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More Money for Canadians With KidsMore Money for Canadians With Kids

More Money for Canadians With Kids

The Canada Child Benefit program is popular and offers families choice, but does have its flaws, reports Peter Jon Mitchell. They won’t be so noticeable this week, he notes, as payments to parents go up.

Peter Jon Mitchell
3 minute read

Canadian parents will receive an increase in the Canada Child Benefit (CCB) this week. 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. The program has been widely credited with reducing child poverty in Canada, yet the benefit is not without challenges.

Implemented in 2016, the CCB is a tax-free cash transfer based on net family income. The program is targeted to 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 complete phase out of the benefit depends on the number and ages of the children. For example, for a family with one child under age six and one child over age six, the complete phaseout occurs around a net household income of $190,000.

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 during 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 is 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 are getting. The CCB replaced several tax credits and the Universal Child Care Benefit, a taxable cash transfer. 

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 care. Cash to parents is a better alternative to universal childcare 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.

So, the CCB has been successful. But here are potential challenges.

Some critics suggest the CCB disincentivizes increased participation in the labour force. Alex Laurin of the C.D. Howe Institute argues that the progressive claw-back of the CCB acts as a hidden tax, reducing gains from work. As household income increases, families pay more tax, while at the same time seeing their CCB decrease. 

This double hit may reduce potential 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 correlates with 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. 

Unfortunately, Canadian policymakers rarely evaluate how a program might impact family formation.

Canadians hold diverse views about the role 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? What happens to the most vulnerable families if the program changes?

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. Cash transfers provide greater choice, especially when selecting child care compared to governments subsidizing only one kind of care.

Progressive claw-back can reduce gains from work as tax liability increases. The progressive claw-back can also disincentivize marriage and partnership as these family structure changes can increase net household income. When we think about policy, we must be cautious not to build supports that discourage the social institutions that strengthen families and communities. Finally, Canadian families have come to depend on the generous benefit. If the government’s ability to sustain the program is vulnerable, the low-income families who plan and budget around these benefits are the ones most vulnerable in the face of changes.

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 week. 

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