Convention wisdom has it that the public heavily subsidizes post-secondary education. The illusion of a subsidy comes from the fact that tuition fees, high as they are, don’t cover the entire cost of education. But this common misconception ignores a second way in which students pay for their education: through higher taxes after graduation. When these tax payments are added up over the course of graduates’ careers, it turns out that university students fully repay the cost of their degrees and then some.

The report’s main findings are captured in this infographic:

There’s a broad based agreement in this country that higher education is important for our long-term social and economic prosperity, and that it’s something that, as a society, we should promote and invest in. My report finds that we all come up ahead when more people have access to education. Then why is it that what we’ve seen the BC government increasingly withdrawing its financial support for advanced education and downloading the costs to students?

Thirty years ago, government funding covered 88% of BC university operating revenues, but in 2009, government only paid for 58% of the costs of educating students. Universities made up the shortfall by hiking tuition fees, which now account for 44% of all university operating revenues according to CAUT (see fig 1.2 and 1.3). Tuition fees in BC now run over $4,800 per year, and, along with the erosion in student grant programs, present a significant barrier to education.

There’s no better time than now to start reversing these trends. Expanding our society’s investment in higher education today will pay dividends in higher tax revenues, lower unemployment and better social mobility for decades to come.

You can also read my op-ed on this topic in the Vancouver Sun. Or check out the full report, which contains some really interesting — and little known — tidbits about just how big the gap between men’s and women’s earnings is when annual incomes are considered.

The paper comes out at a time when all Canadian provinces face significant pressure to reduce the rate of growth of health spending while continuing to improve access and quality of care but when there is no agreement on the specific changes needed to ensure that public healthcare dollars are more efficiently utilized. As a result, individual provinces are experimenting with a variety of reforms. In BC, the two major policy options being introduced are an activity based funding (ABF) model for hospital surgical procedures; and an integrated model for caring for people with chronic conditions and complex needs in the community. Though both of these are formally priorities of the Ministry of Health, ABF is receiving the vast majority of the financial resources and technical expertise.

Our paper raises serious concerns that the current preoccupation with reforming hospital funding is simply too narrow to effectively address BC’s most pressing health care challenges, many of which have roots outside the hospitals (in our inadequately funded community care system). This is why we titled our report Beyond the Hospital Walls: Activity Based Funding Versus Integrated Health Care Reform.

The current focus on ABF is a reflection of the conventional, hospital-centric model of health care that our system was built on. While this worked well to meet the health care needs of Canadians in the 1960s, it’s outdated in the 21st century when chronic disease management — which is better handled in the community, not the hospital — is increasingly becoming a pressing concern.

But what’s worse is that ABF is not just a distraction from the real problems in our health care system: it may actually reinforce the silos and fragmentation within the health care system, hindering efforts to improve overall system integration and coherence (this stand in the way of priority #2). This is why jurisdictions where ABF has been in place for a number of years are increasingly looking to move away from it towards funding mechanisms that incentivize integration across the system (among hospitals, family doctors and community care services like long term care and home support).

The paper outlines a strategy for health care reform that is timely, practical and evidence-based, and that will address the root causes of problems in our health care system.

Our review of the international evidence on health systems reform suggests that the best performing systems are the ones that have developed mechanisms to collaborate and share accountability across services and providers. The key to their success is understanding the patient experience across the continuum of diverse health services the patient needs at any one time. High performing health systems are organized in a way that allows providers to be jointly accountable for providing cost-effective care in whichever venue is medically appropriate – the patients’ home, the family doctor’s office or the hospital. There are many examples of how this can be done, both internationally and from our own backyard (Northern Health Authority is a leader in this area). All that’s needed is for the BC government to show leadership, look at the evidence, and actually implement the initiatives that have proven successful province-wide.

We hope that Canada’s premiers, who are currently meeting to discuss health care in Victoria, find a way to avoid getting bogged down into narrow issues like hospital funding reform and engage in a broader discussion of how to improve quality, increase access and ensure the cost effectiveness of the overall health care system.

The idea of leveraging education, especially post-secondary education, to boost the economy is in itself a good one. Education is a policy area where strategic investment made today can produce large benefits down the road in the form of better educated, more innovative and adaptable citizens, who can be the engine of the economy of the future.

However, the BC post-secondary education system is stretched thin after a decade of mandated enrollment increases that were not accompanied by sufficient funding to properly educate and support these new students. As a result, many of our programs are underfunded and university leaders have started to acknowledge that:

The quality of undergraduate education at Canada’s universities is eroding, even as the price of earning a degree rises steadily, leaving students more anxious about their prospects after graduating.

The Ministry of Advanced education already has a service plan outlining goals and challenges for education policy in BC. It identifies several important challenges to be addressed, including the need to:

• provide high quality education choices that are affordable and accessible to address the fact that 77% of job openings over the 10-year period 2009 – 2019 are expected to require some form of post secondary education while only 60% of the BC population has this level of education.
• provide education & training opportunities in areas that address BC’s future workforce needs
• increase the participation of Aboriginal People & other under-represented groups

Focusing on these key challenges is what would strengthen the BC education system and provide jobs now and in the future.

The Premier’s announcement of regional workforce tables and bringing training closer to where British Columbians live and work makes some sense within this framework, though arguably is neither new nor very well funded.

