Increased Benefits To Families? Not So Fast

Updated December 22, 2014:

 

Thanks to a commenter named Liz, more detail was brought to my attention. The concerns I express in this post seem to be for naught. Check out this page for a better explanation of the Child Tax Credit.

 


 

On October 30 2014, Prime Minister Stephen Harper announced measures to help make life more affordable for Canadian families.

  • The Universal Child Care Benefit (UCCB) for children under age six will increase. As of January 1, 2015, parents will receive a benefit of $160 per month for each child under the age of six – up from $100 per month. In a year, parents will receive up to $1,920 per child.
  • The UCCB will expand to children aged six through 17. As of January 1, 2015, under the expanded UCCB, parents will receive a benefit of $60 per month for children aged six through 17. In a year, parents will receive up to $720 per child.
  • The Child Care Expense Deduction dollar limits will increase by $1,000, effective for the 2015 tax year. The maximum amounts that can be claimed will increase to $8,000 from $7,000 for children under age seven, to $5,000 from $4,000 for children aged seven through 16, and to $11,000 from $10,000 for children who are eligible for the Disability Tax Credit.

 

I don’t have experience with raising children who are eligible for the Disability Tax Credit. I won’t be evaluating that credit, but I welcome comments from anyone who can offer it.

 

All this seems like good news, right? Not so fast. After doing some number crunching, this does nothing to help struggling families. Why? Because “The enhanced UCCB will replace the existing Child Tax Credit”. This changes everything.

 

Spoiler: This plan causes a net loss for the poor, and benefits the well-off. There is further loss for more than one child. See examples below, or read on.

For Reference

UCCB Announcement
http://pm.gc.ca/eng/news/2014/10/30/pm-announces-tax-cuts-increased-benefits-families

 

Canada Child Tax Benefit Information
http://www.children.gov.on.ca/htdocs/English/topics/financialhelp/ocb/howmuch.aspx

 

Let’s look at some numbers. I’m going to give examples for families of 1–4 kids, from at-risk to below-average income levels.

The Situation

The current UCCB pays $100 per child under the age of 6, and is taxable. The CCTB is not taxable, and uses a progressive payout, per the example:

 

Ontario Child Benefit Monthly Payment Estimates as of July 2014*
Family Net Income
Number of Children $20,000 $25,000 $30,000
1 $109.16 $75.83 $42.50
2 $218.33 $185.00 $151.66
3 $327.50 $294.16 $260.83
4 $436.66 $403.33 $370.00

 

Let’s look at a family earning just above the poverty line at $25,000, with a child under 6.

 

+ UCCB: $100 (- tax payable)
+ CCTB: $75.83
= Total: $175.83 (- tax payable)

 

Replacing the CCTB with the UCCB Proposal, the credit from the government is:

 

+ UCCB: $160 (- tax payable)
= Total: $160 (- tax payable)

 

Net loss: $15.83 + tax payable.

 

What about for a child over 6?

 

+ UCCB: $0
+ CCTB: $75.83
= Total: $75.83

 

Again, replacing the CCTB with the UCCB Proposal, the credit from the government is:

 

+ UCCB: $60 (- tax payable)
= Total: $60 (- tax payable)

 

Still a net loss: $15.83 + tax payable.

 

A family hovering above an at-risk income experiences a net loss from this change to their tax benefits. The problem gets worse with more children. Let’s look at two kids under 6.

 

+ UCCB: $200 (- tax payable)
+ CCTB: $185.00
= Total: $385 (- tax payable)

 

Under the new UCCB Proposal, the credit from the government is:

 

+ UCCB: $320 (- tax payable)
= Total: $320 (- tax payable)

 

Net loss: $65 + tax payable.

 

And for two children 0ver 6.

 

+ UCCB: $0
+ CCTB: $185
= Total: $185

 

Under the new UCCB Proposal, the credit from the government is:

 

+ UCCB: $120 (- tax payable)
= Total: $120 (- tax payable)

 

Still a net loss: $65 + tax payable.

 

The net loss experienced by low-income families goes up with each child!

Examples

Here are tables comparing before and after, based on the examples provided earlier.

