Politics

Inflation will erode value of Liberals' new child benefit, budget watchdog says

Canadian families will see their payments slowly erode over time under the Liberal government's new child benefit program, says Parliament's budget watchdog.

Cost of program - and the number who qualify for it - will decline without indexing, PBO analysis finds

Justin Trudeau says nine in 10 families will be better off under his government's new tax-free child benefits program, but the Parliamentary Budget Office notes in a new analysis the buying power of the monthly benefit will erode over time. (Paul Chiasson/Canadian Press)

Canadian families will see their payments slowly erode over time under the Liberal government's new child benefit program, says Parliament's budget watchdog.

In a report released today, the parliamentary budget officer says the benefit doesn't automatically adjust to account for inflation, which means the number of families who qualify will also decline in the long run.

The original three benefits that were replaced by the new system — the universal child care benefit, the Canada child tax benefit and the national child benefit supplement — were all indexed to inflation.

The changes that ushered in the Canada Child Benefit removed that index, meaning that over time, inflation will reduce the buying power, or so-called "real value," of the monthly payments, the report says.

While 91 per cent of Canadian families are eligible for benefits this year, that will fall to 86 per cent by 2021, and will continue to decline as some families see their income levels rise high enough to no longer qualify for the benefit, the report says.

The PBO predicts that by 2025, the new Liberal benefit will cost less than the three programs it replaced, including the universal child care benefit.

The benefit is expected to cost the government $22.4 billion next year — the first full year it will be in place. In five years, as a result of the declining number of eligible families, that number falls to $21.5 billion, the report says.

Were the new benefit to be indexed to inflation, the net cost over the next five years would have been $42.4 billion, instead of the $17.2 billion the PBO forecasts.

The federal government has said it will start indexing the Canada child benefit in 2020, a commitment that was affirmed in a statement Thursday from Social Development Minister Jean-Yves Duclos's office in response to the PBO report.

Assistant Parliamentary Budget Officer Mostafa Askari and PBO Jean-Denis Fréchettesay that the Liberals child benefit plan is not indexed to allow for things like inflation and the cost of living, and that although the program is more generous now, that would change by the middle of the next decade. 1:05

Benefit drops as incomes grow

The new benefit, a central plank in last year's Liberal election platform, kicked in on July 1. The government says the new benefit provides the average family with $2,300 a year, with a maximum of $6,400 per child under six going to families with net incomes of less than $30,000.

The value of the benefit drops as incomes grow, phasing out entirely around $189,000, according to the government's online benefits calculator.

The PBO report acknowledges that the number of families who qualified for the original benefits also declined somewhat over time, since incomes tend to grow faster than inflation.

The Liberals say the benefit will cut the child poverty rate in Canada to 6.7 per cent from 11.2 per cent by this time next year, once families feel the full effect.

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