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The demise of universality: the politics of federal income security in Canada, 1978-1993 Phillips, Stephen 1999

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THE DEMISE OF UNIVERSALITY: THE POLITICS OF F E D E R A L INCOME SECURITY IN C A N A D A , 1978-1993 by STEPHEN H A R O L D PHILLIPS M.A. , The University of Alberta, 1991 L L . B . , The University of Alberta, 1988 B.A. , The University of Alberta, 1983 A THESIS SUBMITTED IN PARTIAL F U L F I L M E N T OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in THE F A C U L T Y OF G R A D U A T E STUDIES D E P A R T M E N T OF POLITICAL SCIENCE We accept this thesis as conforming to the required sjjandard THE UNIVERSITY OF BRITISH C O L U M B I A F E B R U A R Y 1999 0 Stephen Harold Phillips, 1999 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of P o L m c / H - S C U F N J C C T The University of British Columbia Vancouver, Canada D a t e 23 A~PO.IL. \e\*°l DE-6 (2/88) Abstract Research by political scientists on the modern welfare state focuses on its historical development and on the emergence of distinctive welfare state regimes. Research conducted in the past decade has also been concerned with the implications for the welfare state of the recurrent crises which have afflicted western economies since the late 1970's. However, while the politics of building welfare states are now better understood, there remains little systematic study of the politics of their retrenchment, a phenomenon which has been under way for the past two decades in most advanced capitalist states. This study examines the politics of retrenchment in Canada over the period 1978 to 1993. Focusing on three categories of federal income security programmes (family benefits, retirement income programmes, and Unemployment Insurance), the thesis describes a gradual shift in programme design away from universality and toward greater selectivity. Concomitant with this development was an increasing reliance on the tax system as an instrument of social policy. Applying Gosta Esping-Andersen's analysis of welfare state regimes, the thesis contends that the cumulative effect of programme retrenchment during this period was to reinforce the liberal-residualist character of Canada's welfare state at the expense of its social democratic aspects. In an effort to explain the process of welfare state retrenchment in Canada, within and between different categories of income security programmes, the thesis tests hypotheses associated with three major approaches to the study of public policy: class analysis, institutionalism, and pluralism. The thesis concludes that retrenchment in Canada was broadly facilitated by a decline in the political power resources of labour in relation to those of business. Because of the weakness of the relevant non-class pressure groups, pluralism is of limited value in explaining retrenchment outcomes. Insights into more specific patterns of retrenchment are gained from two institutionalist perspectives. The first of these, a state-centred approach, draws attention to the larger role in social policy-making that was assumed by the Department of Finance, the chief fiscal guardian of the Federal Government. The second perspective, a rational choice theory developed by Paul Pierson, provides insight into the manner in which certain retrenchment measures were formulated. Based on Kent Weaver's blame-avoidance thesis, Pierson's model provides a persuasive explanation for the reliance of Canadian governments on arcane changes to tax rules and indexation formulae as an instrument of retrenchment. Since each of the analyses provides at best only a partial explanation for the politics of welfare state retrenchment, the thesis proposes the scheme of an integrated approach which incorporates the explanatory power of class analysis and institutionalism. i i i TABLE OF CONTENTS Abstract...., ii List of Tables iv CHAPTER I Introduction 1 CHAPTER II Overview of Canada's Liberal Welfare State 31 CHAPTER III "Last gasp of the old welfare state": The Liberals and income security, 1978-1984 70 CHAPTER IV "Social policy by stealth": The Conservatives and income security, 1984-1993 124 CHAPTER V Business, Labour, and Social Policy, 1984-1993 146 CHAPTER VI Political Parties and Social Policy, 1984-1993 168 CHAPTER VII Pressure Groups and Social Policy, 1984-1993 191 CHAPTER VIII State Actors and Social Policy, 1984-1993 210 CHAPTER IX Conclusion 233 Bibliography 262 LIST OF TABLES Table 1.1 Chronology of significant events and policy changes in the income security field, 1978-1993 29 Table 2.1 Typology of major federal income security programmes, 1979-1993 49 Table 2.2 Monthly Family Allowance payments as a percentage of average family income, selected years, 1978-1993 64 Table 2.3 Monthly Old Age Security pension benefits as a percentage of average monthly earnings, selected years, 1975-1992 64 Table 2.4 Comparison of eligibility criteria for federal income security programmes in 1979 and 1993 66 Table 2.5 Participation in RRSP programme by income group, 1991 67 Table 2.6 Comparison of Unemployment Insurance eligibility, benefits, and financing in 1978 and 1993 69 1 Chapter One: Introduction The welfare state is one of the signal achievements of advanced capitalism. While its nature and extent vary from one nation to another, key elements were established or consolidated in much of the western industrialized world in the period following the Second World War and formed the foundation of the so-called post-war settlement.1 The term welfare state is commonly employed in either of two general senses. The first of these refers to a range of public policies designed to provide for the economic and physical security of citizens, from income security programmes, such as old age pensions, unemployment insurance and family allowances, to subsidized housing, to a variety of social services, such as health services and child day care. A second, broader definition includes fiscal and regulatory measures designed to alleviate the harsher features of a capitalist market economy, such as counter-cyclical budgeting, regional economic development programmes, agricultural price supports, and minimum wage laws. Unless otherwise specified, this study employs the former definition, with an emphasis on income security. By the mid-1970's, welfare states in many countries began to face growing economic and political pressures. Reduced economic growth, surging inflation, and rising levels of taxation impelled many governments to explore ways of limiting the growth of social expenditures. Politically, many conservative parties shifted to the right and began to question the efficacy of the welfare state. Social democratic parties, while sympathetic to the goals of the welfare state, became increasingly divided over the best means of ensuring its survival. To its supporters and detractors alike, the welfare state has been in a precarious state, if not a state of crisis, for the past two decades.2 During this period, virtually all governments, to a greater or lesser extent, 'John Young, Cold War Europe 1945-1991: A Political History. London: Arnold, 1996; Asa Briggs and Patricia Clavin, Modern Europe: 1789-1989. London: Longman, 1997. 2There is a vast body of literature analyzing, or taking as a point of departure, the crisis of the welfare state. See, for example, James O'Connor, The Fiscal Crisis of the State. New York: St. Martin's Press, 1973; OECD, The Welfare State in Crisis. Paris: OECD, 1981; Ramesh Mishra, The Welfare State in Crisis. Brighton: Wheatsheaf, 1984; M. Moran, "Crisis of the Welfare State," British Journal of Political Science. 18 (1988), pp.397-414; John Myles, "Decline or Impasse? The Current State of the Welfare State," Studies in Political Economy, 26 (Summer 1988), pp.73-107; Christopher Pierson, Beyond the Welfare State? The New Political 2 have attempted to restrain the growth of social programmes. However, just as there are important differences in the nature and extent of social welfare provision among welfare states, so too have there been differences among states in the manner in which governments have responded to the economic and political challenges facing the welfare state.3 This study is concerned with the retrenchment of Canada's welfare state during the fifteen-year period from 1978 to 1993. It describes policy developments in three categories of federal income security programmes:- unemployment insurance, retirement income programmes, and family benefits. The study addresses major programme changes which were implemented in this period as well as the principal social policy proposals and debates which occupied the national political agenda. Before discussing further the plan of the study, it is useful to put the Canadian welfare state in an historical and international context. The Global Crisis of the Welfare State The modern welfare state was very much a legacy of the Depression of the 1930's and of the Second World War. In Europe and North America, the experience of the Depression debunked the claims of orthodox economic and political theory that unemployment and economic privation were conditions which only befell the feckless and improvident. In many countries the state-led economic mobilization and national solidarity of the War years engendered a groundswell of popular support for a positive state that would manage the economy and provide social security for all. Generally speaking, the piecemeal social programmes in place before 1945 were significantly extended in the ensuing decades. There were, of course, important differences in the nature and range of social benefits provided by national welfare states; leading theories accounting for such differences are canvassed below. However, we may discern certain broad trends which conditioned the development of welfare states, to a greater or lesser extent, in all OECD countries. Economy of Welfare. Cambridge: Polity, 1991. 3For a comparison of the social welfare policies of selected welfare states in the 1980's, see Ramesh Mishra, The Welfare State in Capitalist Society: Policies of Retrenchment and Maintenance in Europe, North America, and Australia. Hemel Hempstead: Harvester Wheatsheaf, 1990; Michael K. Brown (ed.), Remaking the Welfare State: Retrenchment and Social Policy in America and Europe. Philadelphia: Temple University Press, 1988. 3 The expansionary phase of the postwar welfare state, which lasted from 1945 to 1975, was undergirded by a political consensus known as the postwar settlement. A core element of that consensus was the conviction, shared by political elites on both the centre-right and the centre-left, that social justice, industrial peace, and even political stability demanded that the state assure all citizens at least a minimum level of economic and social security. As was stressed by the Beveridge Report of 1942 and by its Canadian equivalent, the Marsh Report of 1943, social security measures were to be built upon a policy of full employment.4 This link between social security and employment policy was enshrined in the reigning economic theory of the postwar period, Keynesianism. According to this theory, the state could minimize the natural swings of the business cycle and maintain a full employment economy through the judicious use of fiscal and monetary measures. The three decades of strong economic growth which followed the War facilitated the establishment and expansion of social programmes. In such a robust economic environment, annual increases in public spending could be realized in tandem with significant yearly gains in average wages and disposable income. The conditions which sustained this extended postwar boom included the rapid reconstruction of war-torn economies in Western Europe (spurred in large part by funds made available under the Marshall Plan), the growth of consumer-goods industries driven by pent-up consumer demand, the postwar baby boom, large-scale public investments in highways, schools, and other social infrastructure, and a major increase in the volume of world trade, on terms which favoured the more mature industrialized economies of the northern hemisphere.5 In political terms, there was broad agreement not only that Keynesianism had tamed the worst excesses of pre-War capitalism~and hence obviated the need for more radical prescriptions—but also that government spending, on social services and income security, was a crucial foundation of economic prosperity and stability. As major parties of the right and non-communist left found common ground on the essential features of the postwar settlement, "Dennis Guest, The Emergence of Social Security in Canada.. Second Ed.. Vancouver: UBC Press, 1985. 5John W. Young, Cold War Europe 1945-1991, op. eit, pp. 1-10. 4 ideological differences narrowed and the politics of'"developed market economies' seemed tranquil, if not somnolent."6 However, by the mid-1970's, welfare states in many countries began to face significant economic and political pressures as elements of the postwar settlement began to unravel. Indeed, during this period many scholars were of the view that the welfare state was in the throes of crisis. While there are many competing accounts of the nature and causes of the welfare state's malaise, certain dominant themes emerge. Foremost among the challenges facing the postwar settlement, and by extension the welfare state, was the problem of reduced rates of economic growth following the global recession of 1974 and the associated problem of high levels of inflation. Traditional Keynesianism had assumed there to be an inverse relationship between unemployment and inflation—following the famous Phillips Curve—and was therefore ill-equipped to deal with their simultaneous occurrence, a phenomenon known as "stagflation."7 Factors contributing to the decline in economic growth rates and to mounting unemployment in the mid-1970's to mid-1980's included two major increases in world oil prices, the end of the population boom in the wake of a sharp decline in national birth rates, increased competition in both traditional and high-technology industries from the newly industrializing countries of Asia and Latin America, and the problem of structural unemployment resulting from automation.8 Double-digit inflation was attributed to a variety of causes, including the aforementioned oil price shocks, the "administered pricing" practices of corporate oligopolies, and wage settlements, secured by an increasingly militant labour movement, which outstripped productivity gains. Faced with these challenges, western governments did not immediately abandon the tenets of the welfare state. Instead, governments experimented with a variety of "post-Keynesian" measures in an attempt to sustain the postwar settlement through what was widely thought to be trie Hobsbawm, Age of Extremes: The Short Twentieth Century, 1914-1991. London: Abacus, 1994, p.284. 7 Roger Friedland and Jimy M. Sanders, "Capitalism and the Welfare State: The Politics of Wages and Growth," pp.29-56 in Michael K. Brown (ed.), Remaking the Welfare State, op. cit.; Peter A. Hall, "Policy Paradigms, Social Learning and the State: The Case of Economic Policymaking in Britain." Comparative Politics. 25:3 (April 1993), pp.275-296 at p.285. 8Mark Kesselman et al, European Politics in Transition. Third Ed. Boston: Houghton Mifflin, 1997, p.31. 5 merely a temporary departure from the path of continuous economic growth.9 Notable here was the introduction of statutory wage and price controls in the US (1971) and in Canada (1975) and of voluntary national wage guidelines in Britain under the Labour Government's Social Contract (1974-1979) and in West Germany under the Concerted Action policy (1967-1976).10 While analogous measures were successfully implemented in other countries, notably Austria and Sweden, they proved to be unsustainable in the larger OECD countries, particularly as governments attempted to broaden their counter-inflationary policies by introducing cuts in social spending.11 Neo-conservative critiques of the welfare state As restraint in public spending increasingly became the order of the day, principled critiques of the welfare state began to be more widely articulated. From the right, long-time foes of the welfare state, such as Friedrich von Hayek and Milton Friedman, claimed that the welfare state was antithetical to a productive economy and advocated a return to a laissez-faire model.12 Others, alarmed at the growth of public spending and the seeming inability of governments to resist the demands of various pressure groups for further spending, contended that modern democracies were becoming ungovernable.13 From the left, some suggested that the crisis of the capitalist welfare state had exposed its inherent contradictions. Others were critical of the failure of thirty years of welfarism to bring about a more radical redistribution of wealth within capitalist societies.14 9E.g., see Paul McCracken et al, Towards Full Employment and Price Stability. Paris: OECD, 1977, p.14. wGeoff Hodgson, Labour at the Crossroads. Oxford: Martin Robinson, 1981; Michael G. Hudshoff, "West German Corporatism at Forty," pp. 160-177 in Peter H. Merkl (ed.), The Federal Republic of Germany at Forty. New York: New York University Press, 1989. "Amid considerable political acrimony, fiscal austerity measures were introduced in the mid-1970's to early 1980's by the British Government of James Callaghan, the French Government of Raymond Barre, and the West German Government of Helmut Schmidt. See generally Mark Kesselman et al (ed.), European Politics in Transition, op. cit. 1 2 Friedrich von Hayek, The Road to Serfdom. London: Routledge, 1944 and The Constitution of Liberty. London: Routledge, 1960; Milton Friedman, Capitalism and Freedom. Chicago: Chicago University Press, 1962 and, with R. Friedman, Free to Choose. New York: Harcourt Brace Javanovich, 1980. 13M. Crozier, S.P. Huntington, and J. Watanuki, The Crisis of Democracy: Report on the Governability of Democracies to the Trilateral Commission. New York: New York University Press, 1975. 14Claus Offe, Contradictions oj the Welfare State. Cambridge: Cambridge University Press, 1984. On the convergence of neo-liberal and neo-Marxist critiques of the welfare state, see Rudolph Klein, "O'Goffe's tale—On what we can learn from the success of the capitalist welfare state" in Catherine Jones (ed.), New Perspectives on the Welfare State in Europe. London: Routledge, 1993. 6 The 1980's saw the political ascendancy of conservative parties in Western Europe and North America—parties which were committed, to varying degrees, to a neo-liberal, anti-statist brand of politics hostile to the welfare state.15 This political shift to the right was exemplified by the election victories of the Conservatives in Britain in 1979 under Margaret Thatcher, of Ronald Reagan in 1980 as US President, and, to a lesser extent, of the Christian Democrats in West Germany in 1983 under Helmut Kohl. Thatcher and Reagan were especially outspoken in their repudiation of the postwar consensus and their embrace of the presumed virtues of limited government, free markets, and individual self-reliance. To these ends, the incremental growth of the welfare state was curtailed and many public programmes were scaled back, privatized, or abolished altogether.16 Of equal if not greater significance, many governments in the 1980's abandoned the Keynesian commitment to full employment, a cornerstone of the postwar welfare state, embracing in its place monetarist economic policies, so called for their emphasis on the maintenance of low inflation through the application of a more stringent monetary policy.17 It should be noted that the election of parties of the New Right was accompanied by the rise and growing influence of policy institutes, or "Ihink tanks," dedicated to popularizing neo-liberal or neo-conservative policy ideas. In the United States the most influential of such institutes included the American Enterprise Institute, the CATO Institute, and the Heritage Foundation. In Britain, comparable groups included the Institute of Economic Affairs, the Adam Smith Institute, and the Centre for Policy Studies.18 Peter Hall has contended that think tanks played a role in shifting Britain's macroeconomic policy from post-Keynesianism to monetarism in the late 1970's and early 1980's at a time when the majority of academic economists and 15This trend was especially pronounced in the Anglo-Saxon countries. See generally, Barry Cooper, Allan Kornberg, and William Mishler (ed.), The Resurgence of Conservatism in Anglo-American Democracies. Durham, N.C.: Duke University Press, 1988. 1 6 Paul Pierson, Dismantling the Welfare State? Reagan, Thatcher and the Politics of Retrenchment. Cambridge, Mass.: Harvard University Press, 1994. 17See generally, Peter Hall, Governing the Economy: The Politics of State Intervention in Britain and France. New York: Oxford University Press, 1986 and Peter Gourevitch, Politics in Hard Times: Comparative Responses to International Economic Crises. Ithaca, New York: Cornell University Press, 1986. 1 8 M. Patricia Marchak, The Integrated Circus: The New Right and the Restructuring of Global Markets. Kingston and Montreal: McGill-Queen's University Press, 1991, pp.93-115. 7 Treasury officials remained committed to the former.iy The election of Ronald Reagan to the US Presidency in 1980 brought about a growing politicization of expertise as think tanks made increasingly "aggressive efforts...to capture the limelight, to market their ideas, and to advocate their preferred policies and world views."20 Meanwhile, traditional defenders of the welfare state were slow to respond to this vigorous intellectual assault from the right. The left's paralysis stemmed in part from the absence of a coherent and widely accepted theory of the welfare state.21 The success of the postwar settlement had appeared to provide sufficient justification for it; however, with the onset of crisis, social democrats and welfare liberals, the natural allies of the welfare state, were increasingly at a loss to provide plausible solutions. The New Right's attack on the welfare state also found expression in Canada. While federal Liberal and Conservative Governments, in general, refrained from waging an overt ideological assault on the principles of the welfare state, a strong neo-conservative critique did inform the restrain policies of the Manitoba Conservative Government of Sterling Lyon (1977-1981) and the B.C. Social Credit Government of Bill Bennett (1983-1986) 2 2 And, as in Britain and the US, conservative Ihink tanks assumed a larger role in social and economic policy communities in the 1980's. Groups established in the mid-1970's, such as the Fraser Institute and the Business Council on National Issues, brought to the attention of policy-makers and the mass public a critique of "Big Government" and a set of policy prescriptions drafted from a decidedly free market perspective.23 Older institutes, such as the C D . Howe Institute, acquired a higher profile in the 1980's, lending their expertise to such causes as Canada-US free trade and 1 9 Peter A. Hall, "The movement from Keynesianism to monetarism: Institutional analysis and British economic policy in the 1970's," pp.90-113 at pp.95-96, 104 in Sven Steinmo, Kathleen Thelen and Frank Longstretch (ed.), Structuring Politics: Historical Institutionalism in Comparative Analysis. Cambridge: Cambridge University Press, 1992. 2 0 Allan Tupper, "Think tanks, public debt, and the politics of expertise in Canada," Canadian Public Administration. 36:4 (Winter 1993), pp.530-546 at p.543; J.A. Smith, The Idea Brokers: Think Tanks and the Rise of the New Policy Elite. New York: Free Press, 1991. 2 1 William A. Robson, Welfare State and Welfare Society. London: Allen and Unwin, 1976, pp.36-37. 2 2 Warren Magnusson et al (ed.), The New Reality: The Politics of Restraint in British Columbia. Vancouver: New Star Books, 1984. 2 3 See generally, Evert A. Lindquist, "Think tanks or clubs? Assessing the influence and roles of Canadian policy institutes," Canadian Public Administration. 36:4 (Winter 1993), pp.547-579. 8 Federal deficit reduction.24 While the influence of tiiink tanks is not systematically examined in this study, certain research questions having to do with the role of ideas in the policy process are raised in the concluding chapter. Socio-economic challenges to the welfare state The welfare state has also been buffeted by a variety of socio-economic challenges in the past two decades. A secular increase in unemployment rates across the OECD imposed a heavy burden on welfare states designed to deal with relatively low rates of unemployment. To this burden may be added the ageing of national populations in the industrialized countries, with the associated cost implications for health care systems and public pension plans. Relevant too has been the decline of full-time jobs relative to part-time employment, a trend which has placed downward pressure on family income while increasing the demand for higher social transfers to families. In addition, the deferment of family formation resulting from the choice of more and more women to delay having their first child presages "a further fall in the future ratio of working age to retirement age adults."25 Broadly speaking, Canada was affected by the economic and social changes noted above. Stagflation affected the Canadian economy in the 1970's, prompting the Federal Government to impose wage and price controls in 1975. That same year the Bank of Canada formally embraced monetarism when its Governor, Gerald Bouey, announced that the Bank would pursue a restrictive monetary policy involving the setting of annual limits on the growth of the money supply.26 Governments in Canada also began to evince growing concern in the 1970's with public spending, the growth of which began to outstrip the rate of growth of the economy and of government revenues. The Federal Government also began to run annual budget deficits after 2 4 Alan Ernst, "From Liberal Continentalism to Neconservatism: North American Free Trade and the Politics of the CD. Howe Institute." Studies in Political Economy. 39 (Autumn 1992), pp.109-140; Allan Tupper, "Thinks tanks, public debt, and the politics of expertise in Canada," op. cit. 25Peter Scherer, "Socio-Economic Change and Social Policy," in Family, Market, and Community: Equity and Efficiency in Social Policy. Social Policy Studies No. 21. Paris: OECD, 1997, pp. 13-61 at p.44. 2T)avid A. Wolfe, "The Rise and Demise of the Keynesian Era in Canada: Economic Policy, 1930-1982," pp.46-78 in Michael S. Cross and Gregory S. Kealey (ed.). Readings in Canadian Social History. Vol. 5: Modern Canada 1930-1980's. Toronto: McClelland and Stewart, 1984; Arthur W. Dormer and Douglas D. Peters, The Monetarist Counter-Revolution: A Critique of Canadian Monetary Policy 1975-1979. Toronto: Lorimer, 1979. 9 1974, contributing to increased levels of public debt. What has been the effect of this new economic and political environment on the development of the welfare state in the 1980's? On the one hand, virtually all governments imposed at least some degree of restraint on the growth of social programmes; in some cases, more far-reaching retrenchment was undertaken. This study addresses patterns of retrenchment in Canada at the national level. Purpose of the Study In broad terms, the study seeks to fill two lacunae in the literature on welfare states. First, it addresses the need for a comprehensive review of social welfare policy in Canada since the late 1970's. National and comparative studies of welfare state development focus heavily on Britain, the United States, and Scandinavia (especially Sweden). Canada is generally overlooked, either as the subject of single-nation welfare state studies or as a case study in multiple-nation comparative studies. A second purpose of the study is to provide a political analysis of recent developments in Canadian income security policy. Until relatively recently, published materials on Canada's welfare state were primarily the work of historians and of scholars affiliated with faculties of social work. Leading examples include works by such scholars as Malcolm Taylor, James Struthers, Andrew Armitage, and Dennis Guest.28 There have also been several noteworthy edited collections on the welfare state employing a variety of disciplinary perspectives. Until the 1980's, books on Canadian social policy employing a political science analysis were limited to studies of a single programme or set of related programmes. Notable examples here include Richard Simeon's study of the Canada Pension Plan, Kenneth Bryden's study of old 27See generally, W. Irwin Gillespie, Tax, Borrow, and Spend: Financing Federal Spending in Canada, 1867-1990. Ottawa: Carleton University Press, 1991. 28Malcolm Taylor, Health Insurance and Canadian Public Policy. Second Ed. Montreal and Kingston: McGill-Queen's University Press, 1987; James Struthers, No Fault of their Own: Unemployment and the Canadian Welfare State, 1914-1941. Toronto: University of Toronto Press, 1983; Andrew Armitage, Social Welfare in Canada: Ideals, Realities, and Future Paths. Second Ed. Toronto: McClelland and Stewart, 1988; Dennis Guest, The Emergence of Social Security in Canada, op. cit. 29E.g., Shankar A. Yelaja (ed.), Canadian Social Policy. Second Ed. Waterloo: Wilfrid Laurier University Press, 1987; Jacqueline S. Ismael (ed.), The Canadian Welfare State: Evolution and Transition. Edmonton: University of Alberta Press, 1987. age pensions, and Christopher Leman's study of the federal-provincial Social Security Review of the 1970's.30 The 1980's saw the publication of two important book-length analyses of the Canadian welfare state: Keith Banting's analysis of the influence of federalism on a range of federal income security programmes and Leslie Pal's analysis of Unemployment Insurance.31 While Banting focused on a single independent variable (federalism), Pal assessed the impact of several society- and state-centred variables on a single programme (UI). The latter approach was also taken by Rodney Haddow in his recent study on the origins of the Canada Assistance Plan and on the Social Security Review. The 1980's also saw the proliferation of a body of political science literature in Canada from the perspectives of political economy and feminism, a central concern of such research being the nature of the welfare state.33 This study blends the approaches taken by Banting and Pal by assessing the impact of several society-centred and state-centred variables on three categories of federal income security programmes—unemployment insurance, retirement income programmes, and family benefits. The study differs from much of the existing literature on income security policy in Canada by virtue of its focus on retrenchment. With the exception of a sizeable and growing body of articles addressing the reformulation of income security policy over the past fifteen years, the most extensive and detailed studies produced to date consider the formative and expansionary stages of Canada's income security system.34 In contrast, this study describes and seeks to explain 30Richard Simeon, Federal-Provincial Diplomacy: The Making of Recent Policy in Canada. Toronto: University of Toronto Press, 1972; Kenneth Bryden, Old Age Pensions and Policy-Making in Canada. Montreal and Kingston: McGill-Queen's University Press, 1974; Christopher Leman, The Collapse of Welfare Reform: Political Institutions, Policy, and the Poor in Canada and the United States. Cambridge, Mass.: MIT Press, 1980. 31Keith G. Banting, The Welfare State and Canadian Federalism. 2nd Edition. Montreal and Kingston: McGill-Queen's University Press, 1987; Leslie A. Pal, State, Class, and Bureaucracy: Canadian Unemployment Insurance and Public Policy. Montreal and Kingston: McGill-Queen's University Press, 1988. 