benefits from public spending

8/6/2019 Benefits From Public Spending

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i s b n 978-1-897569-39-9

Canadian Centre or Policy Alternatives

2 Carlton Street, Suite 1001, Toronto, Ontario

(416) 263-9896www.GrowingGap.ca

Acknowledgements

The authors wish to thank the organizations that provided core unding or this project. Theauthors are also indebted to Statistics Canada, whose database on government revenue andexpenditures enables consistent comparison o public revenue and expenditures across Canadaand whose Social Policy Simulation Database and Model and Survey o Labour Income Dynamicssupports the distributional analysis which orms the core o this study. Trish Hennessy, ArmineYalnizyan, Bruce Campbell, Kerri-Anne Finn, Tim Scarth, Andrew Jackson, Stan Marshall, TobySanger, Howie West, John Staple, Ian Boyko, Larry Brown, Sheila Block, Charles Pascal, MarcLee and Seth Klein all provided help ul guidance, advice and encouragement as the projectproceeded. None o the above is responsible or any errors, omissions or disagreeable opinions

presented in this paper. The ndings refect the work o the authors and do not necessarilyrefect the views o the Canadian Centre or Policy Alternatives or o the unding organizations.

Financial assistance or this project was provided by:The National Union o Public and General Employees, The Public Service Alliance o Canada, TheCanadian Union o Public Employees, The Canadian Teachers Federation, The Canadian LabourCongress and the Canadian Federation o Students.

About the Authors

Hugh Mackenzie is a Research Associate o the Canadian Centre or Policy Alternatives and parto the research team o the CCPA Inequality Project. He has written reports and backgrounders

or the CCPA on a wide range o issues including his July 2006 CCPA study o the public economyin Canada, The Art o the Impossible: Fiscal Federalism and Fiscal Balance in Canada whichserves as the macroeconomic counterpart to the distributional analysis in the current report.

He created the CCPAs popular gas gouge meter and conceived and writes the CCPAs annualreview o executive compensation in Canada. He is principal in Hugh Mackenzie & Associates,which provides economic consulting services to the trade union movement and the not- or-pro t sector. He co-chairs and is principal economist or the Ontario Alternative Budget project.He has written extensively on a wide range o budgetary issues in Ontario, including tax and

scal policy, elementary and secondary education nance and postsecondary education nance.From 1991 to 1994, he was Executive Director o the Ontario Fair Tax Commission. He was oneo the ounders o the Alternative Federal Budget project o the Canadian Centre or PolicyAlternatives.

Richard Shillington is a Senior Associate o the Ottawa-based economic consulting rmIn ormetrica Ltd. and principal o his consulting business, Tristat Resources Ltd. He has post-graduate degrees in statistics rom the University o Waterloo and has been engaged in thequantitative analysis o health, social and economic policy or the past 30 years. His researchhas covered several policy elds; health manpower planning, program evaluation, incomesecurity, poverty, tax policy and human rights. He has worked or several provincial and ederaldepartments as well as commissions studying the economy, unemployment insurance, humanrights and tax policy. Richard has been an active participant in policy and public debatesconcerning the relationship between the tax system and the retirement income system inCanada. He has also contributed his statistical and analytical talents to a number o CCPAprojects, most notably the analyses o the growing gap published by the CCPAs InequalityProject.
http://www.growinggap.ca/http://www.growinggap.ca/


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4 growing ga p pro jec t

e bene t middle-income anadians receive rom public services represents a

signi cant proportion o the total resources available to them. ven in the $80,000

to $90,000 household income range just below the richest 20% the bene t they

receive rom public services is equivalent to about hal o their private income.

No matter how you cut it, the data in this study shows how power ul a role public

spending plays in ensuring the majority o anadians enjoy a better quality o li e.e paper also shows that the vast majority o anadians would have been better

o i the scal capacity lost through tax cuts had instead been invested in improv-

ing public services.

t estimates that an astounding 80% o anadians would have been better o i the Harper government had trans erred money to local governments to pay or more

and better public services instead o cutting the GST by 1%.

imilarly, 75% o anadians would have been better of i their provincial govern-

ments had invested in public health care and education instead o administeringbroad-based income tax cuts in the late-1990s and early-2000s.

And had the ederal government invested in improved ederal public services in-stead o cutting capital gains taxation by one third in the early-2000s, 88% o ana-

dians would have been better o .

is path-breaking study raises serious questions about continuing anadas tax

cut agenda and provides robust evidence that the taxes anadians pay contribute

substantially to their standard o living by providing them with some o the best

public services in the world.


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5canada s q u i e t barga in : th e benef i t s o f publ ic spending

Introduction

over the past 30 years, and particularly since the early-1990s, public debate

over broad scal issues in anada has been dominated by tax cuts, without re er-

ence to the services or which taxes pay.

e tax and service debate in anada in the past 15 years has been almost com-

pletely one-sided, and has created a political atmosphere in which tax cuts have be-

come the de ault answer to virtually every political question.

e overall impact o tax cuts and the cuts in public services that accompany

them has not been addressed in any substantive way.

At the philosophical level, opponents o widespread tax cuts o ten make argu-

ments that are a variant o the o t-quoted view o ormer U upreme ourt Justice

liver Wendell Holmes that taxes are what we pay or civilized society, although

this leaves open the questions o how we de ne civilized society and how much o

civilized society we actually want to buy.

Another approach is to list services that are dependent on revenue rom the tax

system or their existence. While this serves politically and rhetorically to remind

advocates or tax cuts that there is another side to the question, it doesnt actually

provide a meaning ul measure o the bene ts we receive rom public services or ad-

dress direct ly the trade-of between the taxes that we pay and the bene ts we receive

rom the services those taxes und. is paper provides answers to these questions.

Using data and analytical tools rom tatistics anada, we estimate that ana-

dians enjoy an average $17,000 bene t rom the public services which our taxes

und roughly equivalent to the annual earnings o an individual working ull-time

at the minimum wage.


6/40


ower-income anadians bene t more rom personal trans er payments (most o

which are income-related) but middle- and upper-income anadians bene t airly equally rom all public services. e public services we use and bene t rom change

as we go through the li e cycle. eniors, or instance, bene t less directly rom publiceducation than they do rom public health care but when they were young parents

raising children, the opposite was true.No matter how you cut it, the data in this study shows how power ul a role public

spending plays in ensuring the majority o anadians enjoy a better quality o li e.

For the vast majority o anadas population, public services are, to put it bluntly,

the best deal they are ever going to get. e median anadian household income

(hal o anadians live in households with incomes below that amount; hal live inhouseholds with incomes above that amount) is approximately $66,000 in a 2.6 per-

son household. at median household realizes a $41,000 bene t rom public serv-

ices. at is equivalent to roughly 63% o that households private income.

More than o Canadians bene t rom public services which are worth more

than 50% o their households total earned income.is paper also shows that the vast majority o anadians would also be better

of without tax cuts. ur analysis estimates that 80% o anadians would have been

better o i , instead o cutting the GST, the Harper government had trans erred the

money to local governments to pay or more and better public services.

ompared to the broad-based income tax cuts implemented by provincial govern-

ments in the late-1990s and early-2000s, 75% o anadians would have been better of

i their provincial governments had spent the money on health care and education.

