Poverty Update

Chris Sarlo

Why do we measure poverty? What are we trying to find out?

It seems to me that these are the unasked but fundamentally important questions at the root of so many social policy issues. Regrettably, the answers (and perhaps the questions themselves) are a matter of controversy.

We want to measure poverty, in my view, because it is a problem. It is a problem, specifically, of some of our fellow citizens enduring deprivation of the things that they need for survival. We wish to try and measure the extent of the problem, presumably, so that we can extend assistance to those in this predicament. I would argue that it is our compassion that motivates us to want to measure poverty. There can't be anyone who does not regard poverty and the discomfort and unhealthiness that it gives rise to as a problem. We want to measure it and try to solve it.

Furthermore, as we implement plans to alleviate poverty, we wish to continue measuring it to determine how successful our programs are.

What is the function of a poverty line?

A poverty line is a level of income (or consumption) below which a person or family is judged to be living in poverty. It is a way of distinguishing between the poor and the non-poor. A poverty line, simply, is that indicator which allows us to measure the extent of poverty.

Should a poverty line serve as an income support level? Should we gear our welfare rates to the poverty line? While it is certainly possible to do that, I would argue that policy (the levels at which you wish to set assistance) is a separate issue from measurement (finding the number of people who live in poverty).

How should we define poverty?

Overwhelmingly, the social welfare community prefers a "relative" definition of poverty. According to the relative approach, you are poor if your income is substantially below the average. The most frequently used relative poverty line is an income equal to half of the average income for families of a given size. In Canada, in 1993, the average income for families of four persons was $62,000. Those families of four whose total annual income in 1993 was below $31,000 would be poor by this definition.

I have argued that the relative approach does not help us understand much about the problem of poverty. It is, in fact, a measure of inequality and not poverty. I wish to suggest that the two are not the same. While we should certainly measure inequality, and we have a rich variety of indicators for that purpose, the term "poverty" suggests a state of serious deprivation. I prefer, therefore, a basic necessities approach to defining and measuring poverty. Such an approach would allow us to determine the number of our fellow citizens who do not have the resources to acquire all of the necessities of life. I can't imagine anyone who is concerned about poverty not wanting that sort of information.

The use of relative poverty lines makes it very difficult to measure progress in alleviating poverty. For example, across-the-board economic growth will not reduce inequality (and, therefore, relative poverty) at all. If everyone's real income doubles, everyone is still in the same relative position and so relative poverty does not fall. Our intuition tells us that a doubling of everyone's buying power will indeed lift some families out of poverty.

The use of high, relative poverty lines ultimately trivializes the predicament of those who endure genuine deprivation. At the very least, we should distinguish between those who lack some basic need (such as adequate shelter) from those who have all the basics but lack certain "social amenities." I have highlighted this distinction in my earlier work by measuring the "poor" (those living below the basic needs poverty line) and the "near poor" (those living above the poverty line but below twice the poverty line).

It is not hard to see why the relative approach has such appeal to those in the social welfare community. The quickest way to reduce relative poverty is to redistribute income from the well off to the less well off, making the distribution more equal, at least in the short term. This is consistent with the strong egalitarian view that everyone is entitled to a fair share of the wealth produced in a society. In addition, high relative poverty lines result in high poverty counts which in turn are used to put pressure on the state for more generous and comprehensive programs. Without denying the genuine concern and compassion for the poor in the social welfare community, it is important to remember that a great many careers in Canada depend on high poverty counts.

Proponents of the relative approach argue that basic needs poverty lines are "mean-spirited." On one level, this seems to be a rather curious and misplaced criticism. All that this approach does is provide information on the number of people who cannot afford all of their basic needs. It allows us to measure that kind of deprivation. In that sense it can be no more mean-spirited than setting the freezing point at zero degrees centigrade. On another level, it is clear what they are driving at. People may "feel" poor at incomes above the basic needs poverty line in the same way that you might feel cold at temperatures above 0. Further, people may need help (or, would welcome assistance) even though they do not endure basic needs poverty. So, the argument goes, it is too harsh to set the poverty line at the basic needs level. It should be set substantially above that because we should help more than just the truly deprived. This line of reasoning clearly confuses measurement with policy. Measuring the poor and the near poor, as I do, informs us about the extent and nature of deprivation in Canada. What we ought to do about those so classified is another matter.

