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PRB 07-22E

Poverty Reduction in Canada - The Federal Role

Chantal Collin
Political and Social Affairs Division

23 October 2007

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Contents


Who Is Poor in Canada?

The Government of Canada has not officially adopted any specific measure of poverty.  Nor is there a consensus among Canadians regarding the determination of an official poverty line.  Rather, various definitions or measures of poverty exist, and there is an ongoing debate about which of these is most appropriate.  Although no measure is perfect, low income is currently the most commonly used indicator of poverty.  Before and after-tax income thresholds called the low income cut-offs (LICOs)(1) are released annually by Statistics Canada.  The LICOs are based on the proportion of households that spend at least 20 percentage points more of their income than the average household on food, clothing and shelter, and vary with family and community size.(2)  These data are used by most stakeholders to determine the prevalence of poverty in Canada.

Certain population groups in Canada are more likely than others to live in poverty or to be at risk of living in poverty.  This is particularly true of single parents (particularly women); unattached individuals (mainly those aged 45-64);(3) persons with work-limiting disabilities; recent immigrants, particularly refugees (who came to Canada within the past 10 years);(4) and Aboriginal people.(5)  Groups considered at risk of poverty have a higher rate of unemployment, non-standard work arrangements (e.g., part-time, temporary, or self-employed work) and low-paid jobs than other Canadians.

The latest figures released by Statistics Canada based on the after-tax LICOs reveal that 7.4% of Canadian families (an estimated 655,000 families) lived on low incomes in 2005.  That same year, about 788,000 children under 18 years of age (11.7% of the total), were living in low-income families.  The prevalence of low income was much higher among children living in female lone-parent families and among single persons (33.4% and 30.4% respectively).  When a measure based on before-tax low income cut-offs is used, the proportion of Canadian children living in low-income families in 2005 increases to 16.8%, and of those living in female lone-parent families to 47%.  The prevalence of low income among people aged 65 and over in Canada is significantly lower.  In 2005, 6.1% of Canadians in that age group had an income below the after-tax LICO.  The depth of poverty, or average income gap, in Canada is also significant.  In 2005, Canadian families living on low incomes needed an average of $7,900 to bring their income above the low income cut-off after tax.(6)

Calls for a National Anti-Poverty Strategy –
What Role Could the Federal Government Play?

On 24 November 1989, the House of Commons unanimously resolved to eliminate poverty among Canadian children by the year 2000.  However, no long-term action plan was developed to meet this goal and monitor progress.  Economic growth and investments in social programs during the late 1990s and the early years of the new millennium have resulted in a decline of child poverty in Canada.(7)  In 1996, 18.6% of Canadian children lived in low-income families as defined by the after-tax LICOs.  By 2001, the prevalence of children living on low incomes had decreased to 12.1%, but then increased to 13% in 2004.  According to the most recent data, it appears that the prevalence of low income among children is again declining, reaching a prevalence of 11.7% in 2005.  Nonetheless, the rates of family and child poverty(8) are still considered unacceptably high; taking into account Canada’s high quality-of-living standard, the depth of poverty and the inequality of family incomes continue to grow.(9)

The National Council of Welfare (NCW),(10) along with other social policy advocates and anti-poverty organizations, has been calling for the federal government to design and implement a national poverty reduction strategy.(11)  Such a strategy, it is argued, would serve to integrate poverty reduction efforts across all federal departments and would support provincial and territorial governments in their efforts to reduce poverty and income inequality in Canada.  The call for the establishment of a national strategy to reduce poverty is difficult to answer, as it would require federal, provincial and territorial cooperation.  Recognizing the jurisdictional challenges inherent in Canada’s federal system, some advocacy groups have asked the federal government to set specific measurable targets for the reduction of poverty in Canada, to take immediate action within its jurisdiction, and to engage in a dialogue with provincial/territorial governments and advocacy groups representing Canadians living in poverty or at risk of poverty to determine the feasibility of developing a national strategy or other form of partnership toward a common goal of reducing poverty and promoting social inclusion(12) in Canada.

