THE BC FAMILY BONUS
Child Benefit Reform in Canada: an evaluative framework and future directions Ken Battle and Michael Mendelson, Caledon Institute of Social Policy November 1997 pages 59-68
In July of 1996, BC introduced its new Family Bonus, becoming the first province to replace completely its welfare-based child benefits with a new child benefit program available equally to all low-income families. In so doing, BC has made a historic advance in child benefits. As one social policy analyst put it: "...a lot of governments have talked about issues like these for the last twenty years but not much has happened across the country, so, in a sense, we in BC are having a quiet revolution in social policy reform" [Prince 1996]. This child benefit 'quiet revolution' gives the other provinces and Ottawa an invaluable opportunity to learn from the results in BC in designing the new National Child Benefit System.
This section first describes the design of the BC Family Bonus and how it is administered. We then undertake a preliminary assessment of the BC Family Bonus according to the objectives described in the section Measuring Progress.
To better understand and assess the BC Family Bonus, we held two focus groups in Victoria - one with low-income families receiving the BC Family Bonus and another with community agency personnel ('front-line' workers). These focus groups are not a representative sampling, but they furnished a rich store of lived experience that cannot be obtained from large-scale surveys. We learned a great deal from the focus groups, especially from the recipients' group, and their views have informed our perspective throughout this report.
We also interviewed the BC Minister of Human Resources and a number of provincial public servants. We are grateful to the BC government for facilitating and helping us arrange these interviews.
What is the BC Family Bonus?
The BC Family Bonus replaced needs-tested welfare payments for children with an income-tested benefit, equally serving all low-income and modest-income BC families with children - including the working poor as well as those on welfare or Employment Insurance. Like welfare and the federal Child Tax Benefit, the BC Family Bonus is delivered on a monthly basis.
The maximum annual Bonus is $1,236 per child under the age of 18, equivalent to what was provided previously through the welfare system. The maximum benefit is paid to families with net family incomes under $18,000. For every dollar of income above the family income threshold of $18,000, benefits are reduced by 8 cents for families with one child and 16 cents for those with two or more children.
The BC Family Bonus is targeted to families with below-average incomes, since maximum benefits are payable only to those with incomes below the Statistics Canada low-income lines. The $18,000 net family income threshold for maximum benefits from the Family Bonus is less than Statistics Canada's low income cut-offs, which vary by size of family and community - e.g., ranging in 1997 from an estimated $27,032 for a family of three living in metropolitan Vancouver to $18,682 for a rural area; for a family of four, the low income cut-offs range from an estimated $32,722 for a metropolitan area of 500,000 or more to $22,613 for families living in rural areas. The Family Bonus diminishes to zero at $33,540 for families with one or two children. This disappearing point for the BC Family Bonus is substantially below the average income of families with children, estimated at $65,000 for British Columbia.
For welfare recipients, the BC Family Bonus replaces the child benefit of the same amount that used to be provided through welfare. Welfare recipients moving into the labour market continue to receive the Bonus - the same amount as they got while on welfare, if their net family income is under $18,000. If they lose their job and have to return to welfare, they continue to receive the Family Bonus.
Working poor families with income under $18,000 now receive the maximum Family Bonus, which represents a significant increase in income. For example, a single mother of two earning a net income of $18,000 a year, substantially above the minimum wage (even in BC, which at $7.00 an hour or $14,560 for full-time year-round work pays Canada's highest minimum wage), will get an extra $2,472 in income - a sizable increase in net income of 13.7 percent.
The BC Family Bonus is delivered by Revenue Canada on behalf of the province through the existing Child Tax Benefit administrative machinery. Inquiries are handled by a federal government call centre. Recipients can opt to receive their Family Bonus payment in the form of a cheque or as a direct deposit to their bank account. About 46 percent of recipients are now paid by cheque and 54 percent by direct deposit. It is expected that the percentage of direct deposits will gradually increase.
additional income for the working poor
The Family Bonus is being paid to some 220,000 families for the year ending June 1997, representing 45 percent of BC families. According to the 1997 BC Budget, total payments will amount to about $290 million for the nine months the program operated in the 1996-97 fiscal year. This means that the BC Family Bonus will cost approximately $385 million for a full fiscal year. This is not all incremental cost as roughly $145 million of this would have been paid anyway to families on welfare. Moreover, there are other offsetting savings for the BC government. For example, the federal government refunds to BC the cost of the Bonus paid to Native families on reserves which receive income assistance (i.e., welfare).
