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The Progressive Economics Forum

Mr. Dion’s Anti- Poverty Plan

I’m a big fan of setting clear and attainable targets and timetables to eliminate poverty, and applaud last week’s Liberal Party commitment to reduce the number of those living in poverty by 30% and the numbers of children living in poverty by 50% within 5 years. http://www.liberal.ca/story_13293_e.aspx

Clear targets and timetables have recently been called for by the National Council of Welfare and by Campaign 2000 with the laudable aim of keeping governments’ feet to the fire, and have clearly played a significant role in sustaining tangible reductions in poverty in the UK and other countries, as detailed in a good new Campaign 2000 policy paper. http://www.campaign2000.ca/res/dispapers/summoned_to_stewardship.pdf

That said, I have a couple of major quibbles with the metric for the poverty reduction target which has been embraced by Mr. Dion and the Liberals, namely incidence of poverty as measured by the Statistics Canada after-tax LICO (LICO-AT.) My preferred metric would be the poverty gap measured in dollars relative to a consumption-based poverty line such as a reformed Market Basket Measure of poverty. (MBM)

This might seem like a boring, technical, policy-wonkish kind of point. But we need a target that will register progress in implementing good progressive policies that work to improve the lives of low income Canadians, and incidence by the LICO-AT just won’t do that. It could, in fact, discourage measures to boost the incomes of the very poor, and will register no progress at all to the extent that we address poverty through increased investments in affordable child care and affordable housing programs.

Any poverty line is arbitrary and the LICO-AT does a reasonable job of tracking changes in income poverty over time. Effectively it defines poverty in terms of a household having an income which means that much more than average has to be spent on the necessities of life – a compromise between a consumption or bare necessities of life standard, and a pure relative income standard such as having an income below half or two thirds of the median for a household of the same size. (As an aside, a consumption based standard is often miseladingly described as an absolute measure , but any consumption standard has to be set relative to the consumption norms of the society in which a person lives. Even the absurdly frugal Fraser Institute poverty line is explicitly set relative to Canadian consumption norms.)
The problem with defining a poverty reduction TARGET by exclusive reference to the numbers living below a line is that we totally fail to take into account the depth of poverty. As Amartya Sen has argued for years and as Lars Osberg has long argued here in Canada, poverty depth is at least as great a problem as poverty incidence. The quickest, cheapest and simplest way to cut poverty as measured exclusively by incidence would be to modestly increase the incomes of those just below the line, while ignoring those well below it. Sen even noted that we could make great but obviously illusory progress in the war on poverty by taking income from the very poor and giving it to the just poor, pushing the latter over the line and thus cutting the poverty rate while increasing the depth of poverty of the very poor.

While this may seem a wonkish point, as Campaign 2000 detail in their most recent report card on child poverty in Canada, the incomes of low income families with children are well below the LICO-AT poverty line – by an average of $9,400 in the case of single parent families, and by $10,400 in the case of two parent families. Increasing social assistance benefits would raise the incomes of many single parent families with young kids, not to mention those of adults with disabilities who can’t work on a continuing or regular basis, but would have virtually no impact on the poverty rate for children or persons with disabilities. By the same token, raising minimum wages (not on Mr. Dion’s list of anti poverty measures, by the way) or increasing refundable child benefits would lift the incomes of many working poor households, but this would be only incompletely captured by the impact on the numbers of people living below the poverty line.

The key point here is that we need to target a reduction in the poverty GAP – the total amount by which the incomes of poor households fall below the poverty line. Any measures which boost the incomes of poor households will lower the GAP, but not necessarily the numbers living below the line. (As an aside, the elimination of the GAP is a surprisingly affordable proposition. The annual revenue cost of cutting the GST rate by one percentage point – $6 Billion – would completely eliminate the poverty gap for children, according to Campaign 2000 based on CCSD research.)

The second point is that the even the poverty GAP measured relative to the LICO-AT would not capture progress in addressing poverty through supports and services as opposed to cash transfers. For years, anti poverty activists have been calling for more affordable housing and affordable child care. Housing and child care are obviously huge expenses for most working and non working poor families with children, and any reduction of these costs through good public policies would mean huge improvements in the lives of low income people. But these improvements would simply not be captured by changes in the incidence of poverty based on the LICO-AT if policy took the form of delivering in kind benefits as opposed to cash benefits. A rental subsidy paid in cash would count, but not access to a subsidized co-op or rental unit. A child care subsidy would count, but not access to a subsidized and affordable child care space.

At best, we would fail to capture the impact of good anti poverty policies. At worst, we would create a bias for governments to address poverty exclusively through cash transfers. Mr. Dion’s speech made almost exclusive reference to such transfers.

This is a difficult issue to resolve, but consumption based measures of poverty such as the Market Basket Measure (MBM) of poverty developed by Human Resources and Social Development Canada could be tweaked or supplemented to take into account the actual living costs of low income households so that development of the in kind services and supports we want was captured. The MBM did attempt to capture actual child care costs paid by low income families with children, and was designed to be sensitive to actual community housing costs as opposed to the nation-wide averages captured in the LICO-AT.