Which ever definition of poverty is used, it seems to me that it is important to consistently apply that definition. We have, for example, reports and commentaries on poverty where the relative approach is used to measure the extent of poverty, but the basic needs approach is used to describe the predicament of those defined as poor. Bruce McLeod, former moderator of the United Church of Canada, has stated: "Over one million Canadian children live in poverty, it has been announced. Not genteel, straightened circumstances, making do thriftily without luxuries, but real, stomach-stretching poverty."   Toronto Star, May 3, 1988-Note

     While one hungry child is one too many, it needs to be pointed out that most children living in relative poverty (which is the definition McLeod is using) are not reduced to stomach-stretching poverty. Indeed, the description "making do thriftily without luxuries" is apt for the great majority of the relatively poor.

Basic needs poverty lines

Someone is defined as poor if they can, at best, afford only the basic physical necessities of life. These necessities include: an appetizing and nutritionally complete diet; apartment rental accommodation with the number of rooms appropriate to family size and with the full complement of essential furnishings, household supplies and telephone service; clothing which is purchased new, appropriate to the season and with replacement rates assuming normal wear and laundering; a full range of regular, preventative and emergency health care including personal hygiene, vision, and dental care; and essential transportation linking one's shelter to the other basic needs. In all cases, the standard of quality of each of the basic needs is that which is considered minimally acceptable in Canadian society.

By estimating the costs of each of these items for families of various sizes, we construct basic needs poverty lines. The complete methodology is described in detail in the Critical Issues Bulletin "Poverty in Canada—1994" or in Poverty in Canada (1992) (both Fraser Institute publications). Table 1    displays the poverty lines by province and family size for 1993, 1994, and 1995. An estimate for 1995 was necessary since complete cost information for 1995 was not available at the time this research was done.

Click here to view Table 1: Poverty Lines by Province and Family Size, 1993-95 (dollars)

Statistics Canada conducts annually an income survey of a representative sample of Canadian households. This information is available as a computer database and has become the standard tool for estimating poverty and inequality in Canada. The latest database available at this time is for 1993 incomes. Applying the 1993 poverty lines to the incomes in the 1993 microdata file of economic families, poverty rates were estimated for each province and by family size. Pre-tax incomes are used because poverty line incomes, in virtually all cases, are too low for income taxes to be paid. Not surprisingly, Newfoundland had the highest poverty rates at 7.6 percent. Quebec, on the other hand had the lowest proportion (2.49 percent) of poor people. Overall, 3.82 percent of Canadians lived in households whose reported income was below the basic needs poverty lines. This represents 1.036 million persons. This estimate of poverty differs sharply from estimates using relative lines. For example, Statistics Canada's Low Income Cut-Offs (LICO) are frequently but erroneously employed as a "poverty line." In 1993, almost 4.5 million Canadians (or 17.5 percent of the population) were "low-income" using the LICO measure.

The poverty rate is much higher for unattached individuals (about 8 percent) than for families (about 3 percent). Young people are disproportionately poor, as table2 shows. The poverty rates for those under 24 are so high relative to the rates for those older, that it can be said that poverty is largely a problem of youth.

Click here to view Table 2: Canadian Poverty Rates by Age, 1993 (percent)

As we might expect, the risk of living in poverty is lower if you have a university education, are employed, own a home, and live in an intact (husband-and-wife) family. It is noteworthy that single parent families comprised 12 percent of all families in Canada in 1993 but represented 45 percent of all poor families. There were about 300,000 children under 18 who lived in families with reported income below the basic needs poverty lines in 1993. This compares with about 1.4 million if a relative measure such as LICO is used as a poverty line.

Trends in poverty

Statistics Canada has conducted annual income surveys since 1971 that provide us with a comprehensive picture of the incomes (and related demographic information) of Canadians. By comparing the incomes of Canadians to backdated basic needs poverty lines, we can calculate (using simple interpolation) poverty rates for the period 1971-1993. Figure1 shows the results of these calculations.

Click here to view Figure 1: Trends in Poverty

The sharp decline in poverty rates, for both unattached individuals and families from 1971 to 1980 was followed by relative stability during the 1980s. These rates display a clear cyclical pattern with increases during the 1982-1983 and the 1990-1991 recessions. Overall, the risk of living in poverty in 1993 is less than half of what it was a generation ago. While this is obviously good news, there is some concern about the lack of progress in recent years. Explanations range from increasing structural unemployment in the economy to the work-disincentive effects of social programs. The income data themselves, however, may be part of the problem.

