminate against those whose incomes are too low to benefit from such tax relief, and that this group disproportionately includes single-mother-led families, and of course ought to be of concern therefore to this committee.

We also strongly urge that the child care expense deduction be maintained as a separate provision, for the reasons that have been outlined by my colleague.

The next section of our brief deals with measures that are directed toward the valuing of women's unpaid caregiving work. And we provide in paragraph 18 a list of measures that would address the inequities that are at play in the failure of our system to recognize and value women's caregiving work. I won't go through this full list, since it is set out, but I would note that we make the important point that tax measures must be conjoined with measures in other systems, such as provision of longer and better remunerated maternity and parental leave policies.

We also make the point that at-home workers as well as workers in the paid labour force ought to have access to social and labour benefits like workers' compensation, access to pensions, retirement benefits, disability benefits, employment insurance and retraining programs.

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We propose, and this is set out in paragraph 19, two measures we feel would address some of the important concerns currently at issue with respect to the welfare of Canadian families. The first would be the reintroduction of a universal family allowance payment. This would be a taxable payment received by all families and valued at a percentage of the average wage. It would provide important recognition of the contributions parents make to society and would work to achieve tax fairness between families with children and families without children. Because this is a taxable benefit it would also respect the goal of vertical equity within the tax system.

We would also propose an income-tested refundable tax credit, which really would be an amplification of the existing child tax credit but would be set at a significantly higher benefit level. We would also emphasize that this credit must be fully indexed in terms both of the benefit level and of the income cut-off, and that this credit would be available to all family types, regardless of whether or not particular families receive their primary source of income from provincial income assistance programs.

I turn now to the last of our sections dealing with the goals that structure our presentation. This is on page 5 of our brief. Paragraph 20 urges that there be rejection of any set of proposals that promote one model of the family or of parenting as morally superior to other models. Such preferential treatment would be prohibited under both constitutional law and human rights law within Canada as well as under Canada's international obligations pursuant to the two covenants and the Convention on the Elimination of All Forms of Discrimination against Women.

I won't elaborate on this, but our paragraph does set out concerns we have about some of the proposals currently in play and the ways in which they would be discriminatory.

With respect to proposals to increased spousal credit, paragraph 21 states that the CCPA-BC strongly rejects the proposals to increase the amount of spousal credit. We note that the lower amount of the spousal credit is fully justified by the economies of scale that are realized through joint living. Simply put, the basic expenses of a two-person household are not double those of a single-person household, and to increase the spousal credit would discriminate against both single-person households and households where both partners work in the paid labour force.

We would also note that increasing the spousal credit leaves unaddressed the problem of undervaluing women's unpaid caregiving work, and it does nothing to address the economic autonomy of the dependent spouse. It simply gives a tax reduction to the income-earning spouse, typically in heterosexual couples the male partner. So what continues is the patriarchal stereotype of family relations where women are forced to rely exclusively on the male breadwinner to meet their economic needs.

I would also note the important point we make in paragraph 24, that the spousal credit should be equally available to lesbian and gay male couples, that wherever the term “spouse” is used in the Income Tax Act it should be amended so that it refers to same-sex relationships as well as opposite-sex relationships. This is I think a constitutional requirement that the federal government will soon be forced, if it doesn't do so on its own accord, in the courts to acknowledge.

I will briefly address income-splitting and then I will wrap up. I can see you looking at your watch, but I feel this is a very important part of our presentation. I want to begin by repeating an earlier point, that no tax discrimination lies between two-earner families and single-earner families, and that this is in part due to the household production realized by the stay-at-home spouse.

We oppose tax changes that would allow single-earner couples to income split or to file jointly in order to reduce their overall tax burdens. We make three points about why we are in opposition to this proposal. I won't go into them in detail, but I will note that all points contribute to the assertion that income-splitting creates both gender inequities and class or vertical inequities between taxpayers within this system. We would be happy to elaborate on these points in question.

Our last substantive section deals with the national child benefit. Just to summarize that, we note that it is problematic from a constitutional perspective, particularly given that the child benefit in nine out of ten provinces is clawed back from families on income assistance. And we would urge the federal government to ensure that in its agreements with provincial governments this is not allowed and that Canadian families are treated equally regardless of their income source.

I would also note that this is a particular form of discrimination against women, since the families who are denied access to this benefit through the manipulation of the income assistance rules are predominantly single-mother-led families. So there is an issue of gender equity here.

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I conclude by pointing you, beginning in our paragraph 32, to the summary of our list of recommendations, all of which we're already mentioned. In the interests of saving time, I won't reiterate them, but I would urge you to consider them carefully in their written form, which you have before you.

Thank you.

The Chairman: Thank you very much, Ms. Young.

Mr. Hof, please.

Mr. John Hof (President, Campaign Life Coalition of British Columbia): Thank you very much.

I also apologize for lack of a French translation. Short notice, first of all, did not permit that, and this is also my very first time before a subcommittee of any sort. Thank you very much for the opportunity.

I'm here today as a concerned Canadian, a parent, and a grandfather. It is this last role that gives me the most important incentive to be here.

My young son, his wife, and their two small children are victims of the inequity in our tax system. As a young apprentice in Calgary, he can't earn enough money to support his young family. The taxman takes a large bite out of every paycheque, and the times for them right now are very tough. His young wife has been forced to go out and get a part-time job just to make ends meet. The children, ages three and a half and two and a half, are now left at a day care centre. Payment for the day care comes out of the meagre earnings, and they've begun to wonder if they'll ever be able to get out of this paycheque-to-paycheque rut they're in. There has to be a better way.

Rather than taxing both of these young people into poverty and helplessness, and I might add hopelessness, wouldn't it be better to give this young family the privilege of claiming the time they spend caring for their children as a legitimate child care expense? Andrew, my son, could then begin to save the money he needs to attend a trades school. The family would also have at least one parent at home at all times, and that's undeniably a positive development.

As I said, being a grandfather was my most important reason for being here today. I care about how well our tax system serves families. I've heard the axiom many times being used that a government should not be doing for families what families can do for themselves. This applies specifically when it comes to taxation and fairness and the inequity in taxation between single-income and double-income families, which was laid out in the House of Commons debates this spring. I've read the Hansard comments. There's actually no need to point it out, as you've all heard those debates.

There is a need for drastic changes. Penalizing stay-at-home parents with an unfair tax system does a disservice to families and our Canadian heritage. We heard earlier about the Cleavers. Forcing extra pressure on the family through tax discrimination is counterproductive to what government should be doing to help families.

We need to ask ourselves as a society if we can afford not to address this issue. Anything the government can do to help even one parent stay at home will obviously lead to a better nurturing environment for children. The government needs to look at initiatives like income-splitting, mortgage deduction, CPP contributions for homemakers, and I've heard several more very wonderful suggestions here that were made today. We need to encourage and support these families who make the sacrifice for their children by staying at home rather than heading off to work.

Initiatives like these can also have a twofold benefit: families would naturally be stronger, but it would also be easier now for young people, because of more jobs being out there, to find their first employment.

We want Canadians to get ahead, but not at the expense of losing the meaning of family. That is a price we can't afford to pay. Families need to be supported, acknowledged, and rewarded. Children need to be seen as a blessing, and not a burden that leads to family poverty.

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The government's role in turning this perception around starts with an immediate cessation of the penalizing of stay-at-home parents. Governments must balance the tax system to level the playing field for parents who choose to parent their children themselves. I don't favour handouts from the public purse. I just want a fair tax system that does not give advantages to some while hurting others.

I'm not a tax expert; I can't claim all these studies and statistics. But there is no shortage of people who will give you those statistics. As an objective, ordinary Canadian, it just doesn't seem fair that single-income families can't receive the same breaks from the tax system just because they choose to stay at home to raise their children. I would think parents who do this would be praised and supported to high heaven, rather than treated as second-class citizens.

Families are the backbone of our society, and a government that ignores the value of families does so at its peril. We can do better, and I hope this subcommittee's recommendations make it so.

Again, thank you for this opportunity.

The Chairman: Thank you, Mr. Hof.

We will take 25 minutes. We'll run a bit over time and we'll give each member five minutes. So we need concise questions and concise answers, please. Thank you.

Mr. Forseth.

Mr. Paul Forseth: Thank you. I'll address my comments, first of all, to the Canadian Centre for Policy Alternatives.

On page 8, under paragraph 32(v), you say

The Canadian state must provide better (longer and benefit levels) maternity and parental leaves, available to all parents, regardless of work force attachment patterns.

Perhaps you can give some more specifics. I take it that obviously you're referring to EI facility. Have you thought of looking at some international comparatives about where would be a reasonable set point for that? There's also an issue of affordability, but looking at that provision, maybe you could flesh that out a little bit for us.

Ms. Margot Young: Sure, I'm happy to begin doing that.

Relative to levels throughout Europe, Canada has a much lower benefit period length. In fact, I think our benefit period length is better only than the one available in the United States, and that's really not something to be very proud of. I would think talking about something like a 52-week parental leave provision, or combined maternity and parental leave provision, would better place Canada within the standards that exist in other first world countries.

The problem with the employment insurance as the administrator of maternity and parental leave benefits is that the criteria for eligibility are the same as the criteria for employment insurance. We know from recent Statistics Canada data that women are disproportionately disentitled or not eligible for employment insurance. Particularly since the switch from a week-based eligibility formula to an hour-based eligibility formula, we've seen a significant drop in the number of women who qualify for employment benefits.

I don't think there are as yet data available about women's access to maternity benefits under the act, but I think it's reasonable to assume that there has also been a drop in women's access to these benefits, since the eligibility criteria are the same. It's very problematic that so few women are getting access to maternity and men and women access to parental leave.

Currently within the Canadian system, there are other elements of the employment insurance scheme, like the imposition of a two-week waiting period and an income-tested clawback of paid benefits, that are simply inappropriate, whether or not they're appropriate for unemployment insurance. That is another debate, and I won't talk about that here, but they are clearly inappropriate for maternity and parental leave benefits.

Mr. Paul Forseth: One other point we've certainly heard or members have had submissions about are those that are not necessarily for a live birth, but for adoption, and adoption groups have been seeking parallel consideration. Would you support, under whatever rules are provided, that there be no distinction between live birth and adoption?

Ms. Margot Young: No, I wouldn't support that there be no distinction. I think the two different scenarios or situations involve different needs. I do support adoptive leave, a parental leave that allows for a leave period for adoptive parents. The Canadian courts have recognized that there are distinctive needs associated with live birth, with gestation and birth, and that's recognized within a maternity leave policy. But I do support recognition of the needs of adoptive parents in terms of parental leave, certainly.

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Mr. Paul Forseth: On the same page, page 8, under subparagraph (viii), you say, “The amount of the current spousal credit should not be increased.” Can you provide some further comment on that statement?

Ms. Margot Young: I can, and in fact we detail our reasons for that statement in the brief.

Mr. Paul Forseth: Okay.

Ms. Margot Young: It's set out on page 5, beginning with paragraph 21. Essentially our argument rests on the economies of scale that are realized through joint living. As I said, maintaining a household for two persons is cheaper than maintaining two separate one-person households. Increasing the spousal credit would discriminate against single-person households and households where both partners work in the paid labour force.

It also doesn't address the concern that motivates this subcommittee's investigation, which is increasing economic autonomy and valuing the work women do, because it doesn't put money directly into the hands of the caregiver within the home. We know that those individuals are predominantly women.

Mr. Paul Forseth: Okay, thank you.

The Chairman: Thanks, Mr. Forseth.

[Translation]

Mr. Cardin, please.

Mr. Serge Cardin: Thank you for your presentation. You said that your terms of reference were narrow. On the other hand your recommendations are not. You reviewed a wide range of possibilities. You say that the main objective consists in making sure that all children have access to quality care.

You also say that there should be no discrimination in alternatives available to families and that the government should not interfere here in favour of one choice rather than another. Is the government, through its taxation policies, automatically responsible for the choices that families will make?

[English]

Ms. Marjorie Griffin-Cohen: I'm sorry; is there a question?

[Translation]

Mr. Serge Cardin: Do you believe that it is the government's responsibility to respond on behalf of families to all of the choices available to them?

[English]

Ms. Marjorie Griffin-Cohen: This in an interesting question. Clearly we want people to be able to have choices around how to shape their lives, but government policy, whether we like it or not, does shape the choices people make.

We want to be sure government does not interfere in some way that limits choices. That, we maintain, has been happening within the past decade or more, in the lack of support for families with the shift in the distribution of income tax and other kinds of taxes so that middle- and lower-income families in fact have fewer and fewer choices with regard to the way in which they can determine how their children are to be raised and what kind of work they're going to do.

We also find there is a tremendous shift in the kind of work being done in Canada, so that fewer and fewer people are able to have full-time, full-year jobs. This is an unusual group of people now; in fact they are in the minority in this country. So it's not surprising that we see a smaller proportion of people accessing the child care deduction that you talked about.

Our objective is really fairness, but we feel if you limit it to simply this argument between dual-parent families who work and dual-parent families where the woman stays home and looks after the children—if you limit it to that and have this as a hermetically sealed package in which you can only make changes within how money is distributed there—you are missing the major issues around unfairness to people in families in Canada.

Ms. Margot Young: Could I add to that?

