This is part of my article entitled “Reform or Revolt: The Challenge to Canadian Democracy“.
Here are five crucial policy areas in desperate need of vigorous federal government leadership to ensure carefully harmonized intergovernmental action to really serve the needs of Canadians for greater economic and social security. Unfortunately, the Trudeau government’s approach to intergovernmental relations – ad hoc first ministers’ conferences – is not proving productive. The proposed Council of Canadian Governments and Commission on Fiscal Transfers described in “Modernizing Arrangements for Intergovernmental Collaboration“ are designed to facilitate the much-needed co-ordination of regulations and legislation across jurisdictions.
Income Security and a Basic Income Guarantee
The child benefit the Trudeau government introduced to replace the regressive Harper Universal Child Care Benefit, as well as the old Canadian Child Tax Benefit and the National Child Benefit Supplement, is a strongly progressive initiative. It provides significant benefits to children in lower-income families and should be further improved by phasing it out at a more realistic $80,000 rather than continuing to make albeit diminishing payments to families earning an extraordinary $150,000 – $188,000.
But the government should not stop here. An ambitious responsive political agenda must lead us to further tax reforms and some form of basic income guarantee for working-age adults that will complement what is now effectively both a basic income guarantee for children, and a basic income for elderly Canadians delivered through Old Age Security and the Guaranteed Income Supplement. (A basic income guarantee would not include EI, child care or pensions).
We are all deeply concerned about the widening income gap and the steadily increasing numbers of people trapped in the low-wage economy – workers, especially our young, who are struggling to survive with part-time, non-standard precarious employment. In the last couple of years, part-time jobs accounted for 80% of net job creation.
We can begin immediately with reform and expansion of the existing Working Income Tax Benefit (WITB), which is supposed to help Canadians in low-paying jobs. The WITB is a refundable tax credit like the GST credit, which means that a person can claim it and is entitled to a payment from the government even if their income is so low that they have no tax liability.
The WITB is an increasingly important provision in light of the projections that, at least in the foreseeable future, more and more jobs will regrettably be lower-paid and lower-skill. As currently structured, unfortunately, it operates as a disincentive to work. A person is required to make at least $3000 to be eligible. A single person working at a fast-food outlet for minimum wage and making $343 a week, or less than $18,000 a year, earns too much to be eligible for the WITB. But if she reduces her hours by half, she not only gets the WITB but also retains provincial benefits for the working poor such as prescription drug coverage. Clearly she is better off working fewer hours. We must systematically remove such disincentives to employment from the tax system, and should work with the provinces to get rid of rules in the welfare system that interact with federal programs like the WITB to discourage recipients from making the transition to employment.
The time is overdue to move beyond the WITB and build a basic income guarantee. It has been proposed for many years by conservatives and liberals alike (most recently in a discussion paper prepared by John Stapleton for the Metcalf Foundation ), and is an idea whose time has come. There is an enormous and persuasive amount of research which demonstrates that the multiplicity of income support programs – overlapping, confusing, and riddled with perverse incentives – is a huge problem. The basic idea of the “big bang” version of an income guarantee would be to replace separate federal and provincial programs with a single, universal, unconditional cash benefit delivered through the tax system. The general principle is to establish an income floor below which no Canadian could fall, but with incentives for recipients to continue working and to earn more.
Total federal-provincial spending on income security in Canada in 2016 is very significant: approximately $170 billion or 8.5% of our GDP. The biggest challenge in implementing any user-friendly and efficient basic income guarantee will be jurisdictional, to get all levels of government to work together on any particular initiative and establish a collaborative road map.
The simplest way for the federal government to begin the transition to a basic income guarantee and get more income into the hands of the lowest-income Canadians would be to make most existing tax credits refundable. There is a labyrinth of nonrefundable tax credits (NRTCs) worth over $80 billion, that are largely politically-inspired, and are only accessed by a subsection of Canadians who owe sufficient taxes to benefit from them. In contrast, refundable tax credits (RTCs), like the Working Income Tax Benefit (WITB) and GST credit, are designed carefully to provide a benefit to low-income Canadians including those who pay no or little taxes. The 2015 research paper by Wayne Simpson and Harvey Stevens analyses various options for converting NRTCs to RTCs at a modest additional cost. Implementing one of the available options would be a positive initial step to increase the fairness of our tax system and mitigate income inequality. This federal tax reform should then enable the federal government, among others, to spur provinces and territories to take comparable action, and further enhance the improvements to the income security of low-income Canadians.
