Since its election, the Trudeau government has consistently demonstrated its disinterest in targeting spending to those in need and limiting debt accumulation. Despite expected deficits of $381.6 billion this year and $121.2 billion next year, and the national debt (adjusted for financial assets) on track to reach $1.5 trillion by 2025-26, the federal government announced more new spending in its recent fiscal update.
For example, in 2021, families with children (with household incomes up to $120,000) will receive four additional tax-free payments from the Canada Child Benefit (CCB), totalling $1,200 per child under the age of six while families with income above $120,000 will receive additional payments totalling $600 (again per child under the age of six). These payments are in addition to the basic CCB benefit, which can be as high as $6,765 (per child under six) depending on household income. The total projected cost of the extra CCB payments in 2021 is $2.4 billion.
It’s important to recognize that the CCB, which was created in 2016, is not a targeted program. By the government’s own numbers, roughly 90 per cent of families with children receive the CCB. In 2019, only 16.2 per cent of CCB money went to families with incomes below $40,000 while more than half (50.3 per cent) went to families with incomes above $70,000.
Moreover, like the new additional CCB payments in 2021, the CCB increases introduced in 2016 were financed by borrowing. This is important, since it effectively means that parents will benefit today—in the form of higher and additional CCB payments—while their children will bear the cost in the form of higher debt and higher taxes in the future.
Of course, stabilizing incomes during a recession is a legitimate policy goal for government. Programs such as employment insurance, for instance, are intended to replace lost or reduced wages with government transfers. However, the lack of targeting in many programs introduced by Ottawa during the COVID recession has likely made some people better off by government transfers compared to their employment income. For example, an analysis of $81.6 billion in recession-related spending—specifically the CERB, assistance to students (CESB), onetime payments to recipients of Old Age Security, the Guaranteed Income Supplement and the Canada Child Benefit—concluded that up to $22.3 billion (or 27.4 per cent) of the spending was potentially wasteful due to poor targeting.
And the Trudeau government will continue this approach. The new additional CCB payments in 2021 include no criteria related to changes in household income. In other words, families who experience pronounced drops in their income because of the recession will receive the same new additional benefit as families that experience no change in their income, or perhaps even saw their household incomes increase. In other words, the extra $2.4 billion being spent (and financed by borrowing) in 2021 will not target families with children whose incomes have been hurt by the recession. All families with children under six who are eligible for the CCB will benefit from the new spending.
The Trudeau government’s continued approach, which does not target spending to Canadians most in need, has increased the costs of recession-related spending and the amount of money borrowed, partly explaining the historic federal budget deficit expected this year ($381.6 billion). This approach also partially explains why Canada is expected to run the largest deficit of any industrialized country in 2021. As a country, we need better care and more prudent management of federal finances, which should start with better targeting of assistance to those in genuine need.
Jason Clemens and Milagros Palacios are economists at the Fraser Institute and contributors to the essay series analyzing the Canada Child Benefit.