And had the ederal government invested in improved ederal public services in-

stead o cutting capital gains taxation by one third in the early-2000s, 88% o ana-

dians would have been better o .n other words, the tax cuts made to sound like ree money to middle-income a-

nadians are anything but. ndeed, the tax cuts implemented in anada in the last

15 years have had the net e ect o reducing the living standards o most anadians.


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What this study measures

t h i s s tudy mea sures the value o public services received by households in

each household income group, in the aggregate as well as disaggregated by level o

government and type o public service. is in turn supports an exploration o such

issues as:

the distribution o the bene t rom public services, by household income group;

the relative distributive impact o public services based on level o government;

the size o the social wage the value o public services received by household

income, in the aggregate and in relation to income and total tax incidence;

the distributive impact o various types o tax cuts matched by marginal reductions

in public services spending; and

the scal bargain the balance between taxes and public services bene t, by

household income.

composition of public spending

hart 1 shows the distribution o public spending in anada or all three levels o

government and C/QPP combined.

ducation, social services (including all personal trans er payments) and health

together account or about 64% o consolidated public spending in Canada. Te


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only other categories that approach 10% are protection o persons and property and

public debt charges.tatistics anadas government revenue and expenditure accounts provide data

on public spending, by category o public spending and by level o government. 1

Social services28%

Canada/Quebec Pension Plan6%

Education14%

Resource conservationand industrial development

3%Environment

2%Labour, employment

and immigration1%

Housing1%

Foreign affairs andinternational assistance1%

Debt charges8%

Other expenditures1%

General governmentservices

3%

Protection of personsand property

8%Transportation

and communication4%Health

17%

Recreationand culture

3%

char t 1 Distribution o consolidated public spending Canada, 2006

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

$ 2 0 , 0

0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0

0

$ 2 0

, 0 0 0

U n d e

r

$ 1 0 , 0 0

0 $ 3

0 , 0 0 0

$ 4 0

, 0 0 0

$ 4 0 , 0

0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 , 0 0

0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

$ 1 0 0 , 0

0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 , 0

0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4 0

, 0 0 0

$ 1 5 0 , 0

0 0

$ 2 0

0 , 0 0 0

$ 1 4 0 , 0

0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0 +

Number of households Population

char t 2 Households and population by household income range 2006


9/40


household income

hart 2 shows the number o households or anada by household income range.

Because households vary in size, and because average household size varies system-

atically with income, we also show the total population o the households in each

income range.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

$ 2 0 , 0

0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0

0

$ 2 0

, 0 0 0

U n d e

r

$ 1 0 , 0 0

0 $ 3

0 , 0 0 0

$ 4 0

, 0 0 0

$ 4 0 , 0

0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 , 0

0 0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

$ 1 0 0 , 0

0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 , 0

0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3

0 , 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4 0

, 0 0 0

$ 1 5 0 , 0

0 0

$ 2

0 0 , 0 0

0

$ 1 4 0 , 0

0 0

$ 1 5

0 , 0 0 0

$ 2 0 0

, 0 0 0 +

char t 3 Average household size by household income range Canada, 2006

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$ 2 0 , 0

0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0

0

$ 2 0

, 0 0 0

U n d e

r

$ 1 0 , 0 0

0 $ 3

0 , 0 0 0

$ 4 0

, 0 0 0

$ 4 0 , 0

0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 , 0

0 0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

$ 1 0 0 , 0

0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 , 0

0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4 0

, 0 0 0

$ 1 5 0 , 0

0 0

$ 2 0

0 , 0 0 0

$ 1 4 0 , 0

0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0 +

Cumulative % of households Cumulative % of population Cumulative % of income

char t 4 Distribution o households, population and incomeCanada, 2006, cumulative %


10/40


Household size increases as household income increases, as chart 3 illustrates.

Chart 4 shows the cumulative percentage o all households and population in

households, as income increases.

Households with incomes o less than $80,000 per year represent 72% o house-

holds comprising 61% o anadas population, but account or only 41% o total in-

come.

estimating the benefit from public services

With detailed data on public spending as a base, we draw on three public data sources

to estimate the distribution o bene ts by household type and household income

level rom each category o public spending. Health care utilization data measured

by age and household income rom the anadian nstitute or Health n ormation

are used to estimate the value o health care services provided to households. tatis-

tics anadas ocial olicy imulation atabase and odel (SPSD/M) and tatistics

anadas urvey o abour ncome ynamics (SLID) database generate in ormationabout household characteristics and expenditure patterns, by household income,

which in turn is used to estimate the distribution o bene t rom other types o

public services.

etails o the allocation methodology are presented in Appendix 2.

t should be emphasized at the outset that by virtue o our use o tatistics an-

adas government expenditure data as the basis or the analysis, we are ollowing

the convention in public accounting o valuing public services at their cost. o the

extent that public programs are supported by a cost-bene t analysis, our implicit

assumption is that the net bene t rom public services is zero an extremely con-

servative assumption.For the purposes o the analysis, public services are divided into our broad catego-

ries. e rst category consists o public services or which the allocation o bene t

to amily types by income can be measured directly using Statistics Canada dataseries and analysis tools. is category consists primarily o direct personal trans er

payments, which make up 21% o public spending.

e second category consists o services or which there are direct proxy measures

that closely approximate direct measurement. For example, elementary and second-

ary education expenditures are allocated based on the number o school-age chil-

dren in the household. ostsecondary education expenditures are allocated based

on the presence o postsecondary students in the household. Health and hospitalexpenditures respectively are allocated rom measures o physician and hospital

visits prepared by the anadian nstitute or Health n ormation. is category ac-

counts or about 36% o public spending.

e third category consists o services or which there are indirect proxy measures

or bene t rom the service. For example, expenditures on roads and tra c were

allocated based on expenditures on motor vehicle uel and lubricants. imilarly, ex-


11/40


penditures on sewer and water services were assumed to be distributed to house-holds on a per capita basis. is category accounts or about 26% o public spending.

Te ourth category consists o broadly-based public bene ts that are indivis-

ible and cannot be isolated to any individual characteristic or behaviour. xamples

include environmental protection, national de ence and oreign a airs and inter-

national development. Tese expenditures, accounting or 18% o public servicesspending, were allocated on a per-capita basis.

e allocation methods set out above generate a distribution o public expendi-tures, by category o expenditure and by household private income. For the purposes

o the analysis, households are grouped by income in $10,000 increments, rom $0 to

$150,000, or the income range $150,000 to $200,000 and or incomes over $200,000.


12/40


Results of the analysis

data are presented or all income ranges. It should be noted, however, that

the characteristics o households with incomes in the ranges $0 to $10,000 and, to

a lesser extent $10,000 to $20,000, are somewhat unusual and should be interpret-

ed with caution. 2

n accordance with the papers analytical ramework, the value o each category

o public spending is determined or each household income group using the spe-

ci c data series selected to estimate each households bene t rom that category o

spending. As noted above, public spending is broken down by level o government

as well as by type o public service.

ese disaggregated amounts are then added together to produce an estimate o

the total bene t rom public services provided by all governments together, and or

each level o government separately.

hart 5 presents the distribution o per capita bene ts rom public services, by

household income range. pending is broken down by level o government.

wo patterns are apparent rom this chart. First, once household income rises

above the median o $5060,000 per year, bene t rom public spending is remark-

ably evenly distributed on a per-capita basis in households in all income ranges.

econd, it is apparent that the distribution o bene t rom public services di ers

notably among the levels o government. is is illustrated in charts 6, 7 and 8 ol-

lowing.

