Highlights
- The most heralded advantage is CCB’s contribution to reducing child poverty. From 2016 to 2017, the portion of Canadian children living in poverty decreased from about 11% to 9%. Post This
- The Canada Child Benefit is not specifically purposed for child care, but parents can put the money toward the kind of care that works best for their family. Post This
Canadian parents will find a little extra money in their bank account on July 20. That’s when the monthly “Canada Child Benefit” (CCB) will increase to account for inflation—the second increase in two years. The tax-exempt benefit is based on net household income, with the average family receiving $6,800 CAD ($5,200 USD) annually. Introduced in 2016, the CCB has already been credited for contributing to a decline in child poverty from 11% to 9 percent.1
The CCB has been heralded as a success for a Liberal government seeking reelection this fall. Yet for others, the program is also a success because it puts money in the hands of parents rather than towards a universal, subsidized day care program like the system in Quebec. In fact, the introduction of the CCB in 2016 marked a shift away from a proposed federal universal daycare program the Liberal party campaigned on a decade earlier.
Contributors to this blog have considered options for cash benefits to parents within the U.S. context. In Canada, the CCB is the latest offering in a history of cash benefits to parents implemented by previous Conservative and Liberal governments. Yet the discussion around the CCB also reveals how Canadians think about family policy.
A Brief History of Cash Benefits for Families in Canada
The two-fold purpose of the CCB is to reduce child poverty and to recognize the contribution parents make in raising children. The history of federal family supports in Canada is more complex than space allows here, but in general, the Canadian government has relied on a number of policy approaches for supporting families over the years.
A universal cash transfer called the “Family Allowances” was introduced after the second world war and remained the central policy for decades. During the 1970s, the transfer was scaled back when a refundable tax credit was introduced, indicating a small shift in focus toward low- and middle-income families. The early 1990s also brought significant changes to the federal family benefits regime when the cash transfer was cancelled in favor of several refundable and non-refundable tax credits.2
In the late 1990s, the “Canada Child Tax Benefit” (or CCTB) was introduced. The new benefit was a basic, non-taxable refundable tax credit with an income test applied to higher-income families. At the same time, the “National Child Benefit Supplement” (NCBS) targeting low-income families was introduced.3
In 2006, a newly-elected Conservative government returned to a cash benefit, introducing the “Universal Child Care Benefit” (UCCB), a taxable benefit providing $100 CAD ($88.50 USD 2006) a month per child under age six, regardless of family income.4 The amount per child under six was later increased in 2015 to $160 CAD ($115 USD 2015) a month, and children 17 and under were added at $60 CAD ($43 USD 2015) a month. Then, in 2016, the Liberal government combined the CCTB, NCBS, and UCCB into one new benefit, the “Canada Child Benefit,” a generous tax-free monthly benefit given on a per-child basis that phases out with increasing income levels.5
How the CCB Works
The CCB works in conjunction with provincial benefits, and the “Child Disability Benefit.”6 The CCB is non-taxable and adjusted to inflation. On July 20, 2019, the maximum CCB amount per child under six will be $6,639 CAD ($5,058 USD), and $5,602 CAD ($4,268 USD) for each child aged six to 17.7
The CCB focuses on low- and middle-income households and begins progressively phasing out payments as household incomes increase above $30,000 CAD ($22,900 USD) annually. Despite the phase-out, 90% of households receive the benefit.8 The complete phase-out depends on the number of children. For a family with one child under age 6 and one over age 6, the complete phase-out is around $190,000 CAD ($ 145,000 USD). In total, the federal program gives $23.7 billion CAD ($18.1 billion USD) in CCB payments to 3.7 million families annually.9 The CCB accounts for about 7% of the projected 2019 federal budget in Canada.
The Canadian government reports that single parents are among the families receiving the largest benefit amounts.10 For example, a single mother of two children aged 5 and 8 with a net income of $35,000 in 2016 would have received $11,125 in CCB payments in 2017-2018.11
Advantages of Canada's Child Benefit
In addition to its popularity, the CCB has some distinct advantages. The most heralded advantage is the benefit's contribution to reducing child poverty. From 2016 (the CCB was implemented part way through the year) to 2017, the portion of children living in poverty decreased from about 11% to 9 percent.12 While a number of factors likely contributed to the reduction in child poverty, the CCB was a key reason.
The program also boosted the economy. Bank of Canada Governor Stephen Poloz suggested the CCB, “has been highly stimulative. You can see that in the consumption figures. So, we would not be where we are today if that had not occurred.”13
The cash benefit also provides families with flexibility in choosing child care. The CCB is not specifically purposed for child care, but parents can put the money toward the kind of care that works best for their family. A decade earlier, the federal Liberal party campaigned on a national universal day care plan, but the introduction of the CCB suggests the party has changed course. Funding for both the CCB and a national day care program seems unlikely for a government projecting a nearly $20 billion CAD ($15.2 billion USD) deficit.
