Research

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Impact of Provincial Tax Changes on British Columbian Families

Summary

  • Since assuming power in July 2017, British Columbia’s NDP government has enacted or announced several significant tax increases. These include increases in personal income taxes, carbon taxes, and business taxes. In addition, a new payroll health tax has been created in place of the remaining MSP premiums and a variety of residential property taxes have been instituted or raised.
  • Collectively, these tax increases are expected to add a further $2.45 billion to the tax burden of British Columbians.
  • Once the tax changes are fully implemented, the average family's tax bill will increase by a total of $959, not including tax increases on residential properties.
  • British Columbia families across the income spectrum can expect to pay more in taxes. Specifically, the increase in total taxes ranges from $199 for an average family in the $20,000 to $50,000 income group (after accounting for the enhancement to BC’s climate action tax credit) to $1,754 for an average family in the $150,000 to $250,000 income group. This analysis excludes property tax increases.
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Capital Investment in Canada: Recent Behaviour and Implications

Summary

  • The growth of overall capital investment in Canada slowed substantially from 2005-2017 compared to earlier periods—and was lower than in virtually any period since 1970.
  • Further, the share of business investment in total capital investment declined dramatically from 2014-2016. Conversely, the share of household investment in total investment increased; by 2015-2016, household investment’s share was higher than in any period since 1981.
  • The share of total investment accounted for by dwellings is higher since 2014 than in earlier periods. This phenomenon is related to the increased share of household investment since the main asset category for households is residential dwellings.
  • Conversely, the shares of total investment going to machinery and equipment, and intellectual property, declined in the 2010-2016 period compared to earlier years. These two asset categories are important channels through which new technology is introduced and diffused through the economy.
  • This bulletin’s findings support recently expressed concerns from other researchers that the environment for business investment in Canada is deteriorating. In particular, the environment for business investment in assets that are critical to productivity growth has apparently become less favourable in recent years than the environments for other categories of assets.
  • Against the background of uncertainty surrounding NAFTA and reductions in the corporate tax rate and business regulations in the US, more favourable treatment of business income and capital gains in Canada should be a Canadian government priority.
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The Illusion of Alberta’s Jobs Recovery: Government vs. Private Sector Employment

Summary

  • With a drop in commodity prices in 2014 and the ensuing economic downturn, Alberta’s weakened labour market has attracted considerable attention. Nonetheless, Premier Rachel Notley’s government has touted recent employment figures as a sign that the situation is improving, arguing that total employment has recovered to its pre-recession peak.
  • However, focusing on total employment misses an important recent trend in Alberta’s labour market: the primary driver of total employment growth is an increase in government sector employment.
  • The recent growth in government sector employment began in July 2014 and has continued through the latest month of available data at the time of writing (May 2018). Over the period, government employment increased by 78,733 (21.5 percent) while private sector employment (excluding self-employed) fell by 46,267 (3.0 percent). As a result, the government sector’s share of total employment (excluding self-employed) increased from 19.5 percent to 23.2 percent—a level not observed in Alberta since 1994.
  • In contrast, Saskatchewan—another energy-dependent province affected by the drop in commodity prices—increased its government sector employment by just 2.1 percent from July 2014 to May 2018. That is a tenth of Alberta’s government sector employment growth rate (21.5 percent) over the same period.
  • Research suggests that the increase in government sector employment, and the decline in private sector employment, will translate into less overall prosperity for Albertans.
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Measuring Labour Markets in Canada and the United States: 2018 Edition

Labour markets are critical components of an economy. They are the mechanism through which we allocate one of our most valuable and productive resources: human work, effort, creativity, and ingenuity. Labour markets match human skills, supplied by individuals seeking to earn a living, with the demand for labour by firms, governments, and households.

Because labour markets are important, the public is often inundated with news stories, usually about changes in employment levels or unemployment rates. However, such stories do not generally provide a clear picture of how a jurisdiction’s labour market is performing. There is a need for a comprehensive measure of the performance of labour markets to allow comparisons, which is the first step toward understanding differences in labour market conditions and addressing possible problems.

Measuring Labour Markets in Canada and the United States: 2018 Edition is the latest installment in ongoing research to assess the performance of labour markets. Indicators such as job creation, unemployment, and labour output are used to assess the performance of labour markets in the Canadian provinces and US states over the three-year period from 2015 to 2017. The study calculates an Index of Labour Market Performance, which is a composite measure of labour market performance based on eight equally weighted indicators: [1] average annual total employment growth, [2] average annual private-sector employment growth, [3] average total employment rate, [4] average private-sector employment rate, [5] average unemployment rate, [6] average long-term unemployment, [7] average share of involuntary part-time workers, and [8] average output per worker. The index scores range from zero to 100. A higher score means a jurisdiction has a stronger performing labour market while a lower index score indicates a labour market with weaker performance.