32Rodney S. Haddow, Poverty Reform in Canada, 1958-1978: State and Class Influences on Policy Making. Montreal and Kingston: McGill-Queen's University Press, 1993. 33E.g., Allan Moscovitch and Glenn Drover (ed.), Inequality: Essays on the Political Economy of Social Welfare. Toronto: University of Toronto Press, 1981; Caroline Andrew, "Women and the Welfare State," Canadian Journal of Political Science, 17:4 (1984), pp.667-683; Jane Jenson, "Gender and Reproduction: Or, Babies and the State," Studies in Political Economy. 20 (Summer 1986), pp.1-19; Seth Koven and Sonya Michel (ed.), Gender and the Origins of Welfare States in Western Europe and North America. New York: Routledge, 1992; James Dickinson and Bob Russell (ed.), Family, Economy, and State: The Social Reproduction Process under Capitalism. Toronto: Garamond Press, 1986; Richard Lee Deaton, The Political Economy of Pensions: Power, Politics, and Social Change in Canada, Britain, and the United States. Vancouver: UBC Press, 1989. 34Articles on developments in federal income security policy in the 1980's and early 1990's include the following: 11 Canadian responses to contemporary pressures for welfare state retrenchment. More specifically, the project has three main objectives. The first of these is to provide a broad yet detailed account of the evolution of Canadian income security policy during a period when many of the assumptions underpinning the welfare state began to be called into question. The fifteen-year period in question (1978-1993) spans the latter stages of the Liberal Government of Pierre Trudeau and the two Progressive Conservative Governments of Brian Mulroney. This period represents a phase in the development of Canada's welfare state in which the dominant theme was that of retrenchment. Following the collapse in 1976 of the Social Security Review, an ambitious federal-provincial exercise aimed at developing an income supplementation programme for low-income working families, no notable extensions were made to Canada's income security system. The welfare state in Canada, in other words, had reached its outer limits by the late 1970's, notwithstanding the fact that there arguably remained major gaps in the range of services and contingencies for which public provision was made.35 On the contrary, since 1978 the focus of federal policy has been the retrenchment and reformulation of existing programmes. Indeed, 1978 is a watershed year in that the Federal Liberal Government identified public spending as a major cause of economic under-performance and underscored the need for austerity—themes that would be amplified by the Progressive Guy Lachapelle, "Between Income Security and Family Equalization," pp.284-305 in Andrew B. Gollner and Daniel Sallee (ed.), Canada under Mulroney: An End-of-Term Report. Montreal: Vehicule press, 1988; Ernie Lightman and Allan Irving, "Restructuring Canada's Welfare State," Journal of Social Policy, vol. 20, Part I (January 1991), pp.65-86; Bruce Smardon, "The Welfare State and the Politics of Retrenchment in Canada," Journal of Canadian Studies, 26:2 (June 1994), pp. 107-119; and Patricia Evans, "Eroding Canadian Social Welfare: The Mulroney Legacy, 1984-1993," Social Policy and Administration. 28:2 (June 1994), pp.107-119. Informative and insightful articles by such noted students of social policy as Michael Prince, James Rice, and Ken Battle can be found in the How Ottawa Spends series produced annually since 1980 by the Carleton University School of Public Administration. Invaluable too are the monographs of Keith G. Banting, one of Canada's foremost observers of social policy. The following is a highly abbreviated list of Banting's contributions: "The Social Policy Divide: The welfare state in Canada and the United States," in Keith Banting, George Hoberg, and Richard Simeon (ed.), Degrees of Freedom: Canada and the United States in a Changing World. Montreal and Kingston: McGill-Queen's University Press, 1997, pp.267-309; "Neo-Conservatism in an Open Economy: The Social Role of the Canadian State," International Political Science Review. Vol. 13 (1992), pp.149-170; "The Welfare State as Statecraft: Territorial Politics and Canadian Social Policy," in Stephen Leibfried and Paul Pierson (ed.), European Social Policy: Between Fragmentation and Integration. Washington, D.C.: Brookings Institution, 1995, pp.269-300. 3SNotable here is the absence of national public programmes for dental care, spectacles, or prescription drugs, the lack of a comprehensive programme of disability insurance (beyond the earnings-related CPP), and only limited state support for child day care and public housing. 12 Conservative Governments of the 1980's and early 1990's. The opening salvoes of the Government's new economic policy of retrenchment were fired in 1978 in the form of a 23% reduction in Family Allowances and a cut in Unemployment Insurance benefits. At the same time, the Federal Government began a process of reorienting the income security system away from the principle of iiniversality, according to which income transfers are made on the basis of universal entitlement, and toward the competing principle of selectivity, according to which eligibility for benefits is restricted on the basis of income. Highlights of this fifteen-year period of retrenchment policies are set out at the end of this chapter in Table 1.1. A second aim of the study is to identify differences in the nature and extent of retrenchment implemented (or attempted) in the three fields of income security in question. As numerous scholars have demonstrated, the willingness or capacity of governments to retrench income security programmes varies considerably across different programme categories. For example, while unemployment and social assistance benefits were curtailed in many OECD countries in the 1980's, public pensions and family benefits were maintained or even enriched, at least for certain categories of recipients. Thirdly, the study advances some tentative explanations for the observed patterns of retrenchment by testing certain hypotheses of welfare state development. The study proceeds from the assumption that the politics of establishing and expanding social programmes are different from the politics of dismantling them. As Paul Pierson cogently argues, the creation or expansion of income security programmes involves the conferring of benefits, allows politicians to claim credit, and may contribute to building the power and prestige of the state. Retrenchment, in contrast, involves the denial or taking away of benefits, the dismantling of state bureaucracies, and the keen desire of politicians to avoid mcurring political blame. On the last point, Pierson describes the politics of retrenchment as "typically treacherous, because it imposes tangible losses on concentrated groups of voters in return for diffuse and uncertain 13 gains."36 Pierson and others also draw attention to the new context created by the development of the welfare state. Whereas many leading social programmes were established at a time when interest groups were weak or non-existent, one of the principal legacies of the welfare state has been the emergence of interest groups and of "strong popular attachments to particular policies."37 It follows that theories which have helped to explain the growth of welfare states in the postwar period need to be reformulated, or supplemented by new approaches, in order to account for the retrenchment of social welfare programmes. Retrenchment of the Canadian Welfare State To what extent, and in what manner, was the Canadian welfare state retrenched in the 1980's? The answer to this question depends, first, on which aspects of the welfare state are selected for consideration and, second, on the means chosen to measure their retrenchment. With regard to the first point, three categories of federal income security programmes are examined: unemployment insurance, retirement income programmes, and family benefits.38 Programmes falling under these rubrics were selected for two principal reasons. First, they represent three central pillars of Canada's income security system, accounting for approximately 60% of total direct and tax-delivered spending on income maintenance by both levels of government in 1989-90.39 Moreover, these programmes affect virtually all Canadians to a greater or lesser extent, not merely as taxpayers but also as beneficiaries. Secondly, the programmes in question fall almost exclusively under federal jurisdiction. This feature largely restricts the set of proximate policy actors to the federal level of government. In addition, most of the programmes in question confer benefits on categories of recipients who 36Paul Pierson, "The New Politics of the Welfare State," World Politics, 48:2 (January 1996), pp.143-179 at p.145. "ibid., p. 146. 38In the field of retirement income, the principal programmes examined are Old Age Security, the Guaranteed Income Supplement, the Spouse's Allowance, the Canada Pension Plan, Registered Retirement Savings Plans, and federal legislation regulating occupational pension plans (most notably, the Pension Benefits Standards Act). In the family benefits field, particular attention is paid to Family Allowances, the Refundable Child Tax Credit and its successor, the Child Tax Benefit. The Unemployment Insurance programme is also examined. 39The 40% remainder is accounted for principally by social assistance expenditures under the Canada Assistance Plan, Workers' Compensation benefits, and miscellaneous tax deductions and credits in the social policy domain. Melanie Hess, The Canadian Fact Book on Income Security Programs. Ottawa: Canadian Council on Social Development, 1992, pp.8-10. 14 are geographically dispersed rather than regionally concentrated. As a result, federalism (at least in its interstate form) can be largely eliminated as a variable conditioning policy change. The most notable exception is UI, which is susceptible to the influence of federalism (in both its interstate and intrastate varieties) because of the geographically uneven incidence of unemployment and because of regionally specific provisions built into the UI Act. With regard to the measurement of retrenchment, the study seeks to identify changes in programme design affecting eligibility and benefits rather than relying on changes in aggregate programme expenditures, the usual measure of "welfare effort" in comparative studies of welfare states. For reasons that are elaborated in Chapter Two, a more qualitative description of the structure and governing principles of income security programmes is more revealing of their political character. Adopting the analysis of welfare state regimes developed by Gosta Esping-Andersen, the study describes the process by which social democratic features of Canada's income security system, most notably the principle of universal entitlement, were replaced by characteristics of a liberal welfare state, most notably the competing principle of selectivity.40 Explaining Retrenchment Political scientists identify, and ascribe varying degrees of importance to, a range of factors in accounting for the emergence and development of welfare states. These factors include the following: socio-economic change, political pressure from trade unions and the left, political culture and ideology, and political institutions. While most analysts eschew mono-causal explanations for the rise and evolution of the welfare state, many do assign pre-eminence to the influence of a particular variable. For example, it is generally accepted that modernization theory provides a plausible explanation for the emergence of social welfare policies in industrialized countries in the past century as each country sought to respond to a comparable set of social and economic conditions.41 Yet it is also widely recognized that the existence of common or Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism. Princeton: Princeton University Press, 1990. 41Exponents of this view include Gaston V. Rimlinger, Welfare Policy and Industrialization in Europe, America, and Russia. New York: John Wiley, 1971 and Harold Wilensky, The Welfare State and Equality: Structural and Ideological Roots of Public Expenditure. Berkeley, Calif.: University of California Press, 1975. 15 equivalent socio-economic conditions does not dictate a specific kind of policy response by the state. Other variables, such as federalism, political culture, the strengths and weaknesses of key interest groups, and the existence of a particular policy legacy, may affect the timing and content of specific social policies as well as the range of policy alternatives on offer. Accordingly, in seeking to understand the development of income security policy in Canada, this study considers variables and hypotheses associated with three broad theoretical perspectives on public policy: class analysis, institutionalism, and pluralism. For the most part, these analytical approaches have been concerned with explaining the emergence and growth of welfare states. This study assesses their utility in accounting for the reformulation and retrenchment of the welfare state. Class Analysis According to class analysis, the nature and extent of welfare state provision reflect the balance of forces between the economic class interests of business and labour. It is customary to distinguish two major schools of class analysis of welfare state development: the neo-Marxist and social democratic (or power resources) perspectives.42 While both perspectives emphasize the centrality of class relations, they differ in their assessments of the significance of the welfare state. To neo-Marxists, welfare programmes represent limited concessions made by the state to the working class to assure the long-run viability of capitalism. On this view, the welfare state is designed to meet the structural requirements of capitalism and to legitimate the dominant position of the capitalist class 4 3 This latter function forestalls demands for more fundamental reforms and underscores the role of the welfare state as an instrument of social control.44 To neo-Marxists, the state under capitalism, while possessing a certain degree of autonomy, acts in the overall interests of capital and can never wholly serve the ends of labour. 42Christopher Pierson, Beyond the Welfare State? op. cit., Chps. 1, 2; John B. Williamson and Fred C. Pampel, Old-Age Security in Comparative Perspective. New York: Oxford University Press, 1993, pp.7-12. 43Leading neo-Marxist analyses of the welfare state include Ralph Miliband, The State in Capitalist Society. London: Weidenfeld and Nicholson, 1969; James O'Connor, The Fiscal Crisis of the State, op. cit; Ian Gough, The Political Economy of the Welfare State. London: Macmillan, 1979; Claus Offe, Contradictions of the Welfare State, op. cit. ""E.g., see Frances Fox Piven and Richard A. Cloward, Regulating the Poor: The Functions of Public Welfare. New York: Random House, 1971. 16 The other leading school of class analysis is the social democratic, or power resources, approach. Theorists identified with this school consider the welfare state to be a potentially important means by which capitalist society may gradually be transformed into a more socialist society. In contrast to neo-Marxists, adherents of the social democratic approach do not view the state irretrievably to be in the service of capital. Rather, they contend that working class power is centred in organizations, notably trade unions and left-wing political parties, which can coordinate individual wage-earners into collective action. On this view, labour can influence the state indirectly through industrial action and directly through the election of socialist and labour parties. To the extent that labour is able to influence state policy, it can regulate and transform the operation of market economies to its own advantage.45 This study applies the power resources theory to recent developments in Canadian income security policy. According to many observers, Canada's comparatively low levels of spending on income security reflect the historic weakness of working class mobilization, as measured by the decentralized structure of the trade union movement and the minor party status of the New Democratic Party (NDP) in national politics 4 6 Canada, in consequence, is said to have a liberal-residualist welfare state characterized by "means-tested assistance, modest universal transfers [and] modest social insurance plans."47 While Canada's welfare state exhibits certain features of universality, such "impurities" are vulnerable to shifts in the balance of class forces bearing on the Canadian state. Thus, to the extent that universality in Canadian social programmes has been eroded in the 1980's, the power resources theory would expect to find an associated reduction in working class power—including a decline in the political strength of the Federal NDP— and/or an increase in the organizational resources of business. 45John Stephens, The Transition from Capitalism to Socialism. London: Macmillan, 1979; Walter Korpi, The Democratic Class Struggle. London: Routledge, 1983; Gosta Esping-Andersen, Politics against Markets. Princeton: Princeton University Press, 1985. Ttevid Wolfe, "The Canadian state in comparative perspective," Canadian Review of Sociology and Anthropology. 26:1 (1989), pp.95-126; Julia O'Connor, "Welfare Expenditure and Policy Orientation in Canada in Comparative Perspective," Canadian Review of Sociology and Anthropology. 26:1 (1989), pp. 127-150. 47Gosta Esping-Andersen, "The three political economies of the welfare state," Canadian Review of Sociology and Anthropology. 26:1 (1989), pp.10-36 at p.25. 17 Institutionalism The influence of political institutions on policy outcomes is a question that has long been of interest to political scientists. Scholars concerned with the independent impact on social policy of different state structures and configurations of power within the state have addressed it through a variety of state-centred approaches. At the level of constitutional structure, it has been contended that, other tilings being equal, the fusion of executive and legislative powers that is characteristic of parliamentary systems facilitates the establishment and expansion of social welfare and other collectivist policies, whereas the multiple veto points and more dispersed authority inherent in presidential systems have the opposite effect.48 Similarly, it has been contended that federal systems inhibit the development and expansion of welfare states.49 Other scholars argue that bureaucrats and niinisters have often taken a leading role in initiating and shaping social programmes. Proponents of this view contend that state actors have considerable autonomy over social policy.50 Institutionalism has enjoyed something of a renaissance in political science since the late 1970's. In the preceding two decades, students of politics had been heavily influenced by behaviouralism, with its emphasis on the explanatory power of social forces, from political culture to interest group activity to socio-economic characteristics of polities. While the independent influence of the state on political outcomes was not entirely neglected, there seemed to be little interest in investigating the inner workings of the black box of the state. After all, the postwar settlement appeared to lend support to the thesis that common economic conditions, class interests, and political values in advanced industrialized states conduce to a convergence in the policies and politics of such states. 48See generally, R. Kent Weaver and Bert A. Rockman (ed.), Do Institutions Matter? Government Capabilities in the United States and Abroad. Washington, D.C.: The Brookings Institution, 1993; C.E.S. Franks, The Parliament of Canada. Toronto: University of Toronto Press, 1987. 49David R. Cameron, "The Expansion of the Public Economy," American Political Science Review. 72 (1978) 1243-1261; Keith G. Banting, The Welfare State and Canadian Federalism, op. cit. 50Hugh Heclo, Modern Social Policies in Britain and Sweden: From Relief to Income Maintenance. London: Yale University Press, 1974; Richard Van Loon, "Reforming Welfare in Canada" Public Policy 27 (Fall 1979), pp.469-504; Leslie A. Pal, State, Class, and Bureaucracy, op. cit; Andrew F. Johnson, "A Minister as an Agent of Policy Change: The Case of Unemployment Insurance in the Seventies," Canadian Public Administration. 24 (Winter 1981), pp.612-633. 18 However, the advent of economic turmoil in the 1970's revealed a more diverse pattern of policy responses on the part of industrialized states than had been anticipated by society-centred theories.51 In seeking to account for this diversity, political scientists began to pay more attention to the institutional features of states. However, unlike the pre-War tradition of institutional studies, the "New Institutionalism" goes beyond the mere description of formal institutions and instead seeks to map empirically the distribution and use of power within the state and the interaction between state and societal actors within various policy sectors.52 Neo-institutionalists contend that state actors have varying degrees of autonomy from social forces.53 However, they differ over the manner in which institutions—including established public policies, or "policy legacies"~shape the behaviour of societal and state actors. On this point, two major schools of neo-institutionalism have emerged to date.54 The first, known as rational choice institutionalism, proceeds from the assumption that political actors are self-interested utility maxirnizers. On this view, the goals or preferences of political actors are rational and fixed. For example, rational choice institutionalists tend to assume that the oveniding goal of politicians in liberal democracies is to ensure their election or re-election. Institutions, however, shape the strategies chosen by political actors to realize their goals. The second major school of neo-institutionalism, known as historical institutionalism, questions the presumed rationality of political actors. According to this view, "the question of how individuals and groups define their self-interest [is] problematical."55 In contrast to adherents of the rational choice school, historical institutionalists contend that institutions shape not only the strategies of political actors, but also their goals. On this view, "institutions provide 5 1 Kathleen Thelen and Sven Steinmo, "Historical institutionalism in comparative politics," pp. 1-32 in Sven Steinmo et al (ed.), Structuring Politics, op. cit. 5 2 William D. Coleman and Grace Skogstad, Policy Communities and Public Policy: A Structural Approach. Mississauga: Copp Clark Pitman, 1990, pp.vii-xi. 5 3 Theda Skocpol, "Bringing the State Back In: Strategies of Analysis in Current Research," in Peter B. Evans, Dietrich Rueschmeyer and Theda Skocpol (ed.), Bringing the State Back In. Cambridge University Press, 1985; James G. March and Johan P. Olsen, Rediscovering Institutions. New York: Free Press, 1989. 5 4 The following discussion draws on Kathleen Thelen and Sven Steinmo, "Historical Institutionalism in comparative politics," op. cit. 5$Ibid.,p.&. 19 moral or cognitive templates for interpretation and action." How may institutionalism help to illuminate the politics of welfare state retrenchment? In this study, two variants of institutionalism are considered. The first of these, a state-centred approach, is concerned with identifying the locus of decision-making power within the Federal Government with regard to income security policy. The organization of the state and the capacity of relevant state actors may be of particular relevance in a context of welfare state retrenchment. The ability of the state to impose losses on various social groups may depend not only on the political power of those groups but also on the distribution of power within the state across an array of agencies and departments. The study therefore attempts to determine the shifting balance of power between the leading spending departments and fiscal guardians within the federal government in the 1980's.57 a) Guardians and Spenders When the concept of guardians and spenders was developed by Aaron Wildavsky in the 1960's, a decade of economic growth and prosperity, he presumed the natural inclination of line departments to be to seek annual real increases in their budgets and that of treasuries to be to restrain (or veto) such increases. By the 1980's, as most governments sought to control the growth of budget deficits, in part by curtailing public spending, it was observed that fiscal guardians were increasingly taking the initiative while spenders, now put on the defensive, were seeking to protect existing budget allocations.58 The major departments having responsibility for most of the programme expenditures in the income security field between 1978 and 1993 were the Department of National Health and Welfare (NHW) and the Department of Employment and Immigration. These agencies, it seems reasonable to suppose, had an interest in mamtaining, if not increasing, expenditures on existing 5 6 Peter A. Hall and Rosemary CR. Taylor, "Political Science and the Three New Institutionalisms." Political Studies. XLIV (1996), pp.936-957 at p.939. "The terms guardians and spenders were coined by Aaron Wildavsky in The Politics of the Budgetary Process. Boston: Little, Brown, 1964. The interaction between fiscal guardians and spenders in Canada is explored in Donald Savoie, The Politics of Public Spending in Canada. Toronto: University of Toronto Press, 1990. 5 8 G. Bruce Doem, Allan M. Maslove, and Michael J. Prince. Public Budgeting in Canada: Politics, Economics, and Management. Ottawa: Carleton University Press, 1988, p.213. 20 programmes. The pre-eminent fiscal guardian, the Department of Finance, has traditionally had an interest in containing public spending. Since selective income security programmes ostensibly are less costly to the treasury than universal ones, one would expect Finance to have a preference for the latter.59 Thus, to the extent that income security programmes were retrenched, new programmes not realized, and universality superseded by selectivity, it may be hypothesized that the authority of the fiscal guardians grew at the expense of the departments most directly responsible for those programmes. Any assessment of the evolving roles of the guardian and spending agencies of the Canadian state must take into account the emergence of the judiciary as a more powerful branch of government in the 1980's. As a result of the entrenchment of the Charter of Rights and Freedoms in 1982, the courts acquired a wider power of judicial review and with it the potential to affect income security policy. It was not immediately apparent how the Charter might be used by the courts in regard to social policy. However, by the mid- to late 1980's the predominant view was that the equality provisions of the Charter would likely serve to remove discriminatory features of numerous social benefits programmes. If upheld, most of these claims would have had the effect of enlarging the coverage of Canada's income security system, thereby increasing the social security commitments of the state and vitiating, at least in part, the enhanced power of the fiscal guardians of the state. b) Policy Legacies and Political Parties The second variant of institutionalism to be employed is that of rational choice institutionalism. Here the focus is on the political constraints imposed on governments by the "policy feedback" resulting from programmes previously established in the income security field. Such feedback may include the emergence of organized groups representing the beneficiaries of particular programmes, mass public support for such programmes, and a predisposition on the 5 9 On this point it should be noted that defenders of universality contend that while the aggregate level of benefit expenditures under universal programmes typically exceeds that of selective programmes, the net cost to the Treasury of such programmes may tell a different story (i.e. once administrative costs and the taxation of benefits are taken into account in each case). See National Council of Welfare. Family Allowances for All? Ottawa: March, 1983, pp.28-31. 21 part of state actors to favour existing policy designs when formulating new policies. More specifically, this study tests the hypothesis that governing parties wishing to retrench social welfare programmes tend to conduct themselves in a rational, self-interested way that is calculated to avoid (or mitigate) political blame. While the introduction of social programmes has frequently proven to be controversial, the expansion of existing programmes has typically been less contentious. Indeed, according to some scholars, particularly those identified with the public choice school, the expansion of welfare states in the postwar decades provided political parties of all ideological orientations with powerful incentives to match or "out-bid" their political rivals by promising to enrich benefits or to expand programme coverage.61 According to this view, the expansion of the welfare state was largely a process by which political parties sought to claim credit from electors for delivering new or more generous social welfare benefits. Whatever explanatory power this thesis may hold as regards the expansion of the welfare state, it would appear to have considerably less relevance in an era of welfare state retrenchment. For the most part, there is little political credit to be reaped from the curtailment or abolition of social programmes. Rather, welfare retrenchment is an exercise in what Kent Weaver refers to as political "blame avoidance."62 According to Weaver, politicians are guided by both electoral and non-electoral motivations. Among the electoral motivations he identifies are the desire to "'claim credit' with constituents and clientele groups for actions taken in their interests" and the desire to avoid blame for "perceived or real losses that they [have] either Theda Skocpol, Protecting Soldiers and Mothers: The Political Origins of Social Policy in the United States. Cambridge, Mass.: Harvard University Press, 1992, p.58; Paul Pierson, "When Effect becomes Cause: Policy Feedback and Political Change," World Politics. 45:4 (July 1993), pp.595-628. 61Martha Derthick, Policymaking for Social Security. Washington, D.C.: Brookings Institution, 1979; Anthony Downs, An Economic Theory of Democracy. New York: Harper and Row, 1957. This account of the growth of welfare states dovetails with the "end-of ideology" thesis of the 1950's, which held that rising levels of affluence in western capitalist democracies had created a broad political consensus on the desirability of a least a minimal level of social security and that this convergence of political opinion was increasingly blurring the ideological differences between parties of the left and right. See Daniel Bell, The End of Ideology: On the Exhaustion of Political Ideas in the Fifties. New York: Free Press, 1960; Anthony Crosland, The Future of Socialism. London: Jonathan Cape, 1964. 62R. Kent Weaver, "The Politics of Blame Avoidance," in Journal of Public Policy. 6:4 (October-December 1986), pp.371-398. 