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Summary

  • The Canadian Consumer Tax Index tracks the total tax bill of the average Canadian family from 1961 to 2015. Including all types of taxes, that bill has increased by 1,939% since 1961.
  • Taxes have grown much more rapidly than any other single expenditure for the average Canadian family: expenditures on shelter increased by 1,425%, clothing by 746%, and food by 645% from 1961 to 2015.
  • The 1,939% increase in the tax bill has also greatly outpaced the increase in the Consumer Price Index (706%), 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 (42.4%) than it does on basic necessities such as food, shelter, and clothing combined (37.6%). By comparison, 33.5% of the average family’s income went to pay taxes in 1961 while 56.5% went to basic necessities.
  • In 2015, the average Canadian family earned an income of $80,593 and paid total taxes equaling $34,154 (42.4%). 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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Report Card on British Columbia’s Secondary Schools 2016

The Report Card on British Columbia’s Secondary Schools collects a variety of relevant, objective indicators of school performance into one easily accessible, public document so that all interested parties—parents, school administrators, teachers, students,and taxpayers—can analyze and compare the performanceof individual schools. Parents use the ReportCard’s indicator values, ratings, and rankings to compare schools when they choose an education provider for their children. Parents and school administrators use the results to identify areas of academic performance in which improvement can be made.

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, the Report Card 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 interview the principal and teachers at the schools under consideration.

Of course, the choice of a school should not be made solely on the basis of any one source of information. Families choosing a school for their students should seek to confirm the Report Card’s findings by visiting the school and interviewing teachers and school administrators. Parents who already have a child enrolled at the school can provide another point of view. Useful information may also be found on the web sites of the ministry of education, local school boards, and individual schools. In addition, 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.

Certainly, the act of publicly rating and ranking schools attracts attention; attention can provide motivation. Schools that perform well or show consistent improvement are applauded. Poorly performing schools generate concern, as do those whose performance is deteriorating. This inevitable attention provides an incentive for all those connected with a school to focus on student results.

However, the Report Card offers more than motivation; it also offers opportunity. The Report Card includes a variety of indicators, each of which reports results for an aspect of school performance that might be improved. School administrators who are dedicated to improvement accept the Report Card as another source of opportunities for improvement.

To improve a school, one must believe that improvement is achievable. This Report Card provides evidence about what can be accomplished. It demonstrates clearly that, even when we take into account students’ characteristics, which some believe dictate the degree of academic success that students will have in school, some schools do better than others. This finding confirms the results of research carried out in other countries. Indeed, it will come as no great surprise to experienced parents and educators that the data consistently suggest that what goes on in the schools makes a difference to academic results and that some schools make more of a difference than others.

Comparative and historical data enable parents and school administrators to gauge their school’s effectiveness more accurately. By comparing a school’s latest results with those of earlier years, they can see if the school is improving. By comparing a school’s results with those of neighbouring schools and of schools with similar student characteristics, they can identify more successful schools and learn from them. Reference to overall provincial results places an individual school’s level of achievement in a broader context.

There is great benefit in identifying schools that are particularly effective. By studying the techniques used in schools where students are successful, less effective schools may find ways to improve. Comparisons are at the heart of improvement: making comparisons among schools is made simpler and more meaningful by the Report Card’s indicators, ratings, and rankings.

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How Alberta's Carbon Emission Cap Will Reduce Oil Sands Growth

Summary

  • The Alberta government has proposed implementing a 100 megatonne (Mt) cap on greenhouse gas (GHG) emissions that result from oil sands operations.
  • This paper estimated future emissions levels from oil sands production using oil sands production forecasts to 2040 from the National Energy Board.
  • Based on estimates of future production, this policy has the potential to constrain future oil sands production. In a scenario based on current emissions intensity levels, the policy could reduce cumulative production between 2025 and 2040 by 3.34 billion barrels of oil. In a scenario where the emissions intensity of oil sands production is reduced, the policy could result in cumulative production losses between 2027 and 2040 totaling 2.03 billion barrels of oil.
  • The cumulative value of the lost production could be large, totaling CA$254.74 billion (in 2015 dollars) in a scenario based on current emissions intensity levels. In a scenario where the emissions intensity of oil sands production is reduced, the cumulative lost value could be CA$153.41 billion (in 2015 dollars).
  • The policy could cumulatively abate 236 Mt of CO2 equivalents, at an average cost of CA$1,035 (in 2015 dollars) per tonne of GHG emissions in the current emissions intensity level scenario between 2025 and 2040. The cumulative level of GHG abatement would be lower in a scenario where emissions intensity reductions occur but come at a higher cost.
  • The 100 Mt cap on GHG emissions appears to place large costs on Canadians by potentially constraining future growth in oil sands development, while providing little in the way of avoided GHG emissions.
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Michigan’s strong economic performance since 2011 stands in contrast to Ontario, a jurisdiction that also has a large manufacturing base as a central feature of its economy but one that has not experienced an economic resurgence comparable to Michigan’s in recent years. Between 2010 and 2014, Michigan’s real economic output has increased slightly faster than Ontario’s, despite slower population growth. Michigan’s manufacturing output growth exceeded Ontario’s significantly between 2011 and 2014. Furthermore, while Ontario has experienced a dramatic and economically harmful run-up in public debt since 2011, Michigan has actually seen a slight decline in net public debt as a share of its economy. These results stand in stark contrast to the situation in the early years of this century, when Ontario consistently outperformed Michigan on most measures of economic performance.

