January 21, 2023
In our first posting on this website, we made the connection between poverty reduction and the CVITP. Among other things, we noted that the federal government had introduced its first ever Poverty Reduction Strategy (PRS) in 2018. While the strategy recognizes there are many dimensions to poverty, it uses what it calls a market basket measure to establish Canada’s first Official Poverty Line. This line is stated in terms of annual income. (In our third posting on this website, we explained how Canada’s Official Poverty Line is calculated and why it matters to the CVITP.)
The PRS reported that, in 2015, one in every eight Canadians lived below the income-based Official Poverty Line. The strategy then set two time-bound targets for measuring the federal government’s progress in reducing poverty below the Official Poverty Line:
– By 2020, the poverty rate will be reduced by 20% from its 2015 level; and
– By 2030, the poverty rate will be reduced by 50% from its 2015 level.
So how well is the federal government doing in reaching these targets? Canada’s Official Poverty Dashboard of Indicators (or the Dashboard) where Statistics Canada keeps track of Canada’s annual poverty rate using the official poverty line tells part of the story.
The Dashboard indicates the poverty rate, which was 14.5% in 2015 had dropped to 6.4% by 2020. This is well below the target rate for a reduction by 20% from its 2015 level which would be 11.6%. In fact, it is below the target rate for a reduction by 50% from its 2015 level which would be 7.25%. This suggests the government had achieved its 2030 target for reducing poverty ten years ahead of schedule!
Yet the 6.4% poverty rate announced in March 2022 was based on the 2016 Census figures. In November 2022, Statistics Canada released a paper entitled “Disaggregated trends in poverty from the 2021 Census of Population”. Using figures from the 2021 Census, this paper establishes that the poverty rate was in fact 8.1% in 2020. While considerably larger than the 6.4% figure originally published in March 2022, it is still 3.5% below the poverty rate target of 11.6% that the PRS set for 2020.
However, this accomplishment is likely to be short-lived for two reasons.
First, 2020 was an exceptional year in many respects largely due to the COVID pandemic. In response to public health restrictions that severely curtailed economic activity, the federal government introduced a large number of pandemic-related benefits which supported low-income workers who had lost their employment as a result of the pandemic-related shutdown.
“Declines in poverty were driven by higher government transfers in 2020, including the enhanced Canada Child Benefit and temporary pandemic relief benefits… COVID-related benefits helped offset lost employment income during the first year of the pandemic, thereby increasing the after-tax income of households and lowering income inequality and the proportion of the population in a low-income situation.”
Statistics Canada, Disaggregated trends in poverty from the 2021 Census of Population
Many of these benefits were maintained in 2021 as the Canadian economy slowly started to open back up. Statistics Canada will release the poverty rate for 2021 in March 2023. Other things being equal, the poverty rate for 2021 is likely to be roughly the same or marginally higher but still within range of the target set in the PRS for 2020.
2022 saw the reopening of much of the rest of the Canadian economy. With this reopening came the termination of the remaining pandemic-related benefits that helped sustain the low poverty rate in 2020. For this reason alone, we expect the poverty rate to rise in 2022.
But there’s a second reason why the poverty rate is likely to rise in 2022. The rate of price inflation rose in 2022 to levels not seen in many years. (This was true globally, not just in Canada.) Price inflation disproportionately impacts those on low incomes, reducing their purchasing power. As people in this group live on fixed incomes or low wages which do not rise as fast as inflation, this group is the least able to adapt quickly to changes in prices. (Numerous reports across Canada about the increased use of foodbanks provide anecdotal evidence confirming increasing economic hardship in Canada in 2022.) We will have to wait until March 2024 for Statistics Canada to release its poverty data for 2022 to see whether or not it confirms our prediction.
While the data for 2022 may only be released in early 2024, the implications for the CVITP will be evident more immediately. As the poverty rate rose in 2022, more residents became eligible to receive federal and provincial or territorial government benefits which are income tested. And existing recipients of these benefits became even more dependent on the benefit amounts they receive. Since the filing of a current income tax and benefit return is a condition for receiving many of these benefits, the federal government will be keen to facilitate filing again in 2023 to maintain these benefits.
The PRS recognizes the CVITP, a gateway for low-income residents to access these benefits, as a key government program contributing to the reduction of poverty. But will the CVITP be ready to provide this service in the 2023 season to an expanding clientele?
The most recent figures for the CVITP show, at the very least, that the CRA will struggle to do this. In 2022, the CVITP served only 77.6% of the clientele it had served in the 2019 tax season. (While the CRA could point to COVID as the reason for the CVITP’s poor performance in 2020, the CVITP has fared no better in 2022 than it did in 2021.) The numbers reflect capacity constraints. Although the number of host organizations offering CVITP clinics has partially rebounded from the decline following the peak in the 2019 tax season, the number of volunteers has been declining and shows no sign of reversing.
Despite a quadrupling of its CVITP budget in recent years, the CRA appears to be doing little to significantly address this capacity constraint. It seems to be relying principally on a pilot grant program that it introduced in 2020, after the peak CVITP season of 2019. Although it is aimed at increasing CVITP capacity over a three-year period, the first two years of this grant operation have produced disappointing results within the CVITP, in part due to the meagre funding on offer within the pilot program.
Consequently, many low-income people who are eligible for this service in 2023 will likely have to turn to commercial return preparers to file in a timely manner. Others will file late, risking interruptions in the flow of their benefits.