A family or child allowance is a monthly government payment to families with children to help cover the costs of child maintenance. The Family Allowance began in 1945 as Canada's first universal welfare program. Benefits were awarded without reference to the family's income or assets — based on the idea that all Canadian children are worthy of public support. Since the 1980s, however, such allowances have been increasingly targeted to low-and-middle-income families.
Investigation into the causes of poverty in England and elsewhere in the early 20th century demonstrated that family size was a significant factor. Wage rates in industrial society reflect the worker's production, without regard to the worker's family responsibilities. What may be an adequate wage for a single person can be a poverty-level existence for someone else doing the same job with a family to support. Family allowances paid by the state (or less frequently by some form of payroll tax) were proposed as not only an attack on poverty but also a way to advance the principle of "horizontal equity" between workers bearing the costs of raising the next generation, and those without such responsibilities.
The idea of family allowances was discussed in Britain, Australia, the United States, Canada and in the League of Nations in the 1920s. In 1929 a Canadian parliamentary committee was asked to hear evidence and consider the subject. A Québec commission of inquiry into social welfare issues (1930-32) also received submissions on the topic. Neither recommended family allowances.
Little more was heard on the subject in Canada until the Second World War, when Canada's plan for post-war reconstruction was released in 1943. The Marsh Report was a comprehensive attack on poverty and economic insecurity. It was based upon a broad scheme of social insurance supported by universal family allowances, a national health system and a large-scale national employment program. The plan was too radical and expensive for the federal Cabinet of the day, but political and economic factors prompted Prime Minister William Lyon Mackenzie King to select the family allowances discussed in the report as a vote-getting device in the next election. This was also a bid to outflank the political left, which was making electoral gains.
The move by King had the backing of economists. The majority predicted large-scale unemployment at the war's end — as happened following the First World War. Family allowances were also seen as a means of maintaining purchasing power. From a constitutional viewpoint, a program of family allowances was well within the spending jurisdiction of the federal government, so few provincial hackles were raised.
Critics, though, called family allowances a waste of taxpayers' money because they went to rich and poor households alike. They said the "baby bonus," as it was then described, was a bid for votes in French Canada, where large families were more common. It was suggested the money be distributed by way of services rather than by cheque. Meanwhile, supporters of family allowances argued the service approach alone was paternalistic and that the allowances enhanced the autonomy of families.
Despite some half-hearted opposition by the Conservatives in the House of Commons in 1944, the legislation was passed unanimously on second reading — a remarkable event for such a momentous piece of legislation.
Growth and Decline
Tax-free family allowance payments varied according to age. For children under age five, these were $5 per month; for six-to-nine-year-olds $6; 10-12 years, $7; and 13-15, $8. The average payment per child was $5.94 — considerably below the Marsh Report's recommended minimum payment of $7.50 per child. Initially allowances were reduced for the fifth and subsequent children but this provision was removed in 1949.
Even with the program's popularity it was largely neglected by the federal government. And despite inflation, between 1945 and 1973 only one marginal increase in the benefit was legislated. This extension was prompted by Québec, which had instituted a similar scheme on its own in 1961.
In 1972, in response to public concern about growing poverty in Canada, the federal government attempted to replace the universality of the program by connecting allowances to family income. The proposal would have paid maximum benefits to the poorest 36 per cent of families, partial benefits to 34 per cent and no benefits to 30 per cent of families. Allowances were to be based on the previous year’s income and the plan was heavily criticized for its inadequate attack on poverty and its administrative complexity. The legislation never made it through the House of Commons before the federal election of October 1972, which returned a minority Liberal government. But the New Democratic Party, a strong proponent of universality, held the balance of power.
Faced with a minority, the government dropped its selective plan and introduced a new Family Allowances Act, which incorporated selectivity with universality by declaring family allowances taxable. However, even high-income parents could retain a portion of their benefit, and thus the principle of "horizontal equity" was observed.
In 1978, with the Liberals again commanding a majority in Parliament, a major restructuring of family allowances occurred. It expanded the role of the tax system in child support, which saw a diminished role for family allowances. The government instead established a Refundable Child Tax Credit of $200 per annum for families with incomes of $18,000 or less. As incomes rose above this level, benefits would be taxed away to disappear entirely at $26,000. As the median income for families in 1978 was $19,500, a majority of families received some benefit from the new program, which came into effect in 1979.
In 1985, a Conservative government in Ottawa concerned about government debt and deficits, announced a four-year plan to restructure family benefits. Beginning in 1986, family allowances were partially indexed to the cost of living. The refundable child tax credits were to be increased for three successive years, from 1986 to 1988, to $549 per annum. Beginning in 1989, they were also to be partially indexed in the same manner as family allowances. The qualifying income ceiling was also dropped from $26,330 to $23,500.
By 1989, the Conservative government ended the universal nature of family allowances by requiring upper-income parents to repay all of their benefit at tax-filing time as part of its program to target social benefits to low-or-moderate-income recipients. Paradoxically, it maintained and increased a tax deduction for child-care expenses, which provided the greatest benefit to high-income families.
In 1992, with a minimum of public discussion, the Conservative government then replaced the Family Allowance with a new Child Tax Benefit, into which Family Allowance, the Refundable Child Tax Credit and a non-refundable child tax credit were consolidated. The new benefit — paying a maximum of $85 per month per child up to the age of 18 — was tax-free and income-tested on the basis of net family income as reported in the preceding year's income tax returns. Maximum benefits are gradually reduced as family income exceeds the income ceiling.
The Canada Child Tax Benefit continues to exist. It remains targeted at low-and-middle-income families. A National Child Benefit supplement, which was announced in 1998 to help eradicate child poverty, provides some additional income for families. However, the program was being phased out as of 2009. In the early 21st century, Canadian families were also able to apply for a Universal Child Care Benefit, which provided $100 a month in taxable income for each child under the age of six to help off-set the cost of childcare. A child disability credit was also available for families with a child with a prolonged physical or mental impairment.
Despite the efforts since 1978 to target family allowance and tax support for child dependents to low-and-moderate-income families, the incidence of child poverty in Canada is second highest among Western developed nations — second only to the US. Québec continues to provide a program of universal family allowance up to age 18. However, as of 2005, the family benefits program was replaced with a refundable tax credit simply known as child assistance. The amount is calculated each year based on family income and the number of children in the family under the age of 18. Supplements are also available for handicapped children.