Research

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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.
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Comparing Government and Private Sector Compensation in British Columbia, 2018

Main Conclusions

  • Using data on individual workers from January to December 2017, this report estimates the wage dif-ferential between the government and private sectors in British Columbia. 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, type of job, industry, and occupation, the authors found that British Columbia’s government-sector workers (federal, provincial, and local) enjoyed a 7.5% 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 4.2%.
  • The available data on non-wage benefits suggest that the government sector enjoys an advantage over the private sector. For example, 91.8% of government workers in British Columbia are covered by a registered pension plan, compared to 17.7% of private-sector workers. Of those covered by a registered pension plan, 94.0% of government workers enjoyed a defined benefit pension compared to under half (44.7%) of private-sector workers.
  • In addition, government workers retire earlier than their private-sector counterparts—about 1.9 years on average—and are much less likely to lose their jobs (2.3% in the private sector compared to 0.4% in the public sector).
  • Moreover, full-time workers in the government sector lost more work time in 2017 for personal rea-sons (13.7 days on average) than their private-sector counterparts (9.2 days).
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Permit Times for Mining Exploration in 2017

Since 1997, the Fraser Institute has collected information from mining company executives, who evaluate mining policies in jurisdictions around the world. One theme that regularly appears in the comments we receive as part of that survey is a perception that permit-times—the length of time it takes to get approval for mining exploration—has grown longer and more onerous over the years. Based on the perceptions of respondents, Canadian jurisdictions, on average, are falling behind on the majority of measures when compared to their international competitors. British Columbia, in particular, appears to be a laggard on some measures, along with the territories. Respondents indicated that not only were they waiting longer to receive their permits than they were in competing provinces like Ontario and Quebec, but British Columbia also offered less certainty throughout the permitting process.

On one of the specific dimensions of permit-times that we asked respondents to assess—how long it takes to receive the necessary permits—85% of respondents in Quebec, 71% of respondents in Ontario, and 61% of respondents in British Columbia indicated that they received the necessary permits in six months or less. Canadian jurisdictions, on average, performed better on this measure when compared to competing jurisdictions.

The results indicate that permit approval times over the last ten years are lengthening in British Columbia, Ontario, and Quebec when compared to last year’s results. In 2017, 83% of respondents in Ontario said that permit times had lengthened (over the last ten years) compared to 73% in British Columbia and 50% in Quebec. On average, more respondents in the Canadian jurisdictions indicated that permit times were lengthening (over the last ten years) compared to respondents in Australia and Scandinavia.

When asked about transparency in the permitting process, 50% of respondents in Ontario, 48% of re-spondents in British Columbia, and 40% of respondents in Quebec cited a lack of transparency as a de-terrent to investment. In contrast, only 9% of respondents in Sweden and Western Australia saw the level of transparency as a deterrent to investment. This is an area where many Canadian jurisdictions per-formed poorly compared to their counterparts in the United States, Australia, and Scandinavia.

As with transparency, a number of the jurisdictions in the United States, Australia, and Scandinavia out-performed many of the Canadian jurisdictions in providing confidence that the necessary permits would be granted. On this measure, Quebec and Ontario perform better than British Columbia, and Western Australia performs better than all three jurisdictions. Specifically, in Quebec and Ontario, 90% and 88% of respondents indicated that they were either highly confident or confident that they would receive the necessary permits, compared to 73% in British Columbia.

Based on the evidence from the survey, many Canadian jurisdictions are lagging behind their international competitors for increases in the time to permit approval, transparency, and confidence that permits will be granted. As a result, Canada’s provinces and territories certainly have room to improve their exploration permitting processes. Policy reform in these areas may help Canada’s provinces and territories unlock their considerable mineral potential.

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Implications of the proposed changes to Canada's pharmaceutical pricing regulations

This essay provides an overview of the main elements of the Canadian regulatory process for biopharmaceuticals, including recent changes. It describes the role of the Patented Medicine Prices Review Board (PMPRB), the Board’s Regulatory Process—including the Scientific Review Process and the Price Review Process—the proposed Amendments to the Regulations, and their potential consequences.

