Human Resources Committee on Oct. 18th, 2016

[The Chair, Liberal, Bryan May]

Good morning, everybody, and welcome.

We are, again, moving forward on our study of poverty reduction strategies. Today I'm thrilled to welcome, from the Department of Employment and Social Development, Nancy Milroy-Swainson, director general, seniors and pensions policy secretariat, income security and social development branch; as well as Barbara Schwartz, director, program integrity, Canada education savings program. From the Department of Finance, we have Galen Countryman, director, social policy, federal-provincial relations, in the social policy branch; as well as Pierre LeBlanc, director, personal income tax division, tax policy branch. Finally, from Statistics Canada we have with us today Andrew Heisz, assistant director, income statistics division; and Tracey Leesti, director, income statistics division.

Thank you very much, everybody, for being here. We have quite a few of you here today, so without further ado, we're going to get started.

I would like to recognize that Karen is joining us today. Welcome. I understand that you're just filling in.

We have a new member on our committee. Unfortunately, we lost Monsieur Deltell, I believe to finance. He moved over there. Joining us for the foreseeable future is Mr. Pierre Poilievre, who I believe is the new official opposition critic for work and opportunities. We look forward to welcoming him. Is he coming today?

[A voice]

Yes.

[The Chair, Liberal, Bryan May]

Awesome. Fantastic. We'll give him a bit of a hard time when he gets here, for being late on his first day.

We'll get going with the presentations. I believe that, first up, we have Nancy. The floor is yours.

[Nancy Milroy-Swainson, Director General, Seniors and Pensions Policy Secretariat, Income Security and Social Development Branch, Department of Employment and Social Development]

Good morning. We're pleased to be here to support you in your study looking at poverty reduction. Collectively my colleagues and I will address all of the income security programs and savings vehicles that were mentioned in the description of pillar three of your poverty reduction study.

As you know, on October 4, Minister Duclos appeared before you and tabled the discussion paper “Towards a Poverty Reduction Strategy”, with the intention of opening a conversation across Canada on poverty. The discussion paper highlights a range of areas that effect and are affected by poverty, including housing, income, employment, and health. It also talks about how poverty affects educational opportunities and social mobility.

Income- and asset-based approaches to poverty reduction are widely used, both within Canada and internationally. Income supports provide those living in low income with immediate assistance, while asset-based approaches and programs that encourage people to save help prevent poverty in the future and help prevent the transmission of poverty from one generation to the other.

The programs my colleagues and I will speak to you about are key supports that both contribute to lifting low-income Canadians out of poverty and help them join the middle class.

Let me begin by talking about the first pillar of Canada's public pensions, that is, the old age security program, or OAS for short. The OAS program is a non-contributory, residence-based program financed through general tax revenues. The program's objective is to ensure a minimum income to Canada's seniors and to mitigate income disruptions at retirement.

It has three components: the OAS pension, which is provided to all seniors aged 65 and over who meet the residence requirements; the guaranteed income supplement, or GIS, for low-income seniors; and an allowance to low-income individuals aged 60 to 64 who are the spouses or common-law partners of GIS recipients, or who are widows or widowers. Currently a single senior with no other income receives a maximum of about $17,300 per year in OAS and GIS benefits. For couples, the maximum amount is about $26,300 per year.

Budget 2016 introduced two significant changes to the OAS program. First, the government cancelled the increase in the age of eligibility for the OAS pension and the GIS from 65 to 67, which was scheduled to begin in April 2023. Because vulnerable seniors depend heavily on OAS benefits, the increase in the age of eligibility would have otherwise raised the number of seniors aged 65 and 66 living in low income. Budget 2016 also increased the GIS for the most vulnerable single seniors, effective July 2016. Specifically, the GIS top-up was increased by $947 per year for the lowest-incomes single seniors.

Finally, the government is also committed to ensuring that OAS and GIS benefits keep pace with the cost of living faced by seniors, and is examining ways a seniors price index could be developed.