The income indicator

Income is the most popular indicator of economic well-being because it represents the resources available to the household to purchase commodities and because we have a lot of information on incomes. In last month's article, I noted that while income may be an adequate indicator of the economic status of middle aged, middle income families, it is decidedly less adequate for young people and low-income families. To review, income does not include student loans and gifts (cash or in-kind); income sources of importance to low-income persons such as unemployment insurance benefits, welfare benefits, gratuities, and informal personal services are significantly underreported; losses from self employment belie the true living standard of tens of thousands of families; and the growing underground economy suggests that more and more income is hidden from surveys. Since the early 1970s, each of these areas has grown (the number of post-secondary students, the number of UI and welfare recipients, and so on), leading to the suspicion that income is a less useful gauge of living standards, especially for those lower down the distribution of income, than it used to be.

The consumption indicator

Since 1948, Statistics Canada has been tracking the consumption patterns of Canadians on an occasional basis. Information on consumption is used in the construction of the Consumer Price Index (CPI). These data also give us a useful picture of the living standards of Canadians. Actual consumption of goods and services reveals more, one could argue, about the true standard of living of people, than income. Young people often borrow against future income or receive cash or in-kind assistance to consume beyond their income. Middle-aged persons often consume much less than their income, putting savings aside for retirement. In addition, consumption is much less likely to be underreported, and thus will be more reliable than income.

The latest year for which consumption information is available is 1992. Applying our 1992 poverty lines to the 1992 Family Expenditures (FAMEX) micro-data file, "consumption" poverty rates were estimated. The results are presented in table3.

Click here to view Table 3: Poverty Rates Using Consumption as an Indicator of Economic Well Being—Canada, 1992

As the table reveals, the poverty rate using consumption as an indicator of economic well-being, is about half of the rate using income. Less than half a million persons, or just under 2 percent of the population, live in households with reported consumption less than the basic needs poverty line. It should be noted that Statistics Canada's surveys exclude some groups (such as aboriginal people on reservations and homeless people) who, we are sure, have higher poverty rates than average. Correcting for these omissions would add at least 100,000 persons to the ranks of poor Canadians.

These estimates, using both income and consumption as indicators, provide some information about the number of Canadians who are likely to be enduring serious deprivation. This kind of information, I have argued, is essential if we are to accurately describe the nature of poverty in Canada. Without doubt, estimates of social and not merely physical deprivation would also be of interest.

Poverty and social assistance

The Canada Assistance Act (1966) established a "last resort" welfare system for Canadians without the means to support themselves. It was to be jointly funded by federal and provincial governments and administered by the provinces, and the intention was to provide sufficient income to meet the cost of basic requirements. To what extent do the provincial welfare systems succeed in fulfilling their mandate? The basic needs poverty lines I have developed are ideally suited to answering this question. As table 4 shows, in 1994, at least, those living on welfare will be covering, in most cases, all of their basic needs. The exceptions (in some Maritime provinces and B.C.) are always for those classified as employable. Presumably, there is an expectation that employable recipients will, in fact, be able to find employment in due course. The relatively low rates of assistance themselves provide a strong work incentive. For those classified as unemployable, such as single parents, incomes are above the poverty line right across the country. This continues to be true for larger sized families. It is also noteworthy that, in 1994, Ontario was the most generous provider of social assistance in all recipient categories.

Clik here to view Table 4: Welfare Recipients, 1994—Income and Poverty Gap Calculations

Calling a Slave a Slave

A Version of this article has also appeared in Canadian Lawyer. -Note

Karen Selick

Last month I wrote about the case of a London, Ontario chiropractor who was forced by the Human Rights Commission to install a $20,000 ramp at his clinic. The order was made after a wheelchair-bound woman complained that she could not get into the building to employ the doctor's services. She rejected his offer to treat her at home or at another accessible location, insisting that those alternatives would make her feel stigmatized and undignified.

The business and professional community in London—and indeed, all of Ontario—must be shaking in their boots. Every doctor, dentist, accountant, lawyer, restaurateur, or merchant whose business premises are inaccessible to wheelchairs has to pray that this woman never decides to patronize his establishment, lest it cost him $20,000 for the favour.