As one might expect given the important role the ederal government plays in

the personal income trans er system, the per capita value o ederal public services

declines, in absolute dollar terms, as income increases to a household income o


13/40


approximately $100,000, above which Canadians bene t on consistent per-capitabasis. e higher values at low income are due to trans ers (OAS/GIS, C/QPP, E and

the hild ax Bene t).

Provincial spending shows a similar downward slope as income increases, re-

fecting the provincial governments responsibility or social assistance bene ts.

iven the tighter targeting o provincial income assistance programs, bene t rom

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

$ 2 0 ,

0 0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0

0

$ 2 0

, 0 0 0

$ 3 0 , 0

0 0

$ 4 0

, 0 0 0

$ 4 0 ,

0 0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 , 0

0 0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

$ 1 0 0 ,

0 0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 , 0

0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 ,

0 0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4

0 , 0 0

0

$ 1 5 0 , 0

0 0

$ 2 0

0 , 0 0 0

$ 1 4 0 , 0

0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0 +

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

$ 2 0 , 0

0 0

$ 3

0 , 0 0 0

$ 1 0 , 0 0

0

$ 2

0 , 0 0

0

$ 3 0 , 0

0 0

$ 4

0 , 0 0 0

$ 4 0 , 0

0 0

$ 5

0 , 0 0 0

$ 5 0 , 0

0 0

$ 6

0 , 0 0

0

$ 6 0 , 0

0 0

$ 7

0 , 0 0 0

$ 7 0 , 0

0 0

$ 8

0 , 0 0

0 $ 8

0 , 0 0 0

$ 9

0 , 0 0

0 $ 9

0 , 0 0

0

$ 1 0

0 , 0 0

0

$ 1 0 0 , 0

0 0

$ 1 1

0 , 0 0 0

$ 1 1 0 , 0

0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 ,

0 0 0

$ 1 4

0 , 0 0 0

$ 1 5 0 , 0

0 0

$ 2 0

0 , 0 0

0

$ 1 4 0 ,

0 0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0

+

F ede ra l Pr ov in ci al L oc al

char t 6 Per capita beneft rom public spending by household incomeCanada, 2006, ederal government

char t 5 Per capita beneft rom public spending by household incomeCanada, 2006, by level o government


14/40


public services declines to a relatively stable per capita average at a lower incomerange below $40,000.

e higher values at low income are due to trans ers (social assistance), postsec-

ondary education (attributed to students) and health care or seniors.

e pattern o bene t rom the spending o local governments is quite di erent

rom that o both the ederal or provincial governments. e per capita absolute dol-

lar bene t rom public services delivered by local governments actually increases

0

1,000

2,000

3,000

4,000

5,000

6,000

$ 2 0 ,

0 0 0

$ 3 0

, 0 0 0

$ 1 0 , 0

0 0

$ 2 0

, 0 0 0

$ 3 0 ,

0 0 0

$ 4 0

, 0 0 0

$ 4 0 ,

0 0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 ,

0 0 0

$ 7 0

, 0 0 0

$ 7 0 , 0

0 0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

$ 1 0 0 ,

0 0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 ,

0 0 0

$ 1 2 0

, 0 0 0

$ 1 2 0

, 0 0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4

0 , 0 0 0

$ 1 5 0

, 0 0 0

$ 2 0

0 , 0 0 0

$ 1 4 0

, 0 0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0 +

char t 8 Per capita beneft rom public spending by household incomeCanada, 2006, local governments

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

$ 2 0 , 0

0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0 0

$ 2 0

, 0 0 0

$ 3 0 , 0

0 0

$ 4 0

, 0 0 0

$ 4 0 , 0

0 0

$ 5 0

, 0 0 0

$ 5 0 ,

0 0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 ,

0 0 0

$ 8 0

, 0 0 0

$ 8 0 ,

0 0 0

$ 9 0

, 0 0 0

$ 9 0 ,

0 0 0

$ 1 0

0 , 0 0

0

$ 1 0 0 , 0

0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 , 0

0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4

0 , 0 0 0

$ 1 5 0 ,

0 0 0

$ 2

0 0 , 0 0 0

$ 1 4 0 ,

0 0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0

+

char t 7 Per capita beneft rom public spending by household incomeCanada, 2006, provincial and territorial governments


15/40


as household income increases. wo actors explain this phenomenon. First, some

o the services delivered by local governments are related in one way or another to

consumption, which tends to increase as household income increases. econd, theproportion o a households population that consists o children increases as income

increases. at wil l tend to produce per capita spending that increases as income in-

creases because o the importance o elementary and secondary education as a localservice. More than 40% o local spending is or elementary and secondary education.

For higher-income households, local government is actually more important

than it is or households with lower incomes. n act, measured bene t rom localservices or high-income households exceeds the measured bene t rom ederal

government services.

Tere is relatively little variation in the bene t rom public services as incomeincreases. Without re erence to the revenue sources rom which the services are

unded, this would appear to suggest that public services do not play a signi cant

role in greater equality. But when you measure public services as a share o income

rather than in absolute dollar terms, it becomes clear that public spending does, in-deed, play a major redistributive role in anada.

ese ndings are ully consistent with the results o an analysis o the impact

o public services on the distribution o income in selected industrialized countries

conducted by the Organization or Economic Cooperation and development and

published in 2008. 3 n the summary o its chapter on public services, it observed:

ublic services to households signi cantly narrow inequality, although this reduction

is typically lower than that achieved by the combined e ect o household taxes and

public cash trans ers. is inequality-reducing e ect results mainly rom a relatively

uni orm distribution o these services across the population, which implies that they

account or a larger share o the resources o people at the bottom o the distribution

than at the top. [OECD 2008, p. 223]

Chart 9 shows how bene t rom public services varies as a share o household

income, by household income range.

e chart above shows the relationship between bene t rom public services and

household income. t also illustrates the relationship between public revenue, which

is roughly constant as a share o income, and bene t rom public services. t illus-

trates how public services unded rom general revenue that deliver equal bene ts

to all anadians have a power ul redistributive e ect.

Tis e ect is most evident in the middle o the income distribution the ap-proximately 50% o anadians that live in households with total incomes between

$30,000 and $100,000, in hart 10.

e bene t middle-income anadians receive rom public services represents a

signi cant proportion o the total resources available to them. Even in the $80,000 to

$90,000 household income range just below the richest 20% the bene t received

rom public services is equivalent to about hal o the households private income.


