Time to Increase Social Assistance Rate

Increasing the social assistance rate would provide a boost to the economy and actually save the government overall in poverty-related health costs.

By Laura Cattari
Published September 23, 2011

High inequality can diminish economic growth if it means that the country is not fully using the skills and capabilities of all its citizens or if it undermines social cohesion, leading to increased social tensions. High inequality [also] raises a moral question about fairness and social justice.

-- Conference Board of Canada

The Ontario Election campaign trail is currently littered with promises ranging from tax cuts to infrastructure and health care spending. All these promises are designed to make your life easier because as many well know, it has been a struggle. Nowhere has it been questioned by these politicians why this is so.

Basic economics teaches that without demand, supply diminishes. The largest provider of demand in our population is the average citizen.

In the September 21 issue of the National Post, Senior Economist Armine Yalnizyan states, "Canada's top 100 CEOs have seen a 13% year-over-year jump in average pay, rising to an average of $6-million. In contrast, the average earnings of employed Canadians has fallen to $38,500."

If this is so, then overall economic development, including free market job creation, has no choice but to become stagnant or recede, i.e. recession. The best preventative medicine for avoiding global recession hitting local markets is continuing to pay people fair wages and increasing their pay with inflation.

Economic Stimulus

There remains 10% of our Hamilton population on social assistance who could and would provide further economic stimulus of 2.33, if we had the popular will to do so. 2.33 stimulus is equivalent to $2.33 return on a dollar investment.

That's a higher stimulus effect than the average 1.6 on public infrastructure and a pathetic 0.29 rate on permanent tax-cut measures, like those US President George W. Bush implemented.

This segment on social assistance could easily be provided with rate increases which would provide immediate impact on the Hamilton economy to the tune of an additional $25 million a month.

Dr. Atif Kubursi's report, entitled The Impact on Social Assistance in Hamilton [PDF], shows over 3,500 jobs currently generated by assistance payment stimulus. This does not include public workers.

Drastic Measures

Does our local economy really call for such drastic measures? Yes.

Immediate solutions are needed as Ontario Works case loads are rising at a rate of approximately 400 a month. Last January, Jo-Anne Priel, General Manager Community Services Department, presented to City Council a report which cited our drop in unemployment figures are directly proportional to those entering the Ontario Works.

If you consider this idea unaffordable, think again. The Registered Nurses' Association of Ontario estimates that $32 to 38 billion is lost to the public and private sectors due to poverty-related health costs when only $6.6 billion is spent on assistance.

In keeping with the idea that welfare should not be preferable to minimum wage, doubling OW alone would raise the rates to 80% of minimum wage, still motivating those on assistance to find jobs.

As an added bonus, we alleviate the cited health costs, saving the province money while stimulating the economy at a local level, generating jobs for these individuals to move into.

Given the impacts on physical and mental health on recipients, it would be fair to say that if assistance recipients were pets, the SPCA would have jailed the provincial government long ago.

We know job creation schemes are failing to keep apace of job losses. Currently there are more than 28,000 unemployed in Hamilton alone and we do not have that many jobs available.

Local spending creates local jobs. Demand platforms that address this issue. Vote this election thinking ahead.

A version of this essay was first published on the Advocacy Hamilton website.

Laura is a community advocate specializing in social policy, shifting attitudes and economic revitalization. She is proud to be a collaborative member of the Hamilton Roundtable for Poverty Reduction.


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By work for all (anonymous) | Posted September 23, 2011 at 15:07:56

banned user deleted

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By Laura, Advocacy Hamilton (anonymous) | Posted September 23, 2011 at 15:30:52 in reply to Comment 70001

I couldn't agree more. That is what is called guaranteed income supplement and we'd have to get all levels, especially Feds to back that. Seniors have the program but don't even come close to that figure. Their guaranteed minimum plus tax credits are only $14,940 a year.

The multiplier is that high because all the money is spent locally each month and every penny gets spent i.e. no savings because it is so low. It is literally money straight into the economy monthly!

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By work for all (anonymous) | Posted September 23, 2011 at 15:51:27 in reply to Comment 70003

banned user deleted

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By What is the real truth (anonymous) | Posted September 23, 2011 at 15:29:14

There are many other problems not just that social assistance rates need to rise. How about the fact the working people without any union or collective have been losing their rights on the job. Even unionized workers are barely hanging on, look at the steelworkers battling just to keep pensions and benefits.

