The Fiscal Side of Social Policy: State Building, Payroll Contributions, and Pension Reform in 1960s Canada

Fiscal policy underpins modern social programs because taxes generate the resources necessary for the state to fulfill its core economic and social missions. From a social policy standpoint, the recent push for a new fiscal sociology¹ leads us to follow a fiscal-centered approach to welfare state development.² This approach stresses the impact of fiscal logics on state building and welfare state development, suggesting that social programs can perform crucial fiscal and economic missions that are much broader than the simple provision of adequate funding for social benefits and services. In such a context, the design of social programs can be influenced not only by social goals (e.g., income maintenance, poverty alleviation, neutralizing economic risks), but also by broader fiscal and economic goals that transcend the welfare state.

The broader fiscal and economic role that social policy mechanisms like payroll contributions may or may not take and the specific consequences of that for social policy are a function of dominant fiscal factors and institutions present in a concrete national or subnational setting.³ Consequently, a case-study approach is particularly helpful to tell us whether particular social programs have a broader fiscal mission and, if so, how that reality influences their existence or character.

To illustrate this claim, as well as the added value of our fiscal-centered approach, this article explores the fiscal side of old-age insurance programs in Canada. This case is well documented in the existing Canadian literature and our goal is to use this case to illustrate broad theoretical claims about the fiscal side of social policy. Exploring the relationship between fiscal policy and the welfare state by studying old-age insurance programs is especially appropriate in part because of the fiscal weight of these programs, which raise large sums every year through payroll contributions. This type of analysis is also necessary because the broad fiscal and state-building uses of public pension systems remain understudied within the social policy literature.⁴

Focusing on the role of fiscal factors in shaping social policy development, the analysis of the Canadian case, and especially of the Quebec Pension Plan, shows that social programs can become fiscal policy instruments driven by fiscal objectives related to state-building and economic development imperatives that transcend the simple allocation of welfare state benefits and services. As our fiscal-centered perspective suggests, funding mechanisms such as payroll contributions associated with a particular social program can do much more than financing the program’s benefits; they can meet fiscal goals central to state building and economic development at large. As we suggest in this article, the example of pension reform in the 1960s in the French-speaking province of Quebec illustrates this claim.

This article has two main sections. The first section provides an overview of the literature on the fiscal side of social policy before clarifying the fiscal-centered perspective used in the analysis. The second section explores the historical development of old-age insurance in Quebec and Canada, with an emphasis on the role of payroll contributions. A discussion section concludes the article with a set of remarks about the meaning of this analysis for future scholarship on the fiscal side of social policy.

Social policy and the fiscal question

Scholars have long dealt with the taxation–social policy nexus.⁵ One of the pioneers in this type of inquiry is British social theorist Richard Titmuss (1907–1973), who was instrumental in the development of social policy and “fiscal welfare” research in the postwar years.⁶ In his seminal essay, “The Social Division of Welfare,” Titmuss explains the need to draw an analytical line between three types of social policy activities: social services, fiscal welfare, and occupational welfare. Adopting a comparative perspective on the taxation–social policy nexus that is lacking in Titmuss’s work, Gøsta Esping-Andersen, in his seminal The Three Worlds of Welfare Capitalism, discusses the relationship between types of social programs and the fiscal instruments used to finance them. For instance, social assistance...