Fraser Institute

[Search]
[Media Releases]
[Events]
[Online Publications]
[Order Publications]
[Student]
[Radio]
[National Media Archive]
[Membership]
[Other Resources]
[About Us]


The
Economic Freedom
Network

 

Child Poverty in Canada

by Chris Sarlo Chris Sarlo teaches economics at Nipissing University in North Bay, ON. He is the author of Poverty in Canada, published by The Fraser Institute.

Every year around this time, we hear that child poverty is getting worse. We hear that Canadian governments (especially at the provincial level) and many people in our society are apparently indifferent to the suffering of so many children. We are told that, compared to all other industrialized countries except the US, Canada’s poor children fare badly. The clear implication is that Canadians lack compassion. We are responding inadequately in the face of so much misery among our most vulnerable citizens.

The group most responsible for these claims is Campaign 2000, a coalition of Canadian social action/advocacy groups. Campaign 2000 was instituted to monitor the federal government’s performance in reducing child poverty since the House of Commons 1989 resolution to eliminate child poverty in Canada by the year 2000. Campaign 2000’s annual report cards receive wide media coverage and its statistical evidence is widely cited by commentators and political leaders.

Recent policy recommendations by Campaign 2000 include the spending of an additional $15 to $20 billion annually (largely by the federal government) to address child poverty. A major component of this expenditure would involve an expanded national child benefit paying up to $4,200 per child to low-income families. Needless to say, there would be important microeconomic implications (particularly for work incentives and the supply of labour) and macroeconomic implications (for income taxes and the status of the government’s budget) of such a major new program.


The implausibility of LICO as a poverty line has been highlighted in recent years by the frequent comparisons between LICO and the incomes of social assistance recipients...


Two issues related to the work of Campaign 2000 need to be critically examined. The first involves the question of how poverty is defined, and the second deals with the likely effectiveness of more spending on child poverty.

How many Canadian children are truly poor?

Campaign 2000 uses Statistics Canada’s Low-Income Cut-Offs (LICO) as poverty lines despite Statscan’s frequent caution that the LICO was never intended as a poverty line. There are many problems with LICO. It is complex in construction, to the point that few users really understand what it represents. It is a relative measure to the extent that it is intimately connected to average expenditures by Canadians. What this means is across-the-board improvements in everyone’s living standard will not reduce poverty. Only some compression of the distribution of income (by redistribution, for example) will reduce poverty, if this approach is used. Finally, LICO values are too high ($33,000 for a family of four in a major urban area, for example) to be credible as poverty lines.

The implausibility of LICO as a poverty line has been highlighted in recent years by the frequent comparisons between LICO and the incomes of social assistance recipients in reports published by the National Council of Welfare and others. Such comparisons show large (and growing) “poverty gaps” for most people on welfare, even though social assistance is designed to provide income on a “last resort” basis to cover the cost of the basic requirements of daily living. It was never intended to provide a near middle class standard of living. The provinces’ frustration with such unfair comparisons has prompted the establishment of a federal-provincial working group to construct a realistic poverty line for policy purposes. What they want is a believable measure of poverty against which to compare progress in alleviating the poverty of families with children. Clearly, they have no confidence in LICO.

Despite this, LICO continues to have the support of many in the social welfare community. They regard high and relative poverty lines as appropriate because they view poverty lines as goals. When the LICO or other relative approaches are used, the rate of child poverty is shown to increase. For example, the National Council of Welfare’s 1996 Poverty Profile uses LICO to claim that the child poverty rate increased from 15 percent in 1980 to 21 percent in 1996.

LICO and other relative measures are inappropriate for any serious examination of poverty in Canada. These measures clearly exaggerate the problem of poverty and end up trivializing the predicament of those who suffer real deprivation. My preference is to use a basic needs, market-basket measure. With this measure, the poor are those who cannot acquire all of life’s basic necessities. This approach is preferred not because we want the poor to have a low living standard, but because we want to find out how many Canadians (and especially Canadian children) do, in fact, have that low living standard. I can’t imagine any student of poverty not wanting to have that information.

This latter definition is consistent with the popular understanding of the term “poverty.” The poverty line is “the minimum income level needed to secure the necessities of life,” states the Oxford Concise Dictionary, reflecting common usage. The basic needs standard is a reasonable threshold for poverty because we can be fairly certain that people do suffer as they move below that level. I think it is the case that most low-income people view poverty in this way as well. A 1996, large-sample survey of Australian social assistance recipients found that almost 70 percent felt that poverty meant “not having enough to buy the basics like food and clothing,” or “having to struggle to survive each and every day.” By contrast, only about 9 percent of those surveyed felt that poverty meant “never being able to afford any of the good things in life” or “having a lot less than anyone else.” I find it curious that many social activists strongly prefer high, relative poverty lines, but will routinely speak of those who fall below the line as “hungry,” and “seriously deprived.” At the very least we should expect that definitions used be used consistently.


