The economic crisis of the 1930s urgently brought the issue of poverty into the national political arena. As the Depression deepened, provincial and local governments called on the federal government to help fund relief programs for the unemployed. More assistance was also given to war veterans in 1930 through the War Veterans Allowance Act. The majority of Canadians readily accepted the increased involvement of the federal government in social welfare issues.
As the First World War had done, the outbreak of the Second World War led many people to discuss the possibility of fundamental social change. The memory of the Depression encouraged both the general population and the government to advocate a national system of social security that would protect all Canadians from extreme poverty. In this spirit, a Committee of Reconstruction was established. A number of reports dealing with social issues were written for this committee, one of which was the 1943 Report on Social Security for Canada by Dr. Leonard C. Marsh. In it, Marsh called for a comprehensive national system of social security, including insurance for sickness, old age, disability and maternity, along with basic assistance for those who could not use the insurance program.
The Marsh Report became very popular across Canada. However, many parliamentarians objected to it, some because they feared the economy might not continue to grow to support such a program, and others because they continued to view poverty as largely a matter of personal and family responsibility. Marsh's proposals were therefore not acted upon during the war. Instead, two new national social programs were introduced: Unemployment Insurance in 1940, to protect workers from temporary loss of work, and Family Allowances in 1945, to supplement the incomes of families with children. These programs were available to all Canadians since neither one included a means test. New veterans' pensions were also created.
The 1930s and 1940s also saw the emergence of new political parties and interest groups that supported social reform. In the 1930s, the newly formed Cooperative Commonwealth Federation (CCF) became an especially outspoken advocate of fundamental social reform, but by the early 1940s all the national political parties included social security issues in their platforms. In addition, the dramatic increase in union membership during the war resulted in much more powerful unions that lobbied for better social welfare benefits for their members. New seniors' and pensioners' groups added yet another level to this pressure for reform from across the country.
After the war, in accordance with public pressure, various changes were made to help the aged. In 1948, the year Prime Minister Louis St-Laurent replaced William Lyon Mackenzie King, an income tax exemption was given to everyone aged 65 and over. Furthermore, the amount of the tax deduction workers were allowed to claim for contributions they made to private pension plans was increased, thus encouraging them to contribute.
In 1950, a Joint Parliamentary Committee was appointed to look into old age provisions in Canada and other countries and to make recommendations to the government. The committee, which was composed of members of the Senate and all parties in the House, recommended that there should be a program of flat-rate benefits for everyone aged 70 and over, subject only to residence requirements.
But the biggest change came in 1951 with the enactment of the national and universal pension paid under the Old Age Security Act, supplemented by the means-tested, cost-shared benefits made available under the Old Age Assistance Act. These two acts replaced the 1927 Old Age Pensions Act and came into force on January 1, 1952.
Because a national, universal pension program was considered at that time to be beyond the statutory powers of the federal government, a Constitutional amendment was required before the Old Age Security Act was introduced, adding section 94A to the British North American Act's list of federal powers. This was only the second Constitutional amendment adopted in Canada's history concerning division of powers. Interestingly, the first Constitutional amendment was required in 1940 to give the federal government the power to legislate Unemployment Insurance, illustrating how important social welfare legislation was considered to be at this time.
The required Constitutional amendment was struck, notwithstanding several meetings and consultations between Ottawa and the provinces. However, it was at the insistence of Quebec Premier Maurice Duplessis that the provincial paramountcy sub-clause, which ensured that the Canada Pension Plan (CPP) would not affect any provincial old age pension program, was left in the wording. By May 1951, the federal government and all ten provinces had agreed on the following wording:
"It is hereby declared that the Parliament of Canada may from time to time make laws in relation to old age pensions in Canada, but no law made by the Parliament of Canada in relation to old age pensions shall affect the operation of any law present or future, of a provincial legislature in relation to old age pensions."