The establishment of a national poverty reduction strategy founded on the principles of the United Nations Convention on the Rights of the Child (13) has also been endorsed by the Standing Senate Committee on Human Rights in its April 2007 report, Children:  The Silenced Citizens. As well, the House of Commons Standing Committee on Finance in a recent report on its pre-2007 budget consultations put forth a recommendation asking the federal government to set a specific target and timeline to reduce child poverty in Canada and to “meet with the provincial/territorial governments and groups assisting and/or representing disadvantaged Canadians, among other stakeholders, to develop a strategy for achieving that target.”(14)


Canadians also agree that more can be done to alleviate poverty in Canada.  Two recent polls conducted in 2006 – an online questionnaire administered by the NCW and another carried out by Environics Research – revealed that Canadians nationwide are concerned with poverty issues and believe that the federal government could play a bigger role in reducing poverty(15) and in taking action to reduce the income gap between the rich and the poor in Canada.(16)

   A.  Key Features of Poverty Reduction Strategies in Quebec,
            Newfoundland and Labrador, Ireland and the United Kingdom

Many European countries (such as Ireland and the United Kingdom) as well as two provinces in Canada(17) (Quebec, and Newfoundland and Labrador) have adopted comprehensive anti-poverty strategies.(18)  Although their details vary, these strategies share certain key elements.

1.  Social and Economic Links

Anti-poverty strategies place poverty reduction and social inclusion firmly on the public policy agenda and are founded on the premise that social and economic development should go hand in hand.  The strategies define goals, targets and timelines to reduce or eradicate poverty and social exclusion. Key objectives are to increase the labour market participation of those who are able to work and to enhance income security for those with severe work limitations.  To meet these objectives, governments generally adopt a multi-dimensional approach aimed at providing better access to early learning and child care services, affordable housing, health care, essential public services, income supports, high-quality education and training, and jobs that pay a living wage.

2.  Multi-Year Action Plans

Most strategies are supplemented by multi-year action plans with dedicated human and financial resources. Although there is an ongoing debate about the merits of targeting actions toward those most at risk of poverty or who are living in poverty, versus providing services on a universal basis, the various policies and programs implemented under the action plans in the UK, Ireland, Quebec and Newfoundland and Labrador usually adopt the principle that different at-risk groups require different policies and that programs should be targeted toward specific populations such as children, lone parents, seniors, people with disabilities, members of ethnic minorities, and people with a history of low participation in the labour market or who have never been in the labour force.

3.  Progress Measurement and Administrative Framework

To measure progress, anti-poverty strategies usually provide for the creation of specific outcome measures and indicators and the establishment of accountability mechanisms.  They also establish institutional structures and arrangements to ensure better coordination of activities among government entities, programs and policies aimed at reducing poverty and social exclusion and other linked policy areas.  These structures are set up to enhance consultation and cooperation with various interest groups and to ensure that the needs of people at risk of poverty or living in poverty are clearly identified and addressed in anti-poverty strategies.

B.  What Could Be Done?

Canada, like Ireland and the UK, has enjoyed relatively strong economic and employment growth in the last decade.  Advocates for the creation of a national anti-poverty strategy believe that the current economic situation offers an opportunity to develop policies that will truly make an impact on the rate of poverty in Canada.(19)  However, Canada faces a number of challenges. 

1.  Key Challenges

The Government of Canada has yet to adopt an official poverty line or other benchmark by which to measure the extent of poverty in the country.  There is a need for more information on the actual living standards of Canadians living in poverty or at risk of poverty.  Furthermore, the sharing of constitutional powers within Canada’s federal system makes it more difficult to develop and implement an integrated approach to the reduction of poverty and social exclusion.  However, joint action on the part of the federal and provincial/territorial governments is required to significantly reduce poverty in Canada.