In this connection, it should be noted that there has been some useful but limited federal-provincial coordination in select areas in recent years, such as the consolidation of the hodge-podge of tax credits – sales, property, energy – into a more effective monthly payment delivered quarterly through Ontario’s Trillium Benefit and Québec’s Solidarity Tax Credit. British Columbia has similarly consolidated its Climate Action Tax Credit with the federal GST credit and provincial PST credit. But so much more action is needed.
The eventual introduction of a basic income guarantee would provide a regular payment to every Canadian without regard to a needs test. The payment would be designed to be “clawed back” only as a recipient earned additional income, in such a way as to be phased out completely once an income of, say, $60,000 was achieved. The overall cost of the program would depend on the rate of claw-back.
In 2017, the province of Ontario is in fact commencing its own modest pilot project for working-age adults based on the report of former Conservative senator Hugh Segal . The federal government is not involved for the moment; the project is limited to replacing the current Ontario welfare and disability benefits and assessing whether this provides better support to individuals. If the project is judged a success, Ottawa will be asked to add certain federal income supports into the mix.
Debate will continue over whether we need more than just a basic income guarantee to better respond to the varied needs of struggling individuals and families. For example, as well as income support, a single parent might need more accessibility to affordable services: housing, transit, child care.
It would be enormously helpful if the federal government participated more actively in the arena and began closer collaboration with provinces. In particular, federal-provincial efforts could perhaps initially focus on the relatively straightforward creation of a basic income guarantee for persons with disabilities. This would be a huge improvement, replacing the mess of no fewer than nine different federal and provincial income systems currently available: social assistance, Workers’ Compensation, the Disability Tax Credit, veterans’ programs, private programs, CPP – Disability, EI sickness, Registered Disability Savings Plan, and WITB-D.
Engaging the multilateral forum and framework provided by the proposed Council of Canadian Governments and a Commission on Fiscal Transfers described in “Modernizing Arrangements for Intergovernmental Collaboration“ would facilitate the necessary intergovernmental collaboration and permit greater public attention, understanding, and input.
Eliminating Interprovincial Barriers to Employment and Carrying on Business: A Strong Internal Economic Union
A productive, prosperous economy depends on expanding our internal market and improving regulatory harmonization so that businesses and individuals can easily work across provincial borders. This requires dismantling the numerous trade barriers imposed by provinces that make Canada a generally more fragmented and fractious place to do business than even the now-stumbling 28-member European Union. A strong internal economic union is all the more important to enable us to stand up forcefully to the America First tactics of Donald Trump.
The Trudeau government announced with much fanfare a new “Canada Free Trade Agreement” in July 2016 to replace the anemic Agreement on Internal Trade (AIT) dating back to 1993. Extravagant claims were made that the myriad of provincial rules and regulations impeding trade and the ability of individuals to work across provincial and territorial borders would be eliminated. Regrettably, this blanket elimination was subject to a “secret list” of a large number of provincial exceptions.
More than six months later, on January 26, 2017, federal and provincial officials announced that they are finally prepared, “sometime in the next few weeks”, to provide the details of the “sweeping new deal to slash internal trade barriers” to take effect on Canada’s 150th birthday. The rhetoric, however, may yet again exceed the action. There apparently are still provisions that permit provincial governments to limit market access in areas such as forestry, fish, energy production, and gambling. Only “some progress” was made on that perennial favourite, beer and wine sales. And “unfinished business” includes “aspects of financial services”. The prognosis is not good.