Of the total benefits, 95 percent go to families with net incomes less than $30,000 a year and 74 percent to those with annual net incomes under $18,000, so it appears that the program is well targeted to low-income families. Since welfare recipients used to receive an equivalent child benefit from welfare which was replaced by the Family Bonus, they did not experience an increase in child benefits. But of the 220,000 families getting the BC Family Bonus, around 150,000 are not on welfare and, while some of these are on Employment Insurance or other income transfer programs, most are working. The program has been successful in including the working poor, a group traditionally difficult to identify and to reach with public programs.
The Family Bonus has had a big impact on the 150,000 low-income and modest-income families not on welfare, for whom it has meant substantial additional income. A study commissioned by the government of BC and conducted by one of this report's authors, Michael Mendelson, estimated the reduction in the depth of poverty among working poor families as a result of the BC Family Bonus [Mendelson 1997].
The study found that the Family Bonus reduced the poverty gap by an estimated 19 percent for all working poor families (defined in the study as families below the low income cut-offs which are not on welfare, some of which will be on Employment Insurance or other transfer programs) and by 25.5 percent for single-parent families among the working poor. The study also calculated what effect the program has on depth of poverty using lower poverty lines set at 75 percent of the low income cut-offs. The result was a 28 percent reduction in the depth of poverty for all working poor families and a 38 percent reduction in the depth of poverty among single-parent working poor families.
The results should not be too surprising. After all, the BC Family Bonus is paying substantial benefits to families; the program is targeted to pay maximum benefits to low-income families; and the majority of the money is going to working poor families because they substantially outnumber those on welfare.
The Mendelson study did not attempt to measure the reduction in the number and percentage of families below the poverty line for the reasons discussed earlier in the section on evaluation. Nor did the research attempt to measure the dynamic effects of the new program; it is too early to attempt such an estimate in any case.
The effectiveness of the BC Family Bonus in reducing the depth of poverty among the working poor is not unrelated to its method of administration. The BC Family Bonus has almost 100 percent take-up, by virtue of its administration through the tax system. The working poor are traditionally a very difficult group to reach. The experience of most social programs is that if they require a separate special application, there will be far less than full take-up - especially if the applicant is required to visit a welfare office.
One of the participants in our community workers' focus group observed that:
For the families who are working poor, and we see a lot of them, the Bonus is a real help. A lot of those families are really struggling. They won't ask for help. They're hungry, their situations are difficult. So for them the Bonus is great...There are families where both parents are working, often part-time at minimum wage. They see the Bonus as making a real difference in their lives.
If our recipients' focus group is any indication, the BC Family Bonus is indeed making a real difference in the lives of children. Many of the families see the Bonus as money meant specifically for their children, although families are not always able to use it for children's items because they have other competing expenses (e.g., food or rent). In some instances, the Bonus allows them to get some of the 'extras' for their children that they could not otherwise afford. One mother said she spent one cheque on a hundred dollar enrollment fee so that her son could play junior hockey. Another said that she used it to buy her son's size 13 running shoes.
what does the BC Family Bonus mean for people on welfare?
The BC Family Bonus extends important income benefits to working poor families, but the strongest and loudest criticisms of the new program have come from welfare advocates, traditionally supportive of any program for the poor. Much of that criticism is related to the other changes in welfare benefits when the BC Family Bonus was introduced and is not really relevant to the Bonus per se. But some of the criticism arises from the fact that the BC Family Bonus is not additional income for welfare recipients.
This view was expressed in our focus group for community workers. For example, one worker said, "If it's a bonus, dammit, it should be more. It shouldn't mean getting the same thing at different times of the month."
Some of the reaction was caused by confusion over the name of the program. Some people felt that if it was advertised as a Bonus, then it should not just be a replacement for their welfare benefits. According to one community worker: "The name has confused some families on social assistance, who were expecting a 'bonus'. We had to have meetings to explain that to people, who saw the program as a loss for them."
