The National Child Benefit Progress Report: 2006

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Chapter 1
The National Child Benefit Supplement

The National Child Benefit (NCB) is a joint initiative of federal, provincial and territorial governments to support Canadian children living in low-income families. The NCB initiative has three goals:

• to help prevent and reduce the depth of child poverty;
• to promote attachment to the labour market by ensuring that families will always be better off as a result of working; and,
• to reduce overlap and duplication by harmonizing program objectives and benefits, and through simplified administration.

The initiative recognizes that both income support and a range of benefits and services are critical to sustained success in reducing low income.

How the NCB Works

Before the NCB was introduced in 1998, there was minimal coordination between the federal system, which delivered child benefits through the income tax system, and provincial/territorial systems, which delivered child benefits through social assistance programs. The NCB initiative integrates federal, provincial and territorial systems of income support for children into a national platform of child benefits available to families on social assistance and low-income working families.

Before the NCB initiative, child benefits embedded in social assistance payments to parents were “needs-tested”, and their value increased with family size. By contrast, the income of a low-wage working family did not increase with family size. Families on social assistance who found paid work often saw their overall disposable income increase only slightly, and in some cases even saw a decline. Further, some families lost access to benefits and services available to people receiving social assistance such as extended drug, dental and optical benefits. Working families leaving social assistance also needed to pay taxes and employment-related costs out of their typically low wages.

This interaction between the labour market and government programs is commonly known as the “welfare wall”—a set of disincentives to labour force participation. The NCB is intended to help lower this welfare wall to ensure that families leaving social assistance are better off as a result of working. It is designed to support parents leaving social assistance for work, and to help low-income parents already in the labour market to stay there by reducing the role of social assistance in providing children’s basic income support.

Through the NCB initiative, federal, provincial and territorial systems of income support for children have been integrated to build a national platform of income-tested child benefits available to both social assistance families and low-income working families. The NCB initiative combines two key elements: federal monthly payments to low-income families with children, and benefits and services designed and delivered by the provinces, territories and First Nations to meet the needs of low-income families with children in each jurisdiction.

The Government of Canada provides monthly payments to low-income families with children through the NCB Supplement to the Canada Child Tax Benefit (CCTB) paid on a monthly basis. The NCB Supplement has increased incrementally since the inception of the initiative. Most provincial and territorial governments concurrently reduced the child portion of social assistance benefits by the full or partial amount of the NCB Supplement without impacting families’ overall income. Over time, the effect has been to displace an increasing proportion of child-related basic income support provided through social assistance.

Provinces and territories have the flexibility to adjust social assistance or child benefit payments by an amount equivalent to the NCB Supplement. Provinces, territories and First Nations reinvest these social assistance savings and invest additional funds in benefits and services for low-income families with children. These reinvestments and investments are discussed in detail in Chapter 2. Since the inception of the NCB initiative, three distinct approaches have evolved by which provinces and territories replace social assistance benefits for children with the NCB Supplement. These approaches are also described in Chapter 2.

D

The History of Federal Child Benefits in Canada

1918 — Child Tax Exemption: This exemption provided income tax savings that increased as taxable income increased. It did not provide benefits to families that did not have a tax liability.

1945 — Family Allowance: This benefit was provided to all Canadian families with dependent children.

1973 — The Family Allowance benefits were tripled, indexed to the cost of living, and made taxable.

1978 — Refundable Child Tax Credit: This targeted and income-tested child benefit, which was delivered through the tax system, provided a maximum benefit to low-income families, a declining amount to middle-income families, and no benefit to upper-income families.

1993 — Child Tax Benefit (CTB): This benefit consolidated refundable and non-refundable child tax credits and the Family Allowance into a monthly payment based on the number of children and level of family income. It also included the Working Income Supplement (WIS), which provided an additional benefit to low-income working families with children. In 1993, federal expenditures on child benefits, including WIS, totalled $5.1 billion.

1998 — The CTB was replaced by the Canada Child Tax Benefit (CCTB). The National Child Benefit (NCB) Supplement replaced the WIS, and is provided to all low-income families as part of the new CCTB.

2006 - The Government of Canada introduced the Universal Child Care Benefit (UCCB). All families, including low-income families, are receiving $100 a month for each child under the age of six, taxable in the hands of the lower-income spouse.

2007 – Budget 2007 announced a new Child Tax Credit which provides additional tax relief for families with children. For 2007, this tax credit provides up to $306 in tax savings for each child under the age of 18.

The Government of Canada’s Contribution to the NCB Initiative

Since July 1998, the Government of Canada has provided direct financial assistance to families with children through the CCTB. The CCTB is designed to help families with the costs of raising children and takes the form of a non-taxable monthly payment for families with children, based on a family’s net income and the number of children within the family.

The CCTB system is made up of two components: the CCTB base benefit, which is paid to low- and middle-income families with children; and the NCB Supplement, which is an additional benefit paid to low-income families with children. The NCB Supplement to the CCTB base benefit represents the Government of Canada’s contribution to the NCB initiative. Eligible Canadian families with children receive the CCTB base benefit and the NCB Supplement through a single monthly payment. Between July 2005 and June 2006, approximately 3.4 million families with 6.0 million children received the base benefit of the CCTB. Between July 2005 and June 2006, 1.6 million families with 2.8 million children received the NCB Supplement.