Ironically, there was much gnashing of Canadian teeth back in October 2016 over the absurdity of dairy farmers in Wallonia holding up the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). But our own governments have created an absurdity: without an enforceable internal Canadian agreement over provincial procurement, once CETA is ratified a French or German company bidding on a contract in a province may well have an advantage over a company from another Canadian province.
The lesson is that a true Canadian economic union requires much firmer federal guidance than has been on display so far. It is certainly critical that the federal government does not settle, as apparently it has, for a largely ceremonious new co-chair position on a sub-committee on internal trade of the all-provincial organization exaggeratedly called the Council of the Federation. The Council of the Federation was created by disgruntled provinces in 2004 and still functions generally as a talking shop for provinces to air grievances about the federal government. The time is overdue to implement a functional federal-provincial forum – the Council of Canadian Governments described in “Modernizing Arrangements for Intergovernmental Collaboration“.
Health Care and Climate Change
The federal government’s attempt at a more constructive approach to federal-provincial collaboration – though ad hoc first ministers’ meetings – has run aground most recently with the faltering health-care negotiations at the end of 2016. In the absence of building a constructive, stable national framework for intergovernmental negotiations, however, little progress can be made in either building a coherent consensus on policy and innovation, or improving accountability for the enormous federal fiscal transfers to the provinces. As a result, with respect to health care, the federal health minister, despite her good intentions, was hamstrung when an all-provincial consensus was not forthcoming, and reduced to striking up a string of bilateral federal-provincial deals.
This approach risks leading to an inequitable patchwork of services across the country with the federal government relegated to playing the now-familiar role of ‘Ottawa-as-headwaiter-to-the-provinces’. It means that instead of the federal government taking the lead in forging an intergovernmental consensus that enhances national governance and coherence on any given subject of concern, Ottawa settles for minimal effort and a lowest-common-denominator outcome that satisfies the disparate demands of all provinces.
In the critical area of battling climate change, this incoherence was evident in the carbon-pricing initiative of the federal government which seems headed towards a patchwork of pricing and cap-and-trade systems. Again, without systematic collaboration and co-ordination with the provinces in a harmonized framework, all the positive rhetoric and cautious steps taken by the federal government could be far too easily unraveled by the next government, federal or provincial, elected by a voter backlash against anything that demands more of our already overstretched personal budgets.
Training and Support for Workers
Intergovernmental collaboration is desperately needed to provide more relevant and practical workforce development and improve Canada’s poor record of on-the-job training. The federal government has focused to date on minor tinkering with the Employment Insurance program, for which less than half of today’s workers are eligible, and has made little or no effort in the intergovernmental arena to bring coherence and cohesion to the fragmented, unco-ordinated transfers of some $3.2 billion each year to the provinces and territories for labour market development. There are almost 50 assorted bilateral federal-provincial-territorial agreements currently grouped under four federal-provincial labour market programs broadly devoted to helping various categories of unemployed people get back to work. Measuring accountability, equity, and effectiveness is challenging for officials, let alone the citizens who desperately need to use the programs.
Serious consideration could be given to innovative suggestions such as collapsing these federal programs into a single transfer system to the provinces, territories, and Indigenous governments – one funded from general revenues and allocated according to the provincial or territorial share of unemployed workers in Canada, with a single set of administrative requirements. Provinces and territories would not be allowed to impose residency requirements for individual eligibility for training, and they would have to report publicly on program results. Under this type of system, workers would not have to qualify for EI to use the programs, and EI premiums for both workers and businesses would be lowered.
But even more importantly, we must move beyond the narrow focus on the deficiencies of the unemployed or people requiring training. Almost all programs and policies only target individuals and what they need. Yet the evidence is clear that the companies which invest in their workers and in productivity improvements are the most successful.
We need systemic change with programs and policies that equally focus on employers. In a few instances, there are incentives provided to employers, such as the Canada Jobs Grant program, but this money is used in an entirely transactional way, a one-off bribe to get a worker trained. There is no thought given to how such funding could be used in a transformative way – for example, providing incentives for an employer to partner with other employers in order to achieve economies of scale, and/or to partner with a community college, to develop an ongoing relationship as far as a future talent pipeline might be concerned.