Since the BC Family Bonus did not increase income for welfare recipients, critics argue that welfare recipients do not benefit in any way from the new program. However, this criticism implicitly suggests that the welfare caseload is static and unchanging, and that people on welfare are so different from the working poor that a program to benefit the latter will never reach anyone on welfare. This view is wrong. In fact, in a sense there is no such thing as 'the' welfare caseload. Instead, there is a rapidly changing group of people who are forced to rely on welfare at some points in their lives but are off welfare again as soon as they are able. Even in this time of high unemployment, about four percent of the BC caseload leaves the welfare rolls every month. Almost all families with children which leave welfare will continue to get the maximum Family Bonus for at least a year; those which go into low-wage jobs will receive the maximum amount for as long they earn low wages. Moreover, in light of the unstable labour market, the BC Family Bonus offers an important element of income security for unemployed parents who have to turn or return to Employment Insurance: They can always count on their income from the Bonus.
In our recipients' focus group, it became clear during the course of the conversation that several of the participants had been on welfare at some point. The statistics show that this is not at all unusual. For welfare recipients who aspire to get off welfare, which seems to be almost all, the Family Bonus allows households with children to leave welfare and take a job without a big loss in income. The Bonus removes a penalty standing in the way of the aspirations of many, perhaps most, people on welfare.
In sum, the Family Bonus does not hurt families on welfare in BC, but the introduction of the program may have resulted in some expectations not being met. Other governments might take note and initiate more aggressive communication with welfare recipients during the introduction. In the issues section, we discuss further the more general question of whether programs such as the BC Family Bonus should be 'passed on' to welfare recipients as an increase in their income.
Fairness and reducing barriers to work
Clearly, the BC Family Bonus has changed the treatment of working poor families with children compared to those in like circumstances but relying on welfare. All low-income families now are entitled to the same level of child benefits. In this sense, the new program is clearly fairer than the previous system and removes barriers to work.
However, there are two other aspects in which the BC Family Bonus may be less fair - the definition of family and the use of net rather than gross income for the purpose of calculating payments. With regard to the former matter, we are concerned that joint reporting of income may be sporadic, penalizing honest families. With regard to the latter issue, we believe that the use of net income introduces unjustified differences in treatment whereby families with substantial gross income end up being treated the same as lower- income families. But both problems originate in the federal child benefit and are only reflected in the BC Family Bonus. Therefore, these matters are discussed further in the issues section of this report as a problem which all tax-administered child benefits have in common.
We are proposing that the first standard of adequacy, to be reached by the year 2000, be a minimum payment of $2,500 per child, sufficient to get all child-related cash benefits out of the welfare system. By this standard, BC is already very close to achieving the first signpost. All cash benefits on behalf of children have been removed from the welfare system; total federal and BC child benefits are $2,469 for a child under 7 and $2,256 for a child over 7.
The second signpost of adequacy is to provide sufficient funds for a modest-income family to pay the additional costs of raising a child, which we have pegged at a provisional estimate of $4,000. When the larger federal benefits from the Canada Child Tax Benefit come into play, if British Columbia made no compensating reduction to its BC Family Bonus, the maximum combined benefit payable to all low-income families in BC would come to $3,074 for the first child under 7, which is not impossibly far off the $4,000 objective.
Effects on welfare caseload
One of the hopes in introducing a program such as the Family Bonus is that it will result in a decrease in welfare caseload. The Mendelson study found an accelerated decrease in BC welfare caseloads when the BC Family Bonus was introduced.
It is expected that the BC Family Bonus over time will affect caseloads in two ways. By removing financial penalties facing welfare recipients considering potential employment, it may encourage a more rapid departure from welfare into the workforce. But the impact on caseloads may result from some families finding it unnecessary to apply for welfare in the first place, so that the number of families enrolling might be expected to decline. Over the long term, even a small increase in stops and a small decrease in starts will have a big cumulative effect on total caseload. The same effects can be expected for any similar integration of child benefits in other provinces.
It is over many years, rather than immediately, that the BC Family Bonus likely will make a substantial difference in welfare caseloads. The Bonus will have to become a regular and expected part of the income security system, so that families know it is there as a secure source of income when they need to make decisions. It takes a long time for a program to become embedded in the culture of a province or country.
