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Measuring Personal Income Tax Complexity in Canada

Canadian families and businesses incur significant costs complying with the tax system. Those costs include direct spending on items such as accountants, lawyers, and computer software, as well as the financial cost of the time it takes to compile the materials and complete the forms. Governments also incur costs to administer and collect taxes. These costs are driven in part by the complexity of the tax system.

This study measures the evolution of tax complexity in Canada’s personal income tax system. It uses three broad categories of empirical measurements: tax expenditures, tax legislation, and administrative tax documents. According to various specific indicators, the system has become more complex over time.

For instance, from 1981 to 2014, the number of federal personal income tax expenditures (which are credits, deductions, exemptions, exclusions, and other preferences) increased from 101 to 128—an increase of 27 percent. The number of tax expenditures was essentially flat up to 2001, after which there was a marked increase. In fact, since 2006, every federal budget has included a new tax credit for specific activities or eligible groups.

For perspective, in 2014, the value of these tax expenditures ($165.0 billion) exceeded total federal personal income tax revenue ($135.7 billion). Indeed, tax expenditures cost the federal government more than it collects in personal income tax revenue.

The study also measures the text area occupied by the Income Tax Act and regulations from 1971 to 2014. The text area is the number of pages multiplied by page size, which measures the area that the legislation would take up were we to lay out all the pages side by side. Over this period, the area of the tax legislation increased 355 percent, from 345,948 cm² to 1,575,537 cm². It is important to measure text area because not only did the number of pages in the Income Tax Act increase, but so did page size. Together, both changes have the effect of magnifying the growth in text area.  In standard letter paper format (8.5x11 inches), the space occupied by the tax code represents an increase from 573 to 2,612 pages over the period.

Finally, an analysis of provincial administrative documents (examining the number of documents, pages, and total lines in the tax forms) also points to growing tax complexity. Consider the results for the total number of lines, arguably the most appropriate indicator of complexity since governments can reduce the number of documents simply by combining them, and cut the number of pages by reorganizing blank spaces, and so on—without reducing the complexity of calculations linked to the personal income tax system. From 2000 to 2015, the average number of total lines in tax forms for the provinces (excluding Quebec) increased from 52 to 172.

While Canada’s personal tax system would benefit from simplification, the country does not have the equivalent of the United Kingdom’s Office of Tax Simplification (either federally or provincially). That means there is no systematic work being done to measure, let alone reduce, tax complexity in Canada. This study is part of an ongoing research program at the Fraser Institute that attempts to help fill that void.

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Learning from the Saskatchewan Surgical Initiative to Improve Wait Times in Canada

Wait times for elective surgery are long in Canada relative to other OECD countries and Saskatchewan has historically had among the longest of all the provinces. In 2010, the Saskatchewan government announced the Saskatchewan Surgical Initiative (SSI) to tackle wait times and promised that by 2014 no patient would wait more than three months for surgery. Today Saskatchewan’s wait times for elective surgery are among the shortest in Canada. What explains Canada’s long waiting lists, what prompted governments to tackle them, and why was Saskatchewan successful in reducing them?

Canada’s long waiting lists are related to the funding and structure of Medicare. Governments’ reluctance to change Medicare’s funding and structure helps to explain their slow response to wait times. Also, waiting lists primarily affected patients: as reports on health care demonstrated, the health care system was dominated by those providing care and was not centred on patients.

Pressure to act came in the 1990s when the Fraser Institute began tracking Cana-da’s growing waiting lists and patients went public with stories about their suffering while waiting for treatment. The Supreme Court’s 2005 decision in the Chaoulli case also put pressure on governments: its main message was that, if governments impose a monopoly on medical services, then they have to deliver those services in a timely way.

In developing the SSI, Saskatchewan worked with, and learned from, other prov-inces—belying the image of a fragmented health-care system in which leadership must come from the federal government—and built upon previous Saskatchewan initiatives to reduce waiting lists. The SSI changed the way waiting lists were managed and organized, but it also fundamentally changed the culture and decision-making process in health care.

