Higher Education Strategy Associates

Category Archives: tax credits

March 29

Who Won and Who Lost in the CSLP Re-Shuffle

(Warning to readers: today’s blog is a long read about student aid policy.  Skip it if this kind of wonkery isn’t to your taste.)

Last week’s historic changes to the Canada Student Loans Program – which saw the elimination of the Education and Textbook Tax Credits, and an increase of 50% in Canada Student Grants – is a very complicated piece of policy to analyze.  Remember that there is no new money in this set-up: any new money given to one set of students through grants is money taken away from another set of students in tax credits.  So it’s reasonable to ask the question: “who won and who lost?” because governments sure as heck aren’t eager to spell this stuff out.

If you want to refresh yourself on the details of the tax credit/grant switcheroo, go back to our budget analysis document and read pages 2-6.  Got it?  Good.  Then we’ll begin.

Winners and losers get divided up along three axes: by geography, by “family” income, and by full-time/part-time status.  We’ll start with geography, and move down from there.

Quebec: Every single full-time student in Quebec loses $558 from the disappearance of the tax credits.  What they will get back is uncertain. The Canada Student Grants program does not operate in Quebec, so no one will “win” by getting money from that source.  Instead, the government of Quebec will receive something in the region of $500 million from the government of Canada over the next four years in “alternative payments” (that’s a rise of about 40% on what the province currently gets).  Will the government invest all that money in student aid?  We don’t know because the government is being non-committal at the moment.  If it does, how will it do so?  Again, no clue.  So we have literally no idea who the winners and losers will be in Quebec.

The Rest of Canada, Bar Ontario: Again, every single FT student will lose $558 in tax credits.  If they are considered “low-income” (I’ll come back to this), they will – once the changes are fully phased-in for 2017 – get an extra $1,000 in grants and thus be “up” on the deal by $442.  If they are not at all eligible for grants, they will be “down” $558.  What happens to the students in between – the so-called “middle-income students” – is a little unclear.

First, who are “middle-income students”?  The definition varies by province and family size (see Tables 10A and 10B here), but if you’re a dependent student from a family of four, it means (roughly) those from families earning between $45,000 and $85,000; if you’re a single independent student, it means those earning between $23,000 and $43,000 (most independent students are low-income and eligible for maximum grants, but not all of them take advantage of the program).

Now, if all you look at is the 2016-17 changes to Canada Student Grants (+$400), and you subtract the $558 in missing credits, you might think “holy cow, these middle-income students are out $158!”  Which, to be honest, I did briefly on budget night.  But the program changes aren’t ending in 2016-17.  In 2017-18, CSLP wants to stop giving out these grants as a step function, and smooth the curve, roughly like so:

Figure 1: CSG Value by Income Level, 2015-16 vs. 2017-18















(Caveats on graph: that’s for a family of four in Ontario; mileage may vary by province and family size, and we don’t know exactly what the smoothing formula will look like.)

This is a very different kind of picture.  Those just above the low-income/middle-income cut-off become massive winners – their annual grant amount will increase by almost $2,200.  However, at the other end of the spectrum, those just below the middle-income cut off – say, families making about $80K – will see changes of less than $558, and so need to be counted among the “worse-off”.

But this still isn’t the final story, because there’s another CSG change scheduled for 2018-19, which will involve extending the middle-income cut out-off somewhat (my understanding is that for our hypothetical family it will be slightly north of $100,000/yr).  That won’t help the people just below $80k, but it will make “winners” out of a number of people in the $80-100K range.

Figure 2: CSG by Income Level, 2015-16, 2017-2018, 2018-19















(Caveats on this graph are same as previous, only this time we have even less idea what the exact formula will look like.  Think of it as an artist’s rendering of a bunch of vague statements in the Budget and the Liberal Manifesto.)

Based on this, what we can probably say is that all independent students will end up as net beneficiaries (if they bother to apply for aid), as will all dependent students coming from families with incomes below $100K (bar a few with incomes in the $75-80K range).  Above that line, there will be losers to the tune of $558/year.

Ontario: The situation in Ontario is a little more complex because in addition to the CSL changes there are the similar changes to the provincial program announced in the February provincial budget.  Because the province is killing both its own education amount tax credit and its own tuition tax credit, every student (and/or their family) is losing $1,176 in combined tax relief.

