Thank you.
One of the most important and thorny policy issues I have had to face in my long career is indexation, whether full or partial.
In 1998 I wrote a report called “No Taxation Without Indexation”. It explored the impact of partial de-indexation of the personal income tax system, the refundable GST credit, and the federal child benefits.
Introduced into the tax transfer system in 1986 by the Mulroney Conservatives, partial de-indexation is instrumental to what I call social policy by stealth. It's the use of arcane and poorly understood technical changes to public policy, which were imposed on Canadians without their knowledge, consent, or understanding.
Partial de-indexation steadily and surreptitiously lowered the federal tax bank threshold, imposed an annual inflation-induced hidden income tax hike on taxpayers at all income levels, weakened the GST credit, and eroded the value of child benefits, especially for low- and modest-income families.
The following year, I did another piece that looked in more detail at what I called credit creep and explained how partial de-indexation has affected all aspects of the tax transfer system.
At that point, I had declared that we'd never get rid of partial de-indexation, but thank God I turned out to be wrong. In the 2000 budget, Ottawa re-indexed the tax transfer system. So far so good. De-indexation faded from view. Even the Harper government didn't try it, with the notable exception of its pet social program, the universal child care benefit, which was not indexed, although nobody seems to understand that.
Next, indexation popped up again from an unusual source: the new Canada child benefit. This is the last place I would expect to see stealth in operation. What happened was that, in launching the program, there was no indication that it will be indexed until it will be finally indexed in the year 2020.
Why did the federal government decide to do defer indexation until 2020, especially since it's a policy that goes against its whole view of transparency in public policy?
Cost is the only plausible explanation we can come up with. The Canada child benefit likely ended up being more expensive than originally estimated, and therefore the de-indexation of it over the five years it will be implemented will save a lot of money.
There are some remedies to this problem. The best is to index the program the way it should be, and another would be look at the leakage of revenues through boutique tax credits that favour the wealthy, and get money out of that.
To make up for lost ground, we've recommended the federal government super-index the Canada child benefit starting in 2020. The maximum benefit would be fully indexed, and another amount layered on, so the total value of the program would be more than inflation. Ottawa did this, by the way, back in the 1990s when it grew the Canada child tax benefit.
Caledon strongly supports the Canada child benefit, a program we have advocated and worked on for many years. Its overt architecture is strong, but deferring indexation, although not the end of the world, makes it sad the program has to start its life with this Achilles heel.
Thank you.