Mr. Speaker, I appreciate the opportunity to speak to this private member's motion which recommends that the government review the level at which the Child Tax Benefit is indexed.
I am unable to support the motion and in the few minutes available to me I would like to explain my reasons. Before I begin I want to emphasize that the government continues to place a very high priority on making assistance available to families with children, particularly those at the low and modest income levels.
Let me take a moment to explain how the indexing provisions work with respect to the child tax benefit. Under the Income Tax Act the child tax benefit is partially indexed on an annual basis. It goes up each year by the amount the consumer index exceeds 3%. Many of my colleagues will recall that this policy of partial indexation was introduced to help address the severe fiscal problems facing the federal government.
Partial indexation of the child tax benefit is consistent with how other elements of the personal tax system are treated. For example, the basic personal credit, the spousal credit and the tax brackets are all partially indexed. This is a policy which applies broadly across the tax system.
The Income Tax Act has been amended a number of times to allow for the child tax benefit discretionary increases. In actual fact the motion before us today should be considered as a proposal to amend the Income Tax Act and move to full indexation of the child tax benefit base and threshold.
As hon. members know the only realistic alternative to discretionary increases is the full indexation of the child tax benefit. While the government fully supports the broader goal of increasing assistance to families with children, let us not forget that with an inflation rate of 1.6% per year, restoring full indexation of the child tax benefit would cost the federal government about $160 million per year. In addition, it would be difficult to restore full indexation to some tax parameters and not others.
The federal revenue implications of moving to full indexation of all tax parameters are quite substantial, with a cost of $850 million a year. The cost is cumulative, so it means that it will be $850 million in year one, $1.7 billion in year two, and so on. Such revenue losses could threaten the government's program to restore fiscal balance. Because of these potential fiscal costs the government is unable to support the motion.
However, I assure the House that the government will review the policy of partial indexation once our fiscal position makes it possible to do so. In the meantime the government is committed to targeting additional assistance to priority areas like families.
In the last two budgets, for example, the government increased by $850 million the assistance provided to low income families through the child tax benefit. Since July 1997 over 720,000 low income working families have received increased benefits as a result of restructuring and enriching the working income supplement.
Maximum benefits increased from $500 per family to $605 for the first child, $405 for the second child and $330 for each additional child. Next July these benefits will be extended to all low income families as part of the joint federal-provincial initiative known as the national child benefit system.
The national child benefit system has three key objectives: to prevent and reduce child poverty, to improve work incentives and to simplify administration.
Under the national child benefit system the federal government will assume a larger role in providing basic income support to families with children. The provinces and territories will make corresponding reductions to the child component of their social assistance payments and reinvest all the savings in complementary programs and other benefits and services for low income families. For the lowest income families the proposed increases in the child tax benefit represent a 50% increase in federal benefits.
Before closing I remind hon. members the government has promised a further enrichment of child benefits of the same magnitude during its mandate. As I stated earlier, these actions demonstrate that assistance to families with children, particularly low and modest income families, is and will continue to be a priority of the government.
Let me repeat that the government will review the policy of partial indexation once it is fiscally appropriate to do so. For these reasons I am unable to support the motion before the House. I encourage all my colleagues to do the same and not support the motion.