Ontario's Human Rights Code divides the population into two classes who are given completely different treatment. The first group can be broadly described as consumers. They can't be discriminated against on the grounds of race, sex, handicap, etc., by anyone providing services, goods, facilities, or accommodation. If they think they have been discriminated against, they can complain to the Human Rights Commission.

The second group can be broadly described as business people. They are the ones who provide the services, goods, facilities, and accommodations, in exchange for money. The first group can freely discriminate against the second on every imaginable ground, because there is nothing in the Code that forbids discrimination in the spending of money.

So if a person in a wheelchair chooses to eat at an English-style pub rather than at the French, Jewish, or Chinese restaurants (all ramped) in the same block, the snubbed restaurateurs can't go bleating to the Human Rights Commission about her cruel ethnic discrimination. Nor can any of the ethnic restaurateurs claim "systemic discrimination" if his restaurant fails while those of his neighbours succeed. The Human Rights Commission won't force the locals in the neighbourhood to eat their "fair share" of Chinese food. Business people simply have to live with the fact that in a market economy, consumers are free to deal with whomever they choose.

Here's another example. Clients occasionally tell me they picked my name out of the yellow pages because they wanted a female lawyer. Presumably, there are other people who choose not to hire me for the same reason. Ontario's benchers endorsed this discriminatory practice last year by allowing the Lawyer Referral Service to fill gender-specific requests. A Law Society Committee was even asked to consider permitting clients to request a referral by race or ethnicity. But the Rules of Professional Conduct make it clear that lawyers cannot screen out clients on the basis of sex, race, or ethnicity.

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Business people simply have to live with the fact that in a market economy, consumers are free to deal with whomever they choose.

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Why should there be any such dichotomy? Every commercial transaction consists of two parties making an exchange: goods, services, facilities, or accommodation flow in one direction, and money flows in the other. Both parties to the transaction must feel that what they are getting is more valuable to them than what they are giving up; otherwise, they wouldn't agree to the deal. So why should one group be free to select the identity of the person they wish to profit from, while the other isn't?

Don't get me wrong—I am certainly not advocating that the Human Rights Code should apply in both directions. On the contrary, I am suggesting that it should be scrapped, so that freedom of contract can prevail for all.

The only way to make sense of the dichotomy is to realize that the Code is not about protecting minorities against racism, sexism or other -isms at all. No, what it's really about is subjugating those classes of people who are presumed to be powerful to those who are presumed to be powerless. Business people and landlords of all races, sexes, and abilities are the targets; consumers and tenants are the beneficiaries.

Of course, the presumptions about power are not particularly accurate. There are many consumers and tenants who are wealthier and more influential than business people and landlords. But little facts like this never bother those who want to dismantle the free-market system.

The chiropractor decision contains the unspoken declaration that the doctor has some sort of obligation to provide services to the disabled woman, even though she is under no corresponding obligation to purchase his services. Interestingly, he has no general obligation to provide chiropractic services to the world. He can retire from practice and take his services off the market entirely if he chooses. But if he has no obligation to provide his services to anyone at all, then how can he have an obligation to provide services to the disabled woman in particular?

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. . . the Human Rights Code . . . imposes a form of involuntary servitude on certain members of society—the goods and service providers.

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What the Human Rights Code actually does is to impose a form of involuntary servitude on certain members of society—the goods and service providers. It transforms others—consumers who belong to one of the privileged minority groups—into overlords. The latter have the right to force the former to perform services for them against their will. There was a time when this was called "slavery," but it's unfashionable to call a slave a slave these days.

According to the preamble of the Ontario Human Rights Code, its purpose is to create "a climate of understanding and mutual respect." What it is bound to create instead is a climate of privilege and resentment.

A Reading from the Book of Job Creation

John Robson

Once upon a time, there was just enough to go around. Every man, woman, and child over five toiled as long and as hard as they could in order at the end of the day to have enough to eat, wear, and burn to survive the night and work again the next day. But at least everyone did have a job, and they all did survive, if the gods were willing, and the creek didn't rise.

But then one day something extraordinary happened. A farmer and his family figured out how to grow enough wheat to feed not only themselves, but an entire other family. Prehistory records that the increase had something to do with a stick and a line in the dry ground from the river to their field.