The 2015 Report of the Advisory Panel on Healthcare Innovation written for Health Canada cited three factors that drive innovation in health care and all three were central to the SSI. One factor was leadership: in setting a firm and specific target to reduce wait times the government provided the leadership and vision that drove the SSI. The second factor was the engagement of front-line staff in embracing change, which was achieved in the SSI by developing a more collaborative and inclusive decision-making process. The third factor was the SSI’s patient-centred focus, a fundamental change in a system that had historically been dominated by providers. Effective communications with the public was also a central feature of the SSI and a major reason for its success.

Effective communications also helps to explain the success of the most controversial aspect of the SSI, the use of private, for-profit clinics to deliver day-surgery procedures. Health-care unions and self-styled defenders of Medicare warned the public that the private clinics would threaten the core values of Medicare. The transparency and ac-countability in the process of selecting the companies to run the clinics and regulating their operations were important in blunting criticisms. Also, though the government saved money by having procedures performed in the clinics rather than in hospitals, this fact was downplayed in the communications, which focused on the patients and their need for timely care. Most important, however, was the message that the clinics would help to reduce wait times. After years of living with long waits for treatment, people in Saskatchewan were prepared to set aside ideology and willing to judge the clinics on their results.

The SSI was successful within a specific context. It only improved wait times for elective surgery; long waits remain in other areas. It also involved increasing capacity, which meant pouring more money into an already expensive health-care system. Finally, it did not tackle the structural problems of Medicare that foster long wait times. The SSI treated the symptom—the waiting lists—rather than the root problem: Medicare’s structure and funding. But, it was not designed to fix Medicare. Its goal was to relieve the suffering of patients who were waiting far too long for surgery. In that it succeeded.

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Too often, an underlying assumption in the income inequality debate is that low- and high-income Canadians are the same people year in and year out. In reality, however, Canadians are not permanently stuck in certain income groups. Over the course of their lives, the overwhelming majority move up and down the income ladder.

Fluctuation in our income is a part of the natural cycle of our lives. People typically start off with relatively low income early on when they are young, new to the workforce, and lack work and life experience. Once they acquire education, job-related skills, and experience, their income tends to increase until it peaks in middle age and then drops again as they retire (income may fall, perhaps temporarily, if someone exits the workforce or changes jobs).

Using data obtained from Statistics Canada, this study tracks nearly 1 million Canadians starting in 1993 to measure how their income changes after five years (1993-1998), ten years (1993-2003), and 19 years (1993-2012).

The people covered in the study were divided into five groups based on their initial income (defined as wages and salaries before taxes). The groups are referred to as: the bottom 20% (the lowest income group), the second, third, fourth, and the top 20% (the highest income group). If someone starts in the lowest income group in one year, but moves to a higher group after several years, he or she has experienced upward relative income mobility. Conversely, if someone ends up in a lower income group than the one they started in, he or she has experienced downward relative mobility.

The study finds considerable upward relative mobility over all time periods, particularly for the bottom 20%. In just five years, 79% of Canadians who started in the bottom 20% in 1993 had moved to a higher income group by 1998. After 10 years (1993 to 2003), 88% in the lowest income group moved up at least one income group. The 19-year period (1993 to 2012) similarly had nearly nine of every 10 individuals (89%) in the lowest income group moving up. The results show being in the lowest income group is generally a temporary experience and that upward mobility occurs fairly quickly in one’s life.

The results also show that many of those initially in the bottom 20% climbed high up the income ladder reaching the top income groups. Remarkably, nearly one in four (24%) of the bottom 20% in 1993 had reached the top 20% by 2012, and nearly half (46%) ended up in the top two income groups.

Some Canadians also moved down the income ladder over time, particularly those who were initially in the top 20%. Specifically, 35% of individuals in the top 20% in 1993 moved down at least one income group by 2012.