Clearly we're not saying fiscal policy doesn't provide incentives and disincentives. We're simply maintaining that these should not be provided in a discriminatory manner, that they should be provided in a way that's consistent with the goals associated with women's equality and the values that are supportive of that public goal.

Ms. Marjorie Griffin-Cohen: I want to say one other thing about this.

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We feel the child care deduction does give women a choice. It gives women who want to work some way of saying that this is a work-related expense, that is, a work-for-pay related expense that is quite distinct from other kinds of issues. It does not give these families discretionary money that is separate and distinct from other families, it is something that is specifically related to their work. So it gives them a choice to be able to go into the labour force.

[Translation]

Mr. Serge Cardin: In order to determine the amount of tax credits to which you refer, should we, for the purposes of equity, calculate the average costs that a family must pay to raise children properly and give them adequate care? Although we know that these costs can vary from one region to another, we could perhaps arrive at an average amount that could be used to adjust the tax credits to which families are entitled more equitably.

You say that the basic exemption for a spouse ought not to be as high because when two people live under the same roof their expenses are lower. You believe that the average real costs should be identified to determine the tax credit deductions and that we should take all child-related expenses into account, including day care. If a family's average expenses are higher than its real income, this family should be able to have additional assistance so that it can make its own choices.

[English]

Ms. Marjorie Griffin-Cohen: I want to make it clear that we do not see families as being uniform, so we are calling for two things. We do think there should be a child tax credit that goes.... You had a very good system. You had a family allowance that went to all mothers. This was great. Then it was eliminated. That is a model for helping people and families raise children. In addition, there are special kinds of needs of people who work in the labour force who have children. Therefore we do feel that we need a deduction to recognize the cost of that.

So there are two things we're calling for. Basically we do feel that all families should have some kind of support for raising children, and that this can be taxed back at the very high income levels.

The Chairman: Thank you very much.

Ms. Dockrill, please.

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

Thank you very much for your presentation. I have to say I found it very interesting.

One of the questions I presented to the last presenter we had was with respect to some presenters' sense that we have a narrow mandate with respect to the subcommittee. I'd like to have your thoughts on whether or not you feel it would be important that this subcommittee act as a stepping stone to a more national child care strategy, given that your presentation covers the broad range of issues.

Ms. Margot Young: Yes. I think our presentation clearly urges that there be a national child care strategy put in place, and it's one of the disappointments of this current government—that it hasn't done so despite promises in the past that it would do so. I think the issues are clearly connected.

Ms. Michelle Dockrill: You mentioned unpaid work in your presentation. I'm just wondering if you feel that it isn't very important that we figure out a way to attach some economic value to unpaid work. I know recently in Nova Scotia there have been some studies done with respect to the economic value of unpaid work. I think it's really interesting that with respect to the figure they've come up with in Nova Scotia, if it had to be replaced for pay it would be worth $8.5 billion.

Ms. Marjorie Griffin-Cohen: There have been some very interesting studies done in recent years. The most recent one I'm familiar with in Canada was done by Statistics Canada. They calculate this in all kinds of different ways, but they think that replacement cost for women's work on average ranges between $25,000 and $30,000, depending upon whether you're a specialist or a generalist. I'm not sure how they get those figures. That's the average for each family. That is the imputed value of women's work.

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So these have been done. There's been a fair amount of examination of the kind of work women do in the home and the amount of time and proportion of the total time spent on child care. It's a fairly substantial amount of money. Once again, these are very average. Not all families are the same, and obviously we have to think of these in different ways.

Ms. Michelle Dockrill: Do you believe there has to be a mechanism in place by which we recognize that, in terms of an economic value?

Ms. Margot Young: Yes. I was going to follow up and say that in fact Statistics Canada has been one of the world leaders in trying to put a value on the unpaid work that women do. But the real challenge now lies in developing public policy that reflects that. It's a difficult question, a really tricky question, but I understand it to be part of what this subcommittee is engaged in looking into—what kinds of public policy measures that ought to be implemented in order to give recognition to this.

Ms. Marjorie Griffin-Cohen: The main one at the moment would be to recognize that having children costs a lot of money, and that having reversed the notion.... To reintroduce something akin to the family allowance would be very important.

Ms. Margot Young: We feel the two measures that we set out in our brief—the family allowance reinstatement and a much more substantial child tax benefit—are measures that start addressing this important issue.

Ms. Michelle Dockrill: I just have one question for Mr. Hof.

Thank you very much for your presentation. In your presentation, you talk about claiming the time parents spend caring for their children as a legitimate child care expense. I'm just wondering if you would have any idea how we would differentiate time, and as I think Marjorie talked about, what has been considered an employment expense in terms of child care.

Mr. John Hof: First of all, I had claimed not to be an expert. Having been in a single-income family for 27 years, I do believe that had I chosen to stay at home or had my wife chosen to stay at home, the time she spent was valuable—it had a value. Through the years when we were—and still are—a single-income family, we were unable.... We could claim the family allowance. I could claim her as my first dependant. But there was no value placed on the work she did. Just her existence allowed her to claim those. If she had been a lousy mother and a lousy wife, she would still have got those deductions. There was no value placed on it. Our neighbours would both be working, and they would be able to claim the nanny that they had, the nanny's car, and half of their mortgage because the wife worked out of the home. All of those things were allowed and placed some value on the work that the woman or the man of the house was doing.

We felt penalized because of that. We chose to make that sacrifice, and it was a choice we made. But why should the government be in the position of penalizing parents who make those choices that in the long run are very good for government, having families raising children rather than governments—I'm opposed to national day care system, of course—doing for them what they can and should be doing for themselves.

The Chairman: Thank you. We're running quite late.

Go ahead, Mr. Herron.

Mr. John Herron: I thought the quality of the presentations here was extremely solid. What I'd like to do is afford you some time to expand a bit more on some of the points that I know you guys raced through. I just sensed that they existed. First, I'd like to see if you could spend a little bit more time on sections 11 and 12 on page 2, your better solution, tying into having a child tax benefit.

Ms. Marjorie Griffin-Cohen: We have two things. We really do feel that we need to have the kind of national day care system that has been promised for a very long period of time. I can remember an election back in 1985, when all three parties agreed and promised that when they got elected they would have this. At a particular period, the increase in the child tax credit was substituted rather than doing this. It was a terrific shame, because it's a very important thing to have.

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We need universal public child care and early education care for children. This is basically what we're calling for. But even if we have this, we feel we should maintain.... We would not like to see you reduce or eliminate the deduction for child care expenses—for all women—because there will still be women who need to have the child care deduction. These are primarily women who would not, because of their locations, be able to access child care programs.

Mr. John Herron: I think that's why I touched on it. You're one of the first groups who really emphasized the need to recognize that Canada isn't purely urban.

Ms. Marjorie Griffin-Cohen: Yes.

Ms. Margot Young: If someone worked a night shift, for example, they might not therefore have access.

Mr. John Herron: I guess the driving issue—I'll let Mr. Hof touch on this as well, and I'll let you come back—is one they touched on in their brief, the fact that one method of child-caregiving should not be morally held up as better than the other. To certain individuals, perhaps myself, I think it comes down to an issue of choice. Parents should be able to decide how best to care for their children.

In your estimation, your assessment, you're saying that government intervenes more in respect to the dual-income family versus the single-income family. Would you like to take a stand on that?

Mr. John Hof: Yes.

Margot also referred to the—I was going to use the word “normal”, but that's not the word that's appropriate here—“predominant” caregiver in the family as the mother. There are many fathers who are caregivers, but the predominant one is the mother. So by the same token, families predominantly—I'm not trying to weigh one above the other, as you might suggest—or the majority, a good portion of them, whatever words we use to qualify it, have the father going to work and the mother staying home. That's just predominantly. It's not qualifying one above the other, as you're suggesting.

Mr. John Herron: With respect to the income-splitting provision that's in your item 26, it says that income-splitting simply provides tax relief to the main breadwinner, typically the male partner in a heterosexual relationship. It goes on to say that ultimately it could potentially prevent.... It says:

Joint filing or income splitting imposes a very high rate of tax on the full-time homemaker when she decides to enter the paid labour force. Her first dollar would be taxed at the same rate as the main breadwinner's salary.

I think that's a very valid concern. But what if the taxation system had some flexibility to recognize the re-entry into the workforce?

The Chairman: This way it allows you to drop your salary down from the high income down to the lower, and split the income totally. So what you're saying is not necessarily correct.

Mr. John Herron: I'm reading from the brief.

The Chairman: But income-splitting means two people share the same income.

Mr. John Herron: Right.

The Chairman: So the overall taxation level on the family is less.

Mr. John Herron: That's right.

The Chairman: I just wanted to clarify that.

Mr. Margot Young: I'm not sure exactly what question is on the table, but there are a couple of questions I want to address. If I don't deal with your questions, let me know.

First, I want to get back to the earlier statement that was made about the majority of families having this traditional composition of the father working, the mother at home. That's simply not true. More than two-thirds of Canadian families have both parents in the workforce, and this is true even for families where the children are under the age of three. In fact, two-thirds of those two-thirds of women who work work full-time. So if we look at what the majority of Canadian families look like, they are two-earner households.

I think the more important point is that we ought not to be generalizing about what constitutes the typical Canadian family, but simply recognizing in our fiscal policy the freedom of people to choose and form their own family types. I think that's a really important point.

The Chairman: Quickly, please.

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Ms. Margot Young: Okay. The second point is with regard to income-splitting. I'm confused as to just exactly how one would fix this problem we identify, the problem of inequity for the lower income spouse when she enters the workforce. Her—and I'll say her because it's typically women—income would be taxed at a higher marginal rate because of the impact of her half on the partner's income. I think if you were to do some measure whereby you gave her some kind of tax rate for her first dollar, then you would not really be income-splitting. In fact, if you compensated for that, you might be increasing the preferential tax treatment those families would have and therefore really increasing the unfairness to two-earner families.

So I'm not sure that our tax system can compensate for that inequity and maintain income-splitting at the same time. It also doesn't deal with the other problems we associate with income-splitting, either.

The Chairman: Finance officials were in front of the committee, and they testified that if you allow income splitting, you address the total inequity in the taxation system between dual-income earners and single-income earners because it's based on total salary. So they're saying that you would remove the inequity that exists or is perceived to exist.

Ms. Margot Young: I would disagree with those finance officials for the reasons set out in our brief.

The Chairman: Mr. Szabo, please, very quickly.

Mr. Paul Szabo: Can you comment on the regressivity of the child care expense deduction? What's your position?

Ms. Margot Young: Your question is pointing to the fact that it's a deduction and not a credit, and as a deduction it means more to high-income families.

Mr. Paul Szabo: It's just that it's the value—

Mr. Margot Young: I think that's a problem with it. It's a problem that's associated with all deductions within the tax system, and I think it's important to talk about that. But I don't think that problem is addressed by removing the child care expense deduction. The child care expense deduction is an important recognition of employment expenses. It doesn't increase the discretionary spending of the family. Proposals to eliminate it or to make it available to at-home caregiving as well as expenses occurred in entering the labour force are, I think, inequitable.

I agree with you that it's a separate problem. I just don't see the solution to reduce it or eliminate it as addressing that problem.

Mr. Paul Szabo: I'm not proposing anything. If someone spends $5,000 on child care, one family could get a refund cheque for $2,500 and another family would get only $1,250. It seems equity would say that families should get the same tax benefit for the same amount of child care expenses. Do you agree?

Ms. Margot Young: I agree that there's a problem of equity, and I think that—

Mr. Paul Szabo: But if we can—

Ms. Margot Young: Just let me finish for a second. I think one of the proposals that maybe should be looked at—and I assume that since you recognize this as a problem you have also looked at it—is making the child care expense a credit.

Now, there are problems associated with that. You would have to ensure that the credit was given at the highest marginal tax rate or else its value is reduced for many women. It would not be given at the lowest tax rate because that would result in a reduction of it. Also, there's a changed perception about credits vis-à-vis deductions, that credits become more vulnerable to income-based clawbacks, and we wouldn't want to see that happen.

Mr. Paul Szabo: I want to just comment on the very last page of your brief. I agree totally with your point about “choices/needs of women to stay at home as primary caregivers or to enter the paid work force must be equally valued and facilitated”. I assume you would concede that it could be a woman or a man as either caregiver or worker. Choice is good.

Ms. Margot Young: Absolutely, but I also think it's important to recognize the sociological reality that it is currently disproportionately women who do this.

Mr. Paul Szabo: I agree that parental choice is really a very important principle and one we should embrace.

Ms. Margot Young: Yes, and another important principle we have in our brief is that we don't want to entrench the gender division of labour. We see that as a problem.

Mr. Paul Szabo: My last question is, do you believe a same-sex couple with no responsibility for any children should be able to have a spousal amount, a non-refundable tax credit, where one of them stays in the couple's home and has no earned income?

Ms. Margot Young: Yes. If we're going to value unpaid caregiving—

Mr. Paul Szabo: There are no children involved.

Ms. Margot Young: No, this is just sort of home work that people do. If we want to give recognition to this sector of unpaid work in our economy, I don't see that it matters what the gender is of the person who does it or what the sexual orientation is.

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Mr. Paul Szabo: So if you want to have same-sex and heterosexual couples treated identically, then under the Income Tax Act a same-sex partner who has, say, a child from a previous marriage should be prohibited from paying their partner for child care. Under the current tax laws, a same-sex partner with a child can make and deduct child care payments to their live-in partner because they are not married persons.

