Prime Minister Justin Trudeau speaks with some children during a visit in Toronto in March. The parliamentary budget officer said on Sept. 1, 2016 that fewer families will receive benefits in the long run because the new Canada Child Benefit is income-tested, but the income thresholds are not indexed to inflation.Peter Power/The Canadian Press
Over the next five years, the number of families eligible for the Liberal government's new child benefit program will decline as inflation pushes their incomes higher, Parliament's budget watchdog says.
In a report released Thursday, the parliamentary budget officer said the benefit doesn't automatically adjust for inflation, which means the number of families who qualify will decline in the long run.
While 91 per cent of families, or almost 3.6 million, are eligible for benefits this year, that proportion will fall to 86 per cent, or about 3.4 million, by 2021 and will continue to drop as some families see their income levels rise, the report said.
That could change, however, as the Liberals intend to index the Canada Child Benefit to inflation — meaning that over time, inflation won't reduce the buying power, or so-called "real value," of the monthly payments — starting in 2020, one year after the next federal election.
Dan Lauzon, a spokesman for Finance Minister Bill Morneau, said the move to index the cost of the benefit would ensure that "families can count on this extra support now and well into the future."
By waiting until after the election to index the benefit, the Liberals could be saving themselves billions of dollars. The PBO calculations estimate that over the next five years, the net cost to the federal treasury will be $17.2 billion, instead of the $42.4 billion the PBO estimates it would cost if the benefit kept pace with inflation and rising incomes.
Absent any changes to the program, the PBO predicts that by 2025, the new Liberal benefit will cost less than the three programs it replaced — the universal child care benefit, the Canada child tax benefit and the national child benefit supplement.
The new program is expected to cost the government $22.4 billion next year — its first full year. The report says that in five years, that number falls to $21.5 billion, as lower-income families move into higher income brackets and see the value of their benefits decline.
The opposition parties accused the government on Thursday of playing politics with family benefits, questioning whether the Liberals would follow through on their pledge to index the benefit given the government has put off balancing the budget until after the 2019 election.
"We have seen previous governments who have gone back saying ... well, we've looked at what our numbers are and we can't sustain this," said Conservative families critic Karen Vecchio.
"If it is indexed, of course, we're going to be once again spending billions and billions on an unsustainable program. So for me, whether it was indexed or not indexed, this is definitely not a flawless program. So it's very concerning because I don't think it was ever thought out as it should have been."
NDP finance critic Guy Caron said the more generous benefit program will end up costing the government more in the long-run than had the Liberals started with slightly lower benefits and raised them over time, he said. Instead, families are likely to receive less over time, he said.
"My feeling is that it was a political choice to actually look good, but in the end we will be facing problems we would not have faced with the previous set of systems," he said.
The new benefit, a central plank in last year's Liberal election platform, kicked in on July 1. The government says the new benefit provides the average family with $2,300 a year per child, with a maximum of $6,400 per child under six going to families with net incomes of less than $30,000.
The value of the benefit drops as incomes grow, phasing out entirely around $189,000, according to the government's online benefits calculator.
The PBO report acknowledges that the number of families who qualified for the original benefits also declined somewhat over time, since incomes tend to grow faster than inflation.
The Liberals say the benefit will cut the child poverty rate in Canada to 6.7 per cent from 11.2 per cent by this time next year, once families feel the full effect.