The study also examines absolute mobility, which is the change in average income of the same people over time (after accounting for inflation). In 1993, the average income earned through wages and salaries of Canadians in the bottom 20% was $5,800. However, the average income of those same individuals increased dramatically to $51,100 by 2012 (all income in 2012 dollars). The $45,300 increase in average income translates into an impressive 781% gain.

By comparison, those that began the 19-year period in the top 20% had an average income of $82,600 in 1993, which increased to $106,100 by 2012. That is an increase of $23,500 or just 28%. In absolute terms, individuals in the bottom 20% in 1993 experienced by far the largest income gains of any group.

Another telling figure emerges from the data: in 1993, the average income of individuals in the top 20% was 14 times greater than those in the bottom 20%. By 2012, those who were in the top 20% in 1993 now had an average income that was only twice as high as those who were initially in the bottom 20% in 1993. In other words, in a comparison of income of the same group of people over time, income inequality declined significantly. This is because people’s incomes were mobile—some moved up while others moved down.

This study provides compelling evidence that the rich and poor do not remain stuck in their respective income groups year after year. In any measure of income inequality, it is misleading to rely solely on comparisons of “snapshots” of the income distribution at any two points in time because doing so does not capture the fact that Canadians are mobile.

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Private Cost of Public Queues for Medically Necessary Care, 2016

One measure of the privately borne cost of wait times is the value of time that is lost while waiting for treatment.

Valuing only hours lost during the average work week, the estimated cost of waiting for care in Canada for patients who were in the queue in 2015 was almost $1.2 billion. This works out to an average of about $1,304 for each of the estimated 894,449 Canadians waiting for treatment in 2015.

This is a conservative estimate that places no intrinsic value on the time individuals spend waiting in a reduced capacity outside of the work week. Valuing all hours of the week, including evenings and weekends but excluding eight hours of sleep per night, would increase the estimated cost of waiting to $3.5 billion, or about $3,951 per person.

This estimate only counts costs that are borne by the individual waiting for treatment. The costs of care provided by family members (the time spent caring for the individual waiting for treatment) and their lost productivity due to difficulty or mental anguish are not valued in this estimate. Moreover, non-monetary medical costs, such as increased risk of mortality or adverse events that result directly from long delays for treatment, are not included in this estimate.

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Demand-Side Mismanagement: How Conservation Became Waste

Ontario consumers have borne substantial costs for Demand-Side Management (DSM) programs that aim to promote more efficient use of electricity. DSM programs were underway from 1988 until 1996 and then again from 2004 until the present. The Ontario Power Authority (OPA) spent nearly $400 million on conservation programs in 2013 alone. Electric distribution utilities have also engaged in programs supervised by the Ontario Energy Board outside of those funded by the OPA, as have federal, provincial, and municipal governments. Plans are in place to expand these programs at least through 2020.

But do they actually save consumers money? Notwithstanding the billions of dollars spent on such programs over almost three decades, no independent audit based on verifiable field studies of actual usage has ever been made publicly available. In this report we examine the basis for claims that conservation programs save consumers money and we find it likely that they likely do not.

The term “negawatts” was coined 25 years ago to push the idea that, on a per-megawatt basis, it would be cheaper to subsidize conservation than to build new generating capacity. The idea became popular among politicians but has been resisted by economists because it implies that consumers systematically pay more for their electricity than they consider it to be worth. In other words, it implies that consumers make mistakes over and over in their purchases, and depend on government planners to tell them how to order their affairs.

Paternalistic assumptions permeate the literature on energy efficiency. One recent study of US government analyses showed that the assumption of systematic consumer irrationality now accounts for between 80 and 90 percent of the claimed benefits of new energy efficiency regulations.

Nor is energy efficiency necessarily a cost-saving option for firms. Businesses use a mix of energy, labour, capital, and materials to make goods and services. Forcing them to use less energy may simply push them to make costlier substitutions. Once firms have selected their cost-minimizing mix of inputs, forcing them to change that mix in order to reduce one particular input (namely energy) increases their overall costs, making it is an inefficient use of society’s resources overall.