The second pillar of Canada's public pensions is the Canada pension plan. It is a contributory social insurance program that replaces a portion of earnings of contributing workers in the event of retirement, disability, or death. The CPP plays an important role in preventing moderate and middle-income households from sliding into poverty in retirement. In combination with the OAS program, it helps lower-income workers achieve high levels of income replacement in retirement.

The plan is particularly beneficial for low-income earners in two ways.

First, as an insurance plan, the CPP pools contributions. This keeps costs low and allows beneficiaries to receive a higher level of income protection than they would if their benefits were based strictly on their own contributions. The disability and survivor benefits reflect the plan's strong social insurance component and help reduce poverty. For example, a 2011 evaluation of the CPP disability program found that while 22% of CPP disability beneficiaries had an income below the low-income cut-off, this would have been 40% without the program.

Second, the CPP benefits low earners by exempting the first $3,500 of earnings from contributions, even though it provides income replacement from the first dollar of earnings. This means that low earners receive a higher return on their contribution, which is proportionally greater than that received by higher earners.

The enhancement of the CPP, agreed to recently by the federal government and the provinces, can further assist the federal government to reduce poverty. The enhancement will increase the replacement rate provided by the CPP retirement pension from one-quarter of pensionable earnings to one-third of pensionable earnings. This means workers at all income levels will receive more income in retirement. It will also increase the amount of survivor and disability benefits. In this context, the government is also increasing the working income tax benefit for low-income workers. This will help protect the disposable income of low-income families who contribute toward an enhanced CPP during their working years.

Before concluding, let me speak briefly to the registered education and disability savings plans.

The Registered Education Savings Plan, or RESP, assists families to save for their children's post-secondary education. The Government of Canada provides incentives to save in an RESP in the form of the Canada education savings grant and the Canada learning bond.

Canada learning bonds, which are federal contributions that do not require personal savings, are of particular benefit to low-income Canadians. Research shows that it is the presence, rather than the amount, of savings that creates aspirations for post-secondary education. In this context, RESPs play an important role in the Government of Canada's efforts to reduce poverty in Canada. Research shows that students with savings in RESPs are more likely to attend post-secondary education, independent of parental income, parental education, and other factors. Recent studies confirm that post-secondary credentials support the long-term economic success of Canadians in terms of increased earnings, reduced unemployment, and other benefits.

The registered disability savings plan, or RDSP, similarly is a tax-assisted, long-term savings plan. In this case it helps people with severe and prolonged disabilities and their families to save for retirement. Like the RESP, to help savings grow, the federal government deposits grants and bonds into the RDSPs of eligible Canadians with disabilities. Earnings accumulate tax free until the money is withdrawn.

The government is committed to promoting these savings vehicles and ensuring that they are accessible to all individuals and families who are eligible for these programs. Various outreach activities are undertaken to enhance the take-up.

I will now turn to my colleagues from the Department of Finance.

Thank you.

[The Chair, Liberal, Bryan May]

Thank you very much.

First of all, I would like to welcome Mr. Poilievre. I'm sure there's a joke here about arriving late on your first day, but welcome anyway.

Mr. LeBlanc.

[Pierre LeBlanc, Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance]

Thank you very much for the invitation to be here. My ESDC colleague just talked about registered education savings plans and registered disability savings plans. I'll focus on registered retirement savings plans and tax-free savings accounts. If you do have any questions about the tax aspects of RESPs or RDSPs, I'd be pleased to answer those.

RRSPs, along with employer-sponsored registered pension plans, provide tax-assisted savings opportunities that encourage and assist Canadians—

[The Chair, Liberal, Bryan May]

Sorry, just one second, we're having trouble with the translation.

Thank you. I apologize, please, go on.

[Pierre LeBlanc]

No worries.