When this happened, some Cro-Magnon Keynes looked up from his plough and warned that there was not enough demand in the economy to soak up this extra production. After all, everyone else was already working, so the surplus wheat would just hang over and depress the economy. He suggested government slurp up the extra wheat and restore prosperity, while his Levantine Luddite neighbour said filling in the irrigation canal would strike at the very root of the problem, and the hairy radical Undeciphered Cuneiform Marks suggested filling in the canal with the farmer.

The farmer, however, called all the people together and said "Behold my wheat, which sits in a great whacking pile. I can't eat it all myself, nor do I want to. What I really want is a new and better house. Who among you considers himself a better builder than he is a farmer? If he will build me a new house this year, I will pay him with a year's worth of wheat. Let his family gather fuel and spin cloth as before, and he will have everything he ever had before. If he can build my house in less than a full year, he will even be able to grow some wheat himself, and trade it for a pair of River Jordan athletic sandals for his pimply kid. We will both be better off."

In those days, there were no professors of political philosophy, government inspectors, or advocates and activists, because everyone was busy surviving.

So the farmer got his house, the builder got his wheat, and the teenager got his athletic sandals, although verily he sassed his father anyway. But in the evenings the people marvelled at what had happened. "Lo," they said, between cracking nits with their teeth, "our brother took away his neighbour's job, by growing the wheat he was wont to grow, and instead of heaping ashes on that neighbour's head, he made the neighbour a wealthier man, and himself as well. Verily, economics is counter-intuitive. The neighbour's kid, though, is up to no good with our daughters, and those River Jordan sandals don't help any, do they?"

But the people were simple and had no book learning, and so they decided that he or she who made more than before did good for the community, and provided new jobs for those sick of the south end of a north-going water buffalo. And so it came to pass that another man dug an irrigation canal, and grew more wheat.

At that point, the stories say, someone wandered in from another land.

Hittites had destroyed his house, he said, and he had wandered near and far seeking a place to live. Everywhere he went, people had said unto him: "Sorry, we have no work to spare, and besides, you smell of garlic, so begone."

But in the land where more wheat was grown, such was not the response. There a man awash in wheat said "Speak, oddly-scented stranger, and tell me what you can do." And the man said "When the Hittites destroyed my house, they smashed a really first-rate dwelling, with a patio and a porch and a tasteful little gazebo as well, and one of those little vestibules for hanging cloaks. I can build you the best house you ever saw." So the man with the wheat said "Behold, my house is a shack, nay, a shed, and that wall there isn't going to stay up past next Tuesday. Build me a new one, and this wheat is yours."

But his neighbours reproached him, saying: "Verily, by allowing this stranger to build your house and consume your wheat, you have allowed him to take away a job from a member of our community. Wherefore do you do this?"

And the man said unto them: "It's my wheat and my house, so bugger off." And there was much glaring and wringing of necks, and all did stagger home with lumps on their heads.

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And so they praised the man who made two blades of grass grow where one had before . . .

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But behold, as it turned out, the stranger build the house in less than a year, and then hired himself out as a general contractor and dug irrigation ditches throughout the land, and was paid in the extra wheat that could be grown because he did this. And so it came to pass that before two years were done, he himself was offering wheat to those who would make him a much nattier set of animal skins, so that he could compete with the kid with the River Jordan sandals in the eyes of the community, and so the neighbour who had grumbled most loudly at his coming became a tailor. instead. And again the people marvelled, saying "Behold, this stranger did not take a job, but made one, and have you tried those sausages fried in garlic that he makes?" And so they praised the man who made two blades of grass grow where one had before, and welcomed the stranger who sought to live peaceably among them and to work to produce more than he consumed, and trade the surplus, and expand opportunities for all the villagers, even the pimply kid with the sandals and the sneer, who eventually grew up, trimmed his locks, and became a sanitation engineer with a sneering kid of his own.

All of these things came to pass in olden times when people were simple and did not know of deficient demand and the Red Sea Opportunities Agency.

And that is why there used to be jobs, and now there aren't.

The end.

Visitors

Recently, we welcomed the following visitors to the Institute

•Professor Zane Spindler and Professor Howard Haugan, both of Simon Fraser University

•Keith P. Amabachtsheer of Keith P. Amabachtsheer & Associates, Inc.