16/40


n other words, an upper-middle income anadian household would have to devote

hal a years wages to pay or the public services their taxes provide.e population-weighted median household (hal o anadians live in households

with incomes below this level, hal in households with incomes above this level) has

an income o $66,000 and derives a bene t o $41,000 rom public services equiva-

lent to more than 63% o its income. With an average household size o 2.6 persons

per household, the bene t per capita in the median household is $15,724.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

$ 3 0 , 0

0 0

$ 4 0

, 0 0 0

$ 4 0 , 0

0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 , 0

0 0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

Total(left axis)

As % of household income(right axis)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

char t 10 Beneft rom public services and household income Canada, 2006,$ per capita and % o household income, middle 50% o population in households

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

0%

50%

100%

150%

200%

250%

300%

$ 2 0 , 0

0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0

0

$ 2 0

, 0 0 0

$ 3 0 ,

0 0 0

$ 4 0

, 0 0 0

$ 4 0 ,

0 0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 , 0

0 0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

$ 1 0 0 , 0

0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 ,

0 0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4

0 , 0 0

0

$ 1 5 0 ,

0 0 0

$ 2 0

0 , 0 0 0

$ 1 4 0 , 0

0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0 +

Total(left axis)

As % of household income(right axis)

char t 9 Beneft rom public services and household income$ per capita and % o household income, Canada, 2006


17/40


More than two-thirds o anadians live in households whose bene t rom public

services exceeds 50% o the households private income.

long with the variations in total bene ts rom public spending, the composition

o bene t rom public spending also varies across income ranges.

Chart 11 shows graphically the composition o bene ts rom public services as

it varies rom income group to income group. is chart breaks down the bene t

rom public services per capita in household income ranges into broad categorieso public bene t.

ersonal trans er payments and health care are relatively more important as sourc-

es o bene t rom public spending in lower-income ranges than in higher household

income ranges, although that e ect is partially o set by the greater relative impor-

tance o education in public services bene t as income increases. is chart under-

lines the act that, or spending in areas other than personal trans er payments, per

0

5,000

10,000

15,000

20,000

25,000

30,000

$ 2 0 , 0

0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0 0

$ 2 0

, 0 0 0

$ 3 0 ,

0 0 0

$ 4 0

, 0 0 0

$ 4 0 , 0

0 0

$ 5 0

, 0 0 0

$ 5 0 ,

0 0 0

$ 6 0

, 0 0 0

$ 6 0 ,

0 0 0

$ 7 0

, 0 0 0

$ 7 0 ,

0 0 0

$ 8 0

, 0 0 0

$ 8 0 ,

0 0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

$ 1 0 0 , 0

0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 ,

0 0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4

0 , 0 0 0

$ 1 5 0 , 0

0 0

$ 2 0

0 , 0 0 0

$ 1 4 0

, 0 0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0 +

Other

Economic policies

Recreation and culture

Environment

Transportation and communication

Protection of persons and property

Education

Health

Housing

Personal transfer payments

char t 11 Major categories o public expenditure Total


18/40


capita bene t rom public services is relatively evenly distributed across household

income ranges.

public spending categories and family types

s one might expect, the value and composition o bene t rom public services var-

ies across public spending categories and amily types.

For example, seniors derive signi cant bene t rom personal trans er paymentslike ld ge ecurity, the uaranteed ncome upplement and the anada/ uebec

ension lans. As they age urther, they realize increasing bene ts rom the healthcare system.

Families with young children will tend to bene t relatively more rom the health

care system, whereas amilies with older children will tend to bene t rom the public

education system to a greater extent than other types o amilies.

Overall, the average per capita bene t rom public services in Canada in 2006

came to $16,952. Approximately 56% o that bene t is derived rom expenditures on

health and education and personal trans er payments.

Although the average bene t rom public services alls within a relatively nar-

row range, the source o that bene t varies signi cantly depending on amily type.

Not surprisingly, amilies with children derive a relatively high proportion o theirbene t rom public services rom education, whereas seniors public services bene t

comes predominantly rom trans er payments and health care.

Because single seniors tend to be older than senior couples, they derive greater

bene t in both absolute and relative terms rom health care than senior couples.

Lone parents with children derive greater bene t rom trans ers than amilies with

% o Population

Per capitabeneft Education Health Trans ers Other

Total 100% 16,527 16% 19% 21% 44%

Couples with only older Kids 11% 14,758 17% 23% 7% 53%

Families with Kids 41% 13,332 29% 15% 13% 43%

Lone Parents with Kids 6% 20,416 28% 12% 24% 37%

Non-Senior Couple: no Kids 15% 15,407 8% 25% 10% 57%

Other 2% 16,740 17% 17% 28% 38%

Senior Couple 12% 21,199 1% 21% 43% 34%

Single Senior 4% 25,386 0% 22% 50% 28%

Single non-seniors 10% 21,929 10% 24% 9% 57%

t ab le a Average and Distribution o Beneft rom Public Services by Family Type


19/40


children generally because lone parent households tend to be lower-income than

two-parent households.

at the range o variation in the aggregate is relatively small indicates anadians

draw remarkably similar levels o bene t rom public services in the aggregate over

their li etimes, although the speci c types o public services that are the source o

that bene t vary over their li etime.


20/40


Implications of the analysisfor the tax cut debate

results from this study indicate that the movement or tax cuts in anada

has been the political equivalent o a bait-and-switch sales campaign. e populist

rhetoric about the tax burden on the ordinary amily has given way to actual tax

policy changes that have overwhelmingly bene ted only a very small proportion o

the population anadas richest taxpayers.

recent comprehensive study o tax incidence in anada conducted by Marc eeo the anadian entre or olicy Alternatives makes it clear that, taken together,

tax changes at all levels o government in anada since the early-1990s have deliv-

ered virtually no bene t to most anadians. ey have delivered substantial ben-

e ts to those anadians at the top o the income scale. And they have trans ormed

a mildly progressive tax system into a regressive one. anks to the tax cuts o the

1990s, the tax system is now no longer alleviating relative market income inequality

in anada it is exacerbating inequality. 4

A signi cant study rom tatistics anada that ocused on income growth at the

top end o the income scale in anada between 1982 and 1992 and between 1992 and

2004 adds considerable detail to the picture. t nds that the income distribution wasrelatively stable between 1982 and 1992 but that income inequality exploded between

1992 and 2004. t shows that gains in individual real incomes since the early-1990s

have gone entirely to anadians in the top 10% o the income scale and that the re-

sulting increase in the share o total income going to the richest 10% o anadians

has in act gone predominantly to the richest 1% o anadians. 5


21/40


Looking at income taxes and CPP premiums, the tatistics anada study ound

that while e ective tax rates or most anadians had been relatively stable between

1992 and 2004, e ective tax rates on anadians at the very top o the income scale

had come down dramatically. 6 Efective tax rates dropped by three percentage points

or the richest 1%; ve percentage points or the richest 0.1%; and eleven percentage

points or the richest 0.01%.o look at it another way, roughly 70% o the gains o the richest 10% o tax lers

went to the richest 5%; more than 70% o the gain made by the richest 5% went to

the richest 1%; nearly 65% o the gains o the richest 1% went to the richest 0.1%; and

80% o the gains o the richest 0.1% went to the top 0.01%.

ore than 25% o the tax savings realized by the richest 10% o anadian tax l-ers actually went to the richest 1/100 o 1% o tax lers.

Arguments or tax cuts avoid like the plague any re erence to their implications

or public spending. With good reason. In the real world, budgets have to be bal-anced and a dollar less revenue means a dollar less to pay or public services. e

key question is: with a tax cut balanced o against the corresponding reduction inunding available or public services, who wins and who loses?

