Flaherty , will he deliver or all talk?

Working poor to get tax break in budget
Feb 28, 2007 TheTorontoStar Les Whittington Ottawa Bureau

OTTAWA–Next month's federal budget will commit hundreds of millions of dollars to a new tax break designed to help the working poor struggling to make ends meet even when they have full-time jobs.

A tax measure intended to assist those at the lowest end of the income scale has been under discussion in Ottawa for years, but Finance Minister Jim Flaherty says he is determined to finally deliver on it.

Called the working income tax benefit, or WITB, the plan is intended to offset the double whammy of higher personal income taxes and loss of social benefits that are a disincentive to work for many low-income families and people moving into the workforce from welfare.

Such a program is likely to be welcomed by advocates for the poor as a step in the right direction. But how effective the measure will be depends on how much money the Conservatives are willing to commit to the program, which could require up to $1 billion a year to make a significant difference to Canada's working poor.

Flaherty's target is a situation often called "the welfare wall." As a result of increased taxes and reduced income support from government programs, a typical single parent with one child who takes a low-income job can lose almost 80 cents of each dollar earned, according to a policy paper the finance minister released in November.

In addition, the parent could also lose benefits such as subsidized housing and prescription drugs while at the same time being weighed down with new expenses arising from his or her job, the paper noted.

"There are situations where somebody receiving social benefits will go to work and the net benefit for them will be $1.08 an hour," Flaherty told the Toronto Star recently. "So, quite rightly, they say, `There's not much in it for me going to work.' So, the new tax benefit is a way of increasing participation in the workforce."

The program to be announced in the March 19 budget is likely to take the form of a refundable tax credit, which reduces what a taxpayer owes the government and, if nothing is owed, becomes a refund to the individual. Anyone working full-time and earning up to $10 an hour is expected to benefit, and the program would have to provide a tax break of at least $1,000 annually to be meaningful, analysts say.

Finance Department officials aren't saying how much Flaherty will earmark in the budget for WITB. Estimates of the cost by outside economists range from $300 million a year to $1 billion.

"It's an incentive for people to work," said TD Bank economist Don Drummond, who contributed to a groundbreaking 2005 study of the problem entitled From Welfare to Work in Ontario: Still the Road Less Travelled.

"The people who benefit from Flaherty's plan are those who are working but at very low wages," Drummond said. "You can't just look at it in the short-term, as well. If you can get people removed from welfare and get them some work experience, they'll stay in the workforce."

Rising housing costs, reduced government benefit programs and the trend toward part-time employment have contributed to the plight of the working poor in recent years. In Ontario, for instance, nearly 400,000 working people live on $17,000 or less a year.

While benefits for children and seniors have been bolstered, little has been done for those at the low end of the income scale.

And anti-poverty advocates, women's organizations and other social policy groups have been calling for an income supplement from the federal government.

"The concept is certainly a good idea and we've known for many, many years that that's one of the sort of holes in the income security system," Ken Battle, president of the Caledon Institute for Social Policy, said when asked about the WITB proposal.

"The idea of supplementing low earnings to provide an incentive for people to either get off welfare and/or stay in the labour market makes sense."

He noted that it is an often-debated idea and versions of it have been put in place in Quebec, New Brunswick and Saskatchewan.

"But it's not the Holy Grail," Battle cautioned. "It's not some magic bullet that's going to cure all the problems of the welfare system and unemployment."

Flaherty's plan is expected to require the co-operation of the provinces to go into effect.