Parents will receive an increase in the Canada Child Benefit (CCB) this month. The program has been widely credited with reducing child poverty, yet the benefit is not without challenges.
The cost-of-living adjustment boosts the maximum compensation for a child under age six to $6,639 annually and maximum compensation for children between the ages of six and 17 to $5,602.
Implemented in 2016, the CCB is a tax-free cash transfer based on net family income. The program is targeted at low- and middle-income families, with a progressive phase-out starting at a net household income of about $30,000. Even with the phase-out, about 90 per cent of families with children receive the benefit, with the average family set to receive $6,800 annually.
The CCB is credited with serving as a key contributor to a decline in the portion of children living in poverty from 11 per cent to nine per cent in 2016 and 2017. The Bank of Canada also praised the program for helping stimulate the economy.
Based on these results, the policy has been an early success.
In addition to tax-free cash, parents appreciate the CCB because it’s easier to understand and simplifies the benefit process. Households receive a monthly payment that isn’t taxed back, so they know exactly how much they’re getting.
Parents can use the funds as they see best. This includes choosing the form of child care that best works for their family – whether by relatives, nannies, home-based or centre-based providers.
Cash to parents is a better alternative to universal child care programs that fund spaces rather than children, and reduce choice by benefiting only some families. Giving money straight to parents also helps offset lost income in families where a parent chooses to care for children.
While the CCB has been successful, there are potential challenges.
Some critics suggest the CCB discourages increased participation in the labour force. Alexandre Laurin of the C.D. Howe Institute argues that the progressive clawback of the CCB acts as a hidden tax, reducing gains from work. As household income increases, families pay more tax, while their CCB decreases. This double hit may reduce gains from employment.
The benefit may have another unintended challenge few Canadians talk about. The CCB has a built-in disincentive toward marriage and partnership because these changes in family structure can increase family income, reducing the CCB payout.
Stable, healthy marriage provides economic and social benefits for adults and children. A large body of research shows positive outcomes for children in married parent families. Governments need to be careful that benefits don’t discourage social institutions that strengthen families and communities.
Canadians hold diverse views about the role of government in the lives of families. Opinions vary on whether governments should provide cash payments or how benefits should be structured. While generous cash benefit programs like the CCB help families, they can also create dependence. After all, as quickly as programs can come, they can be scaled back.
The CCB distributes about $23.7 billion to 3.7 million families annually. The government projects these costs to increase; meanwhile, the federal deficit is projected to be nearly $20 billion this year. Will the increasing costs of the CCB be sustainable over the long run?
If the program were ever scaled back, low-income families would feel it the most.
The purpose of the CCB is to decrease child poverty and recognize the contribution of parents in raising children. Evidence suggests the program is meeting these goals, while making the system easier for parents to navigate and giving them the freedom to choose the kind of care they desire for their children.
Nevertheless, when we think about policy, we must be cautious not to build supports that discourage the social institutions that strengthen families and communities.
No policy is perfect. Canadians will need to weigh the benefits of the CCB – including the reduction of child poverty – against possible disincentives and vulnerabilities within the program.
In the meantime, Canadian parents can expect a little more money in their CCB payment this month.
Peter Jon Mitchell is the acting program director of Cardus Family.