Bring back cost sharing! End 26 years of social assistance decline

Prologue: 1935-1966

In Ontario, a program called ‘cash relief’ replaced hampers of clothes and food in so-called ‘bankrupt’ municipalities in 1935. The Minister responsible in Mitch Hepburn’s Provincial Cabinet was the 35 year old visionary David Croll.

The main reason for providing cash relief was that it was much easier to dispense in municipalities where wholesale firings of staff had occurred for the simple reason that they could not meet payroll. The relief rates that were implemented were devised by Wallace Campbell in his 1932 report on the subject of how Ontario should cope with the poor in the Great Depression. Campbell was arguably Canada’s foremost businessman as the head of the Ford Motor Company of Canada[1].

The implementation of cash relief came after the new federal government of R.B. Bennett had provided provinces 5 consecutive cash infusions that began in 1930 following Mackenzie King’s declaration that he would not give a provincial conservative government ‘a five cent piece’. These infusions amounted to some of Canada’s first cost sharing agreements.

The relief rates were named after Wallace Campbell and, municipalities, acting on their own, began dispensing cash relief with names such as “Campbell + 5” or “Campbell +20” depending on their assessment of local requirements.

In 1938, as the government of Ontario pulled its municipalities out of bankruptcy, the Province attempted to unify relief rates. This action fomented much acrimony since, for some municipalities, the unification resulted in Ontario’s first rate social assistance rate cut although not near as large as those to come in 1995 .

But this brewing dustup did not have time to play itself out as Canada entered World War II. By the end of 1940, all relief to working age adults had been cancelled and the only people receiving assistance were widows and deserted women through Mothers’ Allowance and so-called dependent fathers: severely disabled men with children and wives.

It would not be until 1958 that Ontario reinstated the newly named general welfare assistance to single people following the short, sharp recession of 1957 that was partly responsible for ushering John Diefenbaker into power with his promise of a 20% increase to Old Age Pensions.

The era of social assistance consolidation and growth under CAP: 1967 – 1975

The idea that a ‘man could be out of work through no fault of his own’ regained traction in the late 1950’s especially as many newly unemployed men did not have enough unemployment insurance (UI) ‘stamps’[2] to make ends meet. In addition, there was a bewildering array of single purpose legislation that was proving increasingly hard to administer.

Accordingly, the 1960’s began with an unprecedented move toward consolidation of targeted social assistance legislation. Special legislation for single widows and unwed women, deserted mothers, unwed mothers, separated mothers, and 60-64 year olds were consolidated into two pieces of legislation in late 1966: a newly remade General Welfare Assistance Act and the entirely new Family Benefits legislation that came into force in early 1967.

The two pieces of legislation came into being as a result of a new cost sharing agreement with the federal government: the Canada Assistance Plan (CAP) that came into force in 1966. This legislation that provided 50-50 cost sharing of all social assistance payments followed the signing of the Indian Welfare Agreement in December 1965 that cost shares in First Nations’ social assistance and services, an agreement that is still in place today, almost 25 years after the demise of CAP.

In 1967, the general welfare single rate was set at $105 per month and a single disabled person could receive as much as $130 a month through special allowances for wheelchairs and blindness in addition to a travel and transportation stipend. The $105 single rate represented a more than 80% increase from the $58 a month that many municipalities paid in 1965.

The $105 a month welfare payment was welcome in progressive circles and received its only real criticism when paid to younger people. Few thought that the amount provided to people with disabilities was enough and in 1974, the Davis government brought in the GAINS (Guaranteed annual income system) for the aged and disabled that was branded as a program that would guarantee at least  $50 a week to every senior and disabled person in Ontario. It’s odd initial guarantee of $216.67 per month works out to exactly 50 dollars a week.

Only one year earlier in 1973, Marc Lalonde’s so called ‘Orange Paper’[3] had mandated a tripling of Family allowances and a bold new plan to replace welfare programs with income support and income supplementation programs for both those who could not work and those who could. New legislation would replace CAP by 1976.

But the promise of fundamental reform was tempered by high inflation following the first ‘oil shock’ and Ontario’s first post war deficit in 1975. CAP stayed in place. Proposed income support and supplementation programs were abandoned. But a period of social assistance expansion survived almost intact.

Expansion and the cap on CAP: 1976 -1993

Three different provincial governments ruled Ontario in the 1976-1993 period: The PC’s, a Liberal New Democrat coalition and finally the New Democrats on their own.

The late 1970’s got off to a rough start following the realization that fundamental reform was not in the cards. In Ontario, there were no social assistance rate increases in either 1976 or 1978 even these were years of high inflation.

But major increases were implemented during the 1980’s that also saw a province wide introduction of a shelter subsidy program that eventually became what is now known as the shelter component. Permanently unemployable persons were added to ranks of the GAINS program and program eligibility rules were relaxed especially during the recession of 1980-82 and the years of Minister John Sweeney under the Liberals.  

All in all, the single welfare rate rose from $105 a month in 1967 to $663 a month in 1993. This represents a 531% nominal increase. Adjusted for inflation, the increase in real terms was still 33%.