Overall, Canada performed poorly on the Index of Labour Market Performance. All Canadian provinces are ranked in the bottom half of the 60 jurisdictions, including the traditional economic engines of Canada, Alberta (ranked 48th, with an index score of 48.1 out of 100) and Ontario (ranked 52nd, with a score of 44.5 out of 100).

British Columbia (ranked 35th, score of 53.6) and Saskatchewan (41st, 52.3) are the highest performing Canadian provinces, but neither is in the top half of jurisdictions on the overall index. Nine out of 10 Canadian provinces are in the bottom third (lowest 20 out of 60) of the index and four of the five lowest-ranked jurisdictions are Canadian provinces: Prince Edward Island (ranked 56th, score of 36.6), New Brunswick (57th, 35.4), Nova Scotia (59th, 31.3), and Newfoundland & Labrador (60th, 16.6).

The results for Canada’s four most populous provinces (Ontario, Quebec, Alberta, and British Columbia) are not encouraging. Ontario and Quebec both ranked around the middle or in the bottom half of jurisdictions on all indicators with the exception of average long-term unemployment. British Columbia fared better, ranking in the top 10 of jurisdictions for total and private-sector employment growth, but ranking near the bottom on several measures including private-sector employment rate and output per worker. A notable result for Alberta is its low private-sector employment growth: Alberta ranked 58th out of 60 jurisdictions on this measure with average annual private-sector employment growth of negative 1.1%.

North Dakota topped the list of US states and Canadian provinces for overall labour market performance over the three-year period. The state’s strong performance in total employment rate (1st out of 60 jurisdictions), private-sector employment rate (1st), unemployment rate (1st), and share of involuntary part-time workers (2nd) enabled it to achieve the highest overall index score of 80.4 out of 100. The US states in the Midwest dominated the top of the rankings. Six states from the Midwest—North Dakota, Minnesota, South Dakota, Iowa, Nebraska, and Wisconsin—are among the top 10. All of the 10 top performing jurisdictions are US states.

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Regulatory, Reimbursement, and Pricing Barriers to Accessing Drugs for Rare Disorders in Canada

The objective of this study is to provide an understanding of the impact of the drug regulatory review process, the reimbursement recommendation and price negotiation systems, and the procedure for controlling prices on Canadian patients’ ability to obtain insurance-covered access to new drugs for rare disorders. The essay also considers the potential negative impact of changes proposed by the federal government to Canada’s Patent Medicine Prices Review Board (PMPRB), whose primary role is to ensure that the maximum Canadian prices for patented medicines are not excessive.

The study first addresses what a rare disorder is and how rareness is assessed and defined in different jurisdictions. It outlines the time and effort required to bring treatments for rare disorders to the situation where they can be considered for human consumption, and presents some examples of new drugs for these disorders. It then examines the barriers that must be overcome in order to bring new medications for rare disorders to Canadian patients. These include the national regulatory review and approval process, the pricing controls presently in place in Canada, the health technology assessment processes that make recommendations regarding reimbursement to public drug insurance plans, the system established by federal, provincial and territorial drug plans to negotiate prices with pharmaceutical manufacturers, the individual public drug plan negotiations, and the criteria that patients must satisfy before they can obtain insurance coverage. Finally, the study discusses the potential for the proposed revisions to the patented medicines regulations to be a much larger barrier to access to drugs for rare disorders than it is for more common disorders.

The proposed changes to the role of the PMPRB have created much uncertainty among patients and pharmaceutical manufacturers and have the potential to delay the launch of new innovative medications in Canada by decreasing the country’s attractiveness to companies as a market for their products, especially for costly medicines, which includes many drugs designed to treat rare disorders. The changes include altering the number and mix of countries that the PMPRB uses as the basis for setting the maximum allowable prices for patented medications in Canada by excluding two relatively high-priced countries—the United States and Switzerland—in favour of countries with generally lower prices in order to decrease the prices of patented drugs. In addition, the federal government wants the PMPRB to perform assessments of the value of patented drugs based on cost-effectiveness analyses submitted to the Canadian Agency for Drugs and Technologies in Health, and to evaluate the anticipated market size of the drug over the first three to five years of use against Canada’s per-capita gross domestic product as a proxy for an individual’s buying power to assess the impact of the drug’s proposed price on patient and insurer finances. If patented medications fail these tests, the PMPRB may require price reductions.

