Evaluation of the National Child Benefit Initiative: Synthesis Report - February 2005

3. Description of the NCB Initiative

The NCB Initiative is the most recent in a series of endeavours aimed at children and families stretching back over a considerable period of time (see Exhibit 1). The NCB Initiative was introduced as the successor to the Working Income Supplement which had supported low-income families in the labour market throughout much of the 1990s.

Exhibit 1

Historical Overview of Federal Initiatives

1918 — Child Tax Exemption introduced by the federal government as the first support activity for families with children. The initiative provided income tax savings that increased with taxable income. The program was of greatest benefit to families in higher tax brackets.

1944 — The Family Allowance was introduced in 1944 as the first universal income security scheme. The program provided a monthly payment to the mother of every child under the age of 16 (age 18 after 1973) who was attending school. The Family Allowance Act met the government's aim to support families to meet the basic needs of their children and to maintain purchasing power in the postwar era.

1971 — The Child Care Expense Deduction was introduced in order to recognize the costs of earning income for working parents.

1978 — The Refundable Child Tax Credit, an income-tested tax credit was introduced as a means to target families in need of assistance; it was the first major program of its type in the field of income security:

The benefit was designed to help families meet the costs of raising children. For the first time the tax system was used to deliver income-tested benefits; and
The maximum tax credit was paid to families with family net income below a specified threshold. The credit was gradually reduced with increased family income until such income was near the national average, at which point the credit was reduced to zero.

1993 — The Child Tax Benefit (CTB) represented a consolidation of refundable and non-refundable child tax credits and the Family Allowance into a single monthly payment based on number of children and level of family income. In addition to a basic benefit, the CTB included a Working Income Supplement (WIS) to supplement the earnings of working poor families.

1998 to Present — The National Child Benefit (NCB) Supplement replaced the WIS and increased benefits to all low-income families (including those not working) as part of the Canada Child Tax Benefit (CCTB). In addition to the NCB, the CCTB includes the Child Disability Benefit (CDB), which is paid to low- and modest-income families caring for children with severe disabilities. The overall NCB Initiative also includes benefits and services delivered by the provinces and territories as Initiative-related investment and reinvestments.

Under the NCB Initiative, the federal government increased the benefits provided to low-income families with children through the NCB Supplement — a component of the Canada Child Tax Benefit (CCTB). The relationship between the base benefit under the CCTB and the NCB Supplement is outlined in Exhibit 2.

Exhibit 2
Relationship between the CCTB and NCB Supplement

CCTB — Base Benefit

Tax free monthly benefit targeted to low- and middle-income Canadian families with children
Based on net family income
In 2001-02, provided $5.2 billion to 3.2 million families with 5.8 million children

Supplemented by

NCB Supplement

Tax free monthly benefit specifically targeted to low-income families with children
Based on net family income
In 2001-02, provided $2.5 billion to 1.5 million families with 2.7 million children

The truly innovative feature of the NCB Initiative was the agreement by provinces and territories to adjust the income support provided for children through their social assistance programs. Of particular importance was the provision that provinces and territories could deduct the NCB Supplement on a dollar-for-dollar basis from social assistance recipients' benefits (i.e., offsets). These adjustments were designed to help ensure that families are always better-off as a result of working — since families would not receive added financial assistance by remaining on social assistance, but are not penalized either by leaving (since they continue to receive the NCB Supplement in addition to any employment income).³ The goal of these adjustments was to help overcome disincentive effects to entering the workforce — the so-called "Welfare Wall".

Accompanying the above was a commitment by the provinces and territories to reinvest the savings resulting from such offset provisions (i.e., additional program activities) and to explore whether they could make still further investments above and beyond social assistance savings. Such incremental investments and reinvestments were to be focused on provincial and territorial programs having objectives consistent with the NCB (i.e., program synergies).⁴ In deciding what benefits and services to support through NCB reinvestments, provinces and territories are guided by a National Reinvestment Framework that was agreed to by the Federal/Provincial/Territorial Ministers Responsible for Social Services. Under this framework, jurisdictions have the flexibility to make reinvestments and investments in line with their own priorities and needs, provided they support the objectives of the NCB Initiative. The result is a complementary set of support benefits provided by most provinces and territories aimed at providing additional assistance to low-income families with children.

3.1 NCB Initiative Objectives

Consistent with the NCB framework, the NCB Initiative's objectives are identified in terms of improving incomes among those most in need, and in terms of promoting labour market attachment, as follows:

To help prevent and reduce the depth of child poverty;
To promote attachment to the workforce by ensuring that families will always be better-off as a result of working; and
To reduce overlap and duplication through closer harmonization of program objectives and benefits and through simplified administration.

Through harmonization, federal/provincial/territorial objectives have the flexibility to a) become more complementary within an overall strategic framework, and b) minimize situations where they may be working at cross-purposes, or in ways which are not cost-effective from the viewpoint of the governments as a whole.

