HESA

Higher Education Strategy Associates

Tag Archives: tax credits

May 09

Conservative Leadership Platform Analysis

So, I just read through all the thirteen leadership candidates’ websites, looking for their thoughts on all the stuff this blog cares about: post-secondary education, skills, science, innovation, youth, etc.

The things I do for you people.

Actually, it was a pretty quick exercise because it turns out almost no one in the Tory leadership race places much importance on post-secondary education, skills, innovation, youth.  They seem to care a lot about taxes, and immigration (and to a lesser extent guns), but for a party that was in government less than two years ago, the Conservative candidates seem to have remarkably little appreciation for the things that actually drive a modern economy.  Anyways, briefly, here is what the candidates say about the issues this blog cares about.

 Chris Alexander (Former Minister of Citizenship & Immigration, ex-MP Ajax-Pickering): No specific platform on higher education, but the topic does come up frequently in his policies.  Expanding educational exports to Asia is priority.  He says he wants 400,000 new international students/year by 2020 and 500,000 per year by 2023 (I’m pretty sure he does not actually mean “new” as in new visa applications every year, I think that’s total in the country at any one time).  He also wants to spend money on new National Centres of Excellence and Centres of Excellence for Commercialization and Research for the digital economy as well as invest more in research related to art and design (I assume OCAD’s Robert Luke has something to do with that one).  He also has a general pledge to incentivize PSE institutions to collaborate more with “incubators accelerators and companies of all sizes”, whatever that means.

Maxime Bernier (Former Minister of industry, Foreign Affairs, and Min. of State for Small Business, MP for Beauce)The main point of interest in the Bernier platform is the rise in the personal tax exemption to $15,000 per year, which will have favourable impacts for many students.  Under his health platform, Bernier indicates he wants the federal government to vacate the health field and transfer tax points to the provinces; though he does not say so explicitly, it’s a fairly safe assumption that the same would apply to the transfer of funds to provinces for post-secondary education under the Canada Social Transfer.

Steven Blaney (Former Minister of Public Safety, MP Bellechasse—Les Etchemins—Lévis): Nothing at all.

Michael Chong (Former Minister of Intergovernmental Affairs, and Sport, MP Wellington-Halton Hills):  Nothing at all.

Kellie Leitch (Former Minister of Labour and the Status of Women, MP Simcoe-Grey): Nothing at all.

Pierre Lemieux (Former MP Glengarry-Prescott-Russell): Nothing at all.  Are you seeing a pattern yet?

Deepak Obhrai (MP Calgary Forest Lawn)Nothing at all.

 Erin O’Toole: (Former Minister of Veterans Affairs, MP Durham): O’Toole is the only candidate with anything even vaguely resembling plans for science and Innovation in the form of a scheme to extend the notion of “flow-through shares” –a tax gimmick heavily used in resource industries to defray development expenses – to new life-sciences and tech companies as well.  More intriguing is O’Toole’s “Generation Kick-Start” platform, which promises everyone who completes a degree, diploma or apprenticeship with an extra $100,000 of personal exemptions (i.e. $15K in reduced taxes) to be used before they turn 30.  That goes up to $300,000 if their credential in an area where skills are in “short supply” (definition vague but seems to include engineers, coders and “skilled tradespeople” even though 3 years into the oil slump the latter wouldn’t really qualify as “in demand”).  The latter half of the proposal is goofy, but the basic idea has a lot of merit.

 Rick Peterson: (A BC Investment Advisor of Some Sort): Nothing at all.

Lisa Raitt (Former Minister of Natural Resources, Labour, and Transportation, MP Milton). Like Maxime Bernier proposal, Raitt proposes to raise the basic tax exemption to 15K.  She also wants to increase the (totally useless) apprenticeship and completion grant up to $4,000.

 Andrew Saxton (ex-MP, North Vancouver)Saxton’s policy pages are – to put it mildly – light on detail.  However, he says he does want to invest in “skills training to ensure Canadian skills are matched with Canadian jobs” (whatever that means).  Also, having lived in Switzerland for some time, he advocates a Swiss-style apprenticeship program which extends into industries like banking, pharmaceuticals, etc.

