Old Becomes New (Safety Net Reform)


9 September, 2005. 06:37 AM

The Star,
Thomas Walkom,
National Affairs Writer

Now, even a bank slams workfare TD report pokes holes in welfare and EI
policies, offers new blueprint for safety net.

The worm turns. Old ideas gain currency again. Now, even hard-headed 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 quality.

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 then-finance minister
Martin, as part of his effort to reduce the federal deficit, slashed employment
insurance benefits and made it more difficult for the out-of-work 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

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

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 left-liberal 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.