Ms. Marjorie Griffin-Cohen: You're getting into something that is—

Mr. Paul Szabo: You want to fix—

Ms. Marjorie Griffin-Cohen: —fairly complex here. If you're going to fix it all.... You're raising one thing. If you had other ways in which these people were compensated.... It has to be looked at as a whole, not as one thing at a time. I think that's our whole point about dealing with all of these issues. Some things become very illogical when you—

Mr. Paul Szabo: But since the husband cannot pay a wife child care expenses and deduct them under our tax laws, as you know, to be equal, one same-sex partner should not be able to pay and deduct child care expenses paid to their same-sex partner.

Ms. Margot Young: I think there are really complex issues over recognition of same-sex couples, and I don't see it as the mandate of this committee or something we're extensively prepared to talk about.

Mr. Paul Szabo: You brought it up.

Ms. Margot Young: Okay, but I think it's unfair to pick and pull select pieces to try to catch us at inconsistencies. What we want to say is we support the principles of equality, with respect to recognition of all forms of families.

The Chairman: Thank you very much.

I just have a quick question, since it's been brought up twice already, on the idea of a national day care program. Are you saying it should be modelled after the Quebec model, where they're just introduced universal day care for $5 a day, for example? Would you recommend this be fully funded on a user basis, or should it be subsidized by the government?

Ms. Marjorie Griffin-Cohen: As we all know, the problems in Quebec are the very low wages of the day care workers, so you don't want to structure something that has low-wage work involved in this. They were on strike. It was a very serious problem in Quebec because they were paid so little. But it is important that there be—

The Chairman: I don't know what you're referring to.

Ms. Marjorie Griffin-Cohen: The day care workers went on strike in Quebec because they were paid very little, very recently.

The Chairman: I'm talking about the program itself, and paying $5 a day. I'm not talking about the workers who provide the care.

Ms. Marjorie Griffin-Cohen: My point is that it has to be adequately funded, so the people who work in it are well paid. I don't know the Quebec program well enough to say whether it should be the model, but the model that has been called for repeatedly by women in this country has been one with universal access that is at very low cost. What more can you say about it? That's it.

The Chairman: The Quebec model is $5. My question is should the funding be user-based?

Ms. Marjorie Griffin-Cohen: I think we can have a small amount user-based, but it essentially has to be publicly supported, like our schools.

The Chairman: Is that fair then, because you said in your opening comments that day care was an employment expense, and that's why it's correct for people to be able to deduct all of it.

Ms. Marjorie Griffin-Cohen: That's right.

The Chairman: Why should a stay-at-home parent subsidize, through his or her taxes, someone else to get beneficial day care through indirect tax subsidies? Is that fair to them? They incur the expense also, but they don't get any reimbursement for it.

Ms. Marjorie Griffin-Cohen: We have all kinds of ways in which—

The Chairman: It's just like our public—

Ms. Marjorie Griffin-Cohen: —our tax system.... It's just like people who pay taxes for schools and yet don't have children in schools. This is how our whole tax system is set up. We have health care too. Lots of people disproportionately use services that are crucial for all of us.

The important point is that if you have an early childhood or day care system, it is beneficial to children and to families. Most families work. Some people want to turn back the clock and wish it weren't that way, but that is the way it is and they need relief around this. Child care expenses are extremely high. That's the whole point of this.

It's like any other tax where we are creating a public good and all people do not use it equally. There's nothing we all use equally, so it's based on that principle.

The Chairman: Thank you very much. I'd like to thank you for your tremendous input into a complex problem, as you've seen. We will try to make heads or tails of it by the end of the committee hearings. Thank you very much.

Ms. Marjorie Griffin-Cohen: Thank you for hearing us.

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The Chairman: I'd like to ask the next group of witnesses to come forth immediately, please.

Our next guests, from the Coalition on Child Care Advocacy, are Rita Chudnovski and Lynell Anderson. From the Social Planning and Research Council of British Columbia we have its executive director, Nancy Henderson, as well as Mr. Michael Goldberg, research director, and Jane Pulkingham, the past chair of the income security and labour market committee.

We are running rather late. We've gone overtime on each of the past speakers and we're running twenty minutes late, so I'd ask you to make your presentations. Please take five to seven minutes each, to leave ample room for questions, if possible.

We will start with the Coalition on Child Care Advocacy. Welcome.

Ms. Rita Chudnovski (Member, Child Care Advocacy Association of Canada): The Child Care Advocacy Association of Canada welcomes the opportunity to address the subcommittee today. My name is Rita Chudnovski, and I'm the B.C. director on the board of the Child Care Advocacy Association of Canada. I'm pleased to introduce my colleague Lynell Anderson, who is a member of the association. Lynell will be joining me in answering questions, although I'll be making our presentation.

Let me begin by expressing the Child Care Advocacy Association of Canada's concern about the way in which the public debate on the question of tax equity for families with dependent children has played out. The media and public discussions so far suggest that the main issue or problem we face in achieving equity for families is somehow rooted in a conflict between the interests and needs of families' parents—overwhelmingly the mothers—at home, and families with mothers in the paid labour force. This characterization of Canadian families at odds with each other creates a false dichotomy, is divisive, and if ever it was accurate, certainly doesn't reflect the current reality for most families.

The fact is that the overwhelming majority of low-, moderate-, and middle-income families in Canada with dependent children—and let's be clear that's the majority—are all struggling to secure incomes that will allow them to raise and nurture their children. They are all struggling to balance their commitments to parenting, training, and paid employment.

Families, regardless of which adult is in or out of the paid labour force, have more in common than they have those things that divide them. All of their children need quality early childhood experiences and services, regardless of the employment, training, or economic status of their parents. All parents, whether they're at home full-time or in the paid labour force, perform countless hours of unpaid work caring for their children and families, and this work needs to be recognized. All families need complementary, cohesive social, fiscal, and tax policies that first of all expand and support real parental choice about the appropriate balance between caregiving in the home and participation in the paid labour force.

They all need cohesive policies that expand and support women's economic and social equity. Most importantly, all families need cohesive policies that recognize our shared social responsibility for supporting the healthy growth and development of all of Canada's children. For the Child Care Advocacy Association of Canada, discussions about fairness and equity within the tax system only make sense within this broader context.

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As your previous discussion that we had the chance to sit in on makes clear, while all the specifics of tax policies might be complex, our message today is actually quite simple: real support and choice for Canadian families with dependent children must begin with the development of a comprehensive system of early childhood care and education services. Our organization has described the kind of system we envision elsewhere and in many places, but I want to highlight a few important features of it because I think they're particularly relevant to your discussions.

First of all, the system we envision would include a wide range of programs that are designed to meet the needs of all children in families. This would include full- and part-time care in both group and family child care settings and in the child's own home. These programs would include family resource programs, drop-in programs, parenting programs and, I might add, specific programs designed to meet the needs of rural communities and communities of cultural linguistic diversity.

The range of programs we envision would in fact respond to the diversity of needs across Canada and across families. These programs would be accessible to all children, regardless of the employment or training status of their parents, as I might add is the case with the current Quebec system. They would be funded through federal, provincial and territorial cost-sharing agreements, with contributions made by parents and the rest of society, spread out across a lifetime through the tax system, as is the case with many of our other programs, including programs for seniors, health and education.

Only when there is a firm commitment from the federal government to make a national strategy for developing an integrated system of early childhood care and education—a centrepiece of its family policy—can we really begin to address the needs of families in an equitable manner. Then families will have real meaningful choice to access quality care for their children when they work or study, or to access the same services if they choose and are able to stay home. Only then will women be able to go to work or school and ensure that their children are well cared for, and not be financially penalized for doing so. As the recent report of the National Council of Welfare states, “Many social programs support families, but child care is the backbone of them all.”

As a result, the Child Care Advocacy Association of Canada is calling on the federal government to commit to a multi-year early childhood services fund, with an initial allocation in the next federal budget, which we predict and hope will be a children's budget, of $2 billion to begin the development of provincial and territorial systems.

The second part of our relatively simple message is that our organization recognizes that a national program for early childhood care and education must be complemented by strong work and family policies that make significant improvements to our current ad hoc, inadequate system of maternity and parental benefits and family leave provisions. We would certainly also like to see this addressed in the next federal budget.

It is only within this broader context that specific tax measures can be examined for equity. While not the main focus of our organization, we would like to make some comments on the relationship between existing tax policies and the vision for family equity and early childhood care and education that we support.

First of all, current tax measures related to child care, particularly the child care expense deduction and the child tax benefit, while essential for many families, are not a substitute for a child care program and policy. The child care expense deduction, which is the tax measure most directly linked to child care, cannot be considered a program of support for children. As others have said, it is an employment expense. In the absence of a public early childhood development system, it recognizes the additional private costs borne by working parents of dependent children. As it is based on actual receipted expenditures on child care, it does not increase the discretionary spending of families who use it.

I'm not a tax expert, but this is something I have completely failed to understand in the current debate, as it unfolds. You can only claim a child care expense deduction of you actually spend the money. Then you can only claim it if you actually spend the money in the formal regulated sector, which large numbers of families are unable to afford and we don't have enough of. So there are all sorts of child care expenses currently being incurred that people can't claim because they're not in the formal system.

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This is not a benefit to families, in the sense that there is no increased income to families. These are dollars that families actually have to spend in order to earn the income, which is then taxed. Somehow in the debate it is suggested that this is some special treatment for families with children, but the actual cost borne by families—many of whom in British Columbia are paying more than $7,000 a year for child care for pre-school children—doesn't seem to be figured into that calculation.

While our organization has never viewed the child care expense deduction as acceptable child care policy or as a substitute for this government's commitment to implement an national child care program, until and unless we have a system of affordable, quality, accessible early childhood development services in place, the child care expense deduction is a necessity for working families with dependent children.

In conclusion, then, tax equity for Canadian families with dependent children must be considered within the broader context of equity, support and meaningful choice for all Canadian families and children. We believe a comprehensive publicly funded child care system, complemented by enriched parental and family leave provisions and tax policies that recognize our shared responsibility for all children, will support children's healthy growth and development in their early years, strengthen parents' ability to care for their children in the way that suits their needs and capacity, and actually achieve equity for Canadian families. Surely a country like Canada, which claims to value our children, can achieve this.

We thank you for the opportunity to share our view and look forward to your questions.

The Chairman: Thank you very much.

I would now ask the members from the Social Planning and Research Council to make their presentations.

Ms. Nancy Henderson (Executive Director, Social Planning and Research Council of British Columbia): Thank you.

The Social Planning and Research Council is a provincial non-profit organization. It has been active for 32 years in promoting citizen participation in the economic, social, and environmental well-being of our communities. We believe in the principles of social justice, equality, and the dignity of all people in our multicultural society. Our regional board members and approximately 9,000 members from around the province help us maintain linkages to community issues.

We are a non-partisan organization, with two main sources of financial support: our members and donors, and the United Way of the lower mainland.

We appreciate the opportunity to present to you today. With me are Jane Pulkingham, who is past chair and a current member of SPARC's income security and labour market committee—Jane is also an associate professor of sociology at Simon Fraser University—and Michael Goldberg, the director of research for SPARC. Jane is going to make the presentation, and we're available for questions.

Ms. Jane Pulkingham (Past Chair, Income Security and Labour Market Committee, Social Planning and Research Council of British Columbia): Thank you.

I want to point the committee to two documents you have from us. One is the point-numbered paragraph form, which I would like you to look at while I speak to a narrative of that written document.

I want to begin by saying, in regard to the terms of reference of this subcommittee, that it may appear straightforward, but it is anything but. The committee has taken on an extremely complex job, and any attempt to render the question of tax fairness for families of different configurations at different income levels in a simplistic fashion will have perverse policy implications. The reality is that the federal tax and transfer system operates within a broader context, and its impact cannot be examined apart from understanding the ways in which it interacts with other policies and how it is mediated by socio-economic conditions and the socio-economic realities of families.

In our view, the federal income tax structure is not and cannot be neutral in its treatment of families of different configurations, as an instrument of social policy. As part of a broader system of social policies directed at families, it creates incentives and disincentives and effects redistribution in order to achieve social, economic, and political objectives.

The federal income tax and transfer system bears on the issue of equity, and in order to evaluate how equitable federal taxes and transfers are, the committee must consider both vertical and horizontal equity issues, as well as the principle of progressivity within the tax structure. A progressive tax system is one in which tax is paid according to the principle of ability to pay.

Canada's tax system is nominally progressive. Vertical equity is the redistribution of resources from those with higher incomes and financial means to those with lower incomes and lower financial means.

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One of the central pillars of our tax and transfer system is to reduce inequalities produced by the market. As numerous studies show, market income inequalities have increased dramatically in the past two decades. This has had tremendous impact on families and their capacity to provide for themselves.

Horizontal equity is the redistribution of resources between different categories of people, based not on financial circumstances, but on other socially recognized states of dependency and need. For example, horizontal redistribution occurs between those of working age to those of retirement age, from those without dependent children to those with dependent children, from the relatively healthy to those who are sick and infirm.

Horizontal redistribution recognizes the social benefits, the public good to society of financially supporting those who are raising children, those who are sick, and those who have retired from the labour market. These are just some examples of the ways in which horizontal equity operates through the tax system and the transfer system.