Andrew Scheer (Former Speaker of the House of Commons, MP Regina-Qu’appelle) Scheer’s money proposals in education are limited to a pledge that parents of students attending independent schools a tax deduction of up to $4000 tuition annually per child, and a tax credit of $1,000 (i.e. a $150 reduction in taxes) to parents who choose to homeschool their child.  In addition, Scheer pledges that “public universities or colleges that do not foster a culture of free speech and inquiry on campus” will “not have support from the federal government”.  He then lists the tri-councils and CRCs as specific funding mechanisms for which institutions would not be eligible: it is unclear if the ban would include CFI and – more importantly – CSLP.  Note that the ban would only cover public institutions; private (i.e. religious) institutions would be able to limit free inquiry – as indeed faith-based institutions do for obvious reasons – and still be eligible for council funding.

Brad Trost (ex-MP Saskatoon-University): Nothing apart from a pledge for tax support to private education and homeschooling identical to Scheer’s.

And that’s the lot.  I think it’s fair to say that the field’s appreciation for the role of knowledge and skills in the modern economy is pretty weak.   Maybe dangerously so.  Still, if you are voting in this election and you think PSE and skills are important, your best bet is probably Chris Alexander; if you want to raise youth living standards, vote for O’Toole followed perhaps by Maxime Bernier or Lisa Raitt.

(And yes, I know the percentage of Conservative voters motivated by those two sets of issues are vanishingly small, but I only have this one shtick, so cut me some slack).

 

February 02

Manitoba’s Golden Opportunity

It’s tough to be in government these days: prolonged slow growth means it’s difficult to keep increasing spending at a rate at which citizens have become accustomed.  Instead, with rising costs and little appetite to raise taxes or fees, governing often seems to be one long exercise in nickel-and-diming.  Higher education – in most of Canada at least – has felt some of this, but in truth has been insulated more than most other parts of the public service.

But the key role of government should not simply be to find ways to cut: it should be about increasing the effectiveness of public expenditures.  And in particular, making sure public expenditures are designed in such a way as to promote and not hinder growth.  That’s why, if there was one place in Canada I wish I could be an Advanced Education Minister right now, it’s Manitoba.  Because, as I explain in a new paper HESA is releasing today, Manitoba has a boatload of poorly-performing expenditures in higher education tax credits that could be re-purposed into areas which could really help the province.

Here’s the scoop: Manitoba has two tax credits – the Education Amount Tax Credit and the Tuition Fee Income Tax Rebate – which are neither particularly effective nor have many defenders within the higher education sector.  The former tax credit is a hold-over from the Diefenbaker era which all provinces (except Quebec) got stuck with in their portfolios when the provinces moved from a tax-on-tax to a tax-on-income system back in 2000.  In the past 12 months, the federal government, the province of Ontario and the Government of New Brunswick have all eliminated this tax credit because it was neither progressive nor efficient, and funneled that money back to student assistance.  The latter tax credit is effectively a tuition rebate for students who stay in the province, which is batty and wasteful for number of reasons I’ve previously outlined here. In any case, it is demonstrably too small to achieve its intended goal of convincing students who would otherwise not live in the province to live in the province.  The result is this money is a windfall gain to graduates, paying them to do something they were going to do anyways.  The elimination of these two tax measures could yield approximately $67 million per year in savings which could be spent more productively elsewhere within the higher education sector.

$67 million is a lot in Manitoba higher education.  Taking that money away from unproductive tax credits could fund a whole lot of new, useful investments.  These include:

  • Adding $14 million/year to provincial student assistance fund.  Spent correctly, this would be  enough to fund an Ontario-like “free tuition” guarantee to low- and middle-class Manitobans even if tuition fees were allowed to rise by a third (which, given how low tuition is in Manitoba, is probably a not a bad idea).
  • Investing $12 million/year to increasing supports to Indigenous students and expanding community delivery of programming in or near First Nations communities
  • Supporting the expansion of work-integrated learning at Manitoba universities and colleges with the creation of a dedicated $15 million/year fund.
  • Redressing a long-standing imbalance in post-secondary spending by increasing the number of seats in non-Metro Manitoba with a $15 million/year investment.
  • Creating an $11 million/year employer-driven “quick response training fund” to make it easier for employers with expanding businesses to access bespoke training.

