Cheques in the mail

A few weeks ago, the Canada Revenue Agency sent my family our 2006 Canada Child Tax Benefit (CCTB) paperwork. At the time, what struck me was no mention whatsoever of the new Harper government’s “child care” allowance. This seemed a major omission and I wondered if we would have to fill out some more paperwork to get our $100 a month (before taxes). But the next week, we got our first cheque in the mail – I mean, my wife got a cheque in the mail. Ching ching, it’s beer and pizza time (just joking, I do not drink beer).

What I like about the new Universal Child Care Benefit (UCCB) is that it is universal – everyone with small children gets it. There was a time long ago when the War on the Deficit (remember that?) put an end to universal benefits. The then-Mulroney government ended the Family Allowance and this transfer morphed into the Canada Child Tax Benefit (and its accompanying low income add-on, the National Child Benefit). This became the new middle ground between universality on the one hand and means-tested benefits on the other. Economically speaking, there is good reason to have a program design like the CCTB. You get the full amount up to a threshold then it phases out slowly so that about 90% or so of families get something. This approach better targets funds while ensuring a wide range of buy in.

Still, there is something about the notion of universality that I find appealing. All those years ago, the left fought against the end to universality. And so here we are with the Harper government essentially restoring universality and the old Family Allowance (calling it “child care” is deceptive because there is no obligation to spend it that way).

There are, of course, some important caveats to universality. The Caledon Institute points out:

First, the UCCB will be taxable in the hands of the lower-earner parent in the case of couples or the parent in one-parent families.  As a result, different types of family with the same income will pay different amounts of federal and provincial/territorial income taxes on their $1,200 annual payment and so will receive different after-tax benefits.  Single-parent families typically will end up with the smallest after-tax benefits from the new program.  Second, to help pay for the new scheme, the Canada Child Tax Benefit’s $249 annual young child care supplement – used mainly by low-  and modest-income families – will be axed.   The resulting distribution of net benefits (i.e., after the loss of the young child supplement and income tax increases) will be irrational, confusing and unfair.  No family will end up with $1,200. The largest net benefit – $971 – will go to upper-income one-earner couples, while those on welfare will get $20 less.  Working poor families will get less than those on welfare, so the Universal Child Care Benefit will raise the welfare wall.

Because it is taxable in the hands of the lower-income parent, this leads to a perverse outcome where the more that parent actually works, and has income that moves into higher tax brackets, the less they get of the $100. So the more your family actually uses child care, the less you get. The UCCB is indeed perversely named.

These design issues make this benefit less universal than it could be if the funds were given as a non-taxable benefit. That is, if that money were simply added onto and harmonized with the existing CCTB system. When this was debated in the last election, it was always made out as a rationale for the UCCB (then called the Choice in Child Care Allowance) that stay-at-home moms got nothing. This was not true: they got the CCTB.

Alas, this is not really about child care, it is about politics. Which brings me to a question for an intrepid journalist: my wife’s cheque came with a form for future direct deposits of the new UCCB, even though we already get the CCTB through monthly direct deposit; how much is it going to cost to set up a few million households on direct deposit (plus the cost of sending the cheques) when a direct deposit structure is already in place? I can only suspect that this approach was taken to maximize the political benefit from the UCCB; otherwise, many families may not have noticed.

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