Our so called rights under the ESA are violated everyday, just look at the stolen wages, employers who refuse to give ROE's, which inhibits their ability to access EI, which can also inhibit their ability to access even OW. Why is it that the so called experts at the Min of Labour and even the federal bureaucracy fails to make employers file ROE's. There is practically no enforcement anymore. How can the corporate world be the boss, when our so called elected officials no longer represent the needs of the people but they bow down to masters we cannot see. How is it that the CEO of WSIB is more worried about his bonus that will come denying injuried workers access to benefits?

So where has the RNAO been all these years? Silent and invisible, that is what I have seen. many of them are part of the so called middle class that choices to keep their heads buried in the sand.

So let us consider these facts, which I learned at a poverty health forum in Toronto. Since 1980 over 30,000 hopsital beds have been cut and there are more cuts coming. Cuts to support staff, like cleaning staff have been decimated, which is a contributing reason why there are so many outbreaks of C-Difficle and other nasty viruses. How about the food that is served to sick people in the hopsitals, it comes from 100's of miles away and no longer cooked at the hospitals. The feedback was that this corporate controlled food services is also contributing to people getting sicker. They have closed hospitals, closed services such as diabetic clinics, pyhsio therapy and list goes on. They have jsut made high cutbacks to the special diet. Can you beleive it that people who have cerebal palsy and muscualr dystrophy can no longer benefits under the special diet program.

All three major parties, the conservatives, liberals and NDP have all contributed to the decline in our communities. Just watch question period, it is a dog and pony show.

The primary goal should be on organizing the people, to empower them, that they can make a difference, that they can be part of the change.

We need to educate the people that should not depend on the minions of the ruling class, since many of them are more concerned about keeping the status quo, instead of real change. The current economic system is failing, why is it people like yourself keep insisting that it can be fixed, pathced together?

There are many out there that know this so called social assistance review will go no where, just like the poverty reduction bill that passed three years ago. Just words on paper. I am sorry that you have been duped to believe that this will actually move people forward, all it really is a show, in which certain people will travel around on the taxpayers dime, living the good life, meanwhile, it will get worse for the rest of us.

One person who sits on the Rondtable, use tactics like red baiting,just like Joseph McCarthy did back in the day, when others in the community talked about real democracy, meanwhile that person is part of the process to keep taking away from those that struggle, to keep the status quo!

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By Freedom Seeker (anonymous) | Posted September 24, 2011 at 10:17:43

There are a few problems with the authors post, and also, surprisingly, it seems with Dr. Kubursi's report which need to be considered when trying to figure out what the impact on the economy as a whole would be if social assistance rates were to be increased.

I am not prepared to argue the magnitude of benefits quantified in the report, but this is only half the story. The money to pay those benefits was taken from taxpayers and we need to ask what would have happened if they had not been taxed for this purpose.

We can assume that just like the OW/ODSP recipient they would have spent that money, and in the process generated jobs in retail stores, paid a portion in taxes, etc., all the sorts of things that the OW/ODSP recipient would have done that are named in the report. So, if we are to calculate the net stimulative effect on the economy (if any) from an increase in OW/ODSP we need to consider both the activity made possible by transferring the money to the recipient, and the activity made impossible by virtue of the fact that the taxpayer no longer has the money.

This sort of incorrect one sided analysis shows up all the time in popular discourse, and in general is known as the "broken window fallacy" by economists (Google for more detail). If I have misread Dr. Kubursi's report and falsely accused him of making this error then let me apologize here and now, because it's really inexcusable for a professional economist to make such an error.

All this is not to say that I object to the idea of raising assistance rates, just to outline what needs to be done to predict one aspect of the overall impact of such an increase.

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By Laura, Advocacy Hamilton (anonymous) | Posted September 24, 2011 at 14:27:32 in reply to Comment 70038

The reason why it is 2.33 as opposed to 1.6 of infrastructure, or the .29 of tax cuts is because of the relative wealth of the recipient.

To answer your concern more directly the greater the wealth, say average 'middle to upper class' consumer is that they will be more likely to spend it in foreign countries or on non-domestic cars, etc. These activities bleed money out of our economy onto global markets. The other premise in play is that the more disposable income you have the likelihood it is not in circulation locally, i.e. hold money in banks, stocks, RRSPs etc. For further info on how that is verified, you'd have to contact Dr. Kubursi. I do know his modeling is used by our government and internationally and widely accepted. Sorry, I cannot be more specific.