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Changes in Economic Freedom in Venezuela, Ireland, and the United States

Venezuela has experienced a lengthy decline in economic freedom that started long before Hugo Chavez assumed the presidency in 1999. But Chavez, his United Socialist Party of Venezuela, and successor, Nicolás Maduro, have presided over a continued stunning slide in economic freedom that landed Venezuela in dead last place from 2010 to 2014 among the approximately 150 countries ranked in the index published in Economic Freedom of the World (EFW). This has created an immense human tragedy for the people of Venezuela who suffer runaway inflation, lack of even basic medicines and food (except for the politically connected), hunger, riots, and soaring crime, with Caracas taking its place as the murder capital of the world.

Ireland, on the other hand, is a good news story. Ireland has had a moderately high level of economic freedom all the way back to the initial year of EFW data in 1970. Significant reforms were initiated in 1986/1987, pushing Ireland’s EFW rating sharply upward to around 8.0. Ireland entered the top 10 in 1995 and it has remained there except for a couple of years following the financial crisis of 2008.

While the reduction in economic freedom of the United States has been moderate relative to that of Venezuela, the decline has been substantial since 2000. As in Venezuela, the drop has been a non-partisan affair. The high-water mark in economic freedom came in 2000 with a score of 8.65 and a rank of second place, just below Hong Kong. The decline has been steady since. In 2010, the United States fell out of the top 10 and its ranking is now in the mid-teens.

 

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The Price of Public Health Care Insurance, 2016 edition

Main conclusions:

  • 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 2016, the estimated average payment for public health care insurance ranges from $3,620 to $11,795 for six common Canadian family types, depending on the type of family.
  • For the average Canadian family, between 2006 and 2016, the cost of public health care insurance increased 1.4 times faster than average income, 1.3 times as fast as the cost of food and at about the same pace as the cost of shelter.
  • The 10% of Canadian families with the lowest incomes will pay an average of about $443 for public health care insurance in 2016. The 10% of Canadian families who earn an average income of $60,850 will pay an average of $5,516 for public health care insurance, and the families among the top 10% of income earners in Canada will pay $37,361.

 

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Report Card on Alberta’s High Schools 2016

The Report Card on Alberta’s High 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, the Report Card 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 are better prepared to ask relevant questions when they interview the principal and teachers at the schools under consideration.

Of course, the choice of a school should not be made solely on the basis of any one source of information. Families choosing a school for their students should seek more information by visiting the school and interviewing teachers and school administrators. The web sites of Alberta Education, local school districts, and individual schools can also be sources of useful information. 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.

Certainly, the act of publicly rating and ranking schools attracts attention. Schools that perform well or show consistent improvement are applauded. The results of poorly performing schools and those whose performance is deteriorating generate concern. This attention, in itself, provides an incentive for all those connected with a school to redouble their efforts to improve student results. However, the Report Card offers more than just incentive: it includes a variety of indicators, each of which reports results for an aspect of school performance that might be improved. School administrators who are dedicated to improvement accept the Report Card as another source of evidence that their schools can do a better job.

In order to improve a school, one must believe that improvement is achievable. The Report Card on Alberta’s High Schools, like all the other editions, provides evidence about what can be accomplished. It demonstrates clearly that even when we take into account factors such as the students’ family background, which some believe dictates the degree of academic success that students will have in school, some schools do better than others. This finding confirms research results from other countries.1 Indeed, it will come as no great surprise to experienced parents and educators that the data consistently suggest that what goes on in the schools makes a difference to student success and that some schools make more of a difference than others.