For the two main sources o revenue raised rom individuals, sales taxes and per-

sonal income taxes, the data demonstrate that, regardless o the orm o the tax cut

or the category o public spending o set against it, the majority o anadians lose

when these broad-based taxes are cut.

o illustrate the point, we look at three political trade-o decisions between tax

cuts and public spending made in the past 10 years: the decision o the ederal gov-

ernment to cut the GST rather than trans er the equivalent revenue to support pro-

gram spending by local governments; the decision by all provincial governments to

cut personal income taxes and make up or the lost revenue by cutting back on theirmajor spending areas in health care and education; and the decision o the ederal

government to reduce the inclusion rate or capital gains taxation rom 75% o the

gain to 50%.

Tere has been an ongoing public discussion or several years concerning the

idea o trans erring a point o the GST to local governments to ease their collective

nancial di culties. at question sur aced most recently in the debate ollowing

the ederal mini-budget o ctober 2007. unicipal leaders argued that i the ed-

eral government didnt need the revenue it should trans er the revenue to the level

o government that has the most pressing need. Te Harper government decided

instead simply to cut the GST by 1%.hart 12 shows the net impact o a cut in the GST rate by 1% o set against a re-

duction in spending on public services by local governments across anada. t shows

the per capita net impact o this trade-o , by household income class.

e 1% cut in the GST reduced revenue by a total o $5.7 billion. e alternative

in this comparison is to trans er that amount to local governments or spending on

local government services generally.


22/40


trade-of o a GST cut against local government services leaves 80% o anadians

worse o . Households with incomes under $110,000 would have been better o had

the ederal government not cut the GST and instead had trans erred the money to

local governments to support local services. For households with incomes between

$110,000 and $200,000 the net gain never exceeds $50 or a year. For households

with incomes over $200,000 the net gain averages $200.

From the mid-1990s until the early-2000s, provincial governments across ana-

da introduced competitive personal income tax cuts, paid or largely by arti cially constraining their spending on education and health. Te e ect o those spend-

ing constraints has been readily visible in the nancial pressures on school boards

across the country, in large and growing amounts o student debt and deteriorating

standards o postsecondary education, and in the crisis in health care at the turn

o the 21st century.

Chart 13 illustrates the net e ect o this kind o political choice, looking at the

net e ect o a 1% cut in each personal income tax rate combined with an equivalent

reduction in spending on health care and education.

Such a cut would have reduced personal income tax revenue across Canada in

2006 by $7.2 billion.75% o anadians would lose as a result o a 1% income tax cut orcing an equivalent

reduction or constraint on education and health services spending. Most o those who

gain rom the trade-of households earning between $90,000 and $150,000 gain

less than $200 per person rom the trade-o . e exception is households with in-

comes over $200,000 which gain more than $600 per person rom the trade-o .

-50

0

50

100

150

200

250

-20%

0%

20%

40%

60%

80%

100%

$ 2 0 , 0

0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0

0

$ 2 0

, 0 0 0

$ 3 0 , 0

0 0

$ 4 0

, 0 0 0

$ 4 0 , 0

0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 , 0

0 0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

$ 1 0 0 , 0

0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 , 0

0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4

0 , 0 0 0

$ 1 5 0 , 0

0 0

$ 2 0

0 , 0 0 0

$ 1 4 0 , 0

0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0 +

Net 1% GST/local Cumulat ive % of popula tion

char t 12 80% o Canadians lose when the GST is cut by 1% vs. trans erring the revenue to local governments


23/40


n its rst two budgets o the 21st

century, the ederal government introduced themost regressive change in the personal income tax system in anadian history by

reducing the rate o tax on capital gains. nstead o the pre-existing system, in which

75% o realized capital gains were required to be included as income, the government

introduced a new regime under which only 50% o gains were included as income.

-400

-200

0

200

400

600

800

1,000

1,200

1,400

1,600

-25.0%

0.0%

25.0%

50.0%

75.0%

100.0%

$ 2 0 , 0

0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0

0

$ 2 0

, 0 0 0

$ 3 0 , 0

0 0

$ 4 0

, 0 0 0

$ 4 0 , 0

0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 , 0

0 0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0

0

$ 1 0 0 , 0

0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 , 0

0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4

0 , 0 0

0

$ 1 5 0 , 0

0 0

$ 2 0

0 , 0 0

0

$ 1 4 0 , 0

0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0

+

Net 1% all PIT rates/health/education

Cumulative % of population

char t 13 A 1% cut in each personal income tax rate o set by cutsin education and health services leaves 75% o Canadians worse o

-200

0

200

400

600

800

1,000

-20%

0%

20%

40%

60%

80%

100%

$ 2 0 , 0

0 0

$ 3 0

, 0 0 0

$ 1 0 , 0 0

0

$ 2 0

, 0 0 0

$ 3 0 , 0

0 0

$ 4 0

, 0 0 0

$ 4 0 , 0

0 0

$ 5 0

, 0 0 0

$ 5 0 , 0

0 0

$ 6 0

, 0 0 0

$ 6 0 , 0

0 0

$ 7 0

, 0 0 0

$ 7 0 , 0

0 0

$ 8 0

, 0 0 0

$ 8 0 , 0

0 0

$ 9 0

, 0 0 0

$ 9 0 , 0

0 0

$ 1 0

0 , 0 0 0

$ 1 0 0 , 0

0 0

$ 1 1 0

, 0 0 0

$ 1 1 0 , 0

0 0

$ 1 2 0

, 0 0 0

$ 1 2 0 , 0

0 0

$ 1 3 0

, 0 0 0

$ 1 3 0 , 0

0 0

$ 1 4

0 , 0 0 0

$ 1 5 0 , 0

0 0

$ 2 0

0 , 0 0 0

$ 1 4 0 , 0

0 0

$ 1 5 0

, 0 0 0

$ 2 0 0

, 0 0 0 +

Net capital gain/federal Cumulative % of population

char t 14 Reducing the capital gains inclusion rate rom 75% to 50% and paying orit with reduced ederal public services spending le t 88% o Canadians worse o


24/40


o illustrate the political choice involved, Chart 14 shows the net impact o a

trade-o between ederal government services and this one-third cut in the e ec-

tive tax rate on capital gains.

e gain rom the capital gains tax cut is so heavily concentrated at the top o theincome scale that households with incomes o less than $130,000 are net losers rom

the trade-o . Households with incomes between $140,000 and $200,000 gain lessthan $100 per person in the household. e net gain or households with incomes

over $200,000 is nearly $900 per household member.Fully 88% o Canadians would have been better o i the government had le t

capital gains taxes where they were, at an inclusion rate o 75%, and allocated the

revenue instead to public services.


25/40


Conclusion

the results of this s tudy demonstrate that what passes or public policy de-

bate on tax cuts ignores a signi cant part o the story.For most anadians, the ben-

e t they receive rom tax cuts is outweighed by a signi cant margin by their losses

rom accompanying cuts in public services.

ublic services spending improve the quality o li e or most anadians and make

anada a more equal society.

Lower-income anadians bene t more rom trans er payments to people such

as mployment nsurance, social assistance, child bene ts, and pensions .

rovincial and local spending has a power ul impact on middle-income anadi-

ans, thanks to public services such as education and health, roads and sewer and

water services.

epending on the type o tax cut, 75% or more o anadians are net losers when

the gains rom tax cuts are o set by reductions in public services.

What the ndings o this study demonstrate is that public policy debate over taxes

without re erence to the public services impact o tax cuts is like shopping without

looking at the price tags. Just as some anadians can aford to shop without looking

at price tags, some anadians incomes are high enough that they can buy into tax

cuts and remain con dent that their private gains will be greater than their public

services losses. But the vast majority o anadians cant or shouldnt shop without

looking at the tags.