But instead of focusing funding to remedy the declining quality and increasing lack of affordability & accessibility of education in BC, the Premier plans to increase the number of international students in post-secondary institutions by 50% over just four years.

It’s hard to see expanding international student enrollment as a top priority at this stage, before we have addressed the eroding affordability and quality of education (after years of underfunding teaching), and got a handle on how we can enable all British Columbians, particularly Aboriginal people and other underrepresented groups, to realize their full potential.

And what the Premier is proposing is a huge increase, close to 20,000 more students every year (it is estimated that there are 39,000 international students in the BC post-secondary system). That’s 10% of the total projected spaces in public post-secondary institutions in 2013/14 (202,114 according to the Ministry of Advanced Education Annual Service Plan).

It is not clear whether the Premier is proposing to increase enrollment by 10% over this year’s service plan or whether the international students would take spaces that would otherwise go to Canadian students.

Either way, it’s hard to read the government’s press release and not end up feeling like they’re treating international students as a revenue generator (aka cash cow). Yes, international students pay higher tuition fees and spend money in the local economy, but it is not reasonable to rely on international tuition to make up funding shortfalls in college/university budgets.

Bringing in international students will benefit BC and Canada in the long run. However, we need to make sure that we have the resources to offer them good quality education and that the international students that we do attract are prepared to learn.

Far too many international students are already enrolled in local colleges and universities without having the necessary English-language skills to learn well. Anybody who has recently been in college or university has seen that. Ask any post-secondary instructor, and they will readily share frustrating stories of otherwise intelligent students in their classes with such severe English language difficulties that they were having trouble understanding much of the material. Even if they manage to get a diploma, these students end up receiving a very poor education.

It hardly makes sense to focus on growing the number of our international students without providing proper educational supports for them. And I didn’t see anything in this announcement about that.

The Minster’s presentation focused on highlighting the cost of the move back to PST/GST, providing some large numbers for the media headlines, instead of looking at the big picture.

In case you missed the media coverage, the provincial coffers are projected to suffer a loss of $2.8 billion over the next 3 years, relative to the estimates presented in February’s Budget 2011. The Ministry estimates that $2.3 billion of the loss is brought about by the HST defeat and the move back to the PST/GST system.

The Minister argued the impact of the HST defeat is manageable, but warned that:

“We’re going to be very tough on operating expenditures and people need to understand it is going to be a government that is going to be run very, very tightly from a fiscal point of view.”

However, closer look at the numbers reveal that the provincial financial situation is not nearly as dire as it may seem. And that returning to PST/GST is not all that costly, when compared with how much it would have cost to keep the “fixed” HST.

Firstly, comparing the costs of repealing the HST to the February budget estimates is misleading. Budget 2011 numbers did not include the cost of the last minute HST “fix” that Premier Clark announced this summer. Keeping the HST would have involved a significant budget loss relative to the numbers announced in February, as Seth Klein pointed out here. This is why the impact of reverting to PST/GST should be compared to the impact of keeping the “fixed” HST.

The cost of the one time rebates of $175 per child regardless of family income and for low- and modest- income seniors were estimated at $200 million. The government’s news release announced that these checks would go out before the end of the year, so they should be considered as expenses in 2011/12.

In addition, the HST was slated to be reduced to 11% in July 2012, which would have cost the government around $638 million in 2012/13 — 3/4 of the annual cost of a 1 percentage point reduction (estimated at $850 million). In 2013/14 the government would have given up $850 million. And this isn’t even considering that in July 2014, the tax was going to be reduced to 10%, giving up a total of $1.7 billion in revenues every year. At that rate, the government’s actually going to be collecting more revenue with the PST/GST than otherwise.

Some of these extra costs would have been offset by the increase in the corporate income tax to 12% (from the current 10%) in January 2012 and by postponing the small business tax cut slated for April 2012. These would have generated an additional $100 mil  in 2011/12 (1/4 of the annual revenue gain, estimated at $400 mil) and just over $400 million each in 2012/13 and 2013/14.

Thus, the real comparison of the costs of repealing the HST looks more like this:

My analysis shows that the provincial treasury would have faced a shortfall of $800 million even if the HST had survived the referendum. The real net costs of reverting to PST/GST are $1.5 billion, not $2.3 billion.

Of course, using the bigger number is more effective if one were looking to lay the blame for provincial fiscal challenges onto the referendum results.

Now, let’s turn to the total provincial fiscal position. Many analysts/commentators seem to have forgotten that the fiscal plan features unusually large contingencies and forecast allowances over the next 3 years. These total $2.5 billion over the 3 years and thus entirely cover the costs of the HST reversal.

If the HST defeat is not an unexpected event worth dipping into the contingency funds for, I don’t know what is.

As for the forecast allowance, the government has already built a lot of prudence into the budget projections by using economic growth forecasts that are considerably lower than the private sector consensus forecast (2% vs 2.8% growth for 2011 and 2.3% vs 2.8% growth in 2012).

In other words, the BC government has a real fiscal gap of only about $300 million over 3 years relative to Budget 2011, not $2.8 billion. This is a lot more manageable and hardly requires the kind of tight-fisted approach advocated by Minister Falcon.

