The Welfare Wall

 

By Patrick O’Brien (AIMS on Campus Student Fellow)

The Welfare Wall blocks a welfare recipient from moving off social assistance into paid employment. This wall is created through the impact of direct and indirect taxes that people on welfare have to carry when they supplement their welfare benefits with employment income. When recipients try to get off welfare by seeking employment, they are taxed heavily on each dollar earned above the amount received by the government in the form of welfare, which reduces their benefits. This is the “Welfare taxback” affect. After the initial claw back in employment earnings, there are income taxes and payroll taxes which come in the form of employment insurance premiums, and Canada Pension Plan contributions, and a loss of “income-in-kind” benefits such as health and dental.

This creates a disincentive for welfare recipients to enter the workforce, as they will lose majority of their benefits and pay a large portion of their earnings back to the government. To further illustrate the effect of joining the workforce, and trying to leap over the welfare wall, a study by the Parliament of Canada shows that a single parent with one child in 2016, who increases their earnings from $0 to $10,000 from employment, would lose an estimated 78 cents on every additional dollar earned. Comparing this to an increase in earnings from $40,000 to $50,000 would have a marginal tax rate of 41%. Based on this study we can conclude that because there is such a high tax imposed on those who are on welfare and seeking employment compared to those already in the workforce and moving up, then those who are on welfare are more likely to continue to use welfare, instead of seeking employment.

This is a major problem in our economy. While the working population in Canada will pay a portion of their tax returns to the government, this money will then be distributed through payments to those on welfare. Then the money will be used to help those recipients pay for basic necessities such as groceries, rent payments, and other durable goods. The tax that workers pay to the government should be thought of as a sum to be reinvested back into our economy through infrastructure spending, health care, our defense system, and social security. Social security spending from 2015-2016 contributed $81.8 billion to federal tax revenue, or 23.1 percent of total federal tax revenue.

The problem here is that the investment in social security, particularly welfare, is helping the recipients “sustain” their current consumption on basic durable goods, where it should be used to promote the shift into the labor market which will then contribute to the GDP or growth in our economy.

A solution to helping those who are on welfare overcome the “welfare wall” is the Working Income Tax Benefit. To qualify for this benefit the recipient must be 19 years of age or older, and earning at least $3000 a year from employment. This is a supplemental payment that is aimed towards low income workers who are in poverty. In 2016 the maximum supplement was $1,028 for an individual, and $1,868 for a family.

This is a temporary solution that will encourage those on welfare to actively seek employment, as it reduced the amount of benefits that will be clawed back under the current welfare taxback system. A broader look needs to be taken by our government towards the policies that are designed to help those in need of the welfare, so that we can encourage labor participation, growth, and overall wellbeing of those on social assistance so that they overcome the unfortunate welfare wall that exists in Canada.

Regional Identities, Division, and the Way Forward in Nova Scotia

By Ainslie Pierrynowski (AIMS on Campus Student Fellow) 

On February 26th, 2000, three hundred Cape Bretoners gathered in Baddeck to put forward a proposal. Organized by Sydney businessman Scott MacLean, the group pushed to make Cape Breton Canada’s 11th province. Despite the occasional rekindling of the notion of Cape Breton autonomy, this idea has yet to gain substantial mainstream traction. Yet, the reasons behind this movement speak to a province fractured along rural and urban, community, and regional lines—which has troubling implications for Nova Scotia’s fiscal future.

In particular, Cape Breton’s economic decline constitutes a running thread throughout proposals for independence, from the initial 2000 meeting where the organizers decried the current transfer payment system as a means of “washing benefits” through the provincial government, to a 2002 Cape Breton Regional Municipality-commissioned study which contended that an autonomous Cape Breton would possess direct power over the transfer payments it receives. A 2017 lecture from Cape Breton Senator Daniel Christmas, emphasizing what he perceives as the island’s need for a self-reliant economic model. These instances all speak to a divide between largely rural communities like Cape Breton, where some people may view themselves as having been neglected or left behind by a distant provincial government, and those in urban centres who see such “parochialism” as a barrier to economic growth and development. In fact, a 2016 Engage Nova Scotia survey found that two of thirds of the respondents privilege their local identities above their identification with the province as a whole, particularly in Cape Breton (where 85% of those surveyed responded in this way), Southern Nova Scotia (73%), and the North Shore (71%).

This divide is especially problematic because, while some local economic initiatives have met with success, regionalism seemingly impedes the large-scale policy coordination needed to address far-reaching issues like Nova Scotia’s post-industrial economic transition that have substantial fiscal implications for the province as a whole. A certain degree of coordination between community leaders also seems necessary, in order to make avoid creating conflicting local-level economic policies. Hence, this difficulty constitutes an additional impetus to confront regionalism. Moreover, intraprovincial divides would compound the challenge of implementing AIMS’ past calls for economic cooperation and trade among the Atlantic provinces and Northeastern United States.

In my view, this disconnect points to the need for a new politics in Nova Scotia, one of genuine negotiation and rapprochement. That is, much of the current discourse around regional identity and the Nova Scotian economy seems to revolve, on one hand, around calls for top-down unity. Commentators invoke terms like cooperation and decry parochialism, yet seldom seem to engage with regional fears of local identity, concerns, and interests being subsumed by more prosperous, populous, and powerful urban actors. On the other side of the debate, discussion seems to be underpinned by the perception of the capital, and even other municipalities and regions, as competitors rather than partners in the fight against economic decline. Therefore, it appears as though proponents of provincial unity and those of regional autonomy conceive of the province through two fundamentally different frameworks.

