The Russian Federation has an incredibly vastarray of income benefits that vary by cause, region and delivery. TheRussia paper notes that federal law mandates an astonishing 156 kinds of socialbenefits delivered to 236 different categories of the population. Few ofthese benefits systematically take into account need; most are paid tocategories of the population.
Although Canada has a fairly complex incomesecurity system, in part because the federal, provincial/territorial and (insome cases) municipal governments each deliver benefits both through directspending and through the tax system, it is far less unwieldy thanRussia’s.First, Canada has far fewer programs. The federal governmentoperates only eight major income programs (Old Age Security,the Guaranteed Income Supplement and Spouse’s Allowance for seniors; theCanada Pension Plan; Employment Insurance; the Canada Child Tax Benefit;veterans benefits and allowances, and social assistance for aboriginal peopleon reserves) as well as a variety of tax expenditures that reduce federal andprovincial income tax.
The provinces, territories and (in a fewprovinces) municipal governments operate social assistance. Quebec runsthe Quebec Pension Plan, parallel to the Canada Pension Plan. Provincesand territories are responsible for Workers’ Compensation programs and offervarious income tax breaks, mainly in the form of refundable tax credits.
Some Canadian programs offer a package ofincome benefits within a single system. The Canada Pension Plan andQuebec Pension Plan provide not only retirement benefits, but also survivor,disability and death benefits. Employment Insurance offers unemployment,parental and sickness benefits. Workers’ Compensation and veteransbenefits combine income and health care services.
Moreover, Canada has integrated some of itsincome benefits in an effort to overcome conflicting designs; create simpler,more transparent programs; and reduce administrative overlap andduplication. The most notable example is the area of child benefits,which have seen two forms of integration.
First, three federal programs with differentdesigns and objectives (Family Allowances, the refundable child tax credit andnonrefundable child tax credit) were integrated into a single broad basedincome-tested Child Tax Benefit. Eligibility and level of benefit arecalculated on the basis of family income (maximum benefits to low-incomefamilies, diminishing benefits to most non-poor families).
Second, federal and provincial child incomebenefits are in the process of integration under the National Child Benefit,with federal increases triggering decreasing provincial child benefitsdelivered through their needs-tested social assistance systems and thedevelopment in most jurisdictions of income-tested child benefits and earningssupplements. Most of these benefits and supplements are delivered by thefederal income tax system on behalf of the provinces and territories.Thus the integration of federal and provincial income programs for childreninvolves both design and delivery elements.
But integration of social benefits is mucheasier to espouse than achieve. The federal government recently attemptedto combine its three elderly benefits into a single, family income-tested broadbased program (to be called the Seniors Benefit) analogous in design andphilosophy to the Canada Child Tax Benefit. However, this proposalsparked criticism from both left and right - for different reasons - and the government abandoned thereform. Pension policy in Canada, as in the US and most other countries,is a politically explosive undertaking that must overcome strong, entrenchedinterests.
So also has the National Child Benefit provoked attacks fromsocial groups complaining that some low-income families - those on social assistance- see no net increase intheir child benefits, whereas others - the working poor - enjoy a significant real increase. This criticism ismisleading - the wholepoint of this stage of reform is to raise working poor families up to the levelof child benefits received by social assistance families. But itdemonstrates that significant reforms of social programs typically raise issuesabout ‘winners andlosers.’
Consolidation is never easy politically eventhough it appears logical from a program perspective and desirable from anadministrative perspective. People may feel that they are losingsomething – despitethe fact that the benefit which they received in past has been rolled intosomething new. They must be informed why and how the benefit ischanging. Any consolidation should try to ensure that lower-income peopleare not worse off prior to any reform - that they are at least the same, if not better off, financially- and that reductions, ifdeemed necessary for cost reasons, affect only higher-income people.
Much remains to be done in streamlining income benefits in Canadabesides elderly benefits. There are several tax-delivered benefits (inthe form of income tax reductions) for persons with disabilities or theirfamilies that are difficult to understand and access and that have somequalifying linkages (i.e., to qualify for a certain benefit requires qualifyingfor another). Some progress has been made in recent years in improvingthese programs (in terms of increasing benefit levels, providing somerefundable benefits to low-income people and widening eligibility), but theresult has been even more programs and an even more unintelligible system.
ii. Determination of eligibility
Russia appears to rely to a great extent on acombination of needs testing and categorical demogrants (i.e., benefits go toall persons within a category not defined by level of income or other economicindicators of need) to determine eligibility. Canada also had such amixture, but is in the process of moving to increasing use of incometesting.
Needs testing is undesirable for severalreasons: Social assistance, Canada’s major remaining needs-testedincome program, is a highly rules-and-regulations-bound system that isdiscretionary, costly to administer, highly intrusive in applicants’ and recipients’ lives and stigmatizing.Income testing, by contrast, is much simpler (eligibility for and amount ofbenefit is determined by a simple test of income), non-intrusive, inexpensiveto administer and non-stigmatizing.
However, the latter approach requires awell-designed administrative mechanism. Ideally, the national tax systemcan be used for this purpose, as in Canada, since it can deliver as well ascollect money within a single apparatus. But such an answer is likely notpossible in Russia –because of fragmented income benefits and particularly in light of recentreforms which have regionalized the income tax system.