LICO and other relative measures are inappropriate for any serious examination of poverty in Canada. These measures clearly exaggerate the problem of poverty and end up trivializing the predicament of those who suffer real deprivation.


When a basic needs measure is used to determine child poverty in Canada, we find that the clear trend has been down over the past 20 years or so. I have estimated the rate of child poverty to be about 9 percent in 1973; about 8 percent in 1984; and about 5.6 percent in 1994. This solid decline over the past couple of decades comes after more impressive decreases in real poverty in Canada between 1951 and the mid-1970s. This is a much different picture than that presented by Campaign 2000. The fact is that real child poverty is in retreat. This is good news!

At the same time, we should not be complacent. There are still thousands of children who are ill-housed and who are hungry. There are, of course, many more kids who are “poor” for reasons that have nothing to do with low-income. There are children who are abused, neglected, and unloved. There are more than one million children in Canada coping with separation and divorce—circumstances that almost always reduce their short- and long-term well-being.

Some researchers prefer measures that can identify families and children who, while they may have basic needs covered, are not likely to be full participants in society because of their low income. They are “excluded” (at least from the point of view of consumption) from the mainstream of society. There may well be merit in a higher cut-off that can determine the number of people whose income is insufficient to afford a reasonable range of social amenities. My own “social comfort line,” set at twice the poverty line, (and higher than the LICO lines) is an example of such a device. However, it is not a substitute for a poverty line.

Would higher cash payments really help poor kids?

The prevailing view of policy makers and most social scientists for some time has been that more cash to low-income families with children will always help improve those children’s lives. Put another way, the families of “poor” children need more money to buy the things that will provide opportunities for their children.

 

COVER story


Camera.JPG


This viewpoint has always had its detractors. If a child has abusive or alcoholic parents, how can more money given to the parents make a real difference in the child’s life? Sceptics wonder how important a factor money really is. The impressive record of poor immigrants and their children stands as a significant counterexample to the importance of money. And there are just too many cases of successful adults who have grown up in a loving but poverty-stricken environment here in Canada.

In a landmark study of this issue,1 Susan E. Mayer challenges the conventional wisdom about the importance of money to children’s wellbeing. A scholar at the University of Chicago, Mayer initially believed that parental income was the key consideration in determining how well children did. Her careful econometric analysis of longitudinal databases, and her use of several research strategies to test the validity of her work has led her to a much different conclusion. She states:

Parental income is not as important to children’s outcomes as many social scientists have thought. This is because parental characteristics that employers value and are willing to pay for, such as skills, diligence, honesty, good health, and reliability, also improve children’s life chances, independent of their effect on parent’s income. Children of parents with these attributes will do well even when their parents do not have much income.

This conclusion flies in the face of the common liberal claim that the poor are just like everyone else except that they have less money.

The results in Mayer’s book imply that once children’s basic material needs are met, their parents’ characteristics become more important in determining how they turn out than anything additional money can buy.

Mayer’s research not only suggests that a basic needs poverty line would give us more useful information than any other threshold, but that policies other than income support need to be examined. Major new programs, such as the ones proposed by Campaign 2000, which redistribute more money to “low income” families, most of whom are already covering basic necessities, may well not help improve the opportunities of Canadian children.

Notes

1Susan E. Mayer, What Money Can’t Buy: Family Income and Children’s Life Chances, Harvard University Press, 1997. u

Camera_0.JPG  

COVER story


A Tale of Two Newspapers

by Lydia Miljan

Lydia Miljan is Director of the National Media Archive, a division of The Fraser Institute. She researches and writes on various media topics.

There seems to be a consensus of opinion in media circles that the increase in concentration of newspaper ownership is a bad thing. Since Hollinger took majority control of Southam, scholars and journalists have worried aloud that the newspaper chain will become the voice of the “hard right.” For example, in a June 5, 1998 Maclean’s column, Anthony Wilson-Smith mused, “And is it true, as Black insists, that he does not interfere with editorial decisions? He does not have to: everyone in Southam realizes—and discusses—the career implications of falling out of favour.”

The concern over Southam’s ownership has been the lightening rod for several studies, including one released this summer by Simon Fraser University students under the banner of NewsWatch Canada. In their media release they charge that stories run in the local Southam paper, the Vancouver Sun, were not the same in the late ’80s as they were in 1997. They argue, among other things, that the paper is more business-oriented now, and that diverse groups and viewpoints in the community are not even-handedly represented. It is interesting that they do not compare the Sun to any other news organization. They do not, for instance, ask what changes have taken place in the Globe and Mail’s or, for that matter, CBC’s coverage, during the same time. The only time the students compare the Sun with another paper is when they contrast news coverage of Hollinger in the Sun with that in the Toronto Star. Not surprisingly, they found that the Star was more critical of business stories in the Southam chain than was the Sun. Neither the Star’s nor the Sun’s coverage of Torstar, the parent company of the Toronto Star, was examined in either newspaper.