22 imposed or acquiesced in."63 He contends that politicians, on the whole, are more concerned with the political costs which may accrue from a policy than with the political gains which it may occasion. This hypothesis is based on evidence of a "negativity bias" among voters, according to which "[plersons who have suffered losses are more likely to notice the loss, to feel aggrieved and to act on that grievance, than gainers are to act on the basis of their improved state."64 In his study of the politics of welfare state retrenchment in Britain and the United States in the 1980's, Paul Pierson concludes that even stridently neo-liberal political leaders, such as Margaret Thatcher and Ronald Reagan, were forced to proceed cautiously in seeking to introduce welfare-curtailing policies.65 While Pierson found there to be differences in the vulnerability to retrenchment of particular programmes, he noted the reluctance of the Thatcher and Reagan governments in most cases to pursue direct and highly visible reductions in social spending, in contrast to their more aggressive initiatives in the fields of economic policy and industrial relations. Building on Weaver's thesis, Pierson attributes the political hazards of making direct cuts to social programmes to interest groups and to "strong public attachments to particular policies."66 These political constraints, Pierson maintains, lead "retrenchment advocates to pursue strategies that hide the magnitude of cuts by minimizing short-term negative consequences."67 The most widely used of these strategies is to "obfuscate" the details of policy changes by such means as diffusing cuts over time, increasing the complexity of reforms, and attenuating the public's awareness of policy-makers' responsibility for losses.68 Techniques in this category include refraining from indexing benefits to inflation, or only partially indexing them, in order to bring about a reduction in the real value of benefits over time, postponing implementation of cuts, "ibid, p.372. 64Ibid, p.373. 65Paul Pierson, Dismantling the Welfare State? op. cit. See also Paul D. Pierson and R. Kent Weaver, "Imposing Losses in Pension Policy" pp.110-150 in R. Kent Weaver and Bert A. Rockman (ed.), Do Institutions Matter? Government Capabilities in the United States and Abroad. Washington D.C.: The Brookings Institution, 1993; Paul Pierson, "The New Politics of the Welfare State," World Politics. 48:2 (January 1996), pp. 143-179. ^aul Pierson, Dismantling the Welfare State, op. cit, p.8. 61 Ibid., p. 14. "ibid, pp. 20-22. 23 and making cuts automatic through the adoption of new financing formulae. Another obfuscation technique is "implicit privatization," whereby the growth of social benefits is restrained in the context of an expanding economy such that the economic importance of such benefits diminishes in relation to private sources of income. In addition to obfuscation, Pierson discusses two further strategies by which policy-makers seek to diminish the immediate political costs of retrenchment. The first of these, a divide-and-conquer strategy, involves distributing the burden of retrenchment unevenly within a broad population of beneficiaries by varying benefit reductions on the basis of household composition, income level, age, geography, or some other grounds.69 A second strategy is to lessen the impact of retrenchment on certain classes of beneficiaries by providing compensation. Techniques here include the use of "grandfather clauses" to protect existing benefit recipients and the extension of private benefits to offset, at least in part, the curtailment of public benefits. Given the pragmatic and non-ideological character of Canada's Liberal and Progressive Conservative parties, it seems unlikely that they would launch a direct attack on the universality of income security programmes. It seems plausible, therefore, that the main parties, when in government, would implement retrenchment through the use of various techniques of blame-avoidance. The success or failure of such techniques, however, would depend in part on the effectiveness of the opposition parties in exposing the government's policies and in mobilizing public opinion against them. Pluralism In addition to assessing the impact on social welfare policy of class-based groups, the role of non-class-based actors will also be addressed. Broadly speaking, the social policy community in Canada lacks the presence of large, well-organized groups representing the interests of beneficiaries of categorical income security programmes. The interests of broad beneficiary groups such as the unemployed, the elderly, and the parents of dependent children are instead articulated by various relatively small public interest, research, and advocacy groups (such as the 24 Canadian Council on Social Development and the National Council of Welfare), many of which have broad mandates and are reliant on the federal government for a significant proportion of their financing. Historically, such groups have played only a marginal role in the development of income security policy in Canada.70 Nevertheless there is reason to believe that non-class groups may be assuming a more prominent role in shaping social policy. The 1980's saw a growing political self-consciousness and mobilization on the part of a host of social groups, notably women, aboriginals, the disabled, and gays.71 While the contributions of these groups to social policy debates were negligible during the building stages of the Canadian welfare state, their demands for recognition and inclusion began to extend into the field of income maintenance policy beginning in the late 1970's. Women's groups in particular began to advocate and sponsor constitutional and human rights challenges to social benefits provisions on the grounds of alleged discrimination. While impinging on the welfare state in important ways, many of the organized groups which emerged in this period sprang from broader social movements and were motivated only incidentally by a desire to expand or defend social programmes of benefit to the broad social categories on whose behalf they purported to speak. However, the welfare state itself also created constituencies of support among groups in receipt of benefits. However weakly organized such constituencies might be, they have the potential to become mobilized in the defence of programmes faced with cuts. Cuts to universal programmes might be expected to be particularly vulnerable to voter backlash as such programmes, by their nature, benefit the middle class, whose votes no government can afford to ignore.72 More generally, as noted above, As numerous scholars have noted, organizations in Canada representing beneficiaries of income security programmes generally emerged after the establishment of such programmes. Moreover, many such organizations were founded with seed money and sustained by operating grants from the federal government. 7 1 See generally, Alan Cairns, "The Fragmentation of Canadian Citizenship," in William Kaplan (ed.), Belonging: The Meaning and Future of Canadian Citizenship. Montreal and Kingston: McGill-Queen's University Press, 1993; Alan Cairns and Cynthia Williams, "Constitutionalism, Citizenship and Society in Canada: An Overview,' pp. 1-50 in Alan Cairns and Cynthia Williams (ed.), Constitutionalism, Citizenship and Society in Canada. Toronto: University of Toronto Press, 1985. 72On the role of the middle class in broadening the scope of social welfare programmes and influencing their retrenchment, see Robert E. Goodin and Julian Le Grand. Not Only the Poor: The Middle Class and the Welfare State. London: Allen and Unwin, 1987. 25 members of a latent group are more likely to take collective action in the defence of existing benefits than in pursuit of new or additional benefits. Thus, it may be hypothesized that non-class-based groups would represent a source of opposition to the retrenchment of universal social benefits. The effectiveness of such groups, however, would be expected to be marginal because of their limited organizational resources. Statement of Thesis In 1978 it could be said that Canada was a predominantly liberal welfare state containing certain elements of universality. Fifteen years later, Canada remained a liberal welfare state, but the principle of universality had been eroded. Through a series of measures which are discussed in subsequent chapters, from the strengthening of market-based eligibility rules for UI benefits to the de-indexation and subsequent abolition of Family Allowances, Canada's welfare state became more residual in nature by the 1990's than it had been in 1978. While economic and fiscal pressures put income maintenance programmes on the policy agenda in the late 1970's, and kept them there in the ensuing decade, specific policy changes resulted from the exercise of political choices. To account for the particular pattern of choices which was made, it is contended that state- and society-centred explanations must be considered. To this end, the following propositions are tested to explain the decline of universality: 1) that the power resources of organized labour declined in the 1980's in relation to those of capital; 2) that, further to the power resources thesis, there was a decline in the influence in federal politics of labour's political ally, the New Democratic Party; 3) that the authority of spending departments within the federal social policy process declined in relation to that of the fiscal guardians, most notably the Department of Finance; 4) that Liberal and Conservative federal governments made successful use of a series of blame-avoidance techniques; 5) that non-class-based groups remained weak, or suffered a decline in influence in the social policy process. 26 Methodology The methodology used to test the hypotheses enumerated above is as follows. With reference to class analysis, the power resources thesis raises certain expectations about the impetus behind public policy in liberal democratic states. Specifically, its assumption that policy results from conflict between economic classes implies that the positions taken by such classes reflect their respective material interests and that those interests, for the most part, are diametrically opposed to one another. To identify the positions taken by business and labour on social policy, the study documents the demands made by leading business and labour groups, most notably, for business, the Business Council on National Issues (BCNI), the Canadian Manufacturers' Association (CMA), and the Canadian Chamber of Commerce (CCC), and, for labour, the Canadian Labour Congress (CLC). These positions are gleaned from policy papers released by such groups, from testimony before parliamentary committees, and from newspaper accounts.73 Further to the power resources approach, the capacity of economic classes to influence public policy is measured by reference to the organizational resources of their representative organizations and by the relative strengths of business and labour in the broader political economy. Such power resources are measured by reference to organizational characteristics such as membership size and representativeness, organizational cohesion, and the balance of power in the workplace as reflected in such indices as average wage gains and levels of strike activity. To measure the political influence of economic classes, the study begins by examining the legislative record. Policy outputs per se may or may not provide evidence of business or labour influence—even if there appears to be a close correspondence between a given policy and the demands of a particular economic class—as there may be other forces militating in favour of the policy. Accordingly, the study looks for evidence which illuminates the basis on which policy 7 3 An issue that arises here is whether the publicly stated positions of interest groups can necessarily be taken to represent the policy positions they actually pursue in private. The likelihood of there being glaring discrepancies of this kind is minimized by the length of time and range of issues addressed by the study. Moreover, the business groups considered in the study would have to have coordinated such a deception. No evidence has come to my attention to suggest that they had either the capacity or inclination to do so. 27 makers reached particular policy decisions. Such evidence is sought in parliamentary records, press releases and other public sources, and through interviews with federal civil servants and with other members of the social policy community. It should be added that the lack of direct evidence of policy influence by economic class groups does not preclude the possibility of more subtle or systemic forms of influence. As Cuneo puts it: "...the conscious intentions of state policy-makers to oppress the working class do not have to be established in order to argue that [policy has] a class reality."74 Thus, even in the absence of a direct relationship between a specific policy decision and the demands of a particular group, powerful groups may nevertheless impose constraints on policymakers by limiting the scope of policy changes.75 Given the empirical difficulties which may arise in measuring the influence of economic interest groups on a given policy decision, the study attempts to discern broad patterns of influence by examining developments in income security policy over a fifteen-year period and by considering briefly the state's receptiveness to business and labour demands in the field of macroeconomic policy. A more specific formulation of the power resources approach concerns the strength of political parties representing labour's class interests. In this case, the strength of the Federal NDP is measured in terms of its parliamentary representation and popular support, as reflected in election results and public opinion polls. In a context of retrenchment, the NDP's influence on policy is gauged by its success in persuading the major parties to forebear from curtailing social welfare programmes and to endorse social democratic aspects of the welfare state, such as universality. Specific NDP positions on social policy as gleaned from parliamentary debates, election platforms, and other policy documents. Evidence of the Party's political influence is sought in newspaper articles, parliamentary proceedings, and various secondary sources. The significance of relevant state actors as initiators, advocates, opponents, or modifiers of social policy proposals is explored by tracing the shifting allocations of social policy-making 74Carl J. Cuneo, "Comment: Restoring Class to State Unemployment Insurance," Canadian Journal of Political Science. XIX: 1 (March 1986), pp.93-98 at p.97. Leslie A. Pal, State, Class, and Bureaucracy, op. cit., pp.59, 93. 28 authority within the federal government. This state-centred approach is based on the expectation that policy is influenced by the organization of the state and by conflicts between various agencies and departments within it. The study identifies the leading agencies responsible for specific policy decisions and attempts to determine their respective roles. This task involves an examination of the goals of the relevant state actors and the outcomes of inter-departmental conflicts. Information on the competing roles of different government agencies and actors is sought from interviews, departmental policy papers, and secondary sources. The "blame-avoidance" thesis focuses on the various ways in which policy affects politics. To test its validity, the study compares the retrenchment measures which were adopted with the catalogue of techniques anticipated by Pierson's theory. Pierson contends that the choice of retrenchment instruments is typically driven by the desire of governing parties to lower the political visibility of social spending cuts. Indeed, he suggests that, through a process of policy learning, governments have often abandoned overt retrenchment measures, in the face of political protest, only to accomplish their objectives through more indirect means. This study therefore seeks to describe the political context in which retrenchment measures were adopted in Canada and to consider competing explanations for their design. Organization Chapter Two describes the main programmes which comprise Canada's federal income security system and outlines the broad changes which occurred over the 15-year period in question, most notably the shift away from universal entitlement and toward greater selectivity. Chapter Three discusses income security policy under the Liberals (1978-1984) and analyzes it with reference to the hypotheses described above. Given its brief tenure, the Conservative Government of Joe Clark is not examined separately but is referred to where appropriate. Chapter Four describes the more extensive changes to income security wrought by the Conservatives during their two terms of office (1984-1993). Chapters Five to Eight seek to explain Conservative social policy by testing the hypotheses used in Chapter Three. The conclusion is set out in Chapter Nine. 29 Table 1.1 Chronology of Significant Events and Policy Changes in the Federal Income Security Field, 1978-1993 1978 —Announcement by PM Trudeau of $2 billion in federal programme cuts following the Bonn Economic Summit. Early symbolic embrace of the neo-conservative policies of public spending retrenchment. —Introduction of the Refundable Child Tax Credit (RCTC), the last major extension of the income security system, augurs the increasing use of targeted tax benefits over universal cash transfers. —Tightening of the eligibility rules for Unemployment Insurance; benefit rate reduced from 66.6% of insurable earnings to 60%. 1979 —Trudeau Government defeated. Conservatives form a minority government. 1980 —Conservatives defeated; Liberals returned to office. 1982 —Introduction of the federal "6 and 5" restraint programme in the federal public sector. Indexation of universal Family Allowance and Old Age Security benefits capped at 6% in 1983 and 5% in 1984, but not the income-tested Guaranteed Income Supplement nor the RCTC. This measure and subsequent ceilings on the indexation of benefits underscore the gradual erosion of universality in favour of income-tested benefits. —Proclamation of the Canada Act. Charter of Rights and Freedoms viewed by many observers as a means of restructuring social benefits programmes, especially those programmes corrferring benefits on age- or sex-specific categories of eligible recipients 1983 —Extension of UI parental leave benefits to parents of adopted children. 1984 —Finance Minister Marc Lalonde announces in the Budget modest proposals to improve benefits under the Canada Pension Plan, to strengthen occupational pension plans under the federal Pension Benefits Standards Act (PBSA), and to provide broader tax relief for contributors to Registered Retirement Savings Plans (RRSPs) —Election of a Conservative majority government formally committed to deficit reduction and to the targeting of social welfare benefits to those in greatest need. —In an Economic Statement delivered in November, 1984, Finance Minister Michael Wilson announces immediate spending cuts, including the termination of UI benefits to claimants who are within one year of retirement. 1985 —Federal Budget partially de-indexes Family Allowances while increasing the Refundable Child Tax Credit. Government backs down on plan for the partial de-indexing of Old Age Security in the face of a vocal outcry by seniors. 30 1986 —Report of the Forget Royal Commission on UI recommends the phasing out of special regional benefits and the restoration of UI as a self-funded insurance programme. Government disavows the Report following vigorous denunciations by the Atlantic Premiers, organized labour, and by sections of the federal Conservative cabinet and caucus. —OAS Spousal Allowance (introduced in 1975) extended to all widowed persons 60-64 years of age in financial need, regardless of the spouse's age at death. (Previously, the deceased spouse had to be at least 65 in order for the survivor to be eligible.) Mulroney Government (like its Liberal predecessor) rejects calls for the extension of OAS benefits to singles 60-64 years of age who never married or are divorced or separated. —Government introduces legislation to amend the PBSA along the lines proposed in the Lalonde Budget of 1984. CPP amendments also introduced. 1987 —Reform Party founded in Vancouver. Party programme advocates limited government, balanced budgets, and an end to universal income security programmes. —Government introduces reforms to the tax system, reducing the number of personal income tax brackets from ten to three and converting most tax deductions and exemptions into tax credits. 1988 -Government tables its National Child Care Strategy. The only element of the Strategy to be implemented are increases in the child care expense deduction and in the RCTC. —Conservatives re-elected. While social policy issues per se are overshadowed during the election campaign by the Free Trade issue, many Free Trade opponents characterize the FTA as an instrument for dismantling Canada's welfare state. 1989 —Federal Budget introduces the tax "clawback" of OAS and Family Allowances from upper income earners. 1990 —Expiration of the Meech Lake Accord. Proposed restrictions on the use of the federal spending power harshly criticized by most social policy activists. -Passage of Bill C-21, ending federal contributions to UI, tightening eligibility requirements, and reducing the duration of benefits. Special regional benefits left intact. Elderly unemployed (65+) eligible for benefits in the wake of a court challenge based on the Charter. Changes to UI parental leave benefits also made in response to a Charter challenge. 1992 —Family Allowances abolished, replaced by an income-tested Child Tax Benefit. —Government formally cancels its long-awaited National Child Care Strategy. 1993 —Conservatives introduce Bill C-l 13, providing for further retrenchment of UI. 3 1 Chapter Two: Overview of Canada's Liberal Welfare State I. Introduction The decade of the 1970's marked a transitional stage in the development of Canada's income security system. Although the nature and significance of this transition was only dimly perceived at the time, it has since become evident that the welfare state in Canada reached its outer limits during this period. Indeed, with the sole exception of the Refundable Child Tax Credit, adopted in 1978, no major new income security programmes were introduced after 1971. Nor were there any significant extensions of existing programmes. Having reached its apogee, the welfare state entered a new phase, one of retrenchment and review. While welfare state retrenchment did not become a prominent theme of political debate in Canada until the 1980's, the process of curtailing and reformulating income security programmes was well under way by the mid-1970's. To apply Heclo's analysis of the four stages of welfare state development,1 Canada completed the expansionary stage of its welfare state in 1971 with the adoption of sickness and maternity benefits under the Unemployment Insurance programme. The country then entered a period of social policy reformulation which continues today. Subsequent chapters of this study document and assess policy developments in the income security field during the first fifteen years of this reformulation phase. Before doing so, it is necessary to begin with an overview of the income security system in Canada and with a brief description of how it has changed in the past fifteen years. Accordingly this chapter is divided into two parts. The first part discusses the allocation of relevant legislative powers under the Constitution and describes the major programmes which comprise the income security system. The second part of the chapter attempts to specify the political character of Canada's income security system and to assess how it changed during the period 1978 to 1993. Applying Gosta Esping-Andersen's model of welfare state regimes,21 argue that Canada's income security system 'Hugh Heclo, "Toward a New Welfare State?" in Peter Flora and Arnold J. Heidenheimer (ed.), The Development of Welfare States in Europe and America pp. 383-406. New Brunswick, N.J.: Transaction, 1981. 2Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism. Princeton, New Jersey: Princeton University Press, 1990. 32 in the late 1970's was predominantly liberal in character. Given the generally low level of benefits provided, the limited range of benefits, and the use of market-based eligibility criteria (including means tests), Canada's public income security system was decidedly subordinate to market principles. At the same time, however, the system exhibited significant social democratic features, most notably in the form of a high degree of universality and a relatively generous system of unemployment insurance benefits. Fifteen years later, social democratic features had been curtailed and the liberal character of the income security system had become more pronounced. II. The Constitutional Setting Any study of Canadian public policy inevitably must identify the respective roles of the federal and provincial governments. This task involves, first, an examination of the constitutional division of legislative powers between the two levels of government as set out in the Constitution Act 1867.3 As in all federal states, however, the written constitution provides only a skeletal guide to the division of powers. Accordingly, it is also necessary to consider authoritative judicial interpretations of relevant sections of the Act. US Chief Justice Hughes's aphorism that the constitution is what the judges say it is is especially apposite in the Canadian case given the controversial and inventive way in which the Constitution was interpreted by the Judicial Committee of the (British) Privy Council during the first eighty years of Confederation. Ultimately, however, the role of the federal and provincial governments in any field of public policy cannot be fully understood by reference only to the allocation of formal constitutional powers, however modified by judicial interpretation. Due regard must also be paid to the political factors which condition the exercise of constitutional authority. In other words, it is essential to understand the "political use of legal resources."4 As Peter Russell observes, governments in Canada sometimes forebear from fully exercising the constitutional powers at 3Being Schedule B of the Canada Act (UK), c. 11. 4Peter H. Russell, "The Supreme Court and Federal-Provincial Relations: The Political Use of Legal Resources," in R.D. Oiling and M.W. Westmacott Ed.), Perspectives on Canadian Federalism, pp.90-100. Scarborough, Ont.: Prentice-Hall, 1988. 33 their disposal for want of political legitimacy. On the other hand, he notes that governments have frequently found ways of surmounting constitutional obstacles and achieving, through inter-governmental agreement, goals for which there is sufficient political support. Both of these tendencies can be seen in the development of federal income security policies. A. Provincial Role As originally enacted in 1867, the Constitution Act did not explicitly refer to income security. This omission reflected the limited involvement of public authorities at that time in the provision of social welfare or even in the regulation of privately-delivered welfare services. The Canada of 1867 was predominantly rural and heavily influenced by British notions of laissez-faire, according to which the role of government properly should be confined to that of "preserving law and protecting rights of property."5 Individuals were expected to make adequate provision against economic adversity through thrift and self-help. Those unable to look after themselves were expected to seek the assistance of their immediate family and, if need be, of relatives, friends, and neighbours.6 Organized welfare services were the responsibility of charitable or religious organizations and local government.7 Although the BNA Act did not clearly assign responsibility for income security to Ottawa or the provinces, inferences were drawn, both by governments and the courts, from those powers which were allocated to one level of government or the other.8 Thus, under Section 92 of the BNA Act, the provinces were given jurisdiction over hospitals, asylums, charities, eleemosynary institutions, public and reformatory prisons, and municipal institutions. Moreover, the provinces were granted over-arching responsibility for "property and civil rights " sDennis Guest, The Emergence ofSocial Security in Canada. 2nd Edition. Vancouver: University of British Columbia Press, 1985, p.6. "TRonald Manzer, Public Policy and Political Development. Toronto: University of Toronto Press, 1985, p.51. 7See generally, Richard Splane, Social Welfare in Ontario, 1791-1883. Toronto: University of Toronto Press, 1965. There were, however, significant differences in the way in which social welfare was administered in the provinces. For example, Nova Scotia and New Brunswick adopted the English Poor Law, according to which local public authorities were legally required to make provision for the destitute. Ontario, on the other hand, expressly rejected the Poor Law while Quebec relied heavily on religious orders for the delivery of social welfare services, including hospitals and schools. 8Keith G. Banting, The Welfare State and Canadian Federalism. 2nd Edition. Kingston and Montreal: McGill-Queen's University Press, 1987. p.47. 34 and for "all matters of a merely local or private nature in the Province." Since unemployment, the plight of widowed mothers with dependent children, and other similar social ills were deemed to be local and private in nature until well into the twentieth century, it was widely accepted that the regulation of social assistance and of social welfare agencies lay primarily with the provinces and, through them, with local authorities. B. Federal Role While provincial jurisdiction in the social welfare field can be inferred from relatively specific grants of legislative authority, federal jurisdiction is grounded in more general and potentially far-reaching powers. The most notable of these general powers is the residuary power under Section 91 of the Constitution Act 1867. According to this provision, Parliament is authorized to make laws for the "Peace, Order, and Good Government" of Canada in relation to any matter not assigned exclusively to the provincial legislatures. The "POGG" power has been used to a limited extent as a constitutional foundation for federal involvement in income security. The federal Family Allowances Act, for example, was upheld by the courts, partly on the basis of POGG. 9 POGG, however, has not served as a significant source of federal authority in this area. In drafting the BNA Act and assigning extensive powers to Parliament (including unlimited taxation powers), the Fathers of Confederation clearly intended to create a centralized federation in which the federal government would wield pre-eminent authority. However, this vision of centralization was thwarted by a set of mutually reinforcing political and socio-economic factors, touched on further below, and by a radical reinterpretation of the terms of the Constitution Act by the Judicial Committee of the (British) Privy Council (JCPC), Canada's highest court of appeal until 1949. In a series of landmark cases, the JCPC sharply curtailed the scope of federal constitutional powers while expanding the scope of provincial powers. As a result, the POGG power was restricted to matters having "national dimensions" or, more narrowly still, to emergency situations such as war, famine, or disease. At the same time, provincial heads of 9Angers v. Minister of National Revenue [1957] Ex. CR. 83, 57D.T.C. 1103(Ex. Ct.) 35 jurisdiction, such as property and civil rights, were given relatively broad interpretations. A more important source of federal constitutional authority in the income security field is the federal spending power. This power refers to the ability of the federal government to spend its revenues for any purpose it deems necessary or desirable, whether that purpose falls under federal or provincial jurisdiction. Such spending takes the form of payments to individuals, institutions, and provincial or local governments under a wide array of federal and federal-provincial shared-cost programmes.10 Federal expenditure programmes, from Family Allowances and the Canada Assistance Plan to equalization payments and Medicare, are all based, in whole or in part, on the spending power.11 While there has been relatively little judicial interpretation of the spending power, the courts have imposed certain limitations on its use. One such limitation is that the spending power cannot be used by the federal government to introduce a scheme of compulsory regulation the "pith and substance" of which falls under provincial jurisdiction.12 With regard to income security programmes, this limitation had the effect of preventing the federal government from establishing social insurance programmes and other programmes financed by compulsory contributions until the 1940's. As early as the 1880's, the JCPC had determined the regulation of commercial insurance to be a matter of "property and civil rights" and hence a provincial responsibility.13 This principle was extended to provincial workers' compensation plans, the first significant social insurance measures introduced in Canada. Such plans were upheld by the Privy Council as valid exercises of provincial jurisdiction on the grounds that state-mandated employer premiums created a "statutory condition of the' contract of employment."14 Workers' compensation, the Privy Council declared, constituted "a scheme for securing a civil right in the 10Canada. Federal-Provincial Grants and the Spending Power of Parliament. Ottawa: Queen's Printer, 1969, p.4. uIbid. While not explicitly set out in the Constitution Act 1867, the spending power has been inferred from other powers, particularly Section 91(3), which authorizes Parliament to raise revenue "by any mode or system of taxation," and Section 91(1 A), which assigns to Parliament authority over public debt and property. 