HOW GOVERNMENTS CREATE POVERTY

Massive unemployment during the Great Depression led Canadians to seek ways of providing social security for themselves. The League for Social Reconstruction published a report, Social Planning for Canada, as early as 1935. Although nothing was done until the European war broke out in 1939, the federal and provincial governments had agreed by 1940 that unemployment insurance should be added to the responsibilities of the federal government. With the country looking ahead to the end of the Second World War, a House of Commons Committee on Post-War Reconstruction commissioned McGill University social scientist Leonard Marsh to study what a comprehensive system of social security should include. (Lord Beveridge was carrying out a similar study in the United Kingdom at the time.) Marsh completed the report within a month in 1943.

 

 

Canada’ system of social security was gradually completed over the next quarter century.
Family Allowances were established in 1945 as the first direct federal payment to Canadians,
mothers in this case (to be criticized almost immediately as the “Baby Bonus”). The Old Age Security pension paid to all Canadians who were at least 70 years of age was established in 1955. Some provinces, led by Saskatchewan under CCF Premier Tommy Douglas, began to provide hospital insurance for their people. Marsh’s recommendations were finally given concerted attention in the Sixties as Prime Minister L.B. Pearson’s Liberal government set out to achieve comprehensive social security for Canadians. This included a contributory pension plan (the Canada/Québec Pension Plan), the Canada Assistance Plan setting national standards for social assistance, and Medicare, incorporating hospital insurance with care by physicians and surgeons.

A comprehensive list is not
needed here. Other elements will become clear as we see how all of these programs were inadequately funded and then came under massive attack from Jean Chrétien’s Liberal government thirty years after social security appeared to be achieved. The failure of the Trudeau governments to fund cost-shared programs such as Medicare adequately has been noted in “The Road to Ruin.” As Maude Barlow and Bruce Campbell tell us, originally “federal money matched each dollar of provincial spending. In 1977, health and [post-secondary] education transfers were combined into a block grant called the Established Programs Financing (EPF). The block was to grow according to an agreed formula tied to the growth in the economy and population. Under the EPF, the federal government transferred some of its taxing authority to the provinces so that they would actually collect some of the money themselves. (For example, the federal personal income tax was dropped by 13.5 percentage points and the provincial income tax was raised by the same amount. The grant had therefore been split into a cash portion and a tax point portion.)

“The Liberal government of 1982 first tinkered with this formula, but four Mulroney budgets . . . rejigged the formula to take vast amounts out of health and education and introduce the virus that would eventually destroy national Medicare and post-secondary education. First it reduced the growth in the transfer to GDP growth minus two percentage points, then, GDP minus three points. Then it froze the transfer completely, first for a year, then for five years. Since the tax-point portion automatically grew as tax revenues grew in line with the economy, it was the cash portion that would shrink . . . to zero early in the next century . . . The National Council of Welfare calculated that the Mulroney cuts would take $98 billion out of health and education by 2000 . . .” [Straight through the Heart, pp. 161-62]. Since the Canada Health Act imposed national standards on the provinces, Medicare would require an increasing share of provincial revenues, and the universities and colleges would have to survive as best they could (first of all by increasing tuition fees).

The Canada Assistance Plan, which had “consolidated all federal-provincial assistance programs into one comprehensive package,” also came under attack. As Barlow and Campbell noted, “in order to be eligible for matching funds, provinces would have to help people achieve and retain independence; meet financial needs regardless of cause; improve standards of public welfare; grant benefits to the working poor; and ensure national standards. . . . the preamble [to the act] stated that the purpose of the legislation was to grant Ottawa the power to alleviate poverty. . . .” [Straight through the Heart, p. 28]. The Mulroney government began the attack “in 1990, just as the recession was beginning, by putting a 5 percent ceiling on the growth of social assistance transfers to the three wealthiest provinces, Alberta, British Columbia, and Ontario. The . . . cap on the Canada Assistance Plan (CAP) marked a shift from a 50-50 cost-shared program to a block-funded program. Alberta used the reduced federal transfer as an excuse to cut back provincial funding roughly to the level of federal contributions. . . . The federal government saved itself billions by this measure: the Ontario government estimated that it was fleeced of nearly $8 billion over four years by the cap on CAP. A study published in the Canadian Tax Journal estimated total cost of the Mulroney social transfer cuts (EPF and CAP) from 1986 to 1994 at a staggering $37 billion. . . .

“If Mulroney planted the virus of social disintegration, Martin’s Canada Health and Social Transfer represented the full-blown disease. The CHST combined transfers to the provinces for health, education, and social assistance into a single, smaller block grant to come into effect on April 1, 1996. At $26.9 billion, it would be $2.8 billion less than the $29.7 billion in transfers the previous year. In its second year the CHST would fall to $25.1 billion, the first time ever a government would cut the absolute dollar amount of these programs. . . . the extent of the federal withdrawal was even greater than it appeared, because . . . part of the transfer was in tax points. The cash portion of the CHST would drop from the $17.3-billion level of the year before it was introduced to $12.9 in its first year and $10.3 billion in its second year . . . It would continue to shrink to nothing in the subsequent ten years . . .” [Straight through the Heart, pp. 162-63] Although the social assistance cuts Mike Harris’s Ontario government made in 1995 are beyond forgiveness, it is easier to understand the fiscal motivation for them when one sees what Chrétien and Martin were doing to the provinces!