Are the students’ concerns valid? Are their measures the best measurements of balance, or of ownership’s influence on content? It could very well be that the Sun has become more business-oriented in the ’90s, but it does not necessarily follow that more business news is less balanced news. There might have been a woeful neglect of business in the ’80s by the Sun. The accusations the students appear to be making are that because a paper has more business, it has tilted to the right. However, an equally plausible conclusion is that the paper was so unbalanced to the left that by providing more business news now, it has actually become more balanced.

Poor debate on poverty

Poverty is an issue that the SFU students examined in their analysis of the Sun. They argued that coverage of poverty declined between 1988 and 1997. While they conceded that “most coverage still portrayed the poor sympathetically,” they also noted that “stories that portray the poor as threatening or undeserving increased noticeably.”1 What the students did not explain is the kind of attention poverty received. Who were the sources? Were those sources challenged? What prescriptions for change were offered?

The SFU students did get one thing right, though. That is, it is important to examine how the media report social issues such as poverty. The way the media report social activist groups’ assertions about poverty has far-reaching implications about the debate on social spending. Over the years the National Media Archive has documented how television and the daily press has often uncritically reported child poverty figures provided by social activist groups. This year we combine those efforts with an examination of newspaper ownership and how it might affect editorial content.

Newspaper ownership and editorial content

To test whether ownership influences the information printed in newspapers we examine two newspapers in two separate regions of the country. The Toronto Star, owned by the Torstar Corporation, and the Calgary Herald, owned by the Southam chain, are the subjects of this inquiry. The Toronto Star boasts the largest circulation of any daily newspaper in Canada. It is published by John Honderich who “repeatedly bemoans the disappearance of other family-run newspapers.”2

Wilson-Smith argues that the Calgary Herald “poached” columnists from the rival Sun newspapers and Alberta Report “to give the papers a newly conservative tone more in keeping with that of Albertans—and, of course, of Black.” In doing so, the Calgary Herald has become one of the most profitable papers in the Southam chain.

If we are to believe the journalists and communications students, we should expect to find balanced coverage of child poverty in the Toronto Star, one of the last family owned newspapers, and imbalanced, “right”-leaning coverage in the Calgary Herald, which is part of the new breed of Southam papers.

Toronto Star Has Twice as Much Coverage of Child Poverty as Calgary Herald

From August 1997 to June 1998, the Toronto Star carried 152 stories on child poverty. In contrast, the Calgary Herald ran 68 stories on the same topic. Not all the stories had child poverty as the main theme. For analytical purposes, we narrowed the number of stories to include only those that focused on child poverty as the story’s main theme. With that definition, the Toronto Star ran 26 and the Calgary Herald 14 stories that focused specifically on child poverty.

Toronto Star Uncritically Accepts 1.5 Million “Poor Children” Figure

In its stories on child poverty, the Toronto Star was not in the least critical of the figures presented by social activists—figures claiming that there are 1.5 million Canadian children living in poverty (1 out of every 5). Indeed, the Star repeatedly ran stories, ostensibly by different agencies, which made the same claim. The National Council on Welfare, the Canadian Institute for Social Development, the National Longitudinal Survey of Children and Youth, the Campaign against Child Poverty, Campaign 2000, Metro Campaign 2000, Campaign 2000 Ontario, the Canadian Living Foundation, Metro’s Task Force on Young Children, the Caledon Institute, and the Canadian Council on Social Development (CCSD) all released the same or similar figures throughout the year, which were dutifully reported by Toronto Star journalists. (The Toronto Star failed to note that most of these organizations differ in name only; they often have the same staff people working on the various reports). The only time that the figures were challenged was when Richard Shillington of Campaign 2000, who in other stories was variously associated with the CCSD, wrote an opinion article for the Toronto Star attacking Christopher Sarlo’s attempt to measure poverty in a different way. In defending the relative measure of poverty Shillington stated: “In reality, relative poverty will not be reduced by economic growth unless there is redistribution to the poor. To illustrate, an across-the-board raise of 10 percent will not reduce relative poverty, but a raise of $1,000 per person will.” (December 30, 1997, p. A17.) Shillington’s faulty logic failed to acknowledge that unless only the poor received the increase, the $1,000 raise per person still would not reduce relative poverty.

Within the Star stories there were only two instances when reporters hinted that the 1-in-5 figure was not the definitive word. On December 2, 1997, in a story that promoted Campaign 2000 Ontario’s report that the number of poor children had doubled, another perspective was presented. In Laurie Monsebraaten’s page A16 story headlined: “Child poverty jump shocking, activists say,” Monsebraaten gave Margaret Marland, the newly-appointed Minister Without Portfolio for Children, an opportunity to give some positive news about poverty: “[Marland] believes the lives of poor children have improved since 1995. In that time, 103,616 children escaped welfare, and jobs are up by more than 270,000, she said.” Monsebraaten gave the last word to the activists who charged that, “the government initiatives fall woefully short. Many social critics also question government statistics, saying the drop in welfare numbers means only that the government has made qualifying for welfare tougher, not that more people are escaping welfare by finding jobs.”

