Question Period Note: VETERANS BENEFITS INCREASE COMPARED WITH INFLATION INCREASE

• The Government is committed to supporting Veterans and their families, and values the significant contributions that Veterans have made protecting Canadians.
• Over 90% of the department’s budget funds Veterans’ programs, benefits and services.
• Each year, Veteran benefits are increased to reflect the cost-of-living.
• Annually increasing Veteran benefits using established measures like the Consumer Price Index ensure that Veterans receive the respect, support, care, and economic opportunities they deserve.

BACKGROUND – VETERANS BENEFITS INCREASE COMPARED WITH INFLATION INCREASE - ANNUAL ESCALATION PROCESS
• The majority of Veterans Affairs Canada’s programs and 93% of its expenditures in fiscal year 2021-22 are quasi statutory based on the fact that these programs (e.g., Pain and Suffering Compensation, Income Replacement Benefit, Veterans Independence Program) are demand driven and non-discretionary.
• For these quasi-statutory programs, Veterans Affairs Canada inflates its benefits at least once annually (usually January 1st). This adjustment process (referred to within VAC as “escalation”) ensures that VAC’s benefits and related allowances reflect cost‑of‑living adjustments.
• Programs under the Veteran Well-Being Act are adjusted by changes to the Consumer Price Index (CPI), while programs under the Pension Act (e.g., Disability Pensions) are adjusted based on the greater of two options: the change in CPI, or the average composite wage calculation (i.e., an amount equal to the monthly after-tax income of certain federal public service workers based on the lowest provincial tax rate).
• Consumer Price Index is a measure of the rate of average price change for goods and services bought by consumers in Canada and is the mostly widely used indicator of inflation.

• For those benefits adjusted annually by CPI as of the first of January, the calculation is a measure of the change between the annual average CPI from November 1 to October 31 for the current year and the annual average CPI from the previous year for the same period. For this reason, it will not align with the point in time provincial or national rate of inflation as at the end of December.
• Currently and historically, rates over the last four calendar years have been:

Calendar Year Rate of Adjustment:
Programs under the Pension Act (i.e., rate used is the greater of the annual average change in CPI or the composite wage rate) Rate of Adjustment:
Programs under the Veterans Well-being Act (CPI)
2022 2.7% 2.8%
2021 1.0% 1.0%
2020 1.9% 1.9%
2019 2.3% 2.4%
• NOTE: Regulatory requirements for “rounding” under the Pension Act vs. the Veteran Well-being Act are not the same which occasionally results in slight differences in the CPI rate (i.e., 2.3% vs. 2.4% in 2019).

WHEN PRESSED:

1. Why is the rate of CPI used to escalate VAC programs not the same as the Statistics Canada rate published for December 31?
   VAC’s programs are indexed in accordance with the methodology set out in the applicable Acts and Regulations governing each program. In general, the indexation of VAC programs is based on a twelve month average rather than a one-month comparison.

2. What method was used to index VAC’s programs as of January 1, 2022 and why is the rate different across programs?
   The vast majority of VAC’s programs were adjusted by the CPI in 2022. In spite of this, there can be a difference in the rate used according to the requirements for “rounding” under the Pension Act vs. the Veteran Well-being Act which are different and occasionally result in slight differences in the CPI rate applied (i.e., 2.7% vs. 2.8% this year).

Calendar Year Rate of Adjustment:
Programs under the Pension Act (i.e., rate used is the greater of the annual average change in CPI or the composite wage rate) Rate of Adjustment:
Programs under the Veterans Well-being Act (CPI)
2022 2.7% 2.8%

1. Do all of VAC’s programs get adjusted by the same amount?
   No, there are varying methodologies for VAC programs. Each program is indexed in accordance with the timing and methodology set out in the applicable Acts and Regulations governing such programs.
2. Do programs ever get decreased in times of low CPI?
   No, in the case of negative or zero inflation, the rate remains the same.