At the federal level, Canada regulates the prices of all patented medicines to ensure that the prices of patented drugs are not “excessive.” This extends to every patented drug, whether covered on an insurer’s formulary or not. It is important to recognize the scope of this regulation: the prices of off-patent drugs are not regulated, and the regulations do not grant jurisdiction to regulate the prices of patented medicines throughout the distribution chain (from wholesaler to pharmacy to patient).

In May of 2017, Health Canada proposed an update to several aspects of the PMPRB regulations governing patented medicines. The proposed amendments included five important changes to the regulations: economics-based price regulation factors, an update of the reference country basket set used for international price comparisons, establishment of a complaints-based system of oversight for patented generic products, the pricing information required of patentees, and requirements for the provision of rebate and discount information on domestic prices.

The proposed changes raise some concerns. Specifically, PMPRB currently compares Canada’s patented drug prices with those found in seven other countries: France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and the United States. Under the proposed changes, the reference countries would no longer include the United States or Switzerland, and would instead add seven other countries: Australia, Belgium, Japan, Netherlands, Norway, South Korea and Spain. The new reference country basket will significantly impact both the highest international price and the median international price comparison metrics. Fundamentally, the change will lower the maximum allowable price, requiring pharmaceutical innovators to lower their prices in Canada in order to be in compliance.

In addition, the proposed changes would incorporate new factors in the determination of whether a medicine is being or has been sold at an “excessive” price. With this change, the PMPRB will assess the “value” of new drugs by reviewing cost-effectiveness analyses submitted to the Canadian Agency for Drugs and Technologies in Health (CADTH). Drugs above the threshold risk not being insured. Crucially, PMPRB’s threshold is not specified in the proposed regulation amendments.

The Regulations would also be amended to require patentees to report to the PMPRB all indirect price reductions, promotions, rebates, discounts, refunds, free goods, free services, gifts, or any other benefit in Canada. This change runs the risk of increasing costs to public drug plans rather than reducing them. The proposed amendment would require biopharmaceutical manufacturers to report all confidential rebates and discounts provided to governments under their listing agreements. The PMPRB would then use this information to calculate “actual prices” in order to set a lower maximum price for new drugs. Notably, that new lower price will apply to all markets, essentially eliminating all incentives for manufacturers to offer such rebates.

Fundamentally, the proposed changes alter the role and responsibilities of the PMPRB, transforming how it operates as a national price control regulator for patented medicines. The outcome is likely a significant change in how the PMPRB carries out its dual mandate to safeguard against the potential for excessive pricing and report on pharmaceutical trends and R&D spending. Importantly, the new and expanded role of the PMPRB will negatively impact patients’ access to medicines as well as the viability of the Canadian life sciences sector.

Health Canada estimates that these changes will generate savings of CA$12.6 billion over the next ten years through reduced prices for patented medicines. While the new regulations may ensure Canada doesn’t pay “excessive prices,” there is reason to worry that they may also reduce the availability of new therapies for Canadian patients. If biopharmaceutical innovators believe that the new regulatory framework prevents them from profitably marketing their drugs in Canada, they may elect not to launch new products in Canada. Instead of improving access, the new regulations may essentially become a further barrier to access to new medicines.

Profit both incentivizes innovation and helps fund research and development. Higher prices induce greater profit which allows for more investment, increased research and development, and more innovation and drug discoveries. Health Canada estimates that the innovative biopharmaceutical sector will lose CA$8.6 billion in revenues over the next ten years. The proposed changes will reduce the financial capacity of patentees to invest in the Canadian life sciences sector.

In sum, while the 1987 amendments that created the PMPRB reflected a thoughtful balance across several policy objectives, protecting consumers from excessive patented medicines prices, while ensuring sufficient incentives for patentees to introduce new medicines to Canada, the proposed changes are limited to solely lowering patented drug prices. As a result, the aforementioned policy balance is put at risk. The proposed changes clearly disincentivize innovative drug launches in Canada, potentially de-prioritizing Canada in the global launch sequences for new drugs. Moreover, the increasing reporting requirements represent an unnecessary regulatory burden and would increase the time to achieve public reimbursement. Such significant changes should not go without thoughtful examination, though in this case that appears lacking. Quite simply, rather than bolstering the Canadian health care system, the proposed changes only serve to undermine it.