Indeed, Monsebraaten was the only Toronto Star journalist who seemed even remotely aware, or at least to be even remotely attempting to inform her readers, that the social activist groups’ figures were in dispute. On August 2, 1997, Monsebraaten relayed the Metro’s Task force on Young Children figures that “1 child in 3 in Metro is too poor to count on enough to eat at the end of the month, too poor to participate on an equal footing in school, and too poor to have confidence in the future.” Following those numbers she gave the United Way’s estimates that 1 in 5 Metro residents is poor. Buried in the middle of the article she acknowledged that Statistics Canada’s Low Income Cut-Offs (LICO) are not a suitable measure of poverty. She indicated that “The Fraser Institute says the poverty line is too high.” That was immediately followed by the statement, “but others, such as the Canadian Council on Social Development, note that the average poor family falls at least $7,000 short of the StatsCan guideline.” This statement was attributed to Richard Shillington, who was on this occasion identified as the co-author of The Canadian Fact Book On Poverty, published by the CCSD in 1994. While Monsebraaten is hardly the poster journalist for balanced news reporting, she went beyond any of her colleagues at the Toronto Star by at least acknowledging that another perspective exists.

Balance.JPG  

ON balance


Calgary Herald Debates Poverty Measures

In stark contrast to the Toronto Star coverage, the Calgary Herald offered its readers a variety of stories on child poverty. While the Herald contained its share of stories that did not challenge the activists’ numbers, two news stories did acknowledge that there was no consensus about how to measure poverty. In a November 28, 1997 report, Helen Dolik explained how the city measured poverty and contrasted the city’s assumptions with Statistics Canada’s definitions and the work of Christopher Sarlo: “The city bases its definition of poverty on what Statistics Canada calls the ‘low income cut-off,’ or LICO. A low-income household is one that must spend 55 percent or more of its income on food, shelter, and clothing. The LICO for a family of four in a large city is about $32,000. But StatsCan says LICOs indicate ‘straitened circumstances’ and do not measure poverty. The Fraser Institute’s Christopher Sarlo, an economics professor, measures poverty in terms of people who are unable to afford basic necessities. He estimates child poverty at 392,000 in Canada. Using the LICO, that number jumps to 1.4 million children. Alberta Social Services spokeswoman Kathy Lazowski says there’s no consensus in Canada on how to measure poverty.”

The Herald also differed from the Toronto Star in its editorial position. The Toronto Star took the argument that social spending should not be left up to the provinces. For example, the December 10, 1997 Toronto Star editorial warned its readers to mistrust provincial politicians: “The premiers want a restructuring of the social union to give the provinces joint responsibility with Ottawa for setting and enforcing national standards. This means the federal government would lose its traditional role as the guardian of medicare. Since most provinces have violated the Canada Health Act in the past decade, we should think twice about relinquishing one of the safeguards of our universal public health system. Similarly, under this new partnership, Ottawa would not be able to launch new social initiatives, such as a Canada-wide fight to end child poverty, without provincial participation. On the verge of its first surplus in decades, it seems an inopportune time for Ottawa to lock itself into a straitjacket on social policy.”

Rather than attack the social conscience of the provincial governments, some Herald writers argued that the figures presented by activists were difficult to swallow. For example, a November 30, 1997 Calgary Herald editorial argued that measures of poverty had to be realistic in order for help to come to people who really needed it: “Such hyperbole is not only unfair and deceptive, but it’s downright harmful to those who are genuinely poor because it trivializes their situation and forces them to fight harder for legitimacy. Nor is redefining poverty right off the scale of reality any way to win friends to the front lines of the battle. Nothing makes people who might otherwise lend valuable input and resources to a worthy cause turn a deaf ear faster than an overdose of misleading in-your-face hype. For in-your-face is what 37,000 Calgary children would be if they were truly living in poverty, as it is defined by the general public. They’d be on street corners, sleeping in doorways and otherwise highly visible to middle-class, work-a-day Calgarians going about their business.”

Similarly, Peter Menzies chastised his media counterparts in a December 4, 1997 Calgary Herald editorial: “Despite the fact Statistics Canada cautions its low-income cutoff (LICO) should not be used as a measure of actual poverty, the allegation that one in five Canadian children is ‘living in poverty’ has become accepted as fact in the nation’s media. In truth, it is a political position. While there’s no doubt many of those below the LICO are poverty-stricken in real terms, the statistic itself is a relative measure which defines low income-earners without regard for their circumstances and thus exaggerates the real situation.”

All this is not to say that the editorial writers at the Herald were unanimous in their dislike for poverty figures. Robert Bragg provided the Canadian Council on Social Development’s position about the relative measure of poverty. He interviewed the CCSD executive director, David Ross, who argued that poverty “is always defined relatively and the StatsCan LICO as an indicator of income should not replace reality.” Ross gave the following analogy: “It’s not like you fall over a cliff and horrible things suddenly happen if your income suddenly dips below the cut off. Horrible things happen to people as they move down the income scale.”