The impact of the federal tax and transfer system on families of different configurations and at different income levels cannot be properly determined without looking at vertical and horizontal equity issues in tandem. We urge the committee to consider both redistributive goals when considering the existing system and any proposals to change it.

The socio-economic reality of families today has been alluded to and mentioned in passing, and in more detail by other people presenting today. I want to reiterate the fact that the labour market depends on the work of family members, including mothers, especially. Mothers in two-parent families lead the growth in labour force participation among women and in terms of the increase in labour force activity in the last couple of decades. Dual-earning among two-parent families is the norm, and more than two-thirds of two-parent families with dependent children consist of two earners. That is a socio-economic reality. The tax and transfer system must address that reality.

Paid work is also a financial necessity for the vast majority of women in families. It keeps their family income from falling and keeps them out of poverty. The presence of two earners in two-parent families dramatically reduces the risk of poverty. In 1995, 27.4% of two-parent one-earner families were poor, compared to only 7.3% of two-earner families.

For lone mothers, the absence of paid work translates into even more dramatic rates of poverty. In the absence of paid work, more than 90% of lone-parent mothers live in poverty, and even with paid work, the incidence of poverty among lone mothers is very high, standing at 43%. We can talk more about some of the socio-economic realities in the question period if you like.

The issue that dominates the agenda regarding tax fairness for families, as mentioned earlier by presenters, is that the tax system doesn't recognize the child care provided by the stay-at-home parent, predominately mothers, in high-income dual-parent families, those who are not eligible for the Canada child tax benefit.

Alternately, it suggests that child care responsibilities are valued in dual-earner two-parent families, if they use receipted child care services, through the child care expense deduction and for all families who receive a child care tax benefit. In that way, the current tax and transfer system is said to penalize single-earner two-parent families, as compared to two-earner families, and therefore doesn't give families the freedom to choose to look after dependent children full-time.

Flowing from that construction of the problem are two widely publicized sets of solutions. One is income-splitting in dual-parent single-earner families with dependent children. The other is a conversion of the CCED, the child care expense deduction, into a tax credit payable to all families with dependent children, regardless of parental choice of caregiving arrangements, and an increase in the spousal credit to a level equivalent to an enhanced basic personal exemption. We want to highlight a number of problems and inequities that would result from either of these sets of changes.

One set of problems with all the attention given to the presumed inequities between dual-parent income with two earners and those with single earners is the fact that lone mothers have been dropped from the equation entirely, yet they make up more than 20% of all families with children. We're concerned about the attempt to make invisible the large inequities within the tax and transfer system faced by lone parents and lone low-income families when the issue is largely constructed around the problem between two-parent two-earner and two-parent single-earner families.

One of the problems with converting the child care expense deduction into a refundable tax credit is that the CCED is not compensation for unpaid child care work, as already mentioned by several presenters. It's a legitimate working expense, and can't be conflated—I will emphasize this—it cannot be conflated with the issue of addressing the value of unpaid caregiving work.

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In terms of the child care expense deduction, some families may have the financial means to be able to choose for one parent to not work or to work few hours, but this is not the reality for the majority of families. Therefore, the majority of families must incur that child care expense. To convert it into a refundable tax credit paid to all families privileges those who have the financial means to choose not to engage in paid work and to not incur that child care expense. That is contrary to the principle of vertical equity.

Moreover, it is a problem for lone parents because it sets levels. One is that while the federal income tax system might then privilege people who are able to choose not to work and have a credit for it, the majority of lone-parent mothers have to rely on income assistance, and that system does not recognize the value of unpaid caregiving as work. In fact, if anything, what it does is force mothers into the workforce because of its principle of labour force attachment. So you can't have two different systems working with different principles; they're not consistent.

Moving on to the question of income-splitting, income-splitting fundamentally distorts the principle of vertical equity. In general, high-income earners compared with low-income earners will financially benefit most from this proposal. In fact, those single-earner families who are in the lowest income tax brackets will benefit nothing through income-splitting, and any attempt to construct a tax disadvantage of a single-earner two-parent family by comparing their tax liability on the basis of a certain income versus their hypothetical tax liability on the basis of that income divided by two is seriously misleading.

The other point is that income-splitting is not possible for lone parents. It would seriously distort the principle of horizontal equity. And because lone parents are also the poorest of parents in families, the impact will also compromise the principle of vertical equity. Clearly, income-splitting penalizes that particular family form.

We believe the solutions to the question of equity between family types will largely be programmatic, and this is required for families to be given true choice in the question of child care arrangements for their dependent children. To that end, we put forward the following recommendations that we hope will result in greater equitable treatment of all families with dependent children.

On this issue, I'll let Michael speak.

Mr. Michael Goldberg (Research Director, Social Planning and Research Council of British Columbia): As in our brief, the thing that's really crucial here when we think of horizontal and vertical equity is also the connections between the programmatic side of expenditures and the fiscal side of expenditures. So one is a programmatic solution, and that's to eliminate the direct cost of child care. Here, we're not just looking at child day care. This would be for parents of dependent children, through the provision of a universal child care and early learning system. This has already been mentioned.

As noted in our brief, this would meet both horizontal and vertical equity provisions within a progressive tax system. It's largely horizontal, in the sense that it would go to those with dependent children and partly paid for by those without dependent children. Similarly, it would be paid for by those with greater incomes, as compared with those who have lesser incomes in terms of vertical equity.

Given that the child exemption deduction has been raised, we do want to point out that until such time as a universal system is in place, the CCED should be retained. There may be the occasional situation—and, again, that's more at the margins than in the mainstream—where you may need to look also at a continued exemption to cover off some very unique situations where it's really not cost-effective to provide a universal system. For example, in the case of shift workers where there's a very small number who may require child care, it would be very expensive to provide a universal system when there are so few children who may require that care—for example, in a rural community.

The second one, which has also been mentioned by many of the previous speakers—and Canada is a real laggard in this when you compare us with other OECD countries, other than the United States, which is the laggard of laggards—is the introduction of an expanded system of paid maternity and parental leave.

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A number of studies and reports have been put out. Almost all of the European countries, for example, provide 52 weeks of paid leave—that's paid leave—as compared with our 26 or 27 weeks total paid maternity and parental leave. Furthermore, such maternal and parental leave should be extended not only through the EI system, but to other forms of parents of self-employed students, etc.

Third, if we are really talking about choice in terms of early childhood care we should introduce a universal child allowance that would be equivalent to an enhanced child care tax benefit but would be universally available. That's been estimated to cost about $4,200 per child per year. It's a big item.

However, it should be recognized that we're recommending that this allowance then be considered taxable income, so part of it would be taxed back and recouped through a progressive tax system. You would also be eliminating a number of the other expenditures with other things being in place. The cost of this could be in part defrayed by entering into it in mid-year. It's really more a question of cashflow than actual cost, because, again, over time this money circulates through families.

There are a couple of things we want to point out. One is that the single-earner, dual-parent family represents a minority of families, so this issue that is being raised is to take a look at not the reality that currently faces the vast majority of families, but rather deals with a fairly small number. Also, because of changes in both the timing of birth and what families have decided to do—those who have that choice—or are required to do, because they don't have that choice economically, the length of time that families stay out of the labour market is shorter and shorter.

There were two issues that came up earlier that we also think are important. Someone asked about expanding the scope of the committee. This raised the question, we saw, of the issue of tax fairness.

We currently use what we call a mixed system, where individuals are taxed but most transfers are based on households. We need to make a decision whether to use a common unit—what we refer to in research as the common unit of measure. Are you going to tax households and provide benefits to households, so you just treat the household income, or are you going to tax individuals and provide benefits to individuals? A lot of the problem, we would argue, is having these kinds of dual mechanisms that create a number of inequalities that create difficulties within the system.

The second thing that is really important is the way in which different income is treated differently, so it's not taxed fairly and we create a number of perversities. This becomes very clear in the EI system, where you have clawback rates that are greater than would happen in the tax system if it were simply treated as income and then taxable. Similarly, with child tax credits that cut off earlier, you eventually run into situations, particularly for families who are moving off income assistance, where you can end up with a marginal tax rate as high as 126%. Even the Fraser Institute would consider that perverse.

The Chairman: Have you concluded?

A witness: Yes, we have.

The Chairman: All right. Thank you very much.

We'd like to take maybe 15 minutes, so I'd ask members to be concise in their questions, please. I'll start with Mr. Szabo, for six minutes.

Mr. Paul Szabo: On the issues of vertical and horizontal equity, and there are some good points, can you comment on the issue that a child care expense deduction would benefit a high-income earner more than a low-income earner for the same amount of child care expense?

Ms. Jane Pulkingham: Yes, and that's not fair. At one level it is not fair. At the same time, there are a couple of responses. One is, if you create national day care or a system of early childhood learning, like there is in terms of the principle of public education, then you take the direct expense away from parents so that you don't need a deduction system that would create unfairness in terms of issues of progressivity.

The other point I would make is that you have similar kinds of.... I mean, in a sense it is an employment expense, and within the system of tax recognition of employment expenses you have that problem anyway. So for those who are self-employed, they have many employment expenses. And the more income you have, the greater worth it is to you as an individual person in business or self-employment. So it is regressive. The only way to address that regressivity, in my view, is to take the direct expense issue away in terms of providing child care that is totally funded.

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Mr. Paul Szabo: National child care.

Ms. Jane Pulkingham: Yes. So you then can dispense with child care deductions for the majority of people. Then you don't have that problem. That's the easiest way to get rid of any system that's regressive.

Mr. Paul Szabo: A lot of people talked about comparing a one-income family to a two-income family. Personally, I've always looked at this as being a children's issue. A starting point would be a couple with both working, then they have a child. Now we have, as a family, to determine what the economics are of hiring someone to provide care to our new child as opposed to one of us withdrawing temporarily from the labour force to provide care. We know that when you hire someone there is a salary cost, a direct caregiver cost. In addition, both choices have some other costs that they share equally. It seems the big difference is not so much how much they spend on child care expenses; the big question is are they prepared to give up the net pay? That's the big cost.

So maybe the question is not comparing equal family incomes. Maybe it's looking at whether if, as Stats Canada tells us, one-third of all families have one parent staying in the home caring for preschool children, there should be some recognition of the value of that quality of child care.

Ms. Jane Pulkingham: That's a question of recognizing unpaid caregiving work for children, and I think that is an important issue. I don't think tinkering with the tax system can address that. I think it's a much broader issue. What that doesn't recognize is the fact that unpaid caregiving work for children is also performed by mothers who are working full-time.

Mr. Paul Szabo: No, I understand that.

Ms. Jane Pulkingham: It's a false dichotomy between those who are not working and those who are working. The fact is, we're all working bloody hard. And we work more hours when we work for pay.

Mr. Paul Szabo: Okay. I suspect you're familiar with the fact that only one-third of dual-income families with children actually claim the child care expense deduction.

Ms. Jane Pulkingham: Yes.

Mr. Paul Szabo: I'm wondering what your position is or whether you have a suggestion for us with regard to how to address the under-the-table or the underground economy activity that is going on. Because it may affect, for instance, other inequities, like clawbacks on EI or OAS, or child tax benefit amounts, if people don't claim income they've earned for providing child care.

Ms. Rita Chudnovski: I have a couple of comments—and people can add in, because this opens a big issue.

Generally, our position is that we can continue to try to tinker around the edges of this and fix it, but fundamentally the child care expense deduction and trying to address a country's issues of caring for our young through the tax system is not the way to go. It continues to be shown that every attempt to massage this into something that would be equitable and would support healthy development doesn't work.

I think the specific question, in some ways, comes back to the highly regressive nature of this, because it is most likely that families with higher incomes are in fact those who are using a form of care for which they receive a receipt and who are less likely to be using care in the informal system. It is the poorest families who are unable to afford some of the more formalized care but are fully able to find care that is affordable, so that they can go to work, when it is in the informal economy, who again, because of the very nature of the setup, are unable to have a receipted expense for them to use.

So I think in some ways the degree to which this may be going on in the informal economy is in fact more of an indication of the regressive nature of it, because the affordability of child care is the largest barrier that women report in terms of returning to the paid labour force. After housing and food, it has become the largest expense families incur and is most significantly borne by the poorest, whose children most need quality care.

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So we have a cycle spinning in completely the wrong direction here. Part of it is the amount of this that goes on in the informal economy and isn't receipted. With the pay earned by the caregiver, there's lost revenue because it isn't declared income.

One of the concepts of the tax deduction is that the funds are taxed somewhere. My understanding is that if a family writes off the child care expense deduction, it is on the assumption that the income of the caregiver is taxed. In this case, the family loses the deduction and the caregiver's income is unreported.

[Translation]

The Chairman: Mr. Cardin, please.

Mr. Serge Cardin: Thank your for your presentation. I would like to ask just one question.

Ms. Chudnovski, I believe you were alluding to a factor that no other witness has mentioned. You spoke not only of family choices, of a national program for early childhood care and development, but also of assistance to parents to raise their children.

The heart of the debate is related to a certain extent to day care centres, early childhood assistance and child development. We know that in day care centres, educators need higher and higher levels of training and are capable of appropriately raising children and fostering their development. You also discussed training for parents in how to raise their children, which is a rather sensitive topic because it appears to cast doubt on the ability of parents to raise their own children. That is what I understood you to be saying. I would appreciate it if you could give me some clarifications.