By comparing a school’s latest results with those of earlier years, we can see if the school is improving. By comparing a school’s results with those of neighbouring schools, or of schools with similar school and student characteristics, we can identify more successful schools and learn from them. Reference to overall provincial results places an individual school’s level of achievement in a broader context. There is great benefit in identifying schools that are particularly effective. By studying the proven techniques used in schools where students are successful, less effective schools may find ways to improve. Comparisons are at the heart of improvement and making comparisons among schools is made simpler and more meaningful by the Report Card’s indicators, ratings, and rankings.

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How Income and Wealth are "Earned" Matters in Understanding Inequality

This paper examines a key missing piece of the inequality debate: differences in how income is earned and wealth accumulated that ultimately result in inequality. Put simply, how income is earned or wealth amassed matters with respect to the degree to which citizens should be concerned about inequality.

Individuals can earn income and accumulate wealth in a number of different ways. The first is by serving other people through the creation and provision of demanded goods or services at prices consumers are willing to pay. Individuals, entrepreneurs, and businesses that earn income and accumulate wealth by innovating and providing such goods and services benefit not only themselves and their businesses but also society more generally.

This paper explores several real-world examples that highlight the benefits of such activities. One example is Chip Wilson, founder of Lululemon, who has an estimated net worth of $2.2 billion. As an entrepreneur, Wilson took enormous risks to innovate and develop a line of products that consumers wanted and were willing to pay for. In doing so, he benefitted millions of customers by providing them with something they valued that didn’t exist before. He built a company from nothing to one that, in 2015, employed over 8,500 people with sales of roughly $1.8 billion.

There are, however, other methods by which to “earn” income and accumulate wealth that do not provide such social benefits. Individuals can earn great amounts of income and amass wealth by securing special privileges and protection from governments. Such activities are referred to as “crony­ism” in this paper; while generally legal, they almost always impose large costs on society for the benefit of a small group of individuals.

For example, Mexico’s Carlos Slim used special privileges granted by gov­ernments to reduce competition and thereby provide their businesses with monopoly powers. Specifically, the Mexican government placed barriers to competition in the telecommunications market, allowing Slim’s companies to charge consumers higher prices than would otherwise have been the case in a competitive market. It is these protections, rather than competitive success, that explain the extraordinary wealth of Carlos Slim.

Another way to “earn” income and amass wealth is through corruption. Unlike cronyism, corruption is generally regarded as an illegal activity. Like cronyism, it imposes enormous costs on the majority of citizens for the benefit of a few. In many cases, corruption involves outright theft from the population. An example discussed in the essay is Indonesia’s Suharto family, which reigned for decades, embezzling between US$15 billion and $35 billion in a relatively poor country.

The implications of how income is earned and wealth accumulated can be aggregated up to the country level to better help understand why the “how” is so important in debates regarding inequality. Hong Kong and Haiti have similar levels of inequality. The economic systems in the two countries are quite different though. Hong Kong generally has open, competitive markets with a high level of economic freedom and low levels of corruption. Haiti, on the other hand, has a low level of economic freedom and high levels of corruption. The similar levels of inequality observed in the two countries result from very different types of economic activity. Hong Kong is predominantly characterized by the type of economic activity that benefits society broadly (think Chip Wilson), while Haiti is characterized by cronyism and corruption, which benefit a very few at the expense of the majority.

Understanding the source of income and wealth is a critical yet too often ignored component of the inequality debate. Similar levels of observed inequality can have markedly different sources and thus effects on society.

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The Costs of Pipeline Obstructionism

This paper reviews how Western Canadian oil producers are being con­strained by the inability to access new markets via ocean ports and how this constraint, along with the drop in oil prices, the Alberta ceiling on greenhouse gas (GHG) emissions in oil sands operations, and regulatory obstacles are affecting pipeline infrastructure requirements and decisions.

Western Canadian conventional and non-conventional (i.e., oil sands) heavy crude oils continue to suffer from price discounts relative to world region crude oil prices such as North Sea Brent (adjusted for quality differentials and transportation cost), and are at risk of being displaced by increasing US oil production. Access to port facilities on the west and/or east coast would allow Canadian producers to access world crude oil prices.

If Canada were able to export 1 million barrels of oil per day to markets accessible from ocean ports—with the lion’s share of heavy oil and bitumen exports continuing to flow to US oil markets—substantial incremental rev­enues could result. At a US$40/bbl price this could be as high as $2 billion per year (in Canadian dollars) compared with selling into the flooded US market. At an average price of US$60/bbl, it could reach CA$4.2 billion; and at US $80/bbl, CA$6.4 billion. If higher netbacks from markets accessed from tidewater connections were realized by all Western Canada heavy oil production, at the US$40, US$60, and US$80/bbl price levels the annual benefits could reach CA$8.9 billion, CA$18.5 billion, and $CA28.2 billion, respectively.