Some of the media commentary around the fiscal update, such as Vaughn Palmer’s piece in the Sun are suggesting that the BC government is using the current fiscal challenges as an opportunity to punish British Columbians for exercising their rights in the HST referendum. This would be a great mistake. Not only would it go against our country’s respect for democracy, but it would also put a drag on the already fragile recovery (latest job numbers released today show BC is shedding jobs, full-time jobs in particular).

Was the vote was split along income lines?

Here’s what I found when I plotted the referendum results (% voting to scrap the HST) by average after-tax income in the electoral district from BC Stats. The latest income data by electoral district is somewhat dated – it’s based on the 2006 Census – but the results are pretty clear. The poorer the electoral district, the higher the voters’ opposition to HST. And vice versa, in richer electoral districts more people voted to keep the HST.

I doubt this is a coincidence. Income disparities have grown over the last decade and as our incomes diverge, so do the opportunities we have and our experiences. Social cohesion is threatened when it becomes harder and harder to think of ourselves as British Columbians, voting for the benefit of our province, and start identifying more closely with a particular social class.

A recent article by Pete McMartin in the Vancouver Sun illustrates these diverging experiences all too well:

… the efficiencies the HST promises are real…But I also think that the retention of the HST is a question of class, that business people and economists and the well-salaried members of the media can afford to view the HST as a concept rather than a real financial burden.

Is it going to stop a family earning six figures from eating out more often? No. Will that family quail at repairing a leaky roof, and the added thousands an HST will add to that repair? Again, no. That well-off family cannot only afford the more immediate costs of a leaky roof, it can afford to entertain the long-range promises the pro-HST position makes -that down the road, the efficiencies the HST provide will deliver more jobs to the economy and lower costs to the consumer.

Call me a skeptic: That promise I find hard to take on faith, given our record of growing income disparities in this country. As for those future benefits, even the independent panel’s review on the HST characterized its benefits as “modest”.

What do you make of the referendum results?

The best part about having the results is that now we can move on from the narrow issue of what type of sales tax is better and focus our energies on some of the bigger issues affecting British Columbia.

Since the HST was first announced in the summer of 2009, it has dominated the policy debates in BC despite the fact that either way, the tax was going to have only marginal effects on the economy.

Yes, the HST is slightly more economically efficient than the PST. But the difference has been vastly exaggerated by HST proponents, who also refused to acknowledge that the tax is unfair to modest and middle-income families.

This is hardly surprising to readers of this blog who may recall me making this point before:

The HST is certainly an improvement on the PST from an economic efficiency point, but it’s a relatively small improvement. I am convinced that the economic benefits touted by the BC government and over exaggerated and the significant job growth, in particular, will not materialize.

The reason why HST only has a marginal impact is that taxes play only a marginal role in investment decisions. The main determinant of investment is expectations for future sales, driven in part by the general economic environment. Proximity to markets, the availability of appropriate infrastructure, access to cheap energy, access to a skilled labour force, and political stability are all much more important considerations when a firm is choosing where to set up shop.

The independent panel report, commissioned by the BC government, estimated that the actual economic impact we can expect from HST falls far short of the “giant leap” touted by U of Calgary’s Prof. Jack Mintz. For example, while Prof Mintz estimated 113,000 new jobs and 8% increase in capital investment by 2020, the independent panel found that we could realistically expect about 24,400 more jobs and 4% increase in business investment over the same period.

While I personally would have preferred to keep a reformed version of the HST, I think it’s counterproductive to fret over marginal efficiency differences after the people have spoken.

I’m also glad to see a return to somewhat improved tax fairness. We have witnessed a very large increase in income inequality in BC over the past 20 years, and we need to be very careful not to pursue policies that will make this problem worse — like the HST.

Recent research we’ve done at the CCPA shows that the HST is only one piece of an inequitable provincial tax system, a system in which the richest 20% of British Columbians pay a lower overall/total effective tax rate than the rest of us. Much more needs to be done to make sure everyone contributes a fair share to fund the the services and infrastructure BC needs in.

Now that the HST debate is over, it would be great to see some of the energy and focus many academics, business and community leaders dedicated to debating the HST be redirected to designing and debating solution to the real challenges facing BC.

Our unemployment rate remains high and slightly above the Canadian average at 7.3%. The economic outlook has worsened considerably over the last 6 months, with or without HST. There’s a serious risk of our main trade partner, the US, going into a second recession, which may push us back into a recession as well. Canadian corporations are not investing, even in the HST provinces. That’s because it’s not about taxes!

In the meantime, BC hasn’t had a budget and significant policy changes since Feb 2010. The Feb 2011 budget, tabled in the midst of a party leadership race, was prepared as a “placeholder” budget, padded with unusually large contingencies and forecast allowances to leave the new Premier room to implement their own policy priorities. Premier Clark has not tabled a budget yet, deferring the decision until after the HST referendum.

Now we know what we’re dealing with, I look forward to debating Premier Clark’s policy priorities for moving forward.

British Columbia families will remain vulnerable, burdened with unprecedented levels of household debt — 160% of income — the highest in Canada. More and more people are retiring with debt. Our housing market is weakening and bank economists are expecting a “correction” (aka, decline). Unemployment rate remains high, and is projected to stay over 7% for the next few years. Wages for those who are employed are barely keeping up with inflation.

The reality is that without a robust labour market recovery and real increases in household incomes, consumer spending will no longer be able to drive the type of strong economic growth BC experienced in the mid-2000s.