Utilities often claim success for their conservation programs, but these numbers need to be carefully scrutinized. A well-known 1992 study found that utility program costs were understated and the benefits overstated. In particular, many utilities ignored whole categories of program costs, especially for implementation, monitoring, and evaluation, few utilities computed the costs to consumers of participating in the conservation programs, and utilities systematically overestimated the amount of electricity saved. The authors conservatively estimated that the actual cost of conservation negawatts was at least double what utilities were reporting.

An important study in 2015 out of Berkeley University looked at participants in the US Weatherization Assistance Program (WAP). This home retrofit program has been in operation since 1976, but in 2009 the budget was increased more than ten-fold to $5 billion annually. What makes this study particularly important is that the authors were able to construct a randomized sample of program participants and non-participants, making it the first ever experimental test of a major energy conservation program.

An apparent puzzle in the energy literature has been the low level of voluntary investment by households in efficiency improvements that, according to engineering estimates, would save them money. The Berkeley study shows that households were right and the engineering models were wrong. The study found that, on average, engineering models predicted 2.5 times more energy savings than were actually realized. And the cost of the energy efficiency program per household was about twice the value of the energy savings. In other words the program cost two dollars for every dollar saved in energy, even after accounting for the value of reduced air pollution emissions.

Queen’s Park is betting heavily that conservation programs will provide an effective and low-cost means of managing power needs in the coming decades. Unfortunately, Ontario energy plans rely on unsubstantiated and overly optimistic claims. We closely examine the analyses behind the province’s “Conservation First” plans, and find either an absence of credible data, or overly-optimistic numbers based on methodologies known to be unreliable.

Ontario seems determined to gamble on costly new energy conservation programs without first stopping to weigh the costs and benefits objectively. As with the Green Energy Act, we expect this experiment to end badly, with Ontario taxpayers and ratepayers paying far more for the programs than they save in power costs.

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Report Card on British Columbia's Elementary Schools 2016

The Report Card on British Columbia’s Elementary Schools 2016 collects a variety of relevant, objective indicators of school performance into one, easily accessible public document so that anyone can analyze and compare the performance of individual schools. By doing so, the Report Card assists parents when they choose a school for their children and encourages and assists all those seeking to improve their schools.

Where parents can choose among several schools for their children, the Report Card provides a valuable tool for making a decision. Because it makes comparisons easy, it alerts parents to those nearby schools that appear to have more effective academic programs. Parents can also determine whether schools of interest are improving over time. By first studying the Report Card, parents will be better prepared to ask relevant questions when they visit schools under consideration and speak with the staff.

Of course, the choice of a school should not be made solely on the basis of any one source of information. A tour of each school of interest and an interview with the principal can be useful. Parents who already have a child enrolled at the school can provide another point of view. And, a sound academic program should be complemented by effective programs in areas of school activity not measured by the Report Card. Nevertheless, the Report Card provides a detailed picture of each school that is not easily available elsewhere.

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How Much, How Fast? Estimating Debt Accumulation in Alberta

For the first time since the 1999/2000 fiscal year, the government of Alberta is poised to reach a negative net financial asset position in the 2016/17 fiscal year, down from a $35 billion net financial asset position in 2007/08.

It is clear that the province will return to a net debt position in 2016/17, but an important question remains: how much debt will Alberta actually accumulate in the next few years? This report documents the recent deterioration in Alberta’s net financial asset position over time, and estimates how much net debt the province could accumulate in the years ahead under a range of scenarios.

Currently, government forecasts suggest that Alberta’s net debt will reach $19.8 billion by 2019/20. However, these forecasts likely understate the amount of debt Alberta will accumulate in the years ahead.

There are two important sets of risks to the government’s fiscal plan. The first is that Alberta’s revenue outlook has weakened considerably since the publication of the government’s October 2015 budget. The prospect of reduced revenue rightly received considerable attention in recent months, given that lower-than-projected revenues in the years ahead could cause the province’s debt to increase significantly faster than is currently projected.