Now, who actually wins and loses is difficult to tell at the moment because we really have no idea what the provincial formula will look like.  Based on a tiny sliver of information contained in charts 1.16 and 1.17 of the Ontario Budget, my understanding is that dependent students from families making under about $80,000 are net winners – in some cases by a thousand dollars, or even a bit more.  Above $110,000 it’s all net losers – students from families above this level will keep the grants they currently have but lose all their tax credits.  In between, the best guess is that all will be net losers; however, the exact amount of the loss will depend on the nature of the CSLP 2018-19 changes.

That’s dependent students – what about independent ones?  Here, it’s *very* difficult to tell.  Unlike the federal grants, current Ontario grants are restricted to dependent students, and the language in last month’s Budget is ambiguous as to whether independent students will have access to the new grants. I think it’s telling that none of the examples given in this Ontario budget backgrounder are independent students; this implies that the province simply hasn’t yet figured out what the rules for these students will be.  So for the moment we simply show how the winners and losers will break out among independent students.

(Nota bene: if you’re wondering why the Ontario change seems to have a worse winners-to-losers ratio than the federal one, it’s because money in the system is not conserved.  If you read the text of the budget carefully, you’ll note that some of the money from the eliminated tax credits is going to universities and colleges – students themselves will, on aggregate, receive less money in total after the change than before.  Less money = fewer winners.)

Part-Time Students:  You’ll notice that I’ve been focusing on full-time students: that’s because the calculus is quite different for the country’s half-million or so part-time students.  Part-timers receive a smaller amount of education and textbook credits: only $168 federally.  They all lose this amount; part-timers in Ontario will also lose an additional $100-200 or so depending on how much tuition they are paying.  The federal system makes up for this in a tiny, tiny way by increasing bursaries for part-time students – something which currently only about 13,000 students receive.  The Ontario system does not give money to part-time students at all.  So for this demographic, it seems that nearly everyone loses from the re-shuffle.

So, what do we conclude from all this?  Two things:

1)  Part-time students everywhere, and (possibly) mature students in Ontario, don’t do very well out of these changes.

2)  In the main, among dependent students at least, there will be a growing gap in net prices by family income.  In Ontario, families with below median incomes will see their net tuition fall by $1,000 or so; those with incomes in the top quartile will see an increase of nearly $1,200.  Basically, tuition is becoming a much more progressive user fee.  And that’s altogether to the good.

March 15

ECE Contributions vs. PSE Contributions

Morning all.  Today, HESA is releasing a paper called “What We Ask of Parents: Unequal Expectations for Parental Contributions to Early-Childhood and Post-Secondary Education in Canada”, by Jacqueline Lambert, Jonathan Williams, and me.  The gist of it is: “Holy cow, we ask parents to contribute a lot more to ECE than PSE – why is that?” You can click here to read the whole report, or you can see the short version as an op-ed in today’s Globe and Mail.  What I want to show you in today’s blog is the wonky background stuff, because we’ve done a couple of things in this paper that no one has done before.

The paper is really built around the key insight that you can create “expected contribution curves” for both early-childhood education (ECE) and post-secondary education (PSE). In PSE, you can do this simply by looking at the parental contribution tables embedded in student financial aid programs, and then add in the value of tax credits.  You’ve seen me do stuff like this before, but here’s what it looks like for PSE:

Figure 1: Net-After Tax Expected Parental Contributions for Parents of Children in PSE, Canada 2015















You can see pretty clearly what’s going on here.  Below about $15,000 the expected contribution is $0 – no contribution required, but income levels are too low for any taxes to kick in, so no tax credits, either.   As income starts to rise, net contribution falls because of the value of tax credits.  But then, expected contributions from the student aid system kick in: at about $45,000 in the case of Quebec, and around $60,000 elsewhere (as a result, despite low tuition, Quebec is the place where parents are expected to pay the most, if their income is between $45,000 and $70,000).  The exception to this is Alberta, where no parental contribution is required at all.  I’ll come back to that.