Families’ eligibility for CCTB and NCB child benefits is determined by household income. Figure 2 illustrates the CCTB structure for families with two children as of July 2006. During the 2006-2007 benefit year (from July 2006 to June 2007), two-child families with net incomes less than $20,435 received the maximum benefit level of $6,175. All families in receipt of the NCB Supplement receive the maximum level of the base benefit of the CCTB. Families with net incomes above $20,435 but below $36,378 continue to receive the maximum level of the base benefit of the CCTB, but the level of NCB Supplement to which they are entitled decreases as family income increases. Finally, those families with net incomes above $36,378 receive only the base benefit of the CCTB. The level of this benefit also decreases as family income increases, and is fully phased out at $99,128

D

Increased Federal Financial Assistance for Families with Children

The Government of Canada has significantly increased its investments in supporting low-income families with children since the implementation of the NCB initiative. Figure 3 shows the increase in the value of annual federal expenditures on low-income families with children through the CCTB system from 1995–1996 to 2007-2008.

Prior to the NCB, federal spending through the former Working Income Supplement (WIS) was $300 million in 1995–1996. As its initial contribution to the NCB initiative, which replaced the WIS, the Government of Canada committed $850 million to the NCB Supplement, in addition to the $5.1 billion per year that had been provided under the former Child Tax Benefit. Additional investments in the program were announced in subsequent years, including the restoration of full indexation of benefit levels in 2000 to ensure that benefit increases are not eroded by inflation. Federal investment in the NCB Supplement has increased steadily and is projected to reach $3.7 billion in 2007-2008. In addition, federal investment provided to low-income families with children through the base benefit of the CCTB has increased over this period, with $3.2 billion projected to be provided to NCB Supplement recipients in 2007-2008, compared to $2.6 billion in 1995–1996³.

D

Canadian families with children have benefited significantly from increases to the base benefit of the CCTB and the NCB Supplement. As Figure 4 shows, prior to July 1997, the maximum benefit for a family with two children was $2,540. In July 1997, when the WIS was enhanced and restructured, prior to the launch of the NCB, the maximum benefit for a two-child family was $3,050. In 2003, the Government of Canada announced a five year investment plan. Most recently, the NCB Supplement increased by $185 per child annually in July 2005 and again in July 2006.

D

As of July 2007, low-income families with children (whose family net income is equal to or below $20,883) receive maximum annual CCTB benefits (base benefit of the CCTB and NCB Supplement) of $3,271 for the first child and $3,041 for the second child, bringing the amount of total federal child benefits for a family with two children to $6,312, or more than double that of the pre-NCB 1996–1997 levels (see Table 1). For third and subsequent children, the amount of the benefit is $3,046, which includes an additional amount of $90 per year for third and subsequent children.

Table 1
Maximum Levels of Federal Child Benefits for 1996-1997 and 2007-2008 Program Years (July to June) in Current Dollars^a

	1996-1997	2007-2008	from 1996-1997 to 2007-2008
Number of Children	Maximum CTB+WIS	Maximum Base Benefit + NCB Supplement	Percentage Increase
1	$1,520	$3,271	115%
2	$2,540	$6,312	149%
3	$3,635	$9,358	157%
4	$4,730	$12,404	162%

^aCurrent dollars are in the actual dollars in a given year, and are not adjusted for inflation.

An on-line CCTB calculator to determine the amount of benefits families are entitled to is provided by the Canada Revenue Agency at:
www.cra-arc.gc.ca/benefits/calculator/menu-e.html

Federal Investment in the NCB Supplement by Province and Territory

Table 2 shows the breakdown of federal expenditures on the NCB Supplement and the number of children who benefited by province and territory for 2004-2005 and 2005-2006. As shown in Table 2, federal expenditures on the NCB Supplement have increased from $2.9 billion in 2004-2005 to $3.2 billion in 2005-2006. Federal expenditure increases reflect the five-year investment plan put in place by the 2003 Budget.

Table 2
Number of Children in Receipt of the NCB Supplement and Federal NCB Supplement Expenditures by Jurisdiction for 2004-2005 and 2005-2006 Program Years (July to June) in Current Dollars ^a

	July 2004 - June 2005		July 2005 - June 2006
Jurisdiction	Children Receiving NCB Supplement (thousands)	Benefits paid ($ millions)	Children Receiving NCB Supplement (thousands)	Benefits paid ($ millions)
Newfoundland and Labrador	49.7	52.8	47.8	57.1
Prince Edward Island	13.0	12.9	12.9	14.3
Nova Scotia	88.5	94.7	86.7	104.0
New Brunswick	70.8	75.2	69.3	82.2
Quebec	642.8	656.8	635.8	730.0
Ontario	1,006.0	1,023.3	1,004.1	1,145.6
Manitoba	140.7	148.7	139.8	165.8
Saskatchewan	127.6	135.3	124.5	150.1
Alberta	280.8	281.5	284.5	317.8
British Columbia	365.8	377.1	356.9	409.5
Yukon	2.6	2.5	2.5	2.7
Northwest Territories	4.5	4.4	4.3	4.8
Nunavut	6.5	6.7	6.4	7.4
Total	2,801.2b	2,873.2c	2,777.5b	3,192.9c

^aCurrent dollars are in the actual dollars in a given year and are not adjusted for inflation.

^bIncludes Canadians living outside of Canada.

^cTotals may not add due to rounding.

Source: CCTB administrative data from the Canada Revenue Agency.

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