Child care is a perennial provincial policy issue with the federal government promising to transfer about $7.5 billion CAD ($5.7 billion USD) to the provinces over the next decade. Advocates point to Quebec’s low-fee, high-subsidy universal system as an ideal model for increasing workforce participation among women. Yet child outcomes associated with the program remain poor. Public onion polls suggest Canadians prefer alternative child care options to center-based care14 and recent Statistics Canada data suggests only about half of parents who rely on non-parental care currently use center-based care or preschool programs.15 The CCB provides parents with greater flexibility in their child care choices, compared to a one-size-fits-all universal system.
Another benefit is that the CCB simplifies the benefit structure for parents, combining the CCTB, the NCBS geared to low-income families, and the UCCB.
Disadvantages of Canada's Child Benefit
Despite these advantages, some critics argue that the CCB may discourage increased labor force participation. The CCB phases out as household income increases, creating a double penalty for families who increase labor productivity and income. Income growth increases tax liability, while the CCB is clawed back at the same time. Alex Laurin of the C.D. Howe Institute argues that the claw back acts as a hidden tax, reducing gains from work.16 The Marginal Effective Tax Rate may discourage some families from taking on additional labor force participation.
Similarly, the CCB creates a disincentive toward marriage or partnership because it is based on household income. At the federal level, couples are considered spouses for the sake of tax and benefits after 12 months of continuous co-residency, or any length of co-residency with a child together through birth or adoption. While there are some tax advantages for Canadian married couples, increased household income resulting from marriage or partnership reduces CCB payments, which could discourage marriage.
Unfortunately, current Canadian public discourse on issues of poverty or social mobility rarely consider the role of stable, healthy marriages, or the presence of marriage penalties in family policy.
Conclusion
The introduction of the CCB simplified aspects of the family benefit structure, providing a generous, tax-free federal benefit credited with reducing child poverty in Canada. The program signals a shift away from previous policy debates around a federal universal daycare program.
Aimed at low-income and middle-class families, the CCB is geared toward income and phases out as household income increases. The result is a claw back in benefits in addition to increased tax liability as household income grows. The benefit also penalizes marriage and partnership when family changes result in increased household income. Decades of research demonstrates the correlation between marriage and positive outcomes for children. Policymakers must be careful that programs don’t discourage social institutions, like marriage, that strengthen families and communities.
Canada has a long history of using cash transfers and tax credits to support families. The degree to which the CCB has contributed to poverty reduction has to be weighed against the possible disincentives toward work and marriage. Many questions remain regarding the three-year-old policy. Does the benefit help stabilize families? Does the CCB influence family formation? Is the projected growth of the program sustainable?
In the meantime, the program is popular with parents, and both the Liberal and Conservative parties can lay claim to the heritage of cash transfers to parents, meaning the CCB will likely be part of the family policy landscape in Canada in some form for the foreseeable future.
Peter Jon Mitchell & Rachel DeBruyn are with Cardus, a non-partisan, not-for-profit public policy think tank that conducts independent and original research, produces several periodicals, and regularly stages events with Senior Fellows and interested constituents across Canada and the U.S.
1. Statistics Canada, Government of Canada, “The Daily — Canadian Income Survey, 2017,” February 26, 2019.
2. Peter Burton and Shelley Phipps, “Economic Well-Being of Canadian Children,” Canadian Public Policy 43, no. 4 (November 16, 2017): 299–330.
3. Burton and Phipps.
4. Burton and Phipps.
5. Burton and Phipps.
6. Canada Revenue Agency, “Child Disability Benefit,” Service Description, September 11, 2008.
7. Canada Revenue Agency, “Canada Child Benefit,” Guidance, June 22, 2017.
8. Janyce McGregor, “5 Questions about the New Canada Child Benefit, Answered" CBC News,” CBC, July 11, 2016.
9. Jolson Lim, “Liberals’ Child Benefits to See Indexed Boost This Summer,” IPolitics(blog), May 6, 2019.
10. Department of Finance Canada, “Backgrounder: Strengthening the Canada Child Benefit,” fact sheet, March 27, 2018.
11. Department of Finance Canada.
12. Government of Canada, “The Daily — Canadian Income Survey, 2017.”
13. CTV News, “Bank Governor Credits Liberal Stimulus with Stronger Economy,” CTV News, July 12, 2017.
<14. Andrea Mrozek, “Canadian Daycare Desires,” Cardus (blog), May 23, 2013.
15. Statistics Canada, “Survey on Early Learning and Child Care Arrangements, 2019,” April 10, 2019.
16. Alexandre Laurin, “Two-Parent Families with Children: How Effective Tax Rates Affect Work Decisions,” E-Brief (Toronto, Canada: C.D. Howe Institute, January 9, 2018).
