Social Security in Canada—the Challenge Ahead

First, some facts about income distribution, using the latest family income data available (1972). There were a total of five million families, including couples without children, in 1972. If you divide the incomes they received into five groups, here is what you find. Twenty per cent of the families, one million of them, received less than $5,516 a year. Of these one million families, 345,000 received less than $3,000 a year. Another twenty per cent received incomes from $5,516 to $8,941 per annum. Still another twenty percent received incomes from $8,942 to $11,698. The highest income Canadian families, forty percent of them, received more than $11,698, with half of them having incomes from $11,699 to $15,432, and the other half more than $15,432. Of the one million families earning more than $15,432, there were 190,000 who received more than $25,000 a year.

Each of us can draw his own conclusions from these data, but here are some hard facts as they impressed me. Twenty per cent of the families in this country were living on less than $5,516 in 1972. This figure was forty-nine per cent of average family income in Canada, which means that one fifth of all Canadian families were required to live on incomes of less than one half of the national average family income. Even more striking is the fact that the share of total Canadian family income being received by this bottom twenty per cent of families was less than six per cent: twenty per cent of our families received less than six per cent of all family income. Compare this with the fact that the top twenty per cent of Canadian families in 1972 received thirty-nine percent of all family income.

I could go on giving figures-figures which, for example, would indicate that the distribution of the income of individuals is biased even more in favour of higher income people than is the distribution of the income of families. But I mustn't weary you with numbers. My point, my first point, is simply this: that there are a very large number of individual Canadians and families receiving a very small share of total income.

My second point is that the situation would be worse, very much worse, if it were not for the social security (or transfer) payments presently being received by lower income families, and for the progressive income tax being paid by people on high incomes. Do you know, for example, that without these measures the twenty percent of Canadians receiving the lowest family incomes in 1971 * would be receiving not six percent of total family income in Canada but only 3.4 per cent? Do you know, to look at this another way, that for families actually receiving $4,000 or less, over fifty per cent of their income came from transfer or social security payments?

Looking at the tax side of the picture, one sees the extent to which higher income Canadians are contributing toward the well-being of their less fortunate neighbours. Do you know, for example, that Canadian families earning $10,000 and more in 1971 contributed just under twenty percent of their total family income to governments in the form of income tax? And do you know, to speak in terms of shares of income, that the income tax reduced the share of the total family income being received by the highest income families-the top twenty percent of all Canadian families--by only two percentage points in 1971: from about forty to thirty-eight percent?

Again, it is possible to draw any number of conclusions

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*The latest available data on the incidence of transfer payments and of personal income tax by income class are for 1971.

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from these bare facts. But the point which impresses me is this: the distribution of income today, however small the share being received by the lowest income families, is vastly more equitable than it would have been without the tax and social security measures which governments have put in place. The price of doing this, of course, has been an increase in government expenditures--that is inevitable--as well as the equally inevitable taxation of the more fortunate families in Canada.

My third point about income distribution in Canada will seem almost to contradict my second one. It is this: despite the redistribution measures governments have undertaken, that is despite the increases in social security payments and despite the progressivity of the income tax, income distribution in Canada has changed very little in the past twenty years. The share of family income going to the bottom twenty per cent of Canadian families has not increased; nor has the share going to the top twenty percent decreased; and similarly, the shares of the middle sixty percent have remained relatively constant.

Here are a few facts again, if you will bear with me. In 1951 the families in the bottom twenty percent of the income scale received 6.1 percent of total family income; in 1972 they received 5.9 percent. Their share did not increase. Taking the families in the top twenty percent of the income scale, their share of total family income went from 41.1 percent to 39.1 percent over the same period. And the share of the forty percent just below that went up from 39.8 percent to 42 percent.

So the "shares" of family income enjoyed by these several income classes have remained remarkably stable over twenty years, despite the enormous increases in social security payments. If anything the relative position of the lowest income group has deteriorated. For whereas in 1951 the families on the bottom twenty per cent of the income scale had to live on 58.5 percent or less of the median income, in 1972 they had to live on incomes of 53 percent or less of the median. This is not to say that the absolute incomes of the poor have not risen: of course they have. But they have risen less rapidly than have average incomes.