3.2 Benefit Structure and Initiative Coverage

Exhibit 3 outlines the benefit structure of the NCB Supplement under the Canada Child Tax Benefit (CCTB).

Exhibit 3

As Exhibit 3 notes, the NCB Supplement, with its exclusive targeting on low-income families, is a significant addition to the CCTB (base benefit). Both benefits are delivered through the tax system (administered by the Canada Revenue Agency) and both are subject to phase-out provisions as net family income grows.

Exhibit 4 identifies the overall scale of activities of the CCTB base benefit provisions relative to the NCB Initiative. Under the CCTB base benefit, total payments of $5.2 billion (July 2001 to June 2002) were paid to eligible Canadian families with children. In contrast to more than 80 percent coverage under the CCTB, the NCB Supplement provided payments of $2.5 billion to 40 percent of Canadian families with children over the same period. Exhibit 4 also identifies the role of provincial, territorial and First Nations activities under the NCB Initiative.

Exhibit 4

3.3 Provincial and Territorial Harmonization

Harmonization of government activities is a key feature of the NCB Initiative. Three basic arrangements have evolved which characterise the harmonization of the federal NCB Supplement with provincial and territorial programming. These include:

Arrangement No. 1 — The Social Assistance Offset: whereby provinces and territories deduct the amount of the NCB Supplement, dollar-for-dollar, from benefits paid to social assistance recipients. The provincial and territorial reinvestment funds under this approach are the savings in social assistance from the deduction.

Arrangement No. 2 — The Integrated Child Benefit With Adjustment: under which some provinces pay child benefits outside their social assistance system through a separate income-tested child benefit that is combined with the CCTB into a single monthly payment. Any increases to the NCB Supplement are recovered in full or in part from the provincial child benefit. The savings recovered through this approach are the province's reinvestment funds.

Arrangement No. 3 — Integrated Child Benefits Without Adjustment: is similar in some respects to the previous arrangement in that provinces pay children's benefits through a separate income tested child benefit delivered with the CCTB in a single monthly payment. The major difference, however, is that these provinces do not recover increases to the NCB Supplement from their provincial child benefit. The reinvestment funds for these provinces are the estimated amount of "fixed" savings (carried forward on an annual basis) resulting from the offset of the NCB Supplement (against social assistance benefits) before the provinces created separate provincial child benefit arrangements under their own programming.

In addition, some jurisdictions (New Brunswick⁵, Manitoba⁶) choose not to implement the replacement of social assistance benefits for children in the NCB Initiative and flowed through the NCB Supplement directly to recipients. As is noted below in section 5.2.1, these arrangements have different impacts in terms of lowering the "welfare wall."

3.4 Provincial and Territorial Reinvestments

Provinces and territories have reported NCB savings-induced reinvestments and investments of $534.5 million, $632.4 million and $723.2 million, respectively, over the three-year period 2000-01 to 2002-03.⁷ These investments and reinvestments, which are based on provincial/territorial priorities and consultations, are focussed on providing a range of services complementary to the NCB Supplement. Exhibit 5 illustrates the distribution of these activities across a range of areas for 2001-02, focusing on the following:

Child Benefits and Earned Income Supplements: These defray additional costs in making the transition from social assistance to employment through the provision of separate supplemental income payments or through funding increases paid through the CCTB;
Child Care/Day Care Initiatives: which improve access to affordable child care to assist in the transition to work;
Early Childhood Services and Children-at-Risk Services: which provide support to low-income families with children in order to foster child development and give young children a healthy start in life;
Supplementary Health Benefits: These include a range of benefits such as optical care, prescription drugs and dental care. (Families on social assistance with children often lose these benefits when making the transition from social assistance to the workplace.); and
Other Initiatives Supporting NCB Objectives: These include other programs and services as determined by individual provinces and territories. The range of reinvestment initiatives include: early intervention and pre-natal to employment support and prevention programs.

Exhibit 5

³ For social assistance recipients total benefits remain at the same level as they would have been in the absence of the NCB Supplement.

⁴ For example, the British Columbia Earned Income Benefit (BCEIB) was introduced in July 1998 as an additional incentive for those on social assistance to seek work and remain employed. The BCEIB pays an additional monthly amount based upon the income that eligible families receive from working.

⁵ In New Brunswick (1998-1999), the province chose not to adjust social assistance payments by the amount of the NCB Supplement and continues with this approach. In 2000-2001 and 2001-2002, New Brunswick did not recover the NCB Supplement increase to families receiving social assistance.

⁶ Beginning in July 2001, Manitoba flowed through the increase in the NCB Supplement to all families and restored the full value of the NCB Supplement for children 6 and under; in January 2003, Manitoba restored the full value for children 7 to 11 years; and, in January 2004 restored it for children 12 to 17 years.

⁷ NCB Progress Report: 2002, p. 21. Please note figures cited do not include First Nations and Citizenship and Immigration Expenditures.

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