 

ON balance


Balance_1.JPG

What was refreshing about the Herald’s coverage was not that it provided The Fraser Institute’s measurements of poverty, or that it had Robert Bragg championing the CCSD, but that the editors opted to provide their readers with both sides of the argument. Stories from social groups were given fair coverage, as were the critics of those figures. This type of revelation was wholly absent from the Toronto Star’s attention to child poverty.

Toronto Star Poll Shows Canadians Want more Spending on Poverty

The use of other statistics differed significantly between the two dailies, too. For example, the Toronto Star used poll results showing that Canadians were in favour of increased social spending to combat child poverty. On November 6, 1997 the Toronto Star headline read: “Social Services High Priority.” The lead paragraph continued: “Metro’s staggering 36 percent child poverty rate and the growing inequality between rich and poor are of great concern to GTA residents, the survey shows.” They cited a 66 percent level of support for local government spending in this area.

In contrast, a Calgary Herald story reported on a survey by Ekos Research Associates. While the poll noted that 56 percent of Canadians believed child poverty had worsened in the last 5 years, and 64 percent said it has worsened during the last decade, it also reported: “Nearly half of respondents were concerned that spending on child poverty will simply encourage dependency on social programs.” The article also examined the political use of the poll: “Stung by an Angus Reid poll published last week in The Globe and Mail that showed Canadians preferred tax cuts and debt-reduction over new social spending, Human Resources Minister Pierre Pettigrew is striking back with the Ekos survey.”

In its quest for social justice, the family-run Toronto Star systematically gave one sided reports on poverty and lacked critical analysis of political and interest group agendas. In contrast, the chain-owned Calgary Herald with no guiding principle other than traditional journalistic objectivity gave its readers varied opinions on the size of the problem, critically analyzed the agendas of both the social activists and the government, and let their readers make up their own minds. Rather than simply provide one side of the story, the Calgary Herald gave almost equal space to social activists arguing in favour of measuring poverty on relative terms, and to conservatives wanting an absolute measure of poverty.

Our many years of studying media reports on poverty have shown that the mass media are more likely to report poverty the way Toronto Star does than the way the Calgary Herald does. The unrelenting battle by social activists to present their view of the truth has had an impact on public opinion. An August 17, 1997, Toronto Star article by Elaine Carey examined how social activists use their figures to place poverty on the national agenda. In this article, Christa Freiler of the Child Poverty Action Group gave an anecdote from 1985 when the group held its first conference and tried to interest the media. At that time, the international press were reporting on the Ethiopian famine: “We hardly got any media to come—they were saying, ‘You guys have got to be kidding. This is not child poverty—I don’t know what your measurement is’—partly because they had all these pictures of starving babies.” Carey explained that since then there has been a “huge change” in the public’s perception of the problem. However, she failed to note that that change was facilitated by the press being less than critical of social activist figures. Carey quoted Freiler again: “The figure that one in three children in Metro is living in poverty has been around for several years, but it takes a while for stuff to sink in,” she says. “I don’t think there is any question that there is child poverty. I think most Canadians believe the numbers.”

When Carey pointed out that some people are beginning to question how the poverty figures were arrived at, Freiler dismissed those concerns as coming from “higher incomes, economically secure men.” Clearly Freiler is right when she says that it takes a long

time for the numbers to sink in, and until the media accurately and critically report child poverty estimates, the public will be ill-equipped to participate in the debate on the best ways to end child poverty.

Ownership can make a difference in news reporting. In examining the sensitive and critical issue of child poverty, the “chain-owned” Calgary Herald provided a greater diversity of opinions on poverty in fewer stories than did the “family-run” Toronto Star. This analysis has shown that while ownership does influence newspaper content, the family-run papers of yesteryear do not necessarily provide a more balanced debate on social issues, including poverty, than do today’s chain-owned papers.

Methodology

Results are based on a computerized text search of the Toronto Star and Calgary Herald databases on the Canadian News Disc from August 1997 to June 1998. Stories were located using the term “child poverty.” Only stories that had child poverty as the main theme of the story were included in the analysis.

Notes

1The students didn’t actually examine all the years between 1988 and 1997 to verify if coverage of poverty declined during that time. They simply found that there were fewer stories on poverty in 1997 than in 1988.

2Anthony Wilson-Smith, “Why small is not always beautiful,” Maclean’s, June 15, 1998. u

Balance_2.JPG  

ON balance


A Very “Poor” Idea

by Karen Selick

Karen Selick practices law in Belleville, Ontario, and is a columnist for Canadian Lawyer. Her email address is kselick@reach.net and her web site is http://www.nextcity.com/go/KarenSelick.

Michelle Falardeau-Ramsay, head of the Canadian Human Rights Commission, is one of those people who should be very careful about what she wishes for. If she ever got her wish, she and a lot of other people would find it very unpleasant indeed.

