Dismantling the Welfare Wall for Persons with Disabilities

A Policy Paper by Sherri Torjman

                                                   May 2017


This paper describes the concept of the ‘welfare wall’ and explores its application to persons with disabilities. There would be less need to rely on Canada’s programs of income support and less concern about the welfare wall if individuals who wanted to work had better access to employment opportunities and associated independence. But this is not the case.

The disability income system is a loose collection of programs designed for distinct purposes. There is a set of programs whose purpose is to provide compensation for accident or injury. A second category of social insurance programs replaces lost earnings. A third group of programs, known as social assistance or welfare, acts as a safety net by paying income to individuals with few or no earnings from work.

For most Canadians with disabilities, the promise of the social security system far exceeds its performance, especially for persons with severe impairment. Many cannot qualify for disability-related public or private insurance because the eligibility criteria require employment or the programs are delivered as a workplace benefit. As a result, thousands of individuals with serious disabilities end up on social assistance (commonly known as ‘welfare’) − the leanest and most rudimentary of Canada’s social programs. The purpose of welfare is to act as the program of last resort for individuals with little or no other means of financial support. Applicants for welfare must first qualify for financial aid on the basis of a ‘needs test,’ which takes into account three main factors: type and level of household assets, income and needs.

Despite wide differences in welfare programs throughout the country, all welfare systems pay a benefit that consists of two components: basic assistance and special assistance. Basic assistance covers essential living costs such as food, clothing and shelter, which apply to all recipients. Special assistance is paid in respect of exceptional or additional needs, such as certain health requirements, dental care, prescription medications or disability-related expenses.

Coverage of additional costs is a positive feature of welfare in that special assistance can provide substantial dollars for households with high needs. At the same time, this positive feature can often make it difficult for recipients to move off welfare and into the paid labour market. Many recipients inadvertently become trapped behind the so-called ‘welfare wall’ because it is their chief source of income and often the only route to disability supports and assistance with additional costs.

The expression ‘welfare wall’ derives from a study which found that most recipients end up worse off financially if they leave social assistance for the paid workforce. In 1993, the Ontario Fair Tax Commission requested the Caledon Institute of Social Policy to analyze the impact of direct and indirect taxes on Ontario welfare recipients who have some earnings from paid work. The study found that welfare recipients who supplement their welfare benefits by working get to keep only a very small fraction of these earnings. A complex set of factors was responsible for producing these results.

Welfare recipients pay back to government most of their employable earnings through a mechanism known as the ‘welfare tax back.’ They lose one dollar of welfare assistance for every dollar of earnings above a designated amount known as ‘earnings exemptions.’ But the income of these households also declined as a result of income taxes and payroll taxes in the form of Employment Insurance premiums and Canada/Québec Pension Plan contributions. Moreover, because of their higher income, these households faced a reduction in government payments for certain tax credits, such as the GST credit, and the Ontario sales and property tax credits.

The welfare system’s provision of labour market supports, such as affordable child care, assistance with the cost of employment-related expenses, and educational and training opportunities, adds to the height of the welfare wall and makes it difficult for many recipients to leave or stay off welfare. Another disincentive to work is the potential loss of ‘income-in-kind,’ such as supplementary health and dental benefits. For most welfare recipients entering or re-entering the labour market, these multiple factors mean that the cost of working is very high.

This problem can be addressed in several ways or through a combination of measures. First, some form of wage supplementation would help ensure that paid work is always a more attractive option than welfare. Another measure could involve the extension of income-in-kind, such as disability supports to working poor households as well as households on welfare. A major disincentive to leaving welfare would be removed.

But while modest changes to welfare are important, they basically would leave in place a seriously flawed income program. It is not sufficient in amount. It is rule-bound and relies on administrative discretion. It involves extensive monitoring and reporting. It takes back much of what recipients are able to earn.

A more robust reform involves dismantling welfare and replacing it by more adequate forms of income support. A proposed new disability income program would require the federal government to assume financial and administrative responsibility for income security for persons with disabilities currently on welfare. But the shift to federal authority would result in a windfall savings to the provinces and territories. As part of the proposed income security redesign, there could be a negotiated accord that would require reinvestment of provincial/territorial savings into a coherent and comprehensive system of disability supports for all persons with disabilities, whether working or on some program of income support.

Shoring up the income security system is an essential step in breaking down the welfare wall for persons with disabilities. But equally important are measures that enable access to disability-related assistance and supports outside of welfare in order to reduce the need to rely on this inadequate program.

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