They assist Canadians to supplement the retirement benefits provided by public pensions—OAS-GIS and CPP-QPP—as Nancy just described, so they may achieve their retirement income goals. RRSPs are voluntary, individual, and essentially a defined contribution savings plans. Savings through RRSPs and pensions are tax deferred. That means the contributions are deductible from income for tax purposes; investment income isn't taxed, as it's earned in the plans; and pension payments and RRSP withdrawals are taxed, but they're included in income and they're taxed at regular rates.

The contribution and benefit limits for pension plans and RRSPs are designed to permit most individuals to save enough over a 35-year career to obtain a pension equal to 70% of pre-retirement earnings, an amount generally considered sufficient to allow individuals to maintain their living standards in retirement.

Annual contributions of 18% of earnings are permitted to be made to an RRSP up to a specified dollar limit. In 2016, that limit is $25,370. The pension and RRSP limits are integrated in order to provide comparable retirement savings opportunities whether an individual saves in a pension plan, an RRSP, or both. Unused RRSP room may be carried forward to future years.

If you look at annual contributions through RRSP, there's just about $40 billion, and there was about $1.1 trillion in RRSP assets at the end of 2014.

Participation in pension plans and RRSPs tends to increase with earnings, but that's because private savings needs increase as earnings increase.

Nancy told us about OAS-GIS and CPP-QPP. They replace a significant portion of pre-retirement earnings for those with low and modest incomes, meaning that their private savings needs can be small. Often, they can be zero. Middle- and higher-income Canadians, on the other hand, need to save privately to achieve adequate earnings replacement rates in retirement because public pensions replace a smaller portion of pre-retirement earnings, so it's understandable that participation rates in RRSPs and pensions plans are higher for middle- and high-income individuals.

Now we also have the tax-free savings account, which provides tax-assisted savings opportunities. The TFSA is a general purpose savings plan. It can be used for any purpose, including retirement savings, but for lots of other purposes, too. TFSAs first became available in 2009 and they allowed Canadian residents aged 18 and over to earn tax-free investment income throughout their lifetime. Contributions to a TFSA aren't tax deductible, but investment income earned under a TFSA and withdrawals from a TFSA are both tax free.

The TFSA annual contribution limit was $10,000 for 2015. The government has proposed returning the annual limit to $5,500 for 2016, indexed to inflation in $500 increments.

Unused TFSA contribution room is carried forward and accumulates in future years. The full amount of withdrawals from a TFSA can be re-contributed to the TFSA the following tax year.

The TFSA can provide greater savings incentives for low- and modest-income individuals than an RRSP, because, in addition to tax savings, neither the income earned in the TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as guaranteed income supplement benefits and the Canada child benefit.

TFSAs have quickly become an important savings tool for Canadians. Nearly 12 million individuals held TFSAs at the end of 2014, with a total fair market value of over $150 billion. Almost half of TFSA holders in 2014 had total income under $40,000.

Those are my remarks. After we're all done, I'd be pleased to answer any questions.

[The Chair, Liberal, Bryan May]

Thank you, Monsieur LeBlanc.

Mr. Heisz.

[Andrew Heisz, Assistant Director, Income Statistics Division, Statistics Canada]

Thank you.

I have a slide presentation.

It would be useful to consult it. I will let you know which slides I am referring to.

I am going to start with slide number two.

Poverty is a multi-faceted subject. There's no agreement among experts on a single measure. Having a low income is a dimension of poverty. The media and academic publications often use income as a proxy for poverty. This presentation will discuss low-income trends and examine differences among groups.

Low income happens when a family's after-tax income falls below a specific threshold. All Statistics Canada measures refer to relative low income. They refer to the share of the population that has low income compared to what would be considered an acceptable living standard relative to the societal norm. Relative low income is commonly used for measuring poverty in developed nations. Absolute low income would refer to the share of the population with incomes below what is needed to meet the minimum standards of food, clothing, health care, and shelter. Statistics Canada does not measure absolute low income.

The headline low-income indicator used by Statistics Canada is the low-income measure or LIM. The concept underlying the LIM is that if your family income is below half the median family income in a year, then your family is in low income for that year. Each year the LIM is rebased, so there is a new set of thresholds every year. Thus, the LIM measures whether low incomes are keeping up with contemporary living standards.

