There was a bit of a mystery surrounding Ottawa’s changes to the Canada Workers Benefit, unveiled in the economic and fiscal update earlier this month.
The Liberals tweaked the structure of the tax credit, aimed at helping low-income workers. Starting next year, all workers who qualify for the program based on their income in the previous tax year will receive advance payments every three months, rather than a lump sum after filing their taxes. (The advance payment option, for up to half of annual benefits, already exists as a voluntary measure, but few recipients have taken advantage of that feature.)
But what looked to be an administrative tweak came with a hefty price tag: nearly $4-billion over four years, including $750-million in fiscal 2023-24. Certainly, front-loading payments should create an initial bump in expenses, but that should have also resulted in lower costs in subsequent years.
Last week, a report from the Parliamentary Budget Officer solved the mystery – the government has also quietly introduced a radical rewiring of how the benefit works. The CWB is an income-tested benefit, meaning that payments are reduced after a recipient’s income reaches a certain point ($22,944 for an individual receiving the CWB).
For anyone receiving a lump-sum payment after filing taxes, those reductions would likely not have registered – you don’t miss what you never had in the first place. The relatively few CWB recipients that opted for advance payments could, however, end up having to repay some of their benefits if their income rose.
That requirement was in line with how most federal benefits work; if your circumstances change, and you were paid benefits to which you weren’t entitled, you’ll be asked to pay them back. The goal is to make sure that there is a uniform standard for calculating benefits; it is a bedrock principle of equity.
But the Liberals are scrapping that requirement for repayment as they introduce universal advance payments for the CWB – and in the process, they are ignoring the fundamental principle of equity.
“Not requiring repayment of federal benefits for ineligible individuals is a pronounced departure from the existing federal tax and transfer system,” the PBO report notes dryly.
It sure is. Imagine, for a moment, two people. One earns $22,000 in 2022, making them eligible for the full Canada Workers Benefit, currently worth $1,395, in 2023. The second earns $33,000 in 2022. That’s not a very high income, by any stretch, but it’s too high to qualify for any CWB payments in 2023.
Now, imagine that the first worker gets a new job, and ends up in the happy position of seeing their income jump to $33,000, matching that of the second worker. Under the old rules of the CWB, that first worker would have to repay any advance benefits.
That will no longer be true under the new rules proposed by the Liberals. Now, the first worker will get to keep all of their advance payments. And the second worker, with an identical income, gets nothing.
Only half of the annual benefit is paid out before tax-filing season, so it appears that there would be some scope to reduce the fourth and final payment to account in part for a recipient’s rising income. (And the increased cost estimates for the program clearly show that the government expects there to be a significant increase in benefits paid.)
The waiving of repayments makes no sense, and as the PBO notes, it has no parallel in any other federal program. But the Liberals’ seeming generosity is part of an emerging pattern from Ottawa of waiving repayment of COVID-19 benefits on fairly slender pretexts.
One of the most obvious was the decision to not require repayment from recipients of the Canada Emergency Response Benefit who claimed they had not understood the difference between having $5,000 in gross versus net qualifying income. Evidently, there was a group of people who were a} sufficiently sophisticated to use deductions to reduce their gross self-employment income to avoid paying taxes but b) had no idea of the difference in the meanings of gross and net.
The changes to the CWB might seem like a generous gesture on Ottawa’s part to help out the working poor, but in fact, it’s grossly unfair to other low-income Canadians in similar straits but who won’t be able to access the CWB. And, it’s a shoddy precedent for public policy.
Taxing questions
One reader challenged the dim outlook for Canada’s productivity growth in last week’s newsletter, noting that this country’s gross domestic product is predicted to expand faster in 2022 than some other Western countries. Because of that, Canada has nothing to learn from other countries, the reader contended. But another reader challenged that challenge, noting that the economy can grow even if productivity is stagnant.
The first reader is only narrowly correct; the second provides a much better assessment. It is true that Canada is projected to lead some of its advanced-economy peers in GDP growth in 2022. A September report from the Organization for Economic Co-operation and Development forecast that Canada, with GDP growth of 3.4 per cent, would outstrip average growth of 2.8 per cent for the G20. But that gap narrowed from an earlier forecast. In addition, Canada lagged the G20 average last year, and is predicted to lag it again in 2023.
So, Canada’s economic laurels are exceedingly slight.
As the second reader noted, higher economic growth isn’t necessarily derived from higher productivity. If Canada’s work force and gross domestic product both grew by 10 per cent, the economy would clearly be larger. But productivity would not have changed.
It’s the difference between fuel efficiency and the amount of gasoline you put in your vehicle. Increasing either one will allow you to drive further. But simply filling up your tank does nothing to improve efficiency.
Line Item
Higher hiring: Ottawa’s hiring spree will continue in coming years, says a new report from the Parliamentary Budget Officer. The ranks of the federal civil service are predicted to hit 409,000 full-time equivalent positions in fiscal 2026-27, up nearly 20 per cent from 342,000 in 2015-16, the final fiscal year of the federal Conservative government. The PBO projects that the cost of those public servants will rise more than twice as fast as the number of FTEs, increasing to $59.1-billion in fiscal 2027 from $39.6-billion in fiscal 2016 – a 49-per-cent jump.
Follow me on Twitter, @PatrickBrethour or ask your Taxing Question here.
Patrick Brethour