[English]

Ms. Rita Chudnovski: Certainly. The point I was making—and I think you understood it correctly—was that the comprehensive system of early childhood services we support would include a continuum of service that would meet the needs of families and all children, whether or not parents at a particular moment in their family lives were in the paid labour force or not.

We're not envisioning a system with only or primarily full-time group day care centres, although that's a key part of it. We are not only envisioning services that meet the needs of working parents. We're talking about a system that starts from the needs of children and says that quality early childhood experiences are essential to healthy growth and development of all children.

We would envision a system of services, supported and funded by senior levels of government, but designed at the community level to meet their particular needs. It would include part-time and full-time group and family-based care, family resource centres, parenting programs, and drop-in programs for parents or other caregivers who were at home with the children. It would provide both social enrichment for the children and the capacity to support families early in raising their children, before they may experience difficulties. It would also provide quality care for children while their parents were at work or school.

The program in Quebec currently provides access for those who want it. Let me be clear, we've never called for any kind of compulsory program. These are programs for those who need and choose to use them. The current program in Quebec provides a space for $5 a day, whether or not a parent is at home or in the paid labour force. Our understanding is that there's been a significant uptake in that program by parents who are at home and not employed full time, because people see the social benefit of having their children participate in quality child care programs.

So I certainly included programs that support children and families who may not at this point be in the paid labour force, as part of a comprehensive system. To that degree, you completely understood me.

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[Translation]

The Chairman: Thank you Mr. Cardin.

[English]

Ms. Dockrill, please.

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

One of the presenters mentioned where Canada stands, in terms of supporting families, and that it appears our record is not all that good.

Recently a study was done by Shelley Phipps, and I read it just recently in my travels here. I found it interesting when they talked about one of the things Norway has done. They have benefits available for 42 weeks at 100% and then 52 weeks at 80%. The point I found very interesting was that it allows women the option of returning back to work part-time; i.e., they can work for 20 hours, receive their salaries from their employers—albeit for 20 hours from the 52 weeks. I'm just wondering if that's something you think we should be looking at, given the fact you said changes are needed with respect to maternity and parental leave, and maybe we need that kind of flexibility for moms.

Ms. Jane Pulkingham: Yes, I would say we need flexibility in terms of greater provision for paid maternity-parental leave, and greater support for employment benefits for part-timers. The survey of work arrangements in 1995 gives the statistics on what working women want to do in terms of part-time employment, and how many would rather continue with that or reduce their hours.

The fact is that at certain times women would prefer to have more part-time work or flexibility, and that can only be provided through legislation that provides for all workers. At the moment it's very piecemeal, and only those who are in better kinds of jobs are able to have it. So some of this could be built into a system of maternity and parental leave. I am not familiar with the details of the Norwegian system in that regard, but support to enable that transition is important.

Ms. Michelle Dockrill: The reason for my question was not as an end-all, be-all, but as one of the many things we could possibly look at.

Mr. Michael Goldberg: Probably the most critical thing, be it the Norwegian system or the programs in France, here in Canada or anywhere else, is the understanding that these are interlocking elements. One of the problems with the way the issue is constructed for this subcommittee is you're looking at probably the smallest of the elements and trying to change that. Whatever way you do that, whatever way you tweak that a little this way or that, it will have all kinds of consequences, most of which I'm assuming you don't intend, down the road in other situations.

It's really crucial to understand the linkages between your program spending, or what you call a social policy envelope; your fiscal policy issues, which would be both taxes and transfers; and of course the economic situation at the time. Those linkages become really crucial, and many countries in Europe have done much better at that than we have.

Ms. Michelle Dockrill: I just have two short questions here.

The Chairman: We have to be careful when any politician says they have short questions.

Ms. Michelle Dockrill: I think my colleague, Mr. Szabo, talked about the underground economy and the informal child care that we all know is going on out there, because of the inability of Canadian women to access quality care and affordable care. I just wonder if you have any idea of the percentage of the informal underground economy a national child care program would have an effect on.

Ms. Lynell Anderson (Member, Coalition on Child Care Advocacy): One of the challenges in answering that question is when you say informal underground economy, by its very nature it's hard to put statistics around that. We know it's significant. We tend to try to figure it out by looking at the whole picture and what portion of that is regulated, and then making some comments about the unregulated portion. I don't have those stats—maybe one of my colleagues here does—but from an experiential point of view, we certainly know it is significant and it touches everywhere.

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I don't know if it's worth commenting on our B.C. experience, but in B.C. we have a sense that over 50% of the provincial funding for low-income families is in unlicensed care. That gives us a picture here in B.C.

Ms. Michelle Dockrill: This is my second small question. One of the things I've certainly heard from a lot of presenters—and I've asked this question all morning, so I don't want to allow you ladies and gentlemen to leave without asking it—is there appears to be a concern with respect to the committee's narrow mandate, in the sense that we're trying to maybe do a one-size-fits-all kind of scenario. I'm just wondering if you think this subcommittee should be seen as a stepping stone to a national child care strategy that incorporates all of the issues you've talked about this morning.

Ms. Rita Chudnovski: My organization would be delighted if this committee were a stepping stone. We've been looking for stepping stones for 20 years. So certainly the Child Care Advocacy Association of Canada would be strongly supportive of the recommendations of this committee being used as a stepping stone to re-examine the whole question of family policy in Canada, and within that, the way we as a country take collective responsibility for supporting parents in their role of caring for children.

Both in Europe to some degree, and as we're certainly learning, to a large degree in Quebec, we increasingly have to understand, as Michael has said, that the issue of caring for young children and families' responsibilities toward them is part of a broader family policy, and requires us to look in an integrated way at the social, fiscal and economic policies. Children don't grow in one domain on their own; children grow holistically, and our programs that support them have to be holistic.

The Chairman: Thank you very much.

Mr. Michael Goldberg: An example of an important linkage that could emerge from this committee—and it's not just the child care component, there are the child allowances we mentioned, etc.—is to link up with what was just recently announced in the national children's agenda.

The Chairman: Thank you.

Mr. Herron please, for five minutes.

Mr. John Herron: My first question refers to page five of your draft, in the second paragraph. You say “...in unique circumstances, where because of problems of rural access to services or night shifts, for example, a universal system is not accessible”. One of the debates about having a universal day care system is what to do for rural Canada and what to do from the night shift perspective. I don't think it's necessarily all that unique. Do you have any statistics on the number of children it would apply to, where people are actually having this public policy debate about the national child care system?

Ms. Jane Pulkingham: In terms of those who are living in rural areas or working night shifts who need day care, I don't have any statistics on that. Do you have any sense of what they have?

Ms. Rita Chudnovski: I don't have statistics with me, but there are two important points to make on this question. One is that any system of early childhood care must recognize that a growing number of Canadian families and Canadian women do not work from Monday to Friday, from 9 a.m. to 5 p.m. So the question of flexibility and responding to changes in work life have to be built into any kind of system.

Second, while I would agree with what people have said earlier that there may well be some situations where sort of a programmatic approach to providing child care will be problematic and not cost-efficient, there are real models in place in Canada and in other countries, such as Mongolia, which is a very poor country that puts a greater percentage of their country's income into young children than we do. There are examples of creative and flexible approaches that respond to rural communities and situations where small numbers of children need certain kinds of care.

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So while I think there will always be some for whom it will have to be a private, paid arrangement, I don't want us to assume that we and communities can't design programs that are in fact responsive to that.

Mr. Michael Goldberg: We wrote that down so as to recognize that almost all rural communities do have child care arrangements. There are very unique circumstances that may apply to 2% or 3% of a population at a given time, and that should not be the driver of the program. The 97% should be the driver.

So if you had really good, high-quality, affordable child care, not just day care but a child care program, as I think was articulated by Rita and others, that would apply across Canada. Nonetheless, it doesn't matter which program we do, there are always a few people, a small minority, to whom it's not going to apply, and you then need to have something in place to deal with that, but that's not the driver of the program.

The Chairman: John.

Mr. John Herron: You are relatively firm in terms of your opposition to income-splitting. Although this is only a brief, you try to get as much information in this as possible. Essentially, you allocate only one paragraph to your opposition to income-splitting, which is—

Ms. Jane Pulkingham: You should have two briefs. One is numbered.

Mr. John Herron: Okay.

Ms. Jane Pulkingham: It wasn't handed out. That's the one I wanted you to have. It goes into much more detail about the question of income-splitting.

Mr. John Herron: Where my question comes from is that the Department of Finance actually suggested that the income-splitting model would be a solution to this issue—

Ms. Jane Pulkingham: No, it's very regressive.

Mr. John Herron: I'll finish.

Ms. Jane Pulkingham: Yes. Sorry.

Mr. John Herron: The Department of Finance—I didn't say that just right now—said it would be a solution. Obviously it doesn't address the issue for single families in that regard. Would you like to use this time to expand on your opposition to income-splitting?

Ms. Jane Pulkingham: Sure. Thank you for the opportunity. I thought you'd never ask.

Clearly, for lone parents it would be extremely inequitable. It's also inequitable in terms of the principle of vertical equity, because of the fact that if you income-split, you would reduce the income of the higher earner and put them into a lower tax bracket. This would be inequitable in terms of other families who are not able to take advantage of that ability.

For example, if you have a single-earner two-parent family and the earner is able to income-split, that then reduces their tax liability. But you could have a family where there are two earners having the same income. This income is not equally split between those two people, because the reality is that women earn less then men. So you're going to have a higher-income-earner male and a lower-income-earner woman.

Let's take $50,000. You're going to have not two $25,000 earners; you're going to have a $40,000 and a $10,000 earner, or a $38,000 and a $12,000 earner. So you're going to create an inequity where you're going to have a $50,000 earner moving into a tax bracket equivalent to $25,000, whereas the people who are earning two will remain in their $40,000 and $10,000 and pay a high rate of tax. That will be inequitable in relationship to that.

Also, even among single-earner two-parent families where you have a single earner who's earning $30,000 or $25,000 versus somebody who's earning $50,000, the $25,000 earner will not benefit from the income-splitting, financially; only the $50,000 one will. So it creates tremendous inequities in terms of vertical equity.

The Chairman: I want to make a point. I don't want to confuse income-splitting with family income, because I can find the logic if it were in terms of family income and grouping it. But with income-splitting, can you explain to me how the family would be worse off if you income-split? Isn't that's the ultimate objective, to see that the family is better off? I don't see how the family would be worse off if you allow income-splitting.

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Ms. Jane Pulkingham: Well, the individual family that you create.... The issue is that you have to look at implications in terms of vertical and horizontal equity. The problem for families, if you income-split, is the inequities you create between families at different income levels.

The Chairman: Actually, the finance department doesn't agree with you. They're saying you would remove that inequity.

Mr. Michael Goldberg: The dilemma you run into is that would be true if everything were equal and you were willing to absorb the tax expenditure without having to transfer to collect the additional revenue that would be lost. So if you income-split and you want to retain the exact same level of revenue that you have, rather than losing—

The Chairman: There is a cost, and the finance department evaluated it at $4 billion.

Mr. Michael Goldberg: That means, then, that $4 billion doesn't get used for other kinds of things. These are trade-offs, and that's why you have to interconnect the kinds of things. So the individual families at the upper end who would have the benefits of splitting are going to be better off. There's no doubt. The $80,000 family with one earner is going to become $4,000 to $5,000 in after-tax income in a better situation.

The other way of thinking about this, which I don't know whether the finance department looked at—and again, it's very difficult issue, and we're not agreeable on it, and at this point we're trying to wrestle with it—is whether you use the household as a unit rather than the individual, so instead of looking at income-splitting, which creates all kinds of other problems, looking at what is now done in many other countries: joint filing.

Again, there are lots of problems about the issue of the way in which money is distributed within the household, so instead of just across families, what happens within families in terms of control and distribution.... There are lots of concerns about that. But many countries have dealt with this issue by joint filing rather than individual filing, and then you don't deal with all the perversities. Income-splitting is probably the worst of the two choices.

The Chairman: Do you have any recommendations for the committee? You touched upon it in your presentation. We already have some benefits, for example, that are income-tested. The tax transfer system is income-tested, yet our taxation system is on an individual basis. Do you have any recommendations for the committee?

Mr. Michael Goldberg: Someone asked about extending the scope of the committee. This would be probably one of the most difficult issues you would have to wrestle with but eventually resolve. It's a very difficult issue.

Again, you have to link it to what you want to achieve in terms of broader social and economic goals. The tax system doesn't work in isolation of all these other kinds of things. It's a $4 billion expenditure to income-split. That's a big hit towards the universal child care program, and those are trade-offs. I would go for the universal child care program. Let's get all children out of poverty. We know the enormous costs that child poverty has.

The Chairman: Could you come back to my question, though?

Mr. Michael Goldberg: Yes.

The Chairman: Do you have any recommendations?

Mr. Michael Goldberg: I can only tell you that in SPARC we're divided on this. It's a very difficult issue. My personal recommendation is go to joint filing and treat households as households at both ends, rather than any income-splitting. I know Jane is going to disagree with me.

Ms. Jane Pulkingham: Yes. I'm one of the dissenters on that issue. I would also say that any attempt to treat families jointly would have to recognize the need to put money into the hands of the person to whom the income is being attributed.

The Chairman: Would the same logic not apply both for the income versus the tax transfer, and the benefits also, then? Why should benefits be income-tested, yet the tax not be income-tested? When we look at the child tax credit, for example, or the GST credit, we income-test those, based on family incomes.