Since her appointment in 1997, Ms. Falardeau-Ramsay has been campaigning to have “poverty” included as a prohibited ground of discrimination under the Canadian Human Rights Act. She writes in the commission’s annual report: “Poverty is a serious breach of equality rights which I believe has no place in a country as prosperous as ours.”

There’s a new breed of socialist around who realizes that Canada has reached its limit in redistributing income through taxation. Our high taxes are discouraging people from working as long or as hard as they otherwise would, driving some of our most talented and productive citizens to emigrate, and pushing many people into the underground economy. Yet despite half a century of increasingly aggressive wealth redistribution, Canada still has rich people and poor people. What to do?

The latest strategy focuses on consumption rather than income. If the radical egalitarians can find a way to make having no money just as comfortable and advantageous as having lots of money, differences in income won’t matter. That’s why they’re adamant, for example, that citizens not be permitted to spend their own money on better or speedier medical care than what the government provides. Now they hope to pass laws making it illegal for anyone who provides goods, services, facilities, or accommodations to discriminate on the ground of poverty.

A few moments’ thought might make them realize that businesses rarely discriminate on this ground anyway. Doing so would mean turning away business and reducing profits. If there’s one thing those greedy capitalist pigs can’t be accused of, it’s passing up an opportunity to make a buck. So most businesses don’t give a hoot whether their customers are rich or poor, so long as they’re prepared to pay the going price and abide by the same contractual terms as anyone else.

Human rights activists, however, have developed theories of “adverse impact” and “systemic” discrimination. They contend that even business practices which appear neutral on the surface can be discriminatory if they affect one minority group more than the population at large.

Combine these concepts with protected status for a group called “the poor,” and the result will spell the end of the market system. Virtually every consumer transaction would become an illegal act of discrimination, because the poor, by definition, will always be less able than the middle class or the rich to afford any given quality or quantity of goods and services.

“Poor” customers would be able to make merchants ridiculously low offers for merchandise, offers the merchants literally couldn’t refuse unless they wanted to be hauled before the Human Rights Commission. In fact, charging any price for a product would be discriminatory. “The poor” could extend the rationale currently applied to medical care to insist that all goods and services be provided free of charge.

Ms. Falardeau-Ramsay would then have her egalitarian utopia. Unfortunately, we would no longer have the prosperous country she referred to. Our standard of living would plummet to bare subsistence. Few people are willing to work and produce anything when not working gets you the same benefits, and everyone always want much more of everything when they don’t have to pay for it. The result would be chronic shortages, waiting lists, and line-ups. The people whom Ms. Falardeau-Ramsay wishes to help would actually be far worse off than they are today.

Despite the rhetoric of activists who say 25 percent of Canadians live in poverty, the truth is that real poverty—the lack of sufficient money to afford the neces- sities of life—is virtually unknown in Canada. Statistics Canada defines people as “low-income” if they spend more than 58.5 percent of their income on food, shelter, and clothing. That still leaves 41.5 percent for non-necessities. This absence of genuine poverty explains why would-be immigrants from every country of the world are hammering on the doors to be let into this place where we will supposedly trample all over their human rights.

The best guarantee any country has against widespread poverty is a thriving economy, and the only way an economy can thrive is through the free market. This in turn depends on the existence of two things: freedom of contract and private property rights. There’s not a word in the Canadian Human Rights Act about either of these. In fact, the Act systematically violates both of these fundamental freedoms by forcing certain targeted classes of people (the providers of goods, services, facilities, and accommodation) into transactions with members of legally privileged groups, against their will, and on terms they haven’t agreed to.

Justice Minister Anne McLellan has promised a thorough review of the Canadian Human Rights Act, including the question of adding poverty as a prohibited ground of discrimination. Let’s hope she has the common sense to understand the destruction this would wreak on the country. u

In Case of Hernia,Dress as a Cat

By Filip Palda

Filip Palda is Professor at l’École Nationale d’Administration Publique in Montreal, and Senior Fellow of The Fraser Institute. He received his Ph.D. in Economics from the University of Chicago.

A cat with a hernia is a happy creature. Within a day or two of diagnosis, its owner can get it into an operating room, sniffing nitrous oxide, dreaming of tables groaning with food in a room abandoned by humans. The indulgent owner can ask that after the operation the cat stay under supervision until it is back in form and ready to resume its schedule of 18 hours of daily sleep. A recent study by The Fraser Institute shows that in Canada, a human with a bust gut has to wait anywhere between 4 and 11 weeks for his or her operation. Animals with thorns in their paws don’t get treated with anything like the indifference that humans in distress receive from hospitals. In 1994, Statistics Canada found that over a million Canadians felt they needed care but did not get it. One third of these people in need reported they were in moderate or severe pain. Did the story of Androcles and the lion program the nation’s healers to put humans at the bottom of their dance card, or is some other force at work?

I asked a veterinary surgeon why animals had it better than humans at the hospital. Her answer: competition with a big C. “If we don’t take care of the animals fast, for a reasonable price, and with compassion, there are other hospitals itching to gallop away with our business and our profits.”

