Family Allowance

Family Allowance, a monthly allowance paid to families with children to help cover the costs of child maintenance, began in 1945 and was Canada's first universal welfare program. The term universal is applied to benefits that are awarded solely on the basis of age, residence or citizenship, without reference to the recipient's income or assets. When such benefits are directed at a specific group in the population, they are also termed demogrants.

What Is the Rationale for Family Allowance?
Careful investigation into the causes of poverty in England and elsewhere in the early part of the 20th century demonstrated that a significant factor was family size. As wage rates in industrial society reflect the worker's production, without any reference to the worker's family responsibilities, what would be an adequate wage for a single person is a poverty-level existence for another doing the same job at the same rate of pay with a family to support. Family allowances paid by the state (or less frequently by some form of payroll tax) were proposed as not only an attack on poverty but also to advance the principle of "horizontal equity" between workers who were bearing the costs of raising the next generation and those without such responsibilities.

A third reason for a system of family allowances was contained in the Marsh Report of 1943. Here it was argued that if the allowances were set at a defensible minimum they would replace all other allowances for children under a variety of income maintenance schemes such as social assistance, workers' compensation and unemployment insurance, etc. Such programs could then develop their benefit schedules based on the income need of single persons or couples, leaving the family allowance system to take care of the needs of any children involved. This would add an element of consistency and administrative simplicity throughout the social security system.

The History of Family Allowances in Canada
The idea of family allowances was discussed in Britain, Australia, the US, Canada and in the League of Nations in the 1920s. In 1929 a Canadian parliamentary committee was asked to consider the subject and heard evidence both for and against family allowances. A Québec commission of inquiry into social welfare issues (1930-32) also received submissions on the topic. Neither recommended family allowances.

Little more was heard of the subject in Canada until WWII, when Canada's plan for postwar reconstruction (the Marsh report) was released in 1943.

The Marsh Report was a comprehensive attack on poverty and economic insecurity based upon a broad scheme of social insurance supported by universal family allowances, a national health system and a large-scale national employment program. The plan was too radical and expensive for the federal cabinet of the day but political and economic factors prompted Prime Minister Mackenzie King to select one element of the Marsh Report - family allowances - as a vote-getting device in the next federal election. This was also a bid to outflank the political left in Canadian politics, which was making electoral gains. King had the backing of economists, a majority of whom predicted large-scale unemployment at the war's end (as had happened following WWI). Family allowances were also seen as a means of maintaining purchasing power. From a constitutional viewpoint a program of family allowances was well within the spending powers of the federal government, so few provincial hackles were raised.

Critics called family allowances a waste of taxpayers' money because they went to rich and poor households alike. They alleged that the "baby bonus" was a bid for votes in French Canada, where large families were more common. It was suggested that the money be distributed by way of services rather than by cheque. Supporters of family allowances replied that the service approach alone was paternalistic and that the allowances would enhance the autonomy of families.

Despite some half-hearted opposition by the Conservatives in the House of Commons in 1944, the legislation was passed unanimously on second reading - a remarkable event for such a momentous piece of legislation.

Family allowance payments, tax-free, varied according to age: for children under age 5, these were $5 per month; from 6-9 years, $6; 10-12 years, $7; and 13-15, $8. The average payment per child was $5.94, considerably below the March Report's recommended minimum payment of $7.50 per child. Initially allowances were reduced for the fifth and subsequent children but this provision was removed in 1949.

Despite the program's popularity it was largely neglected by the federal government. Between 1945 and 1973 only one marginal increase in benefit was legislated even though inflation had badly eroded the requirements increased. This extension was prompted by Québec, which had instituted a similar scheme on its own in 1961. The government's neglect of the family allowance program in postwar years appears to have been directly related to its lack of appreciation of the program's potential in terms of social equity and administrative consistency. In addition the predicted postwar recession did not occur.

In 1972 in response to a public concern about growing poverty in Canada, the federal government attempted to replace universality with selectivity - that is, a system of family allowances related to family income. The proposal would have paid maximum benefits to the poorest 36% of families, partial benefits to 34% and no benefits to 30% of families. This plan was heavily criticised for its inadequate attack on poverty and its administrative complexity (allowances were to be based upon the preceding year's income). The Bill never made it through the House of Commons before the federal election of October 1972, which returned to a minority Liberal government with the NDP, a strong proponent of universality, holding the balance of power.

