OTTAWA — Canadian families will see their payments slowly erode over time under the Liberal government's new child benefit program, says Parliament's budget watchdog.
In a report released today, the parliamentary budget officer says the benefit doesn't automatically adjust to account for inflation, which means the number of families who qualify will also decline in the long run.
The original three benefits that were replaced by the new system — the universal child care benefit, the Canada child tax benefit and the national child benefit supplement — were all indexed to inflation.
Prime Minister Justin Trudeau and Sophie Gregoire Trudeau. (Photo: Adrian Wyld/CP)
The changes that ushered in the Canada Child Benefit removed that index, meaning that over time, inflation will reduce the buying power, or so-called "real value,'' of the monthly payments, the report says.
While 91 per cent of Canadian families are eligible for benefits this year, that will fall to 86 per cent by 2021, and will continue to decline as some families see their income levels rise high enough to no longer qualify for the benefit, the report says.
The PBO predicts that by 2025, the new Liberal benefit will cost less than the three programs it replaced, including the universal child care benefit.
Prime Minister Justin Trudeau delivers a speech at the Unifor convention in Ottawa on Aug. 24, 2016. (Photo: Chris Wattie/Reuters)
The benefit is expected to cost the government $22.4 billion next year — the first full year it will be in place. In five years, as a result of the declining number of eligible families, that number falls to $21.5 billion, the report says.
Were the new benefit to be indexed to inflation, the net cost over the next five years would have been $42.4 billion, instead of the $17.2 billion the PBO forecasts.
The new benefit, a central plank in last year's Liberal election platform, kicked in on July 1. The government says the new benefit provides the average family with $2,300 a year, with a maximum of $6,400 per child under six going to families with net incomes of less than $30,000.
Finance Minister Bill Morneau. (Photo: CP)
The value of the benefit drops as incomes grow, phasing out entirely around $189,000, according to the government's online benefits calculator.
The PBO report acknowledges that the number of families who qualified for the original benefits also declined somewhat over time, since incomes tend to grow faster than inflation.
The Liberals say the benefit will cut the child poverty rate in Canada to 6.7 per cent from 11.2 per cent by this time next year, once families feel the full effect.