12Peter W. Hogg. Constitutional Law of Canada. Toronto: Carswell, 1977, p.71. ^Citizens' Insurance v. Parsons (1881) 7 A.C. 96, 1 Cart. 265. ^Workmen's Compensation Board v. Canadian Pacific Railway Co. [1920] A.C. 184 at 191. This case and others relating to social insurance are discussed in Canada, Income Security and Social Services. Ottawa: Queen's Printer, 1969. 36 Province."15 The Privy Council later applied this reasoning in striking down the federal Employment and Social Insurance Act of 1935, an act which proposed to establish a national unemployment insurance plan to be financed, in part, by compulsory contributions by employers and employees.16 These cases raised considerable uncertainty as to what kinds of contributory benefit programmes would pass constitutional muster. For example, would it be possible to implement a national old age pension plan financed by a special tax, with the proceeds deposited in a separate fund? Would the courts characterize such a plan as compulsory insurance and thus ultra vires Parliament? In testimony before a joint committee of Parliament in 1950, the federal Deputy Minister of Justice concluded that such a scheme would be declared invalid by the courts "unless it were clearly evident that the taxes would not be borne directly and solely by those who would ultimately be pensioned."17 In order to surmount these judicial obstacles to the establishment of federal social insurance programmes, Ottawa secured the agreement of the provinces between 1940 and 1964 to three constitutional amendments transferring to Parliament the necessary jurisdiction. Use of the federal spending power to launch non-contributory benefit programmes has not faced serious constitutional challenge. In contrast to contributory social insurance, such programmes are financed from general tax revenues and eligibility for benefits is not tied to past contributions. Unilateral federal programmes of this kind include Family and Youth Allowances, cash payments made to certain classes of individuals subject to broad terms of eligibility. The spending power has also enabled the federal government to establish and, to some extent, to shape income security programmes in the provinces. Through the payment of conditional grants to the provinces, the federal government initiated the first old age pension programme in 1927 and since then has assumed a significant share of the cost of provincial social assistance programmes. Such grants to the provinces are conditional on provincial compliance with certain \5Ibid. Attorney-General for Canada v. Attorney-General for Ontario [1937] A.C. 355. ^Report of the Joint Committee of the Senate and House of Commons on Old Age Security (28 June 1950), p.93. 37 standards stipulated by the federal government. According to Hogg, the constitutionality of federal conditional grants rests on the fact that the obligations are assumed voluntarily by the provinces and hence do not constitute compulsory regulation.18 It is important to note, however, that while the constitutional validity of federal conditional grants has not been seriously questioned, they have been a source of political conflict between the two levels of government from the outset. Quebec has been particularly vocal in its opposition to both federal conditional and unconditional grants. Quebec's position, grounded in a classical, Diceyan view of federalism, holds that each level of government should exclusively regulate and finance activities falling within its respective sphere of jurisdiction.19 In defending that position, Quebec secured an important concession of provincial paramountcy in the constitutional amendments of 1951 and 1964—concessions which allowed it to establish its own contributory pension plan in 1965. While the other provinces have been less consistent and less vigorous than Quebec in their indictment of conditional grants, many of them have been increasingly critical of the federal government's use of such grants since the late 1950's. Among other things, the provinces have argued that conditional grants distort provincial spending priorities and restrict the provinces' capacity to pursue policy innovations, whether in income security or other fields.20 Provincial objections of this nature led the federal government to agree to impose explicit controls on the federal spending power in constitutional agreements reached between the two levels of government at Victoria in 1971, Meech Lake in 1987, and Charlottetown in 1992. As none of these agreements was implemented, the constitutional status of the spending power is unchanged. C. Charter of Rights and Freedoms In 1982 Canada's written constitution was amended by the addition, most notably, of the 18Peter W. Hogg, Constitutional Law of Canada, op. cit, p.71. 19This view is clearly expressed in the Report of the Tremblay Commission. See Province of Quebec, Royal Commission of Enquiry on Constitutional Problems, Report. Quebec, 1956. For an analysis of classical federalism, and of competing visions of Canadian federalism, see Edwin R. Black, Divided Loyalties: Canadian Concepts of Federalism. McGill-Queen's University Press, 1975. 20For a discussion of provincial views on conditional grants, see Donald V. Smiley, Conditional Grants and Canadian Federalism. Toronto: Canadian Tax Foundation, 1963. 38 Charter of Rights and Freedoms and a domestic amending formula. From a policy-making perspective, the most immediate and important aspect of the entrenchment of the Charter in the constitution was its impact on the allocation of policy-making authority. Prior to 1982, the only significant constitutional limitation on the sovereignty of Parliament and the provincial legislatures was the federal division of powers. The Charter, however, has imposed additional limitations on parliamentary sovereignty, limitations which take the form of individual and collective rights which neither level of government may infringe or deny. This development in turn has significantly broadened the scope of judicial review and given the courts a more extensive role in the public policy process. At first blush, the significance of the Charter for the welfare state is marginal at best. Not only does the Charter make no reference to welfare rights, but most of the enumerated Charter rights are negative in nature: that is, they require governments to refrain from taking actions which impinge upon individual freedom. With few exceptions, Charter rights do not impose obligations on governments to provide specific benefits or services. The Charter, in short, envisions a limited role for the state.21 The welfare state, in contrast, embodies the idea that an active, interventionist state is required to protect and advance the economic security and general well-being of its citizens. Nevertheless, most observers agree that the Charter has two broad applications to the welfare state. First, it enhances the procedural rights of welfare recipients. That is, the Charter adds to the growing body of common law rules governing the aclministrative procedures through which social benefits are granted. Particularly relevant here is Section 7 of the Charter which guarantees the right to "life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice."22 The second set of implications relates to substantive rights to social welfare. Over the past decade it has become 21AIlan C. Hutchinson and Andrew Petter, "Private Rights/Public Wrongs: The Liberal Lie of the Charter." University of Toronto Law Journal, 38:3 (Summer 1988), pp.278-297. 22Ian Morrison, "Security of the Person and the Person in Need Section Seven of the Charter and the Right to Welfare." Journal of Law and Social Policy. 4 (1988) pp.1-32; Ian Johnstone, "Section 7 of the Charter and Constitutionally Protected Welfare." University of Toronto Faculty of Law Review. 46 (1988) pp.11-47. 39 clear that the equality rights provisions of the Charter may be used to challenge the under-inclusiveness of social welfare programmes. Thus, where a particular programme confers benefits on one group but not another, the latter group may be able to challenge the government for denying it, in the language of Section 15(1), "equal benefit of the law." To the extent that cases of this kind are successful, the Charter may serve as a tool for expanding, or at least redirecting, the welfare commitments of the Canadian state.23 III. Components of Canada's Income Security System Canada's public income security system consists of a web of programmes administered by federal, provincial, and local governments. The major federal programmes, as they stood in the late 1970's, are described below. They are classified according to the mechanisms by which benefits are delivered: social insurance, demogrants, social assistance, income supplementation, and tax expenditures. A. Social Insurance Social insurance programmes are those in which an individual's entitlement to benefits is linked to previous contributions or earnings.24 The aim of such programmes is to replace some proportion of the income that is lost as a result of such specified contingencies as unemployment, disability, and old age. Coverage under social insurance programmes is compulsory, although a limited number of exempted industries or occupations is typically provided for.25 Social insurance embodies the principles of private insurance in so far as risks are pooled and there is a correspondence between the benefits individuals may draw and their previous contributions or insurable earnings.26 Similarly, social insurance contributions are usually remitted to a special fund, separate from the government's general revenues. Social insurance "For an early view on this matter, see Anne F. Bayefsky and Mary Eberts (ed.), Equality Rights and the Canadian Charter of Rights and Freedoms. Toronto: Carswell, 1985 and Martha Jackman, "The Protection of Welfare Rights under the Charter." Ottawa Law Review. 20:2 (1988), pp.257-328. 24Department of National Health and Welfare. Income Security for Canadians. Ottawa: Queen's Printer for Canada, 1970, p. 19. 25For example, the self-employed are ineligible for Unemployment Insurance, as are part-time workers who work fewer than a stipulated number of hours per week. 26Department of National Health and Welfare. Income Security for Canadians, op. cit. 40 differs from private insurance, however, in that there is "no precise actuarial adjustment of premiums to risk in each individual case."27 Not only are low- and high-risk individuals fully covered under social insurance schemes, but the former subsidize the latter. Thus, under a national unemployment insurance plan contributors who live and work in areas of low unemployment subsidize those in areas of chronically high unemployment. The extent to which social insurance schemes depart from pure actuarial principles depends on the number and variety of competing policy objectives which such schemes are designed to serve. Modern unemployment insurance plans, for example, typically embody labour market objectives, such as skills training and the promotion of labour mobility, in addition to income security objectives.28 At the provincial level, the major social insurance programme is workers' compensation, a scheme which provides no-fault compensation for lost earnings resulting from injury or disease incurred in the ordinary course of employment29 At the federal level, the principal social insurance programmes are Unemployment Insurance and the Canada Pension Plan. 1. Unemployment Insurance Unemployment insurance, established in 1941, is a national programme which insures eligible workers against the risk of a "temporary, involuntary interruption of earnings from employment."30 The importance of this programme stems from the fact that employment is the principal source of income for the vast majority of Canadians, whether they be wage-earners or dependent family members. Moreover, unemployment is an endemic feature of the Canadian, and indeed every other, capitalist political economy. Broadly speaking, there are three qualifying conditions for unemployment insurance. First, the claimant must be physically able to work. Special benefits for maternity and temporary illness, an exception to this rule, have been provided since 1971. Second, the claimant must be actively seeking, and available for, suitable work. Third, the claimant's UI contributions "Leonard C. Marsh. Report on Social Security in Canada. Toronto: University of Toronto Press, 1975, p.l 1. Leslie A. Pal, State, Class, and Bureaucracy: Canadian Unemployment Insurance and Public Policy. Kingston and Montreal: McGill-Queen's University Press, 1988, p.26. 2 9 Frank McGilly, An Introduction to Canada's Public Social Services: Understanding Income and Health Programs. Toronto: McClelland and Stewart, 1990, pp. 100-102. "Ibid, p.69. 41 during the relevant period preceding his job loss must be adequate. In terms of contributions, claimants are required to have worked for a minimum number of consecutive weeks in the year preceding the claim and to have earned a minimum weekly amount on which UI premiums were assessed. Since the mid-1970's, the programme has provided for variations in the required number of weeks of insurable earnings based on regional unemployment rates. Thus in 1977-78, the minimum stipulated number of weeks of contributions ranged from a low of 10 weeks, applicable in areas of high unemployment, to a high of 14 weeks, applicable in areas of relatively low unemployment.31 Employees paid UI premiums at a rate of 1.5% on weekly earnings between $48 and $220. Thus, employees were not assessed premiums on earnings below $48 per week, while those earnings more than $220 per week were only insured for the first $220 of weekly earnings.32 Employer premiums were fixed at 2.1% of an employee's weekly income while the state's contribution was determined by a formula.33 The implications of these rules are that UI applicants must have been part of the labour force within the preceding twelve months and established a record of continuous employment over a certain length of time. UI is not, therefore, designed to accommodate the needs of those unemployed who are seeking their first job or of those who have held a series of short-term jobs.34 Nor does it benefit those workers (predominantly part-time) whose earnings fall below the weekly minimum. In the late 1970's three categories of UI benefits were payable. Regular benefits, those paid for temporary unemployment, were paid at a rate which replaced two-thirds of a claimant's average weekly insurable earnings, up to a weekly maximum. Actual weekly benefits therefore ranged from $30 to $147.35 The duration of benefits varied with a claimant's previous UI 31Interprovincial Task Force on Social Security, op. cit., p.70. 21Ibid. "Under the 1971 legislation, the government financed regular benefits attributed to unemployment levels over 4%, extended benefits, and the benefits paid to self-employed fishermen. In 1975, the unemployment threshold above which government financing of regular benefits applied was henceforth to be adjusted each year to "An eight year moving average of monthly national unemployment rates most recently available." The threshold for 1976 was 5.6%. Gary Dingledine. A Chronology of Response: The evolution of Unemployment Insurance from 1940 to 1980. Ottawa: Employment and Immigration, 1981, pp.68, 79. 34Frank McGilly, Introduction to Canada's Public Social Services, op. cit., p.69. 35Interprovincial Task Force on Social Security, op. cit., p.70. 4 2 contributions. Those having longer periods of insurable earnings were entitled to draw UI benefits for longer periods than those with shorter contribution records. As Pal observes, the paradoxical effect of such a benefit structure is that "those who have greatest difficulty securing and retaining employment may receive the lowest benefits for the shortest time."36 Benefit periods, however, were also conditioned by regional and national unemployment rates. Other things being equal, maximum benefit periods were higher in areas of higher unemployment than those in areas of lower unemployment. Finally it should be noted that no benefits were payable for the first two weeks of unemployment. This partial denial of benefits to all applicants is often likened to a deductible under a standard insurance policy. The aggregate level of benefit payouts under Unemployment Insurance is more intimately linked to general economic conditions than are other income security programmes. During periods of recession, when unemployment levels are high and investment levels are stagnant or in decline, employer and employee contributions to UI fall while the number of benefit claims rises. In this way, UI functions not only as an income security programme but also as an automatic stabilizer designed to mitigate the effects of downturns in the business cycle. 2. Canada Pension Plan The second major federal programme of social insurance is the Canada Pension Plan (CPP). Established in 1966, the CPP provides retirement, disability, and survivors' pensions. Financed chiefly by contributions from employers and employees, the CPP provides earnings-related pensions to individuals 65 years of age and older who have contributed to the plan for at least one year. The CPP covers employees in all provinces except Quebec, whose provincial government adniinisters a separate plan, the Quebec Pension Plan (QPP).37 The QPP provides virtually identical benefits to those of the CPP and pension credits are transferable between the two plans. Thus, employees who relocate to Quebec are eligible to draw QPP benefits based on any contributions they made to the CPP while employed outside Quebec. 36Leslie A. Pal, State, Class, and Bureaucracy, op. cit, p.30. 37It should be added that residents of Quebec employed by the Federal Government or working in federally regulated industries are covered by the CPP. 43 The CPP and QPP provide pension coverage to employed Canadians earning at least 10% of the Average Industrial Wage. Accordingly these programmes do not provide coverage to those who have never been employed, such as homemakers, those with sporadic employment records, and those workers whose earnings fall short of the stipulated minimum. With regard to the level of retirement benefits, CPP pensions are capped at 25% of pensionable earnings, a ceiling which was established at the programme's inception on the assumption that public pensions should constitute a base level of benefits to be supplemented by private sources of retirement income.38 Full CPP benefits were not payable until the expiration of a ten-year transitional period, during which the Plan generated a substantial surplus. This aspect of the CPP, and other design features of the Plan, was the product of extensive negotiations between Ottawa and the provinces. Unlike other federal income security programmes examined in this study, the CPP, though admmistered by the federal government, may not be amended unilaterally by it. Material changes to the CPP may only be made with the consent of Ottawa and two-thirds of the provinces representing at least two-thirds of the national population.39 Moreover, as the field of contributory pensions is one of concurrent jurisdiction, subject to provincial paramountcy, provinces may opt out of the CPP and establish their own pension plan, as Quebec has done. B. Demogrants The second mechanism by which federal income security is delivered is the demogrant. Demogrants are flat-rate payments made to broad categories of recipients on the basis of such demographic characteristics as age or family status. As there are no other qualifying conditions of consequence, such as income level or past contributions, coverage is automatic and universal. The two major federal demogrant programmes in the late 1970's were Family and Youth Allowances and Old Age Security (OAS). 3 8 See testimony of Senator David Croll before the 1981 National Pensions Conference . Canada. Department of National Health and Welfare. Proceedings, National Pensions Conference, Ottawa, 31 March-2 April 1981. Ministry of Supply and Services, 1981, p.29. 3 9 See Keith G. Banting, "Institutional Conservatism: Federalism and Pension Reform," pp.48-74 in Jacqueline Ismael (ed.), Canadian Social Welfare Policy: Federal and Provincial Dimensions. Kingston and Montreal: McGill-Queen's University Press, 1985. 44 1. Family Allowances Until their elimination in 1993, the federal Family Allowance programme provided cash benefits on behalf of children under the age of 16. When originally introduced in 1944, Family Allowances were an important element of the federal government's macroeconomic policy, designed to maintain consumer purchasing power in the postwar period while alleviating trade union pressure for the removal of wartime wage controls. Family Allowances were also popularly viewed as a measure to promote population growth. Indeed they were immediately dubbed as "baby bonuses," a label which remained in popular usage throughout the life of the programme. The principal and enduring aim of Family Allowances, however, was to compensate families for the additional expenses involved in raising children. As early advocates of Family Allowances repeatedly stressed, wage rates do not take account of the number of dependents a wage-earner must support.40 Moreover, other income security programmes were designed with objectives other than that of family income maintenance. Unemployment insurance, for example, is designed to replace wage and salary earnings forgone as a result of job loss. Provincial social assistance, on the other hand, is designed, in part, with a view to preserving work incentives. Indeed, social assistance rates are deliberately kept low since, as one federal government report observed, "adequate maintenance for a family with a number of children may mean a higher income in assistance than can be obtained through employment."41 As Family Allowances were universal, and hence payable whether the parents were employed or not, there was no financial gain to be made by refusing available employment.42 Youth Allowances were an extension of the Family Allowance programme. Introduced in 1964, Youth Allowances provided cash benefits for children 16 and 17 years of age who were in full-time attendance at school or who were not attending school by reason of disability. The introduction of this programme reflected a recognition by the federal government of the growing 40Brigitte Kitchen, "The Introduction of Family Allowances in Canada, " pp.222-241 in Allan Moscovitch and Jim Albert (ed.), The "Benevolent" State: The Growth of Welfare in Canada. Toronto: Garamond Press, 1987. 4,Department of National Health and Welfare, Income Security for Canadians, op. cit, p.44. 42Ibid. 45 importance of education. As with earlier components of the welfare state, Youth Allowances represented a response by the state to the exigencies of modernization. As Guest puts it, the programme "was, in effect, the recognition of a new source of dependency in a technological society."43 Youth Allowances were merged with the Family Allowance programme in 1974. 2. Old Age Security The other major demogrant programme is Old Age Security (OAS). OAS is a universal monthly benefit payable to those 65 years of age and older who meet a Canadian residency requirement. Established in 1951, it replaced the means-tested old age pension scheme of 1927. As originally designed, the OAS was a quasi-contributory plan, financed in part by a special income tax, the proceeds of which were deposited in a separate OAS account. Unlike the social insurance model, however, neither eligibility nor benefit levels were linked to past contributions. Indeed, low income earners with no taxable income were exempt from the OAS levy. The OAS tax was abolished in 1972 and since then OAS has been financed entirely from the Consolidated Revenue Fund.44 While OAS benefits were originally payable at age 70 to those who had resided in Canada for at least 20 years, the residency requirement was reduced to 10 years in 1957 and the eligibility age was lowered to 65 in 1970. C. Social Assistance The third category of income security instruments is social assistance. Social assistance programmes are designed to provide income support to those who are ineligible for benefits under other programmes or whose income needs are not adequately met by other programmes 4 5 In addition to cash benefits, such programmes may provide various services for needy persons, such as home care for the elderly or disabled, counselling for single mothers, and rehabilitation services.46 With few exceptions, such as federal War Veterans' Allowances and social assistance 43Dennis Guest, The Emergence of Social Security in Canada, op. cit., p. 150. ""The OAS Fund, however, was retained and the Minister of National Revenue was required at regular intervals to credit to it an amount equal to the estimated value of the former earmarked OAS tax. Kenneth Bryden, Old Age Pensions and Policy-making in Canada. Montreal and London: McGill-Queen's University Press, 1974, p. 180. 45Keith G. Banting, The Welfare State and Canadian Federalism, op. cit, p.ll. "^ Jerek P.J. Hum, Federalism and the Poor: A Review of the Canada Assistance Plan. Toronto: Ontario Economic Council, 1983, p.31. 46 for status Indians, social assistance programmes are established and administered by the provinces. Since 1965 the federal government's role in social assistance has been largely a financial one under the Canada Assistance Plan (CAP). CAP is a federal statute which authorizes the federal government to enter agreements with the provinces for the financing of provincial social assistance programmes which meet certain conditions. Under CAP the federal government is committed to paying 50% of the cost of eligible provincial programmes. For their part, the provinces agree under the Act to provide "assistance and welfare services to and in respect of persons in need." The provinces may not require applicants to accept employment as a condition for receiving assistance nor may they impose a minimum residency period as a condition of eligibility. In addition, the provinces are required to establish procedures allowing claimants to appeal the decisions of social services officials. A notable feature of CAP is its requirement that social assistance be made available on the basis of an applicant's needs, not his or her means. Thus, provincial officials are to take account of "any gaps between individuals' or families' budgetary requirements and their incomes and resources," rather than merely basing assistance on income and benefit ceilings.47 In theory, this approach opens the door to providing income supplements to the working poor. In practice, however, the provinces have shown little enthusiasm for income supplementation of this kind. In general, the working poor are denied benefits, ceilings are imposed on allowable levels of assistance, and lower benefits are paid to claimants deemed to be employable than to those classified as unemployable 4 8 D. Income Supplementation Income supplementation programmes provide supplementary benefits to certain "Ibid., p.30. AiIbid, p.40. For an analysis of CAP, see Allan Moscovitch, "The Canada Assistance Plan —A Twenty-Year Assessment, 1966-1986" pp.269-307 in Katherine A. Graham (ed.), How Ottawa Spends 1988-89: The Conservatives Heading into the Stretch. Ottawa: Carleton University Press, 1988. Note that the Canada Assistance Plan was replaced in 1996 by the Canada Health and Social Transfer (CHST), a block funding programme under which the Federal Government imposes fewer conditions on the provinces in the provision of social assistance. 47 categories of Canadians who, directly or indirectly, are already in receipt of some form of social welfare benefits. Such programmes are primarily aimed at old age pensioners on low incomes and are designed to obviate the necessity for such recipients to apply for provincial social assistance.49 They are regarded as less demeaning than social assistance because the income test that is applied does not require a searching and intrusive enquiry into the person's assets or budgetary needs. Instead, eligibility for the two major federal income supplementation programmes is determined by marking the appropriate section of one's annual income tax return. The main income supplementation benefits at the federal level are the Guaranteed Income Supplement (GIS) and the Spouse's Allowance (SPA), both of which are components of the Old Age Security programme. The GIS, established in 1966, provides benefits to OAS recipients whose income falls below a certain level. In conjunction with the OAS, it is designed to provide a minimum income for the elderly. As such, OAS-GIS represents the only true guaranteed annual income programme among the panoply of federal and provincial income security schemes.50 Those for whom the OAS is the sole source of income are eligible for the maximum GIS benefit. The GIS is progressively reduced as outside income increases. (The GIS is reduced by $1 for each $2 of additional income earned.) The Spouse's Allowance, introduced in 1975, is payable to spouses, aged 60 to 64, who are married to pensioners in receipt of the OAS and GIS. The object of this programme is to ensure that a married couple was not obliged to subsist on an OAS-GIS benefit designed to support a single recipient.51 E. Tax-Delivered Benefits As noted in Chapter 1, the tax system is a crucial though often neglected pillar of the welfare state. Taxes finance social programmes, they can directly or indirectly affect net welfare outcomes, and can themselves be used as instruments of social policy. For example, where flat-rate social benefits are treated as taxable income under a progressive tax system,52 there is a 49Keith G. Banting, The Welfare State and Canadian Federalism, op. cit, p. 13. 