2.  The Canada Social Transfer:  A Need for Principles
             and Objectives to Guide Social Spending

Although many stakeholders advocate a stronger role for the federal government and better collaboration among all levels of government to reduce poverty and social exclusion, the case for how this new role and partnership could be defined has not been clearly articulated.  The Canadian Council on Social Development has proposed splitting the Canada Social Transfer (CST) into two transfers:  one for post-secondary education and another for social programs.(20)  Nominally intended to support post-secondary education, social assistance and social services, the CST is essentially provided unconditionally, with the exception of the prohibition of minimum residency requirements with respect to social assistance and reporting requirements related to funding for social services.  “The CST is also the vehicle through which the Government of Canada provides support to provinces and territories in relation to agreements reached on early childhood development (2000) and early learning and child care (2003) programs and services.”(21)  The CST is disbursed under the Federal-Provincial Fiscal Arrangements Act, which allows for the establishment of common objectives and principles that could guide the transfer of federal dollars for post-secondary education and social programs.

The CCSD and other advocacy groups across the country have been calling on all levels of government to reach an agreement on principles and objectives to guide social spending in Canada.  For example, the National Council of Welfare called for the following principles and national standards to apply to federal funding of social assistance and social services:  accessibility, adequacy, right of appeal, respect for the individual, accountability, full disclosure and simplicity.(22)  The federal spending power is a powerful mechanism that has been used to influence social policy and programs delivered by provincial/territorial governments.(23)  It has been the basis for a multitude of federal–provincial transfers over the years, including the Canada Health Act.  It has been suggested that the Federal-Provincial Fiscal Arrangements Act could be amended, or a new act created, to ensure that portions of funding transferred under the CST could be subject to certain conditions or principles aimed at providing better income security for Canadians.

3. Social Union Framework Agreement:  A Possible Model?

The Honourable Roy Romanow, who led the Commission on the Future of Health Care in Canada, has suggested that one way to reach an agreement on common principles and objectives might be through administrative arrangements, such as the Social Union Framework Agreement (SUFA),(24) a non-binding political agreement signed in 1999 between the federal government and all provincial/territorial governments, save the Government of Quebec.(25) By signing this agreement, governments made a commitment within their respective constitutional jurisdictions and powers to the following principles: ensuring access for all Canadians to essential social programs and services of reasonable comparable quality; providing appropriate assistance to those in need; and promoting the full and active participation of all Canadians in Canada’s social and economic life, among others.

4.  Public Accountability and Transparency

The importance of public accountability and transparency in strengthening Canada’s social union was also explicitly recognized in SUFA as each signatory to the agreement made a commitment to, among other activities, monitoring, measuring and reporting on social policy outcomes; sharing best practices; using third parties to help assess progress on social priorities; and publicly recognizing and explaining the respective roles and contributions of governments.(26)  To enhance transparency and accountability to Canadians of federal monies transferred to provinces and territories for social programs, other stakeholders such as the National Anti-Poverty Organization have argued for the creation of a pan-Canadian body (e.g., a “Canada Social Council”) to measure performance, collect and disseminate information, make recommendations for government action and report publicly to Canadians.(27)

5.  Immediate Action at the Federal Level

Until the federal and provincial/territorial governments reach some form of agreement to work in a cooperative and coordinated way to fight poverty in Canada, most anti-poverty organizations and social policy advocates will call on the federal government to take immediate action within its jurisdiction. They are asking the federal government to strengthen Employment Insurance, to invest more on federal work tax credits,(28) to increase the Canada Child Tax Benefit and the National Child Benefit Supplement and take steps to end its clawback,(29) to review the adequacy of Old Age Security and Guaranteed Income Supplement payments for seniors, and to substantially increase its investments in early learning and child care, social housing and disability-related supports.


