Now, even a bank slams workfare
TD report pokes holes in welfare and EI reforms, offers new blueprint for safety net
The worm turns. Old ideas gain currency again. Now, even hardheaded business people are beginning to realize that taking a sledgehammer to the welfare state was a bad, bad idea. The latest evidence is a remarkable paper released yesterday on how Canadian governments should deal with welfare, poverty and unemployment. The conclusions of the paper are not in themselves remarkable: the authors point out that former Ontario premier Mike Harris’s workfare scheme didn’t work and that the 1995 decision by former federal finance minister ( and now Prime Minister) Paul Martin to gut the employment insurance system made matters even worse. Many have said that. The paper’s authors also recommend a concerted federal effort to expand and reform the social safety net so that the very poorest are guaranteed enough to live and the working poor get a little bit extra. We’ve heard these ideas before, too. What is remarkable is the report’s provenance. It was written by the TD Bank Financial
Group, a big, rich bank. And it appears destined to form the basis of recommendations that a joint panel of business, labour and anti- poverty activists is to present to federal and provincial governments next month.
Specifically, the TD report, authored by the bank’s chief economist, Don Drummond, and fellow economist Gillian Manning, analyzes the problems with the Ontario Works workfare scheme introduced by Harris in 1995. Harris’s welfare cuts and reforms were immensely popular with Ontario voters, so much so that when Dalton McGuinty’s Liberals took power in 2003, they decided to alter them only slightly. The McGuinty Liberals did raise welfare rates for the first time in eight years, but only 3 per cent. They also made some changes to reduce the hefty penalties that discouraged welfare recipients from getting jobs. The TD paper gives the McGuintyites faint praise for those moves, but notes that “ on balance we can’t give the final result a high grade.” The reason, Drummond and Manning say, is that Ontario’s system is still fatally flawed. It’s too hard to get welfare. ( They blame the former NDP government of Bob Rae for that, as well as the Harris Tories.)
In fact, they conclude, welfare rolls declined in Ontario during the ’ 90s not because the Harris reforms encouraged social assistance recipients to seek work, but because benefit criteria were made so strict, most poor people simply couldn’t qualify. But their main critique of Ontario workfare is far deeper.
First, it fails at a fundamental level: It doesn’t encourage social assistance recipients to seek work. That’s because the system overly penalizes anyone on welfare who starts to earn income. Under the original Harris scheme, a welfare recipient who earned a dollar could lose more than a dollar in benefits. Now, even with McGuinty’s changes, a social assistance recipient earning a dollar loses 50 cents in benefits, the equivalent of a 50 per cent marginal tax rate. Usually, only the very well-to-do have income taxed so severely. But the second, and much more insidious problem, the paper concludes, is that welfare is being asked to do too much.
It is no longer the last resort for those who have run out of options. Instead, the authors say, government cuts in other areas of social spending have turned provincial welfare systems into “ providers of first resort.” Welfare systems are being asked to fill the gaps left by the lack of affordable child care, dental care and drug coverage. They are also being asked to fill in for an employment insurance system that, for reasons both deliberate and circumstantial, no longer covers most people who are out of work. The deliberate reasons date back to the mid-’ 90s when thenfinance minister Martin, as part of his effort to reduce the federal deficit, slashed employment insurance benefits and made it more difficult for the out-ofwork to qualify for help. But Drummond and Manning figure that was only part of the problem. More important, they say, is the changing nature of work. More people are technically self- employed, which means they don’t qualify for employment insurance. In some cases, self- employment is voluntary; in many others, it is a status forced on low- wage workers by bosses anxious to avoid paying statutory benefits due regular employees, such as holiday pay and Canada Pension Plan contributions. As well, new immigrants do not qualify because they have not worked in Canada long enough. Drummond estimates this new immigrant factor is largely responsible for the fact that only 22 per cent of Toronto’s jobless qualify for EI. So what is to be done? The TD economists make the sensible point that welfare is only one part of the poverty problem. The only way to grapple with poverty overall is through a coherent government effort that encourages people to work and ensures that those who do work earn enough money to get by. The economists suggest two new federal programs: an earned income supplement for the working poor ( in effect a wage subsidy for employers) and a refundable tax credit for the very poor. What this means is that poor people would file tax returns even if they didn’t owe any income tax, and the government would send them cheques. As such, it is a variation on the old guaranteed annual income scheme, an idea that at different times has had currency with both the left and the right.
Ideas, of course, are cheap. Old ideas are cheaper. But it’s possible these old ideas may have some traction. They are being pitched not only by a big bank but a big bank working closely with the Canadian Labour Congress, anti- poverty groups and other large businesses. The formal name of this unlikely coalition is the Task Force on Modernizing Income Security for Working Age Adults. It is self- appointed, financed in part by the Atkinson Charitable Foundation.
Still, no government may be able to completely dismiss something that has the imprimatur of the TD Bank, Noranda Inc., the CLC, the pro- business C. D. Howe Institute and the leftliberal Caledon Institute.
“It’s been quite surprising,” said task force co- chair Susan Pigott, the head of Toronto neighbourhood centre St. Christopher House. “ If someone had told me eight months ago that the Toronto Dominion Bank was interested enough in poverty to write this, I would have said they were dreaming.”