Another species faces extinction

Submitted by John Stapleton on July 21, 2014 - 7:58am
50 years since Canada's last constitutional amendment on income security

Mike Pearson’s best known saying may well have been uttered in a conversation with Health and Welfare Minister Judy Lamarsh in respect of the need for a special Constitutional amendment to include survivors (widows, widowers, and orphaned children) in the Canada Pension Plan (CPP) that came into force in 1965 and implemented in 1966.

An earlier amendment in 1951 under the government of Louis St. Laurent paved the way for a pension plan for all Canadian employees but the additional amendment, as it turned out, was still required.

This latter amendment took place on July 31, 1964 (1). We celebrate its 50th anniversary at the end of this month.

Although Canada has amended its Constitution 15 times since 1964 (2), most of the amendments have concerned repatriation, parliamentary and election rules, definitions, clarification of the role of churches in Newfoundland, the recognition of territories, and a somewhat bizarre amendment to allow the fixed link bridge to be built from New Brunswick to PEI (3).

It’s wicked hard to amend Canada’s Constitution

Substantive amendments to Canada’s Constitution including an amending formula have proved elusive. Prime Minister Trudeau tried it and failed in 1970 with his Victoria Charter. Mr. Mulroney had two cracks at it with Meech Lake and the Charlottetown Accord and the Progressive Conservatives ended up with a party of two in 1993 (4).

Successive Prime Ministers from Jean Chretien to Stephen Harper have explicitly taken Constitutional amendments ‘off the table’ and the need for amendments to abolish or change the Senate simply meant that Senate reform became an immediate dead letter.

Why did we need Constitutional Reform for income security?

To get the answer, all you have to do is look at a pay stub. On it, you will see deductions for income tax, CPP and EI. The latter two deductions are payroll taxes.

The federal government did not need a Constitutional amendment to start raising revenue through personal income taxes in 1917 (50 years after the BNA Act was proclaimed) as they already had that right as a matter of peace, order, and good government (5). But imposing other payroll taxes deducted from a pay check is a totally different story as we shall see.

The fiscal imbalance eventually caused by the advent of personal income taxes provided the federal government with resources that were out of whack with its responsibilities while cash starved provinces struggled to meet the responsibilities required of them in the Constitution.

This was no unserious matter in the 1930s when two provinces defaulted on their financial obligations (6) (Alberta and Saskatchewan) along with a province to be: Newfoundland. Countless municipalities across Canada went into bankruptcy.

Therefore, by the mid 1930s, all Canadian governments were urgently looking for long term solutions that would allow the federal government to take on a more prominent role consistent with its funding capacity. The solution of choice for almost a quarter century (1940- 1964) was the implementation of federal income security programs funded through payroll taxes (7).

But pay checks and payroll taxes are all about civil rights and civil rights come under the jurisdiction of provinces. If a federal government wants to take money off a paycheck using an earmarked payroll tax, it needs a Constitutional amendment to do it.

That’s why we had the first of three income security related amendments in 1940 to bring in Unemployment Insurance. It is also why we needed an amendment in 1951 to bring in a payroll tax for Old Age Pensions and to create a public pension plan. My 94-year-old father still remembers the old OAP deductions from the 1950s and he believes he paid for his old age security and it should not be subject to a clawback.

But the OAP deduction, which most Canadians don’t remember, stopped with the advent of our modern Old Age Security program that was implemented along with the CPP and the Guaranteed Income Supplement (GIS) in the mid 1960s.

Nevertheless, all three amendments to our Constitution required to impose payroll taxes on Canadians from 1940 to 1964 were accomplished through agreements for fundamental change between the federal government and the provinces working together.

Imagine that!

Constitutional Reform and a guaranteed annual income

But this is not meant just to be a trip down memory lane.

We are beginning once again to think seriously as a nation about a guaranteed annual income and we are starting to indulge a perennial Canadian question: ‘where will the money come from?’

Should the money come from payroll taxes and if so, is there any appetite at all for further Constitutional amendments?

The answer to the latter question - if we can use the litmus of Senate reform - is a decided “no”.

But where does that leave us?

The federal government has decreed that there will be no increases to CPP (which they could accomplish without an amendment to the Constitution) and this has left Ontario with no choice but to go it alone or risk reversing the course of a generation that took almost all senior citizens out of poverty.

Since payroll taxes are already within provincial jurisdiction, any province can go it alone if they so choose.

But from the point of view of nation-building, going it alone is the worst of all possible worlds as it would lead to needless balkanization of Canada’s income security system while posing a new threat to our national identity.

Let’s hope that the provinces and federal government can come to an agreement on the best ways to keep large numbers of seniors from falling into poverty and let’s further hope that a proposed new Ontario Pension Plan is a smart political ploy providing the needed stimulus to obtain agreement to improve the CPP.

In addition, serious prospective designers of a guaranteed annual income will have to consider ‘firewalling’ EI and CPP and building a seamless integrated guarantee around them.

This is the best possible solution. Revoking the amendments that permit Canada to have Employment Insurance and a national pension plan makes little sense while amending the Constitution to bring in a new payroll tax would be just as impossible and divisive as real Senate reform.

Canada has three perfectly good Constitutional amendments from yesteryear that would support a much improved CPP along with a fair and robust system of Employment Insurance. This is the easiest route up Mount Everest and the route that Canada should take.

Raise your glass on the 50th anniversary

So, on July 31, 2014, raise a glass of your favourite libation and toast the anniversary of the last Constitutional amendment made in support of a national income security system for all Canadians. I’m betting that we will reach the 100th anniversary without further amendment.

References

Comments:
The amendment

I thought it might be interesting to people to see what the amendment actually says:

94A. The Parliament of Canada may make laws in relation to old age pensions and supplementary benefits, including survivors’ and disability benefits irrespective of age, but no such law shall affect the operation of any law present or future of a provincial legislature in relation to any such matter. - July 31, 1964

Provincial or national leads

Thanks, John, for a fascinating and informative look back at how progressive programs happen in the mechanics of our crazy federation. 

You say that a province going it alone is the worst of all possible worlds.  But the main counter-example that comes to mind is medicare, where of course Saskatchewan led the way for other provinces and a national program to follow.  I agree it would be unfortunate if single provinces developed differing programs that balkanized our national identity as you say.  But as a shorter term, more practical strategy for moving forward, would a provincial program be a useful and more feasible step forward? 

An extremely insightful

An extremely insightful comment. There is a strong case that much of anything worthwhile in the social security arena implemented at the federal level has emanated from the local, provincial or territorial levels. Medicare is the prime example. However, when Tommy Douglas ushered in Medicare in Saskatchewan, there was no national Medicare scheme. That is not the case for a national pension plan. We already have the CPP. Had we had no national Pension Plan, the comparison of Medicare to an Ontario pension scheme would be apt.

The reality is that the CPP is a fully funded, popular, viable, and strong pension plan that cries out for augmentation and strengthening in the present context. A new Ontario Plan would be an important add-on but could signal that almost two-thirds of Canada is prepared (through QPP and the addition of an Ontario plan) to essentially do their own thing. I reiterate that the the announcement of Ontario's own plan for almost 40 per cent of Canada's population is a smart political ploy but if implemented, we will have lost an important element of our national identity. A common sense of purpose is forged through standard expectations of our life course. CPP, in that regard, is more important than most everyone thinks. But that is just one opinion. Let the discussion and the July end 50th celebration continue.