Endnotes

  1. The Canadian Council on Social Development and some other organizations representing people who experience poverty believe that after-tax LICOs do not provide a complete picture of consumable income and thus tend to understate the prevalence of low income.  For these reasons, they prefer to monitor the prevalence of low income in Canada using the before-tax LICOs prepared by Statistics Canada.  For more information, see Canadian Council on Social Development, “What’s behind a poverty line?,” Backgrounder, Ottawa, 9 June 2000.  However, “Statistics Canada highlights the use of after-tax income for low income measurement.  There are several reasons for this.  First, both income taxes and transfers are methods of income redistribution.  The before-tax rates only partly reflect the entire redistributive impact of Canada’s tax/transfer system, by including the effect of transfers but not the effect of income taxes.  Second, since the purchase of necessities is made with after-tax dollars, it is logical to use people’s after-tax income to draw conclusions about their overall economic wellbeing.”  See Philip Giles, Low Income Measurement in Canada, Cat. No. 75F0002MIE – No. 011, Statistics Canada, 2004, p. 9.
  2. Other indicators currently used to measure poverty in Canada include (1) Statistics Canada’s low-income measure (LIM), a relative measure used primarily for international comparison purposes that  is based on half the median annual income for different household types before and after tax; (2) the market basket measure (MBM), an “absolute” measure developed by Human Resources and Social Development Canada that calculates how much money a household needs to meet its basic expenses; and (3) the basic needs poverty lines, a more stringent approach developed by Chris Sarlo and published by the Fraser Institute that is intended to measure real deprivation.  For more information on measuring poverty, see Chantal Collin and Bonnie Campbell, Measuring Poverty:  A Challenge for Canada, TIPS‑71E, Parliament Information and Research Service, Library of Parliament, Ottawa, 2007, and Philip Giles, Low Income Measurement in Canada, Cat. No. 75F0002MIE – No. 011, Statistics Canada, 2004, .
  3. Yan Feng, Sangita Dubey and Bradley Brooks, Persistence of Low Income Among Non-elderly Unattached Individuals, Cat. No. 75F0002MIE – No. 005, Income Research Paper Series, Statistics Canada, June 2007.
  4. Garnett Picot, Feng Hou and Simon Coulombe, Chronic Low Income and Low-income Dynamics Among Recent Immigrants, Cat. No. 11F0019MIE – No. 294, Statistics Canada, January 2007.
  5. Assembly of First Nations, The Shocking Reality:  First Nations Poverty, Ottawa, n.d., Assembly of First Nations, The $9 Billion Myth Exposed:  Why First Nations Poverty Endures, Ottawa, n.d.
  6. Statistics Canada, “Income of Canadians 2005,” The Daily, 3 May 2007.
  7. Canadian Council on Social Development, The Progress of Canada’s Children and Youth 2006, Economic Security, Ottawa, The Council, 2006, p. 18.
  8. Campaign 2000 has been monitoring Canada’s progress on reducing family and child poverty since 1991.  Its website at is a valuable source of information.  See, in particular, Campaign 2000, The UN Special Session on ChildrenPutting Promises Into Action:  A Report on a Decade of Child and Family Poverty in Canada, Toronto, May 2002.
  9. For more information, see Garnett Picot and John Myles, Income Inequality and Low Income in Canada:  An International Perspective, Cat. no. 11F0019MIE – No. 240, Statistics Canada, Ottawa, February 2005; and Armine Yalnizyan, The Rich and The Rest of Us:  The changing face of Canada’s growing gap, Canadian Centre for Policy Alternatives, Ottawa, March 2007.
  10. The National Council of Welfare is a citizens’ advisory body to the federal government on matters of concern to low-income Canadians.  It was established by the Government Organization Act in 1969.
  11. Among other documents, see National Council of Welfare, Solving Poverty:  Four Cornerstones of a Workable National Strategy for Canada, Vol. 126, Winter 2007.
  12. For more information on social inclusion in Canada see, among others, the proceedings of the 2003 Social Inclusion Research Conference and the Working Paper Series on Social Inclusion, published by the Laidlaw Foundation.
  13. Canada signed the Convention on the Rights of the Child in May 1990 and ratified it in December 1991.
  14. House of Commons, Standing Committee on Finance, Canada:  Competing to Win, 1st Session, 39th Parliament, December 2006, p. 60.