This paper, however, makes a new contribution to public discourse on these issues by focusing primarily on another set of risks that have received much less attention—those found on the spending side of the ledger. Specifically, this paper analyzes the extent to which Alberta’s debt will grow faster than currently expected if the government fails to restrain spending in the years ahead.

These risks are deserving of careful attention because they are, to a much greater extent than revenue, under the government’s control. Regardless of whether the government’s current revenue projections materialize, the government’s spending choices in the years ahead will play an important role in determining how quickly the province acquires debt.

The budget calls on the government to restrain spending growth to significantly less than the rate of inflation plus population, less than the rate at which it has increased spending in recent years, and less than the rate of economic growth. This paper considers the implication for Alberta’s pace of debt accumulation if the government does not adhere to these spending targets.

The paper examines three scenarios where spending diverges from budget plans. In the first alternative scenario, program spending increases by 3.9 percent annually, in line with the projected average increase in population growth plus inflation. That scenario would result in the province accumulating $7.0 billion more in net debt than it currently expects by 2019/20, when the province’s net debt would stand at $26.8 billion.

The second scenario assumes that program spending increases at the same average rate as it did in the past five fiscal years, 3.8 percent. In that case, the provincial government’s net debt would be $6.2 billion larger than it currently expects by 2019/20, totalling $26 billion.

Finally, the third scenario assumes that program spending increases at the same rate as GDP growth, which is expected to be 4.7 percent annually. In that scenario, the province’s net debt will be $11.3 billion larger than would be the case if spending targets were met, resulting in total net debt of $31.1 billion in 2019/20.

Because the Minister of Finance recently announced that the deficit for 2016/17 could be $5 billion greater than projected in the budget, the paper also considers the impact of a one-time revenue loss of $5 billion in 2016/17. This is likely a conservative estimate, given that further revenue losses could occur in future fiscal years.

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governing greater victoria

In British Columbia, a new, innovative kind of local government was created in 1965: the regional district system. Regional districts are unique in two respects: they can take on any function that their municipalities can perform on their own, and the governing board is made up of municipal councillors. Regional districts are a forum where agreements are made to share services when there are mutual benefits for the municipalities involved. Services can include any number of municipalities within a regional district as well as areas not governed by a municipality. Some services are provided on sub-regional levels and others are provided for the entire region. Metropolitan areas in British Columbia have ended up with a much less complex set of institutions and a very high level of shared services compared to elsewhere in Canada. This publication describes how this system has evolved in Greater Victoria, its benefits, and its challenges.

Greater Victoria includes 13 municipalities, five major regional or sub-regional service-providing entities and two lesser entities. Spending on local government services totaled $2,355 per capita in 2014, which includes: municipal (64.8%); Capital Regional District (CRD) (17.3%); BC Transit (14.5%); Greater Victoria Public Library (1.8%); Vancouver Island Regional Library (0.3%), and the West Shore Parks and Recreation Society (1.3%). All of these entities are governed by committees, boards, or commissions, including separate committees for each service within the CRD, made up of municipal councillors. The 91 elected mayors and council members are responsible for the governance of all local government services in Greater Victoria. The cost of all elected councillors and mayors is approximately 0.47% of all municipal and CRD expenditures or $9.85 per capita. Within the region, there is one elected official for every 3,813 citizens. This is a highly representative system where elected officials instead of paid staff supervise the budgets and make policy decisions. It is also one where local elected officials have incentives to balance benefits and costs in their decisions.

Most local government services continue to be provided (but not necessarily produced—about 35% of municipal service production is contracted out) by municipalities. Over time, the system has evolved so that all major services with economies of scale are provided by one of the two largest municipalities or on a sub-regional or regional basis. This is accomplished without incurring the excessive costs of larger bureaucracies like those from forced amalgamations in eastern Canada. The British Columbia regional district system accomplishes this because local elected officials meet regularly and participate in governance decisions together. Greater Victoria is an example.

