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May Day: Canada Workers Benefit fails full-time low-income workers, MEI study finds

  • Payments located only around tax season fail to incentivize decision to work.

Montreal, May 1st, 2023 – The Canada Workers Benefit—in its current form—fails to incentivize full-time work for low-income Canadians, according to an economic note published by the Montreal Economic Institute this morning.

“The promise of some obscure tax credit a year from today is of little comfort when you lose out on hundreds of dollars in benefits every month,” says Jason Dean, associate researcher at the MEI and the study’s author. “Much like one’s paycheque, the Canada Workers Benefit should be deposited bi-weekly in order for it to be as effective as possible.”

The Canada Workers Benefit is a federal income support program targeting low-income workers through a refundable tax credit, helping them keep more of their earnings in the face of high benefit clawback rates. As such, it is only disbursed around tax season, once workers submit their tax returns.

The author points to this timing as a key factor rendering the Canada Workers Benefit much less effective, as the hit to one’s paycheque happens right away, but the compensation only comes much later.

The author also finds that the Canada Workers Benefit reduces participation tax rates (the speed at which one’s earnings trigger benefit losses) by a meagre one percentage point for full-time minimum wage workers—from 57 to 56 per cent in Quebec and from 44 to 43 per cent in Ontario, for instance.

The study points to the benefit’s rapid phase-out as the primary cause for its failure to incentivize full-time work, being almost fully clawed back before reaching earnings associated with full-time minimum-wage work.

Using Ontario as an example, the author posits that a targeted top-up for full-time work would help incentivize 190,000 Ontarians to take on full-time work.

Those changes would help generate an estimated $120 million in net savings in Ontario alone.

“As they say, the best social program is a job,” explains Mr. Dean. “We need to design our programs better so that we don’t trap people behind the welfare wall, starting with the Canada Workers Benefit.”

You can consult the MEI publication here.

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The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship. 

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