Recent polling suggests the $4 billion in Universal Child Care Benefit cheques the Harper government is mailing out this month is giving the Tories a boost in the polls. But there probably won't be a similar boost to the economy from the cheques, CIBC says in a new report — unless Canadians choose to be irresponsible with the money.
“It all comes down to how short-sighted households are about their finances,” economists Avery Shenfeld and Royce Mendes write.
If Canadians chose to spend all the money right away, ignoring the tax hit to come down the road, and spent it all on made-in-Canada goods and services, the effect would be “impressive,” the CIBC economists say. The economy would grow 3.2 per cent faster, at at annual rate, than it otherwise would have in the third quarter.
But after this fall’s election, there would be a negative hit to the economy, because the one-time boost from six months’ worth of UCCB cheques would end, sending consumer spending down. That would push fourth-quarter economic growth down by 2 per cent, Shenfeld and Mendes say.
But the economists don’t think it’s likely Canadians will blow their entire cheques. They point to the example of U.S. President George W. Bush’s tax rebate cheques in 2008, a $152-billion emergency measure designed to keep the country from falling into recession.
That stimulus had little effect because with a recession looming, Americans ended up saving the total amount of the stimulus cheques, and then some.
“There was just too much bad news afoot for Americans to go on a full-blown shopping spree,” the CIBC economists write. “In Canada, other than in the oil-producing provinces, households might be a bit more liberal with their new money.”
All the same, if Canadians spent the entire amount of the UCCB cheques over the course of a year, taking into account the taxes paid on the cheques, the economic impact would be minimal — a total of 0.3 per cent added to GDP between now and the second quarter of next year.
“It will help, no doubt, but for sustained growth, we’ll need more than just a shiny cheque to an already indebted household sector,” the CIBC economists wrote.
The new benefits payments began arriving Monday, with a $160 payment replacing a previous $100 payment for children five and under, along with a new $60 a month benefit for children aged six to 17. Six months’ worth of the payments are going out this month.
Some tax experts are warning parents to be careful with the money, because they won’t get to keep all of it.
"A typical family in the middle to upper income range would lose about a third of the enhancement of the Universal Child Care Benefit through tax and they would also lose the benefit of the child tax credit,'' Fred O'Riordan, a tax expert with Ernst and Young, told The Canadian Press this week.
He said parents in the middle to high tax brackets could expect to keep $15 of the increase per month.
"That's quite a reduction from the gross amount of the cheques that have been mailed out or directly deposited by the government,'' he said.
"Families should be aware of that when they decide whether they're going to spend that additional money or whether they want to save it, or pay down debt.''
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