We’re still struggling with low business investment after years of corporate tax cuts that were supposed to stimulate investment and productivity. It’s not for lack of money: private non-financial corporations held $471 billion of cash in the first quarter of 2011. It’s also not for lack of competitiveness, or these corporations would have invested abroad instead of keeping the cash.

The problems that climate change poses continue to grow. We need an economic strategy what would invest in people and take bold steps to support a greener economy for our province.

On top of these, persistent poverty and rising income inequality threaten our economic wellbeing. We spend too much paying for the consequences of poverty instead of addressing the root causes of the problem. We are not fully using the skills and productive potential of those in poverty or those whose lower incomes limit the kind of opportunities available to them. Even the Conference Board of Canada has acknowledged that not just poverty but income inequality “can diminish economic growth and undermines social cohesion.

These are the types of issues that should be at the center of the economic debate in BC, not the best type of sales tax.

It’s said that 99% of Canadians think of themselves as middle class, regardless of their income. But as our incomes grow increasingly unequal, it’s becoming more important to revisit the actual distribution of incomes in Canada and BC and come up with an evidence-based definition of middle income.

I looked at the distribution of total incomes (including all government transfers, such as EI, welfare, GST credits, etc but no taxes) for economic families of 2 and more persons and propose the following break-down according to quintiles.

So, a broad definition of the middle class in Canada (and BC) would include those with family incomes between $40,000 and $125,000. This income range spans substantial differences in standards of living and levels of economic security. With growing income inequality, it’s becoming harder and harder to think of a unified middle class experience.

For example, if a policy benefits those with incomes $90 – $125,000 but does little for those with incomes under $70,000, like much of the Conservative government’s existing and proposed tax cuts, can we still say it favours the middle class?

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The latest Statistics Canada release of income data for families makes all data tables available for free through CANSIM so you can double-check the calculations by looking at Table 202-0401.

This is the question I investigate in my latest CCPA report The Cost of Poverty in BC. If you’re not in the mood for reading the report, you can watch a short video that summarizes the findings here.

Study after study has linked poverty to poorer health, lower literacy, more crime, poor school performance for children, and greater stress. In this report, I use the statistical association between poverty and these negative outcomes documented in the research literature, and combine this information with estimates of the costs these outcomes impose on government finances and on society at large.

My findings confirm what we’ve already suspected: poverty comes with a very high price tag. The cost of poverty to government alone is estimated to be between $2.2 to $2.3 billion per year. The costs to society as whole is $8.1 to $9.2 billion annually. That’s a lot of money – close to 5% of the total value of our economy.

The study focuses on two types of costs in particular. First, I quantify the societal resources devoted to tackling poverty’s negative consequences. These include the health and crime-related costs of poverty. Second, I capture the economic value of foregone economic activity and lower productivity that are associated with poverty. BC isn’t using all the talents and productive potential of its citizens who live in poverty and this acts as a drag on our economy. These costs are what economists call “opportunity costs:” they do not represent resources we’re actually spending now but rather resources that would become available to society if poverty was significantly reduced or eliminated.

The methodology is based on a landmark Ontario study, The Cost of Poverty in Ontario: An Analysis of the Economic Cost of Poverty in Ontario. The Ontario project was a collaboration of a number of prominent business economists and researchers, who developed a systematic way to account for the monetary cost of poverty both in Ontario and in Canada as a whole. The advisory team included then TD Bank Senior Vice President and Chief Economist Don Drummond, Canadian Policy Research Networks Senior Fellow Judith Maxwell, among others.

Here is how the cost of poverty in BC breaks down:

Note that these estimates do not capture all of the costs of poverty. Notably excluded are the costs that child poverty imposes on future generations by perpetuating the cycle of poverty. I also do not measure many of the less tangible costs, such as the impact of high poverty levels on social cohesion and our feelings of safety in our communities. The direct cost of providing frontline social services to those in poverty are also not counted.

Poverty takes an enormous toll on the people who experience it. On this basis alone, we must do better than having one in nine British Columbians in poverty (the highest poverty rate in Canada).

The high costs of poverty in BC should make us all concerned about poverty for additional, purely economic reasons. It makes more sense to tackle poverty directly than to continue bearing the costs of its consequences.

The best way to do that is with a comprehensive poverty reduction plan that contains clear targets and timelines for reducing poverty. A plan is needed to focus government efforts and ensure that different initiatives are coordinated and build on each other. Seven Canadian provinces and two territories have such plans or are in the process of developing them. BC should be next.

In an earlier CCPA report, we estimated that the cost of a comprehensive, poverty reduction plan in BC would cost $3 to $4 billion per year when fully phased in. This may seem like a lot of money in a slow economy, but it’s an investment in a better, more prosperous future for BC.

With an aging population starting to retire and a looming skills and innovation shortage, the real question is not “Can we afford to reduce poverty?” but “Can we afford not to.”

So if one parent earns $70,000 and the other parent stays at home to look after the kids, under the current system the family pays the lowest 15% tax rate on the first $41,544 of their earnings and 22% on the next $28,456. With income splitting, the family can declare that each parent earns $35,000 (i.e., they split the income), which puts both parents into the lowest tax bracket. So the family pays 15% tax on all of the $70,000 of earnings, saving the difference in the tax rates between the bottom and the second tax bracket — 7% — on those $28,456 that would have fallen into the second tax bracket.