Both the oil price and the volume of production drive the Alberta and Saskatchewan crude oil royalty formulas. The importance of the price factor is underscored by the impacts of much lower prices on royalty revenues. In the Alberta October 2015 budget, royalty revenues were projected to plunge to $1.5 billion in 2015–16 from $5.0 billion. Royalties from conventional oil production were estimated at $0.5 billion compared with $2.2 billion in 2014–15 (Alberta, 2015a). Saskatchewan’s February 2016 Budget Update projected oil royalty revenue of $347.9 million in fiscal 2015–16—38.5 per­cent less than previously (Saskatchewan Ministry of Finance, 2016a).

Understanding the sensitivity of royalty revenues to price changes allows governments to predict how revenues will be affected by improved prices as, for example, access to new markets is achieved. Oil royalty revenues in Alberta and Saskatchewan would increase by about CA$1.2 billion a year if the WTI oil price were to increase by US$7/bbl. A US$5/bbl increase in the price of WTI crude oil would increase Saskatchewan’s annual royalty revenue on heavy oil production by approximately $29.5 million, and total oil production royalties by about $94.5 million (assuming an exchange rate of 71.5 cents per Canadian dollar).

The capacity to transport crude oil to coastal refineries is insufficient to solve the pricing dilemma that western Canadian oil producers face due to heavy dependence on the US mid-continent region. Oil pipeline projects with a combined capacity of about 4 MMbpd (million barrels per day) have been proposed or conditionally approved. But investors may be less inclined to move ahead with oil sands and related infrastructure projects than before the downturn in prices.

With no reduction in GHG emission rates, the 100 Mt limit on GHG emis­sions from oil sands operations will be reached in 2025, at which point total oil sands production is projected to increase by 1.5 MMbpd. If, as the NEB has suggested, Western Canadian conventional oil production will then have peaked, the required increase in pipeline takeaway capacity will be about 1.9 MMbpd (assuming a system capacity utilization rate of 80 percent). Clearly, without significant reductions in oil sands GHG emissions rates, much of the proposed increase in pipeline capacity from Western Canada will not be needed.

The Energy East Pipeline, the Trans Mountain Pipeline Expansion, and the Northern Gateway Pipeline project would enable about 2MMbpd of Western Canadian crude to access coastal US and overseas markets. But all three proj­ects face serious challenges, mostly environmental, from First Nations, and from various communities. Further, the federal government has imposed new consultation obligations and upstream GHG emission assessment requirements on the Energy East and Trans Mountain projects that will prolong the review process.

Every effort should be made to expedite pipeline project review and assess­ment processes before windows of opportunity for access to new markets are largely pre-empted by competitors. If the legislated regulatory review process with regard to a particular project is unduly delayed, the federal government may need to help resolve impasses or, in the case of projects that are truly in the national interest, introduce special legislation to allow a project to proceed.

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Rates of return for expanded CPP remain meagre

Last month, Canada’s finance ministers announced an “agreement in principle” to expand the Canada Pension Plan (CPP), which will require workers to pay more into the program starting in 2019 in exchange for higher CPP retirement benefits in the future.

As we have noted elsewhere, the case for expanding the CPP is based on either incorrect or highly debatable claims. One of these claims is that the CPP offers a competitive, even a high rate of return for Canadians. A recent Fraser Institute study calculated the rate of return that individual Canadians receive from their CPP contributions in the form of CPP retirement benefits under the existing system and found a meagre return for virtually all working Canadians. This blog updates the rate of return calculations based on the limited details available on the proposed CPP expansion.

Source of the mistaken claim

First, we should clarify the source of the mistaken claim that the CPP provides strong returns. It is driven by people conflating the rate of return on investments made by the CPP Investment Board (CPPIB), which manages the investable funds of the CPP, and the return earned by individual contributors. In reality, the returns of the CPPIB do not in any direct way influence the CPP retirement benefits received by individual Canadian workers. CPP retirement benefits are based on the number of years a person works, their earnings in each year (relative to the maximum under the CPP), and the age at which they retire.