26/40


appendix 1

Methodological notes

conceptual issues

Valuing public services beneft vs. cost

With limited exceptions, public services are not exchanged in markets. As a re-

sult, they cannot be valued at market prices the way privately-produced goods are.

Furthermore, most public services are public goods, in that the bene ts rom the

service cannot be isolated to an individual who purchases the good or service. at

is obviously the case or services like public health, or which there is generally no

individualized bene t. But even or services like universal elementary and second-

ary education, or which there is a market equivalent, substantial bene ts fow to

society as a whole as well as to the individual student and his or her amily. Finally,

just as is the case in the private sector, public spending is a mixture o spending on

goods and services that are consumed immediately and investments in public in-

rastructure that deliver bene ts over time. A bridge, or example, delivers bene ts

to its users over an extended period o time, but those bene ts are not valued in any

exchange market.

o avoid these conceptual issues, by convention when we measure our national

economic output, we measure the value o public services at their cost. For current

expenditures, that means that public services are valued at their cost o production.

e output rom public in rastructure appears in the national accounts as an allow-

ance or depreciation.


27/40


By analogy with the private sector, the implicit assumption in the way we account

or public services is that society receives no pro t rom its current production o

public services and its public in rastructure investments generate a return that is

su cient only or capital replacement.

As a consequence, the national accounts conventions will inevitably result in an

understatement o the value o public services relatively to market-traded privateservices.

Measuring public services expenditures

ublic services in anada are delivered by the Federal overnment, thirteen pro-

vincial and territorial governments, hundreds o municipal governments and school

boards as well as hospital and university boards and other quasi-governmental or-

ganizations. lthough most o these organizations account or their expenditures in

accordance with generally accepted accounting standards, the presentation o those

accounts varies considerably rom jurisdiction to jurisdiction and rom organiza-

tion to organization. As a result, comparing and aggregating spending data acrossanada is an extremely complex undertaking.

rior to 1989, the only reliable source o consistent in ormation concerning public

revenue and expenditures in anada was through tatistics anadas system o na-

tional accounts, which presented data on broad categories o revenue and expendi-

ture as well as on intergovernmental trans ers.

Beginning in 1989, tatistics anada has published comprehensive government

sector accounts by level o government at a level o detail that supports much more

detailed analysis o government sector activities than was the case in the past.

e expenditure data which orm the oundation or this study are drawn rom

the tatistics anada series overnment Finance, Revenue and Expenditures, CA -SIM ables 385-001 .

Allocating public spending by amily type and household income

In this analysis, we consider the distribution o both the total expenditures o all

levels o government and the expenditure activities o each level o government sepa-

rately. n breaking down spending by level o government, we were interested in the

direct spending activity o each level o government, not counting government-to-

government trans ers. Measuring each level o governments total spending sepa-

rately and adding it up would overstate the total size o government because trans er

payments would result in double-counting. t would also have the efect o distortingthe shares o public services activity among the levels o government, since trans er

payments actually represent expenditure activity by another level o government.

Because tatistics anada reports public spending on a consolidated basis or all

governments and or provincial and local governments combined, as well as or each

level separately, it is relatively straight orward to isolate the direct spending activities

o each level. Local spending is measured directly, because local trans ers to other


28/40


levels o government are essentially non-existent. rovincial direct spending activ-ity is isolated by subtracting local expenditures rom the consolidated provincial/

local expenditure data. is has the e ect o eliminating provincial/local trans er

payments rom the provincial spending totals, thereby isolating provincial directspending. Federal direct spending activity (excluding, or the purposes o this analy-

sis, C/QPP bene ts) is isolated by subtracting consolidated provincial/local spendingrom all-government consolidated spending. Again, this has the e ect o removing

Federal trans ers to other governments rom the totals.

Because Federal overnment trans er payments to provinces are o set in large

part by provincial trans er payments to local governments, the e ect o this adjust-

ment is to shi t measured spending rom the Federal government to local govern-

ments. n other words, on this measure, local governments gain in relative size at

the expense o the Federal government.

able B shows the data or 2006, the spending year on which the analysis is based.

who benefits estimating the allocation

of benefits from public services to canadians

Based on Statistics Canadas internally consistent and externally comparable de-

tailed data on government expenditures, the core analytical task o the study is

to estimate how the bene t (measured at cost) rom public services is distributed

among anadians.

Speci cally, we estimate the value o public services to census amilies, broken

down by amily income.

n general, public services in anada may be divided into three broad categories

or the purposes o this study.For some government services, bene ts can be allocated directly to amilies in

various categories, based on amily characteristics. ost cash income trans ers allinto this category. For example, bene ts like the hild ax Bene t, ld Age ecu-

rity Bene ts and social assistance bene ts can be allocated directly to amilies by

income class using readily available statistical series.

Total expenditure ShareExpenditure net o

intergovernmental trans ers Share

Federal Government (Incl. C/QPP) 232,115 38% 178,237 35%

Provincial Governments 268,359 44% 219,567 44%

Local Governments 106,467 18% 106,467 21%

Total 606,941 504,270

t ab le b Distribution o expenditures net o debt charges 2006


29/40


Expenditures which can be al located directly using readily available statistical

series account or 20% o total consolidated government expenditures in anada.

For a second category o service, bene t allocations can be reliably estimated

based on relatively straight orward assumptions about the relationship between

bene t rom the service and amily characteristics. For example, we can allocate

the bene t rom public expenditures on hospitals based on data or hospital visits

by census amilies. xpenditures on roads can be allocated based on expenditures

on motor vehicle uels. xpenditures on elementary and secondary education can

be allocated based on the number o children in a amily o school age. For the ex-

penditure categories selected or detailed presentation in this paper, the basis or

the allocation and the data series used to calculate the allocation are presented in

detail. A comprehensive listing o services, allocation bases and statistical series

used is presented in Appendix 2.

Expenditures allocated based on estimated incidence account or 46% o total

consolidated government expenditures.

A third category o services delivers bene ts that are o general bene t to society

to the point that it is impossible, conceptually, to identi y a consistent basis or their

allocation among di erent amily types. National de ence, external a airs and in-

ternational development assistance are examples o expenditures in this category.

We all bene t as a society rom anadas expenditures on national de ence or inter-

national diplomacy. However, it is not possible, using any o the available objective

data sources, to estimate in any straight orward way how those bene ts might vary

systematically by amily type. Expenditures in this category are allocated among

amilies on a per-capita basis.

Expenditures de ned as o general bene t to society and allocated on a per-capita

basis account or 18% o total consolidated government expenditures.

Because public debt interest refects prior years revenue and expenditure deci-

sions, the value o public debt interest would be distributed based on the distribu-

tion o non-public-debt expenditures. s a result, its impact on relative shares would

be neutral. Because they refect prior years expenditures, public debt charges are

excluded rom the analysis.