In the absence of a national tax system, itis possible to put in place a special-purpose delivery by having people fill informs and apply for the program. But this approach is more costly tooperate (because it requires building a new system) and typically bringsproblems of public awareness and take-up: Potentially eligible recipientsfail to apply because they do not know of the program or do not want the hassleof dealing with government. The advantages of having the Canada Child TaxBenefit and other income-tested programs delivered through the income taxsystem is the fact that people are already reporting their incomes.Indeed, eligibility is determined automatically for them on the basis of theirlevel of income.
Income testing through the income tax system,as in Canada, requires virtually universal compliance with that system.Such is not the case in Russia. One of the weaknesses of tax-based incometesting is that it can result in a considerable lag between the period forwhich income is calculated and the receipt of benefit. This ‘responsiveness’ problem becomes more serious ifpeople suffer a large drop in income. They fall from middle income to lowincome and hence would qualify for the maximum level of income support– but have to waitsome months before the system can respond to their changed circumstances.
Needs-tested systems, by contrast, are veryresponsive because they test income and other circumstances frequently, thoughat the cost of intrusiveness and stigma. How serious the responsivenessissue would be in Russia depends on the design of the program and thedistribution and regularity of incomes. If most recipients have low, albeitirregular, incomes, then the responsiveness problem is not serious (theyalready would qualify for the maximum payment).
In Russia, some people may be reluctant toreport their income to authorities and remain outside the income tax system orany other purpose-built income testing mechanism. People may be paid‘under thetable’ and it may bedifficult to get a true sense of their actual economic situation.
For these reasons, Russia may prefer tomaintain a needs-tested approach that includes a detailed assessment of assetsand, perhaps, other indicators of need. But we know from our experiencein Canada that needs testing is a costly, inefficient and stigmatizingroute. Indeed, welfare is the most ‘despised,’ least desirable form of incomesecurity. There are also problems in counting assets as deemedincome. Even though a household may have shelter, they still may not havesufficient cash to pay for food, utilities and clothing. The majoradvantage of needs testing is its ability to respond rapidly to changes inrecipients’circumstances, and to identify and ideally to help compensate for extraordinarycosts associated with health- and disability-related conditions, andother special needs (e.g., funeral costs; special transportation).
By far, the simplest way to deliver incomebenefits is through demogrants, which pay (usually the same amount to) allpeople in a category (e.g., families with children, veterans, seniors)regardless of their income, assets or other economic characteristics. Bythe same token, though, universal programs are blunt instruments that fail todirectly take account of economic need and do less to attack poverty thantargeted programs. Canada abandoned two of its major demogrants,universal Old Age Security and Family Allowances, in the early 1990s in favourof income-tested systems.
In Russia, however, an income-tested approachlikely would pay a similar (maximum) amount to a larger percentage of thepopulation, simply because incomes are more concentrated at the low end.Depending on its design, then, an income-tested program in Russia might end upvery similar to a demogrant in distributional terms. Still, an explicitlyincome-tested approach can vary its benefits according to income level and thuscan be targeted to need unlike a flat-rate demogrant (even one that is subjectto income tax). This strength could become quite important to the extentthat Russia’s economygrows in such a way as to create is a larger middle (and upper)class.
iii. Type of benefit
The cost of any income security scheme thatprovides a non-trivial benefit is bound to be substantial, especially if it isa broad based income-tested program or demogrant. Canada’s federal government spent atotal of $60.3 billion on its income security programs in 1998-98 (note thatthis figure excludes federal transfers to the provinces for their incomeprograms, primarily needs-tested social assistance) which amounts to 49.5percent of total federal program expenditures and 6.7 percent ofCanada’s GDP.The largest single expenditure was on elderly benefits ($22.8 billion), whichare increasing steadily in real terms because of the aging of thepopulation.
For the same level of expenditure, a highlytargeted (either income-tested or needs-tested) program can provide a largermaximum benefit, though of course to far fewer recipients - usually, only or mainly thepoor. As noted above, Canada has been moving in the direction of broadbased income-tested income security programs away from both demogrants andneeds-tested benefits. However, the move from demogrants to income-testedprograms has not been undertaken as a cost-saving exercise. The incometest on Old Age Security affects only a tiny minority of upper-income seniors,while the Canada Child Tax Benefit not only serves the large majority offamilies, but also is significantly raising maximum benefits for the poor andmodestly improving payments to the non-poor.
Several provincial governments provideearnings supplements for lower-income families with children, and earningssupplement experiments for single parents are under way in British Columbia andNew Brunswick. As noted in the paper, both levels of government operatesignificant child benefit programs that help the large majority of workingfamilies and all non-working families. However, neither the federal norprovincial governments offer earnings supplements for the working poorgenerally (i.e., including single people and childless couples) mainly for tworeasons: concerns about cost and about ‘interfering’ in the private wagemarket.
While the government of Russia might want toconsider some form of earnings supplementation to top up earnings, similarconcerns would hold as for Canada. We would suggest beginning withimproving child benefits before launching large-scale earnings supplements forall lower-income workers (which in Russia’s case likely would proveextremely costly given its high concentration of low-wage workers).Moreover, earning supplements are predicated upon a well-functioning wagesystem; they are meant only to supplement low wages.
In Canada, the federal and provincialgovernments set minimum wages (the federal rate equals the rate applicable ineach province) though they are not indexed to either prices or average wagesand are relatively low. Again, however, this form of income security ispredicated upon the existence of a well-functioning wage system and on its owncannot be expected to assure that paid work can adequately support all workers(especially those with dependants).
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