We must improve Canada’s poor record of on-the-job training. Too many Canadian employers are unwilling to invest in long-term internships and apprenticeships. These companies fear that they will lack the ability to protect themselves against attempts by their competitors to poach their interns and apprentices. Our productivity growth rate, our ability to “work smart”, and our level of innovation in the workplace have fallen below those of our competitors. We need to provide incentives for employers to train workers and to invest in productivity improvements for the long term in order to maintain our competitiveness.
Germany’s extensive apprenticeship system and similar initiatives in the Nordic countries, Austria, Italy, the Netherlands, France, and Switzerland have helped to shield these nations from the job shortages associated with the European economic crisis. Apprenticeships are integrated into formal education and students receive a wide range of vocational training in high school. On-the-job training is blended with classroom training. These countries all provide tax credits for enterprises that increase training year-over-year. For example, France has added a payback clause that requires employees to reimburse the employer for the cost of their training if they leave the employer within a certain time period after that training is complete. This was done to offset employers’ fear of losing their investment in their employees.
Canada, regrettably, lacks the kind of social solidarity that exists in many of these European countries, a stability which is based on close collaborative relations between employers and workers, and on a strong consensus in favour of government participation in apprenticeship and training. Citizens in these countries agree on the value of paid apprenticeships and internships, and they are committed to avoiding the outrageous disparities between the pay levels of CEOs and the wages of those on the shop floor that afflict the U.S., the U.K., and, increasingly, Canada.
We need to consider encouraging investment in workers through the Workplace Development Board system used in the US. These regional boards lead sector-by-sector collaboration across businesses, industry, labour unions, educational institutions (usually community colleges because of the emphasis on vocational skills), community and residents’ organizations, community-based employment services, and governments. They can vastly expand on-the-job training by achieving economies of scale. Such co-ordination is a very labour-intensive process that involves consultation, deliberation, and alignment of various individual interests, but it can also deliver great results, especially in identifying employers who are committed to investing in their workers and those who need support for ongoing training and career advancement.
The federal government must take the lead with other levels of government to bring about systemic change in the workplace and among employers. Unfortunately, the prospects are mixed.
Budget 2017 may include some more federal-specific action on EI and skills-training. The federal government’s Advisory Council on Economic Growth has signalled, among other things, that updating skills for the so-called “gig” economy should be a priority, especially for “under-represented groups such as indigenous people, lower-income earners, women with children, and older workers.” The Council proposed that the federal government help fund ($100 million a year for five years) the establishment of an arm’s-length national non-governmental organization – a Future Skills Lab – to “upskill and reskill” workers to keep pace with the rapid pace of technological change and automation. It remains to be seen if this initiative will provide meaningful help to the targeted Canadians. It would appear that the Lab, at a cost of $500 million over five years, could end up functioning more as a device to camouflage a reluctance to undertake the urgent task of co-ordinating and ensuring the effectiveness of the over $3 billion a year in federal transfers to the provinces for training.
The Council also slipped in an unexpected recommendation in its report entitled Tapping Economic Potential through Broader Workforce Participation (February 6, 2017), that “the entire EI system could be reviewed and recalibrated to eliminate labour market distortions). This was a surprising sidebar and it will be interesting to see if, contrary to current expectations and the record to date of the federal government, we do see significant EI reform in Budget 2017.
Curiously, in the same report, the Council also suggested that the government consider both a national child care program based on the Quebec subsidy model, and the Norwegian system of giving parents with children under 12 the right to work part-time or with flexible hours, as a way to boost labour-force participation. This is, of course, a welcome acknowledgment that affordable child care is essential to stabilizing the lives of parents, particularly in precarious or low-wage jobs. Yet the topic has been largely absent from public debate to date.
Sadly, even if Budget 2017 includes a recommendation to “consider” a national childcare program, one is entitled to be cynical about the prospects of it moving beyond a rerun of endless consultations, unless the federal government gets serious about engaging with the provinces in an intergovernmental forum to create a coherent national framework.