Archive for November, 2010

Why free tuition is a bad idea

November 23rd, 2010

At last Saturday's Southwestern Ontario regional meeting of the Liberal Party of Canada, there was a resolution for national free tuition, funded by the federal government. This idea has been raised before and I'm often speaking against it. I can understand the motivation, which is usually expressed with variants of the following:

  • "We are moving to a [knowledge/brain]-based economy."
  • "Tuition has been increasing for years! Tuition was XX when I was a student. Young people can't afford to go!"

In general, the argument relies on several myths about post-secondary education in Canada. Here are some facts, taken from a Higher Education Strategy Associates report, "Beyond the Sticker Shock," written by Alex Usher and Patrick Duncan.

  • In real dollars, nationally, total undergraduate tuition & fees has risen 25% from 1997 to 2008.
  • After factoring in the significant tax credits offered by the government, Everybody's Net Tuition (ENT) has risen only 19% from 1997 to 2008. In four provinces: Alberta (-1%), Quebec (-1%), Manitoba (-31%) & Newfoundland & Labrador (-35%), ENT has actually decreased.
  • After factoring income tax rebate programs in several provinces - Manitoba, New Brunswick, Nova Scotia and Saskatchewan - ENT has risen 11% nationally. It has decreased dramatically in several provinces - Manitoba (-102%), New Brunswick (-71%), NL (-35%) and SK (-35%) - to the point where ENT is negative in Manitoba. This means that Manitoba students earn money by going to university -- tuition is better than free.

This analysis, of course, ignores all provincial government loans & grants programs, bursary programs at post-secondary institutions, automatic academic and other scholarships, and the shift to making scholarship income (at first limited to $3,000/year but now unlimited) non-taxable.

Several other points, outlined by Alex Usher, also undermine the free tuition policy argument. Two are particularly important:

  • Participation in post-secondary education is uncorrelated with tuition rates. High-tuition Nova Scotia has higher participation rates than low-tuition Quebec.
  • Over several decades, despite many changes in tuition policy, youth from rich families are quite consistently twice as likely to attend university as youth from poor families are.

The total direct costs to the federal government of such a proposal would be approximately $4.91 billion (excluding ancillary fees), with $3.84 billion for university tuition and $1.07 billion for college tuition. Both of these amounts would be offset by roughly 34% due to savings realized by federal and provincial governments from cancelling existing tuition tax credits and rebate programs. After the effect of these offsetting cuts, the costs would be $2.53 billion and $700 million. Since the participation rate of college students is roughly even by income quartile, for a moment, let's just consider university students, where this is not the case.

Students from the highest income quartile account for approximately 37% of all university students. In contrast, students from the lowest income quartile account for just 16%. Therefore the benefits of free tuition accrue largely to students from the highest income quartile: $936 million would be "saved" by 375,000 students from the highest income quartile; $405 million would be "saved" by 162,000 students from the lowest income quartile. The primary beneficiaries of a free tuition policy are the kids of doctors, lawyers and other high-income Canadians in Ontario, BC, Nova Scotia and Alberta, where ENT is highest. While it is true that families in the highest income quartile also contribute more in taxes, a free tuition policy is certainly not progressive, as Stephen Gordon observes.

Most proposals for free tuition contemplate a prohibition on tuition, with compensation provided by the federal government to post-secondary institutions. Ignoring, for the moment, the extremely difficult federal-provincial realities of such a scheme, this approach would virtually eliminate students as revenue contributors (currently tuition fee revenue is roughly 24% of university operating budgets) and make post-secondary institutions even more reliant on government funding (back to the 1980, when governments provided 90% of operating funding). This could be very bad for post-secondary education in certain business cycles. For example, in Ontario, operating funds from the government are granted according to an institution's corridor midpoint, which is often below the number of Basic Income Units actually registered at the institution (BIUs, in turn, vary according to program and level of study). This funding formula strains institutions during periods of government spending restraint and enrolment growth at institutions. I doubt a single university or college president in Ontario would be in favour of increased government influence over universities and colleges.

A shift to more government-to-institution funding would also have the perverse effect of removing incentives for university and college-educated Canadians to remain in the province and country that paid for their education. One advantage of deferred tax expenditures such as tuition tax credits (and loan programs) is that they are received (paid back) over time by graduates who are typically working in the province or country that provides the programs. A free tuition model would provide no deferred financial incentives to keep graduates in Canada, let alone in the province where they were educated.