 

Current Payouts Under CCTB + UCCB Plans for Children Under 6
Family Net Income
Number of Children $20,000 $25,000 $30,000
1 $109.16 + $100 = $209.16 $75.83 + $100 = $175.83 $42.50 + $100 = $142.50
2 $218.33 + $200 = $418.33 $185.00 + $200 = $385.00 $151.66 + $200 = $351.66
3 $327.50 + $300 = $627.50 $294.16 + $300 = $594.16 $260.83 + $300 = $560.83
4 $436.66 + $400 = $836.66 $403.33 + $400 = $803.33 $370.00 + $400 = $770.00

 

Current Payouts Under CCTB + UCCB Plans for Children Over 6, Under 18
Family Net Income
Number of Children $20,000 $25,000 $30,000
1 $109.16 $75.83 $42.50
2 $218.33 $185.00 $151.66
3 $327.50 $294.16 $260.83
4 $436.66 $403.33 $370.00

 

Number of Children Proposed Payout Under New UCCB Plan for Children Under 6
1 $160
2 $320
3 $480
4 $640

 

Number of Children Proposed Payout Under New UCCB Plan for Children Over 6, Under 18
1 $60
2 $120
3 $180
4 $240

What about the Child Care Expense Deduction?

I’m pessimistic. Child care costs have increased for years in Ontario. Without a cap, like the one proposed by the NDP, there is no reason to believe they won’t continue to increase. This will quickly swallow up any increase to the Child Care Expense Deduction.


Road Taxes: Where The Rubber Has A Blowout

I recently read a report published by The Conference Board of Canada, titled “Where The Rubber Meets The Road: How Much Motorists Pay For Road Infrastructure”. While I recall seeing this report in October 2013, for whatever reason it failed to adequately capture my attention until 3 months later. The synopsis of the document is that motorists largely already pay a sufficient amount back towards the cost of maintaining the road network in Ontario, and do not receive significant subsidization. By the calculations presented in this report, if you add the taxes and fees people pay to drive, and compare them to the estimated costs of maintaining the road network in Ontario, drivers pay something like 70-90% of recovery costs.

While drafting this post, I discovered an article that refuted these points. Written 3 months earlier in July 2013, the article called “News flash for drivers: Cyclists are helping subsidize your ride” includes examples of how taxes actually work, and is worth a read. The post I’ve written largely mirrors these points: Fuel taxes and fees that motorists pay are not direct sources of revenue for road infrastructure. For people who drive to say that they (alone) pay for the roads is a fallacy.

The Determination of Revenue and Expenses

The detailed calculations carefully put together in The Conference Board of Canada report do not seem to show how revenue is actually collected, used, and how transportation expenses are paid for, in the service of our Ontario roadways. It is true that drivers pay taxes that are unique to them for the privilege to drive, such as Fuel and Gasoline taxes. The error lies in suggesting that they in any way supply direct revenue for the building and maintenance of the roads that cars drive on. The coffers that fund all provincial programs, including health and education, also fund highway expenditures. Calculating a ratio against the fuel taxes is no more relevant than comparing to revenue generated by cigarette, or LCBO tax collection. In Brampton, where I live, The provincial “Gas Tax” revenue is used as a grant to the municipality. Instead of paying for roads, it helps to subsidize Brampton Transit. The federal gas tax on the other hand,  which must spent on capital expenses, gets split between road resurfacing and transit bus replacements.

The publication includes costs of municipal roads and associated policing into the overall provincial cost. This is also erroneus: Municipal roads are paid for by property taxes in that municipality. If you drive in any municipality in which you do not live, then you are not paying for those roads. Unless you are evaluating the budget for the municipality you live in, the cost of maintaining and policing roads is irrelevant to Ontarians. The publication notes that the “estimate does not allow for any allocation of costs to non-users. Moreover, the results mask the issue of the imbalance of revenues and expenditures by level of government. The federal government collects a significant portion of the revenues but owns and maintains a relatively small portion of the road network, whereas local governments find themselves in the opposite situation.”

So, what does this all mean? Are road users subsidized? Or do they mostly pay their own way? Municipal property owners, inclusive of those who prefer to take transit or bicycle, pay for their municipal road networks—everyone who drives into a municipality they do not live in, are driving on roads they did not pay for. Every highway in Ontario is paid for by Ontarians through taxation, whether they drive or not. When you consider how many Ontarians outside the GTA are not using the highways within the GTA, you have to ask yourself: Who’s subsiding who?

Inherent Bias

This section is more of an aside, but something that I nonetheless found annoying interesting.