Eventually, this graph shows that contributions flatten out at a level equal to tuition and fees, which is the maximum possible contribution in this exercise.  Now, I’m pretty sure this will tick a lot of people off because at least some parents also support students for their living expenses, and we’re excluding them, and hence making contributions look smaller than they really are.  This is true – and we do it in part because actual living expenses are quite variable and difficult to model.  But that doesn’t mean we’re exaggerating the difference between expected contributions to ECE and PSE – after all, parents of children in ECE are paying for their kids’ living expenses too.  So we just call all of that a wash and focus on what parents are paying in fees to daycares and universities.

Anyways, for early childhood education you can draw very similar curves to the ones in Figure 1 by taking the average child care costs and applying the subsidies available to low income parents according to the provincial formula.  No one seems to have ever done this before in Canada, but it can be done.  You have to do it three times, because outside Quebec, prices tend to differ by the age of the child (infants are more expensive than toddlers, who are more expensive than pre-schoolers), but it is eminently doable.  Here’s what the graph looks like for infants, after tax deductions are applied:

Figure 2: Net-After Tax Expected Parental Contributions for Parents of Toddlers in ECE, Canada, 2015















As you can see, the story for ECE contribution is quite a different from the one for PSE.  For infants, the minimum contribution is almost never zero.  In most provinces, parents hit maximum contributions at between $45,000 and $70,000 in family income – a level where parents of PSE students are usually not required to contribute a thing.  To say we as a country are inconsistent in the way we pay for these two types of education is putting it mildly.

Anyways, in the paper itself (well, in the appendices anyway) we generate province-by-province comparisons like this one below, for Alberta:

Figure 3: Effective After-Tax Required Contributions for Parents of Dependent PSE Students and Children in Child-Care, by Family Income, Alberta, 2015
















Yeah, this graph is pretty crazy.  This is what happens when you say there shouldn’t be a parental contribution to post-secondary education, which Alberta did about five years ago.  At $75,000 in family income, the gap between required parental contributions for an infant and for a university student is a little over $14,000.  Madness.

And finally, by multiplying provincial values by each province’s share of population, we can generate some national averages.  To wit:

Figure 4: Average Effective After-Tax Required Contributions for Parents of Dependent PSE Students and Infants in ECE, by Family Income, Canada, 2015













Fun, huh?

Tomorrow: the policy implications.

December 03

Solving the Fees Problem

So, here’s the problem: Canadian governments are mostly broke.  Even the ones that didn’t look broke a couple of months ago (Alberta, Saskatchewan, Newfoundland) are now very definitely broke (especially Newfoundland).  There’s no money for PSE.  Everybody knows that.

So, equally, everyone knows that the only way institutions are going to avoid a crunch is either by turning themselves into finishing schools for the Asian middle class, or by charging domestic students higher tuition fees.  No one genuinely thinks the former is a sensible long-term solution, and yet that’s the way we’re heading because Canadian families and the politicians who represent them are resistant to the idea of a rise in fees.

To be clear, resistance does not arise because anyone really thinks fees deter access.  Even the dopiest politician knows that participation rates today are over 50% higher than they were 20 years ago when nominal tuition was about half what it is now (certain student groups are indeed that dopey, but that’s another story).  No, the reason people don’t want more fees is because too many people think that what universities and colleges are offering isn’t worth what they’re charging.

This is of course insane because, as we know, Canadians, on aggregate, are paying Net Zero Tuition for post-secondary education.  We have $7.2 billion going out every year in various forms of aid – exactly equal to what universities and colleges charge in tuition to domestic students – and apparently no one notices.  The focus is exclusively on the sticker price, never on the net price, which in many cases is negative.  This shouldn’t be a surprise, given the opacity of our student aid system.  We prevent students from working out their student aid package before they apply, and then we hand out as much of our aid as possible at the back end where no one will notice it.

It’s madness.  And it has to change.  We need to make it a lot more obvious what a great deal people are getting.  We need to make it so that when governments spend money to make it easier for people to go to school, the people being helped actually realize they are being helped.

This is going to require coordination.  Our confusing system is a product of the fact that many different players (feds, provinces, institutions) designed it so that it met their own administrative needs and desires for visibility, not the needs of students.  We need all of them to agree to make it less complicated, more predictable, and more visible.  That means, above all, ditching tax credits and either turning them into (hopefully targeted) grants or transferring them to institutions in return for a reduction in tuition.