30/40


appendix 2

Distribution variables used

Expenditure category Distributive Series Source

Federal

Total expendituresGeneral government services Population SLIDProtection o persons and property Population SLIDTransportation and communication Exp:Motor Fuels and Lubricants SPSDHealthHospital care Hospital Visits CCHSMedical care MD Visits CCHSPreventive care Population SLIDOther health services Population SLIDSocial servicesSocial assistance Social Assistance Income SLIDWorkers compensation bene ts Weeks Employed SLIDEmployee pension plan bene ts and changes in equity Public Sector Employees SLIDVeterans bene ts Seniors (65+) SLIDOther social services Total Trans ers (SLID) SLIDMotor vehicle accident compensation Exp:Motor Vehicle Repairs SPSDEducationElementary and secondary education Children 017 SLIDPostsecondary education Full Time Students SLIDSpecial retraining services Employed Population SLIDOther education Employed Population SLIDResource conservation and industrial development Population SLIDEnvironment Population SLIDRecreation and culture Population SLIDLabour, employment and immigration Employed Population SLIDHousing Renters SLIDForeign a airs and international assistance Population SLID


31/40



Regional planning and development Homeowners SLIDResearch establishments Population SLIDOther expenditures Population SLIDFamily and youth allowances Child Tax Bene t Income SLIDChild tax bene t or credit Child Tax Bene t Income SLIDPensions First and Second World Wars Seniors (65+) SLID

War veterans allowances Seniors (65+) SLIDGrants to aboriginal persons and organizations Child Tax Bene t Income SLIDGoods and services tax credit Child Tax Bene t Income SLIDEmployment insurance bene ts UIC Income SLIDOld Age Security Fund payments OAS/GIS Income SLIDScholarships and research grants Youth Aged 1824 SLIDMiscellaneous and other trans ers Child Tax Bene t Income SLIDCanada Pension Plan CPP/QPP Income SLIDQuebec Pension Plan CPP/QPP Income SLID

Provincial Total expendituresGeneral government services Population SLID

Protection o persons and property Population SLIDTransportation and communication Exp:Motor Fuels and Lubricants SPSDHealthHospital care Hospital Visits CCHSMedical care MD Visits CCHSPreventive care Population SLIDOther health services Population SLIDSocial servicesSocial assistance Social Assistance Income SLIDWorkers compensation bene ts Weeks Employed SLIDEmployee pension plan bene ts and changes in equity Public Sector Employees SLIDOther social services Total Trans ers (SLID) SPSDMotor vehicle accident compensation Exp:Motor Vehicle Repairs SPSDEducationElementary and secondary education Children 017 SLIDPostsecondary education Full Time Students SLIDSpecial retraining services Employed Population SLIDOther education Employed Population SLIDResource conservation and industrial development Population SLIDEnvironment Population SLIDRecreation and culture Population SLIDLabour, employment and immigration Employed Population SLIDHousing Renters SLIDRegional planning and development Homeowners SLIDResearch establishments Population SLIDOther expenditures Population SLID

Local Total expenditures excl. debt chargesGeneral government services Population SLIDExecutive and legislative Population SLIDGeneral administrative Population SLIDOther general government services Population SLID


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Protection o persons and property Population SLIDCourts o law Income Tax (SLID) SLIDPolicing EARNINGS SLIDFire ghting Exp:Gross Imputed Rent SPSDRegulatory measures Population SLIDOther protection o persons and property Population SLID

Transportation and communication Exp:Motor Fuels and Lubricants SPSDRoad transport Exp:Motor Fuels and Lubricants SPSDSnow removal Exp:Motor Fuels and Lubricants SPSDParking Exp:Motor Fuels and Lubricants SPSDOther road transport Exp:Motor Fuels and Lubricants SPSDPublic transit Weeks Employed SLIDOther transportation and communication Exp:Communications SPSDHealthHospital care Hospital Visits CCHSMedical care MD Visits CCHSPreventive care Population SLIDOther health services Population SLIDSocial services

Social assistance Social Assistance Income SLIDOther social services Total Trans ers (SLID) SLIDEducationElementary and secondary education Children 017 SLIDOther education Employed Population SLIDResource conservation and industrial development Population SLIDEnvironment Population SLIDWater puri cation and supply, sewage collection and disposal Population SLIDWater puri cation and supply Population SLIDSewage collection and disposal Population SLIDGarbage, waste collection and disposal Population SLIDOther environmental services Population SLIDRecreation and culture Population SLIDRecreation Exp:Recreational Services SPSDCulture Exp:Educational and Cultural Services SPSDOther recreation and culture Exp:Educational and Cultural Services SPSDHousing Renters SLIDRegional planning and development Homeowners SLIDOther expenditures Population SLID

SLID:Survey o Labour Income Dynamics, Statistics Canada

CCHS:Canadian Community Health Survey, Health Canada/Statistics Canada/Canadian Institute or Health In ormation

SPSD/M: Social Policy Simulation Database and Model, Statistics Canada


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appendix 3

Results data tables


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Household income ranges

Total Under $10,000$10,000$20,000

$20,000$30,000

Basic demographic and income dataPopulation (,000) 30,511,827 624,306 1,999,858 2,522,282Households (,000) 12,703,002 505,380 1,452,588 1,420,640Average Household Income 67,472 5,598 15,617 24,900

Per Capita Income in Households 28,090 4,532 11,343 14,024Public spending per capita in householdsLocal 3,435 3,095 3,306 3,073Provincial 7,196 12,176 11,782 9,233Federal (incl. C/QPP) 6,320 4,207 9,788 9,461Total 16,952 19,478 24,876 21,767Composition o per capita beneftHealth 3,245 5,125 5,364 4,500Personal Trans er Payments / Social Services 5 ,906 5 ,903 12,484 10,316Education 2,731 3,408 2,283 2,247Environment 436 436 436 436Transportation and communication 832 550 465 590Housing 148 595 493 309

Labour, employment and immigration 82 60 49 59General Government Services 645 645 645 645Protection o persons and property 1,433 1,200 1,199 1,233Recreation and culture 470 537 438 411Regional plannign and development 71 66 69 71Research establishments 65 65 65 65Resource conservation and industrial assis tance 647 647 647 647Foreign a airs and international assistance 183 183 183 183Other expenditures 55 55 55 55Total 16,952 19,478 24,876 21,767Major categories o public expenditure, TotalPersonal Trans er Payments 5,906 5,903 12,484 10,316Housing 148 595 493 309Health 3,245 5,125 5,364 4,500Education 2,731 3,408 2,283 2,247Protection o Persons and Property 1,433 1,200 1,199 1,233Transportation and Communicaton 832 550 465 590Environment 436 436 436 436Recreation and Culture 470 537 438 411Economic Policies 866 839 830 842Other 884 884 884 884


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$30,000$40,000

$40,000$50,000

$50,000$60,000

$60,000$70,000

Basic demographic and income dataPopulation (,000) 2,849,515 2,925,727 2,723,702 2,645,980Households (,000) 1,425,429 1,290,676 1,118,875 1,005,751Average Household Income 35,021 44,895 54,873 64,864Per Capita Income in Households 17,519 19,805 22,541 24,655

Public spending per capita in householdsLocal 3,178 3,310 3,271 3 ,401Provincial 7,557 6,824 6,617 6,386Federal (incl. C/QPP) 8,507 7,161 6,544 5,938Total 19,242 17,296 16,431 15,724Composition o per capita beneftHealth 3,651 3,257 3,134 2,919Personal Trans er Payments / Social Services 8,421 6,659 5 ,762 5 ,138Education 2,336 2,544 2,603 2,670Environment 436 436 436 436Transportation and communication 727 746 818 861Housing 230 170 138 102Labour, employment and immigration 68 75 81 86

