This tax season poses extra challenges
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Hey there, time traveller!
This article was published 31/03/2021 (555 days ago), so information in it may no longer be current.
SOCIAL exclusion is a term that describes how people with low incomes are prevented from getting the supports and services they need to help them to survive and reach their goals. The current pandemic and associated economic recession have increased social exclusion, making it even harder for this vulnerable population.
The Canadian Financial Diaries research project is investigating social exclusion and its impact on vulnerable and low-income people and their finances. Phase 1 of this project followed 29 people, documenting their financial challenges over a one-year period.
One thing we discovered in our research was that Canadians with low incomes depend on their tax refunds to help balance their budgets and put a bit of money aside for unexpected challenges.
For example, one participant we’ll call Kateryna is a grandmother who lives in Winnipeg’s inner city. She relies on two part-time jobs for an annual income of slightly less than $14,000, which is well below the $22,000 poverty line. She lives within her means and is very careful budgeting. Every year, she looks forward to getting her tax refund of approximately $1,400, which is 10 per cent of her annual income.
This money is a lump sum that she relies on to put away and draw on throughout the year. Without it, she would have difficulty managing unexpected challenges. Having this money available gives her a bit of peace of mind and some financial resilience.
We found this example to be a common experience among many of the low-income participants in our study, and any reduction in employment income impacts the tax refund amount, which is often the only opportunity for low-income people to save. That small bit of savings helps them balance their budgets and prevents them from having to use payday lenders or pawn shops and the cycle of debt that often occurs with high-interest, short-term loans.
Payday lenders and pawn shops are often the only source of emergency funds, because the vulnerable and low-income population is underserved by mainstream banking services — another facet of social exclusion.
For instance, banks have few or no branches in neighbourhoods with low average incomes, and banking products are not designed for people with minimal savings or cash flows. Consider that the average middle-income person can avoid most banking charges by maintaining a minimum cash balance and have overdraft protection or a line of credit for emergencies — something a low-income earner cannot access.
Many low-income earners face higher monthly banking charges, which are not affordable, so they become excluded from mainstream banking services.
Many of our Canadian Financial Diaries participants over this past year have been affected by job loss or layoffs. Many were either unemployed or underemployed, relying on casual or under-the-table employment that disappeared and, as such, they did not qualify for Canadian Emergency Response Benefit (CERB) payments. Some participants who were able to access CERB payments are now fearing those funds might be clawed back through taxes or required repayments.
We have noted this uncertainty has caused great anxiety for some of our study participants, who cannot afford to consult professional tax services. There are some free tax consultation services, such as those provided by the Community Volunteer Income Tax Program (CVITP), but they are currently overwhelmed by those in need of help.
Our participants also told us about facing increased costs associated with the pandemic. Many avoided travelling on public buses out of fear of COVID-19; as a result of being faced with having to take cabs or walking instead, they would often shop closer to home instead of at big box stores, paying higher prices for food and supplies.
Owing to the pandemic restrictions and growing need, some food banks and community meal programs have had to reduce or suspend programs, and this increased food insecurity — another aspect of social exclusion.
Social exclusion has caused some of the most vulnerable members of our society to be least protected from the pandemic and resulting economic recession. We need to consider how we as a society, through our government and civil society, respond to people in need. The diaries project is amassing evidence that people with low incomes are every bit as rational and hard-working as others, but they face unique sets of challenges, including structures that exclude them from many benefits available to others.
By addressing social exclusion, these barriers can be reduced, and opportunities increased, helping our vulnerable and low-income citizens live better lives. Each year the federal government forgoes billions of tax-revenue dollars to encourage middle-income Canadians to save for retirement through registered products. Why not establish a similar program to enable Canadians with low-income, like Kateryna, to save, such as a matched savings program, used by SEED Winnipeg?
The Financial Consumer Agency of Canada is responsible to ensure banking is accessible to all Canadians. Its regulations are limited, and it is likely time for the regulations to be reconsidered and bolstered so Kateryna and other Canadians with low income do not end up relying on payday lenders.
Jerry Buckland is a professor of international development studies at Menno Simons College, a faculty affiliate at the school of business, Canadian Mennonite University, and a research associate with the Canadian Centre for Policy Alternatives — Manitoba.