Again you can draw any number of conclusions from these facts. But the main point, to me, is that the nature of the economic system is such that, despite the large increase in income transfers to families in the lowest income scales, those in the middle and upper income scales have been maintained at approximately their same share of total family income.

These, then, are three of the central facts of income distribution in Canada as I see them.

1. There is a remarkably large number of individual Canadians and families receiving a very small share of total income; 2. The share of income going to the lowest paid individuals and families has been increased enormously by the improvements in Canada's social security system, relative to what it would have been without these changes; but 3. Nonetheless, the share of income going to the several income classes (speaking in terms of five income classes) has remained remarkably constant over the past twenty years.

Bearing these facts in mind, may I come back to the question I posed at the beginning: "What are the basic, or minimum, levels of income, or ranges of income, upon which you believe Canadian families of different sizes should reasonably be expected to live? What is your view, what is the community's view, about income distribution?"

Note how I phrase the questions: what do you believe; what does the community believe? I do so intentionally, for in the final analysis it is the community's values which will decide these questions--not what someone thinks the community ought to believe. Put in terms of the federal-provincial social security review, the question will not be whether politicians ought to believe in a more or less egalitarian society, but rather whether they are able to "read" the community's values correctly, and express them correctly in terms of basic income levels, and in terms of income distribution generally.

I am not by any means saying that politicians should refrain from preaching for a more or, if they want it, a less egalitarian society. As for myself, my work in the Department of National Health and Welfare over the last two years should tell you where I stand on the matter. Politicians like all public figures and institutions-churchmen and churches, community leaders and voluntary organizations, individual spokesmen at the national and local levels-all have the right and frequently the responsibility to try to shape or to sharpen the values of the community. But when the time for government action arrives, governments will be forced to act within the broad bounds of the community's judgments. And so it must be, if the ballot box is to mean anything in the political process of this country.

So the job for governments, in the course of the social security review this fall and winter, will be to try to determine what kind of income distribution or redistribution would be consistent with the community's values.

We must be realistic about this, of course-as all the politicians involved in the social security review will surely be. In point of fact the community, taken as a whole, probably doesn't know what it thinks about income distribution. Individually we may grieve for the poor, or individually we may gripe about our taxes. But we haven't really been asked the question, as I have tried to put it in this paper: what are the basic, or minimum levels of income or ranges of income, upon which we as Canadians think other Canadians ought to be expected to live? And if these basic levels of income should be raised, should they then keep pace with increases in family incomes generally? When we reach an answer to these questions, will we be prepared, if it is necessary, to forego a part of the pay increases we might otherwise expect from the growth in the nation's income in order to raise the minimum or basic income ranges to the levels we think are more appropriate?

Those are the questions we must put, if we are to define a national conscience in the field of social security. It is not that they have never been put. A special Senate Committee suggested that "poverty levels" should be defined, and that family incomes should be guaranteed at seventy per cent of these levels. The level for a family of four, at today's prices, would be $5,040 I believe. Statistics Canada has attempted to define what they called "low income levels": their 1961 figure up-dated to July 1974 by the price index comes to some $5,826. Governments, too, have set minimum wages and, with them, family allowances, which imply--only imply, I emphasize--minimum income levels for a family of four of between $3,900 and $5,300, depending upon the province in which you live. Provincial social assistance allowances, another expression of some "minimum", ranged in July 1974 from about $4,000 to $5,400 a year for a family of four, including family allowances. The OAS/GIS income guarantee for a couple, aged 65 or over, in the same month was about $4,400 (which implies when combined with family allowances a figure of $4,880 per annum for a family of four). And the Report of the Task Force on Social Security recently prepared for the Canadian Council on Social Development suggested a "poverty line" of some fifty per cent of the median income--which today would come to something like $6,500 for a family of four.

You will notice two things about these numbers: first, that there are different ways to choose them, and that there is a wide range of choice. One way to choose the number, or numbers, is to define a "poverty level"--some absolute figure which is determined to be the minimum amount required to feed and clothe and house and provide personal care to a typical family. How much more should be included in such poverty, or subsistence, levels is a matter of judgment again, the community's judgment. I suppose it is a question as to whether we want to choose a bare subsistence level, or something better than that-say a "basic income level". Having decided that, we would then have to decide how to keep the chosen figure realistic, that is to say, how to up-date it.