General Government Services 645 645 645 645Protection o persons and property 1,286 1,330 1,369 1,420Recreation and culture 417 408 422 423Regional plannign and development 73 72 72 73Research establishments 65 65 65 65Resource conservation and industrial assistance 647 647 647 647Foreign a airs and international assistance 183 183 183 183Other expenditures 55 55 55 55Total 19,242 17,296 16,431 15,724Major categories o public expenditure, TotalPersonal Trans er Payments 8,421 6,659 5,762 5,138Housing 230 170 138 102Health 3,651 3,257 3,134 2,919Education 2,336 2,544 2,603 2,670Protection o Persons and Property 1,286 1,330 1,369 1,420Transportation and Communicaton 727 746 818 861Environment 436 436 436 436Recreation and Culture 417 408 422 423Economic Policies 854 860 866 871Other 884 884 884 884


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$70,000$80,000

$80,000$90,000

$90,000$100,000

$100,000$110,000

Basic demographic and income dataPopulation (,000) 2,440,351 2,273,265 1,942,508 1,571,817Households (,000) 879,829 743,475 626,624 481,873Average Household Income 74,831 84,669 94,833 104,695Per Capita Income in Households 26,979 27,691 30,592 32,097

Public spending per capita in householdsLocal 3,479 3,494 3,541 3,606Provincial 6,395 6,233 6,101 6,059Federal (incl. C/QPP) 5,610 5,271 4,897 4,604Total 15,483 14,998 14,539 14,269Composition o per capita beneftHealth 2,870 2,799 2,575 2,509Personal Trans er Payments / Social Services 4 ,708 4 ,348 3,837 3,442Education 2,874 2,818 2,934 3,107Environment 436 436 436 436Transportation and communication 873 875 966 972Housing 81 55 43 38Labour, employment and immigration 89 90 95 97

General Government Services 645 645 645 645Protection o persons and property 1,447 1,463 1,511 1,532Recreation and culture 437 449 474 471Regional plannign and development 73 70 72 69Research establishments 65 65 65 65Resource conservation and industrial assis tance 647 647 647 647Foreign a airs and international assistance 183 183 183 183Other expenditures 55 55 55 55Total 15,483 14,998 14,539 14,269Major categories o public expenditure, TotalPersonal Trans er Payments 4,708 4,348 3,837 3,442Housing 81 55 43 38Health 2,870 2,799 2,575 2,509Education 2,874 2,818 2,934 3,107Protection o Persons and Property 1,447 1,463 1,511 1,532Transportation and Communicaton 873 875 966 972Environment 436 436 436 436Recreation and Culture 437 449 474 471Economic Policies 874 873 879 878Other 884 884 884 884


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$110,000$120,000

$120,000$130,000

$130,000$140,000

$140,000$150,000

Basic demographic and income dataPopulation (,000) 1,320,109 980,720 810,354 663,602Households (,000) 398,116 297,653 241,550 190,630Average Household Income 114,827 124,829 134,963 144,788Per Capita Income in Households 34,629 37,886 40,230 41,593

Public spending per capita in householdsLocal 3,649 3,791 3,654 3,483Provincial 6,091 6,217 6,352 6,314Federal (incl. C/QPP) 4,359 4,558 4,672 4,081Total 14,099 14,566 14,678 13,878Composition o per capita beneftHealth 2,512 2,513 2,549 2,587Personal Trans er Payments / Social Services 3,141 3 ,473 3,652 2,925Education 3,113 3,177 3,078 2,857Environment 436 436 436 436Transportation and communication 1,031 1,054 1,004 1,030Housing 31 20 21 20Labour, employment and immigration 100 97 102 108

General Government Services 645 645 645 645Protection o persons and property 1,577 1,603 1,630 1,646Recreation and culture 491 525 539 605Regional plannign and development 69 73 71 68Research establishments 65 65 65 65Resource conservation and industrial assistance 647 647 647 647Foreign a airs and international assistance 183 183 183 183Other expenditures 55 55 55 55Total 14,099 14,566 14,678 13,878Major categories o public expenditure, TotalPersonal Trans er Payments 3,141 3,473 3,652 2,925Housing 31 20 21 20Health 2,512 2,513 2,549 2,587Education 3,113 3,177 3,078 2,857Protection o Persons and Property 1,577 1,603 1,630 1,646Transportation and Communicaton 1,031 1,054 1,004 1,030Environment 436 436 436 436Recreation and Culture 491 525 539 605Economic Policies 882 882 885 889Other 884 884 884 884


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$150,000$200,000 $200,000 +

Basic demographic and income dataPopulation (,000) 1,417,940 799,788Households (,000) 399,269 224,651Average Household Income 169,904 387,568Per Capita Income in Households 47,842 108,863Public spending per capita in households

Local 3,673 4,711Provincial 6,402 6,345Federal (incl. C/QPP) 4,233 3,669Total 14,307 14,726Composition o per capita beneftHealth 2,585 2,505Personal Trans er Payments / Social Services 3,013 2,263Education 3,052 3,454Environment 436 436Transportation and communication 1,118 1,298Housing 16 14Labour, employment and immigration 104 100General Government Services 645 645

Protection o persons and property 1,723 2,115Recreation and culture 595 877Regional plannign and development 68 68Research establishments 65 65Resource conservation and industrial assistance 647 647Foreign a airs and international assistance 183 183Other expenditures 55 55Total 14,307 14,726Major categories o public expenditure, TotalPersonal Trans er Payments 3,013 2,263Housing 16 14Health 2,585 2,505Education 3,052 3,454Protection o Persons and Property 1,723 2,115Transportation and Communicaton 1,118 1,298Environment 436 436Recreation and Culture 595 877Economic Policies 884 880Other 884 884


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Notes

1 tatist ics anada generates data or each level o government separately, or all governments

on a consolidated basis, and or provincial and local governments on a consolidated basis. Be-

cause o the importance o intergovernmental trans er payments in anadian public nance,

adding together the data or each level o government as reported separately would result in

a substantial amount o double-counting o expenditures. For example, Federal overnment

trans er payments or health care would be counted twice: once as a Federal Government

trans er payment expenditure; and again as a provincial government expenditure on health.

For the purposes o this analysis, trans er payments are netted out o each level o govern-

ments expenditures to derive a measure o public services actually delivered by each level o

government. etails o the methodology are presented in Appendix 1.

2 ese characteristics tend to produce anomalous relationships between reported income

and the data used to distribute public services spending across these categories o households.

Households with very low incomes include students living away rom home, households con-

suming rom capital as well as households whose reported income is unusually low because

o reported capital losses.

3 rowing Unequal? ncome istribution and overty in ountries, , 2008

4 ax ncidence in anada, 1990 to 2005, arc Lee, anadian entre or olicy Alterna-tives, 2007

5 High-income anadians, Brian urphy, aul Roberts and ichael Wol son in erspec-

tives on Labour and ncome, tatistics anada, eptember 2007. e study ound that all o

the share increase attributable to the top 10% o the income scale went to the top 5% (i.e. the

bottom hal o the top 10% simply kept pace with overall income growth); that 90% o the


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benefits from public spending

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