For people with disabilities, the GAINS rate rose from $130 in 1967 to $930 in 1993. This represents a 615% nominal increase. Adjusted for inflation[4], the increase was still 51%.

No one knew it at the time but the social assistance rates of 1993 were to become the highest in Ontario’s 85 year history of monetary social assistance.

At the time, Ontario was still weathering a long recession with unemployment rates persistently above 10% (The Great recession of 2008 did not see unemployment rise to 10% at any point). Social assistance caseloads were headed to their highest levels since the Great Depression. And in 1993, the Rae government hit the ‘reset button’ and provided the lowest social assistance increases since 1979.

But something else was going on.

In 1990, the federal government announced that it was going to amend the CAP agreement to limit cost sharing to Canada’s 3 most affluent provinces: Alberta, BC and Ontario.

Many thought that the courts would not uphold the unilateral federal move but by 1991, limits were imposed on cost sharing in the three provinces and by 1996, the federal government was paying out about one third of national welfare costs. By 1993 in Ontario, the federal contribution was forecast at 27%.

When the dust cleared and massive cuts imposed on the EI program in 1994, it was clear that the federal government had vacated the anti-poverty space and had left it to the provinces. A strict reading of Canada’s Constitution supports the view that poverty reduction is a provincial matter. But the adoption of income taxation in 1917 meant that the federal government had the resources to play a role, a part that it played in the renewable relief agreements it made in the 1930’s and reinforced through CAP cost sharing until 1996 when it pulled the final plug on cost sharing of social assistance.

2020 Hindsight: 26 years of rate decline

There were no social assistance increases in 1994 and 1995, the last two years of the Rae government. On July 22, 1995, Treasurer Ernie Eves, a member of the government of Mike Harris announced a 21.6% rate cut to social assistance effective October 1995, saving only persons with disabilities from the overt benefit cut.

This measure was followed by 10 full years of no increases until the modest rate increases of early 2005 announced in 2004. There had been no increases in so long that no one knew how to program the provincial computers to implement the planned 2004 increase.

From 2003 to 2018, the McGuinty and Wynne governments regularly increased social assistance but not sufficient in amounts to account for inflation. By 2018, social assistance rates were lower in real terms than the amounts to which Mike Harris had cut them in 1995.

The new Government of Doug Ford in 2018 announced that previously regulated increases of 3% in early 2018 would be cut to 1.5% and in 2019, there were no increases.

All in all, the single welfare rate rose from $663 a month in 1993 to $733 a month by 2019. This represents a 10.6% nominal increase over 26 years. Adjusted for inflation, the $663 rate would now be $1,042 a month but it would take a 57% increase in rates to buy what the single welfare rate of 1993 bought back then.

For people with disabilities, the GAINS rate rose from $930 in 1993 to $1,169 a month in 2019.  This represents a 26% nominal increase. Adjusted for inflation, the $930 rate would now be $1,461 a month but it would take a 25% increase in rates to buy what the single GAINS rate of 1993 bought back then.

2020 Vision:  federal skin in the game

The experiment is over.

We now know what happens when the federal government yanks its support for social assistance.

The cap on CAP may not have caused 26 years of rate decline but there is little doubt that it has sustained it. Provincial governments including Canada’s largest and richest province, regardless of the political stripe of those who have led it, have not been able to sustain basic welfare and disability payments to needy people.

During the period of expansion, the 26 years between 1967 and 1993, federal cost sharing was in place to significantly improve the lives of Canada’s poorest people. In the following epoch that also spans 26 years, cost sharing was not in place and the lives of Canada’s lowest income people, the poorest of the poor, have suffered a sharp decline.

Homelessness has increased. Food insecurity, once unheard of, is now a daily reality for many.

No real end is in sight.

But there is a glimmer of hope.

In 2019, the federal government passed legislation to set poverty reduction targets. The first target of 20% has already been met with increases to Old Age Security, child benefits and the Canada Workers benefit.  

The second target is a reduction of 50% by 2030 starting from the present government’s first election in 2015.

Forty per cent of Canada’s poor receive social assistance. That’s over 5% of our population; over 1 in 20 Canadians. They are the poorest of the poor and in order to make any meaningful headway respecting the goal of a 50% reduction by 2030, many of those receiving social assistance must be pulled out of poverty. Since they are in the deepest poverty, it will be harder to extricate them; but it can be done.

There are many ways to achieve the 50% goal. Social assistance rate increases are the least attractive way to get there. This means that innovation is key.  Smart services and wraparound supports are part of the equation. New refundable tax credits comprise another. EI reform is yet another avenue. Housing Benefits show promise.

But cost sharing proved to be effective in the 1930’s and then again from 1966 to 1996.

The federal government should consider shared cost programs once again now that through its poverty reduction strategy, it has skin in the game. JS/Jan 20/2020


[1] https://openpolicyontario.s3.amazonaws.com/uploads/2012/02/wallace-campbell-final.pdf

[2] https://thediscoverblog.com/2018/10/04/unemployment-insurance-revenue-stamps-and-the-danny-leong-collection/

[3] https://scholarworks.wmich.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1620&context=jssw

[4] https://inflationcalculator.ca/