Social Welfare Programs in Canada: History, Theory, and Challenges, Slides of Social Work

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Part 4: Public Expenditures in

Canada

Part 2 (Chapters 4-7) provided the justification for government involvement:

1. Public Goods (chapter 4)
2. Externalities (chapter 5)
3. Income Redistribution (chapter 6) As well as a general framework to evaluate any government project:
4. Cost – Benefit Analysis (chapter 7) Part 4 examines major expenditures of different levels of Canadian government

Part 4:

Chapter 10: Social Welfare

Programs

Chapter 11: Employment Insurance

Chapter 12: Public Pensions

Chapter 13: Health Care

Chapter 14: Education

Canadian Public Expenditure

A large portion of government expenditure goes to Welfare, Health Care, and Education:

Welfare and Income Security (23% of government expenditure - 2002) Health Care (10.4% of GDP - 2008) Education (16.1% of GDP - 2009)

Canadian Public Expenditure,

% of GDP

Canadian Public Expenditure

These programs aim to both:

1. Redistribute Income
2. Achieve Goals mandated in Part II

Often these two issues are intermeshed or opposing

There is a great deal of interaction between the various programs

Chapter 10: Social Welfare Programs

84% of Canadians agree that the government should provide a social safety net (Gallup poll,

Issues arise in this “safety net” because:

People disagree about basic standard of living Welfare recipients have increased since 1970’s Some welfare recipients are employable Some think welfare is too high, reducing work incentives

Chapter 10: Social Welfare

Programs

History - Descriptions and Trends

Theory - Welfare Programs and Work

Incentives

Theory - Alternatives to Welfare

Theory – Definitions

Social Insurance

-insurance against adverse effects (unemployment, illness, etc) -mandatory programs not FOCUSED on income redistribution (benefits are paid out regardless of income)

Social Assistance (Welfare)

-provides benefits to low income

History - Welfare Programs:

Descriptions and Trends

The Canadian Constitution gives the provinces responsibility for a VARIETY of social welfare programs

BUT the Federal government plays a DIRECT and INDIRECT role:

Direct:

1. Working Income Tax Benefit (WITB)

2. Canada Child Tax Benefit (CCTB)

3. National Child Benefit Supplement (NCBS)

History - Welfare Programs:

Descriptions and Trends

Indirect:

1966 – the Canada Assistance Plan (CAP) provided 50% of a province’s eligible welfare expenditures (had to meet federal guidelines)

Matching grants were replaced by block grants in 1996

History - Welfare Programs:

Descriptions and Trends

Indirect:

CAP replaced by the Canada Social Transfer (CST) for social programs and post-secondary education

-per capita cash grant) -only condition is prohibiting residency requirements

-CAP was $11.2 billion in 2010/

History – Who Needs Welfare

13% of Canadians were low income in 2009 This varies greatly by group (ie: female single-parent families)

Generally higher unemployment creates higher welfare need because:

1. Some people exhaust EI
2. Some people don’t quality for EI

 But this is not the only factor……  Some argue that wide changes in EI programs have a large effect

Welfare and Unemployment

Although in some time periods (yellow), welfare seems to move with unemployment, in other times (red), it obviously does not

Who Receives Welfare?

-Note that OAS/GIS, CPP/QPP and other programs almost eliminated elderly need for welfare.

Welfare Programs & Provinces

All welfare programs are based on needs:  The need for food, shelter, clothing, house supplies, personal care, and special needs (medical and dental) are assessed  Financial Resources (employment, EI, etc) are assessed  Assets (with exemptions such as furniture, vehicles, home, employment tools and small savings accounts) are assessed

Social assistance is calculated as (Needs-Available Resources)

The following table summarizes maximum provincial welfare (including child benefits, GST credits and provincial tax credits):

Welfare Programs & Provinces

Note that special needs and EI are not included

Welfare Programs & Provinces

Welfare varies widely (by thousands), among provinces and territories: 2009 Single Employable welfare person was lowest at $3,773 a year in New Brunswick and highest at $9,593 in Newfoundland ($15,369 in Yukon to $43,826 in Nunavut)

Variations party due to

Cost of living Provincial finance Different welfare programs Different welfare preferences (politics)

Canada Child Tax Benefit

The Canada Child Tax Benefit (CCTB) in 2011 was $1,348 per year for the first and second child and $1,442 for further children This is clawed back as income increases

The National Child Benefit Supplement (NCBS) targets low-income families with $2,088 per year for the first child, $1,848 for the second, and $1,758 for each additional child  This is clawed back faster as income increases

Is Welfare Enough?

Note that these provincial values are below Stat’s Canada’s Low Income Cut-Off Lines (LICO) 2009 Nova Scotia welfare of a single employable person was 41% of the LICO

Are these amounts enough?

Recall:

The LICO may be above the poverty line; basic needs likely lie below this income level There may be other sources of aid

Is Welfare Enough?

Question:

Should welfare provide a reasonable standard

of living?

OR

Should welfare simply prevent extreme

deprivation?

Theory – Welfare Programs and Work

Incentives

Two Questions dominate the welfare debate:

1. Does welfare reduce work effort and labor force participation?

2. Do generous welfare benefits lead to social assistance dependence?

The following model examines these two questions:

Theory - Labor/Leisure Trade-Off

In economics, time spent working is LABOR, and ALL other time (even chores) is considered LEISURE. A person’s time is divided between labor and leisure in a time budget constraint, where time spent in labor produces income

People gain utility from leisure activities, and utility from income (therefore indirectly get utility from labor) This allows for typical indifference curves on the labor- leisure graph:

Labor/Leisure Trade-Off

-Utility is maximized at the point of tangency E -Here, OF hours are spent on leisure -Here, FT hours a spent on Work, for an income of wFT (w=hourly wage) -Available hours are OT

Welfare w/no Earning Exemption

Assume a simple welfare situation where someone is given $500, which is reduced by $1 for every $1 one earns This occurs if a province does not have a earnings exemption on welfare (BC) This creates a vertical kink in the time budget constraint All points below the vertical portion of this kink are effectively ruled out On the horizontal section, would receive the same income from working as from not working:

-Without the assistance, this person would work OF hours, but due to the assistance, work falls to ZERO

Welfare w/no Earning Exemption