5 0 Originally introduced as a temporary measure to provide assistance to retirees during the ten-year phase-in period of the CPP, the GIS's political popularity ensured its survival into the 1980's. 51Interprovincial Task Force on Social Security, op. cit, p.57. S2The term progressive is used to describe a tax system under which persons in higher income brackets pay higher marginal rates of income tax. 48 greater net benefit to lower-income recipients and a greater resultant redistribution of income from upper- to lower-income earners. The tax system can also be used more directly to confer welfare benefits. Tax exemptions (or deductions), for example, allow for reductions in taxable income and thereby increase the disposable income of those claiming such exemptions. Since the state, in effect, spends money by forgoing revenues it would otherwise collect, such exemptions are often referred to as tax expenditures.53 In addition to tax exemptions, other forms of tax expenditures include tax credits, deferrals, and preferential tax rates.54 By the early 1980's, there were approximately fifty tax expenditures in the social development field, half of which were related to income security.55 In general tax expenditures are of particular benefit to the more affluent (i.e. those with significant taxable income). Unlike the positive levies of the progressive income tax system, the tax expenditure system is highly regressive. Because tax expenditures represent forgone revenue to the public treasury rather than direct expenditure, they are not included in the government's expenditure Estimates nor in the Public Accounts.56 For this reason, they are not generally regarded as income security programmes. The main exception to this rule is the refundable tax credit, a hybrid instrument which embodies features of both a tax deduction and a direct expenditure programme. A conventional tax credit allows persons to deduct the amount of the credit from their tax payable. It is therefore of no benefit to those who earn too little to pay taxes. A refundable tax credit, in contrast, provides a cheque to those who pay little or nothing in taxes. If the amount of the tax credit exceeds the tax payable, the difference is paid to the taxfiler. Such payments are drawn on the Consolidated Revenue Fund. "Kevin McLoughlin and Stuart B. Proudfoot, "Giving by Not Taking: A Primer on Tax Expenditures," Canadian Public Policy. 7:2 (Spring 1981), pp.328-337. S4G. Bruce Doern, Allan M. Maslove, and Michael J. Prince, Public Budgeting in Canada: Politics, Economics, and Management. Ottawa: Carleton University Press, 1988. p. 157. ssIbid. 5 6 Evert A. Lindquist, "Improving the Scrutiny of Tax Expenditures in Ontario: Comparative Perspectives and Recommendations," pp.32-128 in Allan M. Maslove (ed.), Taxing and Spending: Issues of Process. Toronto: University of Toronto Press, 1994; Neil Brooks, "The Tax Expenditure Concept." Canadian Taxation. 1:1 (January 1979), pp.31-35. 49 1. Refundable Child Tax Credit The two major refundable tax credits which formed part of the federal income security system after 1978 were the Refundable Child Tax Credit (RCTC), introduced in 1979, and the Child Tax Credit which replaced it in 1993. When originally introduced, the RCTC provided a tax credit of $200 per child per annum for families earning an annual income of $18,000 or less. The RCTC was reduced by five per cent on family income exceeding the benchmark such that families earning $26,000 or more received no benefit at all. The Government's aim in introducing the RCTC was to target family benefits to families need. Because of its refundable nature, adoption of the RCTC marked the first time that the income tax system had been used "to bring benefits to families below the income tax threshold."57 Moreover, the chief beneficiaries of the RCTC, unlike those of other types of tax expenditures, were not those with the highest taxable income. 2. Child Tax Benefit Adoption of the Child Tax Benefit in 1993 continued this policy of targeting family benefits on the basis of family income and of using the tax system to deliver those benefits. While similar in design to the RCTC, the Child Tax Benefit provides cheques to eligible households on a monthly basis rather than the annual basis of the RCTC. Table 2.1 provides a summary of the five major components of the income security system. Table 2.1: Typology of Major Federal Income Security Programmes (1979-1993) Social Demogrant Income Social Tax-Insurance Supplementation Assistance Based Unemployment Family GIS CAP RCTC Insurance Allowance CPP Old Age Security Spouse's Allowance Child Tax Benefit 57, Dennis Guest, The Emergence of Social Security in Canada, op. cit, p.200. 58 'Ibid. 50 IV. Political Character of Canada's Welfare State A. Social Welfare Expenditure By the late 1970's income security programmes, collectively, constituted a significant proportion of total federal expenditures. In comparative terms, however, Canada's income security expenditures were below the OECD average. In 1974, combined federal and provincial income security expenditures represented 7.3% of Gross Domestic Product (GDP), compared to an OECD average of 9.5%.59 In 1981, overall social expenditures (comprising direct public expenditures on education, health services, and income maintenance) constituted 21.5% of GDP in Canada, compared to an OECD average of 25.6%.60 In the absence of further information, however, aggregate figures of this kind reveal very little about the nature of social policy in a given country. It is often assumed that countries which devote a relatively high proportion of their GDP to social development have a stronger commitment to the traditional goals of the welfare state. Such a conclusion, however, may not be warranted. As functionalists have long observed, social welfare measures, in large part, are a response to social, economic, and demographic pressures. Thus, even if two countries are equally committed to certain welfare outcomes, such as greater equality in the distribution of income, the attainment of those outcomes will typically require different levels of social expenditure. As Castles and Mitchell explain: "The greater the percentage of aged, the unemployed, of single parents and of children dependent on any other of these categories, the greater the inputs a government will have to make to obtain a high level of post-transfer, post-tax equality."61 Indeed the traditional focus on aggregate expenditures may disguise important changes in the state's political commitment to social welfare. Thus, while high levels of expenditure on unemployment may be indicative of a generous system of unemployment benefits, including 5 9 OECD, Public Expenditure Trends, cited in Keith G. Banting, The Welfare State and Canadian Federalism, op. cit., p.2. 6 0 OECD. Social Expenditure 1960-1990: Problems of Growth and Control. Paris: OECD, 1985. "Francis G. Castles and Deborah Mitchell, "Identifying Welfare State Regimes: The Links Between Politics, Instruments and Outcomes". Governance. 5:1 (January 1992), pp. 1-26 atp.4. 5 1 broad eligibility rules, such expenditures may alternatively reflect an abandonment by the state of other social welfare objectives, notably full employment. In Britain, public spending as a proportion of GDP rose during Margaret Thatcher's premiership, notwithstanding her Government's determination to roll back the frontiers of the state. Much of the increased spending was attributable to record-high levels of unemployment for which the Thatcher Government's anti-welfarist monetarist policies were partly responsible. In addition, substantial welfare benefits are delivered in the form of tax expenditures. Since, as noted above, such expenditures are generally not even recorded in the national accounts, figures reflecting direct spending alone may underestimate the overall level of welfare expenditure. The chief limitation of the expenditure approach, in short, is that it sheds no light on the uses to which welfare expenditures are put. Nor does it provide even a broad outline of the myriad terms and conditions of income security programmes. Yet these matters are at the centre of political debates about the welfare state. Debate about aggregate levels of social spending per se has not figured prominently in Canada, or other countries, except to the limited extent to which the issue has bolstered larger neo-conservative critiques of Big Government. B. Esping-Andersen Model An alternative and more illuminating approach to the analysis of welfare states is that of Gosta Esping-Andersen, the Swedish political economist. By classifying welfare states on the basis of their dominant political characteristics, he identifies "three worlds of welfare capitalism": liberal, conservative, and social democratic. These welfare state archetypes are distinguished from one another in two ways. First, each is associated with a particular mode of programme delivery. Thus, liberal welfare states are associated with means-tested programmes, conservative welfare states with social insurance, and social democratic welfare states with universal programmes. The second basis of classification centres on the effects of welfare programmes, two categories of which are identified. The first of these, which Esping-Andersen refers to as the "decommodification effect," is the extent to which a welfare state promotes social equality by 52 loosening the individual's reliance on the market as a means of livelihood.62 This idea builds on T.H. Marshall's argument that the welfare state adds to civil and political rights a third type of citizenship rights, social rights. Social rights, according to Marshall, embrace a range of rights "from the right to a modicum of economic welfare and security to the right to share to the full in the social heritage and to live the life of a civilized being according to the standards prevailing in the society."63 There is a tension, however, between social rights and capitalism. While the latter gives rise to a class-based system of inequality, the former implies equality of status based on citizenship.64 As Esping-Andersen points out, however, not all social welfare programmes have a significant decommodification, or egalitarian effect. He observes that "it is not the mere presence of a social right, but the corresponding rules and preconditions, which dictate the extent to which welfare programmes offer genuine alternatives to market dependence."65 Thus a programme of means-tested poor relief, characterized by low benefits and social stigma, "will compel all but the most desperate to participate in the market."66 Even social insurance schemes, he notes, may have a greater or lesser egalitarian effect depending on the content of their eligibility and benefit rules. For example, the higher the level of benefits as a percentage of normal earnings, the higher the egalitarian effect. Universal benefits which are not tied to previous earnings or contributions have potentially the highest egalitarian effect. This effect, however, is vitiated if the level of benefits is too low "to provide recipients with a genuine option to working."67 The second effect of welfare states is what Esping-Andersen refers to as their stratification effect. This term denotes the extent to which social programmes, by their terms and conditions, reinforce class divisions in society or, alternatively, create a new social stratification based on one's status as a citizen.68 Thus poor relief and more modern needs-based programmes 62Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism, op, cit, pp.21-22. 63T.H. Marshall, Class, Citizenship and Social Development. Garden City, New York: Doubleday, 1964, p.72. "Ibid, p.84. 65Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism, op. cit, p.22. "Ibid 67Ibid, p.23. 6iIbid, p.21. 53 of social assistance are restricted to those who are at the bottom of the socio-economic ladder. By singling out the "truly needy," such programmes reinforce the social divide between the haves and the have-nots. Earnings-related social insurance also replicates existing class divisions among wage- and salary-earners. Since the benefits one is entitled to draw are linked to one's position in the market economy, such programmes, among other things, reinforce the lowly socio-economic status of low-income earners and of the chronically unemployed or underemployed. Finally, universal flat-rate benefits promote equal status such that "all citizens are endowed with similar rights, irrespective of class or market position."69 Such "cross-class solidarity," however is less likely to obtain where the benefits are relatively modest and rising affluence has created a large, prosperous middle class. In that case, Esping-Andersen contends, flat-rate universalism may create a two-tiered welfare system under which the poor rely on public benefits while the better-off seek to supplement those benefits with private insurance and improved fringe benefits.70 The result, Esping-Andersen observes, is a dualism similar to that of the social-assistance state: the poor rely on the state, and the remainder on the market.71 Esping-Andersen's characterization of the three welfare state regimes can be summarized as follows. Liberal welfare states, among which he lists Canada, the United States, and Australia, are distinguished by their reliance on means-tested benefits and "modest" universal transfers or social insurance. Under such regimes, there is a strong value attached to individual self-reliance and the work ethic. In promoting these aims, the state imposes strict eligibility rules on benefit programmes, keeps benefit levels low, and often subsidizes private welfare through such measures as making tax deductible employees' contributions to company-sponsored pension plans.72 Consequently, liberal welfare states exhibit minimal egalitarian effects while creating a system of stratification "that is a blend of a relative equality of poverty among state-welfare recipients, market-differentiated welfare among the majorities, and a class-political dualism 69Ibid., p.25. 70Ibid. llIbid. nIbid., p.27. 54 between the two."73 Conservative welfare states, which include such countries as Germany, Austria, France, and Italy, reflect a concern with preserving class and status distinctions. Social insurance is a favoured instrument of such regimes, with eligibility and benefits being strongly linked to work and to earnings-related contributions.74 In addition, special benefit programmes are often provided for particular classes or occupational groups, such as civil servants. The decommodification effect of this structure of benefits depends on the extent to which social insurance benefits adhere to the contributory principle; in Germany, for example, where benefits and contributions are strongly linked, decommodification is correspondingly low.75 The stratification effect of such regimes, and an explicit goal of conservative reformers such as Otto von Bismarck, is to reinforce divisions among wage-earners and thereby to "accentuate the individual's appropriate station in life."76 Social democratic regimes, the third category of welfare states, emphasize the universality of social rights. Such regimes provide a broad range of welfare benefits and services designed to meet the needs of all income classes. Family services, for example, such as care for children, the elderly, and the infirm, are assumed by the state as a matter of first resort and not only when family income is sufficiently depleted.77 Since all classes derive significant direct benefits from such arrangements, social rights are distributed more equally, and there is broader political support for the welfare state. Of particular note, the middle class is more willing than it otherwise might be to pay the high levels of taxation required to finance welfare states of this kind.78 The Scandinavian countries typify the social democratic welfare state. While this three-pronged typology is intended to identify predominant characteristics of welfare state regimes, no country represents a pure case. Thus the Canadian welfare state, until 72Ibid. Esping-Andersen goes on to observe that middle-class support for such universal benefits as exist in the liberal welfare state is tenuous. "ibid, p.22. 75Ibid. KIbid, p.24. 17Ibid, p.28. 55 very recently, contained elements of social democratic universalism, Family Allowances and Old Age Security being prime examples. On the other hand, the low levels of benefits provided by these programmes over time have yielded a relatively low egalitarian effect. In the case of old age pensions, the state has encouraged the development of a two-tiered pension system: a public system (comprising OAS and the CPP) and a private system of tax-deductible retirement savings. Similarly, Unemployment Insurance in Canada has deviated somewhat from the pure actuarial principles one would expect of a liberal, market-driven scheme of social insurance. On the other hand, such deviations, whether it be the adoption in the 1950's of extended benefits for fishermen or the introduction in the 1970's of special sickness, maternity, and parental leave benefits, have sparked heated debate. The nature of the Canadian welfare state is considered in more detail below. Canada's Liberal Welfare State Liberalism has long been recognized to be the dominant ideological strain in Canada.79 Moreover, students of social policy are generally agreed that Canada's income security system has been powerfully shaped by liberal values.80 The validity of this characterization can be tested by applying Esping-Andersen's analysis to Canada's income security system. Moreover, the effects on social equality of welfare state retrenchment may be observed over a given period. This task requires an examination of relevant terms and conditions of the programmes in question. In order to capture the egalitarian effect of a given programme, Esping-Andersen observes, three aspects of the programme must be measured. The first aspect is the rules which determine eligibility. The easier it is to qualify for benefits, the higher the potential contribution to social equality.81 Relevant here are such terms as the number of weeks of previous employment, the minimum level of past contributions, and the relative stringency of means (or needs) tests. Also relevant are rules governing the length of time for which benefits may be 1 9 Gad Horowitz. "Conservatism, Liberalism, and Socialism in Canada: An Interpretation." Canadian Journal of Economics and Political Science. 32 (1966), pp.143-171. Ronald Manzer, Public Policies and Political Development in Canada. Toronto: University of Toronto Press, 1985, Chp.3. 81Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism, op. cit., p.47. 56 drawn. The shorter the duration of benefits, the lower the potential egalitarian effect.82 The second aspect concerns the level of benefits, as measured against average earnings or the niinimum income "considered adequate and acceptable in society."83 The higher the benefit in relation to either of these measures, the less pressing it is for the recipient to seek private means of economic security. The third aspect relates to the range of social benefits provided. For example, in the realm of family benefits, most welfare states make at least some provision for paid maternity leave. However, there is considerable variation among welfare states in the provision of other family benefits and services, such as paid parental leave (for either parent), state-run or subsidized child day care, and home-care services for elderly dependents. As noted above, "stratification" in Esping-Andersen's analysis refers to the effect of social welfare programmes on the social structure.84 Broadly speaking, conservative welfare states promote status differences, liberal welfare states promote dualisms between the poor and the better off, while social democratic welfare states promote universalism. Esping-Andersen measures these effects by reference to seven variables, three of which may usefully be applied to Canada's federal income security programmes. The first of these is the proportion of total social spending allocated through means tests. The second variable is the ratio of private to public pensions. The third variable is the extent of universahsm, which may be defined as the percentage of the potentially eligible population which is in fact eligible for benefits under a given programme. By applying Esping-Andersen's analysis, it can be shown that Canada's welfare state, as it stood in the late 1970's, was predominantly liberal in character, though with important social democratic features. Broadly speaking, federal income security programmes had a limited egalitarian effect and tended to perpetuate market-based patterns of social stratification. These features were particularly marked in regard to family benefits and old age pensions. Benefit Ibid., p.58. 5 7 levels were too low to obviate the need for private sources of income. On the other hand, Canada's welfare state embodied important social democratic features, particularly in regard to the range and generosity of benefits provided under the Unemployment Insurance programme and the extent to which income security programmes were provided on a universal basis. In the 1970's the relatively loose eligibility criteria, plus a series of special and regional extended benefits shifted the Unemployment Insurance programme away from the actuarial principles on which it had originally been founded. By the early 1990's, the political character of the Canadian welfare state had clearly changed. Social democratic elements of the system had been diminished and its liberal character correspondingly enhanced. This change reflected two principal developments: first, the curtailment of universality in favour of the income-based targeting of social benefits and, secondly, the adoption of more restrictive eligibility rules for unemployment insurance. 1. Late 1970's The limited decommodification effect of the public income security system is most evident in regard to the level of benefits provided. Between 1944, the year of their introduction, and 1972, Family Allowances were increased once, and only minimally, in 1957. Thus, while benefits were virtually unchanged during this period, the Consumer Price Index more than doubled. Put differently, in 1946 maximum Family Allowance benefits for a family with two eligible dependents was $16 per month. This sum represented 12% of the average industrial wage that year. By the early 1970's, Family Allowance benefits for a comparable family represented a mere 3% of the average industrial wage.85 In 1970 the Federal Government conceded that Family Allowances provided "only fractional amounts of the actual cost of child care even at basic subsistence rates."86 Even as an anti-poverty tool, the programme was deemed to be "completely ineffective in reaching lower-income families with a meaningful level of income 85Department of National Health and Welfare, Brief presented to the Special Senate Committee on Poverty, Second Session, No. 23 (February 24, 26, 1970), p.92, cited in Report of the Special Senate Committee on Poverty. Ottawa: Information Canada, 1971, p.71. 86Department of National Health and Welfare, Income Security for Canadians, op. cit, p.44. 58 support." Despite being trebled in 1973, and indexed to the cost of living, Family Allowances represented a small and diniimshing fraction of average family income in the 1970's. By 1978 they represented less than 3% of average family income. Old Age Security payments were also designed to supplement private income and savings rather than to substitute for them.88 OAS payments in the late 1970's represented approximately 16% of average earnings in Canada. In recognition of the inadequacy of the OAS as a sole source of retirement income, the Guaranteed Income Supplement was introduced to augment the pensions of those whose earnings fell below a pre-determined level. In 1981, fully 54.1% of all OAS recipients received the GIS.89 Nevertheless, the combination of OAS and the GIS still left many recipients poor enough to qualify for social assistance in many provinces.90 For this reason most provinces for many years have provided income supplements for the elderly to "top up" their federal pensions. As for the Canada Pension Plan, its impact on the income security system was only beginning to be felt in this period as full retirement benefits only became payable in 1976 under the ten-year transitional provisions discussed earlier. Nevertheless, it may be noted that maximum CPP benefits replace only 25% of average earnings, a figure that is low by international standards. Indeed, the contribution of all public pensions to the income of Canada's elderly citizens ranks among the lowest in the OECD. Thus, according to a twelve-country study of OECD nations, in 1980 public old age pensions in Canada replaced 34% of average earnings, compared to an average replacement rate of 49% across the twelve OECD states surveyed.91 In contrast to family benefits and old age pensions, the Unemployment Insurance programme in the 1970's provided relatively generous benefits. UI benefits replaced two-thirds Elizabeth Wallace, "Old Age Security in Canada: Changing Attitudes." Canadian Journal of Economics and Political Science. XVIII:2 (May, 1952), pp.125-134 at p.133. 89Statistics Canada. Social Security National Programs: Old age security, guaranteed income supplement and spouse's allowance 1982. Cat. 86-509 (1982), p.29. 9 Frank McGilly. Canada's Public Social Services, op. cit., p.130. 9 1 OECD. Reforming Public Pensions. Paris: OECD, 1988, p.50. The average wage used in the study was that of workers in manufacturing in the year preceding retirement. The countries surveyed were Austria, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the UK, and the US. 59 of a claimant's previous earnings, up to a maximum weekly benefit. The maximum weekly benefit, moreover, was indexed annually to changes in average wage levels, a significant feature in view of the rapid escalation of wages and salaries which occurred during the 1970's. Eligibility for UI benefits (including the duration of benefits) was determined not only by the number of weeks of insurable employment but also by regional unemployment rates. Thus, in order to qualify for benefits, a claimant needed between 10 and 14 weeks of employment, the required number of weeks of employment being inversely related to the unemployment rate of the region in which the claim was filed. The three-phase benefit structure also reflected this mixture of insurance principles and social equity. In the first two phases, the duration of benefits was determined by the number of weeks of insurable earnings. The third phase of benefits applied in regions of higher unemployment. In those regions, claimants were entitled to an additional two weeks of benefits "for each 0.5% percentage point increment in the regional unemployment rate in excess of 4.0%, to a maximum of 32 weeks of benefits."92 In addition to the special rules regarding regions of high unemployment, special provisions were also made for fishermen, including those who were self-employed. Briefly stated, the eligibility rules for fishermen were relaxed in recognition of the seasonal nature of the industry and because of its importance to the economy of the Atlantic provinces. Among the more stringent eligibility rules under the Act were those relating to sickness, maternity, and retirement. The minimum number of weeks of work required to qualify for these "special benefits" was set relatively high, at 20 weeks, in order to limit access to those having a "major attachment" to the labour force. A further restriction was placed on maternity benefits. Under the so-called "Magic Ten" rule, at least ten of the twenty weeks of insurable earnings in the qualifying period were required to fall between the 31st and 50th weeks before the expected date of delivery. The purpose of this "was to ensure that pregnant women did not enter the labour force solely for the purpose of drawing maternity benefits."93 Since pregnant women were 92D.A. Green and W.C Riddell, "The Economic Effects of Unemployment Insurance in Canada: An Empirical Analysis of UI Disentitlement." Journal of Labor Economics. Vol. 11 (January 1993), pp.S96-S147 at p.S-107. 93Gary Dingledine, A Chronology of Response, op. cit, p.62; Leslie A. Pal, "Maternity Benefits and 60 otherwise ineligible to draw regular unemployment benefits, the stricter requirements imposed on them by the Magic Ten rule not surprisingly were criticized as discriminatory by women's groups. Another rule, introduced in 1975, reflected the Government's growing concern in the 1970's with the benefit claims of those whose unemployment was either voluntary or arguably self-induced. Thus, applicants were disqualified from drawing six weeks of benefits if they had voluntarily left their former job or been fired for misconduct. a. Universality One of the most striking features of the federal income security system as it stood in the late 1970's was the extent to which programme benefits were provided on a universal basis. Broadly defined, universal programmes are those which provide benefits regardless of the income of the programme recipients. Under selective programmes, in contrast, benefits are paid only to those falling below a certain income threshold. To be more precise, universality means that "the gross amount [of benefits] paid (before taxes) does not decrease as the income or wealth of the recipient increases."94 Selectivity implies that the level of gross benefits paid is inversely related to the recipient's income or wealth. Using this definition, we would classify as universal all demogrant and social insurance programmes while classifying as selective social assistance, income supplementation, and most tax expenditure programmes.95 A narrower definition of universality takes into account additional criteria restricting the coverage of a programme, beyond the criterion of the income of potential beneficiaries. According to this approach, demogrants are the quintessence of universality since they typically provide the broadest coverage of a relevant population group. Social insurance programmes, however, are not considered to be universal on this view since eligibility is determined by labour market attachment and the payment of Unemployment Insurance: A Question of Policy Design." Canadian Public Policy. XI:3 (1985), pp.551-560. '"Michael Mendelson, Universal or Selective? The Debate on Reforming Income Security in Canada. Toronto: Ontario Economic Council, 1981, p.3. 95This broad definition is employed by many observers of social policy, including Keith Banting. See Banting, "The Role of Universality in the Canadian Welfare State," in Alan Green and Nancy Olewiler (ed.), Report of the Policy Forum on Universality and Social Policies in the 1980's. Kingston: John Deutsch Institute for the Study of Economic Policy, Queen's University, 1985, pp.7-14. 6 1 prerniums. Social insurance programmes therefore exclude important categories of the population, such as homemakers and others having a minor attachment to the paid labour force. At the same time, such programmes cannot be categorized as selective since eligibility is not explicitly linked to a recipient's income. For this reason, some observers, including the Macdonald Royal Commission, consider to be conceptually clearer a three-tiered classification of income security programmes, using the rubrics of universality, social insurance, and selectivity.96 This study will employ the latter of the definitions of universality discussed above. Accordingly, in the late 1970's, two of the seven principal federal income security programmes were universal~Family Allowances and OAS. Moreover, these programmes together accounted for 43% of the total federal benefits paid. Social insurance programmes accounted for a further 43% of benefits paid while selective programmes accounted for the remairiing 14%. (See Table 2.4 below.) The significance of this high degree of universality is several-fold. To its supporters, which have traditionally included anti-poverty groups, trade unions, and the political left, universality avoids the stigma and heavy administrative costs often associated with means-tested programmes. Such groups, at various times, have also touted universal programmes as a means of stabilizing the economy by mamtaining aggregate purchasing power. A less prominent economic argument for universality relates to its impact on the vertical distribution of income—that is, the distribution of income between income classes. On the one hand, demogrants are mildly progressive in that they confer proportionately larger benefits on low income families. On the other hand, to the extent that benefits are determined by past contributions, as is largely the case with social insurance programmes such as UI and CPP, the impact may be regressive. Yet as Mendelson points out, the redistributive impact of universal programmes ultimately depends on the effect on net benefits of the tax system. Thus, "[i]f the tax system is progressive, the net benefits of a universal programme will also be progressive."97 In addition to these essentially technical arguments, proponents of universality have also 96Canada. Royal Commission on the Economic Union and Development Prospects for Canada. Report. Vol. 2. Ottawa: Minister of Supply and Services, 1985, Chp.19, at pp.779-781. 