Yesterday, we talked about how the Canadian aid system was both generous and clumsily organized, what with most of it being delivered through tax credits and loan remissions – neither of which shows up directly to reduce tuition at the time of registration. This is something that needs to change; if we’re giving students so much money, we should at last give it to them in a form that is both useful and comprehensible. So why can’t we do it?
Our tax credit system goes back to the Diefenbaker era (backstory here), but it really took off in the late 1990s when the education amount increased nearly eightfold in less than a decade. Why such an increase? Well, partly it’s because tax credits are politically convenient at election time – you can count them either as new spending or as tax cuts, depending on what audience you’re talking to. But it’s also because provinces can’t hijack federal tax credits by diverting the money to other causes (e.g. the Harris or Charest tax cuts), or simply allow federal dollars to push out provincial ones (e.g. the Canada Study Grants for Students with Dependants). Tax credits go straight from Ottawa to taxpayers. So even though tax credits are a sub-optimal way of delivering student aid, they are superlative as a displacement-free method of delivering federal money. If you don’t understand why that matters, you haven’t spent enough time in Ottawa.
Where provinces have built on tax credit nuttiness is by giving out large scale tuition rebates through the tax system. Most provinces haven’t succumbed to it, but Saskatchewan, Manitoba, and New Brunswick have – and frankly they’ve gone bananas with it. In Manitoba and Saskatchewan, students who finish a first undergraduate degree or college program qualify for one of those province’s graduate rebates. For graduates that remain in the province, these programs are so generous that literally everyone ends up receiving more in subsidy than they pay in tuition. In Saskatchewan, students from families earning over $120,000 can end up receiving $34,000 in various forms of grants tax credits, while paying only $26,000 in tuition if they graduate in four years and stay in the province for seven years after graduation.
This, frankly, is nuts. What’s the point of paying graduates $20K each to stay in Saskatchewan, regardless of pre- or post-study income? Even if that argument had a smidgeon of validity fifteen years ago when it was introduced (amidst significant out-migration), now that Saskatchewan is a “have” province it looks more than faintly ridiculous. Doesn’t Saskatchewan have more pressing needs than to pay middle-class kids to do what they were going to do anyway?
If we’re spending all this money making higher education cheap, we should spend it in a way that is more useful and comprehensible than tax credits. The problem is, these kinds of subsidies are difficult to re-allocate because they benefit so many people. But finding a way to re-allocate tax credit money is a must. Stakeholder representative groups could do everyone a service by banding together and working out ways to give governments the necessary political cover to do the right thing.