Ms. Jane Pulkingham: Yes.

The Chairman: So if you're going to be consistent, should we not do both, but not one or the other? Are you saying keep the combination?

Ms. Jane Pulkingham: I'm not following your question. I understand that there's income-testing for certain programs.

The Chairman: Certain benefits are income-tested—

Ms. Jane Pulkingham: Yes.

The Chairman: —but income is not. So I'm saying should we do both? When you report your income, it's not family-tested, yet the benefits are family-tested. Isn't there any consistency there?

Ms. Jane Pulkingham: There is. At present, yes, the benefit system and the tax system do operate differently. What I want to be careful about is if you start looking at the question of joint tax filing, of treating household income as a unit, you have to look at the question of where the benefit goes if—

The Chairman: Hopefully the benefit will go to the family.

Ms. Jane Pulkingham: Yes, but the family is not a unit in the sense that—and I do point this out in my brief—if you look at who is spending the money and where money goes when money is put into different people's hands within the family, there is inequity, and there are very big outcomes if you change where the money is allocated.

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There is economic research by Shelley Phipps and also by British researchers that looks at if you change where the money is going, if you increase the dollar of the income that goes to women rather than increase the dollar of income that goes to men, then you have very different patterns of household expenditure. So you cannot say that giving the family money, which would usually go to the higher earner or the person who is earning income, if it's through the tax system, which would be the man.... That would have a very different effect on the pattern of expenditure and consumption of that family from reallocating that money in a different way.

In Britain, when they changed the system from child benefits, which were paid through the tax system to the person in the form of a deduction and went generally to men, to a system that put the money into the hands of the women, there was a very big change in how money was spent. You found that more of a proportion of the income was spent on children's things, like children's clothing, rather than on things like alcohol and cigarettes.

So if you look at consumption patterns and changes in the allocation of money in terms of where money is put in hands of family members, there's a big difference.

Mr. Michael Goldberg: Part of the solution if you did go to a joint filing is that the children's allowance we're suggesting would go directly to the mother.

One of the things we lost when we lost the family allowance, if you listen to mothers of all income groups, was they lost control over a small amount of money. Having control over a larger portion of money is really important. We need to recognize that not all families are in the mythical model of where they sit down together and make joint decisions. That's not the reality from expenditure information that we have. So you need to take into account the notion of control inside the family and make sure that if you did go with the joint filing and a joint benefit the money would go to the mother in most cases. You would do that through an allowance, and you would do away with the income-testing benefits, which is what we're recommending.

The Chairman: Thank you very much.

I think another point that has been made is that families aren't static, that there is a change over time and the needs change over time. That's a huge difficulty we have in trying to establish policy.

I'd like to thank you. Did you want to add something?

Ms. Rita Chudnovski: Maybe just one quick last thing.

From what I'm understanding of the debate as it's playing out, the proposal for income-splitting is likely to be of greater benefit to higher-income families, whose income will then be taxed in two pockets at a lower tax bracket. The joint household, putting the incomes together to tax in the two-income household, from what I've read and other briefs we've seen, will in fact mean that for the most part women's income will now be taxed in the higher bracket, because it is the lower income. So the income-splitting on the one hand is going to be a benefit to those who already have more funds, and joining the two together for family income is going to really undermine women's economic autonomy and the income women are bringing in.

Given that this one is estimated to be $4 billion, we feel we have a better solution for you, which is $2 billion in the next federal budget to begin an early childhood care and education system in this country.

The Chairman: I'll buy that, but just make sure you put the same pressure on the provinces, because notwithstanding the good intentions of the Liberal government in 1993, when we undertook to put in a child care program when the economy could sustain it—and that happened once, I believe, in that mandate—the provinces didn't want to come on board. And we still have that problem. We can have all the best intentions, but the provinces have to administer it. When they don't want to cooperate, then we reap the repercussions.

Ms. Rita Chudnovski: You have a new opportunity, through the social union agreement and the national children's agenda, to take a serious proposal to the table, and then we'll do our job with the province.

The Chairman: Thank you very much.

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The Chairman: We'd like to now resume the hearings. I apologize for the delay. The topic is of such great interest we seem to have lagged behind in the first hearing, and now in the second hearing we're almost half an hour behind. I do apologize.

I'd like to welcome, from First Call, Cindy Carson as provincial coordinator; and from Westcoast Women for Life, Kathleen Higgins as president, and Cecilia Ziebart and Sheila Formby as directors.

The format we follow is five to ten minutes of presentation, followed by questions. I'd like to ask First Call to make their presentation. We welcome you.

Ms. Cindy Carson (Provincial Coordinator, First Call): Thank you very much.

I'm the provincial coordinator of First Call. That's a child and youth advocacy coalition bringing together 40 provincial organizations and hundreds of community groups around the province that are working on issues that impact the health and well-being of children and youth.

Right now we're involved in a campaign for children and youth called the spotlight on children and youth campaign in the province of British Columbia. This campaign is a comprehensive, community-based initiative that invites individuals, communities, business, and government to work together for the health and well-being of children and youth.

Building on the same population health research that is the basis of the recently-released national children's agenda, we are working to ensure that children, youth, and families have what we call the “four keys to success”.

We say that children, youth, and families need a strong commitment to early childhood development; they need support and transitions from childhood to youth to adulthood; and they need increased economic equality and safe and caring communities. Using these keys, which we believe are crucial to the health and well-being of children, I would like to look at the issues of tax and transfer fairness through the eyes of a child.

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Robert is eight years old. He lives with a two-parent family. Mom has a part-time job. Dad is a student. Their combined income is very low. Robert and his siblings need child care. They will not benefit from the child care tax deductions because his parents do not earn enough to pay taxes. In fact, a program like the child care tax deduction provides more benefits to higher-income families than to lower-income families.

What we know is that access to quality child care is a strong mitigating factor in the lives of children living in low-income situations. The benefits to society of ensuring access to these children are the greatest, yet these are the ones who are either excluded or benefit the least.

Jane lives in a two-income family. She enjoys quality child care, but without the child care deduction her parents could not afford the quality child care and she would be forced into less desirable options and Jane would miss out.

In the absence of universal free child care, the child care expense deduction plays a vital role in supporting quality child care centres. Without the child care deduction it would be difficult to maintain many centres, as many working parents would not be able to afford the quality care their children need.

You've been asked to look at the issue of fairness of some families and not others having access to the benefits of the child care expense deduction. We would suggest that this is the wrong question. The real question is whether there is fairness for our children.

The child care expense deduction recognizes that child care expenses are legitimate expenses, but it does not recognize that equitable access to child care for all children is the major issue here.

In the system we presently have some children benefit from quality child care and some do not. This is where an unfairness lies. We need to find ways to ensure universally available quality child care and education options for all children. This would ensure that all children have the opportunities to develop to their full potential, regardless of their parents' employment status. The child care expense deduction could then become obsolete and be a non-issue.

Our preference would be for phasing out of this expense deduction as quality child care options become universally available.

Having the child care expense deduction does not create tax unfairness for two-parent families with one earner, as some have suggested, because child care is a real employment expense. This issue should not be confused with the need as a society to recognize the huge financial burden families have in raising children. Children and youth are everybody's responsibility. The costs of raising children are real. The benefits to society of well-raised children are incalculable. Society gains through a productive active member of society, or if we do not help, we risk losing through greater costs in health education and social services. So we need to share the cost of raising children.

We should do this through a universally indexed child benefit. This benefit should be an inherent right of all children. The child benefit should be high enough to cover the costs of raising children and also ensure that children are not raised in poverty. It should also be treated as income and taxed back in a more progressive tax system.

Another way we can assist parents with dependent children is to expand paid maternity and parental leave. Our leave provisions, as was mentioned earlier, are far less than many countries, especially European countries or even Quebec. For example, Sweden has 52 weeks of maternal leave. Germany pays 100% of wages of maternity allowance. We know that the first three years are critical to the cognitive social and physical development of children. We need to ensure that parents have the options of caring for their children at this time. We can do this by expanding the employment insurance system. Benefits should be available to all parents, including adoptive parents, self-employed parents, students, and parents with no previous labour attachment, including parents on social assistance.

In addition to maternity and parental leave, we need to provide options for parents to take leave in times of family crisis. If a child is sick or handicapped, there need to be provisions for care.

As young people grow, they move through major transitions in their young lives. Some young people have more difficulty than others and need extra support from their parents. We need to recognize these times and enable parents to take leave from work to care for their older children. This could be accomplished by developing within the emplyment insurance system a compassionate leave provision with similar benefits to maternity leave.

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The national children's agenda has been released by the federal, provincial, and territorial governments. It focuses on our responsibilities to ensure the needs of all our children are met. We suggest that this committee take this opportunity of tax and transfer fairness and recommend that the national children's agenda be put into action. Significant transfers are needed to make the national children's agenda a reality so that all children have the same opportunities to maximize their potential. A major opportunity to do this is coming up in the federal budget for the year 2000. This budget could invest in a substantial and long-term way for our children. We encourage you to make this happen.

In summary, First Call believes we should be making children a priority in our society. All children should be guaranteed the conditions of healthy child development. The federal government can increase fairness and have a win-win situation by building a universal quality free child care and education system; secondly, providing universal child care benefits; and thirdly, expanding our system of maternity, parental, and compassionate leave benefits.

We need bold leaders to take up the call of our children. We invite you to be those leaders and use your positions on the finance committee to ensure that all children are given a priority.

Thank you.

The Chairman: Thanks, Ms. Carson.

I'll now ask the Westcoast Women for Family Life to make their presentation.

Ms. Cecilia Ziebart (Director, Westcoast Women for Family Life): Thank you.

Mr. Chairperson and members of the committee, we are appearing before the subcommittee to address three areas in which the Canadian federal tax system discriminates against single-income, two-parent families with dependent children. We propose three measures to introduce more equity into present tax laws.

I would like to introduce the presenters. Our main spokeswoman, Kathleen Higgins, has a law degree and was called to the bar here in British Columbia. Kathleen changed careers six weeks before her first child was born in order to be the principal caregiver of the children in her family. My name is Cecilia Ziebart. I worked as a police communications operator and emergency response 911 dispatcher for a number of years as well. I changed careers when my first child was born and I gave up my entire income to become the main caregiver in our family.

Ms. Sheila Formby (Director, Westcoast Women for Family Life): My name is Sheila Formby. I was a practising physician for a number of years—my professional name is Dr. Pride—before changing careers to become the main child care provider in my family.

All three of us here have gone from well-paying career positions to another important career, the career of rearing our children, and yet we have no income and no tax benefits attached to this. For us, working within a family, caring for our newborn children, our pre-schoolers, our school-age children and young adults, is real work. It's valuable work and challenging work. It may involve giving up most or all of our income, but that fact does not lessen the quality of the child care service we provide or its value to our society.

Those parents working part-time in order to provide home child care are part of the group of families we represent. Those working part-time and those in the home full-time make up two-thirds of the families in Canada. We therefore seek to redress the financial and discriminatory aspects of our current tax laws.

Ms. Kathleen Higgins (President, Westcoast Women for Family Life): In a two-income family where both parents earn a substantial income, each parent can earn up to $29,590—that is, $59,180 jointly—before exceeding the 17% tax bracket. Contrast this with the one-income family, who starts paying 26% tax on any income over $29,590. In addition to entering the higher tax bracket sooner, the income given up by one of the parents in a single-income family is the real ongoing opportunity cost to them of parental child care.

• 1210

A parent who pays another person to provide child care services can claim a tax deduction. I believe it's up to $7,000 per pre-school child—it may have gone up—and $5,000 for a child in school to age 16, unless that person is the parent's spouse, i.e., the child's other parent, in which case no deduction is allowed. By contrast, all other forms of child care services, if there's a receipt for them, generate a generous tax benefit.

By refusing to acknowledge the cost of one type of child care, and by implication its value, compared with all other kinds, our tax system unjustly penalizes some families solely on account of their child care choice.

The second injustice in the tax system is that regardless of income, child care receipts are treated as a tax deduction, rather than a tax credit. Deductions reduce taxable income. Credits reduce tax payable. Deductions are a regressive tax benefit, because the higher the tax bracket of the person claiming the deduction, the more valuable the deduction.

As an example, someone earning $29,590 in a 17% tax bracket would save only $850 in tax with a $5,000 child care receipt. Someone earning $70,000 per year in a 29% tax bracket would save at least $1,450 in federal taxes. So the family with less financial need thus enjoys a greater tax saving.

By contrast, the federal government takes family size and income into account—that is, a means test—when calculating who receives the child tax benefit, a monthly payment from the state. Only families who meet the means test qualify for any state payment for the cost of feeding, clothing, educating, and housing their children. It is clear that if all other costs of raising children are means-tested, it is inequitable that only third-party child care expenses are not means-tested. In practice, the child care tax laws help higher-income earners more than lower-income earners.

There's a third aspect to Canada's tax system that makes the unequal treatment even worse for families providing their own child care services. The federal government bases eligibility for the child tax benefit on net taxable income. The child care expense deduction, line 214 on the tax form, is granted only to families paying third parties to provide services, and they reduce their taxable income accordingly. Thus, a two-income family with a higher family income can end up receiving a higher child tax benefit than a lower-income, two-parent, one-income family who receive no outside child care services and who therefore cannot claim any deduction.