Can’t be done, you say, because governments like to take credit for tax expenditures?  Tosh.  It’s abundantly clear that the public has no idea the credits even exist, so governments could hardly do worse than what they do now.  Besides, there’s precedent to show it’s good politics: in 2012, Quebec ditched some tax credits in order to pay for improved student aid, and back in 1999, Manitoba explicitly ditched a refundable tax credit to pay for a tuition roll-back (meaning the roll-back cost the government nothing, and students were in fact no better off at the end of the day, but boy did the NDP make hay out of that one).

So it’s doable.  But someone has to get the provinces and the feds to sit down together to make them do it.  The only people who can do this are the institutions: specifically, the Association of Universities and Colleges of Canada (AUCC) and Colleges and Institutes Canada (CIC).  Only they have the clout to get the provinces and the federal government in the same room to hammer out a deal.  And it’s eminently in their interest to do so.  Until Canadians rediscover what a fantastically good deal they actually have in their higher education system, the likelihood of more funds heading their way is pretty slight.

September 22

Where Do Students Want to Live?

Today, we at HESA released a paper called: Moving On?  How Students Think About Choosing a Place to Live After Graduation, which is based on a 2011 survey of 1,859 students from across the country.  Obviously, you should go read the whole thing, but for the time-pressed here are the highlights:

1)      Part of the paper’s purpose is to examine the qualities students look for in a place to live.  Turns out Richard Florida’s whole shtick about young educated types looking for cities that are “hip” or “creative” may be somewhat wide of the mark; in fact, students’ main priorities in finding a place of residence are access to good jobs, healthcare services, and a low crime rate.  Access to cultural events and foodie cultures rank way, way down the list.  To put that another way: what young educated people look for in a place to live is pretty much what everyone else looks for.

2)      A solid majority of students intend to stay in the province in which they graduated.  That said, just over 40% of students are at least open to the idea of moving.  However, these students are not evenly distributed.  Students in the prairie provinces (including Alberta) are much more open to moving away than are students in British Columbia.  And, equally, students are not open to moving just anywhere – of the people open to a move, most have three or fewer potential destination provinces in mind, and are not open to any others (the most commonly-sought destinations are Ontario and British Columbia – Manitoba and Saskatchewan are the least ).  Only 7% are genuinely open to a move to pretty much anywhere in the country.

3)      Here’s perhaps the most important piece of news: financial incentives for graduates such as the tax credits used by Saskatchewan, Manitoba, and New Brunswick have almost no effect.  We asked students what they expected to earn in their first job in the province they were most likely to call home.  Then we asked them how much it would take to get them to move to each of the other provinces.  For most provinces (BC was the outlier), about a quarter said “nothing could get me to go there” and another 25% said “I’d go for an extra $25,000 or more” (which is really just a polite way of saying “never”).  But, intriguingly, between 13% (Manitoba) and 25% (British Columbia) of all students, say they’d move to that province for either no extra money or even a cut in pay – just give them a job and they’d go.  The percentage who say they’d move for an extra $2,000 (roughly the value of the tax credits in SK, MB and NB)?  About 1%.  Move the financial incentive up to $5,000 and you get another 1%.  And that’s perfectly consistent, right across the country.

The fact is, students are going to move where they’re going to move.  They are either tied to their present spot by networks of friends and family, or they are lured by money, jobs, and prosperity.  A couple of thousand bucks, in the grand scheme of things, just doesn’t seem to matter that much.

All of which begs the question: how come more provinces aren’t making like Nova Scotia and ditching these tax rebate programs?

August 27

The Problem at the Back End

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.

May 21

Rationalizing Regressive Subsidies

A couple of weeks ago, I wrote a blog analysing the distributional effects of tuition reductions vs. targeted grants, and concluded that the latter was far more progressive in their impact than the former.  In response, Carleton professor Nick Falvo wrote a piece on OCUFA’s Academic Matters website saying that I was “wrong about tuition”.  Because some of his arguments are interesting – to his credit, he didn’t reach for the appalling argument that a regressive distribution of benefits is OK because the rich pay more taxes – I thought I would take some space here to respond.

