The Conference Board’s overarching goal is to measure quality of life in Canada and its peer countries. High rates of poverty among working-age populations indicate wasted human resources, opportunities, and public spending. As the OECD has concluded, “failure to tackle the poverty and exclusion facing millions of families and their children is not only socially reprehensible, but it will also weigh heavily on countries’ capacity to sustain economic growth in years to come.”
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Canada’s social safety net is less robust than many think. More than 12 per cent of adult Canadians live in relative poverty. This is double the rate in the leading countries, Denmark and Sweden, which have poverty rates of under 6 per cent among their working-age populations. Canada scores a “D” grade and ranks 15th out of 17 peer countries—only Japan and the U.S. do worse.
The U.S. continues to have the highest poverty rate among industrialized countries. It earns a “D” grade and ranks last among the 17 countries compared here.
Canada’s working-age poverty rate increased from 9.4 per cent in the mid-1990s to 12.2 per cent in the mid-2000s—causing Canada’s relative grade to drop from a “C” to a “D.” Germany, whose poverty rate rose from 7.4 to 10.2 per cent, also dropped a grade—from a “B” to a “C.”
Of the 17 peer countries, only Italy, France, and the U.K. were able to reduce their working-age poverty rates between the mid-1990s and the mid-2000s. They each improved one grade level over that period.
The relationship between social spending and poverty rates has become more obvious over time, so it is no surprise that the leading countries boast strong traditions of wealth distribution. The success of the Nordic countries in maintaining low poverty rates is attributed to a universal welfare policy that has been effectively combined with job creation strategies that support gender equality and accessibility.
The debate about the most effective way to reduce poverty revolves around striking the appropriate balance between a “benefits strategy” and a “work strategy.” The debate hinges on the apparent trade-off between ensuring adequate income assistance for those in need, while providing incentives for people to work and be self-sufficient.
As noted in a recent OECD report, “While poverty rates among people belonging to this group depend on a range of factors, the most important is whether household members have a paid job.”2 Canadians of working-age who live in households where no one works have a poverty rate of 66 per cent—five times the Canadian average for this age group. Having a paying job is no guarantee against poverty, however. People living in households with one worker account for 45 per cent of the income poor in Canada, while households with two or more workers still account for a staggering 23 per cent of this group.
The relationship between social spending and poverty rates is striking. Among the working-age population, relative poverty rates are lowest in countries where social spending (as a percentage of GDP) is the highest. One study concluded that the combined effect of the tax and benefits systems in OECD countries lifts more than half of the at-risk population out of relative3 income poverty.4 A minimum benefit is certainly needed to ensure those who are unemployed are not in a state of financial and social distress.
But joblessness and continued reliance on benefits is a key contributing factor to elevated rates of poverty in Canada and its peer countries. Benefits that are too high remove incentives for people to seek employment, leading to greater social exclusion, poorer health, and decreased rates of generational mobility. In an OECD study of minimum wages and the tax treatment of low-wage employment, for example, it was found that tax policy measures can have a sizable impact on the net earnings available to low-wage workers, increasing the incentive for them to work rather than collect benefits.5
Countries that have reduced poverty rates have turned away from passive, benefits-only poverty reduction schemes in favour of national anti-poverty strategies that incorporate a number of “active” policies. Active policies are social policies that integrate strategies across governments, departments and service providers to reduce poverty and increase self-sufficiency. For example, active job policies may be set up to help people overcome obstacles to get jobs through a combination of
- funding jobs training
- providing child care
- introducing tax incentives for lower-paid workers
The Canadian National Council of Welfare argues that the only way to reduce poverty in Canada is through a national, long-term anti-poverty strategy that includes measurable targets and timelines, as well as a plan of action to encourage cohesion among governments and departments. The publication of its report Solving Poverty: Four Cornerstones of a Workable National Strategy for Canada, in late 2007, made the issue central to the 2008 Speech from the Throne.6 In April 2008, the House of Commons Standing Committee on Human Resources, Social Development and the Status of Persons with Disabilities unanimously agreed to devote a series of hearings to the development of a national poverty plan.
The policy response to working-age poverty in the last several years has included:
- The 2009 federal budget provides for increases in the Working Income Tax Benefit by $580 million in 2009 and subsequent years.
- The 2009 federal budget increased the basic personal income tax exemption and the two lowest personal income tax brackets by 7.5 per cent over the 2008 level.
- The 2009 federal budget included enhancements to Employment Insurance, such as increasing the benefits entitlement by 5 weeks over the next two years, and increasing funding to extend EI benefits to Canadians participating in longer-term skills development and retraining.
- The 2008 Ontario budget increased funding for social housing upgrades, increased the social assistance rate, and increased the minimum wage from $8.00 in 2007 to $8.75 in 2008, $9.50 in 2009, and $10.25 in 2010.
- The 2008 British Columbia budget reduced the bottom two provincial personal income tax brackets.
- The 2008 Manitoba budget enhanced employment and income assistance benefits.
- The 2008 Alberta budget announced the creation of 11,000 affordable housing units over five years, enhanced spending on affordable housing initiatives, and enhanced the Alberta Family Tax Credit.
- The 2008 Quebec budget announced the creation of 20,000 new subsidized daycare space over three years for families with income less than $80,000.
1 OECD, Combating Poverty and Social Exclusion through Work, Policy Brief, (Paris: Author, 2005).
2 OECD, Growing Unequal? Income Distribution and Poverty in OECD Countries. (Paris: Author, 2008), [online, cited September 4, 2009].
3 Relative poverty thresholds consider people to be living in poverty if their income cannot afford them the goods and services that are customary in a given society. Absolute poverty thresholds consider people to be living in poverty if their income is not enough to cover the costs of a given basket of goods in a particular year, updated annually for inflation.
4 Michael Förster and Marco Mira D’Ercole, Income Distribution and Poverty in OECD Countries, (Paris: OECD, 2005), p. 28.
5 Herwig Immervoll, Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-Wage Employment, [online, cited September 9, 2009].
6 National Council of Welfare, Solving Poverty: Four Cornerstones of a Workable National Strategy for Canada, [online, cited September 9, 2009].