In sum, for the price of two badly-designed tax credits, Manitoba could make real investments in access, both in terms of financial aid and providing spaces in under-served areas, increase support to Indigenous students and communities, improve the quality of education and provide more funds for employer-led training that could help relieve skills bottlenecks for investors.  How could you pass this up?  Who wouldn’t do this?

Over to you, Manitoba.

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

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(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

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(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 21

An Orgy of Bad Policy in Saskatchewan

Two weeks from today, voters in Saskatchewan go to the polls.  You may be forgiven for not having noticed this one coming since it has barely registered in the national press.  And that’s not just because of the usual central Canadian obliviousness, or because it’s a fly-over province; it’s also because this is one of the least competitive match-ups since…. well, since the last time Brad Wall won re-election.  CBC’s poll currently gives the Saskatchewan Party a 25 point lead over the New Democrats.

Normally, when provinces go to the polls I do a detailed look at their post-secondary platforms.  It hardly seems worth it here.  Neither the Liberals nor the Greens have a chance of taking a seat so frankly, who cares?  The NDP has released a platform full of promises large and small (my particular favourite: on page 34, they pledge to put more refrigerators in public liquor stores in order to provide more cold beer options), but did not even bother to put out a costing document, which suggests not even they think they have a hope in hell of winning on April 4.  For their part, the Saskatchewan Party has put out a manifesto, which basically says “elect us and the good times will continue to roll”: no strong vision of the future, just a recounting of past glories and four small promises that add up to a total of $110M over four years.  The only manifesto I can think of that comes close to this in sheer complacency is the Liberal Red Book from the 2000 federal election.  Which, given that oil is still around $40/barrel, is quite something.

But hey, when you’re writing a daily blog, sometimes you need an easy target. So here goes:

The Saskatchewan NDP platform on PSE is pretty awful.  They want to “improve funding for post-secondary institutions” (By how much?  Who knows?  There’s no costing document).  They want to offer everyone a $1,000 rebate on tuition, which everyone knows is regressive.  They also want to convert all provincial loans, but this actually isn’t much money since Saskatchewan aid is mostly grant.  But, get this: they also want to get rid of interest on outstanding provincial loans, which is just a whole mountain of dumb since it has no effect whatever on access, and rewards people for choices they made years ago.  Offering to help borrowers in distress is sensible; a blanket interest subsidy for people who have already finished their studies implies the manifesto-writer has suffered some kind of head trauma.

Still, in some ways, the NDP platform looks good in comparison to what the Saskatchewan Party is offering.  As some of you probably know, for the past decade or so the Government of Saskatchewan has offered a generous set of tax credits to graduates who stay within the province.  Essentially, if you are a university graduate you can reduce your payable provincial taxes by $2,000/year for the first four years that you live in the province, and $4,000 per year for the next three (if you don’t earn enough in a given year to use all of that, you can carry forward to a future year; amounts are reduced slightly for college graduates).  Add to this the usual panoply of federal and provincial tax credits, and you realize that Saskatchewan graduates who stay in the province are receiving more in tax benefits than they ever pay in tuition.

If that formulation sounds familiar, it should – it’s exactly the way Ontario finally figured out it could market itself as having “free tuition” to low-income students without spending a penny.  But the Saskatchewan Party, instead of following Ontario and transferring money to a more front-ended set of incentives, has decided to double-down on the back-end.  Their big post-secondary-related pledge is to allow graduates to take up to $10,000 unused rebate money and use it as a down payment on the purchase of a house.

Yes, I am serious.  Check it out.  Page 8.