Although Falvo claims to be demonstrating that my thesis about regressivness is wrong, at no point does he actually address the distribution issue.  Rather, he essentially concedes this point, and then make a series of arguments about why tuition reduction is preferable to targeted grants despite their regressiveness.

Falvo makes five separate arguments about the superiority of a free-tuition arrangement over a tuition-plus-grant arrangement.  The first is that free tuition is more “efficient” than grants because the administration costs are lower. But this is silly.  In fact, SFA administration costs in Canada run about five cents on the dollar.  Why you’d spend billions of dollars on one type of subsidy, just to save a few tens of millions by getting rid of the few hundred public servants who administer the existing programs, is a bit beyond me.

The second argument  is, essentially, that grants don’t work because sometimes tuition rises faster than grants.  But the more efficient solution to this – were this indeed a problem – would of course be to spend more on grants, not decrease tuition.

His third and fourth arguments are mutually contradictory.  One is that targeted subsidies create disincentives to work (the “welfare wall” argument); the other is that targeted grants are too complicated to understand, and that free tuition is more effective because it is easier to understand than a fees-plus-aid strategy.  The first implies that families have quite a good understanding about how subsidies work, and adjust their behaviour accordingly; the second implies that they don’t.  My view is that the second theory is more likely to be the correct one.  Sticker prices are simpler to understand than net prices.  The question really is whether this actually matters.  How much damage does poor communication actually do to access?  Is it sufficiently bad that we should spend an extra couple of billion on it?  For that to be the case, one would need to prove not simply that some people are deterred by financial barriers (undoubtedly true), but that they are deterred in large numbers because of their misunderstanding of extant financial incentives.  On the basis of existing evidence, I’d guess that’s not the case.

Falvo’s final point is that free tuition is a more politically saleable proposition than grants – because more people will benefit, it is easier to create and maintain voting coalitions in favour of it.  Even if that’s true, it is an appalling argument.  Stephen Harper certainly sold the Universal Child Care Benefit much easier than Paul Martin sold the (targeted) expansion of daycare spaces, but that doesn’t make it good public policy.

The argument that the only way, politically, to get a dollar to the youth from the poorest quartile is to give three dollars to youth from the richest quartile is an awfully convenient one… if you’re from the top quartile.  I simply don’t believe we have to settle for a system where the only way to get money to the needy is to buy-off the rich.  And I remain completely baffled why people who claim to be progressive actively promote such an idea.

May 09

Who’s Progressive?

To the extent that finances act as a barrier to higher education, they are an obstacle to those without resources – that is, those who tend to come from lower-income backgrounds.  It is, therefore, simply common sense that if you want to relieve financial barriers, you concentrate resources among those with the fewest means.

Except, it doesn’t seem to be common sense among many of those who consider themselves “progressive” in Canada.  “Progressives”, for reasons that are almost incomprehensible, prefer solutions that give far more money to students from high-SES backgrounds.  Why?  Good question.

The best way to focus aid is to use grants based on income (or, second best, on assessed need).  By using income-targeting, you can get money to exactly who you want.  Say you have $100M that you want to put towards affordability.  Want to give all of it to students in the lowest income quartile?  You can do that.  Split it between the bottom two income quartiles? You can do that, too.  Or maybe spread it out a little more thinly so that it cuts out gradually – say, 60% to bottom income quartile, 30% second quartile, 10% third quartile?  You can do that, too.  Grants make many different types of investments possible.

Figure 1: Some Possible Distributions of Grants Across Income Quartiles














But some people despise this idea.  Some people say things like, “lower tuition is the best form of student aid”.  Implicitly, because people from richer families are likelier to attend post-secondary education, the distribution of $100 million, if delivered in the form of a tuition cut, looks like this:

Figure 2: Distribution of Benefits of a Tuition Reduction, by Income Quartile














That doesn’t actually look so good compared to a grant, does it?  In fact, it’s even worse than it seems.  That’s because a $100 million reduction in tuition ends up affecting other types of aid as well.  For every dollar of tuition reduced, students and their families lose 21-28 cents (depending on the province) in tax credits.  And, to the extent that anyone has provincial need-based grants (as opposed to the mainly income-based federal ones), a dollar less in tuition means a dollar less in need, which in many cases means a dollar less in grant.  Thus, for high-need students (which is not quite the same thing as low-income students, though there is some overlap), a dollar less in tuition can mean $1.25 less in non-repayable aid.  That is to say, they are worse off after the tuition reduction than they were before.  But the rich kids who had no need of student aid to begin with?  They’re better off by $0.75.