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Phasing Out Supply Management: Lessons from Australia's Dairy Industry

Australia’s dairy industry has a long history of government support and control. From the 1920s to the end of the twentieth century, a succession of state and federal governments sought to stabilize the supply and price of milk, butter, and cheese and, as a result, encouraged the production of drinking milk over milk for further processing. This resulted in higher prices for consumers. After deregulation of the industry in 2000, prices for fresh milk fell and producers are now able to interpret global price signals and adjust their investment and planned output based on real-world demand, rather than face the inefficiencies, rigidity, and perverse incentives associated with government control.

A succession of agricultural policy reforms throughout the 1980s and 1990s addressed some of the issues arising from government control and subsidization, and were bolstered by Australia’s commitments to end export subsidies on accession to the World Trade Organisation in 1995. In 2000, the industry was deregulated. State Marketing Authorities, which had been responsible for setting prices and managing supply, were abolished, as was the premium paid for “market milk” produced for consumption as fresh milk. Alongside these reforms, from 2000 to 2008 the Federal Government instituted a package of measures to help producers adjust or transition out of the industry. A number of smaller farms were either consolidated or put to other productive uses.

The results of these reforms have been unambiguously positive. Consumers have benefited from lower prices for fresh milk, with prices falling by 12¢ per litre immediately following deregulation. Farmers have received consistently rising farm-gate prices, which have risen by 56% since deregulation in 2000. Fewer, larger, farms are driving greater productivity, the national milk supply has been maintained, and the size of the national dairy herd has stabilized in what is an ongoing consolidation, rather than shrinking, of an ever-more productive industry.

Dairy deregulation has enabled the Australian dairy industry to be reconfigured so producers can respond in an efficient way to supply and demand. The Australian dairy industry now exports almost half of its output, making dairy the third most important agricultural export after beef and wheat, and bringing in export earnings of about $3 billion per year. The flexibility and market orientation of the industry has positioned Australian dairy producers to take advantage of the falling tariffs in the Asia-Pacific region driven by the Comprehensive Progressive Trans-Pacific Partnership (CPTPP), and potential liberalization of UK trade policy following Brexit.

The Australian example is instructive for Canada and other major dairy-producing nations.

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The Effects on Entrepreneurship of Increasing Provincial Top Personal Income Tax Rates in Canada

Entrepreneurship is a crucial source of innovation, employment, and growth in an economy. Consequently, it is a recurring theme in many academic and policy debates. While there is no single, comprehensive measure of entrepreneurship, most studies and policymakers commonly use business entry-rate—defined as the number of new businesses as a ratio of total businesses—as a key indicator of entrepreneurship. In recent years, Canada’s federal and some provincial governments have raised their top marginal income tax rates and increased the progressivity of the personal income tax system. Since earnings from entrepreneurship, including capital gains, are subject to the personal income tax system in Canada, the recent increases in top income tax rates have also increased the country’s capital gains taxes.

Various recent government reports indicate that the Canadian business entry rate has been declining over the past three decades. This downward trend in entrepreneurship is certainly a great concern to society as business creation is often directly related to productivity and employment growth. Considering the current state of entrepreneurship, some commentators and analysts wonder whether it is possible to increase entrepreneurship and encourage more business creation through various income tax policies. What is the impact of a progressive income tax system on entrepreneurship? Is it possible to stimulate entrepreneurship through appropriate income tax policies? This paper seeks to answer these questions empirically using Canadian provincial data over a 30-year period.

Economic models show that the personal income tax system can influence entrepreneurship in many ways. According to one strand of the literature, higher income tax discourages entrepreneurship. This is because entrepreneurial activity is inherently risky, and entrepreneurs pay significant taxes on all their incomes (labour income, capital gains, or dividends) when they are successful. However, when they incur a loss, the tax savings are quite limited. Consequently, higher personal income tax can be viewed as a tax on “success” and may discourage entrepreneurial activity. On the other hand, other studies argue that entrepreneurs have relatively more tax planning opportunities and the potential tax-saving benefits increase with the income tax rate. According to some of the theoretical models that emphasize this issue, higher income tax rates can encourage entrepreneurship, even if it is not productive entrepreneurship. Ultimately, the effect of income tax on entrepreneurship is an empirical question.

Previous empirical studies have examined the relationship between income tax and various measures of entrepreneurship, but the results from these studies are mixed. To shed more light on this important issue, this paper investigates the effect of the top personal income tax rate on entrepreneurship using data from Canadian provinces over the period 1984–2015. In addition to the top income tax rate in each province, the empirical analysis controls for the various factors that are generally considered important determinants of entrepreneurship.

