Canadians ask: Will free-trade deal cut into social safety net?

Should Canadians, by their vote in the national election today, reject the free-trade pact with the US, one reason will be concern for the safety of their social welfare system. Politicians from both opposition parties say that free trade would threaten Canadian social policies. Under the terms of the free-trade proposal, they say, American firms could argue that these welfare systems amount to a subsidy of Canadian business. A Canadian firm, for instance, does not need to provide a medical plan for its employees.

Liberal leader John Turner notes that 37 million people go without any health insurance in the United States. ``I prefer Canada, where if you have to go to the hospital, they don't check your credit card before they take your pulse.''

New Democratic Party (NDP) leader Ed Broadbent says Canada would be forced to water down its health and social policies ``to harmonize to the lowest common denominator, which is the US.'' One NDP ad shows an actress, dressed as a nurse, worrying about the survival of medicare under free trade.

Canada has a universal medicare system, administered by its 10 provinces and financed partially by federal money. With medical bills paid by the government system, Canadians do not figure that an illness will ruin them financially.

Indeed, Canadians figure their social programs to be ``infinitely superior'' to those of the United States, notes Thomas Courchene, director of the School of Public Policy at Queen's University in Kingston, Ontario. A top expert on Canada's social programs, Mr. Courchene says it's actually not that black-and-white. For example, Canada's system of government old-age pensions is much less generous than that in the US.

Overall, though, the Canadian social system is more comprehensive than that in the US. But in terms of relative national output, Canadian social expenditures may not be much more costly than the system in the US, says Courchene. One key reason is that Canada does not have the serious inner city health and poverty problems prevalent in the US.

``The US has a greater need and a less sensitive program for handling the problems,'' he says.

The Canadian system also does considerably more to redistribute income and services from the well-to-do to those who are poorer.

Courchene worries that the involvement of Canada's social programs in the free-trade debate may make it more difficult for any new government to carry out needed adjustments in the 1990s as the average age of Canadians rises. Both opposition parties have portrayed the social programs as sacred. Both parties might fear that any subsequent change in the programs would be portrayed as being an accommodation to the American system or interests, raising nationalistic fears.

The basic Canadian social programs include:

Old Age Security. The pension system is fully-indexed quarterly to inflation. The federal government also pays for a guaranteed income supplement to low-income residents who are 65 and older.

``Baby bonuses.'' Parents get nearly $33 a month for each child under the age of 18. This is not indexed, so it diminishes in real value over the years. Also, the government provides a tax exemption, a refundable tax credit, and a refundable sales tax credit for each dependent child.

Child care. If a working parent has receipts for day care costs, he or she can reduce taxable income by as much as $2,000.

Unemployment insurance. Depending on whether someone works in a high- or low-employment area, an individual can become eligible for between 25 and 32 weeks of unemployment insurance after being employed for 10 to 14 weeks. Benefits amount to 60 percent of insured earnings, up to about $500 per week.

Medicare. Canadians say they are getting medical care for less cost than in the US, even though the US system is financed both through private and government schemes. Since each province manages its own medicare system, there is some room for variation and experimentation among various schemes. The Canada Health Act of 1984 imposes certain federal standards.

Equalization payments. The federal government makes unconditional payments to the poorer provinces to enable them to offer government services similar to those provided by the richer provinces. Thus a province like Newfoundland will have high-quality hospitals, roads, and schools, even though private incomes are much lower than in wealthy Ontario. The payment could exceed $1,000 per capita, depending on a province's tax base.

In the US, notes Courchene, the level of government services can vary sharply between rich and poor states.

Speaking up for the free-trade pact, Katie Macmillan, an economist at the C.D. Howe Institute in Toronto, says there is nothing in the agreement relating to social policies. Nothing in the international rules of trade, she adds, would allow the US to use countervailing duties to offset any Canadian cost advantage. In economic theory, exchange rates adjust to offset any such advantage, and there is no historical record showing nations in a free trade zone automatically harmonize social policies, she concludes.

Besides, Ms. Macmillan notes, as a last resort the agreement is cancelable with six months' notice.

Tory politicians are more blunt: They charge the opposition with lying when those parties say Canada's social services are endangered by free trade. Earlier this month the founder of Canada's medicare system, former Supreme Court of Canada judge Emmett Hall, also said the opposition charges were false.

Whom the public believes will influence the election today.

Last in a series. Previous articles ran Nov. 15, 16, 17, and 18.

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