$28,456 x 0.07 = $1,991.92

This is rounded to $1,992 in the Conservative Party’s backgrounder on the issue.

Similarly, we can calculate the savings from income splitting for a family where one of the parents earns $60,000 and the other earns $20,000 (the other Conservative example). Under the current system, the family pays 15% tax on the $20,000 earned by one of the parents and on the first $41,544 earned by the other parent. The family pays 22% tax on the remaining $18,456 that the higher income earner brings home. With the proposed income-splitting, the family would share the income between the two parents, each reporting $40,000. This puts them in the lowest tax bracket, so the entire family income of $80,000 gets taxed at 15%. The family saves 7% tax on the $18,456 that would have fallen into the second tax bracket.

$18,456 x 0.07 = $1,291.92

This is rounded to $1,292 in the Conservative Party’s backgrounder on the issue or $1,300 in Stephen Harper’s announcement of income-splitting on March 28th.

Of course, neither Stephen Harper nor the backgrounder mentioned that families with single earners in higher tax brackets get more than that.

In fact, the highest possible benefit goes to the few families with a single earner whose taxable income falls at least $50,000 above the cut-off for the top tax bracket. With the current tax brackets in Canada, this means a family with a stay at home parent and an earner who brings home $178,800 or more per year — a doctor or a lawyer perhaps, or a business executive.

This family will be able to allocate the maximum allowable $50,000 towards the income of the stay-at-home parent. Instead of having these $50,000 taxed at the hands of the earner at the highest bracket rate of 29%, they would be taxed as follows: at the bottom rate of 15% for the first $41,544 and at the second lowest rate of 22% for the next $8,456. This will save the family 14% of tax on the first $41,544 and 7% on the next $8,456.

$41,455 x 0.14 + $8,456 x 0.07 = $5,816.16 + $591.98 = $6,408.08

This is the maximum possible benefit from the proposed income splitting under the current tax brackets.

Of course, the 2 million single-parent families in Canada will get no benefit from income splitting, as there’s no spouse to split the income with. Dual-earner families with spouses who earn equal incomes will also get nothing. Single-earner families with an earner whose taxable income falls in the bottom tax bracket (currently under $41,544) get nothing. And among families with a stay-at-home parent or a parent working part-time only, the higher the salary of the working parent, the higher the benefit.

Now that you know how to do the calculation, how much would your family get from the proposed income splitting?

Does this sound like a good way to spend $2.5 billion of our taxpayers money?

For my take, see this earlier blog post.

For a party that is campaigning on fiscal responsibility, income splitting for families with children under 18 is a rather irresponsible way of spending $2.5 billion.

Let’s be clear — this is not a policy that helps young families. This is a policy that helps a small minority of families — about 13% or 1 in 8 of all Canadian families with children. The Conservatives themselves estimated that income splitting would benefit 1.8 million families, which sounds like a lot until you look at the total number of families in Canada, which at last count was 14.1 million.

The kicker is that income splitting does not help the 1.8 million Canadian families that need it most — those who live in poverty or barely make ends meet slightly above the poverty line.

Income-splitting works by allowing families to allocate more of their earned income to a lower tax bracket by sharing the earned income between the spouses when filing taxes. Automatically, this means that the 2 million single-parent families in Canada will get no benefit from income splitting, as there’s no spouse to split the income with. Dual-earner families with spouses who earn equal incomes will also get nothing. Single-earner families with an earner whose taxable income falls in the bottom tax bracket (currently under $41,544) get nothing. And among families with a stay-at-home parent or a parent working part-time only, the higher the salary of the working parent, the higher the benefit.

The highest possible benefit — $6,408 — goes to the few families with a single earner whose taxable income falls at least $50,000 above the cut off of the top tax bracket (at the 2011 tax brackets, you’ll need taxable income of at least $178,800 to get the maximum benefit). Calculation details are here.

What we have here is a reverse Robin Hood situation, where the government would be giving more money to the people with the higher incomes. This is hardly a fiscally responsible way to spend taxpayers money.

While I’m sure that every single family with children, no matter what their income, can easily find a way to spend another $1,000 or even $6,408, we need to get smarter with our government spending and make sure that our limited resources go to the families which need the most support.

There are better ways to spend $2.5 billion to support young families. Increasing the per-child benefit amount of the Canada Child Tax Benefit would be my first choice, as this is an effective income-tested tax benefit for families with children that most Canadian families receive (currently up to family income of about $110,000).

But it won’t be your first choice if you wanted to subsidize families with a stay-at-home parent. In fact, if you asked tax experts to design tax policy to give women incentives to stay home with the kids, income splitting is what they’d come up with. This is family tax policy based on the outdated notion of the 1950s family where women stay home to take care of the kids while men go to work to support the family.

Conservatives claim that our tax system is unfair to stay-at-home parents, but we already provide plenty of incentives to keep women home. The high costs of child care make work pay a lot less for women, especially those with more than one child under 12. Add to this the extra transportation costs and other work expenses, and you have a significant barrier for women who want to go back to work after maternity leave.

