GPP 501 Microeconomic Analysis for Public Policy Fall 2017 Given - - PowerPoint PPT Presentation

GPP501: Lecture Oct 10 1 of 21

GPP 501 Microeconomic Analysis for Public Policy Fall 2017

Given by Kevin Milligan Vancouver School of Economics University of British Columbia Lecture October 10th: Case Study: The Canada Child Benefit

GPP501: Lecture Oct 10 2 of 21

Agenda for today:

• 1. The case for redistribution to kids.
• 2. The Canada Child Benefit: Case Study

GPP501: Lecture Oct 10 3 of 21

Why redistribute to kids?

What’s different than the standard case we have discussed previously?

• Rawls?
• Nozick?

Are kids consumption to their parents—like a fancy boat? What is different about kids? What case do I make in the 2013 article?

GPP501: Lecture Oct 10 4 of 21

Why redistribute to kids?

The Milligan (2013) case:  Efficiency: investment decisions may not be set optimally. (Why not?)  Children as humans: redistribution as child’s right; not parent’s.

GPP501: Lecture Oct 10 5 of 21

Agenda for today:

• 1. The case for redistribution to kids.
• 2. The Canada Child Benefit: Case Study

GPP501: Lecture Oct 10 6 of 21

Canada Child Benefit: Case Study

We will examine the Canada Child Benefit as a case study on child benefits.  I was a contributor to the origin, design, and implementation of this policy.

• So, I’m likely biased.
• But on the other hand I can also give you an informed view…

 Don’t take this as an endorsement of the current government in general.  Feel very free to challenge and ask questions!

GPP501: Lecture Oct 10 7 of 21

Canada Child Benefit: Before

There were about 12 different tax benefits for a kid in BC in 2015: Federal Provincial Canada Child Tax Benefit (ref credit) BC Family Bonus (ref credit) National Child Benefit (ref credit) Climate Action Tax Benefit (ref credit) Universal Child Care Benefit (taxable) Sales Tax Credit (ref credit) GST tax credit (ref credit) BC Earned income credit (ref credit) Child tax credit (non-ref credit) Children’s fitness expenses (non-ref credit) Children’s fitness tax credit (non-ref credit) Children’s fitness tax credit (non-ref credit) Children’s art tax credit (non-ref credit) Children’s art tax credit (non-ref credit) Also, families with kids were eligible to split income between spouses. Q: What do you think of this? What are the gains and costs of consolidating?

GPP501: Lecture Oct 10 8 of 21

Canada Child Benefit: Building It

First step: money on the table for families  Existing spending on CCTB/NCBS was about $11B a year.  UCCB cost about XX a year. Then on Oct. 30, 2014 Prime Minister Harper announced ~$4.5B/year more for families:  Enhanced UCCB  Income splitting for families with kids  Enhanced children’s fitness tax credit.

GPP501: Lecture Oct 10 9 of 21

Canada Child Benefit: Building It

Second step: identifying an opportunity Back in 2014, the Liberal Party of Canada had a new leader but only 35 seats in the House of Commons. So, they set up an Economic Council of Advisors that met several times in 2014-2015 to explore important issues. (I was a member.)  See the official press release, or a Maclean’s article. On one conference call on April 30, 2014, a subset of us were brainstorming policies to combat poverty/inequality. Child benefits came up.  Could the existing benefits be repackaged into something more effective? That was the last I heard for awhile…

GPP501: Lecture Oct 10 10 of 21

Canada Child Benefit: Building It

Third step: crunching the numbers and putting it together I got a phone call in late 2014 from Mike McNair, who worked on policy as a staffer for the Liberal Party in Parliament. Mike laid out the basic idea of the Canada Child Benefit:  Combine CCTB/NCBS/UCCB into one package.  Bigger base benefit; totally phased out for higher earners.  Refundable tax credit; not taxable income. Over several phone calls I gave some feedback and Mike worked with volunteer Justin To in building a costing spreadsheet.  I helped trouble-shoot the costing model and gave some feedback on design.

GPP501: Lecture Oct 10 11 of 21

Canada Child Benefit: Election 2015

On May 4th 2015, Liberal leader Justin Trudeau announced the Canada Child Benefit at an event in Aylmer, Quebec.  Basic benefit of $6,400/yr (<age 6) and $5,400/yr (>=age 6)  Phased out starting at $30,000.  Everyone under 150,000 (P90) better off.

GPP501: Lecture Oct 10 12 of 21

Canada Child Benefit: Election 2015

Phase-out rates with one child:

GPP501: Lecture Oct 10 13 of 21

Canada Child Benefit: Election 2015

Phase-out rates with two children:

GPP501: Lecture Oct 10 14 of 21

Canada Child Benefit: Election 2015

What will this cost? See the 2015 LPC election platform fiscal plan… Aim to start July 1, 2016; let’s focus on 2017-18…. So, about $20.3B in family benefits canceled…..

GPP501: Lecture Oct 10 15 of 21

Canada Child Benefit: Election 2015

So, about $20.3B in family benefits canceled….. …and costs estimated at about $22.16B. So, net cost of about $1.86B.

GPP501: Lecture Oct 10

Canada Child Benefit: Election 2015

The Liberals asked Library of Parliament to estimate the impact

• f the CCB on child poverty. (Reproduced with permission)

GPP501: Lecture Oct 10 17 of 21

Canada Child Benefit: Election 2015

Predicted Impact: 37% decrease in number of kids living in families below LICO line.

GPP501: Lecture Oct 10 18 of 21

Canada Child Benefit: Implementation Issues

What happens when a new government is elected? How precisely does a transition happen?  You meet with the civil service.

• They’ve been watching the election
• Costing the platform; thinking about implementation.

 “There’s good news and there is bad news”

GPP501: Lecture Oct 10 19 of 21

Canada Child Benefit: Implementation Issues

New government was sworn in on November 4, 2015. How to get the CCB going by July 1, 2016?  Do a ‘real’ costing. Not on models, but on the real administrative records.  How to deliver it? Use the existing CCTB/NCBS platform.  Get all this ready for the 2016 budget delivered on March 22nd, 139 days later.

GPP501: Lecture Oct 10 20 of 21

Canada Child Benefit: Implementation Issues

Changes between the platform and reality….  Indexation delayed until 2020.  Slight changes to the phase-out rates

• {1 kid, 2 kids, 3 kids}
• Platform: {6.8%, 13%, 16%}
• Actual: {7%, 13.5%, 19%}

Overall cost in 2017-18:  Projected savings from existing programs: $20.3B  Actual savings from existing programs: $19.5B  Projected gross cost of new CCB: $22.2B  Actual cost in budget 2016: $22.9B Net cost  Projected $1.9B  Actual $3.4B

GPP501: Lecture Oct 10 21 of 21

Canada Child Benefit: Policy Lessons

 Policy can work; it can make a difference quickly.  Even a ‘simple’ program will hit implementation issues.  Designing program reforms where almost everybody wins is hard / expensive.