An advantage of LIM is that it's easy to understand and always reflects current standards of living. A common criticism of LIM is that because the low-income thresholds change every year, the yardsticks are always moving, making it difficult to use for short-term policy analysis.

A second low-income measure produced by Statistics Canada is the low-income cut-off or LICO. The concept underlying the LICO is that if your family income is below the LICO threshold, it means that you are likely to be spending a significantly larger share of your income on food, shelter, and clothing than the Canadian average. LICO thresholds were last rebased in 1992. Since 1992 the thresholds have been updated for changes in prices using the consumer price index, CPI. Changes in the low-income rate under LICO tell us whether incomes at the lower end of the income distribution are keeping up with or falling behind inflation. An advantage of the LICO is that the thresholds have a stable, real value in constant dollars. They can provide policy-makers with a fixed benchmark to evaluate short-term progress. A common criticism of LICO is that the LICO thresholds no longer reflect an acceptable relative standard of living.

For the purposes of this presentation, I present statistics from both LIM and LICO. I'd like to add that Statistics Canada produces a number of other statistics that reflect upon Canadians in less advantaged situations. Some of these were developed with the involvement of other federal departments.

LICO and LIM can be used together to study trends in low income. This graph shows the low-income rate for all Canadians using both measures. Recent trends for the two measures are quite different. The LIM has been steady or rising slightly since 2000. This means that the income of low-income families has just managed to keep up with overall living standards, which have been rising over this period. For this purpose, I am referring to living standards as median incomes of families. The LICO has fallen steadily. This means that the incomes of low-income families have been rising relative to inflation.

The story is similar for children but not seniors. These graphs show low-income rates for these groups. Incomes for low-income seniors have been keeping up with prices, which can be seen in the steady LICO low-income rate, but falling behind median living standards, which can be seen by a rising LIM low-income rate. To say it differently, while low-income seniors are not worse off in real terms, the income gap has been rising between low-income seniors and other Canadians.

For the remainder of the presentation, I'll refer to low-income rates calculated using both the LIM and LICO methodologies, but I won't compare the results. While trends in the two indicators are different, as I just showed, they otherwise tell very consistent stories about low income in Canada.

Before returning to trends in low income, I'll talk a little about trends in income overall. Underlying trends in low income are changes in income for low-, medium-, and high-income families. In fact, the 2000s have seen family income growth across the income spectrum, especially at the top. This graph shows after-tax income for families, including unattached persons. Median after-tax income rose by 19% between 2000 and 2014. After-tax income at the 10th percentile rose by 14%, indicating that incomes for low-income families were also rising. The fastest growth was at the top of the income distribution, where after-tax income at the 90th percentile rose by 23%.

Research showed that income growth differed widely by region. The left graph shows the average annual growth in median family income by province from 2000 to 2014. Income growth was especially high in resource-rich provinces: Alberta, Saskatchewan, and Newfoundland and Labrador. The right graph shows the change in the low-income rate over the same period. Low income also fell most in Newfoundland and Labrador, Saskatchewan, and Alberta, and rose most in Ontario.

This graph shows the low-income rate by province in 2014, the last year for which we have data. Low income differs comparatively little across provinces, with only Alberta posting a rate substantially below the Canadian average. The low-income rate in Alberta was 6.9%, while for all other provinces the low-income rate was between 12% and 16%.

The data indicates that low income is concentrated among particular groups. This graph shows low-income rates for specific demographic segments of the population. Recent immigrants and persons in lone-parent families have low-income rates about 2.5 times the average. Aboriginal people off reserve have rates more than twice the average. Women who are unattached seniors are more likely to be low income than women seniors overall. Persons with disabilities have low-income rates that are twice that of others.