•Dr. Annis May Timpson, Lecturer in North American Studies at Sussex University, England

•Robert Cihak, MD from Aberdeen, Washington

•Paul Geddes, lecturer at Columbia College, New Westminster

•Pierre Lemieux, Montreal

•The Hon. Maurice McTigue, High Commissioner of New Zealand, Ottawa

•John Williams, MP for St. Albert, Alberta

•Dr. Vlad Romano, Romanian Association for Private Medical Care

Land Power to the People Will Conclude Land Claims

Owen Lippert

[The following summary is from the Change and Choice policy paper entitled "Out of Our Past: A New Perspective on Aboriginal Land Claims in British Columbia." Copies of the entire paper are available for $9.95 from The Fraser Institute. Call David Hanley at (604) 688-0221, ext. 306 to order your copy.]

In 1991, the British Columbia Treaty Commission was established to assist the federal and provincial governments to negotiate treaties with aboriginal groups in the province. Four years later, many British Columbians, both aboriginal and non-aboriginal, have come to question the current approach to aboriginal land claims. They want to know if the B.C. Treaty process will resolve the issue and increase wealth.

The central problem is that the provincial government, without justification in law or by direct democratic approval, is now poised to give away Crown land belonging to all British Columbians. The clear fact that the process favours one group— aboriginals—however, has not slowed the B.C. Treaty process. Fault, however, does not lie with the motives of individuals.

The process probably cannot be stopped because political temptations ensure that the B.C. Treaty process will neither succeed nor fail, just continue. No party will likely take the political risk of either stopping negotiations or actually concluding all possible treaties. A complex cross-hatch of incentives and interests holds the treaty process in a dysfunctional equilibrium that generates the illusion of progress while ultimately preventing a satisfactory conclusion. The provincial government may conclude one or two treaties, such as the one now pending with the Nisga'a band. It will want to show "good faith," then it will likely stall to avoid political turmoil. But land claims will just keep coming back, leading eventually to the piecemeal dispersal of land and resources.

The situation is getting worse because the negotiating process encourages ever more expansive demands by aboriginal negotiators. At the same time, no major political party appears willing either to stop negotiations or to face the real costs.

The cost of settling current claims could easily reach $15 billion dollars. Victoria can get away with a transfer of such magnitude because British Columbians do not see the true cost. That cost is disguised because it takes the form of "free" Crown land. If Victoria had to raise cash to settle these claims, instead of just giving away land, the provincial sales tax rate would have to double from 7 percent to 14 percent, for a total sales tax of 21 percent. No government would willingly do this. No "communications" or "consultations" could sell such a tax hike.

The law does not and cannot provide an answer as to how or why such a distribution of land and resources should take place. Court decisions make clear one point. No legal requirement exists for the transfer of land from the Crown to aboriginal people on the basis of unextinguished sovereignty or aboriginal title.

The bureaucracy cannot provide an answer. It is improper for ministry officials and negotiators to speculate on the scope and content of aboriginal rights as they are now doing through the Crown Lands Activity policy and the negotiation of interim agreements. Unless specific aboriginal rights are defined by the courts, the resulting disbursements will remain subject to legal challenge.

The question is: given the momentum for giving away Crown land, what can ensure a fair result for all British Columbians?

The answer proceeds from the judgment that provincial governments, present and future, can no longer be entrusted to hold the commonly-owned land base on behalf of, and for the benefit of, all British Columbians.

Only one solution will stop the provincial government from giving away Crown land and its resources to aboriginal, or any other, groups: Direct ownership must be distributed to all the owners, to all British Columbians. Then, if the government wants to give unequal portions of land to aboriginal and other groups, it must either purchase or tax it away from individual owners.

The most effective solution is to hold a provincial lottery of all Crown land. Such a lottery would resemble Sir James Douglas's policy of the 1860s that gave aboriginal and non-aboriginal British Columbians equal access to the land. Each British Columbian, regardless of age, would receive a piece of Crown land. Each share would be equally sized (with some regional variation) and would be held in fee simple title. Plot sizes may vary between regions, for example, using the values in the 1993 federal-provincial Cost-Sharing Memorandum of Understanding. Urban areas would have smaller sized plots. Plots would be gradually larger in suburban, timber bearing, range land, and "bush" regions. Satellite mapping and imaging now makes possible such a division of land throughout the province.

The lottery, itself, could take place over a year. Every week, the government could televise a draw in which individual parcels would be assigned to residents of British Columbia.