Another approach is to say that the basic income levels should be chosen in relation to the average income actually being received by families of different sizes: that, for example, no family should be expected to live on an income of less than x per cent of the average income. Still another approach, and the one I am inclined to favour, I think, particularly when considering the wide variety of income needs to be met across the country, is the choice of a range of income over which income supplements should be paid. For the choice of a single "poverty number", particularly in a country like Canada, and particularly where the price of at least one necessity, accommodation, varies so much, seems to me a bit artificial.

As to the choice of the basic, or minimum levels, or ranges, of income upon which families of different sizes could reasonably to be expected to live, you will see from the numbers I have recited that there is a wide range of choice. How this choice will finally be made is a tough moral question, but I suspect when it comes right down to it, the final decision will be based upon three considerations.

First, the public will want to be assured that the system under which incomes are supported, or "guaranteed", for those who are unable to work or who are retired, and under which the incomes of the lowest paid working families are supplemented, is both fair and equitable. Is the system designed, for example, to ensure that governments do their utmost to find employment for people, those who have exhausted their abilities to find jobs, rather than simply resorting to guaranteed or supported incomes for them? To put this another way, is the system designed upon the assumption that everyone should do his best to help himself, before seeking the help of his neighbours? To be even blunter, is the system designed to avoid "rip-offs"?

With these assurances, and I believe governments must be prepared to give the public these assurances, the public will then want to know another thing. What standard of living would different levels or ranges of income guarantees, or supplementation, provide? What is required to provide the basic necessities of food, clothing, and shelter and personal care? What then would be required to provide something more than these basic necessities? And what would be required to provide a standard of living which represents some fraction of the average standard of living enjoyed by Canadian families?

With the answers to these questions, the public will then want to know what it would cost to achieve these different levels of income support. What proportion of the increases in national income in the next few years, to be more precise, would have to be allocated to achieve these different levels? And would these allocations of the increases in national income imply any material reduction in savings, and hence in investment, and hence in economic growth?

These are difficult questions, but they are the ones which will have to be answered, I should think, before we will gain a national consensus on this central issue of basic income standards in the social security review. And gain a national consensus we must. For one thing is surely clear to each and everyone of us: we cannot simply impose upon the Canadian people the moral judgment as to what they should contribute towards the support of their less fortunate neighbours. It is a judgment which they in the final analysis must make themselves. It is indeed, the national purpose which they, which we as Canadians, must declare for ourselves in the field of social security. This, I think, is what income security and income distribution are all about.

And in reaching our decision, I hope we will not simply think in aggregate numbers and figures, as I may have done already in this address, nor that we will easily allow ourselves to have clear consciences by merely continuing on our way while writing off all those "welfare bums". We are talking about real people, individuals, some more wealthy, some less fortunate, some very poor, and about how they will share.

Elections, especially frequent ones, are often seen as a nuisance by many people, including politicians. But one thing I have discovered about them is that they do bring politicians back in touch with the daily problems of people. I crossed this land a few times during the last election and my most vivid memories are not those of large rallies, or of big policy statements, but of a few faces here and there: those of that couple in the Gaspe area reduced to welfare after the husband became crippled with arthritis, who said that their welfare payments were reduced by $90 a year, because the wife took the trouble of growing a small garden in their backyard for their own needs; the face of that farming couple in Western Ontario, with the husband completely incapacitated in a wheel chair following a working accident on the farm, and the exhausted and desperate look in the eyes of his wife who was trying in vain to run the farm and raise a young family-they could see nothing before them but the vanishing of everything they had worked for, and eventually ending up on the welfare rolls; the beautiful face of that young Montreal woman, unable to use her arms because of cerebral palsy, who had learned to write, to draw, and to do needlework with her toes, who told me that her dream was to be given the opportunity to teach other handicapped people the things she had learned to do; the face of that other woman, handicapped in a car accident, subsequently abandoned by her husband and left with her two sons to care for without any support. Those faces, and many others like them, I promised myself I would not forget.

I am sure many of you know or have known similar faces. But we tend to forget fast, in our busy lives in an environment where poverty appears non-existent. I hope that at least the natural solicitude that Canadians, as a whole, are showing vis-a-vis our senior citizens, is going to be extended to all those in our midst who are in need, whatever their condition.

Mr. Lalonde was thanked on behalf of The Empire Club of Canada by Mr. Marcel Desautels, a Director of the Club.