All told then, if you spend $100 million to reduce tuition, the spread of benefits looks something like this:

Figure 3: Distribution of Benefits of a $100 Million Tuition Reduction, by Income Quartile, in Millions














Of the $100 million in reduced tuition, $42 million gets recouped by one level of government or another, either through reduced tuition tax credits or reduced grants.  Of the remainder, only 13% goes to the poorest quartile, and only 38% goes to the bottom half.

So, ask yourself: who’s progressive?  The folks who want to give 50, 60, or 100% of their money to kids from the bottom income quartile?  Or the folks who want to give almost three times as much to the top quartile as to the bottom?

April 30

Good and Bad Arguments Against Education Tax Credits

One of the things that has become clear to me in much of the commentary about the Net Zero Tuition material last week was that a surprising number of people really don’t understand how tax credits work, or what their distributive impact is.  Worth a review, then.

Bad Argument: Poor students don’t benefit from tax credits.  It is quite true that students whose income is not high enough to be taxable cannot use the credits themselves in the current tax year – indeed no credits get used that way.  But they can pass them on to parents or spouses who are supporting them, and who presumably find the tax relief of great benefit.  Nearly 40% of tax credits get distributed in this way.  Or, if their parents or spouses have no taxable income (rare), or if they just don’t want to give them up, they can carry them forward until such time as they have taxable income.  Fortuitously, this is usually about the same time their student loans start coming due.

Better Argument: Tax credits would be better if they were refundable.  No one would be better off in the end, but this way, at least, one could get rid of the carry-forward provision, and those students who currently have to wait to get their money could get it faster.

Bad Argument: The rich benefit more from tax credits than the poor.  This is a tricky one, because it has a different answer if you’re making this claim at the individual level, or on aggregate.

It is certainly true that some tax expenditures are worth more to the rich than the poor.  Tax deductions, for instance, reduce taxable income, which obviously is worth more if you’re in a higher tax bracket.  But our whole system shifted from deductions to credits twenty-five years ago.  And tax credits – by definition – are worth the same amount to everyone, regardless of their income.  The only case where this is not true is if someone has no taxable income – but that’s irrelevant for education tax credits, because of the carry-forward provision.

Where this argument is true is with respect to aggregate spending.  On aggregate, upper income families do receive more money from tax credits, because youth from upper-income families are more likely to attend PSE.  For most people, that’s a good reason to dislike them.  What’s hysterically funny, though, is that at least some of the people who use this argument simultaneously argue for greater tuition subsidies – which have exactly the same distributional consequences.  Charitably, these people could be described as “confused” (less charitable descriptions include: “cynical”, “ridiculous”, “dumber than a bag of hammers”).

Good Argument: Money spent on tax credits would be better spent on up-front, need-based student aid.   There are too many people receiving it who really have no need of it.  Spread that money – that big chunk of over $2 billion/year – less thinly, focus on those who need it most, and our system would be much more effective and equitable.

April 28

Mobility Responsibilities

Saying that we should remove barriers to student mobility sounds like a motherhood issue.  But scratch a little deeper, and you’ll see that, in fact, Canadians are pretty equivocal on the concept.

For starters, while everyone loves inbound mobility (come here!  It’s a great place!), there’s a pretty deep streak of protectionism in Canadian provincial governments on the issue of outbound mobility.  The sentiment of “let’s keep our kids at home” runs deep in many parts of the country.  It wasn’t until the advent of the Millennium Scholarship Foundation that all student aid programs became portable in most provinces (though Quebec maintains a policy of not funding students to go out of the province, unless the program is not offered in the province, “and it is in the interest of the Quebec collectivity”.  Yes, really).