I mean, in a way, it’s genius; a twofer tax credit, combining the middle-class’ two fondest wishes: that government subsidize both their education and their house purchases.  And if you assume the basic premise that graduates need financial inducements to stay in the province, why not make that financial inducement in the form of a housing subsidy, which physically ties graduates to the province?

But in another, deeper, way it’s a travesty.  If the Saskatchewan Party has done such a fantastic job managing the economy, why does the province still need this financial inducement to get people to stay in the province?  If the argument is that “young people need a break”, why give so much to those likeliest to succeed (i.e. university grads) and nothing to those least likely (those who never make it to PSE)?

So, yeah, Saskatchewan.  Yet another province with a bi-partisan consensus that all the specified PSE goodies should go to students and graduates rather than, you know, the actual institutions who provide the education.  Raspberries all around.

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

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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

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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

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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

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Fun, huh?

Tomorrow: the policy implications.

October 06

Party Platform Analysis: The Liberals

Two quick things at the outset.  First, this will only look at the Liberal’s Monday announcement on student financing.  Tomorrow, I’ll look at their science/innovation policy in conjunction with that of the NDP, which apparently released a similar platform in conditions of complete secrecy last week.  Second, in the interest of full disclosure: I was asked by the Liberals to comment on a draft of their platform a few weeks ago.  I did so, as I would have for any party had they asked.  Judging by what I see in their platform, they took at least some of my comments into account.  So bear that in mind when reading this analysis.

The main plank of the Liberal announcement is that they are planning to increase grants for low income students by $750 million, rising to $900 million by the end of the mandate (which more than doubles the total amount; however,it’s not clear if this increase includes alternative compensation to Quebec… if it does not, add another $200 million).  The Canada Student Grant for Students from Low-Income Families (CSG-LI) will rise in value from $2,000/year to $3,000/year, and the Canada Student Grant for Students from Middle-Income Families (CSG-MI) will rise in value from $800 to $1,800.  The thresholds for both will be increased, meaning more students will receive the low-income grant, and more students with incomes in the $80-100K family income range (precise values not set, but this looks like about what they are going to do) will receive the middle-income grant.  In addition, the Liberals propose raising the repayment threshold (i.e. the level below which borrowers in repayment are not required to make payments on their loans) from just over $20,000 to $25,000.  It’s unclear what this would cost (take-up rate is uncertain), but a good bet would be somewhere in the neighborhood of $100 million.

So, a $1 billion promise.  Except the Liberals are promising that this will all cost the taxpayer… nothing.  And the reason for that is that the Liberals have decided they will axe the education amount and textbook tax credits (something I, and, others have been suggesting for many years – for instance here).  Now, I actually don’t think this will quite cover the entire spending bill, but it will be within $100 million, or so (basically, it will cover the grants, but not the loan threshold change).

However, what this means is that the plan creates winners and losers.  The value of those federal tax credits for full-time students is $558/year (for part-time students it is $168).  Everybody will lose that amount.  For those who currently receive the CSG-LI, and those who receive CSG-MI and remain in the CSG-MI bracket after the thresholds move, the extra $1,000/year the Liberals are offering means they will be better off by $442 (but they will also benefit by getting the entirety of their $1,000 sooner in the form of grants, rather than delayed in the form of tax relief).  For those in the CSG-MI moving into the CSG-LI category, the net benefit will be $1,642.  For those who currently do not receive grants, but will now become eligible for CSG-MI, the net benefit will be $1,242.

So there are winners.  But there are losers, too.  Families with incomes over $100,000 (or so) will simply be out that $558.  And part-time students, who are ineligible to receive CSGs, will also be out $168.  But this is what happens when you try to do big policy without spending (many) additional dollars.  And there’s always the risk that they will come under political fire for “raising taxes”, which is arguably what cutting tax credits amounts to.

So, full marks for creativity here: these policies would make the funding system somewhat more progressive (in a slightly quirky way).  And full marks for putting out a backgrounder that makes it clear that these moves will create costs for provinces (their co-operation will be needed in order to raise the loan threshold) that need to be mitigated, even though the Liberals are vague on how this will actually work.