The complex processes required to bring new drugs for rare disorders to Canadian patients are already causing delays in patient access to these drugs, which extends patient suffering by failing to alleviate their unmet needs in as timely manner as possible. The creation of more barriers that will deter or delay pharmaceutical manufacturers from bringing the many new costly drugs for rare disorders in development to Canada denies both hope and health benefits to Canadian patients. Instead of making access to new costly drugs easier, it seems that federal govern¬ment officials are presently fixated on a mantra of “affordability, accessibility and appropriate use of prescription drugs.” The proposed sweeping changes to the PMPRB are part of this trend. Rather than providing hope to patients needing costly new drugs for previously untreatable conditions, Canadian governments appear to be moving towards a basic “pharmacare” system built on a formulary of inexpensive genericized drugs and a small, restricted-access list of specialty drugs, including drugs for rare disorders, limited to those available from manufacturers willing to negotiate substantial price reductions. Canadian governments and their associated organizations should be developing inventive and coherent nationwide policies to balance timely and fair access to all drugs, but especially those for rare disorders, with appropriately competitive pricing negotiations so that drugs are accessible to Canadians who need them.

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Comparing Municipal Government Finances in Metro Vancouver, 2018 Edition

Municipal governments play an important role in the lives of British Columbians by providing important services and collecting taxes. But municipal finances do not receive the same degree of public scrutiny as the finances of senior governments. This can pose a problem for taxpayers and voters who want to understand how their municipal government performs, especially compared to other municipalities. To help create awareness and encourage debate, this report provides a summary analysis of important financial information for 17 of the 21 municipalities in Metro Vancouver, spanning the 10-year period from 2007 to 2016.

Government spending

There is considerable variation in per-person spending among the 17 Metro Vancouver municipalities. West Vancouver, the highest spender in 2016 (at $2,583 per person), spends more than twice the amount spent by Surrey, the lowest spender (at $1,057 per person), and more than one-and-a-half times the regional average ($1,549 per person). But the large differences in per-person spending do not seem to be driven by population. For instance, the City of Vancouver has the largest population and is the third highest spender ($1,944 per person), while Surrey has the second largest population and is the lowest spender (17th). From 2007 to 2016, all 17 municipalities increased per-person spending, after inflation. But the growth in inflation-adjusted spending per person was faster in some municipalities than others. The District of Langley had the fastest growth (46.6%) and Port Coquitlam had the slowest (3.3%). The regional average was 21.3%.

Government revenue

As with spending, there is great variation in per-person revenue levels among the 17 Metro Vancouver municipalities. In 2016, West Vancouver collected the most revenue per person ($3,253)—nearly $1,600 more per person than Pitt Meadows ($1,661), which collected the least, and more than one-third above the regional average ($2,256). Interestingly, the largest municipality—the City of Vancouver—collected the third highest total revenue per person ($2,693) in 2016 while the second largest municipality—Surrey—collected the second lowest ($1,673). Notably, large differences exist between neighbouring municipalities in terms of the amount of revenue they collect per person. After accounting for population growth and inflation, the City of Langley and Port Coquitlam are the only two municipalities that experienced a reduction in revenue per person over the period of analysis. All other municipalities saw growth, with all except two (Richmond and Pitt Meadows) in the double digits. For the region as a whole, inflation-adjusted revenue per person grew by 25.3%, faster than the rate of spending growth (21.3%).

When it comes to developer fees, which are essentially taxes levied on property developers, Surrey, Maple Ridge, Port Coquitlam, and the District of Langley all relied more heavily on this revenue source than other municipalities over the decade analyzed. However, a high reliance on developer fees can have adverse implications because, as research shows, in some markets such taxes can be passed on to homebuyers, leading to higher prices for new homes and possibly existing housing. This is a critical issue for Metro Vancouver, which already has high home prices relative to other Canadian regions.

For property taxes, another key revenue source, some municipalities rely more heavily on businesses, as opposed to residents. The City of Langley has the largest property tax share coming from businesses at 50.9% and West Vancouver has the lowest at 7.0% (the range for most municipalities is between 28.3% and 46.8%). However, imposing too heavy a property tax burden on businesses can have negative economic consequences since property tax rates can influence business decisions about whether or not to maintain operations, expand, or relocate. This is particularly important for Vancouver, which in many ways is the economic hub of the region. Yet the share of Vancouver’s property tax revenue coming from businesses (46.8%) is above both the regional average (40.3%) and the share found in Surrey (31.5%); the city also has among the highest ratios of business-to-residential property tax rates. For instance, Van-couver’s heavy industry tax ratio is almost five times that of Surrey, the next largest munici-pality by population.