At the opening of the report, it states under Acknowledgements that “The authors thank Teresa Di Felice and Christine Allum of the Canadian Automobile Association South Central Ontario (CAASCO) for initiating and defining the research and research questions…The Conference Board also acknowledges the CAASCO for financially supporting this research. In keeping with Conference Board guidelines for financed research, the design and method of research, as well as the content of this report, were determined solely by the Conference Board. The Conference Board of Canada alone is responsible for the report’s methodology, scope, and findings.” While The Conference Board of Canada claims to be “Objective and non-partisan.” They are “Funded exclusively through the fees we charge for services to the private and public sectors.”

This doesn’t quite pass the sniff test for me. The Conference Board developed “the design and method of research, as well as the content of this report”. But the first thing you have to ask is, what are they designing for? What are the questions? Who’s asking them? The CAASCO is asking the questions, and funding the project.

Actually, perhaps that is not entirely accurate. After all, who or what is the CSSASO? “CAA South Central Ontario has a long-standing history as an innovative leader committed to meeting and exceeding the needs of Canada’s motoring and travelling public” (emphasis added). CAA is funded by many, many people who are light-duty vehicle owners. That the report concludes that “Light-duty vehicle users cover a significant portion of road infrastructure costs” is likely not a coincidence.


Licensing and Insuring Cycling

It does not make sense to license and insure cycling.

 

Using licensing and insuring cycling as an argument for somehow holding cycling accountable is a fallacy. It holds no basis in fact, it’s a distraction from bad driving habits. Being licensed does nothing to stop motorists from rolling stops, rolling right turns or blocking crosswalks at red lights, and of course, driving at speeds over the posted limit. These kinds of actions in an automobile kill people, and cause costly accidents.

 

Why does driving a car require a license? Why are drivers required to be insured? Is the government out to punish people who choose to drive a car?

 

Hardly.

 

Cars are expensive, and dangerous. People take out loans to pay for them, and at times put maintenance on credit. The debt a car leaves behind if it’s destroyed can take people’s lives down with it. That’s why they’re insured. Cars driven carelessly kill people. That’s why they’re licensed. Bicycles do not share these problems. That’s why they are not licensed or insured, and why it does not make sense to do so.


Response from Ministry of Finance Regarding Tariffs on Bicycles

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Brampton Bicycle Advisory Committee

On May 15, 2013, Brampton Council approved the request by the Department of Works and Transportation to carry out their Bicycle Facilities Implementation Plan including the submission to become a Bicycle Friendly Community. Council also approved a request to have the Brampton Bicycle Advisory Committee I’ve been a part of for a few months officially recognized and supported.

While the next steps with the city are as of yet unclear, it’s very exciting to see that Brampton Council seems to see the promise that cycling holds as a transportation solution.


#Mississauga gets it. #Brampton #biketo

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Dear #brampton. More of these please. #biketo

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More #brampton problems. #biketo

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#brampton problems. #biketo

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A Tariff On Bicycles Makes No Sense

On March 21, 2013, Minister of Finance Jim Flaherty presented the 2013 Federal Budget. One area of this budget that both interests and concerns me is “Tariff Relief for Canadian Consumers”.

Budget 2013 proposes to permanently eliminate all tariffs on baby clothes and sports and athletic equipment (excluding bicycles). This measure will support Canadian families and encourage physical activity and healthy living by lowering the costs of importing these goods.

More details here:
http://www.budget.gc.ca/2013/doc/plan/anx2-eng.html

 

The statement above suggests to me that our Federal Conservatives aren’t really interested in addressing our problems with transportation, health, energy costs, and associated cost of living in any meaningful way. It’s no secret that in major urban centres of Canada, like Toronto and surrounding area where I live, that traffic gridlock is a problem. I would go further to say that we are experiencing a massive failure in the automotive industry. Rising insurance rates, gas prices, and maintenance costs all point to a saturated market that has built itself around the car. This problem stems from years of under-investment in other transportation options. These options of course include public transit, but I will also include active transportation options such as bike lanes and bike share programs as valid means of transportation as they have proven successful and are catching on in other areas of the world.

 

We need more options. Ontario’s MetroLynx has a plan called “The Big Move” that addresses years of under-investment in transit infrastructure. However this plan will take a generation, and billions of dollars to complete. While this project is important, I don’t believe we can wait that long for the solution. Cycling is an activity that can take advantage of the roads that are already in place.

 

What about health problems in general related to increasing calorie intake and reduced energy exertion? Cycling is a meaningful answer to that also. Overall health only improves with cycling, which translates to health care savings.

 

Finally, cycling still provides an excellent sporting or leisurely activity, which for that reason alone ought to qualify bicycles for a tariff exemption. It doesn’t make any sense to apply a 13% tariff on bicycles.