This isn't a solution to all poverty nor total economic stability. We are, for better or worse, a global economy but I do truly believe we ignore community economic development at our peril.

I am always amazed at Scandinavian countries who are taxed heavily yet seem to have an average of personal wealth at a higher level than we do. Their top one percent still rivals others internationally. That would be a hard sell here and I won't even bother trying.

Side note to the comment above yours... Fair wages also plays a major role, it's just not the topic of this article.

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By Undustrial (registered) - website | Posted September 25, 2011 at 04:10:11

It's easy to tally the costs of welfare. It isn't easy to tally the costs which would be run up without it. What would 10% of Hamilton's population do with no legal income? If it makes us feel better, we can define it as health care spending or crime prevention, but let's not pretend that it's not achieving something.

If our economy isn't able to support us, then what's the point? Sure, it would be nice if there were jobs available for all, but there aren't. "Full employment" is defined as about 7% unemployment in a healthy capitalist economy, because anything less creates labour scarcity and drives inflation (or so sayeth the textbooks...). People still need to eat between jobs, and not all incomes are conducive to saving up for periods of prolonged joblessness.

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By A Smith (anonymous) | Posted September 29, 2011 at 17:20:09

From 1993-98, federal debt/GDP stayed flat, while Ontario debt/gdp went up (27.4% - 30.3%). During this time frame, rents ( ) for
1 bedroom apartments jumped an average of 9%.

From 2003-08, Canada's federal debt went from around 63% of GDP to 42%, while Ontario's debt/GDP fell from 30.4% to 28.0%. Rent increases for the same 5 cities averaged 19.2%.

In Japan, they have been running big deficits for decades and almost every year housing prices fall. If you look at the U.S. housing keeps get cheaper as the federal deficit keeps increasing.

So, if we know that cheaper shelter costs help poor people AND we see that government deficits seem to help in this regard, why are we so concerned about running balanced budgets?

In fact, the only people who seem to benefit from balanced budgets are people who are mortgage free. When house prices climb, they see nothing but equity gains, while the average/poor person sees nothing but added costs.

What we call "government debt" is actually another term for "private savings". Think about it, if the government spends $100 and only gets back $80 dollars in taxes, where is the other $20? Did it disappear into thin air? No, the only place it can be (assuming a simple closed economy) is in the hands of the people it was given to in the first place, the private sector (people, businesses).

So, when the government says it NEEDS to pay down its debt, it is really saying it needs to reduce the level of private sector savings in the economy.

These are some ways to increase private sector savings...

1) Abolish the GST and save consumers $27 billion.
2) Eliminate the first $20K from federal income tax will save us $1,085
3) New infrastructure like LRT, stadiums, etc.
4) Welfare/income support for people who for whatever reason aren't that good at making money. No person of sane mind chooses to be poor. It's more likely they are lacking in the ability/motivation (depression) that productive people take for granted.

All of these things will reduce household debt AND increase the deficit.

If you don't believe me, consider that from 1980-1996, when the government(s) ran big deficits, Canadian households saved on average $32 billion/year. From 1998-08, when governments ran surpluses, household savings was negative $25 billion/year. This also explains why Canadian households are currently at record debt levels. The government has taxed all of our savings away.

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By A Smith (anonymous) | Posted September 30, 2011 at 19:45:31

The percentage of people on welfare, in the City of Mississauga (although it is likely representative of the GTA) ( ...

1988 - 1.9%
1990 - 3.0%
1992 - 5.6%
1994 - 6.1%
1996 - 4.9%
1998 - 3.7%
2000 - 2.05%
2002 - 1.62%
2004 - 1.65%
2006 - 1.74%
2008 - 1.73%

From 1989-94, as the number of people on welfare increased, the average home price in Toronto dropped from $250k to $180k. From 1989-94 GDP/capita in Canada went from $24.1K to $26.6K. This means that as welfare rates increased, house prices fell from 10.4X GDP(capita), to 6.8X.

In fact, during this time frame, incomes grew 8.1% FASTER/year than home prices.

In contrast, from 1998 to 2008, as welfare roles fell to around 2% of the population, the cost of a house in Toronto increased from $220k to $420k, while GDP/capita increased from $30.3k to $48.0k. This means the cost of a house increased from 7.3X GDP/capita, to 8.75X.

That means that house prices increased faster than incomes, by more than 1.5%/year.

To sum up: Higher welfare for the poor does NOT hurt the economy and it may actually help it.

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