The present tax laws must be changed so that all families with dependent children are treated equitably, whatever their income or child care choice.

I just wanted to make the point that two-parent, single-income families are not, for the most part, affluent. We have made economic and professional sacrifices in order to provide child care. We continue to do so.

To reduce the unjust discrimination in the tax system, we offer three recommendations. Our recommendations involve putting more money into the hands of families. Contrary to the paternalistic outlook of some social planners, who don't think that families will use that money properly, families are very good at managing their own resources. So to put more money into the hands of families and let them make their choice is giving credit to the family for the strength that is within it.

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Recommendation number one: Permit the income-earning spouse to pay the child-care-providing spouse a wage based on current wage rates for child care workers.

The equity of paying a wage for services rendered is that it recognizes the principle that the parent works in caring for the children. Maybe we could get away from the offensive question that so many people ask: “Oh, do you work?” when what they really mean is “Do you work outside the home for a wage?” I have seven children, ages three to sixteen, and I work. I don't work 40 hours a week; I work almost 24 hours a day sometimes. So for people to suggest that work inside the home is not work just because it's not generating a paycheque is offensive to a large portion of the mothers in Canada. For tax purposes, the amount by which a family could split income equitably for child care would be limited to the prevailing wage rates for child care services.

Recommendation number two is for a tax credit. Change the child care expense deduction to a child care expense tax credit. In that way, the same tax benefit would then be available to all families with dependent children, regardless of tax brackets, and would include families in which a spouse pays the other spouse for child care services.

Years ago we had a deduction for personal exemption on the tax form. That was changed to a tax credit some years ago so that everyone would get the tax exemption times 17%, which is the lowest tax rate possible. If we did that with the child care expense deduction, it would simply be making it consistent with all the other expenses we have in caring for ourselves and our family.

Recommendation number three is for eligibility based on family income and size. Base eligibility for the proposed child care expense tax credit on the family's income and number of dependent children, using the same criteria as are used now for the child tax benefit. That is, treat child care costs in the same way as all other expenses incurred in raising one's children. If all costs associated with raising children are means-tested, there will be more tax revenue to assist the truly needy, many of whom are single parents.

I would just like to say something briefly against a universal child care system, which has been proposed for twenty years. The problem with a universal child care system is it is not free. It takes a large amount of tax revenue. What happens is families who do not want third-party child care for most of the time have to pay, through their taxes, to obtain a universal child care system that they will never use. So a universal child care system by definition is not fair to families who want to care for their own children.

We believe the three recommendations, if adopted, will result in a more just distribution of tax measures for families with dependent children and will recognize in our tax system the value of the work performed by the spouse who provides child care.

The Chairman: Does that conclude your presentation?

Ms. Kathleen Higgins: Yes.

The Chairman: Thank you very much.

I'd like you to put on your earpieces for translation from French to English.

Ms. Sheila Formby: To avoid a parking violation, I have to be going for five minutes.

The Chairman: Thank you.

I would ask

[Translation]

Mr. Cardin, if you wish to begin this question period, you have five minutes.

Mr. Serge Cardin: Thank you for your presentation. Ms. Higgins, I want to reassure you. We admit that parents who decide to stay at home are doing an important job. It is what is called unpaid work. Your first recommendation says that we should take this fact into account and you suggest to us a method of accomplishing this. If a worker shares his or her income with a person who works at home, would this have the same impact as the income tax deduction you are suggesting?

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[English]

Ms. Kathleen Higgins: I'm not sure that I got the translation properly. You're asking me if what we're saying is we want to limit the ability to split incomes to the prevailing wage rates for child care.

If the government is willing to split anyone's income, regardless of the income level of the wage earner, then there would be a lot of objection to that on the basis that.... I've heard one person say that if somebody earns $100,000 a year, the work the person is doing in the home is not worth $50,000 a year. In order to counter that objection, what we are saying is surely you do not object to the limited income-splitting of having the wage-earning spouse pay the child-care-providing spouse the prevailing rates for child care workers.

When you said that you do recognize the work of the parent in the home and you do acknowledge it, on the contrary, I would say that our government does not acknowledge the work of the parent in the home, does not recognize it, does not respect it, because if it did it would not penalize families such as ours who do provide our own child care.

[Translation]

Mr. Serge Cardin: You appear to be suggesting that the spouse who is working on the outside should, through the tax return, pay a salary to the person working at home.

[English]

Ms. Kathleen Higgins: Absolutely.

[Translation]

Mr. Serge Cardin: Would that person be entitled to a deduction when the income tax return is filed?

[English]

Ms. Kathleen Higgins: On the wage-earning spouse's tax form it would be a deduction, but it would not be a deduction to the family wage because all they would be doing is putting the money from the wage-earning spouse's income tax form to the child-care-providing spouse's tax form. So the most that could happen is the tax rate would be reduced from the 26% tax bracket to the 17% tax bracket. We're not asking for a deduction; we're asking for limited income-splitting.

I'd like to point out that if you have two high-wage-earning parents—for example, if they are both earning $70,000 a year, that's $140,000 as a family wage—they can earn up to $119,180 before they start paying tax at the highest tax bracket. They're going to be in the 26% tax bracket until they get over $119,000. To agree to allow limited income-splitting for families at the lower income level, where it really is crucial, is totally reasonable as far as we're concerned.

The Chairman: Mrs. Dockrill, please.

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

I have to say I come from a part of the country that probably has an average of about 40% to 45% unemployment, so when I hear talk of salaries of $118,000 it's something of an anomaly to me.

Ms. Kathleen Higgins: It's foreign to us as well. I'm just talking about why higher-income-earning families should not have the greatest benefit in the tax system, as they do now.

• 1225

Ms. Michelle Dockrill: In the second page of your presentation you talk about a comparison with respect to one income as opposed to two. I was wondering, when doing research for your presentation have you taken into consideration the number of lone parents in this country who are on provincial assistance and the effects the tax system has on those individuals?

Ms. Kathleen Higgins: Yes, I would like to talk about that. It is tragic that our tax system is so generous with high-income families with the deduction and the child care system, yet it does not have a means test for these things. In that way, we are giving generous tax benefits to families that don't need it. As a result, we have less tax revenue to help the single-parent families who do need the help.

The more we can means-test, the more we can help people at the lower end of the scale, whether they're one-parent or two-parent families, and the better off our federal tax system will be. That's what taxation is for; it is to help those who can't help themselves. Those in the higher tax brackets can help themselves, no matter what the tax policy is. But we shouldn't have a tax system that gives them a higher tax break, a $1,400 tax saving when they put in their day care receipts, as opposed to an $850 tax saving when the person in the lowest tax bracket puts in their day care receipts. That's unjust.

Ms. Michelle Dockrill: Let me say I commend you for being able to stay home with your children. I think that's something a lot of mothers would like to have the choice about. That was my point. Certainly in hearing from a lot of presenters over the course of the last couple of weeks I sense that not as many women have that choice as would wish to, due to the lack of available good-quality paying jobs.

In the last section, I think, of your presentation, you make reference to the equity of paying a wage for services rendered. It says “recognizes the principle that the parent works in caring for the children”. What would you say with respect to a parent who takes his or her child to day care in the morning and is back at 5 p.m., but the rest of the child care associated with that child is the responsibility of an individual who also works eight hours a day, in terms of services rendered? Do you understand what I'm saying? Perhaps I work from 9 a.m. to 5 p.m. and I take my child to day care when I go off to work, and then when I come home at 5 p.m. I have another job that relates to that child.

Mrs. Kathleen Higgins: Well, you're not caring for the child for ten hours of the day, or however long that child is in substitute child care, so the parent who is providing care for that child is there 24 hours a day. The wage you pay to the child care worker for being there for those ten hours when you are earning a wage is all we are asking for. We are asking that we allow the wage-earning spouse to do the same with someone who happens to be related to the child.

The Chairman: Can I jump in there, Michelle?

You can't be insinuating that just because a person works they have fewer responsibilities at home in terms of rearing their children. I would wager that the responsibilities are the same. Therefore, how can you compensate one person just because they're working, yet the other one you wouldn't compensate because they're getting a revenue outside the home? I think the responsibilities are the same. So how do you value the work?

Ms. Kathleen Higgins: It's the same work. If somebody drops their child off at a child care centre and expects the person there to feed the child, talk to the child, teach the child all the things they would be teaching them if they were there in their waking hours, if somebody pays a child care worker to do that, then why should our tax system not recognize those eight hours, those eight or ten hours during the day when people are awake, when people are spending the most productive part of their day doing that? Why should our tax system not recognize that work?

To say that if somebody else is looking after your children for ten hours a day and you are paying somebody for those ten hours, that you have the same amount of work to do.... If someone else is there changing the diapers, feeding the child, teaching the child to walk or whatever, they're not just in limbo for those ten hours; they are being cared for—whether they're with a child care worker who is not related to the child or a child care worker who is related to the child. Why is there discrimination there?

• 1230

The Chairman: Do you want to jump in? I'll jump in after.

Ms. Michelle Dockrill: You jump in, because you have the same concern I had when I read that.

The Chairman: Yes.

Ms. Michelle Dockrill: Certainly I won't argue with the need—and I've brought this up with other witnesses—for us to put an economic value on “unpaid work in the home”. Maybe it's easy to give a scenario.

My husband works and he makes $15,000 a year. That's not enough to support a family of four. So as a mother I'm forced to re-enter the workforce. Because I re-enter the workforce, I have child care expenses related to that entry into the workforce. So I disagree with respect to.... I see that as an employment expense, because if I'm not out in the workforce it is not an expense I have to incur.

Ms. Sheila Formby: Are you implying that the person who works as a day care worker is inferior to other kinds of work?

Ms. Michelle Dockrill: No.

Ms. Sheila Formby: Would you suggest that she's not employed?

Ms. Michelle Dockrill: No.

The Chairman: No, she's not saying that. Let her clarify, please.

Go ahead, Mrs. Dockrill.

Ms. Michelle Dockrill: That's not what I'm saying. What I'm saying is that if my husband is making a minimal salary of $15,000—and I'm just taking a figure—and we are not able to correctly, in our eyes, look after our children the way we feel parents should, then as a woman I have to re-enter the workforce to help supplement that $15,000 to ensure that our children are looked after in the manner we feel they deserve. Because I re-enter that workforce I have the expense of having my child go into day care or whatever. I see it directly related to my entry into the workforce.

Ms. Kathleen Higgins: And yet if your deduction for child care expenses is means-tested and you only earn a lower salary, then you would be entitled to the full deduction under our plan. But if you went back into the workforce and ended up earning a high salary, then you would need less of a deduction for child care. If child care expenses are going to be so prohibitive that they would make it not cost-efficient to work, then you'd be at the lower income level. But once you get to the $80,000 to $100,000 or $60,000 level, once you're in the higher tax bracket, you don't need as much help from the government as you do when you're in the lower tax bracket. That's the way the child tax benefit is structured, so why not structure the child care expense deduction in the same way?

Ms. Michelle Dockrill: Again, I'll go back to what I originally said about the need to recognize what we are now referring to as unpaid work. But my concern is that I don't want to be connecting the two, the unpaid work with respect to the expenses I incur by entering into the workforce. If I don't enter into the workforce, I don't have that expense. I would be a stay-at-home mom. And being a stay-at-home mom, I feel that the work I do at home has to be recognized somewhere within the system.

Ms. Kathleen Higgins: But the expense of providing child care is in fact that: giving up the second income. We're not asking that the income we would get in the tax system be on the level of a lawyer or a doctor. But we are asking that it be recognized on the same level as other child care workers. Our child care choice is a legitimate choice, and it should be recognized as such in our tax system. It's not. In fact it is penalized.

Ms. Michelle Dockrill: My point was.... As I said, I see the child care deduction as an expense incurred with respect to being employed.

The Chairman: Thank you.

Mr. Herron, please.

Mr. John Herron: Essentially, the primary recommendation you're making is to have a limited form of income-splitting.

Ms. Kathleen Higgins: It's not the only one.

Mr. John Herron: But one of the principal ones that you—

Ms. Kathleen Higgins: One of the three.

Mr. John Herron: Okay. Instead of the formula that you recommend in terms of paying one spouse to the other, or I guess to augment or to complement the income-splitting formula you've provided, have you looked at any kind of an actual threshold where you would stop the income-splitting?

• 1235

Ms. Kathleen Higgins: I would say that would depend on the number of children in the family and the wage rates for child care workers. If somebody had a lot of children, then presumably they would be entitled to pay more to the caregiving spouse than if they had one or two children, in the same way that if you put more children in child care you have to pay a higher wage to whoever is caring for the children. So the limit on the income-splitting would limit itself, depending on the size of the family.

Mr. John Herron: Okay. So quite clearly—I'm just going to try to afford you some time to maybe expand on some of the points you made earlier—under the current system, you would clearly say that by all means the taxation system discriminates against the choice of a family unit to have one parent work inside the home versus being a dual-income family.

To put it simply, you think the choice you've made is directly discriminated against by the taxation system.

Ms. Kathleen Higgins: Yes, I do. I also think the regressive nature of the child care expense deduction—even though it would not directly benefit our family to have that changed to a tax credit—is an ongoing inequity in the tax system, and it needs to be changed in order for our tax system to help those most in need. It should not help those least in need, which is what the deduction does.