97Michael Mendelson, Universal or Selective?, op. cit., p. 12. 62 underscored its broader political importance. The most prominent political justification for universality is its presumed effect in building support for the welfare state among an increasingly affluent middle class. The National Council of Welfare, for example, has expressed the view that the dismantling of universality might undermine the "middle-class majority's willingness to finance improvements in selective social programmes directed to low-income persons, or even to maintain such spending at its present level."98 A further and peculiarly Canadian argument in favour of universality is its perceived contribution to social integration and national unity. In a country of fragmented regional loyalties, universal social programmes have been heralded by many as "one of the very few spheres of shared experience for Canadians, an important aspect of our lives, which is common, irrespective of our region or our language."99 Universality, however, is not without its detractors. Critics have variously assailed it as a costly and unnecessary extension of the role of the state. Social benefits, it is argued, should be targeted to those in greatest need. Beginning in the 1970's universality also drew fire from those espousing larger neo-conservative critiques of government spending programmes and of the assumptions underpinning Keynesian demand management. In the 1980's the federal government mdirectly signalled a loosening commitment to the national unity-enhancing qualities of universal programmes by agreeing to provincial demands for constitutional limitations on the federal spending power. The influence of these issues on social policy debates and programme changes are explored in subsequent chapters. 2. Early 1990's In comparing federal income security programmes of the early 1990's with those of the late 1970's, it would appear, at first blush, that the welfare state in Canada emerged largely unscathed from the neo-conservative politics of the intervening period. Virtually all of the original programmes remained in place and there was no dramatic decline in the proportion of government expenditures devoted to income security. Indeed, between 1980 and 1986 social 98National Council of Welfare, Family Allowances For All? A Report by the National Council of Welfare on Federal Child Benefits. (Ottawa, 1983), p.26. "Keith Banting, "The Role of Universality in the Canadian Welfare State," op. cit., p. 13. 63 expenditures (including health and education) actually increased as a proportion of GDP from 19.5% to 22.3%.100 On closer inspection, however, there were important changes in the structure of income security programmes. The most visible change was in the area of family benefits. With the abolition of the universal Family Allowance programme and its replacement by the income-tested Child Tax Benefit, there was a decided shift away from the direct payment of benefits on a universal basis to the use of the tax system to deliver benefits on a selective basis. This shift, it should be added, represented the culmination of a process begun in 1979 with the adoption of the Refundable Child Tax Credit. During this period Family Allowances made a derisory and steadily diminishing contribution to average household incomes. As Table 2.2 indicates, Family Allowances constituted 2.8% of average family income in 1978 and a mere 1.6% in 1992, the last year in which Family Allowance cheques were issued. Significantly, the largest drop, registered between 1978 and 1979, reflected a 23% cut in Family Allowance benefits which had been made to offset part of the cost of the RCTC. Changes in old age pensions, while less conspicuous, were no less important. On the one hand, Old Age Security benefits kept pace not only with changes in the cost of living but also with increases in average earnings. Thus, as Table 2.3 shows, monthly OAS benefits constituted 16% of average earnings in 1975 compared to 17% in 1992. Both the OAS and the supplementary benefits programmes, the Guaranteed Income Supplement and the Spouse's Allowance, were fully indexed to the Consumer Price Index on a quarterly basis during most of this period, and were increased on several occasions beyond the prevailing inflation rate. On the other hand, by the early 1990's the OAS had ceased to be a universal programme. As of 1989 a special surtax "clawed-back" 100% of the OAS received by upper income earners. Thus, although the OAS continued to be paid to all eligible seniors, the tax clawback rendered it universal in name only. As a consequence of this change, and of the abolition of Family '""Statistics Canada 1989. Incomes After Tax, distribution by Size in Canada. Ottawa: Minister of Supply and Services, cited in Keith G. Banting, "Neo-Conservatism in an Open Economy: The Social Role of the Canadian State." International Political Science Review. (1992) 13:2, pp.149-170, at p.157. 64 Table 2.2: Monthly Family Allowance Payments Per Family Related to Average Monthly Family Income for Selected Years, 1978-1992. (Assumes family of two eligible dependents.) Year Family Allowance Family Income Family Allowance as % of Family Income 1978 $51.36 $1,866 2.75 1979 40.00 2,020 1.98 1980 43.60 2,298 1.90 1982 53.82 2,748 1.96 1984 59.90 2,981 2.01 1986 63.16 3,363 1.88 1990 66.66 4,206 1.58 1992 69.76 4,375 1.59 Sources: Ken Battle, Poverty Profile 1988. Ottawa: National Council of Welfare, 1988; Statistics Canada, Income Distribution by Size in Canada. Cat. 13-207, for years 1990 and 1992; Health and Welfare Canada, Inventory of Income Security Programmes in Canada. Ottawa, various years; Human Resources Development, Income Security Programs 1992-1993. Ottawa: Minister of Supply and Services, 1993. Table 2.3: Monthly Old Age Security Pension Related to Average Monthly Earnings for Selected Years, 1975-1992 Year Monthly OAS Benefit Average Monthly OAS as % of AME Earnings (AME) 1975 $120.06 $ 747.80 16.1% 1980 182.42 1,167.24 15.6 1983 251.12 1,536.76 16.3 1984 263.78 1,601.68 16.5 1985 273.80 1,657.96 16.5 1986 285.20 1,707.00 16.7 1987 297.37 1,771.32 16.8 1988 310.66 1,848.84 16.8 1989 323.28 1,944.36 16.6 1990 340.07 2,032.28 16.7 1991 354.92 2,126.32 16.7 1992 374.07 2,199.20 17.0 Sources: The National Finances 1993. Toronto: Canadian Tax Foundation, 1993; Statistics Canada, Unemployment Insurance Statistics 1993 Annual Supplement, Cat. 73-202S. 65 Allowances, universality became a less prominent feature of the income security system while selectivity correspondingly grew in importance. As Table 2.4 shows, universal programmes accounted for fully 43% of total federal benefits paid in 1979 compared to 14% for selective programmes and 43% for social insurance programmes. By 1993 universal programmes had vanished altogether while selective programmes (including the selectively clawed-back OAS) now accounted for 43% of benefits paid and social insurance programmes accounted for fully 57%. An additional observation which must be made about old age pensions concerns the overall position of public pensions in the retirement income system. By the 1990's, CPP benefits had become a more significant part of the federal government's social expenditure budget as increasing numbers of senior citizens became eligible for full CPP benefits. As Table 2.4 indicates, the share of federal income security payments accounted for by the CPP grew from 9.0% in 1979 to 25.0% in 1993. This development was mainly a reflection of the fact that full CPP benefits were not payable until 1976, being the end of the ten-year phase-in period. It also reflected, to a lesser extent, a demographic ageing of the population.101 Despite the growth of the CPP, Canada's public pensions, on the whole, continued to make a smaller contribution to the average income of the elderly than those of most other industrialized countries. Thus, in 1995 it was estimated that public pension benefits in Canada represented 29.2% of the average gross wage, compared to an average among major industrialized countries of 37.5%.102 While CPP payments were growing in the 1980's, so too were private sources of retirement income, notably RRSP's. Encouraged, in part, by the adoption in the 1970's and 1980's of more favourable tax laws relating to RRSP contributions, the number of RRSP's grew markedly. Indeed, the proportion of Canadians filing tax returns who contributed to an RRSP rose from 13.8% in 1982 to 24.2% in 1991.103 Participation rates in RRSP's, however, were highly unequal across income brackets. As Table 2.5 discloses, RRSP's appealed principally to 101 The proportion of the total population 65 and over rose from 7.67% in 1950 to 9.51% in 1980. The latter figure is projected to double by 2010. OECD. Reforming Public Pensions, op. cit., p.33 1 0 2 Sheetal K. Chand and Albert Jaeger, Aging Populations and Public Pension Schemes. Washington, D.C. International Monetary Fund, 1996, p. 12. 103 Statistics Canada. Pension Plans in Canada 1992. Cat. 74-401. 66 Table 2.4: Eligibility Criteria for Federal Income Security Programmes, 1979 compared to 1993. Programme 1979 Type %of Benefits 1993 T y P e %of Benefits Family Allowance Universal Old Age Security Universal GIS Selective SPA Selective 15.2 27.7 8.0 0.8 Selective Selective Selective 104 26.4 7.4 0.8 RCTC Child Tax Benefit CPP UI Selective 5.4 Social insurance 9.0 Social insurance 33.8 Selective 8.4 Social insurance 25.1 Social insurance 31.9 % of Total Benefits Paid by Universal Programmes % of Total Benefits Paid by Selective Programmes % of Total Benefits Paid by Social Insurance Programmes 43.0 14.2 42.8 0.0 43.0 57.0 Sources: Figures based on Main and Supplementary Estimates for 1978-79 and for 1993-94. The National Finances 1978-79. Toronto: Canadian Tax Foundation, 1979, Chp.7 and The National Finances 1993. Toronto: Canadian Tax Foundation, 1993, Chp.7. 1 0 4 Following Banting, the OAS is treated as a selective programme after 1992, since the tax clawback, introduced in 1989, had been fully phased in by this time. See Keith G. Banting, "The Social Policy Divide: The Welfare State in Canada and the United States," pp.267-309 at p.291 in Keith G. Banting, George Hoberg, and Richard Simeon (ed.), Degrees of Freedom: Canada and the United States in a Changing World. Montreal and Kingston: McGill-Queen's University Press, 1997. 67 high-income earners. Thus, despite the growth of universal public pensions in the 1980's resulting from the maturation of the Canada Pension Plan, the federal government was simultaneously promoting private retirement savings through the tax system and through the provision of relatively meagre benefits under the public pension system. As a result, public pensions continued to provide only a secondary source of income for most of Canada's elderly.105 A sizeable minority, however, continued to derive all or most of their income from the public system, mcluding a high proportion of certain demographic groups such as elderly single women. The picture which emerges, therefore, is that of a dualistic retirement income system of modest public pensions and the private sources of income and savings which the former are essentially designed to supplement.106 Table 2.5: Participation in RRSP Programme by Income Group (1991) Total Annual Income Participation Rate (% of all taxfilers with same income) Less than $10,000 2.5% 10,000- 19,999 14.2 20,000 - 29,999 28.9 30,000-39,999 42.2 40,000-49,999 51.6 50,000 - 59,999 58.0 60,000 - 69,999 63.2 70,000 - 79,999 67.3 80,000 and over 70.7 Source: Statistics Canada. Pension Plans in Canada 1992. Cat. 74-401. While modifications to the Unemployment Insurance Act were many and varied, the overall thrust was to reduce the level and duration of benefits and to make it more difficult to qualify for benefits. Thus, the benefit rate, which had stood at 66.7% of earnings in 1978, was down to 57% in 1993. The minimum number of weeks of work required to qualify for benefits was still linked to regional unemployment rates but was lengthened from 14 weeks in 1978 to 20 105In 1985, on average, males 65 and over derived 41.6% of their income from public pensions (OAS-GIS and CPP) while females, having lower average incomes overall, received 55.3% of their income from this source. Robert L. Brown, Economic Security in an Aging Population, op. cit., p.19 1 0 6 John Myles. Old Age in the Welfare State: The Political Economy of Public Pensions. Toronto: Little, Brown and Company, 1984, p.61. 68 weeks in 1993 in regions of lower unemployment. Similarly the maximum number of weeks of benefits for minimally qualified claimants was reduced from 42 to 39. Significantly more stringent was the penalty for voluntarily quitting or for job loss owing to misconduct. In 1978 the penalty in these cases was the loss of six weeks of benefits; in 1993 individuals were disqualified from claiming benefits altogether. Salient changes in the Unemployment Insurance Act are summarized in Table 2.6. V. Conclusion This chapter has provided an overview of the income security system and of the major structural changes which occurred in federal programmes between the late 1970's and the early 1990's. In the 1970's Canada's comparatively late-developing welfare state had reached maturity and could be described as predominantly liberal in character. In view of the generally low level of benefits provided and the restrictive eligibility criteria for certain types of benefits, such as sickness and maternity benefits, the public income security system obliged Canadians to rely heavily on private sources of income. In the terminology of Gosta Esping-Andersen, Canada's welfare state had a low decommodification effect and tended to reinforce social class divisions. At the same time, the income security system exhibited certain social democratic features, most notably the delivery of programme benefits on a predominantly universal basis and the provision of relatively generous UI benefits. By the early 1990's the liberal character of the income security system had become decidedly more pronounced as a result of the significant curtailment of universality and the tightening of eligibility rules and benefits under the UI programme. The course of events which produced these changes was not, however, linear and pre-ordained. In some cases, such as family benefits, extensive policy changes generated relatively little political debate. In other areas major opposition to proposed changes contributed to a scaling down or abandonment of particular proposals by the government. In still other areas, surface appearances concealed deeper changes which were occurring, such as the government's increasing use of tax expenditures in the fields of family benefits and retirement income. These events, and the political forces which shaped them, are considered more closely in subsequent chapters. 69 Table 2.6: Comparison of Unemployment Insurance Eligibility, Benefits, and Financing in 1978 and 1993 Regular Benefits Minimum no. of weeks of insurable employment to qualify % of earnings replaced Maximum no. of weeks of benefits for minimally qualified claimants Waiting period Penalty for voluntary quitting without just cause or for job loss due to misconduct Special Benefits Minimum no. of weeks of insurable employment to qualify Maximum no. of weeks of benefits % of earnings replaced Financing 1978 10-14 66.7% 10-42 2 weeks Loss of 6 weeks ofbenefits Retirement, sickness & maternity benefits 20 weeks; for maternity benefits, claim-ant to be in labour force at least 10 weeks prior to concept-ion ("Magic 10") 15 weeks; lump sum for retire-ment benefit 66.7% Employer and employee premiums plus gov't contribu-tions 1993 10-20 57% 0-39 2 weeks Disqualification from any benefits Retirement benefits eliminated (1990); sickness, maternity, & parental benefits 20 weeks; "Magic 10" rule abolished (1984) 15 weeks (sickness & maternity); 10 weeks (parental) 57% Programme financed exclusively by employer & employee premiums-no gov't contributions Sources: Gary Dingledine, A Chronology of Response: The Evolution of Unemployment Insurance from 1940 to 1980. Ottawa: Employment and Immigration Canada, 1981; D.A. Green and W.C. Riddell, "The Economic Effects of Unemployment Insurance in Canada: An Empirical Analysis of UI Disentitlement." Journal of Labor Economics. 11 (January 1993), pp.S96-S147; Statistics Canada, Unemployment Insurance Statistics 1993 Annual Supplement. 73-202S; Employment and Immigration Canada. "Unemployment Insurance Benefits" (April 1993). 70 Chapter Three: "Last gasp of the old welfare state": The Liberals and Income Security, 1978-1984 I. Introduction 1978 is an appropriate point of departure in exaniining the process of welfare state retrenchment which became so prominent a feature of Canadian public policy in the 1980's and early 1990's. This is not to say that no measures were taken before this time to curtail or restructure income security programmes. In 1970, the Federal Government proposed to replace Family Allowances with an income-tested child benefit, a proposal which was abandoned in 1972 in the wake of a protest by middle-income earners.1 As for Unemployment Insurance benefits, the Government proceeded in 1975 to restrict eligibility rules and to shorten benefit periods in the face of unanticipated cost overruns, public perceptions of abuse, and a growing conviction in government that too generous a system of benefits undermined work incentives and therefore contributed to unemployment. These measures, however, were ad hoc in nature and did not spring from a fundamental re-examination of the size, structure, and function of the welfare state in general or the income security system in particular. By 1978, however, the Liberal Government began to articulate a series of themes which would powerfully condition its approach to income maintenance in the future as well as that of its Conservative successor. Specifically, the Government increasingly identified excessive government spending as inimical to the country's prospects for economic growth and prosperity. Reaffirming its faith in the capitalist market system, the Government increasingly accepted and propounded the view that excessive government expenditures were "crowding out" private investment capital and fuelling potentially ruinous levels of public debt. Since social programmes constituted a sizeable proportion of federal budgetary outlays, they would, by implication, bear the brunt of expenditure restraint measures. At the same time, however, the Government expressed its determination to protect the standard of living of those in greatest need. The 1 Keith G. Banting, The Welfare State and Canadian Federalism. Second Ed. Kingston and Montreal: McGill-Queen's University Press, 1987, p.l 12. 7 1 realization of these two objectives meant, among other things, that income security programmes would increasingly be targeted to lower-income individuals and families. II. Bonn Economic Summit and Aftermath Although the themes underpinning its new thinking would profoundly condition income security policy over the following decade and a half, the Government's conversion to the politics of welfare restraint was announced with surprising abruptness. On 1 August 1978, Prime Minister Trudeau made a national TV broadcast to announce the need for a "major re-ordering of government priorities."2 The PM began by noting that in the communique issued in mid-July from the Bonn Economic Summit meeting of western industrialized countries, Canada had made a commitment to achieve economic growth in 1978 of 5%. In order to reach that goal, the PM intoned, "We must reduce the size of government and use the resources to sustain growth." The idea that government spending and intervention were impairing economic activity was reiterated throughout the address. Decrying the "heavy hand of government and its drag on personal initiatives," the PM pledged to lift unnecessary government "intrusions" and to restore various (though unspecified) functions to the private sector. On the question of youth unemployment, the PM implicitly blamed the generosity of the UI programme. While conceding that the shortage of jobs was an important source of unemployment, the PM also took many job-seekers to task for being too "choosey." The PM did not spell out his thoughts about the link between youth unemployment and UI benefits but the Government's position on this matter were made explicit one month later when the Minister of Employment and Immigration announced important changes to the UI Act. In order to stimulate economic growth, the PM stated that a series of measures would shortly be announced. Such measures, however, were not to be financed by increased government spending. Rather, federal spending would be reduced and the savings used for economic stimulus. Thus, $2 billion, or 5%, of current and planned federal expenditures were to be cut. Moreover, a cap was to be placed on the size of the federal public service while public sector wages and benefits were not to exceed those on the private sector. 2The text of the Prime Minister's address was reprinted in the Toronto Star, 2 August 1978, p.A-11. 72 III. Programme Developments During the period 1978-1984, major changes were implemented in the fields of family benefits and unemployment insurance, the overall thrust of which was to diminish the egalitarian effect of the relevant programmes and to elevate market-based criteria at the expense of social rights. Universal Family Allowances were cut by 23% and a new income-tested child tax credit was introduced. The Unemployment Insurance Programme was curtailed through benefit cuts and the adoption of more stringent qualifying rules. The retirement income system was the subject of intensive study by the Federal Government in the early 1980's. During the "Great Pension Debate," the Government solicited extensive public input and appeared to be ready to implement substantial changes to the pension system in Canada. Ultimately, however, the Government made only modest changes to the system—changes which eroded universalist features of the public pension system while promoting private pension plans and individual retirement savings through selected tax measures. A. Family Benefits Within weeks of the Prime Minister's August TV address, the Government announced a significant reform to the child benefits system. At a press conference held on 24 August, Finance Minister Jean Chretien announced that under amendments to the Income Tax Act a Refundable Child Tax Credit (RCTC) would shortly be introduced. The RCTC would provide a tax credit of up to $200 a year to parents of dependent children under the age of 18.3 Households whose annual family income fell below $18,000 would receive the maximum credit, benefits being reduced by 5% for each increment of income over the threshold. Being a refundable tax credit, the RCTC would be delivered to families in the form of either a reduction in the amount of tax payable or, in the case of families with little or no taxable income, a direct cash payment. Chretien also announced a reduction in Family Allowances, from $26 a month per child to $20, and the elimination of the $50 (non-refundable) child tax credit. Thus, as the Finance Minister 3Brigitte Kitchen, "A Canadian Compromise: The Refundable Child Tax Credit." Canadian Taxation. 1:3 (Fall, 1979), pp.44-51. 73 pointed out, not only would the new RCTC be "self-financing" but the combined effect of the three measures would be to reduce government spending by $35 million. In this way the Government could claim success in fulfilling its twin objectives of cutting back on public spending while ensuring that income security benefits were allocated to those in greatest need.4 In the ensuing debate in Parliament, Chretien described the RCTC as "one of the most significant social policy reforms of the decade in this country."5 While this observation might be taken to be an example of ministerial hyperbole, or even a back-handed commentary on the dearth of new income security programmes introduced since the 1960's, the innovative nature of the RCTC could not be denied. As the Minister pointed out, the RCTC marked the first time that the tax system had been used to supplement the earnings of lower-income Canadians.6 He did not, however, acknowledge the broader political effects of the RCTC and of the measures which accompanied it. Most notably, adoption of the RCTC altered the balance of universal social rights and income-tested benefits in favour of the latter.7 Upper income families with dependent children would receive less assistance from the state than before, owing to the cut in Family Allowances and the elimination of the non-refundable child tax credit; moreover, such families were not eligible for the new RCTC. Lower income families, on the other hand, would receive more assistance. By reallocating benefits to the neediest families, the changes were congruent with the principles of the liberal welfare state. At the same time, they threatened over time to weaken the cross-class solidarity which universal programmes are widely thought to engender. Nevertheless, the RCTC was generally well received by all four parties represented in the House of Commons and was speedily enacted8. In 1982, the Liberals altered the family benefits package in a manner similar to the approach taken in 1978. Again, fiscal austerity, in the form of an across-the-board cut in 4 Leonard Shifrin, "The Refundable Child Tax Credit Experience." Canadian Taxation. 1:4 (Winter 1979), pp.36-38. 5House of Commons Debates, 31 October 1978, p.652. 6Ibid., p.653. 7 Dennis Guest, "The Fight to Save Canada's Universal System of Family Allowances: Round Two." Canadian Social Work Review 1985, pp.42-63. 8 For an analysis of the RCTC in relation to other family benefits, see Jonathan Kesselman, "Credits, Exemptions and Demogrants in Canadian Taxation Policy." Canadian Tax Journal. (November-December 1979). 7 4 government spending, provided the impetus behind a restmcturing to the family benefits system. Moreover, as in 1978, the effect of this restructuring was to enhance selectivity at the expense of universality. Specifically, under the "6 and 5" programme, unveiled in the Federal Budget of June, 1982, full indexation of Family Allowances was suspended for two years, cost of living adjustments being capped at 6 percent in 1983 and 5 percent in 1984. The RCTC, however, remained fully indexed; indeed, "a 'one shot' $50 increase was...added for 1983 in order to compensate lower-income families for the capping of their family allowances."9 As a result of these changes, the Government expected to save $320 million from the Family Allowance programme, of which $250 million was to be redirected to the RCTC. 1 0 The 6 and 5 restraint policy also affected family and other social benefits in a more subtle way, through the partial de-indexation of the personal income tax system. Pursuant to the 1982 Budget, income tax bracket limits, together with the major exemptions, would be indexed for inflation to a maximum of 6% in 1983 and 5% in 1984.11 The significance of this measure was that if inflation rates exceeded these levels, individuals and families having taxable income would be pushed into higher marginal tax brackets. According to the National Council of Welfare, the effect of this measure, combined with the indexation caps on universal demogrants such as the OAS and Family Allowances, would be that "many low and moderate-income taxpayers [would] suffer a reduction in their after-tax income."12 B. Unemployment Insurance Scarcely a week after announcing its plans to restructure the family benefits system, the 'Andrew F. Johnson, "Restructuring Family Allowances: 'Good Politics at No Cost'?" pp. 105-119, at p. 107 in Jacqueline S. Ismael (ed.), Canadian Social Welfare Policy: Federal and Provincial Dimensions. Kingston and Montreal: McGill-Queen's University Press, 1985. "Ibid. 11 Department of Finance. Budget Papers. (June 1982), pp.27-28. Personal income tax brackets and exemptions had been fully indexed to inflation since 1974. This measure had been adopted to avoid the phenomenon of "bracket creep," whereby inflationary increases in wages and salaries would automatically have the effect, under a progressive tax system, of pushing taxpayers into higher marginal tax brackets. In other words, in an inflationary environment, in the absence of indexed tax brackets, real incomes would remain the same (or fall) while the effective tax burden would tend to increase. The solution arrived at was to index the tax system to the annual inflation rate. See W. Irwin Gillespie, Tax, Borrow, and Spend: Financing Federal Spending in Canada, 1867-1990. Ottawa: Carleton University Press, 1991, pp. 189-194. 1 2 National Council of Welfare. The June 1982 Budget and Social Policy. Ottawa: National Council of Welfare (July 1982), p.5. 75 Government unveiled the details of a major retrenchment of the unemployment insurance programme. On 1 September 1978, Employment and Immigration Minister Bud Cullen outlined a series of proposed amendments to the Unemployment Insurance Act designed to reduce the level of weekly benefits, claw back a proportion of UI benefits paid to claimants with above-average incomes, tighten eligibility requirements, and reduce the government's financial contribution to the programme. Key elements of this overhauling of the Act included the following. First, entrance requirements were to be stiffened for repeat users (i.e., those making a second claim within the same 52-week period), for new entrants to the labour force, and for those re-entering the labour force after an absence of more than one year. Specifically, repeaters were to be required to have at least the same number of weeks of insurable employment as the number of weeks of benefits drawn on their previous claim. New entrants and re-entrants would be required to have a minimum of 40 weeks of work in the qualifying period. Secondly, the benefit rate was to be reduced from two-thirds of insurable earnings to 60%. Thirdly, claimants whose annual taxable income (including UI benefits) exceeded $22,000 would be required to pay back a certain percentage of their UI benefits. The Minister originally suggested that such claimants repay as much as 70% of benefits received and that the clawback be based on family income, rather than individual income.13 Finally, the Federal Government would no longer pay the total cost of labour force extended benefits; instead such benefits would be financed jointly by Ottawa and by employer and employee premiums. By these measures the Government expected to "achieve a substantial reduction in the cost of the [UI] program."14 The more stringent eligibility rules were projected to reduce the number of UI recipients by 10% and to reduce overall UI benefit payments in 1979-80 by $655 milhon.15 The proposed changes were also expected to "minimize any negative effects which the program may have on the incentive to work, or on the labour supply."16 This latter aim reflected 13 Tom Traves and John Saywell, "Parliament and Politics," pp.3-104 at p. 10 in R.B. Byers and John Saywell, Canadian Annual Review of Politics and Public Affairs 1978. Toronto: University of Toronto Press, 1980. 