Politicians and health care unions view competition with as much favour as certain Transylvanian counts view garlic and holy water. This is why for years hospitals guarded like secret scrolls their waiting lists for elective procedures. They did not want their customers knowing how slow the service was getting. George Orwell said, “He who controls the past, controls the future.” The past shows that waiting lists have never been as long in Canadian hospitals as they are today. If the customers who use these hospitals could see how much less health care their increasing tax dollars are buying than before, they would strap their leaders to gurneys and demand an explanation. Canadian health care consumers may sense there is something wrong with their system, but they don’t know what change to propose. We are the tamest sort of consumer because we have never sampled the alternative, and we have a poor sense of how much better things were in the past.

The Soviets understood the danger of comparison. For 70 years communists delivered appallingly poor government services at backbreaking costs. The people did not rebel, in part because they were kept in the dark about their alternatives.

Canadian health care has taken a page from the Soviet book: never give people a clear idea of whether service is deteriorating or of whether a better alternative exists. This is why many provinces are reluctant to publish waiting lists. This is also why Quebec health unions are in an uproar. Recently, private individuals and businesses in Quebec offered to sponsor a medical clinic. People could still use the clinic for free. The twist was that the clinic would have private money with which it could experiment to find new ways of satisfying its customers. Health care unions are trying to block this effort, fearing that the private hospital will show up public sector workers as lollygaggers.

If animals could talk they would explain to us what we are missing by allowing government to keep its monopoly on running health care. Cats would wonder at our willingness to wait weeks for the relief of simple aches. Dogs would try to get their masters booked at the vet. We need a Doctor Doolittle to do the translating. Short of this, perhaps our politicians could give us a sample of private health care, or publish detailed accounts of hospital performances. This way we could judge whether we are getting quality health care for our tax dollars, or whether the money is just going to the dogs. u

It’s Medicare, Stupid...
... Or Is It?

by Andrew Kosnaski

Andrew Kosnaski is an economist with the New Hampshire Public Utilities Commission. He was recently a senior economic advisor in Canada in the Office of the Leader of the Opposition.

The conversation has probably been repeated thousands of times over dinner tables, bar-stools, and lecture halls across the country. “Why are Canadian taxes so high compared to those in the United States? It just doesn’t make any sense.” “Why of course it does, we have a public health care system, whereas in the United States it’s every man, woman, and child for themselves.” The argument seems to make intuitive sense. Because Canadian governments provide a public health insurance scheme, Canadians must expect to pay higher taxes. In other words, our “public” health insurance premiums result in a higher tax burden relative to the US where only the very poor and low-income retired people qualify for public health care schemes. However, just how much sense does this argument make? Does it hold up under closer analysis? I think not, since even in the absence of public health care schemes, Canadian tax burdens are still quite high relative to the United States.

Adjusting for military
spending

In order to carry out the comparison, we have to establish some basic facts. First, according to the OECD, Canadian governments (federal, provincial, and municipal) will collect some 43.5 percent of Gross Domestic Product (GDP) in total revenues in 1998. Governments in the US (federal, state, and municipal) will collect 31.6 percent in the same year—a difference of 11.9 percentage points. However, in order to make a valid comparison, we have to recognize the US’s role as a world superpower, and its correspondingly heavy military burden. According to US budget documents, the US will spend roughly 3.1 percent of its GDP (US$265.1 billion) on discretionary defence spending, compared to Canada’s 1998 figure of $7.9 billion, or 0.9 percent of GDP. Removing these amounts from our “tax burden” figures yields an adjusted Canadian tax burden of 42.6 percent of GDP and an adjusted US figure of 28.5 percent of GDP. The correct way to look at these numbers is this: if governments funded military spending through special military taxes, they would only have to collect the adjusted amounts to pay for all other government spending programs. In other words, the adjusted figures of 42.6 and 28.5 percent assume that defence spending is “given,” and thus can be removed from the total tax burden figures.


Because Canadian governments provide public health insurance, we pay higher taxes.... But how much sense does this argument make?


Now we can adjust our totals for Canada’s public health care system to get to the truth of the argument that Canada’s higher tax burden is simply a result of our public health care system. If the health care spending argument is completely correct, then after adjusting for public health care spending in both countries, the resulting total tax burdens (with health care spending “given”) should be identical, since we will have corrected for Canada’s larger public health care sector.