A friend of mine, Mary, is a smart and well-educated software engineer with 7 years on the job before she decided to start a family. She went back to work for a year after her first child was born, then had a second one. Going back to work after her second mat leave, she calculated that her well-paid, full-time software engineering job is only netting her family about $470 extra per month after childcare and work-related expenses are paid. Needless to say, she quit. And that’s before any income splitting. Add income splitting to the mix, and her family would be netting another $200 per month more with her off work than if she was working (given her and her husband’s tax brackets).

While Mary can afford to stay home because her husband’s salary is high enough, and she enjoys taking care of the children, what do you think is happening with her software engineering skills? If she takes 5 or 10 years off work while her children are young and need childcare, do you think she’d just be able to walk into the same job when the kids grow up? That’s highly unlikely.

What expensive child care and tax incentives for stay-at-home moms (all the way to children’s 18th birthday) lead to is a tremendous erosion of job skills among women. With an aging labour force and looming skill shortages, the Canadian government should be looking for ways to tap women’s skills and potential in the workforce, not providing incentives for them to drop out of the workforce.

But Mary is not representative of the average Canadian family, because most Canadian families cannot live on one parent’s salary alone. Half of all two-parent Canadian families with children earn a combined income of $80,000. And that’s largely with both parents working.

For most families, there is no choice between earning $40,000 each or having one parent bring home $80,000 while the other one takes care of the kids. The choice is between earning $40,000 each or having one parent quit their job while the other continues to earn $40,000.

Statistics tell us that people with higher education and higher earning potential tend to find spouses with similarly high education levels and earning potential. So we really are talking about significant skill erosion here if income splitting is successful because the only families who can afford to take advantage of this tax subsidy offer are families of software engineers or other professionals.

In summary, the Conservatives are proposing a $2.5 billion subsidy to stay-at-home mothers, where the higher your husband’s income is, the more you get. A tax subsidy, which, if successful at incentivizing more mothers to quit their jobs will lead to a large-scale erosion of women’s labour force skills at a time when we need all hands on deck to keep our economy running.

Though clearly fiscally irresponsible and aimed at subsidizing an outdated notion of the family, I don’t think we should get too excited about this spending announcement, given that it’s not likely to come into effect during the 4-year term of the next elected government. This is clearly a non-commitment to support families as the earliest it could possibly be implemented is 2015/16 and that’s if deficit-reduction goes as planned. But in politics — and economic forecasting — 4 years is an awfully long time. Who knows what our top priorities would be then?

Canadians know what the Conservatives’ real priorities are — these are the ones that have actual dollars attached to them now. The list includes a new round of corporate income tax cuts that’s costing us $2.8 billion this year alone, fighter jets estimated to cost $29.6 billion, more prisons at who knows what cost. These were all deemed priority initiatives that are worth borrowing for.  Support for families, on the other hand? According to the Conservative Party, that’s not worth borrowing for.

Yes, it is technically true that in straight up current dollars debt hit a historic high in this budget. But I have news for you, so did BC’s nominal GDP at the projected growth rates. And you know what, our population is also at a historic high. Care to take a guess about the consumer price level as measured by CPI? Yup, another historic high right there.

Perhaps you’re starting to get the picture: we cannot make meaningful comparisons of monetary amounts like debt, government spending or revenues over time in current dollars alone.

I was happy to see that Mr Palmer chose to dispense with the sensationalism in his print edition column’s title, where the debt reference in the subtitle is a lot less alarmist: Finance Minister Hansen’s 2011 budget not as comfortable as he’d like us to think: ‘Levels of prudence’ can’t hide the fact that the debt situation is heading in the wrong direction.

I came across Mr Palmer’s commentary first, but he only one of the majority of media commentators who compare straight up dollar figures for our debt level today with dollar amounts under the NDP (over a decade ago) without accounting for the fact that the size of the population we have to support has also grown as has our ability to support debt (our provincial economy). What this does is make the increases in debt appear larger than they really are.

It’s a very common mistake, and it often goes uncorrected because it happens to serve the interests of those who oppose government spending, and therefore debt, on ideological grounds.

The provincial debt is projected to hit $60 billion by 2014, most media commentators report. The exact billion dollar figures are there for their shock value — these are some truly large numbers — but raising alarm over them is a bit like raising alarm over a family’s $500,000 mortgage.

Sure, the number sounds big, but we can’t actually tell if it’s a affordable or not without information on that family’s income.

And let’s be clear, our province is the equivalent of a rather wealthy family with a total income (measured by the size of the economy, or GDP) of about $200 billion.

When expressed as a share of our provincial GDP, our current debt level seems very affordable indeed. Our current debt level is 16.5% of GDP, which is projected to rise to $17.8% of GDP by 2012/13 and then decline slightly (figures from the 2011 BC Budget).

Yes, it’s higher than the 13.4% we reached in 2008, but this shouldn’t come as a surprise to anyone. We just went through the deepest recession we’ve had in 30 years. Of course debt would be higher than what it was during the boom — that’s what should happen.

The vast majority of government borrowing was used to finance capital spending. It spurred economic activity and created jobs at a time when the private sector was shrinking, providing a much needed stimulus to the economy.

There was no big boost in program spending, no real fiscal stimulus on this end. The small operating deficits we saw were caused by temporary, recession-driven reductions in revenue. Maintaining spending in the face of falling revenue was the right thing to do in order to support BC families through the recession and avoid putting an additional drag on the economy.

