June 12, 2018

Time for National Consultation on Poverty Reduction to Bear Fruit

By Terrance Hunsley

OECD in Canada to Talk Work and Social Policy

The problems are becoming clearer; the solutions, ah… not so much.

The OECD social policy ministers were in Canada on May 14 to talk about some familiar themes – economic inequality, precarious work, job destruction by automation, and how to adjust social protection and income redistribution. Underlying the exchange of views was the spreading concern about voter backlash and the disappearance of trust in government. There was a feeling that large social and economic disruptions are taking shape and are testing the competence of democratic nation states.

As the OECD Secretary General, Angel Gurria put it in his address, the time is now for social policy to be advanced, to respond to the problems and opportunities presented by information technology, globalization, demographic changes and population movement.

And a more urgent tone came from Joachim Breuer, President of the International Social Security Association. He pointed out that many international agencies have been studying and discussing changes in work and labour markets for several years, but that the changes are taking place faster than governments can learn and respond. If social protection is going to be effective in the future, it needs to be reformed now. And an obvious place to start is to provide protection for self-employed and precarious workers. Ireland, for example, has recently implemented a new tax on employers who use contract workers, in order to provide those workers with some forms of protection.

Europe is somewhat behind North America in emerging from the 2008 financial crisis. Giorgos Kaminis, Mayor of Athens, emphasized that every financial crisis is a multidimensional social crisis. It is not over when GDP starts to grow again. People’s lives are disrupted by job loss, wage cuts, disappearance of opportunity, increased personal debt and stress. And at the time when they need extra assistance, service systems are overstressed, and under current political dogma, governments are often cutting spending.

In Portugal, social protection was cut back during the crisis and, according to Portuguese minister Vieira da Silva, that exacerbated job losses and wage losses. They are trying now to reverse the process with increased minimum wages and increased minimum social allowances, and whether or not directly associated, economic growth has returned.

The general discussion here reflected a kind of consensus among participants that the old model for redistributing benefits only after economic growth, needs to be changed. Increased redistribution of income, not only to cushion the impact of change, but also to reduce economic inequality in the society, needs to be integral to the policy model. Strengthening middle class families, economic opportunity and living standards for low wage workers was stressed by Canada’s Minister Duclos.

It is encouraging that the need to modernize social protection systems and to reduce inequality is being recognized. But the responses so far have been both slow and modest. The recent increase in children’s benefits in Canada is one of the more significant changes. Most of the discussion was on filling obvious and often longstanding gaps. There seems to be little enthusiasm for significant redistribution of income or wealth; little talk of making tax systems more progressive and more effective at the high end of income and wealth. These concerns may be the territory of finance ministers, who may not share the views of social policy ministers.

And if those particular elephants were not in the room in Montreal, another was. Middle and lower income voters are throwing out the governments and political parties which appear to be most concerned with their well-being. It seemed to be voiced for all elected officials when one of the ministers exclaimed that it wasn’t that governments have not put some good policies in place, “…it’s that people don’t trust us.”

Didn’t Rome burn while someone was fiddling?

OECD Pooh Poohs Basic Income

At the OECD social policy ministers forum in Montreal in May, an assessment of Basic Income (BI) as a policy proposal, which was produced by OECD staff last year, was being circulated. For supporters of either a universal basic income, or an unconditional negative income tax, as a means of reducing poverty and inequality, the news is bad.

The policy brief notes that some interesting BI experiments are taking place, in Canada, Netherlands, and Finland among others, but easily reaches its conclusions without awaiting the results. It presents microsimulations of different levels and approaches, with a wide variety of winners and losers. For example, a model which produces universal payments at basic social assistance levels, financed by eliminating unemployment insurance and the basic personal tax exemption, would have many more losers than winners. And reductions in administrative costs are not seen as significant enough to calculate. Changing various factors changes the winners and losers, but no option is seen as accomplishing the objective without creating more problems than it solves.

Problem is, the brief starts out by noting that OECD countries’ tax to GDP ratios are at “historically high levels,” such that any model they considered, had to be budget neutral. Some people could pay more taxes through loss of tax exemptions, but models based on general tax increases were not considered. It seems that, between 1965 and 2000, the average tax to GDP ratio in the OECD countries increased from about 24.8% to 34%. Governments were growing and providing more services. Between 2000 and 2014, it rose from 34% to a “historically high” level of 34.2%. (Source: OECD Revenue Statistics, 2016) During that period, income taxes have fallen marginally as a portion of tax revenues, while general consumption taxes and social security contributions have increased – implying a small decrease in overall progressivity.