Adjusting for health care spending

According to Health Canada, total health expenditures in Canada for 1996 (in current dollars) were Cdn$75.2 billion, or Cdn$2,510 per capita. Health expenditures accounted for 9.5 percent of GDP in 1996, down from the 1992 peak of 10.2 percent of GDP. Since public sector funding represents about 70 percent of total health expenditures (down from 74.6 percent in 1991, with the remaining 30 percent financed privately through supplementary insurance, employer-sponsored benefits, or by direct out-of-pocket payments), the public sector share of total health care expenditures is the total ($75.2 billion) multiplied by 70 percent, yielding total public health care expenditures of $52.6 billion. Since public health care expenditures have been sustained or even slightly reduced since 1996, we can assume that they account for the same proportion of GDP in 1998 that they accounted for in 1996: 6.6 percent. Thus, adjusting for Canada’s public health care spending of 6.6 percent of GDP, the total tax burden in Canada is now 36 percent. In other words, Canada’s tax burden for “other” spending stands at 36 percent of GDP. This is the tax revenue raised for spending on all government programs other than defence and health, since the shares of both have already been removed. From these calculations, we can conclude that Canadian governments raise taxes equal to 7.5 percent of GDP to fund defence and public health care expenditures, and taxes equal to (43.5 less 7.5) 36 percent of GDP to fund everything else. The calculation is:

Total Canadian Tax Burden 1998
43.5 percent of GDP [A]
Less: Defense Expenditures
0.9 percent of GDP [B]
Less: Health Care Expenditures
6.6 percent of GDP [C]
Tax Burden For Other Spending
(A-B-C) 36.0 percent of GDP

Now, in order to make a credible comparison, we must also remove the sizeable Medicare/Medicaid spending from US taxation figures to correct for public health care expenditures in the US. Remember, Canada is not the only nation with publicly-funded health care programs. Thus, if we are to make a reasonable comparison between the two countries, we must also adjust for public health care spending in the US.

According to the Health Care Financing Authority (the arm of the federal government that operates the Medicare/Medicaid programs), Medicare and Medicaid provide health insurance coverage for over 73 million Americans. The HCFA projects total (federal state and local spending) public expenditures of US$540.4 billion in 1998, made up of total federal spending of US$393.8 billion and total state and local spending of US$146.6.1 When expressed as a percentage of (1998) GDP, this yields total public health expenditures of 6.45 percent, or just ths of a percentage point less than public health expenditures in Canada! Applying this public health expenditure share to the total US tax burden number provided above, results in an adjusted 22.1 percent of GDP. Again, this number can be interpreted as the total (net of health/defense spending) tax burden necessary to finance that part of government spending that falls into the “other” category once defense and health are removed from the mix. Thus, the US calculation is:

Total US Tax Burden 1998
31.6 percent of GDP [A]
Less: Defense Expenditures
3.1 percent of GDP [B]
Less: Health Care Expenditures
6.4 percent of GDP [C]
Tax Burden For Other Spending
(A-B-C) 22.1 percent of GDP

Therefore, the evidence appears to contradict the claim that the difference in Canadian and US tax burdens is a result of Canada’s public health care expenditures. Even after controlling for larger public health care spending in Canada and a larger defense sector in the US, there is still a whopping 13.9 percentage point difference in Canada-US tax burdens. In other words, after removing the effects of a larger defense sector in the US and a (perceived) larger public health care sector in Canada, there is still a total tax differential of 13.9 percent of GDP between Canadian and US tax burdens.

The reality

Given that the Canadian government’s 1998 Budget Plan forecasts 1998 GDP at $892 billion, eliminating the tax differential (by reducing the net of health/defense tax burden to the US level) would require a reduction in the total tax-to-GDP ratio to the US level of 22.1 percent of GDP, which could be carried out by providing Canadians with a $124 billion tax cut! This is the equivalent of the total elimination of federal and provincial income taxes, as well as the elimination of the Goods and Services Tax. And because total public health care expenditures have already been removed from our adjusted figures, this proposed tax cut would engender no reduction in the level of public health care spending. Canadian governments would still collect 6.6 percent of GDP for public health care spending (1998 $59 billion), 0.9 percent of GDP for defense ($8 billion) and 22.1 percent for other spending ($197 billion).

Conclusion

This analysis seems to contradict the argument that the relatively heavier Canadian tax burden can be explained by the existence of a public health care system in Canada, since such arguments ignore the existence of a large public health care system in the US (one that provides benefits for over 27 percent of Americans). However, because evidence exists that the Canadian health care system is relatively efficient compared to the US system, and that the Canadian system provides benefits for 100 percent of the Canadian population, we should view this exercise as illustrative only. Nevertheless, it does cast doubt upon the public-health-care-spending-equals-higher-taxes argument. Indeed, we should look elsewhere for reasons for our heavy tax burden, and stop blaming the public health care system. There exists a dangerous piece of reasoning in the current Canadian debate over taxes—that those who argue in favour of lower taxes must be arguing against Canada’s medicare system. This article’s arguments show that the debate is not as black and white as the health care arguments would suggest, and Canadians can realize that arguments for lower taxes are not arguments for lower health care spending, but better management of “other” spending, which makes up the bulk of Canada’s bloated government sector.

Note

1Medicare/Medicaid accounts for $396.6 billion or 73.4 percent of the $540.4 billion total. u

GOVERNMENT finance    


Money.JPG

 





 info@fraserinstitute.ca

You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.

 
If you know someone who would be interested in this web page, please enter their email address below, and we will forward this URL to them:
Email Address:
Last Modified: Wednesday, October 20, 1999.