Saturday, April 28, 2012

Expanding Quebec's Tuition Debate

This was supposed to be a comment on the following post on the Quebec student strikes but for some reason it would not go live. But it works just as well as a standalone piece discussing Quebec's tuition issue.

The importance of tertiary education in an increasingly specialized and globalized world is unquestioned - but so are other public services and a competitive tax system. I don't pretend to know what the right answers for Quebec are but all I can comment on is how precarious of a situation they are in.

Adjusted for price, Quebec has one of the most generous but costly array of government programs across Canada (Figure 1). These programs, which stretch from subsidized day-care to generous pensions to employees to cheap universities, are funded by Canada’s most progressive and onerous tax system (Figure 2), and $8 billion a year in Equalization payments (1). 

Figure 1: Price-Adjusted Per Capita Program Spending, 2008-09

Source: Replication of the calculation from Quebec's report "Le québec face à ses défis" using data from Statistics Canada's Financial Management System, Intercity Price Index and Population.

Figure 2: Comparison of Provincial Personal Income Taxes

Source: BC Budget, Page 131
Note: This data is from February 21, 2012.

What’s not funded by these own-source revenues and federal transfers is accumulated in an ever growing debt – already the highest in Canada using most metrics (Figure 3). Economically, the province has not kept pace with the rest of Canada for years and looking forward, Quebec is not anticipated to grow nearly as fast as the Canadian average for the next decade to come (2) – at least.

Figure 3: Net Debt to GDP Ratios

Source: Calculations based on data from the Department of Finance Canada's Fiscal Reference Tables and Statistics Canada.

The growth of federal transfers, which make up around 20 per cent of Quebec’s revenues, are anticipated to decline fairly significantly (Figure 4 and also see the 2012 Quebec budget). In order to combat this reduction in transfers, the relatively large deficit and growing debt, the most recent budgets announced tax increases and other revenue measures, as well as reductions in program spending. 

Figure 4: Quebec's Projected Revenues

Source: Quebec's 2012 budget

Lastly, the population of Quebec is projected to age faster than the Canadian average (Figure 5) putting further strain on their economy, and therefore revenues, and pressure on their network of social programs.

Figure 5: Proportion of Population Projected to be 65 and Over

Source: Statistics Canada's population projections using M4 scenario.

All this is to say – Quebec is in a bind, stuck between a rock and a hard place - much like many other provinces. While they need to maintain support for tertiary education to improve their competitiveness, this decision has to be balanced with ensuring enough resources to support other social programs that an increasingly aging population relies on, and a fair but competitive tax system in a country that has low-taxed Alberta and a continent that has low-taxed America.

I think the current discussion is too narrow. As with any other discussion on public policy, it has to be expanded to include other economic, social and public policy issues. In a world where priorities are increasingly competing for scarce resources, what is lacking from the current discussion are ideas on how to fund inexpensive tuition. What is lacking are debates on the best use of public dollars. What is lacking is a comprehensive discussion on the value and effectiveness of all public services and which society judges to be worthwhile. The debate has to be expanded to be relevant to Quebec's current situation and useful to find a solution.

As with anything I produce, I encourage you to fact check these arguments which are just my personal opinion. In fact, if anybody is interested, I'm willing to provide the supporting worksheets with all the data.

1) Quebec's 2012 Budget, Page C.22

2) Royal Bank of Canada, & Conference Board of Canada’s Provincial Economic Outlook (Paid subscription required).