In the end, the BC economy grew faster than expected in 2010, but that had more to do with developments in the global commodity markets and the US economy than with made-in-BC policies. It could have easily gone the other way. Without the stimulus spending, BC would have experienced a deeper and longer-lasting economic downturn.

In short, increased government borrowing of that size was justified and our provincial debt levels remain affordable.

When measured properly, which is to say as a share of GDP, BC’s debt is nowhere near “historic highs”. It’s also among the lowest in Canada.

So enough of the debt hysteria already and let’s talk about some of the real issues that the next BC Premier will have to address.

It seems to me that the really important questions about the future of BC are getting lost in the narrow debt discussion.

Our Finance Minister just announced that the next Premier will have close to $1 billion dollars of “wiggle room” for the 2011/12 alone, with $800 million in both of 2012/13 and 2013/14. The money comes in the form of unusually large contingencies and forecast allowances, though it would have been better called “the new directions fund.”

So, how are the Liberal leadership contenders planning to use the money?

Surprisingly little attention is being devoted to this key question. The Globe, for example, dedicated more space in their print edition to a large photo of Colin Hansen and Gordon Campbell in the Legislature than to the four main candidate’s budget priorities (p. S3).

Most of the budget commentary provided by leadership hopefuls was limited to self-congratulatory remarks about their government being one of the few jurisdictions that will come below projected deficits this year. They’re too quick to claim credit for the stronger than expected economic performance, which is more of a case of getting lucky than the result of any policy choice of theirs (though it would certainly have been worse if they had insisted on balancing the budget during the recession). But I digress.

What’s missing from the public debate is a real meaty discussion of our visions and priorities for the future of BC. Of the new ideas and the new directions that a change of leadership opens the door for.

Now is precisely the time for these conversations and debates to take place. Now, when several politicians with vague but rather different agendas are vying for Premiership. Now, when the questions are still open and decisions haven’t been made yet.

So let’s start asking the questions that really matter and have an open and honest debate on the various plans for how the “wiggle room” money can be used to build a better BC for all. Now, not after the “real budget” is tabled later this year.

British Columbians need to know where each Liberal leadership hopeful’s priorities lie. If they had an extra $1 billion for 2011, how would they spend it? What policy changes do they think are needed to make BC a better place to live and work for all?

Deferring the debate until after the HST referendum is just an excuse and should be exposed as such. Yes, a potential HST repeal would require some budget revisions. We may have to repay $1.6 billion to the Feds, but that works out to $533 per year over 3 years or only 1% of the annual provincial budget. It’s less than the cost of the tax cuts Premier Campbell announced and then repealed. So let’s move beyond the HST scare tactics and have a conversation about the real issues facing our province.

With or without the HST, British Columbia families will remain vulnerable, burdened with unprecedented levels of household debt — 160% of income — a weakening housing market and high unemployment that is projected to persist over the next few years. Without a robust labour market recovery and real increases in household incomes, consumer spending will no longer be able to drive the type of strong economic growth BC experienced in the mid-2000s.

We’re still struggling with low business investment after years of corporate tax cuts that were supposed to stimulate investment and productivity. The problems that climate change poses continue to grow. We need an economic strategy what would invest in people and take bold steps to support a greener economy for our province.

We face pressing social problems in this province that need to be addressed immediately. Too many children continue to live in poverty in this rich province, and some will die preventable deaths that the Office of Mary Ellen Turpel-Lafond will document in more scathing reports like this one. Too many British Columbians with mental health and addiction issues continue to languish and die on our streets. Too many seniors continue to live the last years of their lives without the supports they need from community and home care.

These are the types of issues that the next Premier will have to tackle, and they should be at the center of the economic debate in BC.

With our minimum wage frozen at $8 per hour for nine years and three months now, it was about time!

The real questions in play now are how much to raise the minimum wage and over what timeframe. Different numbers have been thrown around in the media — anywhere from $9 per hour to $10 per hour immediately, with future increases up to $11 or even $12 proposed by some of the leadership candidates. Nice round numbers certainly make the math easier, but should we really be picking a number out of thin air?

In a recent piece published by the CCPA, we propose that the BC government develop a clear rationale for setting the minimum wage and stick to it. This requires making a decision about what it is that we want to achieve with the minimum wage and then setting it appropriately so that it meets the stated goals. We also recommend that the rationale be poverty reduction:

We propose that a single person working full-time year-round should earn (at least) enough to live above the poverty line. The idea that someone working full-time, full-year should be able to get out of poverty is a clear, transparent policy decision that should determine the minimum wage in BC and in other provinces.

This should be a pretty easy rationale to get behind — few people will argue in favour of maintaining a group of working poor.

Equally important is to legislate regularly scheduled increases tied to inflation, to ensure low-wage workers do not face what amounts to a pay cut as a result of rising prices.

Since poverty reduction is the goal, the minimum wage should be indexed to the consumer price index in order to maintain the purchasing power of workers.

The next question to settle would be what the appropriate poverty line measure is, and this is a legitimate question that I’d like to debated. Because I want working poverty to become a thing of the past in my province, I support picking the broadest measure of the poverty line so that no worker in any community would be left behind.