  15. National Council of Welfare, Report on Responses to the Poverty and Income Security Questionnaire, October-December 2006, prepared by MiroMetrica Inc., Ottawa, January 2007.
  16. Canadian Centre for Policy Alternatives, Poverty Primer:  A Comprehensive Strategy to Reduce Poverty and Inequality in Canada, Alternative Federal Budget 2007, Ottawa, March 2007.
  17. All other jurisdictions in Canada have implemented initiatives and programs to reduce poverty but do not have specific comprehensive poverty reduction strategies per se.
  18. For a brief overview of these strategies, see Chantal Collin, Poverty Reduction Strategies in the United Kingdom and Ireland, PRB 07-28E, Parliamentary Information and Research Service, Library of Parliament, forthcoming publication 2007; and Chantal Collin, Poverty Reduction Strategies in Quebec and in Newfoundland and Labrador, PRB 07-23E, Parliamentary Information and Research Service, Library of Parliament, forthcoming publication 2007.
  19. See, among others, Marvyn Novick, Summoned to Stewardship:  Make Poverty Reduction a Collective Legacy, Campaign 2000 Policy Perspectives, Toronto, September 2007.
  20. In Budget 2007, the federal government announced that “[f]ederal support for post-secondary education, social programs, and children are notionally earmarked to make the federal contribution through transfers more transparent.”  Department of Finance Canada, “A Brief History of the Health and Social Transfers.”
  21. Department of Finance Canada, “Canada Social Transfer.”
  22. National Council of Welfare, Recommendations on the creation of the Canada Social Transfer, Presentationto the National Liberal Caucus Social Policy Committee, 20 October 2003.
  23. The federal spending power is not explicitly set out anywhere in the Constitution, and there is some disagreement over its constitutional basis.  “Arguably, the ‘spending power’ is simply the expansion of the taxing power to the point that the federal government has sufficient revenues to underwrite national programs, in addition to fulfilling its more specific constitutional mandate.”  Mollie Dunsmuir, The Spending Power:  Scope and Limitations, Parliamentary Information and Research Service, Library of Parliament, BP-272E, Ottawa, 1991, p. 2.
  24. Roy J. Romanow, “The New Canada Social Transfer:  Impetus for a Renewed Era of Innovative Social Policy in Canada?,” Notes for remarks, Canadian Council on Social Development, National Arts Centre, Ottawa, 14 October 2004, p. 10.
  25. The Social Union Framework Agreement sought to enhance the social union by improving mobility in Canada, better informing Canadians through enhanced public accountability and transparency, improving intergovernmental cooperation on social policy, circumscribing the federal spending power, and avoiding and resolving intergovernmental disputes.
  26. Social Union, A Framework to Improve the Social Union for Canadians:  An Agreement between the Government of Canada and the Governments of the Provinces and Territories, 4 February 1999.
  27. National Anti-Poverty Organization, NAPO Position Paper on Social Transfer, adopted at NAPO Board Meeting, 25-27 June 2004.
  28. In Budget 2007, the federal government introduced a “working income tax benefit”, a refundable tax credit to be paid to low-income individuals who have annual earnings above $3,000.  The maximum benefit for a low-income single individual is $500 (reached at $5,500), which is reduced at a rate of 15% when earnings reach $9,500.  An additional supplement of $250 is paid to low-income workers who are eligible for the Disability Tax Credit.  See Department of Finance Canada, Aspire to a Stronger, Safer, Better Canada:  The Budget Plan 2007, Tabled in the House of Commons by the Honourable James M. Flaherty, PC, MP, Minister of Finance, 19 March 2007, pp. 78-82.
  29. As of early 2005, the clawback of the National Child Benefit Supplement (NCBS) from payments made to social assistance recipients was still practised in eight jurisdictions in Canada.  The NCBS is not clawed back from families receiving social assistance payments in Newfoundland and Labrador, Nova Scotia, New Brunswick, Quebec and Manitoba.  Some provinces, such as Ontario, have introduced other benefits to assist families living on social assistance and alleviate poverty.  For example, see information on the new Ontario Child Benefit.

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