Government debt and interest spending

All Metro Vancouver municipalities examined in this report are in a net financial assets position. These range from $107 per person in Surrey to $5,023 in Burnaby. Vancouver, unique in its ability to issue government debt on its own authority, also has the highest interest expenditure relative to its operating spending (3.2%). Provincial regulations that require balanced operating budgets and that limit debt accumulation play an important role in keeping municipal debt low.

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Restoring Ontario's Public Finances

Ontario’s public finances have deteriorated over the last few decades as chronic deficits have led to mounting public debt. Nevertheless, the situation can be repaired—and relatively more quickly than might be imagined.

Restoring Ontario’s Public Finances finds that restoring balance to Ontario’s finances requires taking responsibility and making a commitment to prudent financial management and discipline.

For the new government, this should mean quickly eliminating the budget deficit and then establishing a longer-term fiscal framework based on affordable spending targets and the application of resulting surpluses for pro-growth purposes or debt reduction. The benefits from such action will be increased business and investor confidence in the provincial economy and sustainable finances that will provide stability for important government programs in health, education, and infrastructure renewal.

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Summary

  • The Canadian Consumer Tax Index tracks the total tax bill of the average Canadian family from 1961 to 2017. Including all types of taxes, that bill has increased by 2,112% since 1961.
  • Taxes have grown much more rapidly than any other single expenditure for the average Canadian family: expenditures on shelter increased by 1,480%, clothing by 732%, and food by 625% from 1961 to 2017.
  • The 2,112% increase in the tax bill has also greatly outpaced the increase in the Consumer Price Index (731%), which measures the average price that consumers pay for food, shelter, clothing, transportation, health and personal care, education, and other items.
  • The average Canadian family now spends more of its income on taxes (43.1%) than it does on basic necessities such as food, shelter, and clothing combined (35.6%). By comparison, 33.5% of the average family’s income went to pay taxes in 1961 while 56.5% went to basic necessities.
  • In 2017, the average Canadian family earned an income of $85,883 and paid total taxes equaling $37,058 (43.1%). In 1961, the average family had an income of $5,000 and paid a total tax bill of $1,675 (33.5%).
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Comparing Government and Private Sector Compensation in Alberta, 2018

Main Conclusions

  • Using data on individual workers from January to December 2017, this report estimates the wage differential between the government and private sectors in Alberta. It also evaluates four non-wage benefits for which data are available to quantify compensation differences between the two sectors.
  • After controlling for factors like gender, age, marital status, education, tenure, size of firm, job permanence, industry, occupation, and full- or part-time status, the authors found that Alberta’s government-sector workers (federal, provincial, and local) enjoyed a 9.6% wage premium, on average, over their private-sector counterparts in 2017. When unionization status is factored into the analysis, the wage premium for the government sector declines to 6.1%.
  • The data that are available on non-wage benefits suggest that the government sector enjoys an advantage over the private sector. For example, 72% of government workers in Alberta are covered by a registered pension plan, compared to 24.2% of private-sector workers. Of those covered by a registered pension plan, 95.3% of government workers enjoyed a defined benefit pension compared to 29.3% of private-sector workers.
  • In addition, government workers retire earlier than their private-sector counterparts— about 1.7 years on average—and are much less likely to lose their jobs (4.2% in the private sector compared to 0.7% in the public sector).
  • Moreover, full-time workers in the government sector lost more work time in 2017 for personal reasons (11.8 days on average) than their private sector counterparts (6.5 days).
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The Price of Public Health Care Insurance, 2018

Summary

  • Canadians often misunderstand the true cost of our public health care system. This occurs partly because Canadians do not incur direct expenses for their use of health care, and partly because Canadians cannot readily determine the value of their contribution to public health care insurance.
  • In 2018, the estimated average payment for public health care insurance ranges from $4,640 to $12,935 for six common Canadian family types, depending on the type of family.
  • Between 1997 and 2018, the cost of public health care insurance for the average Canadian family increased 3.5 times as fast as the cost of food, 2.4 times as fast as the cost of clothing, 2.2 times as fast as the cost of shelter, and 1.8 times faster than average income.
  • The 10% of Canadian families with the lowest incomes will pay an average of about $496 for public health care insurance in 2018. The 10% of Canadian families who earn an average income of $66,196 will pay an average of $6,311 for public health care insurance, and the families among the top 10% of income earners in Canada will pay $38,903.