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The Progressive Economics Forum

Canada’s Self-Imposed Crisis in Post-Secondary Education

On June 7, I gave a keynote address to the Alberta Union of Provincial Employees Education Sector Conference.  My PowerPoint presentation (with full references) can be found at this link.

Points I raised in the address include the following:

-Canada’s economy has been growing quite steadily over the past three decades, even when one adjusts for inflation, and even when one accounts for population growth. The exceptions, of course, occur during recessions.

-Yet, since the early 1980s, the federal government has been spending less, relative to GDP. Since that time, it has spent less on both “program expenses” and debt-servicing (again, notwithstanding what’s happened during recessions, which represent relatively small blips when compared to the long-term trend).

-One contributing factor to this reduction in federal spending has likely been the very substantial tax cuts that have been brought in over the past 12 years. This year, for example, the federal government will collect $48 billion less than it would have if taxation rates remained at the same level as in 2000.  Fully one-quarter of that $48 billion figure can be attributed to the two-percentage-point cut in the Goods and Services Tax, brought in by the Harper government.

-A lot can be done with $48 billion. To take just one example, with just 10% of that figure, tuition fees could be eliminated for all students currently enrolled in Canadian universities.

-These very significant reductions in federal taxation likely account for rising income inequality in Canada.

-The impact of this reduced federal spending can be seen in many places. For example, in the late 1970s, funding from senior levels of government typically covered 80% of the operating budget of a university or college in Canada. Today, such funding typically covers just 50% of a university or college’s operating budget (the precise amount varies depending on the province). The remaining amount must usually be raised by increasing tuition fees (read: Quebec student protests) or by fundraising from private sources.

-The reduction in funding from senior levels of government also appears to have adverse effects on the quality of post-secondary education. Between 1990 and 2006, the ratio of post-secondary education students to full-time faculty members increased by 40%.

-Higher tuition fees appear to be having a significant impact on students. In the mid-1970s, 25% of Canadian university students participated in gainful employment during the academic year. By 2008, this figure had increased to 50%. Three-quarters of students believe that this increase in paid work has had a negative effect on their academic performance.

-In my address, I discussed the research of CCPA-BC economist, Iglika Ivanova, whose recent report looking at the British Columbia context makes the point that the great majority of university and college graduates will pay considerably more taxes over their working lives than those who do not obtain post-secondary education. In fact, the amount that they pay in additional taxes far surpasses the amount required to provide them with post-secondary education. This raises a fundamental question: why impose high user fees (i.e. tuition fees) on an activity that will have very significant long-term economic pay-offs, not to mention social pay-offs?

-This is an especially important question in light of what’s happening to household debt levels in Canada. In 1990, the average Canadian household had less than $0.80 of household debt for every one dollar in disposable income. By 2010, that figure had increased to more than $1.40. What’s more, those individuals with the highest levels of household debt are in the 25-44 age group, also the group most likely to be saddled with high student debt. This raises another fundamental question: why saddle that age group with more household debt?

-Quebec has the lowest undergraduate tuition fees in Canada. Ontario has the highest.  Now, let’s consider average debt for students enrolled in their final year of a bachelor’s degree program who took out student loans. For Quebec, the figure is $15,000. For Ontario, it’s $26,000. Many would agree that high tuition fees result in higher student debt.

-The experience of Newfoundland and Labrador is instructive for the rest of Canada. In the past decade, their provincial government has invested very significantly in post-secondary education. As a result, average undergraduate tuition fees in Newfoundland and Labrador (for domestic students) are now roughly half the Canadian average, and almost as low as Quebec’s; tuition fees for graduate students in Newfoundland and Labrador are the lowest in the country. And since the late 1990s, the number of people in Newfoundland and Labrador with student debt has decreased from 20,000 to roughly 8,000.

-In my address, I discussed some of the perils of universities turning to the private sector for “donations.” Sometimes there are strings attached to the donations, and those strings are not always immediately apparent. I discussed the case of a recent donation by Peter Munk to the University of Toronto, and I drew on research done by Linda McQuaig and Neil Brooks. According to McQuaig and Brooks, much of Mr. Munk’s donation is being held back until after 2017, so that Mr. Munk can have ample time to assess the situation. It is possible, of course, that if Mr. Munk does not like what he sees unfolding, part of the announced donation may never reach the University of Toronto; and this has potential implications for academic freedom. It raises yet another fundamental question: when private funding is part of the equation, will the academic freedom of faculty members be compromised? Moreover, will senior university administrators feel comfortable hiring faculty members who have a tendency to write about topics that current and future donors may not appreciate?

-I also discussed the administrative mechanism used by the federal government to deliver funds to colleges and universities. It’s called the Canada Social Transfer, and, for the relatively small amount of funds that it does deliver to provinces, there are very few stipulations that govern where exactly those funds must flow. It is possible, for example, for funding from the Canada Social Transfer to increase in a given year, but for a province to then turn around and reduce funding for post-secondary education that same year (i.e. there can be ‘displacement’ of funds). In light of this challenge (and the challenge of a lack of federal funding to begin with), the Canadian Federation of Students has proposed that, in addition to increasing funding for post-secondary education, the federal government should also implement a Post-Secondary Education Act. Modeled after the Canada Health Act, it would have the following five principles: 1) public administration; 2) comprehensiveness; 3) universality; 4) portability;  and 5) accessibility. Under the Act, provinces would be governed by strict conditions on how to use federal funding designated for post-secondary education.

-Finally, I discussed the quest by universities to acquire more research dollars. This intense competition runs the risk of creating a more stratified system of universities. While incentive to perform isn’t necessarily a bad thing, what happens to the universities that don’t fare well? And what happens to the student that end up at those universities? Moreover, what happens to other university priorities (such as teaching quality) as the competition for research dollars intensifies?

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Comments

Comment from sm
Time: June 8, 2012, 7:11 am

I noticed a sign on a Winnipeg bus the other day. “Stay in Manitoba and get 60% of your tuition fees back.” thru tax deductions etc. http://www.gov.mb.ca/tuitionrebate/index.html Are other provinces doing this? How would this type of program with with the stats you bring forward? Tax credits of course only benefit you if you have a taxable income….

Comment from Darwin O’Connor
Time: June 8, 2012, 8:21 am

“What’s more, those individuals with the highest levels of household debt are in the 25-44 age group, also the group most likely to be saddled with high student debt.”

They are also the group most likely to a mortgage they are just starting to pay off.

Comment from Francis
Time: June 18, 2012, 8:24 am

It makes no sense to oblige students to pay high tuition fees and to end up with a heavy debt. It would be better to pay low tuition fees, or no fees at all, but to pay high taxes when, after graduation, the student has become a well-remunerated worker,
as it happens in the Scandinavian countries and elsewhere.

Comment from Hassan
Time: June 21, 2012, 8:11 am

Nick:

Two points:

-GOC spending on education less relative to GDP

-GOC lost out on $48 billion

For your points to hold true you would have to demonstrate that contribution to GDP from the tax cuts is less than $48 billion or that the impact of tax cuts was on the whole detrimental to the interests of Canadians or assess the overall impact of the cuts (not just as a driver of economic growth) and point where they could have been utalized more effectively

Otherwise, you’re starting off with a set of beliefs or values and moulding the stats to reflect your position.

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