When you think about it, such a small overall increase in taxation is surprising. The past fourteen years have seen a surge in the retirement-age population. Baby boomers started passing fifty-five about 2001, and sixty around 2006. The costs of public pensions have been on a sharp upward curve. Health care costs are growing as well, and not just because of population ageing. So while overall public spending has been pretty stable, the beneficiaries have shifted. So who lost out? Remember the 1990’s, when governments slashed unemployment and social assistance benefits? They were never restored. The Ontario Premier’s advisory group on income security reform reported recently that current social assistance is about 70% of what it would be if 1990’s levels had been adjusted with inflation.

But returning to basic income, few BI advocates are saying that this should be a budget neutral change. They want more generous assistance for low income people who are struggling in a highly selective and increasingly precarious job market. And for people who suffer from a range of disabilities and illnesses that our society has not found remedies for. And they want some rebalancing of income and wealth, given the procession of warnings from researchers, advocates, politicians and international organizations (including the OECD itself) about increasing inequality and the dangers it presents to democratic societies. They want, in essence, money to be redistributed from the top third of income earners and wealth holders, to the bottom third. And they would like more taxes to be paid by people who hide their income and wealth in tax havens. And although they have suggested some possible models, they believe that governments, especially departments of finance, have the expertise to put together a workable program. It is not the label of the program, or the problems of different design options, that is the problem. It is the lack of commitment by politicians who well understand the problems, to do something about it.

But there was a bright light at the forum. Canadian minister Jean Yves Duclos stated that the Canadian government would be announcing this summer, new steps in its commitment to reduce poverty and strengthen the middle class. We look forward to those announcements.

Time for National Consultation on Poverty Reduction to Bear Fruit

When the Trudeau government was elected, Jean Yves Duclos was appointed to cabinet with a mandate to implement increases to children’s benefits, and to consult with Canadians on further measures to reduce poverty and strengthen the middle class. The consultation has been underway for a year and a half, and Minister Duclos stated at a recent OECD forum for social policy ministers that announcements will be coming soon.

An advisory committee has been focussing on an “all of government” approach to poverty, with official targets, measurement, reporting and accountability. Mr Duclos indicated that clear targets and measurement will be part of the announcement.

When the consultation process was first launched, the Pearson Centre organized a half-day roundtable on poverty reduction, involving a wide range of stakeholders. Minister Duclos accepted our invitation to spend the morning with us.

In our report, we emphasized the need for poverty reduction to involve both a “whole of government” and a “whole of society” approach.

We suggested that the federal government adopt a bold goal – like a fifty percent reduction over ten years – and invite other governments as well as businesses and civil society, to engage and commit to the goal, and participate in an inspiring national project.

Here’s what we said:

The Government of Canada should invite other governments to agree on a national objective – a goal – to achieve a specified reduction in poverty levels over the next ten years. This could be an optimistic, but achievable goal – let’s say for example, a 50% reduction based on the LIM (Low Income Measure). As all governments including provinces, territories, municipalities, and first nations, have a role to play, they could all be asked to sign on to pursue this common goal. In doing so they would be agreeing to have their collective efforts evaluated each year, hopefully by Statistics Canada or by a special purpose agency or observatory to monitor social well-being and programs.

To make this a truly national effort, public institutions, civil society, community organizations, labour unions and businesses would also be invited to formally ratify the goal, thereby agreeing to help in its attainment and to review progress and their own role, in their annual general meetings.

The focus on targets is an attempt to get beyond the constraints of four-year election cycles which favour measuring efforts in dollars committed. But Canadians really have no way of knowing if any figure, whether millions or billions, is enough to achieve the goal. They receive less information on whether and when the dollars are actually spent, and even less on the results attained. An overarching goal with continuing measurement provides a better basis for democratic accountability.

We also need a modernized social policy approach, which engages all levels of government, and all of the relevant institutions and organizations in Canadian society. A goal which is broadly supported by the population permits parties from different points on the political spectrum, to demonstrate how their approach could achieve the best outcome.

Communities, civil society, businesses, all have a role to play in reducing poverty. Energizing their interest and contributions could help to create national pride in building an inclusive society.

With the recent change in the Ontario government, a rare window of potential for political consensus in Canada may have disappeared. Which could make a federal invitation to all of Canada – governments and society – to engage in a common goal, all the more important.

Terrance Hunsley is a Senior Fellow of the Pearson Centre.