The most appropriate measure of the poverty line in this case is Statistics Canada’s before-tax low-income cutoff (LICO) for a single individual with no dependents living in a large city—which was $22,229 in 2009, the latest published LICO calculation. This is equivalent to a minimum wage of $11.11 per hour (at 40 hours per week, 50 weeks per year).

Recognizing that going from $8 to $11.11 is a big jump, I would recommend staged increases to get the minimum wage to that level.

How much can business afford? Considering that they’ve been getting reductions in the minimum wage (in real or inflation-adjusted terms) over nine years now, they should be able to manage an increase that — at a minimum — brings us back to the real value of the minimum wage when it was set. I calculate that if we had annual April 1st increases to the minimum wage based on last year’s inflation in BC starting in 2002, this April we’d be setting the minimum wage at $9.48 per hour. So moving to $10 immediately would reflect a very small increase in the real value of the minimum wage compared to its 2001 level.

A government that’s serious about reducing poverty in this province, would raise the minimum wage to $10 immediately and then commit to 50 cent increases every six months until we reach the appropriate level to cover the LICO income (note that it’s a moving target). At that point, inflation-based annual increases would be all that’s required to maintain the value of the minimum wage. Such a policy will benefit employers by providing certainty and allowing them to plan ahead for labour costs.

Setting a poverty-based rationale for the minimum wage is not the only possibility. The minimum wage can also be set with inequality considerations in mind, for example by setting it at a certain percentage of the average (or median) industrial wage in the province, and then annually index it to keep up with increases in the industrial wage. Such a policy would embody the notion that we, as a society, would not allow any workers to get too far behind the rest of us in terms of earnings.

Arguments can be made for a number of other policy rationales as well, and while I personally favour poverty reduction as a rationale I’d welcome a broad public debate on these issues. I’m curious what the leadership contenders think.

A big part of the resistance to any increases seams to come from the commonly held — and untrue — belief that minimum wage hikes are a huge job killer. Why is this idea so pervasive in the media and in the minds of our legislators when it is not supported by the evidence? In fact, the empirical evidence hardly has anything to do with it since most people — including many trained economists — firmly believe that minimum wages increases kill jobs without having looked at any studies on the matter (if you want a quick summary of the state of the evidence, read this).

I am convinced that it’s those Intro to Economics classes that are to blame. Most media commentators and politicians have taken one, and they’ve all seen the following supply-and-demand diagram that shows the hypothetical effects of the minimum wage (or an increase of the minimum wage) in the labour market.

This simple diagram, which is staple of the introductory economics textbooks, is as misleading as it is powerful.

It makes you believe that that the minimum wage is set far above what a free-market wage would be in the labour market, which hardly ever happens. Because of that, the minimum wage is predicted to lead to a large increase in unemployment, which is defined as the number of people who have looked for work in the two weeks prior to being surveyed and who were not able to find work. By extension, any minimum wage increases would only move us into even higher unemployment territory. It makes sense intuitively and most people just accept that this is what actually happens in the real world without thinking twice.

But here’s what’s wrong with this graph in the words of Princeton University Professor of Economics Uwe Reinhardt, whose tongue-in-cheek essay The Art of Siffing Among Seasoned Adults: Can Economists be Trusted is an excellent read and must make for a highly satisfying first lecture:

In fact, however, the proposed minimum wage typically is just a shade above the prevailing free-market wage, or proposed increases are quite small relative to prevailing wage levels. In fact, they typically are so small as to have no perceptible effect on employment at all. Yet thousands of legislators, when confronted with minimum wage legislation, will automatically think back to their college economics courses and conjure up in their minds the dramatic illustration shown below.

A crucial detail about this graph that is often lost on unsuspecting economics learners is that the wage on that y-axis is expressed in real terms (i.e. adjusted for inflation) and not in straight up dollars. This means that if we’re looking at minimum wage policy over time, the only increases of the minimum wage that could be hypothesized to have any effects on unemployment are the increases after adjusting for inflation. In other words, regularly scheduled minimum wage increases to offset inflation would have no effect on the level of unemployment in equilibrium.

For the record, if BC had a policy of annually adjusting the minimum wage for inflation, we’d now be sitting at a minimum wage of $9.31.

Another big problem of the standard economics 101 approach to minimum wages is that the textbooks too often forget to tell students why governments would want to introduce regulations and constraints on the labour market in the first place. It is surprising how often the historical and political context is stripped out of the teaching of economics which makes both for poor education and for poor policy-making, once students try to apply these textbook graphs directly to the real world we live in.

It should be remembered that BC first introduced minimum wages (which at that time only applied to women) in 1918 because legislators wanted to protect vulnerable workers (in that case, women) from being exploited by employers. The reason why we have a complex system of employment standards and regulations is to promote fairer treatment of employees who don’t seem to do so well in the unconstrained markets (sweatshops, anyone?).

A decent minimum wage is a useful tool for addressing the huge disparities in the wage distribution that have emerged over the last 30 years in our province. Ensuring that minimum wage work pays enough to keep full-time, full-year workers out of poverty will make for a fairer BC and should be top priority for BC’s next Premier.

If you were curious, this dubious honor used to belong to Ontario where minimum wages were frozen at $6.85 for a full nine years and one month between Jan. 1, 1995 to Feb 1, 2004.

In the meantime, the cost of living in our province — as measured by the Consumer Price Index — increased by over 16%.