And now…The fine print: What will happen when Charlie enters the post-recovery benefit world?

By John Stapleton 

 

(Note to readers: This article assumes that the rules in place before the COVID-19 emergency and recovery measures of 2020-21 will be reinstated in October 2021. It is probable that post recovery benefit rules will be different.) 

 

Charlie is a 50-year old receiving ODSP (Ontario Disability Support Program) as a single person in Toronto. He works as a self-employed artist and pays both employer and employee Employment Insurance (EI) premiums at a cost of $455 a year. Charlie received the Canada Emergency Response Benefit (CERB) in 2020 and the Canada Recovery Benefit (CRB) in 2020 and 2021.1  

 

Charlie is emerging into the post-recovery benefit world of September 2021. 

 

Charlie is entering that world in reasonably good shape. He gets ODSP that offers a maximum benefit of $1,169 a month or $14,028 a year.  

 

Charlie has applied for EI Working on Claim because he is eligible for this new enhanced program that pays him 75% of his previous year’s earnings of $12,000. He reckons that he is going to get $9,000 of the newly enhanced benefit over 52 weeks. He is going to continue working and earning another $12,000 into 2022. 

 

Charlie has also been auto-enrolled in the Canada Worker Benefit by filing his taxes and, with $12,000 in earnings in the previous year, it looks like he will be eligible for the maximum payment of $1,355. Clawbacks don’t start until $12,820, according to a government website he saw. 

 

On the face of it, it looks like Charlie qualifies for nominal yearly benefits of $23,383 on top of his earnings of $12,000. It looks like Charlie could qualify for as much as $35,383 in combined earnings and benefits. He would be well above the poverty line with a modest living. 

 

And now…. the fine print 

 

As Charlie’s Working on Claim benefit begins he notices that, instead of getting 75% of his earnings or $9,000, he is about to get half of that amount ($4,500) over the next year since EI Working on Claim claws back his payments at 50%. 

 

Charlie will get by on $30,883. 

 

But then he notices that his EI payment, newly lowered to $4,500 will be deducted in full off of his ODSP. His ODSP goes down by $4,500 to $9,528 for the coming year.  

 

Charlie will get by on $26,883. 

 

Next up, Charlie’s earnings are also of interest to ODSP. They exempt the first $2,400 of his earnings but claw back 50% of the remaining $9,600. The clawback amount is $4,800. 

 

Charlie will get by on $22,083 a year. His total income is now less than recognized Canadian poverty lines.  

 

When Charlie fills out his 2021 tax return in 2022, he gets a notice that says that he did not qualify for the Canada Worker Benefit (CWB). Charlie only realized later that his income for the purpose of calculating the CWB also included the EI and social assistance. The $1,355 in CWB that he thought he was going to get is not available to him as he makes too much money.  

 

Charlie will get by on $20,728 in combined benefits and earnings. He gets another $854 in refundable tax credits for a total net income of $21,582 based on his rental costs of $1,000 a month.  He then pays $432 in income tax to the federal government for a revised net income of $21,150.  

 

Charlie’s nominal benefits before clawbacks added up to $23,383. After the clawbacks, his benefit total is $8,728 – a confiscation rate of 62.7%. With taxes paid, his clawback rate increases to 64.5%. If we figure in the amounts he paid in EI premiums, his clawback rate goes to 66.4%. Before the clawbacks, Charlie had a basic income. After the clawbacks, he lives in poverty.  

 

What about a basic income? 

 

Looking at Charlie’s situation, it is easy to understand the people who support a universal basic income (UBI). Charlie would qualify for a basic income and there would be one overall clawback once he emerged from poverty. Charlie would not face a bewildering array of payments and offsets and it is doubtful that the overall combined clawback rate would be designed to confiscate 2/3 of his benefits.  

 

Our current income security system for adults age 18-65 is largely comprised of work-triggered benefits (EI, CPP, Workers Compensation, Veterans) that are largely time limited (EI, Workers compensation, Veterans) and, for the poor, they are inadequate. For the very poor, we have social assistance and its destitution-based rules.  

 

Compared to this array, again, basic income looks very attractive as it would not be work triggered, it would not be limited, and it would be minimally adequate. But while we wait for a basic income, universal or not, there is much we can do to disentangle the bewildering array of clawbacks for someone like Charlie. I wrote about that here.