Nevertheless, there is preliminary evidence suggesting that the BC Family Bonus is having a sustained effect on reducing welfare caseloads among families with children. A recent quantitative analysis done by the BC Ministry of Employment and Income Assistance compared predicted starts and stops (i.e., families enrolling on welfare and leaving welfare, respectively) to actual starts and stops. This analysis found a continuing decrease in the number of stops, above the predicted level, and a continuing decline in starts, below the predicted level. The positive change from predicted value was most pronounced among single parents.
These early findings on the BC Family Bonus are very encouraging for the potential of an integrated child benefit system in Canada as a whole. While the results are preliminary, they likely will become larger still as the program is more established. Moreover, the results are cumulative; as stops increase and starts increase, the welfare caseload will decline substantially over time relative to where it would have been without child benefit reform.
Simple and efficient administration
As noted, the BC Family Bonus is delivered through the federal Child Tax Benefit machinery. This is a relatively inexpensive way to administer the program. The federal government charges BC about $3 million a year for this service. There are only a few BC public servants working on the program. BC has had to hire only three more staff to help administer this very large program. As a result, administrative cost is less than one percent of the total cost and only a few dollars per year per recipient family, and these amounts likely will decrease as more families use direct deposit.
the 'two cheques' issue
The introduction of the BC Family Bonus initiated a change in payment arrangements for welfare families with children. In June 1996, they went from a single welfare cheque plus a federal Child Tax Benefit cheque to a welfare cheque, a BC Family Bonus cheque and a federal Child Tax Benefit cheque (or direct deposit in some cases). Apparently, some welfare recipients were upset by this change.
Many welfare recipients know the precise amount of their cheque. It is not totally unheard of for seemingly arbitrary changes to appear on cheques, and recipients must follow up on such changes to ensure that they are correct. In this context, it is not surprising that there was some difficulty when $103 a child each month was moved from welfare to the BC Family Bonus. Even though the Family Bonus comes only a few days later, there is still a lot of worry until it arrives.
A longer-term welfare recipient at our focus group expressed this concern:
...having two cheques is kind of scary because I get $800 a month. That's it. But now I don't get $800 a month. I get $700 and they make you wait for a couple of days, and then you phone all your friends and you go: "Did you get that $103 one yet?" Because it totals the same amount, but you know... So you're waiting, and then you think: "Well, maybe there's a new policy that I haven't seen on TV yet.
Interestingly enough, the one new recipient of welfare in our recipients' focus group did not see things this way at all, having never experienced anything else. Indeed, she preferred two cheques:
So I like it that way because I've always got money. I run out of money and then, you know, two days later I have another cheque that's come in.
It would appear that the problem of 'two cheques' is another adjustment problem, difficult perhaps, but temporary. Possibly, it could have been eased by more advance preparation, but it likely will disappear after at most a few years when everyone is used to the new system. If the BC Family Bonus and the federal Child Tax Benefit are combined in a single cheque, this would move up delivery of the BC Family Bonus by two days and reduce the number of cheques to two from three. This change would simplify further administration and perhaps help reduce the confusion, although it also would require another period of adjustment.
The BC Family Bonus is paid each month two days after the federal Child Tax Benefit is paid. Where the Family Bonus is in the form of a cheque, the cheque shows both the BC crest and identification and the federal maple leaf and identification. In future, the cheques will display more prominently BC identification. In addition, at the beginning of each year, the BC government sends a letter to each recipient family saying how much Family Bonus it will be getting during the year.
Most of the staff we interviewed for this study felt that recipients do not always understand what the payment is or that it is coming from the government of BC. However, many of the participants in our recipients' focus group knew what the Bonus is, that it is a BC government initiative and, because they have to budget so carefully, exactly when it arrives and how much it pays. Admittedly, this group may not be representative of all recipient families, since participants in the focus group were selected on the basis that they know they receive the Bonus. Despite this knowledge, several participants said that they and their friends referred to the Bonus as the 'Family Allowance', as a kind of generic term for child-related benefits of any kind. (The actual Family Allowance program was replaced in 1993 by the Child Tax Benefit.)
For the general public, this issue of the jurisdictional identity of government programs might seem to be just political games. After all, who really cares whether people know they are getting a government benefit and which government is paying for it, as long as the program is working? But democratic governments have to get elected; programs that people do not know about, but that cost a lot of taxpayer dollars, usually will not be too successful in attracting public support. Anti-poverty programs have to compete for funding with popular programs like health and education, so if the former programs fail to provide much positive political visibility for the government, they will be hard to fund and maintain over time.