By way of conclusion, we are making some real progress in moving poverty reduction and elimination up the public policy agenda. The efforts of Campaign 2000, the National Council of Welfare and others are pushing politicans to adopt clear targets. But we need to do the hard work of developing measures which will capture real progress in implementing a progressive agenda.

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Comments

Comment from Michael Mendelson
Time: November 15, 2007, 9:26 am

Important and useful comment Andrew. This is an estremely important topic. I think you might be overstating the capacity of the MBM to take into account items such as child care, but perhaps not. In any case I just wanted to point out to those who might be interested that I have a long essay on this topic available (free) on the Caledon Web site. The essay focuses on children, but it is really about the wider issue of how to measure poverty:
Measuring child benefits: Measuring child poverty
Michael Mendelson, February 2005

Comment from Lars Osberg
Time: November 15, 2007, 11:14 am

Why so modest a goal for poverty reduction?
If we take the poverty line preferred by M. Dion (the LICO-AT), CANSIM data tell us that the TOTAL poverty gap in Canada in 2005 was $13.715 Billion -i.e. it would take $13.7 Billion per year to completely eliminate poverty for all Canadians. This number should be compared to the $60 Billion (over 5 years – i.e. approx $12 Billion per year) in tax cuts recently enacted by the Harper government – i.e. it is a big number, but one well within the range of the transfers of resources which Canadian governments have done, and done recently. So why is Dion aiming at such a modest change, over 5 years?
(see v25746677 Canada; Low income cut-offs after tax, 1992 base; Aggregate low income gap (Dollars); All family units)

Comment from Tony Martin NDP Social Policy critic
Time: November 16, 2007, 8:23 am

Thank you, Andrew. Thoughtful, provocative commentary as usual.

In the HRSDC Estimates Performance Report tabled last week, the government acknowledges the growing prosperity gap between the top and bottom 20 per cent income groups and how the new wealth generation has gone principally to the top one per cent. (page 20). Interestingly, the performance report later introduces and trumpets a new Scorecard at HRSDC to measure the Department’s performance results; in doing so, HRSDC cites the importance of indicators and having a plan to get results. But they have no plan, and no indicators, for reducing poverty or dealing with the prosperity gap. That is what is wrong with government policy. That is what is wrong with the Dion Liberal plan, along with no details on how a poverty-reduction strategy that must include affordable housing and quality child care would be financed alongside steep Liberal tax cuts for corporations.
Tony Martin
MP Sault Ste. Marie
NDP Social Policy Critic

Comment from Erin Weir
Time: November 16, 2007, 11:33 pm

I completely agree that, if we are going to have a target-setting exercise, we should set the right targets. However, I am reminded of a statement by Al Blakeney to the effect that we do not need a perfect definition of poverty to greatly reduce it.

Dion’s focus on poverty targets is similar to the Liberal approach to greenhouse-gas emissions. The issue should not be establishing targets, but enacting measures to achieve such targets. Tom Axworthy, a Liberal insider, acknowledged this “implementation gap” but tried to blame the civil service rather than a lack of political leadership.

Ultimately, Dion’s espousal of poverty targets is almost impossible to square with his advocacy of massive tax cuts. As Lars notes, the money used to finance the Economic Statement’s tax cuts could have eliminated poverty in Canada (by one measure). Even the Liberal press release unveiling the poverty targets calls for yet more tax cuts, and not just for poor people.

Comment from Mary McEachern
Time: November 19, 2007, 3:23 pm

I agree with providing infrastructure such as child care, housing, public recreation facilities and child dental services, free up to age ten. Tax cuts do not abolish poverty. Equal opportunities go farther.

Comment from John Stapleton
Time: November 20, 2007, 11:59 am

Any political party or government intending to measure and then alleviate poverty may do well to pick a number of publicly understandable measures, e.g. full time minimum wages, full time wages at $10.00 an hour, MBM’s, LIMS, LICO’s AT, some composite families for before and after comparisons, Sarlo’s destitution line and use all of them as a basket of measures in order to assess progress. As Andrew notes and as most realize, no one measure does the whole job on incidence or depth of poverty. In this way, all progress can be reasonably assessed and come to think of it, in today’s environment, any progress in alleviating poverty is worth celebrating.

Comment from Michael Mendelson
Time: November 28, 2007, 8:24 pm

Redistribution can only go so far in reducing poverty: one also has to look at the primary distribution of income through the labour market, returns to capital and even non-market distributive issues such as race discrimination and intra-family distribution. If the primary distribution of income becomes increasingly unequal or leaves large groups out in the cold, government redistribution will only be struggling to fill a hole that gets bigger and bigger. The result will be a sense of futility and ‘failure’ of ever larger government expenditures. I make this comment because it seems that all the contributions so far have mentioned only government transfers and services. We also need to consider the ‘regulatory’ side that effects the primary distribution; issues such as monetary policy, unionization, minimum wages, equal pay and on and on. If monetary policy effectively prevents wages from ever climbing higher than CPI (although not from falling lower) what are the implications for poverty reduction targets?

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