1 4 House of Commons Debates, 11 October 1978, p.2. 15 Gary Dingledine, A Chronology of Response: The Evolution of Unemployment Insurance from 1940 to 1980. Ottawa: Minister of Supply and Services, 1981, p. 101. 16 Ibid. 76 the Government's view that UI was distorting the natural operation of labour markets. On the one hand, the programme was thought to be encouraging claimants to refuse suitable work and to become, in the PM's words, too "choosey." On the other hand, limited work requirements to qualify for benefits were blamed for encouraging workers having only a minor attachment to the labour force to work for the rninimum number of weeks simply in order to qualify for UI benefits. Between the Minister's announcement in September and the introduction of the UI bill, Bill C-14, into the House of Commons on 2 November, several notable modifications were made having to do with eligibility requirements. Opening the debate on Second Reading of the Bill, Cullen explained that the stricter rules for repeat claimants announced in September would be relaxed in order to "create less hardship for those in regions of Canada with high unemployment where jobs are harder to find."17 Thus the proposal that repeaters be required to work for at least the same number of weeks of benefits drawn on their previous claim was dropped. Instead, the maximum number of additional weeks of employment to be required of repeaters would be fixed at six weeks over and above the applicable regional entrance requirement. There would, however, be no additional qualifying period in regions of high unemployment.18 Another concession made by the Minister which was chiefly to the advantage of high-unemployment regions was a reduction in the required number of weeks of insurable employment for new entrants and re-entrants to the labour force. The 40-week requirement proposed in September was reduced to 20 weeks. Finally, the clawback on benefits for upper-income earners was fixed at 30% of benefits received—less than half the rate originally proposed—and would be calculated on claimants' personal income, not their family income.19 Bill C-14 marked a significant retreat from the major expansion of the UI programme adopted only seven years earlier and accordingly generated considerable controversy. It was vehemently opposed by organized labour and by New Democrat MP's, who resorted to using procedural roadblocks to stymie the bill's progress in the House. Women's groups were also 17 House of Commons Debates, 9 November 1978, p.983. 1 High unemployment regions were designated as those in which the unemployment rate was over 11.5%. 1 9 Tom Traves and John Saywell, "Parliament and Politics," op. cit., p. 11. 77 highly critical of the bill, arguing that the stricter eligibility rules would have a particularly deleterious effect on working women. They were also disappointed by the Government's failure to liberalize the provisions relating to maternity benefits and, in particular, to abolish the notorious "Magic 10" rule.20 The Government also attracted criticism from several provincial governments upset about the lack of consultation by Ottawa and concerned in particular about the bill's potential to push unemployed workers onto provincial social assistance rolls.21 Employer groups, however, were generally supportive of the bill, as was the business press, while the Progressive Conservative Official Opposition approved the principles of the bill and was restrained in its criticism. Thus, notwithstanding a filibuster by the NDP, the Government was able to expedite passage of the bill through both houses before the Christmas recess. Following the adoption of Bill C-14, unemployment insurance remained a major preoccupation of the Federal Government. Further studies and debates on UI were carried out by the Clark Government in 1979 and by the Trudeau Government of 1980-1984. Among these was a Task Force on UI, set up by the Liberals after the 1980 election. Reporting in 1981, the Task Force echoed the Government's continuing concern about the adverse impact that UI benefits were thought to have on work incentives and on inter-regional labour mobility.22 To deal with these perceived problems, the Task Force proposed further restrictions on the UI programme, such as higher entrance requirements, elimination of regional extended benefits, an increase in the benefit clawback for upper income earners (from 30% to 50%), and a doubling of the disqualification period for claimants who had voluntarily quit their jobs. While the Task Force's proposals would have yielded a net reduction in the cost of UI of some $220 million,23 20As described in Chapter 2, the Magic 10 rule required, as a condition of eligibility for maternity benefits, that a claimant have at least ten weeks of insurable earnings in the twenty-week period immediately preceding the thirtieth week before the expected date of delivery. The purpose of the rule was to ensure "that the claimant had been working at or around the time of conception [and to] guard against women who, after becoming pregnant, might take a job simply to collect benefits." Leslie A. Pal, "Maternity Benefits and Unemployment Insurance: A Question of Policy Design." Canadian Public Policy. XI:3 (1985), pp.551-560. 2 1 Gary Dingledine, A Chronology of Response, op. cit., p. 102. E^mployment and Immigration Canada. Unemployment Insurance in the 1980s. Minister of Supply and Services, 1981. 23Leslie A. Pal, State, Class, and Bureaucracy: Canadian Unemployment Insurance and Public Policy. Kingston 7 8 several of its recommendations did entail a liberalization of certain UI benefits, particularly those relevant to women. Thus the Report recommended elimination of the special entrance requirements for maternity and other benefits, abolition of the "Magic 10" rule, and the extension of maternity benefits to adoptive parents.24 With the onset of the recession of 1981-82, no ftirther retrenchment of the UI programme was implemented. As Pal observes, "any substantial cuts in the program would have been difficult to defend in the face of rapidly rising unemployment rates."25 Instead, Employment and Immigration Minister Lloyd Axworthy secured $400 million in federal funds to combat the unemployment problem through a variety of job creation, job placement, and work-sharing programmes 2 6 Up to $10 million of this sum was to be financed from UI funds. Further job creation schemes were announced in 1982, to be financed by a mixture of UI funds and general revenues. The most significant change to UI made by the Liberals in their final term provided for a broadening of maternity benefits along the lines recommended by the Task Force. In June, 1983, amendments to the UI Act were passed abolishing the "Magic 10" rule and extending maternity benefits to adoptive parents. The stringent 20-week entrance requirement for maternity benefits, however, was retained.27 C. Old Age Pensions Canada's retirement income system was the subject of extensive study in the late 1970's and early 1980's as measured by the volume of federal and provincial studies that were conducted during this period. Notable federal reports include the report of a special Senate committee, two task force reports on pension reform, and a government Green Paper.28 There was a remarkable and Montreal: McGill-Queen's University Press, 1988, p.89. "Ibid. 15Ibid., p.46. 2 6 Christine McCall-Newman and Stephen Clarkson, Trudeau and Our Times. Vol. 2. Toronto: McClelland and Stewart, 1994, p.251. An initial $50 million was allocated in December, 1981, of which up to $10 million was to be financed from UI funds. Job creation schemes announced in 1982 were also to be financed by a mixture of UI funds and general revenues. Leslie A. Pal, "The Fall and Rise of Developmental Uses of UI Funds." Canadian Public Policy. IX:1 (1983), pp.81-93 at pp.87-88. 27Leslie A. Pal, "Maternity Benefits and Unemployment Insurance," op. cit., p.558. 2 8 Canada. Special Senate Committee on Retirement Age Policies, Retirement Without Tears. Ottawa: Minister of 79 degree of consensus in these reports about the shortcomings of the prevailing retirement income system. Private sector pensions in particular were roundly criticized for their inadequate coverage of the wage-earning population, their restrictive vesting rights, and their weak or non-existent inflation protection.29 On the other hand, there was considerable disagreement, both in the submissions received from interested parties and in the reports' recommendations, about the steps which should be taken to reform the pension system. Proposals ranged from stricter regulation of existing private sector pension plans—an approach favoured by most business groups— to a major expansion of the public pension system in the form of higher CPP premiums and benefits—an approach favoured by labour and by most social policy groups—to a legislated expansion of private pension plan coverage. These ideas and others were debated at a National Pensions Conference held in Ottawa in 1981. The Conference, which was opened by Prime Minister Trudeau and co-chaired by the Ministers of National Health and Welfare and Finance, was attended by dozens of business, trade union, and social policy groups and received hundreds of written submissions.30 The following year, the Federal Government issued a Green Paper on pension reform.31 The Green Paper identified for discussion numerous piecemeal reform proposals, including further increases in the GIS to augment the incomes of the single elderly, selected improvements to the CPP, and legislated reforms to private occupational pension plans.32 However, while the Paper refrained from endorsing specific proposals it took a conservative position on the larger question of the appropriate balance to be struck between public and private pensions, asserting Supply and Services, 1979; Canada. Task Force on Retirement Income Policy, The Retirement Income System in Canada: Problems and Alternatives to Reform. 2 vols. Ottawa: Minister of Supply and Services, 1980; Canada. House of Commons. Report of the Parliamentary Task Force on Pension Reform. Ottawa: Minster of Supply and Services, 1983; Canada. Better Pensions for Canadians. Ottawa: Minister of Supply and Services, 1982. For a discussion of the major themes of these and other reports, see Louis Ascah, "Recent Pension Reports in Canada: A Survey." Canadian Public Policy. X:4 (1984), pp.415-428. 29Louis Ascah, "Recent Pension Reports," op. cit., p.416. 30Canada. Summary of Submissions: National Pensions Conference (1981). Ottawa: Minister of Supply and Services, 1982. 3 1 Canada. Better Pensions for Canadians. Ottawa: Minister of Supply and Services, 1982. 3 2 Proposed reforms to the CPP included the splitting of pension credits on marriage breakdown, provision for women dropping out of the paid labour force for child-rearing purposes to continue to accumulate CPP credits, and the establishment of a CPP pension for homemakers. Proposed reforms to occupational pension plans included improved portability of pension credits and mandatory inflation protection of benefits. 80 that "[w]hile some expansion of mandatory pension arrangements may be needed., .employer-sponsored pension plans and individual savings [should] continue to play an essential role."33 The Green Paper was referred to a Parliamentary Committee chaired by Liberal MP Doug Frith. The majority report, endorsed by Liberal and Conservative members of the Committee, but rejected by the NDP, largely accepted the position of private sector business groups that there should be no mandatory broadening of the pension system, either through the CPP or private sector pension plans.34 Instead, the Committee endorsed many of the proposed reforms to the CPP and to occupational pension plans which had been raised in the Green Paper. Of particular interest here were proposals for the mandatory indexation of private sector pension benefits and the establishment of a CPP homemaker pension.35 The Government's response to the Parliamentary Committee's Report, discussed below, was released with the Federal Budget of February, 1984. In the area of public pensions, the major policy development of the period 1978-1984 was the augmenting of benefits for the neediest pension recipients through a series of increases in the income-tested Guaranteed Income Supplement (GIS). Thus, in August, 1978 Finance Minister Jean Chretien announced that the maximum GIS benefits would be increased by $20 a month. Both the increased GIS benefit and the new RCTC were justified as measures intended to mitigate "the unfair impact of inflation upon lower-income groups."36 A second GIS increase, in the amount of $35 a month, was announced in the Throne Speech of April, 1980, while a third, in the amount of $50 a month, was announced in the Throne Speech of February, 1984. In addition, it should be noted that the GIS, like the RCTC, remained fully indexed to the Consumer Price Index throughout this period. In contrast, there were no increases in the basic OAS benefit; 33 Ibid, p.35. 3 4 Special Committee on Pension Reform. Report of the Parliamentary Task Force on Pension Reform. Ottawa: Minister of Supply and Services, 1983. 3 5 On the question of indexation, the Committee recommended that defined benefit pension plans be subject to mandatory indexation for annual inflation rates over 2.5% (as measured by the Consumer Price Index). (Ibid, p.49) With regard to homemaker pensions, the Committee recommended that women having no labour force earnings be entitled to a pension under the CPP based on 50% of the year's maximum pensionable earnings (YMPE), or half the average industrial wage. Women working in the paid labour force who earned less than one-half the YMPE would receive a top-up to bring their pension income to the level of one-half the YMPE. (Ibid, pp.25-26) 3 6 House of Commons Debates, 11 October 1978, p.2 8 1 moreover, as with the universal Family Allowance, indexation of OAS benefits in 1982 and 1983 was subject to the ceiling established by the 6 and 5 programme. Indeed, as a further buffer for low-income pensioners, the GIS was to be "super-indexed" to compensate for any OAS benefits which might be forgone as a result of the 6 and 5 ceiling. A second though largely overlapping development in the pension field was the increased attention that was paid to the needs of elderly women. Most to the studies reviewing the retirement income system drew attention to the fact that women constituted a disproportionately large fraction of the elderly poor in Canada. Because of such factors as their employment patterns, child-rearing duties, and relative longevity, elderly women were particularly reliant on the public pension system. In recognition of this fact, the Government took pains to point out that the boosting of GIS benefits would be of particular benefit to women.37 Other measures primarily designed to improve the lot of elderly women included two changes to the income-tested Spouses' Allowance (SPA). The first, introduced in October, 1978, provided for the continued payment of the SPA to a surviving spouse for a period of six months following the death of the older spouse. Previously, the SPA had terminated immediately upon the latter's death.38 The second change, implemented by the Clark Government in 1979 entitled widow(er)s to continue to receive the SPA until the age of 65, at which point they would become eligible for OAS in their own right.39 Another measure chiefly of benefit to women was the so-called child-rearing drop-out clause to the CPP, implemented in 1983. Under this provision, working parents (usually mothers) who left the paid labour force in order to raise children would continue to earn CPP credits. While such a provision had been part of the Quebec Pension Plan since 1977, Ontario vetoed its inclusion into the CPP until finally relenting in 1983.40 With regard to the issues of pension coverage and income replacement rates, the most contentious elements of the pension debate, the Government largely reaffirmed the status quo. In 3 7 E.g., see House of Commons Debates, 14 April 1980, p.5 3 8 Canadian News Facts, 12:19 (16-31 Oct. 1978), p.2027. 39Monica Townson, "Elderly Benefits: Spouse's Allowance," pp.57-58 in Roundtable on Canada's Aging Society and Retirement Income System. Ottawa: Caledon Institute of Social Policy, 1996. 40Louis Ascah, "Recent Pension Reports," op. cit., p.421. 82 a policy paper released with Finance Minister Marc Lalonde's February, 1984 Budget, it rejected proposals to increase the CPP replacement rate above the existing 25% ceiling or to legislate mandatory occupational pension plans.41 The Government re-asserted the importance of maintaining a dualistic pension system of public pensions, on the one hand, and employer-sponsored pension plans and individual savings on the other.42 The Government did, however, endorse many of the Parliamentary Committee's recommendations regarding the CPP~including the proposal for a homemaker pension—while stressing that any such reforms would require provincial approval43 The Government's main aim, however, was to "help build a stronger private pension sector."44 To this end, the Government proposed to legislate stricter standards for established occupational pension plans through amendments to the Pension Benefits Standards Act, the act governing private sector pension plans in industries falling under federal jurisdiction. Under the proposed amendments, the Government planned to impose more limited inflation protection requirements on private pension plans than those recommended by the Frith Committee, while exhorting plan sponsors to make inflation adjustments "whenever financial circumstances permit."45 Other measures would have included earlier vesting, improved portability, compulsory participation of part-time employees in existing occupational pension plans, and rules requiring the disclosure to plan members of information regarding accrued benefits and accumulated contributions. The Government also proposed to encourage individual retirement savings through RRSP's. Thus, the February 1984 Budget proposed to raise the limit on tax deductible contributions to RRSP's and to allow for any unused tax deductions to be carried 4 1 Department of Finance. Action Plan for Pension Reform: Building Better Pensions for Canadians. Ottawa (February 1984). 4 2 Ibid., p.3. 43The CPP changes proposed included rules providing for the splitting of CPP pension credits between spouses upon marriage breakdown and the continued payment of survivor benefits upon the remarriage of the surviving spouse. "HHon. Marc Lalonde, Minister of Finance. Building Better Pensions for Canadians: Improved Tax Assistance for Retirement Saving. Ottawa: Department of Finance (February, 1984), p.iv. 45Department of Finance. Action Plan for Pension Reform, op. cit., p.6. Under the Lalonde proposals, pension benefits would have been indexed annually by 60% of any change in the Consumer Price Index to a maximum increase of 8%. 83 forward to subsequent tax years. Owing to the Liberals' election defeat in September, 1984, none of these measures was enacted. Most of them, however, were implemented by the new Conservative Government during its first term of office. In summary, the "Great Pension Debate" of the early 1980's was an unusual exercise in the new era of welfare state retrenchment. Ken Battle, then Executive Director of the National Council of Welfare, has described it as ...the last gasp of the old welfare state. The proposals to expand the pension system were the last serious proposals to expand our welfare state.47 At the end of the day, however, the Government chose to reinforce the dualistic nature of Canada's pension system. The residual nature of the public pension system was reaffirmed by mamtaining the ceiling on CPP and OAS benefits while augmenting the income-tested GIS and SPA. At the same time, the private pension system was to be strengthened through stricter federal regulation of existing private sector pension plans and more generous tax incentives for individual retirement savings. As two academic commentators have put it, the net result of the pension debate "was to reinforce the economic divisions that generated the debate in the first place: better quality occupational pensions (for those covered), more tax shelters for the well-to-do (RRSP's), and little or nothing for those whose retirement income depends almost exclusively on the public sector."48 On the other hand, the Government's approach to pensions differed from its approach to family benefits and unemployment insurance in that it chose not to target old age pensions as an area for significant spending cuts. IV. Explaining Retrenchment under the Liberals, 1978-1984 A. Class-Based Actors 1. Organized Labour Income security policy was not a primary focus for organized labour in the period 46Ibid., pp.iii-iv. "'interview with Ken Battle, Ottawa, 11 June 1996. "8John Myles and Les Teichroew, "The Politics of Dualism: Pension Policy in Canada." pp.84-104 at p.96 in John Myles and Jill Quadagno (ed.), States, Labor Markets, and the Future of Old-Age Policy. Philadelphia: Temple University Press, 1991. 84 1978-1984. A more immediate concern for trade unions was the defence of collective bargaining rights. Following three years of federal wage and price controls, public sector unions faced the federal 6 and 5 wage restraint programme in 1983-1984 and analogous programmes in many provinces.49 Private sector unions faced increasing pressure at the bargaining table for wage concessions as unemployment levels reached a post-war high in 1978, only to be outstripped in the recession of 1981-1982. Organized labour nevertheless took an interest in the development of income security policy, particularly in regard to unemployment insurance and pensions. The Canadian Labour Congress, as well as some of the larger national unions, such as the United Autoworkers and the Public Service Alliance of Canada, participated actively in parliamentary proceedings and in wider public debates about the direction of the Canadian welfare state. Labour's approach to income security policy in the late 1970's and early 1980's continued to reflect the broad social democratic themes which trade unions had advanced in the expansionary stage of Canada's welfare state. Thus the CLC and other labour bodies advocated economic policies such as full employment and higher rninimum wages together with such social measures as a high level of social services and universal public pensions, unemployment insurance, and other social security benefits. While labour also supported an expansion of selective income security programmes, such as an income-tested Guaranteed Annual Income, it considered such policies to be complementary to the commitment to full employment and to universal social programmes, rather than a substitute for them.50 On unemployment insurance, labour representatives unreservedly opposed Bill C-14 and the assumptions on which it was based. This position reflected labour's long-held view that government had both the capacity and the responsibility to maintain full employment. From labour's perspective, therefore, it followed that the mounting levels of unemployment of the late 1970's were the consequence of mistaken economic policies. Moreover, labour rejected the 4 9 See generally, Leo Panitch and Donald Swartz, The Assault on Trade Union Freedoms: From Consent to Coercion Revisited. Toronto: Garamond, 1988. 5 0 Rodney Haddow, Canadian Organized Labour and the Guaranteed Annual Income," pp.350-366 at p.351 in Andrew F. Johnson, Stephen McBride, and Patrick J. Smith (ed.), Continuities and Discontinuities: The Political Economy of Labour Market Policy in Canada. Toronto: University of Toronto Press, 1994. 85 Government's contention that the UI programme itself was contributing to unemployment. This position, on the one hand, was a reaffirmation of the Keynesian idea that unemployment insurance was an automatic stabilizer designed to mitigate the severity of downturns in the business cycle.51 On the other hand, labour leaders angrily denied that abuse of the UI programme was a significant problem. Labour leaders consistently took the position "that the vast bulk of unemployment is involuntary and that therefore UI should not be narrow or restrictive."52 Accordingly, the Government's proposals to restrict eligibility and to reduce benefits struck labour as fundamentally unjust. Donald Montgomery, Secretary-Treasurer of the CLC, denounced the draft bill as "attacking the unemployed rather than unemployment."53 Indeed, labour representatives appearing before the House of Commons Standing Committee on Labour, Manpower, and Immigration accused the Government of exaggerating the scale of UI abuse in order to justify the introduction of restrictive measures. Basil ("Buzz") Hargrove, spokesperson for the United Auto Workers, put this view as follows: "We believe that the Government has been a willing accomplice, if not instigator, in a deliberate plan to dupe the public into believing that the present unemployment insurance program has been savaged by hordes of cheaters with the goal of avoiding work in order to collect benefits...."54 While labour was seeking to defend the unemployment insurance programme against retrenchment, it simultaneously pressed the Government for a major expansion of the public pension system. In a policy resolution adopted at its convention in Quebec City in April, 1978, the CLC set out its vision of a reformed pension system. The cornerstone of this policy was a proposed doubling of the basic benefit under the Canada Pension Plan to 50% of pre-retirement earnings, up to the level of the Average Industrial Wage.55 The CLC policy also called for increases in OAS and GIS benefits such that the three public pensions would together replace 5 1 This reasoning was expressed by Julien Major, Executive Vice-President of the CLC, in testimony before the parliamentary committee on Bill C-14. See House of Commons, Standing Committee on Labour, Manpower, and Immigration. Minutes of Proceedings and Evidence. 21 November 1978,4:9. 5 2 Leslie A. Pal, State, Class, and Bureaucracy, op. cit., p.83. 5 3 Tom Traves and John Saywell. Parliament and Politics," op. cit, p. 10. 5 4 House of Commons. Standing Committee on Labour, Manpower and Immigration, op. cit, 4:19. 5 5 "Pension Policy," Canadian Labour, 23:2 (June 1978), pp.23-24; R. Baldwin, "The Needs of Pensioners," The Canadian Business Review (Summer 1980), 7:2, pp.27-30. 86 fully 75% of the pre-retirement income of those with earnings equivalent to the Average Industrial Wage. The policy statement argued that public pensions were inherently superior to private occupational pensions as a means of providing both universal coverage and inflation-protected benefits to all Canadians.56 It would appear from a review of the policy developments outlined in the previous section that labour had no significant influence on the major decisions taken by the federal government in the income security field during this period. It was unable to prevent the erosion of existing provisions of benefit to labour, as reflected in the curtailment of the UI programme and, to a lesser extent, the cuts in Family Allowances. Despite its implacable opposition to the scaling back of UI, only technical changes to Bill C-14 were recommended by the parliamentary committee at Report stage.57 It is true that the Government made important concessions to critics of the draft proposals released in September by relaxing the rules concerning repeat users of UI and those affecting new entrants and recent re-entrants to the labour force. However, as is discussed below, these concessions were made in response to pressure exerted by MP's from the Atlantic provinces, not in response to representations by organized labour. Labour was equally unable to achieve its goal of a major extension of the public income security system through enriched public pensions. On closer inspection, these failures were not isolated events but formed part of a wider pattern of declining political influence on the part of organized labour dating from the mid-1970's. In 1975, the Federal Government and the Bank of Canada identified inflation as the principal economic problem facing the country. Accordingly, the Governor of the Bank of Canada, Gerald Bouey, announced in a speech in Saskatoon that henceforth the Bank would adopt a more restrictive monetary policy involving the setting of annual limits on the growth of the money supply.58 The Trudeau Government, for its part, made inflation the principal target 5 6 For a more detailed statement of the CLC's pension policy, see The CLC Proposal for Pension Reform. Canadian Labour Congress (1982). 5 7 Leslie A. Pal, State, Class, and Bureaucracy, op. cit., p.87. 5 8 David A. Wolfe, "The Rise and Demise of the Keynesian Era in Canada: Economic Policy, 1930-1982," pp.46-78 in Readings in Canadian Social History, Vol. 5: Modern Canada, 1930-1980's. Michael S. Cross and Gregory S. Kealey (ed.). Toronto: McClelland and Stewart, 1984. 87 of its fiscal policy through the adoption of a national programme of wage and price controls. This measure was strenuously opposed by organized labour, which regarded it as an unwarranted abrogation of free collective bargaining based on an erroneous analysis of the causes of inflation. During its three-year campaign against the Anti-Inflation programme, the CLC challenged the constitutionality of the policy in the Supreme Court of Canada, withdrew all labour representatives from federal advisory and consultative bodies, and called a one-day general strike in October, 1976, which it euphemistically dubbed the "National Day of Protest." None of these measures was successful in altering the Government's policy. Following the phasing out of the Anti-Inflation Board in 1978, relations between labour and Ottawa remained antagonistic. Back to work legislation was passed by both levels of government with increasing frequency,60 while fiscal austerity and the fight against inflation remained high priorities, even as unemployment reached a postwar high in 1977 and exceeded the one-million mark a year later.61 In 1982, in the midst of the most severe economic slump since the 1930's, the Government imposed wage controls on the federal public service under the 6 and 5 programme.62 If the period after 1978 saw an apparent decline in the influence of organized labour in regard to income security policy, the opposite may be said about the influence of organized capital. For the most part business had reason to be pleased with the direction of government policy in this area. The Government's cuts to UI, its new emphasis on selectivity, and its non-decision on contributory pensions were all congruent with the social policy agenda of Canada's business class. The mere convergence of business demands and government policy is not, of course, necessarily indicative of the effectiveness of business in advancing its demands. 5 9 For a description of the Anti-Inflation programme, see Desmond Morton, Working People: An Illustrated History of the Canadian Labour Movement. 3rd Ed. Toronto: Summerhill, 1990, pp.303-313. Back-to-work legislation was used on 51 occasions in the period 1965-1980, half,pf these cases being in the period 1975-1979, and was used a further 43 times in the period 1980-1987. In contrast, such legislation was only used 6 times in the period 1950-1965. Leo Panitch and Donald Swartz, The Assault on Trade Union Freedoms, op. cit, p.30. 6 Desmond Morton, Working People, op. cit, p.313. 