The empirical findings of this paper show that a higher provincial top income tax rate has a negative and statistically significant effect on entrepreneurship, both in the short- and long-term. The results indicate that an increase in the top marginal income tax rate discourages entrepreneurship as measured by the business entry rate. This suggests that raising the top income tax rate exacerbates the decline in business creation. Based on the empirical results, a one percentage-point increase in the top statutory marginal income tax rate is associated with a 0.06 percentage-point decrease in the business entry rate in the short-term, and a 0.21 decrease in the long-term. Considering the long-term results, a province that raises its top personal income tax rate by one percentage point can expect to have fewer new businesses enter its economy. That drop ranges from 14 (in the case of Prince Edward Island) to 696 (in the case of Ontario). Notably, in recent years, many provinces have raised their top personal income tax rates—Alberta raised its top rate by five percentage points, Ontario raised its top rate by 3.1 percentage points, and BC raised its top rate by 2.1 points. The federal government’s recent four percentage point hike to its top rate will only serve to exacerbate the provincial increases.

The findings in this paper suggest that these increases in top personal income tax rates have resulted in a significant loss to the Canadian economy, which has been experiencing a decline in entrepreneurship for a long time. In sum, the empirical results show that an increase in the top marginal income tax rate discourages entrepreneurship as measured by the business entry rate. This finding suggests that the adverse effect of a higher personal income tax rate on risk-taking by entrepreneurs outweighs the potential tax planning opportunities entrepreneurs may have. The study’s empirical analysis includes extensive robustness checks, which shows that in all cases, the negative effects of a higher income tax rate on entrepreneurship remain significant. The results yield an important policy implication: Canadian governments can encourage entrepreneurship with personal income tax rate cuts.

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Protecting Government from Free Trade: The “Free the Beer” Case at the Supreme Court of Canada

Main Conclusions

  • The Canadian Constitution says that Canada is an economic union. Under section 121 of the Constitution Act, 1867, goods from one province shall be freely admitted into any other.
  • The Supreme Court, in its decision in R. v. Comeau, declares otherwise. Provincial free trade, it says, cannot be allowed to impede the regulatory actions of provincial governments.
  • In R. v. Comeau, the Court upholds fines imposed upon a resident of New Brunswick for buying beer in Quebec and bringing it into New Brunswick in excess of limits under New Brunswick law. The legislation creates a monopoly for the New Brunswick Liquor Corporation for the sale of alcohol in the province.
  • Contrary to the words of section 121, the Supreme Court states that provinces are entitled to erect barriers that inhibit the flow of commerce as long as inhibiting trade is not their primary purpose.
  • The Court concludes that the primary purpose of the New Brunswick legislation is to restrict access to any liquor not sold by the New Brunswick Liquor Corporation, not just liquor from another province. Therefore, it does not offend section 121.
  • The Court expresses concern that free trade between provinces would undermine the ability of provincial governments to maintain supply management regimes, retail monopolies, and other regulatory programs.
  • To protect government regulation, the Court places the burden of proof on complainants to show that re-stricting trade is the primary purpose of any legislation that has the effect of impeding the flow of goods from province to province.
  • In preferring regulation and protectionist measures over free trade, the Court disregards both the plain meaning and historical intent of section 121 and substitutes its own vision of the proper role of government. It places aside the words of section 121 as incompatible with the functions that the Court believes the state should serve.
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Comparing the Standardized Test Scores of British Columbia’s Public and Independent Schools

Main Conclusions

  • In all six Foundation Skill Assessment exams (FSAs), non-elite independent schools had a higher five-year average score than public schools, by statistically significant amounts.
  • The largest difference on FSA exams was in Writing: non-elite independent schools scored 18.0% higher than public schools in grade 4, and 18.9% higher in grade 7.
  • On Provincial Required Exams (PREs), non-elite independent schools had a higher five-year aver-age score than public schools on four out of the five exams, by statistically significant amounts.
  • The largest difference on the PRE exams was in English 10: non-elite independent schools scored 5.4% higher than public schools.
  • After-tax income of families with students attending non-elite independent schools is nearly the same—only 1.9% higher—as that of families with students attending public schools.