The federal welfare system, with its roots in 1917, was explicitly designed to exclude the incomes of most First Nations people in Canada.
- The tax and benefit code has since evolved into a regime that is too costly for many disadvantaged people to navigate.
- It disproportionately excludes people in Canada who are Indigenous, particularly those who are First Nations.
In short: The overwhelming majority of federal welfare programs can only be accessed by filing taxes – a process so inaccessible that the people who need it most do not do it. The remedy for the exclusion of First Nations low-earners from the welfare state is to divorce it from the tax system. The response to COVID-19 gives us clues on how to radically transform this racist system.
The income tax was written into law in 1917. It was, at the time, a temporary levy to finance the war effort. The tax didn’t apply to incomes earned by people labelled as Status Indians by the Canadian government.
- This remains the case for First Nations people with Indian Status who live and work on the reserve.
The pass system confined people with Indian Status to their reserves, making it nearly impossible for First Nations people to live or work off-reserve and access the tax system. It was only repealed in 1951.
- They were unlikely to ever be in a position to owe taxes, so there was no benefit conferred by filing. Thus, there was no reason for the Department of Inland Revenue (now the Canada Revenue Agency) to expect people living on reserve to file taxes.
- They didn’t need to design a system that accommodated the needs of most Indigenous filers.
You may be familiar with welfare benefits that are administered through the tax system today (e.g. child benefits, carbon tax rebates, and other transfers). They did not exist in 1918: the first tax year.
Below is an original 1918 income tax form’s deductions and allowances. Most deductions were for income spent on investments and business expenses, as well as an allowance for dependents. However, these deductions only reduced the amount of income that could be taxed.
- Since incomes earned by the overwhelming majority First Nations people couldn’t be taxed anyway, these benefits didn’t flow to them.
- Exclusion was entrenched for most of the twentieth century with this benign flavour.
So parents didn’t teach their children to file. Tax preparation businesses didn’t tend to open in First Nations communities. The Canada Revenue Agency (CRA) didn’t develop tax forms in Indigenous languages.
In addition to formal barriers, many First Nations people today have a difficult relationship with government programs, whether as a result of:
- their or their family’s residential school experiences;
- the pass system;
- or any other of the array of policies and programs that negatively impact First Nations people today.
In the past, families were able to protect their children from residential schools by hiding them from the state. Today, child welfare agencies remove children from their parents.
- It has not always been in the interests of Indigenous people to formally identify themselves to the government, and that remains the case for many people today.
The world of federal income support changed in 1991. The government introduced the Goods and Services Tax (GST). They substantially boosted the sales tax credit to blunt the regressive effects of the tax on low earners.
But the government didn’t want to give the GST credit to the rich. The only way they could test the benefit against incomes was by administering it through the income tax filing system.
- You could only get the GST credit if you filed your taxes.
And thus, federal welfare programs were married to the tax system. This was how the government created new welfare programs through the 90s and the 21st century. The Canada Workers Benefit (CWB) and Canada Child Benefit (CCB), both new programs, phase out as incomes rise. So you can only get them if you file taxes.
What are non-filers missing out on? A low-income family with one child could be missing out on $10,000 per year of benefits. Add about $7,000 per young child.
Why miss out? According to Prosper Canada, over $1 billion of benefits go unclaimed every year due to non-filing. There are 236,000 Indigenous children who are eligible for the CCB of up to $7,000 each, and 30-40% aren’t receiving it.
Indigenous seniors, particularly First Nations people, are missing out on their Old Age Security, Guaranteed Income Supplement, and Canada Pension Plan benefits. Poor workers across Canada are missing out on their CWB.
Why don’t they just file? Here are a few reasons:
1. Filing is expensive. According to the Fraser Institute, tax filing costs are extremely regressive. Taking the time to learn to file, find a tax preparation business, and file those taxes is costly. The burden of filing is itself a regressive tax.
- If you’re short on cash and credit-constrained, you might have to forego a few thousand dollars in benefits if you don’t have a few hundred dollars on hand. For many low-earners, their only access to credit is skipping rent payments – a costly borrowing strategy.
2. Filing isn’t accessible. Tax forms are only available in English and French. The CRA’s help lines only operate in English and French. The vast majority of public servants only do business in English and French. Universities and colleges only offer accounting courses in English and French, so the people most likely to be trained in tax preparation are unlikely to be able to help people who speak languages indigenous to this land.
3. Filing is hard. Unless you are savvy enough to find good and free software, it’s a complicated process. Here are the 1,042 forms on the CRA website. Good luck. If your parents haven’t filed, your friends don’t file, and you don’t talk taxes with your peers, it’s going to be a Herculean task to get this done.
4. This is a racist system. It doesn’t matter that CRA employees might be good people. Legislators might be well-intentioned when passing welfare policies. It doesn’t matter. The tax welfare system, by design, entrenches inequality across racial lines in Canada.
There are no two ways about it. This cannot change until the system is changed.
There’s another path: We’ve seen the government innovate welfare payment delivery during the COVID-19 crisis.
The administration of the Canada Emergency Response Benefit (CERB) is streamlined, because the program is not income-tested. Some of the cost is recovered from high-earners because it is a taxable benefit, but it remains accessible to non-filers. All you need is an online CRA account (which comes with some problems, like identifying yourself to the state).
How can that inspire the CCB, GST credit, Climate Action Incentive, CWB, and the slew of other federal welfare programs?
- Remove them from tax returns. Administer them the same way we administer CERB. Don’t income-test these programs.
You might cringe at giving someone who earns $200,000 per year a $7,000 childcare benefit. No problem! Raise their taxes by $7,000, and the system remains progressive. The government can only make its welfare system inclusive by giving benefits to the rich and raising their taxes.
How can we get this money to First Nations people who do not wish to identify themselves to the CRA?
- The federal government could deliver grants to First Nations band governments, on the condition that the grant is distributed to people who do not receive benefits through the CRA.
- It’s a challenge and I don’t have a clear answer, but there’s a path here.
Welfare must be accessible to everyone. Only then can we be completely certain we’re not missing the people who actually need it.
The end result? The system will be just as progressive, and people who have historically been discriminated against will be included.
How do you fix a racist benefit system? Eliminate and replace.
The Bottom Line: Federal welfare programs have their roots in an exclusionary tax system. It cannot be repaired with tinkering. Welfare can only be inclusive if we divorce it from the tax system, administer it to all Canadians (including the rich), and make the income tax more progressive.
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