62Eugene Swimmer. "Six and Five: Part Grandstanding and Part Grand Plan," pp.240-281 in Allan Maslove (ed.), How Ottawa Spends 1984: The New Agenda Toronto: Methuen, 1984. 2. Business 88 However, there is direct and indirect evidence to support the proposition that business interests were increasingly taken into account by government in the formulation of income security policy. First of all, business's capacity to articulate its demands in regard to economic and social policy grew considerably with the advent of the Business Council on National Issues (BCNI). Secondly, adverse economic conditions in the late 1970's and early 1980's, and their impact on the federal government's fiscal position, greatly enhanced the plausibility of business's critiques of the welfare state. Indeed, not only did the government move closer to the substance of business's positions on income security policy, it also increasingly justified its social policy measures as a sine qua non to promoting business confidence and renewed economic growth. In organizational terms, a new national business association, the Business Council on National Issues (BCNI), gave business a strong and authoritative voice in national affairs. Founded in 1976, the BCNI is an organization which attempts to reach consensus positions on national policy issues among the country's largest private sector corporations and to advance those positions both through high-level contacts with public officials and through the preparation of briefs for parliamentary committees, task forces, and royal commissions.63 The BCNI was founded, in part, to give senior business executives better access to the centralized decision-making structures adopted by the federal government in the 1960's and 1970's.64 A second aim of the BCNI was to take a more pro-active approach to selected policy issues by developing well-researched and ostensibly balanced position papers. This approach tended to set the BCNI apart from older institutionalized business associations, such as the Canadian Chamber of Commerce and the Canadian Manufacturers' Association. Such organizations tended to react to specific government policies directly bearing on the interests of their members while opposing, often in fiercely polemical terms, any expansion of social programmes. Despite the variety of business associations active at the national level, there was a high 6 3 David Langille, "The Business Council on National Issues and the Canadian State." Studies in Political Economy. 24 (Autumn 1987), pp.41-85; William D. Coleman, Business and Politics: A Study of Collective Action. Kingston and Montreal: McGill-Queen's University Press, 1988, pp.83-87. "William D. Coleman, Business and Politics, op. cit., p.83; David Langille, "The Business Council on National Issues," op. cit., pp.53-54. 8 9 degree of uniformity in their formal submissions on income security policy. Consistent with their members' economic (or class) interests, business organizations from the BCNI to the Canadian Chamber of Commerce generally favoured a limited welfare state designed to promote or, at worst, not to hinder unduly, the operation of the free market and the process of private capital accumulation. From this perspective, business groups opposed universal demogrant programmes, such as Family Allowances and Old Age Security, favouring instead income-tested programmes such as the Guaranteed Income Supplement and the RCTC. Business groups opposed what they deemed to be the misguided generosity of UI and its departure from strict insurance principles. With regard to pensions, business largely took a laissez-faire view; while accepting the need for some improvements in the regulation of private sector pension plans, business rejected proposals to expand the public pension system or to legislate mandatory occupational pension plans. Apart from the BCNI, most business organizations did not take a clear position on family benefits programmes, other than to express a general commitment to a residual concept of social security. Interestingly, the Canadian Chamber of Commerce did criticize the RCTC shortly after its adoption, citing, among other things, its cost and administrative complexity. The Chamber proposed instead that child benefits be delivered through the Family Allowance programme, but that such benefits no longer be indexed.65 By the 1980's, however, as the government launched reviews into pensions, UI, and, in the case of the Macdonald Royal Commission (1983-1985), social and economic policy in general, business groups indicated a clear preference for selectivity over universality. In 1983, in a pre-Budget submission to the Government, the BCNI proposed three options for reform of family benefits, emphasizing in each case the anticipated cost savings. Two of the three options involved the abolition of Family Allowances together with increases in the RCTC; the third option proposed to introduce greater selectivity by means of an income-tested tax clawback of universal benefits.66 As the federal deficit began to grow rapidly in the "Canadian Chamber of Commerce. Submission to the Minister of Finance and the Minister of National Revenue. (August 1979), p.21. [National Library of Canada.] better from Thomas dAquino to the Hon. Marc Lalonde (10 March 1983) cited in BCNI, National Priorities: A 90 early 1980's, the BCNI increasingly stressed the link between selectivity of social benefits and government expenditure restraint. With regard to Unemployment Insurance, business organizations were supportive of those aspects of Bill C-14 and of the UI Task Force Report which provided for more restrictive qualifying conditions and reduced benefits. Indeed, business groups favoured even deeper cuts to the programme.67 However, this position was of long standing and does not appear to have had a direct bearing on the Government's decision to cut UI in 1978. Rather, as is noted below, Bill C-14 was a cost-cutting measure necessitated, on short notice, by the PM's post-Bonn announcement. Moreover, the 1983 amendments liberalizing the maternity benefits provisions of the Act were adopted in spite of opposition from business groups68 whereas the cuts recommended by the UI Task Force, which business generally supported, were shelved. The foregoing suggests that business had little if any direct influence over UI policy during this period, even if it may be said that business interests were served by the fact that the UI programme was decidedly less generous following the passage of Bill C-14. Nevertheless, some measure of indirect business influence in this field may be gleaned from the officially stated goals of UI reform. On this score, the Government embraced a central critique of the UI programme which had been articulated by business groups, and the business press, at least since the major UI expansion of 1971. Specifically, the Government accepted business's claim that UI undermined work incentives and was itself a significant factor contributing to unemployment. As noted earlier, Bud Cullen, the Minister of Employment and Immigration, declared the intention of Bill C-14 to be to reduce disincentives to work and to encourage workers "to look for, accept, and Submission to the Royal Commission on the Economic Union and Development Prospects for Canada. (12 December 1983), p.51 57The CMA, for example, favoured a uniform UI entrance requirement of 20 weeks, regardless of regional unemployment rates. See testimony of Frank Burrett, Chairman of the CMA (House of Commons. Standing Committee on Labour, Manpower, and Immigration. Minutes of Proceedings and Evidence. November 1978, pp.6:73-90-6:76-90. This point was endorsed by the Chamber of Commerce, which also favoured shorter benefit periods and the disqualification from UI of those who voluntarily left their job without just cause or were fired for misconduct. Canadian Chamber of Commerce. Unemployment Insurance in the 1980's: Submission to the Minister of Employment and Immigration. (September 1981) [National Library of Canada.] 68Canadian Chamber of Commerce, Unemployment Insurance in the 1980's, op. cit., pp.3-4. 9 1 remain at work."69 The UI Task Force later echoed business criticisms of the impact on labour mobility of the variable entrance requirements and the regional extended benefits, despite acknowledging the lack of conclusive research on this issue.70 Clearer evidence of the Liberal Government's solicitude to business interests can be discerned in relation to pension policy. In this case, business was successful in staving off any appreciable expansion of mandatory pension coverage, notwithstanding the widespread dissatisfaction with which the existing pension system was viewed among policy elites and within Canadian society in general. Business groups were vigorous and virtually unanimous in their opposition to legislated increases in pension coverage and benefits. Unified business opposition, however, is not necessarily sufficient to block a determined government, as evidenced by unsuccessful business campaigns against the CPP in the 1960's and against the UI amendments of 1971. In this case, however, business had a stronger hand, not least because the recession of 1981-1982 bolstered business's case that increased pension costs would be detrimental to the fragile health of the national economy. Business further argued that a weakened economy, in turn, would hinder the growth of the private component of Canada's mixed public-private pension system by depressing individual retirement savings and inhibiting the growth of private pension plans. Indeed, as is elaborated on below, these arguments became part of the Government's epitaph to comprehensive pension reform. In their contribution to the Great Pension Debate, business groups were united in their opposition to the CLC-inspired proposal to expand public pensions. The Chamber of Commerce admonished the Government "to preserve a proper balance between Government and private sources" of retirement income.71 This position reflected, in part, business's ideological support for a dualistic pension system. It was expressed in these terms by E.S. Jackman, Chairman of the BCNI's Task Force on Social Policy and Retirement Income: 69House of Commons Debates, 9 November 1978, p.983. 70Stephen McBride, Not Working: State, Unemployment, and Neo-Conservatism in Canada. Toronto: University of Toronto Press, 1992, pp. 183-184; Leslie A. Pal, State, Class, and Bureaucracy, op. cit., p.118. ''Canadian Chamber of Commerce. Canada's Pension System: Submission to the Hon. Monique Begin, Minister of National Health and Welfare. (March 1981), p.2. [National Library of Canada.] 92 Our basic philosophy is that Canadians should have as much freedom as possible on whether to spend or to save their money. Government action should be directed towards improving the lot of those in less than average circumstances, rather than towards controlling the decisions of the more affluent.72 Business groups also objected to an expansion of public pensions—particularly the CPP— on the grounds that such a measure would divert pension funds into the public sector and give the state a dominant position in capital markets. Noting the increasing importance of pension funds as a source of corporate capital investment, the BCNI warned that an expansion of the CPP would inhibit private sector "investment and capital accumulation."73 Similar cautions were issued by the CMA, 7 4 while the Chamber of Commerce declared that the increased burden of taxation required to finance expanded social security benefits would undermine economic growth.75 In the view of one observer, business's concern about the control over pension funds was, and remains, "the fundamental reason for the corporate sector's unalterable opposition to the expansion of the public pension system and its staunch defence of the private pension industry."76 Business groups were also concerned to niinimize the nature and scope of any legislated standards in the area of private pensions. As a general rule, businesses preferred a voluntary approach under which "employers and employees should be free to design their occupational pension plans as part of a total compensation package satisfactory to each."77 All of the major business groups were opposed to mandatory private sector pensions, with the notable exception of the Canadian Life Insurance Association, which not coincidentally stood to profit from mandatory private pension coverage. According to the BCNI, mandatory private pensions 72House of Commons. Special Committee on Pension Reform. Minutes of Proceedings and Evidence (11 October 1983), p.32:6. 73BCNI. Adequate Retirement Income: A Challenge Canadians Must Face: A Submission to the Parliamentary Task Force on Pension Reform. (October 1983), p.9. 74Dennis Slocum, "CMA wants pension reform focused on private sector," Globe and Mail. 23 May 1981, p.B5. C^anadian Chamber of Commerce. Canada's Pension System, op. cit., p.3. 76Richard Lee Deaton, The Political Economy of Pensions: Power, Politics and Social Change in Canada, Britain and the United States. Vancouver: UBC Press, 1989, p. 186. See also Geoffrey E. Hale, "Learning from the Past: Marc Lalonde's Pension Reforms of 1982-4," pp.157-170 at p.163 in Raymond B. Blake, Penny E. Bryden, and J. Frank Strain (ed.), The Welfare State in Canada: Past, Present, and Future. Concord, Ont.: Irwin, 1997. 77BCNI. Adequate Retirement Income, op. cit., p.7. 93 would be prohibitively costly for small business owners, while measures such as the compulsory indexing of private pension benefits "would present severe difficulties for the private sector."78 Business groups proposed instead various tax incentives to promote private sector pension plans and individual retirement savings. As noted above, the Government largely adopted business's preferred approach to pension reform. And, as in the case of UI, it adopted much of the reasoning used by business groups in support of their position. Thus, in its 1982 Green Paper the Government reaffirmed its commitment to a two-tiered pension system under which private pensions and individual savings would remain the predominant component. More significantly, perhaps, the Government stressed that its proposed reforms had been designed with a view to "not imposing immediate costs that might damage economic recovery."79 Indeed, the need to promote economic growth and to foster business confidence had become increasingly important themes of Government policy in the wake of the recession of 1981-1982.80 In assessing the "power resources" of business, and business's capacity to influence income security policy, it may be useful to consider changes in the structural power of capital within the context of Canada's larger political economy. As argued above, reduced economic growth, inflationary pressures, and a secular increase in unemployment weakened labour's bargaining power while facilitating a more coercive approach by the state toward trade unions. Was there a corresponding shift in public policy in favour of business interests? On this point, the record of the Trudeau Government is mixed. On the one hand, the Liberal Government antagonized sections of the business cornmuinty in the mid-1970's to early 1980's through such policies as the screening of foreign acquisitions of Canadian-owned firms through the Foreign Investment Review Agency and the expansion of Petro-Canada in the late 1970's, followed in 1980 by the introduction of the National Energy Programme.81 In addition, the Federal Budget of nIbid., pp.12, 19. "Department of Finance. Action Plan for Pension Reform: Building Better Pensions for Canadians, p.iv. 8 0 Geoffrey E. Hale, "Learning from the Past," op. cit. 8 1 On relations between business and the Trudeau Government, see James Gillies, "Where Business Fails Revisited," in V. Murray (ed.), Theories of Business-Government Relations. Toronto: York University Press, 1985; Michael Atkinson and William Coleman, "Is There a Crisis in Business-Government Relations?" Canadian 94 1981, introduced by Finance Minister Allan MacEachen, provoked a storm of protest from wide sections of the business community. Business groups were particularly incensed by the Budget's proposals to reduce or eliminate numerous tax deductions, write-offs, and other concessions of benefit to business.82 Moreover, the Government had neglected to consult with the groups affected, including those groups which stood to benefit from the Budget and whose support might have been mobilized in its favour.83 In the event, business groups waged a "massive and unrelenting campaign" against the Budget over the following twelve months, as a result of which "almost every proposal...was withdrawn or severely watered down."84 An alternative view is that business-government relations did not markedly deteriorate in the late Trudeau period, notwithstanding the intermittent conflicts noted above. According to this view, business critics of the Trudeau Government paid insufficient attention to the international pressures facing all advanced capitalist economies while underestimating the extent to which government policy was concerned with bolstering business confidence.85 After all, the new emphasis of monetary and fiscal policy on the fight against inflation and the various steps taken by the Trudeau Government to control government spending were broadly consistent with the economic agenda of most business groups.86 Nevertheless, there was a clear perception on the part of many business leaders that the Federal Government was paying less heed to the demands of business than to the demands of non-business groups. By 1982, the Government appeared determined to erase this perception, if Journal of Administrative Studies. 4:4 (December 1987), pp.321-340. 8 2 See J. Harvey Perry, A Fiscal History of Canada: The Postwar Years. Canadian Tax Paper No.85. Canadian Tax Foundation, 1989, pp.90-92. 8 3 Allan M. Maslove, Tax Reform in Canada: the process and impact. Halifax: Institute for Research on Public Policy, 1989, p.l 1.; G. Bruce Doern, "Liberal Priorities 1982: The Limits of Scheming Virtuously," pp. 1-36 in G. Bruce Doern (ed.), How Ottawa Spends Your Tax Dollars 1982. Toronto: Lorimer, 1982. 8 4 Allan M. Maslove, Tax Reform in Canada, op. cit. See also W. Irwin Gillespie, "The 1981 Federal Budget: Muddling Through or Purposeful Tax Reform?" Canadian Tax Journal. 31 (November-December 1983), pp.984-988. 8 5 Stephen Brooks and Andrew Stritch, Business and Government in Canada. Scarborough: Prentice-Hall, 1991. 8 6 In addition to the $2 billion in spending cuts announced in 1978, the Federal Government had curtailed its transfer payments to the provinces the previous year with the adoption of a new federal-provincial cost-sharing formula under the Established Programmes Financing Act. Further reductions in federal transfers to the provinces were imposed unilaterally by Finance Minister Allan MacEachen in 1982. See Donald J. Savoie, The Politics of Public Spending in Canada. Toronto: University of Toronto Press, 1990; David Milne, Tug of War: Ottawa and the Provinces under Trudeau and Mulroney. Toronto: Lorimer, 1986, chp.5. 95 only to mitigate the depressing effect on business investment of the recession of 1981-82. The Government's concessions to business on the 1981 Budget arguably represented a first step in this direction. A more pro-active step was the introduction of the "6 and 5" programme of restraint applied to the federal public services and to most categories of federal programme spending. According to some observers, the 6 and 5 programme was chiefly designed as a symbolic gesture to business of the Government's determination to address the popular perception that public sector wage settlements exceeded those in the private sector and were acting as a spur to the latter. While Finance Department officials questioned the validity of these claims, they acknowledged the intensity of business pressure for political action to restrain public sector compensation.88 The federal Cabinet shuffle of 1982 was also designed in large measure to improve relations between the Government and the business community. Notable here was the appointment of Marc Lalonde as Finance Minister, replacing the beleaguered Allan MacEachern, and of Marshall Cohen, a tax specialist who was highly esteemed by business leaders, as Deputy Minister of Finance. Business was also reassured by the appointment of Roy MacLaren, publisher of Canadian Business, as Minister of State for Finance.89 In summary, it is clear, on the one hand, that the Liberal Government's income security and broader economic policies were not driven exclusively by the dictates of business. The Government remained autonomous to a considerable extent. On the other hand, as the condition of the Canadian economy grew more precarious in the late 1970's, social policy was increasingly subordinated to the imperatives of economic policy—an economic policy, moreover, which was increasingly informed by the assumptions of monetarism. In this new economic and political environment, the Liberal Government appeared anxious not only to adopt social and economic 8 7 Evidence of the concern of centre-right Liberals with the growing estrangement between business and the Liberal Government is reflected in an exchange of letters between Treasury Board President Donald Johnston and Prime Minister Trudeau. See Donald Johnston, Up the Hill. Montreal: Optimum, 1986, pp.62-66. This rationale for the 6 and 5 programme was disclosed in internal Finance Department documents obtained by the Toronto Star. See Eugene Swimmer, "Six and Five," op. cit., pp.257-260; Stephen Clarkson and Christine McCall-Newman, Trudeau and Our Times, op. cit., p.488 8 9 Christine McCall-Newman and Stephen Clarkson, Trudeau and Our Times, op. cit., pp.265-268. 96 policies which would meet the approval of business, but also to avoid actions, such as a major expansion of the pension system, which might antagonize business and jeopardize economic growth.90 B. Political Parties Social welfare policy did not figure prominently in partisan debate, inside or outside Parliament, in the late 1970's and early 1980's. Possible reasons for the paucity of debate on this subject include, first, the fact that the social welfare policies of the Liberal and Progressive Conservative parties were broadly similar. As business-sponsored parties, both parties historically had been reluctant builders of the welfare state. Moreover, in the more straitened fiscal environment of the late 1970's, neither party was prepared to endorse costly new social welfare programmes. On the contrary, both parties were increasingly convinced of the necessity for public spending restraint. At the same time, both parties, being electorally pragmatic, were sensitive to the political perils of social spending cuts. They tended, therefore, to eschew the more strident rhetorical attacks on social welfare voiced by centre-right parties in more polarized liberal democracies, such as Britain, France, and Australia. A second reason for the limited debate on social policy may have to do with the diminished influence during much of this period of the Federal NDP, the only federal party which advocated a significant expansion of the public income security system. To assess the particular role of political parties in shaping income security policy, we consider two of the hypotheses discussed in Chapter 1: the "blame avoidance" hypothesis and the left party hypothesis. According to the first of these propositions, governing parties wishing to cut programme spending seek to minimize the political cost of doing so through a variety of techniques which lower the visibility of cuts to programme beneficiaries. According to the left party thesis, the nature and extent of social welfare provision is determined primarily by the extent of working class mobilization, as reflected in the strength of both trade union organizations and left-wing political parties. It follows, therefore, that the extent of welfare state retrenchment 9 0 John Myles and Les Teichroew, "The Politics of Dualism," op. cit., p.95. 97 is inversely related to the strength of these organizations. The waning power of trade unions was discussed in the previous section. This section considers the influence of labour's political ally, the NDP. Politics of Blame Avoidance For the most part, the Liberals' approach to retrenchment appears to meet the expectations of the blame avoidance hypothesis in that the Liberals employed all three of the techniques described by Pierson. Thus, they employed "obfuscation" techniques designed to lower the visibility and traceability of retrenchment; they imposed cuts on some, but not all, of the beneficiaries of particular programmes; and they provided compensation to certain vulnerable losers. There were, however, additional factors which appear to have influenced the Liberals' retrenchment policies. Before assessing particular measures adopted by the Liberals, it is useful to identify the Liberals' stated aims in approaching retrenchment. A recurrent theme of the Liberals after 1978 was the need to restrain public spending while protecting the economic interests of the neediest elements of the population. In the Throne Speech of October, 1978, the Government declared its intention to "reduc[e] government's share of the nation's wealth" and "to create a leaner and more efficient government."91 At the same time, income security spending was to be allocated more selectively. Reductions in universal Family Allowances would be offset by a child tax credit designed "so that aid can be provided to those whose need is greatest."92 Unemployment Insurance coverage would be narrowed while other measures, such as an increase in the income-tested Guaranteed Income Supplement, would "protect from the impact of inflation those who are least able to protect themselves."93 Following their re-election in February, 1980 the Liberals reiterated their dual commitment to fiscal rectitude and to relief for the needy. In its Throne Speech of April, 1980 the Government pledged to direct "the limited resources available...first to those who need help most."36 9 1 House of Commons Debates, 11 October 1978, p.2. 92 Ibid. "Ibid. 9 4 House of Commons Debates, 14 April 1980, p.5. 98 Despite their adherence to these principles, the Liberals were evidently wary of the political dangers of abandoning universality. Indeed, during their brief stint in opposition in 1979-80, Liberal Monique Begin, a former (and future) Minister of National Health and Welfare, took her Conservative successor, David Crombie, to task for indicating his preference for a targeting of child benefits to low-income families.95 Mme. Begin warned the Government that any attempt to abandon universal Family Allowances would be rejected by the Canadian people just as they had rejected the Liberals' proposed Family Income Security Plan in 1972.96 The Liberals employed obfuscation techniques in several of their restraint measures. For example, the Liberals (and the Clark Conservatives during their brief sojourn in office) refrained from increasing universal public pensions (the OAS and the CPP), while implementing less costly increases in the income-tested GIS and SPA. In this way, they implicitly shifted the balance between universality and selectivity in favour of the latter. Moreover, the GIS increases were timed to reap maximum political credit for the governing party, all three increases (1979,1980, and 1984) taking effect in election years.97 Another obfuscation technique—albeit one that would be used more extensively by the Mulroney Government—was an item in the 1982 Federal Budget providing for the partial de-indexation of the personal income tax system under the 6 and 5 restraint programme. The effect of this measure on income security programmes was far from transparent. As noted above, the National Council of Welfare estimated that the net effect of capping the indexation of tax brackets and most social transfers would be to reduce the after-tax income of many low and lower-middle income families. However, part of the difficulty of determining the impact of Liberal restraint policies on net welfare outcomes has to do with the Liberals' use of other "blame avoidance" techniques. One such technique involved the compensation of certain categories of low-income House of Commons Debates, 5 November 1979, p.936. 9 6 House of Commons Debates, 15 November 1979, pp.1341-42. 9 7 Henry J. Pratt, "Aging policy and process in the Canadian federal government." Canadian Public Administration. 30:1 (Spring 1987), pp.57-75 atp.64. 99 recipients of social transfers. Notable here is the introduction of the RCTC in 1978. This targeted benefit compensated lower-income families for the 23% reduction in Family Allowances implemented at the same time. The Liberals employed the same technique in 1982, when capping the indexation of OAS and other social benefits under the 6 and 5 programme. Low-income seniors were compensated for this measure through a one-time "super-indexing" of the GIS. In both cases, compensation enabled the Liberals to defend their retrenchment policy on the impeccably liberal-residualist basis that scarce social benefits should be targeted to those in greatest need. The Liberals also imposed certain restraint measures selectively, consistent with the "divide-and-conquer" strategy described by Pierson. This approach was evident in the UI cuts of 1978. Instead of curtailing the programme uniformly across the country—an approach which would have had a disproportionate impact on regions of high unemployment—the Government exempted such regions from the harsher features of retrenchment. Thus, higher qualifying periods for repeat claimants were to be tied not to the number of weeks of benefits drawn on the previous claim, but instead to regional entrance requirements, which were shorter in areas of high unemployment. Similarly, the tax clawback on UI benefits applied only to upper-income earners, not all wage earners. The Government also, as noted above, applied in a selective manner the indexation cap under the 6 and 5 programme, universal programmes being subject to the indexation ceiling while targeted ones remained fully indexed. In this way, the burden of retrenchment was distributed unevenly across different categories of beneficiaries. Does the Liberals' use of "blame-avoidance" techniques mean that they were motivated primarily by a desire to avoid, or to mitigate, political blame? Does the blame-avoidance hypothesis account for the different retrenchment techniques applied to different programmes? On the whole, the hypothesis appears to provide a plausible explanation. As Pierson contends, Governments are likely to incur higher political costs from programme retrenchment where the programmes in question are supported by well organized groups or command wide public 100 support. In the case of Unemployment Insurance, the more overt retrenchment measures imposed by the Government—including its cut in the income replacement rate from 66.7% to 60%—may have been influenced by evidence that many Canadians were convinced that abuse of the UI programme was widespread. Thus, in the midst of debate on Bill C-14, the Government released a study indicating that a majority of Canadians favoured stricter rules governing UI." The results of this study confirmed the results of public opinion surveys conducted by the Unemployment Insurance Commission in 1974 and 1975.100 At the same time, it is clear that certain provisions of Bud Cullen's original UI proposal which would have adversely affected areas of chronically high unemployment were modified in response to pressure from Atlantic MP's within the Liberal caucus. Speaking on Second Reading of Bill C-14, the Minister explained that certain changes had been made to the Bill to alleviate hardship in economically depressed regions.101 Cullen conceded that he had been persuaded to make these changes by "the solid representations of caucus colleagues, particularly those in