The metamorphosis of Crown land to private land will not and should not end land settlements. If individuals want aboriginal people to receive more land, they can contribute their share in a "Potlatch of the Millennium." Land transfers would be personal and voluntary rather than political and coercive.

The "Douglas" Lottery coupled with a "Potlatch of the Millennium" would free Crown land from political misuse and would create opportunities for greater prosperity among both aboriginal and non-aboriginal people. Buying, trading, and selling must replace land politicking.

Ottawa Should Follow Manitoba's Lead On Balanced Budget Laws

Robin Richardson

There has been a demonstrable increase in interest in balanced budget legislation as Canadians become concerned with rising deficits and public debt. In light of this interest, the challenge is to find the best means to reduce the size of government and eliminate government debt through legislated constraints—the primary constraint, in Canada at least, being the balanced budget law, coupled with a debt elimination plan.

So how much of "the government as a whole" should balanced budget legislation include? The rule should be to include the entire government universe: departmental operations, interest on the public debt, transfers to persons and to other levels of government, and the expenditures of government-owned enterprises.

A review of U.S. state-wide legislation shows that most balanced budget laws come far short in the issues of coverage or comprehensiveness. They typically apply to a portion of the Revenue Fund covering operating expenditures only, rather than to the Consolidated Fund which includes capital expenditures or, even more desirable, to the Summary Financial Statements of the government sector as a whole, which includes the operations of government-owned enterprises.

Since the objective of balancing a budget or eliminating a deficit is to ensure that government debt stops growing, the ideal balanced budget law should specify that any and all surpluses be used to reduce the government's debt as measured by its accumulated deficit.

The Canadian experience with balanced budget laws is very recent. The first piece of legislation was the Taxpayer Protection Act of British Columbia, passed on March 22, 1991 by the Social Credit government. It was repealed the next year by the newly-elected NDP government so that they could raise taxes in their first budget. Then New Brunswick introduced a balanced budget law in 1993, Alberta in 1994 and Manitoba in 1995.

Manitoba's balanced budget law is the most comprehensive in Canada. It covers both current and capital spending and has tough penalties for non-compliance. (The premier and each member of his Executive Council could lose 20 percent of their ministerial pay in each of two years—40 percent overall—if budget goals are not achieved.) This is unique in Canadian balanced budget legislation.

The Manitoba law includes a mandated payment schedule to retire the provincial debt over a maximum 30-year period. Taxpayer protection is included on about 70 percent of revenues, in that province-wide referendum approval is required for future increases in the provincial income, corporate, and sales taxes. The budget will have to be balanced annually after taking into account mandated principal and interest pay down instalments on the provincial debt.

With respect to the government of Canada, next year's budget should contain (i) a specified year-by-year target for deficit reduction, (ii) a specified year for budget balance, (iii) a specified penalty on the prime minister's ministerial salary and the salaries of each of his cabinet ministers and parliamentary secretaries if the government fails to meet the deficit reduction targets, (iv) statutory prohibition of budgetary deficits once budgetary balance has been achieved, except for specified exceptional situations such as war, (v) a long-term plan for eliminating the federal debt with minimum annual payments of interest and principal, (vi) the setting out in debt elimination legislation of a long-term goal of a Debt Freedom Year for Canada, (vii) statutory provision that any future surplus and the proceeds from the sale of federal lands, buildings and crown corporations be used entirely to pay down the federal debt, and (viii) taxpayer protection on personal and corporate income taxes and the GST until the federal debt is eliminated.

Another item that should be included in next year's federal budget is a detailed calculation of Quebec's separation obligation to Canada, in the event that Quebec leaves Canada. This calculation would involve showing Quebec's share of federal assets and liabilities, and the federal government's expectations for a repayment schedule of both principal and interest over a 25-year period. This should be done in order to provide full disclosure to investors, to demonstrate the importance of debt retirement in an orderly manner, and to inform Quebecers and other Canadians of one of the more important costs of separation, should there be another Quebec referendum in the next few years.

With six provinces expecting surpluses this year, it is important to shift the focus to debt elimination and away from deficits. Continued public pressure to eliminate the debt coupled with legislation to prohibit deficits, tough penalties on politicians for non-compliance, and long-term debt elimination plans with built-in taxpayer protection will ensure that Canada's long-term public debt problem will eventually be resolved without Canada having a major financial crisis.

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Last Modified: Wednesday, October 20, 1999.