In this situation the government dropped its selective plan and introduced a new Family Allowances Act which incorporated selectivity with universality by declaring family allowances taxable. However even high-income parents could retain a portion of their benefit, and thus the principle of "horizontal equity" was observed.

In 1978, with the Liberals again commanding a majority in parliament, a major restructuring of family allowances occurred which expanded the role of the tax system in child support and diminished the role of family allowances. The government established a Refundable Child Tax Credit of $200 per annum for families with incomes of $18 000 or less. As incomes rose above this level, benefits would be taxed away to disappear entirely at $26 000. As the median income for families in 1978 was $19 500, a majority of families would receive some benefit for the new program, which came into effect in 1979.

The Refundable Child Tax Credit, which was applied for and paid out annually, lacked the administrative simplicity, the predictability and regularity of the monthly payments of family allowances. The tax credit was financed by cutting back on the monthly family allowance benefits from an average of $28 per month to $20 and by reducing or eliminating certain other tax exemptions for children.

In 1985 a Conservative government in Ottawa concerned about government debt and deficits announced a 4-year plan to restructure family benefits. Beginning in 1986, family allowances were only partially indexed to the cost of living. The refundable child tax credits were to be increased for 3 successive years, from 1986 to 1988, to $549 per annum, and beginning in 1989 were also to be partially indexed in the same manner as family allowances (the inflation rate over 3%). At the same time the number of families who could qualify for the tax credit was narrowed by dropping the income ceiling from $26 330 to $23 500.

Critics charged that the impact of partial indexing of family allowances and child tax credits represented a spending cut in family benefits for $550 million by 1991 and the poorest families would receive only a token increase in their net family benefits over the years 1985 to 1989.

In 1989 the Conservative government ended the universal nature of family allowances by requiring upper-income parents to repay all of their benefit at tax-filing time as part of its program to target social benefits to low- or moderate-income recipients. Paradoxically it maintained and increased a tax deduction for child care expenses which provided the greatest benefit to high-income families.

The End of Federal Family Allowance
In 1992 with a minimum of public discussion the Conservative federal government replaced Family Allowance with a new Child Tax Benefit, into which Family Allowance, the Refundable Child Tax Credit and a nonrefundable child tax credit were consolidated. The new benefit, paying a maximum of $85 per month per child up to the age of 18, was tax-free and income-tested on the basis of net family income as reported in the preceding year's income tax returns.

Maximum benefits are gradually reduced as family income exceeds the income ceiling (in 1992 this was $25 921, when average family income was $38 565). Benefits are only partially protected from rises in the cost of living, that is, only the inflation rate in excess of 3% will result in an adjustment.

Family size and its association with family poverty and the additional costs of caring for preschool children were recognized with small supplements and an earned-income supplement to "reinforce the incentive of low-income parents to participate in the work force" was added. This latter initiative was a step back into the 19th century in Canadian social policy to a time when attempts were made to differentiate between the "worthy" and the "unworthy" poor. Universal family allowance was predicated on the idea that all Canadian children were worthy of public support.

Despite the efforts since 1978 to target family allowance and tax support for child dependents to low- and moderate-income families, the incidence of child poverty in Canada is second highest among Western developed nations - second only to the US. The countries of western Europe which have markedly less child poverty, use selectivity within a broad framework of universal programs.

Québec reflects the European pattern in that it continues to provide a program of universal family allowance up to age 18. There are also supplements on a universal basis to families with children under age 6, to families caring for severely handicapped children, and allowances are available to newly born or newly adopted children.

Author DENNIS GUEST

Suggested Reading
Dennis Guest, The Emergence of Social Security in Canada (2nd ed, rev 1985); Brigitte Kitchen, "The Introduction of Family Allowances" in A. Moscovitch and J. Albert, eds, The Benevolent State: The Growth of Welfare in Canada (1987); Linda McQuaig, The Wealthy Banker's Wife (1993).