As a result, I feel that political, business, and organizational leaders in centralized, urban areas that seek to advance common, provincial economic vision need to grapple with local perceptions and issues, while those in other areas must shift their understanding of other locales from adversaries to potential collaborators who face similar fiscal challenges. Drawing on the 2014 Ivany Report’s urges to “strengthen linkages” between rural and urban Nova Scotia and the communities therein, municipal reform aimed at challenging the perception that local fiscal policy tends to favour urban areas, greater collaboration between business and organizational leaders across municipal and rural/urban lines, or debates and public events designed to bring provincial and local leaders together to tackle regional concerns could help to bring about this shift in mentality.

In this 2007 AIMS article, Université de Moncton economist Donald Savoie as quoted as saying: ““If we could drop this parochialism we have in the Maritime provinces and all row in the same direction, we would be better off…we all have to accept as Maritimers that Halifax is going to be the growth centre of this region and come to terms with the fact that what’s good for Halifax is good for New Brunswick and vice versa.” In order to achieve this goal, however, Atlantic Canada—including Nova Scotia itself—has much work to do.

 

 

The Demographic Crisis in Atlantic Canada

By James O’Keefe-Daw (AIMS on Campus Student Fellow) 

Atlantic Canada is facing a demographic crisis, coupled by an aging population and outmigration of youth. If creative solutions are not found, this crisis will lead to further serious economic problems in the future.

Atlantic Canada

Atlantic Canada is comprised of four provinces, Newfoundland and Labrador, Nova Scotia, New Brunswick and Prince Edward Island. In 2014, Newfoundland and Labrador, Nova Scotia and New Brunswick experienced more deaths than births, and this trend is still continuing. A recent Statistics Canada’s publication shows that if the current demographics in Atlantic Canada persist, the population share of the provinces in 2063 could account for less than 5% of Canada’s population.

The population’s aging is accelerating as a result of baby boomer immigration to the region. Seniors are being enticed to move east by Atlantic Canada’s inexpensive real estate, slower pace of life and easy commutes. The region is attracting individuals who are looking to retire and settle down more than those prepared to work.

An Atlantic Provinces Economic Council report found that conversely, 1.3% of the youth population is leaving Atlantic Canada. This is causing the demographics to shift even more in favour of an older population. Job opportunities and higher wages are among the reasons why youth are leaving. Young workers make $20.49 hourly relative to the national rate of $23.55. Also, male and female youth earn 24% and 10% more respectively than their peers who stayed.

Newfoundland and Labrador

The problems Atlantic Canada is facing are more pronounced in Newfoundland and Labrador. Recent findings from Memorial University’s Harris Centre research on the population shifts and projected effects on the province are alarming.

The Harris Centre found that from 2016 to 2036, Newfoundland and Labrador is projected to have more deaths than births and the overall population is expected to decline by nearly 8% even when migration trends are accounted for. Furthermore, even a replacement of 70% of the current labour force would not be sufficient to maintain the workforce population to 2036.

Interestingly enough, however, the North-East Avalon’s population is projected to increase by 15.36% in 2036. Those moving within the province are relocating closer to urban centres. Rural Newfoundland and Labrador is not faring well. The Northern Peninsula’s population is expected to decrease by 40% with an average age of 54 years old.

Economically, operating communities in rural Newfoundland and Labrador costs taxpayers. For example, it was recently disclosed that the ferry service in St. Brendan’s, a small community of 114 people, costs $6 Million a year to operate.

 

Consequences of the Demographic Shift

The parliamentary budget officer’s 2017 fiscal sustainability report found that Newfoundland and Labrador currently must increase revenue or reduce spending by roughly $2 billion to be sustainable fiscally. The demographic shift adds to this problem where the increased population will increase the province’s health-care expenses by almost 7% of the current GDP (the largest in the country.)

Nova Scotia’s youth outmigration is costing the province $1.2 billion less in lifetime after-tax income and an estimated $46.4 million in net future taxes. With the province spending $250,000 by the time a student graduates university and likely experiences outmigration, it is causing problems.

Recommendations

Reallocation of Resources

A combination of fewer youth and an increasingly aging population means that the reallocation of resources to accommodate the demographic shift would be worthwhile. Michael Haan, an associate professor at the University of Western Ontario argues that the demographic situation has led to an “infrastructure mismatch.” Effectively, he argues that due to their being fewer young people there is not a need for as many schools. He suggests that “Converting schools to retirement homes is something to think about.”

An AIMS report on demographics argues that rather than focusing on the “cost” of the population aging, one should look at how to reallocate resources to accommodate the shift in demographics. This leads to questions that planners should keep in mind such as how many teachers are required and are there enough services available for older people and the like.

Being proactive about planning for the future is critical to assuring that Atlantic Canada is equipped to handle the demographic shift.

Increased Job Opportunities for Youth and Immigrant Retention

International students in Newfoundland and Labrador leave the province after graduation because of the poor availability of jobs in the province, isolation and the high cost of living/low pay.

Job opportunity is lacking in Nova Scotia as well where 42% of university degree holders aged 25 to 34 work jobs that do not require a degree.

If Atlantic Canada were to have higher wages and more job opportunities for youth and immigrants in the region, it could retain them.

Conclusion

Every province in Atlantic Canada is aware of the demographic problems in the region and each government is crafting a plan to solve the problems. The situation in Atlantic Canada is difficult and is projected to only get worse. However, careful planning on where to allocate resources and strategies to retain youth and attract immigrants are steps that can be taken to can help the problem at hand. Atlantic Canada is resilient and, hopefully, will persevere through such trying times.