Volunteers sorting and boxing food at the Daily Bread Food Bank on April 18, 2023.Fred Lum/the Globe and Mail
Claude Lavoie was director-general of economic studies and policy analysis at the Department of Finance from 2008 to 2023. He has represented Canada at OECD meetings and has received many honours, including the Queen’s Diamond Jubilee Medal.
In Canada, poverty is a half-full, hall-empty glass kind of situation.
On the positive side, the poverty rate has declined to 7.4 per cent in 2021 from 14 per cent in 2015, according to the latest figures available from Statistics Canada. This is in part because of a strong labour market, but also especially the result of critical government actions. Increases in the Canada Child Benefit, for example, have contributed to a significant decline in poverty among families with children. Poverty is also very low for elderly couples, reflecting our relatively sound pension system.
On the negative side, 2.8 million people are still living in poverty, and the rate is high for many vulnerable groups. Indigenous peoples, persons with disabilities, lone-parent households, recent immigrants and single adults aged 45 to 64 have a poverty rate that is double or triple that of the rest of the population. More than two-thirds of working-age individuals living in poverty belong to at least one of these groups.
While two-thirds of Canadians want governments to do more to address poverty, according to a 2018 Angus Reid poll, people do not agree on what to do. One of the key sources of disagreement is whether support for the poor discourages effort to work and hurts economic growth.
Those who believe it does – typically higher-income people – favour policies that encourage work, skill acquisition and counting on economic growth to lift all boats together. Those who don’t favour more generous financial support and believe poverty reduction will boost long-term growth by removing barriers to opportunity.
But the question is not whether economic growth can benefit the poor or whether poverty reduction can benefit the economy. The answer to both is a resounding yes. The real question is what kind of policies lead to both growth and poverty reduction.
Better universal access to affordable quality physical and mental-health care, early childhood care, and social housing are some of the win-win policy actions that encourage both growth and poverty reduction. More resources for integrating immigrants can provide impactful social and economic outcomes as well.
A better-designed income transfer system could also be part of the policy package. This is how trickle-down economics can work, and Canada’s tax and transfer system is among the least effective in the Organization for Economic Co-operation and Development at reducing poverty.
Although not conclusive, recent literature indicates that income transfers do not necessarily create large persistent work disincentive, or dependence. More data will be coming out of a recently launched Newfoundland and Labrador initiative that provides a basic income for residents aged 60 to 64. (Ontario’s short-lived basic income pilot project would also have shed light on this question if the Ford government had not cancelled it for dogmatic reasons just as it started producing valuable data.)
Support measures, whether in-kind or financial, are not cheap, but there is a much better long-term economic return on, say, better care for young people at risk of poverty than subsidies to battery factories or tax credits to wealthy households. As another example, money directed to recent increases to senior benefits may have been better spent elsewhere, since the poverty rate is lower for seniors than for other groups.
It is often more a question of spending choices than higher taxes. But even so, highly progressive taxes and transfers are not necessarily a bad thing in a world where consumption by the wealthier aims more at improving their relative social status than their absolute well-being.
There is a lot of evidence that increasing supports and reducing poverty do not have to be done at the expense of the economy. Countries such as Sweden, Denmark, Netherlands and Finland have higher taxes, higher transfers and a lower poverty rate than Canada. Yet they also all have a higher income per capita and a higher employment rate. Quebec’s welfare benefits are double those in Ontario, and yet La Belle Province has higher employment rates.
Poverty is a complex issue requiring multifaceted intervention strategies. What we need is for the well-being of the poor to be as much a determinant of policy choices as economic growth. The federal government showed intention to move in that direction in Budget 2021 but has since backtracked. When the well-being of the poor is appropriately incorporated in policy decisions, supporting growth and tackling poverty can be mutually reinforcing.