Mr. John Herron: What it also doesn't do in terms of this system is that it doesn't recognize the sacrifice that some family units have made to forgo a second income to do what they've chosen as best for their family circumstance.

Ms. Kathleen Higgins: That's certainly right. In all the discussions about child care, choice is talked about repeatedly, but the choice to provide home child care at present is penalized. All we're asking for is more equity. Perhaps it's impossible to have 100% equity, but we're asking for more equity, especially for people at the lower end of the tax scale.

Mr. John Herron: Thank you.

The Chairman: I'd like to follow up on something. Do you have a small question?

Ms. Michelle Dockrill: It's just a small question.

Correct me if I'm wrong. I thought I heard you say that you didn't agree with a universal child care program. Given that you've made the statement a number of times in the last few minutes about the fact that the system has to be set up so as to ensure it helps those who cannot help themselves, in that context, why would you not be in favour of a national child care program?

Ms. Kathleen Higgins: In 1991 I was a member of the B.C. child care task force set up by then minister for women Caroline Gran, and with one other person on that committee we wrote a minority report. I'm sure it's still available from the provincial government.

The problems with universal day care, universal child care, are that everybody pays for it, it is not means-tested in terms of the people who use it, and the people who don't want third-party child care are still taxed at the same level to pay for the universal child care system. If you have a free government-funded child care system, and you have a high-income family who puts their child in that child care centre, that family is getting a benefit that I would say in this day and age of deficits and limited tax revenue we can't afford to give them. In order to help the families that really need it, we have to have the revenue or the funds for child care follow the needy. You can't do that with a universally funded system.

Another problem with a universally funded system is that it is not flexible. In British Columbia at present it is against the law to care for more than two children without a government licence. In Manitoba it's four, and in most other places it's around four. So if you're making the provision of child care full of regulations, then you're making the only type of child care that's available—government-funded—the most expensive, the least flexible.

• 1240

If you have a child care centre set up on a corner that needs a number of children coming to it and it's totally government-funded, as the children in that neighbourhood grow up, that child care centre is not going to be as flexible as if the money went to the family and the family could decide on whatever child care choice they wanted. That way you can make sure the money goes mostly to the needy. You don't set up a big system like the school system and say now everybody must use it, regardless of income level. And you don't say now everybody must pay for it, even if one-third or two-thirds of you don't want to use it.

Ms. Michelle Dockrill: Do you have any numbers in terms of how many in the high-income bracket would utilize the public child care system as opposed to finding alternatives?

Ms. Kathleen Higgins: Well, I can tell you what—

Ms. Michelle Dockrill: Do you have any numbers?

Ms. Kathleen Higgins: I think you could look at the figures in Statistics Canada. We don't have them here.

I'm saying as a principle, we have to be careful not to set up a system that will be totally tax funded and that everybody will be able to benefit from, regardless of income level or their child care choice.

Ms. Michelle Dockrill: My concern is that I don't want to make assumptions without having the numbers. We have broad statements to say that those in a higher-income bracket would utilize the public child care system when in fact we don't have any numbers to support that. That was the only reason for it.

The Chairman: Thank you.

Mr. John Herron: But that high-income individual would still participate in the public education system as well, so they would likely still perhaps—

Ms. Michelle Dockrill: But likely—

The Chairman: The high-income earners might be sending their children to private schools.

Ms. Kathleen Higgins: I doubt that, sir. I think you can't back that up.

Ms. Michelle Dockrill: It's exactly what you said, John—the term “likely”. And I just don't want to—

The Chairman: Thank you. We don't want to get into a debate, among members at least.

Do you agree that if someone uses a car, for example, to earn part of their income, the expenses related to the use of that car should be deducted from their earned income?

Ms. Kathleen Higgins: A child is not a car.

The Chairman: Could you answer the first question? Do you agree that if someone uses a vehicle to earn income, it is normal that they should be able to deduct the expenses from their gross income?

Ms. Kathleen Higgins: At present, only people who have their own business can do that. People who travel to work—

The Chairman: No. Commissioned salespeople use it.

Ms. Kathleen Higgins: Yes, but not employees. Employees can't.

The Chairman: Yes. If you're an employee, and you get paid commission, you can.... Why can't you answer my question?

Ms. Kathleen Higgins: But not to get to and from work. It's not deducted.

The Chairman: No, you don't. But if you earn commission, all the expenses related to the use of your car, if you have your own private car, are allowed to be deducted. That's part of our progressive tax system. If you are a machine worker, for example, and you have to use your tools to provide mechanical services, the use of those tools is allowed to be deducted from your expenses. There are all kinds of—

Ms. Kathleen Higgins: But you're not using your children to earn income.

The Chairman: But what I'm saying is—and this is what Ms. Dockrill was saying—when a person chooses to go out into the labour force and has to incur additional expenses to earn that income, it's normal for us to allow them to deduct that expense portion from their income. That's what I'm saying.

Ms. Kathleen Higgins: We're choosing to forgo an income. We're choosing to give up—

The Chairman: That's another side of the debate. If you agree with the principle that in earning income, any expenses that are related to that income.... If I am self-employed, for example, and I use extra electricity in my home.... A portion of the interest payment and a portion of the hydro and the telephone is allowed to be deducted from the earned—

Ms. Kathleen Higgins: Only up to a certain point.

The Chairman: Yes. That's right. That's what we're saying. But I think it's a fair principle in taxation.

Ms. Kathleen Higgins: They don't treat the personal exemption like that when you're filling out your income tax return. That is a tax credit, not a deduction.

The Chairman: What do you mean?

Ms. Kathleen Higgins: The $6,456 times 17% that you can take off your tax payable is a tax credit. It's not taken off your income; it's taken off your tax payable.

The Chairman: And there, I think the committee agrees with you, that it should be based on a tax credit so it's of equal value to everybody. I think that's your second recommendation, which most people would favour.

• 1245

On your first recommendation, however, how would you assess the value.... I'm taking into account, and you mention it yourself, that family needs are not static; they change from day to day. When you have your first child, you have certain care needs that are required. When they go to elementary school there are certain needs, and then when they go to high school and university there are different needs. How would you even begin to assess and value that? Monetarily, you're saying just take the lowest child care wage and apply that on what hourly basis? How would you calculate that?

Ms. Kathleen Higgins: Only the prevailing rates in the child-care-providing market.

The Chairman: How you would determine the number of hours?

Ms. Kathleen Higgins: On the basis of how long the wage earner is outside the home, or the government could set a limit on the usual hours a child care worker works, which is between eight and ten per day.

The Chairman: Would you agree that those eight or ten hours are regardless of whether a person is working inside the home or outside the home? There is still that basic care that has to be given. Or are you saying that someone who works outside the home does not have the same amount of hours they would have to spend on giving care to their children?

Ms. Kathleen Higgins: The people working outside the home have the benefit of someone else caring for their child or children at that time.

The Chairman: I don't see how someone working outside the home would have the diapers changed or washed, or the laundry done at home. There are certain basic needs that—

Ms. Kathleen Higgins: Whoever is caring for the child is going to change the child's diapers. They're not going to wait until the person gets home after eight hours to change the diapers.

The Chairman: Right, but homework requirements, clothing requirements, education requirements, driving the children back and forth to the arena or to figure skating, the needs are still there.

Ms. Kathleen Higgins: After-school care doesn't cost as much as full-time child care. That's why children up to school age can get a $7,000-per-year deduction, as opposed to $5,000 for school-age children.

Mr. John Herron: I think that's why she's advocating eight to ten hours, as opposed to 24 hours.

The Chairman: The basic question is you're saying that someone who chooses to stay at home and care for their children has more hours to do that task than someone who finds an alternative source outside and chooses to work?

Ms. Kathleen Higgins: Someone who is caring for his or her own children full-time is doing the job of child care that child care workers do during the day, and those child care workers are paid for it.

The Chairman: But let's get to your recommendations. You want us to compensate those who stay at home, and based on an hourly rate we have now established, you've given us the formula. My question is, how do you determine the number of hours you should compensate them for?

Ms. Kathleen Higgins: What are the prevailing hours for child care workers?

The Chairman: The rate we know. What do you mean by hours?

Ms. Kathleen Higgins: How many hours in a child care centre. Usually it's from 8 a.m. to 6 p.m., or it could be 8.30 to 5.30. That would be up to the government to work out the fine-tuning of this. We're giving you the ideas and you have to go and make—

The Chairman: Let's presume we can establish the number of hours and we can establish the rate. I don't understand, then, if I am spouse A given $3,000 for—

Ms. Kathleen Higgins: It's now at $2,600, actually.

The Chairman: Whatever the figure is. I then get a receipt from my spouse B. I claim it as an expense on my tax return, but then my spouse would have to claim it as a revenue.

Ms. Kathleen Higgins: Exactly.

The Chairman: So where is the benefit?

Ms. Kathleen Higgins: Because then the family is more likely to pay 17% taxes up to $59,180, the way double-income families can do right now.

The Chairman: That's where you're wrong.

Ms. Kathleen Higgins: No, I'm not.

The Chairman: Because your opening statement is that each parent can earn up to $29,500 before exceeding the 17% tax bracket.

Ms. Kathleen Higgins. Exactly.

The Chairman: And then you say that by contrast, a one-income family pays 26% tax on income over $29,000. The threshold is $29,590. It's the same—

Ms. Kathleen Higgins: Not for the family.

The Chairman: —percentage, no matter how much you earn.

Ms. Kathleen Higgins: No. A family's joint income, $29,590 plus $29,590, is taxed at 17% until they get above that threshold.

The Chairman: So are you proposing that we base taxation on family income versus individual income?

Ms. Kathleen Higgins: I'm asking that one spouse be able to pay the other for child care services. The indirect result of that will be that families providing their own child care services will be able to stay in the 17% tax bracket for almost as long as double-income families can at present.

The Chairman: I don't see how, because the other person is only deducting—

Ms. Kathleen Higgins: I think John Herron understands.

The Chairman: Explain then, John, please.

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Mr. John Herron: I would think that what it does is it waters down the actual taxable income in the same way that dual-income parents essentially pay for child care.

The Chairman: John, if I'm earning $50,000 as a single earner and I have a $3,000 additional exemption because I've provided care through my wife, for example, how does that—

Ms. Kathleen Higgins: You don't—

The Chairman: —I've used that as a figure, please. Make it $10,000, I don't care. How does that reduce my tax rate from $26,000 to $17,000? It's only when I'm earning $29,951 that it will reduce my rate.

Ms. Kathleen Higgins: If you're going to pay the caregiver prevailing wage rages for child care services, the amount would be $10 an hour, or at least the minimum wage, $7 an hour, not a $3,000 or $4,000 tax receipt.

The Chairman: I again use the example: if I'm earning $50,000, which as a single earner it's quite possible to do, and use whatever figure you want, it's only the $29,951 that brings me down to the reduced bracket.

Ms. Kathleen Higgins: Yes, but when you're giving $26,000 of your income to the child care provider in your home, that income earner is going to pay 17% on the first $29,590. You're going to pay 17% on your first $29,590 as well, and you're going to pay 26% on what's left over between $29,000 and $50,000 minus the $26,000.

The Chairman: We don't have time, because our next session starts at one o'clock, and we have to get lunch in place, but I will have the research done, do the numbers, and we will see the kind of response.

Ms. Kathleen Higgins: I want to make one more point. If you earn $50,000 a year, you're not paying 26% on all $50,000.

The Chairman: I realize that. It's the first $29,950 that's 17%—

Ms. Kathleen Higgins: Okay.

The Chairman: —and the excess of $29,950 to $39,000 is 26%—

Ms. Kathleen Higgins: To $59,000. Okay, so if you can take some of that between $29,000 and $50,000 and give it to somebody else who can be taxed at the 17% rate—

The Chairman: That's income-splitting.

Ms. Kathleen Higgins: Yes, and we're talking about limited income-splitting is the indirect result of the wage-earning spouse paying the child care spouse for services rendered.

The Chairman: That's your viewpoint. There are presentations here today that were totally against income-splitting. I think it was unanimous in the presentations this morning that they were against it for various reasons. But I don't want to get into that.

I would like to thank you for your three recommendations. We will look at them, study them, see what the impact is. We've brought up certain reservations about it. You've brought up your concerns also, and I don't think it's an easy task because of the question that you yourself said, which was to value the number of hours, etc. And this is the challenge we have, that if you could tangibly put in the number of hours and the rate you would get to a figure. But I'm not sure you could do that, because I firmly believe the debate goes on that it's not just the people who are staying home who would have to benefit, because there's care given by people who work also. And you'd have to compensate them to the same fairness and equity you're asking for. You see, that's the whole debate.

I'll give you the last word.

Ms. Kathleen Higgins: As the editorial in the Globe and Mail said:

Their compensation is the wages that they earn and the more favourable tax system that they enjoy as a result of having a second income and having someone else care for their children for the time when they are earning a wage. To refuse to recognize the hours in the home where one parent provides child care services means that you don't recognize the value of the child care that is being given in families where there isn't a wage attached to it.

The Chairman: That's not what I'm saying. What I'm saying is it's hard to quantify; that's all I'm saying.

Ms. Kathleen Higgins: Don't give up, don't give up, give it a try.

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The Chairman: Okay, thank you very much.

We'll adjourn to 1.15, colleagues. We have to get our baggage out of the room by one o'clock. We have seven minutes to do that and then we'll come back.