There are four areas where further research into the governance of Greater Victoria could bring improvements. One is to look at the potential for creating a regional arterial highway system and relating it to public transit. The second includes suggestions for improving the internal efficiency of the existing local governments. A third is to examine the balance between tax revenues (especially business taxes) and costs for Victoria as the central city in the region to determine if the extra service costs it faces are covered without additional regional or provincial support. Finally, it would be useful to consider the role of the provincial government when regional districts, which are based on the principle of voluntary decisions, find it difficult or impossible to come to decisions when there will be winners and losers instead of benefits for all. At the same time, the provincial government is cautioned to be aware of the dysfunctional results of provincial mandates and the forced amalgamations that have taken place in other provinces.

British Columbia’s unique system of regional districts, including the Capital Regional District in Greater Victoria, has fostered very high levels of representation and adjustments to appropriate scales for both the provision and production of local government services while local elected officials have incentives to take into account both the costs and benefits of their decisions. The adaptability of this approach to local government organization should serve its citizens well into the future.

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Canada's Rising Personal Tax Rates and Falling Tax Competitiveness

In December 2015, Canada’s new Liberal government introduced changes to Canada’s personal income-tax system. Among the changes for the 2016 tax year, the federal government added a new income-tax bracket, raising the top tax rate from 29% to 33% on incomes over $200,000. This increase in the federal tax rate is layered on top of numerous recent provincial increases. Starting with Nova Scotia in 2010, at least one Canadian government has introduced one (or more) new personal income-tax brackets with higher tax rates in every year except 2011. Over this period, seven out of 10 governments in-creased tax rates on upper-income earners. As a result, the combined federal and provincial top personal income-tax rate has increased in every province since 2009.

The largest tax hike has been in Alberta, where the combined top rate increased by 23.1%, in part because the new rates were added to a relatively low initial rate. Alberta has traditionally had Canada’s most competitive top tax rate but now has a higher combined top tax rate than neighbouring British Columbia. In Ontario, the combined top rate increased by 15.3%; in Quebec it increased by 10.6%.

These increases have important consequences for Canada’s economy. In particular, high and increasing marginal tax rates—that is, the tax rate on the next dollar earned—discourage people from engaging in productive economic activity, ultimately hindering economic growth and prosperity. This occurs because marginal tax rates reduce the reward of earning more income and, in the case of personal income taxes, more labour income. There is general agreement in the economic literature on this point; the debate is about the magnitude of the effect.

The federal and provincial increases to Canada’s marginal income-tax rates from 2009 to 2016 have put the country at a greater competitive disadvantage for attracting and retaining skilled labour and, less directly, investment and entrepreneurs. Even before the changes, the country’s combined federal and provincial top marginal tax rates compared unfavourably to those in the United States and other industrialized countries.

Out of 61 Canadian and US jurisdictions (including the provinces, states, and Washington, DC), Nova Scotia currently has the highest combined top statutory marginal rate (54.00%), followed by Ontario (53.53%), and Quebec (53.31%). Six Canadian provinces occupy the list of 10 jurisdictions with the highest top combined marginal income-tax rates and all provinces are in the top 20. There are a total of 42 US jurisdictions with combined top tax rates that are lower than all Canadian provinces.

The fact that Canada’s top tax rates are often applied to lower levels of income than is the case in other countries further erodes our tax competitiveness. To adjust for differences in income thresholds, we compare the combined statutory marginal tax rates at various income levels in Canadian dollars for each Canadian and US jurisdiction. At an income of CA$300,000, the highest threshold in which a Canadian combined top rate is applied, Canadians in every province face a higher marginal income-tax rate than Americans in any US state. Results are similar at an income of CA$150,000 and Canada’s marginal tax rates are also uncompetitive at incomes of CA$75,000 and CA$50,000.

Taken together, Canada’s personal income-tax rates are decidedly uncompetitive compared to those in the United States. And, Canada also competes with other industrialized countries for highly skilled workers and investment. To measure the competitiveness of Canada’s top tax rates, the study compares the combined top statutory marginal income-tax rates with rates in 34 industrialized countries. In 2014 (latest year of available international data) Canada had the 13th-highest combined top tax rate out of 34 countries. The federal change to the top rate in 2016 has markedly worsened Canada’s competitive position. The new 2016 Canadian top tax rate (53.53%) is sixth highest relative to the 2014 international rates.