In summary:

  • The net cost of a national free tuition proposal (after accounting for cancelled tax credit and rebate programs) is probably $3.23 billion (increasing annually). The cost to the federal government would be slightly higher, as some of the savings from cancelled programs would accrue to provincial governments and they would not be paying for the free tuition policy.
  • Making tuition free would dramatically increase the federal government's spending on post-secondary education and would primarily benefit students from high-income families in Ontario, BC, Nova Scotia and Alberta, which have relatively high ENT. It is not, in and of itself, progressive policy. As far as federal-provincial relations go, it's a non-starter.
  • Making tuition free would further homogenize an already too undifferentiated system of post-secondary institutions and greatly increase the influence of the federal and provincial governments on post-secondary institutions at the expense of the influence of students. It would remove tuition as a useful indicator to students and parents of quality, post-graduate job prospects and the cost of undergraduate education. It would remove any personal financial stake that students have in their post-secondary education. On the plus side, it would leave the CFS with nothing to complain about.
  • All of this, if possible, would have little effect on participation rates. It would be better to spend new money on targeted programs that actually increase access to PSE.

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Posted in Public policy, post-secondary education

Liberals on Afghanistan

November 18th, 2010

Michael Ignatieff is taking a lot of heat from citizens, party members (and probably some members of the Liberal caucus) over his response to the idea, floated by PMO director of communications Dmitri Soudas, of a training mission in Afghanistan after Canada's combat role ends in 2011.

A review of some widely available facts may be helpful:

  • In June 2010, the Liberal Party announced a Global Networks Strategy. One part of that strategy reads: "[A future Liberal government will] pursue a post-combat role in Afghanistan that is focused on the training of police and military personnel in a staff college setting in Kabul, and civilian governance capacity-building"
  • In July 2010, Bob Rae released a statement upon the close of a fairly major conference in Kabul, in which he says: "In contrast to Conservative inaction, the Liberal Party has made it clear that we support a continuing non-combat commitment by Canada as part of the broad UN effort to sustain a stable, effective government in Afghanistan.  This commitment can include a role in training the Afghan army and police, as well as support for other institutions of government, including health care, education and the justice system."
  • In August, in the Toronto Star, Bob Rae wrote about Afghanistan. He noted that "Canada needs to debate and discuss the answers to these questions. The Liberal party helped draft the 2008 parliamentary resolution that permitted our troops to stay in Kandahar in a combat role, with an ever increasing role for the Afghan police and army and a stronger civilian and development presence. President Barack Obama’s review led to similar conclusions: There would be no simple, military victory; all efforts should focus on training the Afghan army and police and building the infrastructure of the country. Pakistan needed to become a reliable and steady ally in the change."

Now, I do find it interesting that Bob Rae is the lead on this issue, rather than, say, Dominic LeBlanc, who is the national defence critic. However, LeBlanc was appointed to that post in September 2010, after the Global Networks Strategy was announced. Presumably, he is on the same page as Rae and Ignatieff.

Michael Ignatieff's response to the training mission floated by the Conservatives was:

  • "This is a conversation that has to be had with Canadians. How many trainers? For how long? Who else is training? What are your training targets? What kind of mission is this? We have 10 years there, if there is a mission after 2011 the government owes Canadian an explanation."
  • "This government is (less than) two weeks away from Lisbon, the NATO meeting, (and) they are scrambling because they are under pressure from their allies," he told reporters, adding the first his party heard of it was Friday..."This is amateur hour."

The Liberal Party has been advocating this idea for months. It is known party policy. Ignatieff's response points out 1) the rushed, ill-considered way the Conservatives are raising the idea; and 2) that he believes it is incumbent on the government to provide more details before he knows if this is a good or bad idea.

As an aside, Jack Layton, in a major speech on Afghanistan in 2007, said: "Violent and petty crimes are also on the rise.  A trained police force would help Afghans immensely, but the police training effort has been slow and inadequate.  As of this month Canada has sent a grand total of 10 RCMP officers to Afghanistan.  They have trained approximately 1500 police officers. Yet in Iraq, where Canada is not participating in the war, we have trained 34,700 police officers." Of course, Layton has been consistently opposed to the combat mission, but he seems here to be more disposed to a training mission (at least for police).

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Posted in Politics, Public policy, defence