It is our sense that visibility may be a little better than most BC officials think, at least among working poor families, but we have no polling data to back this up. In any case, the cheque paid by the federal government on behalf of BC does not seem to help all that much in jointly crediting BC and Ottawa. Perhaps the new cheque design will be better, though more people likely will be going to direct deposit anyway.
The administration of the BC Family Bonus through the federal tax system has immense advantages - low administrative costs, non-intrusiveness and simplicity. But one disadvantage may be that it reduces somewhat BC's political credit for the program.
Promote dignity and independence
lack of stigma and intrusiveness
Administration through the income tax system means that the payment of the BC Family Bonus is automatic, based on the previous year's income tax report, and does not require a special application of any kind to be submitted. If a parent files an income tax return, and meets the eligibility requirements for family net income and number of children as determined from the tax returns, a Family Bonus payment is initiated.
For the recipient focus group, the automatic nature of the BC Family Bonus is extremely important - probably one of its best qualities. The program delivers a non-intrusive and non-stigmatizing payment that is theirs without demanding any special applications, without answering any questions other than those every citizen must answer on his or her tax form and without any demeaning sense of being deemed specially needy. The BC Family Bonus clearly is not welfare, which imposes a complex, highly intrusive and typically stigmatizing test of applicants' needs and resources. Some of the comments on this issue were:
"...this way I can make anything I want and only have to answer to the taxman" "There's no stigma." "You don't have to answer to anybody about what you made. ""You're independent of it. It's your life"
Since the tax form reports income from the previous year and it does so during the spring of the following year, the income upon which the BC Family Bonus (and the federal Child Tax Credit) is based may be out of date. For example, say a single mother with one child is earning $4,000 a month and then is laid off in November so that her employment income falls to nothing (of course, in reality she might qualify for Employment Insurance or, failing that, welfare). When she fills out her tax form in April, she will report $40,000 in employment income for the previous year as well as any benefits she receives from Employment Insurance or welfare. If she has few or no deductions, she will not be entitled to any Family Bonus payments in the current year when she is unemployed.
The disjuncture between current income and current child benefits could pose a serious problem for parents struggling to cope with a sharp reduction in income. The tax system is based on retrospective reporting of last year's income and is therefore not responsive. Any program using the tax system must find a way to deal with this problem of responsiveness to changes in mid-year in current family income.
There are two types of changes to family income or needs that occur in mid-year. One type of change results from new family composition: A couple splits up; one of the spouses dies; a child is born or dies. A second type of change may be due to loss of a job, finding a job, enjoying a pay increase or experiencing some other change in income.
The federal Child Tax Benefit administration allows parents to submit a special application to Revenue Canada at any time during the year if there is a change in family composition. The federal Child Tax Benefit may then be initiated in mid-year without waiting for a new tax form to be filed; the BC Family Bonus also is paid if eligibility is established. But the federal system does not accommodate mid-year changes in income due to other causes.
In BC, this issue is addressed through the welfare system. Temporary welfare is available to income assistance families not receiving the full Family Bonus, so that the amount of welfare they get per child (combined with any partial Family Bonus they may be getting) is equal to the full Bonus. When the full Bonus begins later in the year, the additional welfare is no longer required and is removed. Since welfare is available only to those with very few assets and little or no income, many low-income families in BC which otherwise would be eligible due to a drop in their income, must wait several months or more before they start getting the BC Family Bonus.
We asked participants in the recipients' focus group how they would react to a Family Bonus that instead required them to file a monthly report to be more responsive to change in income. There was a strong reaction consistent with their preference for a tax-based, non-intrusive system. Most participants thought that such a system would be too much like welfare. Some of the reactions to a suggestion for a monthly report were:
"No." "No way." "That's too much." "They'd better talk to some people." "Too intrusive." "Oh, it wouldn't be worth it." "It would drive me nuts if I had to fill out an application every month." "That would be worse than welfare."
In sum, the experience in BC is that the responsiveness problem has not turned out in practice to be a major source of complaint. The welfare alternative for those in dire straits appears to be working. From a recipient's perspective, the trade-off of responsiveness for non-intrusiveness is worthwhile.
[editor's note: end of excerpt]