But it should be noted that by their own claim (which, as I said above, is probably not quite true), Liberals are choosing not to invest another dime in the sector, which puts them last among political parties in new spending commitments.  As pleasing as the re-arrangement of inefficient subsidies is, wouldn’t it have been better if they had added some funds on top of it?

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.

October 01

How the Zero-Tuition Crew Could Learn to Love Tax Credits

So, let’s say you’re among those who clings to the idea that tuition isn’t just a massive give-away to upper-income families.  Let’s say you really, really believe that tuition – sticker-price tuition, none of these “net price calculations”, thank you very much – affects access.  How would you go about gathering evidence for your point of view?

Ideally, of course, there would be some data showing that, as fees went up, participation went down.  Problem is, the data doesn’t show this.  To wit:

Tuition + Ancillary Fees (in $2013) and Participation Rates, Canada, 1993-94 to 2012-13

 

 

 

 

 

 

 

 

 

 

 

 

Well, OK then.  Maybe if you’re desperate to prove a point, you might relax your scruples about counting grants against tuition.  Maybe it’s all the extra student aid pouring into the system which has made a difference?

Tuition + Ancillary Fees (in $2013), Net Fees (i.e. Minus Grants) and Participation Rates, Canada, 1993-94 to 2012-13

 

 

 

 

 

 

 

 

 

 

 

 

Well, no.  Damn!  Now what?

Well, here’s one possibility.  Check this out:

Real Tuition + Ancillary Fees, Minus Grants and Tax Credits, as a Percentage of Average After-Tax Family Income

 

 

 

 

 

 

 

 

 

 

 

 

If you add grants and tax credits, and adjust for inflation, and then adjust for median family income, you get to the point where you realize that, in fact,  fees were more or less constant in terms of affordability over the last decade or so.  So voila!  That damnable rise in tuition fees that so inconveniently accompanied the increase in participation rates?  Turns out it didn’t happen – at least if you properly count subsidies.  In fact, one could now convincingly argue that the lack of a relationship between fees and participation is a huge hoax, and that the rise in participation was actually fuelled by the massive infusion of tax credits and grants over the past fifteen years, which effectively netted out the impact of tuition.

There’s a slight problem with all this, of course.  And it’s that the zero-tuition crowd has a long track record of claiming that subsidies have no effect whatsoever, because sticker price is the only thing that matters.  No one thinks tax credits have any effect on participation, and the more hardcore of the zero-tuition crowd don’t believe grants matter either (True story: a long-time student leader informed me the other day that the whole concept of net tuition was bogus, and that grants should never be included in discussions about affordability, because “grants don’t reduce tuition, they just help you pay for it”.  Yes, really).

So the zero-tuition crowd has three choices here:

  • They can keep their beliefs about subsidies, but accept that participation has risen along with tuition, and admit that, perhaps, their views on tuition are wrong.
  • They can renounce everything they’ve ever said about subsidies, run with the idea that affordability has not been deteriorating, and arguing that this is what has fuelled the rise in participation.
  • Ignore all empirical evidence, and continue their evidence-free approach to the whole question.

No prizes for guessing which is likeliest.

September 06

Grants and Net Prices

Yesterday, we saw how tax credits lowered net prices by refunding students (or their families) roughly one out of every three dollars spent on tuition.  But that’s not the whole story, because there are a lot of university students who also get some form of non-repayable assistance (i.e. grants); for them, tuition is even lower.

Let’s start with Quebec, where net tuition after tax expenditures is a mere $1,555.  Data from the latest Aide Financiere aux Etudes annual reportadjusted for known changes in student aid expenditures, suggests that somewhere in the neighbourhood of 50-55,000 university students are receiving grants, which, on average, are worth $6,380 apiece.  Meaning that net tuition for grant recipients in Quebec is in fact negative $4,825.