The existing Canada Pension Plan 

Before presenting the revised calculations, it is important to understand some of the key features of the current CPP. Contributions are made on earnings in excess of the annual exemption ($3,500) up to a maximum amount referred to as the Year’s Maximum Pensionable Earnings (YMPE). The YMPE in 2016 is $54,900, which changes every year with inflation. The combined rate of contribution (tax) is 9.9 per cent of the employee’s eligible earnings. Currently, the maximum annual total contribution to the CPP for an individual worker is approximately $5,089.

Retirement benefits are designed to replace 25 per cent of a worker’s average annual pensionable earnings (their earnings between the annual exemption and the YMPE). Earnings above the YMPE are not included in the retirement benefit calculation. In 2016, the maximum retirement benefit (based on retirement at age 65) is $1,092 per month.

Rates of return under the existing CPP program

In order to calculate the rate of return from the CPP for individual Canadians, a number of key assumptions have to be made that are fully detailed in the original study. Under the existing CPP program (that is, before expansion), the rate of return that Canadian workers receive in the form of CPP retirement benefits compared to their contributions varies considerably depending on when the worker was born and retired. For instance, a worker born in 1905 who retired at age 65 in 1970—one of the first years Canadians received CPP benefits—would have enjoyed a 39.1 per cent rate of return after inflation. For Canadians born after 1956, however, the CPP rate of return is a meagre 3.0 per cent or less. The rate of return (adjusted for inflation) declines further to 2.1 per cent for those born after 1971 (see chart below).

Rates of return by birth year under current CPP program - Chart 1

The rates of return declined for two main reasons. First, the contributory period in the CPP’s early years (10 years) was much less than is the case now (47 years). Second, the total contribution rate has increased from 3.6 per cent when the program was started in 1966 to its current level of 9.9 per cent.

Proposed changes to the CPP—what we know

While the details on the proposed changes to the CPP are limited and some technical issues have not yet been clarified, the agreement in principle outlined the following changes:

  • The total contribution rate will increase from 9.9 per cent to 11.9 per cent for earnings up to the YMPE. This increase will be phased in from 2019 to 2023.
  • A new combined contribution rate of 8.0 per cent will be applied to additional earnings 14.0 per cent above the YMPE. This portion of the increased CPP contribution will be phased in from 2024 to 2025.
  • In 2025, the YMPE is estimated to be $72,500 and the maximum income threshold for the 8.0 per cent contribution rate will be $82,700. In that year, the maximum additional CPP contributions as a result of expansion will amount to $2,200.
  • CPP retirement benefits will also be increased. The replacement rate for pensionable earnings will increase from 25 per cent to 33 per cent. According to the Department of Finance, it will take “about 40 years” for the full increase in retirement benefits to be phased in (the calculations below assume 39 years).
  • The Department of Finance has stated that like the current program, future benefits will be based on the years of contribution and actual contributions.

Rates of return under the expanded CPP program

To calculate the rate of return, we assume that the increase from a replacement rate of 25 per cent to 33 per cent will be phased-in in equal increments from 2019 to 2023. The chart below displays the inflation-adjusted rate of return before and after CPP expansion for individual contributors born from 1950 to 2007. The period ends in 2007 since Canadians born that year will begin contributing to CPP in 2025 (at age 18), making them the first cohort eligible to receive the full increase in CPP retirement benefits. The results displayed are for workers who earn the YMPE and retire at age 65.

Rates of return by birth year before and after CPP expansion - Chart 2

Under the expanded CPP, Canadians born after 1956 still receive a meagre rate of return of 3.0 per cent or less. The expanded CPP has resulted in modest increases in the expected rates of return for Canadian workers. For example, the rate of return for eligible workers born in 1971 to 1980 is 2.3 per cent. Those born in 1993 or later can expect to receive a 2.5 per cent rate of return (after inflation) from their CPP retirement benefits. In other words, there is only a small increase in the long-term rate of return for individual Canadians under the expanded CPP—2.5 per cent after expansion versus 2.1 per cent before expansion.

Notably, the CPPIB itself must generate a 4.0 per cent return (after inflation) simply to keep the program actuarially sound. In other words, Canadian workers born in 1993 or after are required to contribute to a fund that must generate a 4.0 per cent rate of return in order to sustainably provide recipients with a 2.5 per cent return.

Rates of return before and after CPP expansion - Table

A similar calculation is made for the rate of return for Canadians who will contribute to the CPP up to the maximum income level, 14 per cent above the YMPE. For these individuals, the long-term rate of return is slightly higher: 2.6 per cent for individuals born in 2001 or later.
 
Conclusion

After taking account of the proposed changes to the CPP, the rate of return for individual Canadians remains meagre. Expansion of the CPP therefore cannot be justified on the basis of offering a strong rate of return to Canadians.

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