It's also important to consider how persistent low-income spells are. This graph shows the number of years a spell of low income is expected to last for spells beginning in each year from 1993 to 2013. The average duration of low-income spells has risen since the 1990s. On average, a spell of low income was expected to last 3.3 years in 2013 compared to 2.9 years in 2003 and 2.2 years in 1993. A graph in the supplementary slide attached to this presentation shows that the low-income spells rose most for seniors and unattached persons.

To gauge the effect of transfers on low income, we can compute the low-income rate before and after transfers are added in. The differences between the two rates is the amount by which the transfer reduces low income. The results do not take into account any behavioural responses to changes in transfers. Rather, they are meant to illustrate the importance of transfers as a component of income for low-income persons. The red bars show the amount that transfers reduce low income.

All government transfers, including federal and provincial transfers overall, reduce low income by 50%. The blue bars show the amount that transfers reduce deep, low income, where deep, low income is defined using a threshold set 40% below the usual one. Transfers reduce deep, low income by more than 70%. Likewise, child benefits reduced low income for families with children and benefits to seniors reduced low income for these Canadians.

A supplementary slide at the end of the presentation describes the importance of progressivity in transfers in reducing low income. In short, progressive transfers that target low-income persons reduce low income by more than transfers that are less progressive.

Finally, on slide 15 we look to see if federal savings programs are used by low-income families. The registered education savings program, registered retirement savings program, and tax-free savings program are three federally run programs that assist savers by making it possible to defer tax or by making interest on savings tax free. The RESP program also makes available the Canada education savings grant. This slide shows the take-up rates for these programs by low-income and non-low-income households. Families with children and senior families are shown. RESPs, RRSPs, and TFSAs are used by low-income families, but to a much lesser degree than they are by higher-income families.

That's the end of my presentation this morning. Thank you.

[The Chair, Liberal, Bryan May]

Thank you very much, Mr. Heisz.

We'll move now to our first panel of questions, and I believe MP Zimmer is first up.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

I want to thank you all for coming today. Andrew's presentation was very informative.

I have an initial question for Statistics Canada. Has Statistics Canada considered the impact on the general population of a carbon tax in terms of poverty?

I'll lead into that a bit. We've estimated an impact of $1,000 to $2,500 per low-income family. I just want to know whether StatsCan has actually looked into that.

[Andrew Heisz]

Not that I'm aware of.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

What is the disposable income of the average low-income family after bills are paid? Do you have that number?

[Andrew Heisz]

No, not with me.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

Okay. Would you be willing to make a guess?

[Andrew Heisz]

No, I would not.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

Okay, thanks.

[The Chair, Liberal, Bryan May]

Is that something you'd be able to get to provide the analyst?

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

Maybe I can request it from some of the other panellists who are with Employment or Finance.

Does anybody else have those numbers, the disposable income of a low-income family?

[A witness]

No.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

Okay, thanks. I'll go on to my next question.

We've heard a lot about the basic income guarantee, especially from the minister, Minister Duclos. As a social economist, it's one of his key interests. I just want to know whether Finance or Employment has considered the cost to the Canadian taxpayer of that particular program if it were initiated in Canada broadly.

[A witness]

No.

[Nancy Milroy-Swainson]

I'm not aware of work on that right now.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

Okay.

The estimate that we've heard, just when even looking at key segments, children aged 15 to 19, and including seniors, is $500 billion, with the potential across Canadian programs of amounts as high as $1.4 trillion to run the program if it's initiated. It's surprising to me that none of the panellists have even looked into the costing to the Canadian taxpayer of this program, considering who the minister is.

I know you have to be asked to do that, so I'm not blaming you. To me, it's troubling that we're considering a program and it hasn't even been costed out yet. Anyway, that's just a concern of mine.

I have another question, too. We heard a lot about raising the age of eligibility for OAS from 65 to 67. We knew the cost; that's why we made the changes. It was a significant cost to taxpayers. My parents are seniors and we don't want to impact seniors in a negative way, but we also need to balance the books at the end of the day.

What is the cost per year to the taxpayer of bringing the age of eligibility for OAS back from 67 to 65?