Canadian governments have put the country in this uncompetitive position, in part, to raise more revenue as they grapple with persistent deficits and mounting debt. However, the tax increases are unlikely to raise as much revenue as governments expect since taxpayers—particularly upper-income earners—tend to change their behaviour in response to higher tax rates in ways that reduce the amount of tax they might pay. Federal and provincial governments would do well to consider reversing the trend towards higher marginal tax rates on upper-income earners, and lower personal income-tax rates.

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Energy is the basis of our modern lives. It fuels our economy, generating the economic production that underpins the high living standards Canadian households have achieved. But energy costs have been rising for Canadians in recent years, potentially placing bur-dens on Canadian families.

From 2010 to 2013, electricity prices have risen by an average of 1.31¢ per kWh, with increases of over 4¢ occurring in some Canadian cites. Electricity prices are also higher in Canada than in the United States, with wide variances in the amount of tax ap-plied contributing to this difference. Prices have risen for gasoline as well, increasing by 53¢ in real terms from 1994 to 2013. Canadians also pay on average 31.2¢ more for gasoline than their American counterparts. Growth in energy prices has outpaced both income growth and the rate at which household energy intensity is declining.

This study begins by estimating the average energy expenditure as a percentage of total expenses across Canada and seven regions. Estimates throughout the paper were calculated in two ways: first, including energy used just in the home—electricity, natural gas, and other heating fuels; and second, these sources of energy plus gasoline, an important energy expenditure that has often not been factored into previous analyses.

Energy use within the home represents a relatively modest portion of total expenses. The Canadian average in 2013 was 2.6%, ranging from a high of 4.0% in Atlantic Canada to a low of 2.1% in British Columbia. Adding vehicle fuel to energy expenditures has a substantial impact on the percentage of expenditures being devoted to energy. In 2013, the share of the average Canadian family’s expenditures devoted to all energy goods was 5.8%. Atlantic Canada was again the highest, with 8.2% of expenditures on average being devoted to energy.

This study also used a benchmark measure of 10% or more of expenditures going to energy goods—commonly referred to as “energy poverty”—to determine how many Canadian households are facing relatively high energy costs. Energy poverty is an issue because of the effect high energy expenditures has on consumption and discretionary income, thereby placing a burden on households. When a household’s high energy bills force them to substitute away from consuming other goods, this is in a sense a deprivation of access.

When only energy used within the home was included in the calculation, 7.9% of Canadian households were classified as being energy poor in 2013, up slightly from 7.2% in 2010. Atlantic Canada had the highest incidence of energy poverty in 2013—20.6% of households—while British Columbia had lowest, 5.3%. Energy poverty using this basket of energy goods has risen in most Canadian regions since 2010.

When the gasoline expenses of Canadian households are also included in the calculation, the incidence of energy poverty increases substantially. In 2013, 19.4% of Canadian households devoted at least 10% or more of their expenditures to energy. Al-berta had the lowest incidence of energy poverty in 2013 at 12.8%. Five out of seven Canadian regions experienced a decline in the incidence of energy poverty from 2010 to 2013 when gasoline expenditures are included.

Estimates of energy poverty were also calculated for income quintiles. Energy poverty disproportionately affects lower-income Canadian households. The incidence of energy poverty in 2013 was estimated to be over 15% of households in each of the two lowest income quintiles. Including gasoline expenditures further exacerbates energy poverty in the low income groups and uncovers a prevalence of high energy spending amongst middle-income Canadians.

The high incidence of energy poverty in Canada, particularly when gasoline ex-penditures are included, should be of central concern when policies regarding energy are being devised. Policies that raise prices could exacerbate problems faced by families who are in energy poverty or those on the cusp of energy poverty.

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