But whose responsibility is mobility in the first place?  In Europe, with respect to tuition and student aid, it’s the receiving country who bears the cost – no matter where they’re from, students pay whatever the locals do, and have access to whatever student aid program the locals provide.  In Canada, our default assumption is that host provinces are supposed charge equal tuition to all Canadians regardless of their place of origin, but the responsibility for mobility on student aid lies with the sending province.  One can move from Nova Scotia to Manitoba and pay Manitoba rates of tuition, but one still has to rely on Nova Scotia Student Aid.

But there are exceptions.  The most clear-cut is Quebec’s insistence on charging tuition fees to out-of-province students.  Less clear-cut (but still clearly discriminatory), are the cases of Nova Scotia and Ontario.  The former provides tuition rebates to Nova Scotia students, but not to other Canadians.  Ontario has a variety of subsidies that are only available to Ontario students attending Ontario institutions (the tuition tax rebate is one, as are the many provincially-mandated, institutionally-managed access funds – funded through a “tax” on tuition paid by Ontarians and non-Ontarians alike).  These are all anti-mobility measures: they effectively create a two-tier tuition policy within a province, and (in Ontario’s case at least) provide extra subsidies to students who chose not to leave.

Interestingly, while Quebec’s two-tier tuition system is usually portrayed as a piece of xenophobia and rank insolence to other Canadians who, through equalization, are partially picking up the tab for Quebec’s lower tuition, Nova Scotia and Ontario are given a total pass, despite their policies having almost identical effects.

What that tells us is that Canadians don’t mind mobility barriers as long as they are dressed-up as “affordability enhancements”. Ultimately, such measures are self-defeating; as with trade barriers, eventually everyone is left worse off.  But there are enough small-minded politicians out there to ensure that these kinds of tactics always have a potential audience.  As budgets get tighter over the next couple of years, there’s a good chance we’ll see more examples of discriminatory tuition fees, loans, and grants being made non-portable across provincial borders.  I hope that’s not the case, but history doesn’t give me huge grounds for optimism.

April 25

Nova Scotia Ditches a Bad Subsidy

About a decade ago, a really bad policy idea started making its way across the country’s “have-not” provinces.  I can’t remember if it started in Saskatchewan or New Brunswick, but within a couple of years it had spread to Manitoba and Nova Scotia, as well.  The details (and generosity) of this policy varied somewhat, but the gist of it was this: “let’s pay our graduates not to leave the province by refunding a portion of their tuition, via tax reductions, once they graduate”.  Sometimes this was dressed up as a “talent attraction policy”, in the sense that it would benefit people coming in from outside the province; in the main, however, it was understood that this money was mainly about keeping “our” kids at home.

Now this was a dumb idea from almost any policy perspective you can imagine, but the two most obvious ones are:

1)      Effectiveness.  Most youth, even in the most economically depressed provinces, tend to stay where they are: in the provinces where these programs were introduced, the “stay” rate ranged from about 75-85%.  So even if you bring the stay-rate up by 10 percentage points, that still means that for every student you successfully keep, eight others will get to keep cash for doing exactly what they were going to do anyway.

2)      Horizontal equity.  If you have a couple of tens of millions in cash that you want to devote to youth – and lord knows there isn’t much of that around – why in the name of all that’s holy would you hand that money over to the group of youth who are the most employable, and have the best prospects?  Especially if you’re not actually changing their behaviour, all this does is reduce the cost of education and make it easier for tomorrow’s upper-middle class to start accumulating assets.

Anyways, though it wasn’t much noticed outside the province, Nova Scotia dropped the tax rebate, largely because it was ineffective – young people continued to leave the province.  While it drained a lot of money, it simply wasn’t big enough to change many people’s minds about leaving.  And this makes sense: if the reason someone moves from Halifax to Toronto is a $10K/year difference in pay, a $2k tax rebate isn’t going to change their mind.

Of course, it would have been a lot better if the Nova Scotia Government had actually put that money back into some other youth-serving purpose – the community college, say, or student assistance (a category in which Nova Scotia remains among the most miserly in the country).  But with the province hemorrhaging money, it’s not exactly a surprise that this money is going straight to deficit-reduction, no matter how unfortunate that might be.

Interesting trend, though: first Quebec and now Nova Scotia have started dialling back on tax credits – with no apparent backlash.  Hopefully, this is the start of a trend that allows us to restore some sanity to the way we subsidise higher education.

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