If you're going to shake more money from the wealthy to improve tax fairness and help the middle class, using it to fund programs like the Canada Child Benefit is the way to go.
The Liberals used this week's annual economic update to introduce an improvement to the CCB, which is a quiet difference-maker for middle- and low-income families. It's hard to understand why this announcement wasn't made at the same time the government said it wanted to change the way small business and private corporations are taxed to put them on a more even footing with other taxpayers.
Starting in July 2018, CCB benefits will be increased annually to keep up with a higher cost of living. This lines the program up with the likes of the Canada Pension Plan and Old Age Security, both of which adjust payments from year to year to account for inflation. Also announced in the update was an enhancement of the working income tax benefit, which is aimed at low-income people who are in the workforce.
The maximum CCB benefit provides monthly payments totalling $6,400 per year for a child under age six, and $5,400 for a child aged six to 17. The government says that indexing benefits to inflation will increase the annual amount for young children to $6,496 in 2018-19 and $5,481 for older children. Projected payments for 2019-20 are $6,626 for young children and $5,591 for older ones.
The CCB currently pays the maximum benefit to families with net income (that's gross income minus deductions for things like contributions to registered retirement savings plans) of less than $30,000; indexing will bring this threshold to $30,450 next year and then $31,059. Benefits decline to zero as family income rises.
The parties affected by the tax changes for small business and professional corporations were strong in their opposition and forced the government to change some of its proposed measures. The people who benefit from the CCB haven't been heard from, but they're out there.
The federal government claims that the CCB has helped lift 300,000 children out of poverty, but this number is considered by some to be exaggerated. Regardless, the CCB puts thousands of dollars per year into the hands of parents struggling to pay mortgages or rent plus the cost of daycare and their children's needs and activities.
The beauty of the CCB for recipients – where it beats predecessor programs – is in the fact that it's tax-free. What you get is what you keep. At tax time, there are zero issues because you don't have to report the CCB as income.
The flaw, if you want to call it that, comes from the fact that previous programs paid money to high income families as well as those in the middle and low end of the earnings scale. Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, has estimated that Ontario families started to receive less than they did under the old system once their net income hit $150,000.
Some well-off families were able to take their child benefits and invest them in registered education savings programs (RESPs), where annual contributions of up to $2,500 receive a matching 20 per cent federal grant. Turning Canada Child Benefit money into RESP contributions is smart, but the CCB is most needed by families that probably can't afford to put money away for their children to attend university or college.
The CCB is enough of a difference-maker to have positively affected the economy in the past year. Economists say it has boosted economic output by a small but significant amount, and Bank of Canada Governor Stephen Poloz has said the program may have encouraged stay-at-home parents to return to the workforce by helping to cover daycare costs.
Increasing CCB benefits to offset inflation helps keep the program relevant to families. It also offers some evidence that the government isn't just talking about tax fairness and helping the middle class. Reforms finalized last week will limit the ability of wealthy people to enjoy certain tax advantages, while benefits to families in the low and middle brackets are being increased. The two initiatives should have gone together from the beginning.