Low-income Earners Need a Tax Break
In December 1997, Donna McElligott of CBC Radio News shocked Alberta Premier Ralph Klein by describing Edmonton as the poverty capital of Canada.
She based the allegation on a study by the Edmonton Social Planning Council, which found more than eight per cent of Edmonton families live in absolute poverty. That's the highest ratio among the six largest cities in Canada.
McElligott explained a family living in absolute poverty "lacks enough money to buy the basics of food, clothing, and shelter." This, she said, would include "families of four living on less than $16,000 a year—less than half of Statistics Canada's low income cutoffs."
While these low income cutoffs (LICOs) are habitually described by most politicians, journalists, and other commentators as Canada's official poverty lines, that's incorrect. Statistics Canada insists it "has always maintained and continually stressed that the LICOs are not a measure of poverty."
LICOs are what the name connotes: a measure of relatively low incomes. They rise with average family incomes. They do not indicate the minimum income families need to purchase all the basic necessities of life by current Canadian standards.
A student at the University of Alberta who drives a late model sports car given to him by his parents is hardly impoverished. Yet he might well have an earned income below the LICO for single adults living in Edmonton.
Regardless, Klein has not taken kindly to the suggestion that Edmonton is Canada's capital of absolute poverty. In a response to McElligott last week, he pointed out Edmonton has an unemployment rate of just six per cent, one of the lowest in the country.
Klein might also have noted Edmonton has one of Canada's lowest rates of welfare dependency. How, then, can the city have a larger proportion of people living in absolute poverty than, say, Toronto, Hamilton, or London?
Generous welfare system
Part of the explanation is the generosity of the Ontario welfare system. Despite the cutbacks in benefits adopted by the Harris government, a single mother with two children living on family benefits in Ontario still qualifies for a total annual income of $20,069, including $2,861 in refundable federal child tax and GST credits.
In comparison, half the LICO this year for a family of three amounts to $14,058 for big cities such as Toronto, $12,348 for smaller cities such as Hamilton and London, and $9,570 for rural areas. By this measure of absolute poverty, a welfare family of three in Ontario has anywhere from $6,000 to nearly $10,500 more income than is needed to cover the basic necessities of food, clothing, and shelter.
With regard to absolute poverty in Edmonton, McElligott observed that although many people in the city work full time, they do not earn enough to pay for all the basic necessities. To illustrate the point, she cited the plight of an Edmonton single mother with two children, aged 10 and five, who works full time at a minimum wage job paying $5 an hour. If this mother were to work at this rate all year long, she would earn scarcely half the annual income of a comparable family living on welfare in London.
What is the solution? Should the Klein government raise the Alberta minimum wage? That would only make matters worse by reducing the number of entry level jobs young people and older, able bodied welfare recipients need to escape from demoralizing dependency on handouts.
The key to eliminating the pockets of severe poverty that afflict Edmonton and all other Canadian cities is a system of enriched tax credits for the working poor. The Klein government has introduced such a program, but it pays a single earner with two children and a full time job at the minimum wage of no more than $1,000 a year.
That's not nearly enough, especially given the tax load on low income families imposed by the federal Liberals. Speaking in the Commons on Thursday, Reform party leader Preston Manning noted that, "Under this federal government's tax policies, a single mother with one child and an income of $15,000 pays $1,364 in income tax."
That's shameful. During last spring's federal election campaign, Reformers advanced a fiscally responsible plan for eliminating federal income taxes on all families earning less than $15,000. Recently, Liberal backbenchers on the Commons Finance Committee embraced this proposal.
What about the Chretien cabinet? Why can it not grasp that what hardworking, low income Canadians need is not more federal spending, but a substantial tax break that would enable them to keep more of their own hard earned money?