In Ontario, net tuition after tax credits is $5,680.  Everyone with a family income under $160,000 is eligible for the Ontario Tuition Grant, which is (effectively) worth $1,730.  So that means that, in fact, for a considerable majority of the full-time undergraduate population, net tuition last year was is $3,950, which is lower than it’s been at any time since 1998-99.

Figure 1 – Net Real Tuition in Ontario, After Tax Credits and Tuition Rebate, 1995-96 to 2012-3

 

 

 

 

 

 

 

 

 

 

 

 

Here’s where the analysis gets tricky.  In the CSLP zone, many people receive more than one grant, mainly because of the overlap between federal and provincial aid.  But while we know the average size of each grant, there’s no method of working out how many of the 320,000 recipients of federal grants (who receive on average 1.18 federal grants each – you can get more than one) also receive one of the 250-300,000 provincial grants.

However, based on a little bit of policy analysis – and some phoning around to friends in provincial governments – I reckon that between half and 2/3 of all provincial grant recipients are getting federal aid, as well.  That would give us a ballpark of about around 430,000 total grant recipients, of which roughly two-thirds are in universities.  With roughly $1.2 billion being given out in the CSLP provinces, that suggests that the average grant recipient there receives about $2,800.

Taking that data and merging in the Quebec numbers gives us the picture we see in Figure 2: 

Figure 2 – Actual Net Costs, Canada, 2012-3

 

 

 

 

 

 

 

 

 

 

 

 

Across Canada, the sticker price of tuition and fees last year was $6,331.  As we saw yesterday, that falls to just over $4,300 when you take tax credits into account.  And that’s the real net cost for about two-thirds of the full-time student body.  But for the other third, the third that gets grants, real net tuition averages just over $1,000 – and it would appear that for a substantial proportion of these students, the actual cost is negative.

So, when the Statscan tuition numbers come out, just remember: no one actually pays the amounts Statscan reports.  Most students pay about 66% of the sticker price, and the neediest third (proportions may vary by province) pay about 17% of the sticker price.

September 04

The Impact of Tax Credits

One of the many ways that Canada stands out as unusual in its financing of higher education is the degree to which its subsidies to students and families runs not through loans or grants but through tax relief.  Well over $2 billion/year goes out to students that way; for full-time university students in Canada last year, tax credits on average amounted to $2,200, or almost a third of the sticker price.

But given how central tax credits are to our system, what’s incredibly puzzling is that no one seems to actually understand how they work.

These are what you call “universal subsidies” – everybody gets them, regardless of need.  Right-wingers should (and often do) like this because it’s a straight voucher-like mechanism.  Left-wingers should (and often do) dislike this because, sans need assessment, they are much more likely to end up in the hands of wealthier families than poorer families.

But while it’s true that, when it comes to tax credits, the political right usually lines-up in favour, and the left usually lines up against, the fact of the matter is that the distributional impact of these grants is absolutely no different from a tuition subsidy or rebate – as the NDP have implemented both in Manitoba and Nova Scotia.  There is not one iota of difference.  And yet, left and right line-up completely differently.  What is brilliant/heresy if done through the tax system becomes a waste of money/the epitome of progressiveness if done through tuition subsidies.

(Shorter version: most partisans are stupid.)

The other objection to tax credits is that, “they don’t deliver aid when students need it”.  And while that’s a cogent critique, I’m not sure it’s as powerful as some people think.  Thirty-five percent of credits get transferred to parents, and I’d guess their need for them come tax time is probably as acute as their need for them in September.  For the 45% which get claimed by students in the year they are issued (most of whom keep the credit because they need it to offset earnings), they actually see the benefit every single time they get a paycheque, via lower tax withholdings.  Pretty useful, no?  It’s really only the 20% that carry the credit forward who might really have a serious complaint, and even they probably find the bigger tax rebates handy for repaying student loans after graduation.

The point here is not that tax credits are ideal; their goofy distributional consequences alone are enough to put them outside the pale.  But they do help reduce costs – a lot.  Tax credits mean that every time tuition goes up by a dollar, governments effectively pay for $.33 of it themselves.  We should pay more attention to them when thinking about the real costs of education.

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