Investment is great, but what about people?

Vancouversun.com – business
June 2, 2010.   By Don Cayo, Vancouver Sun

Both Ottawa and Victoria have done a lot in recent years to encourage investment.

They’ve refined business-unfriendly old sales taxes into first the GST and now the HST. They’ve dropped taxes on capital. They’ve shaved the rates on corporate income taxes.

It’s at a point now where — despite lingering inequities in municipal property tax — the respected accounting firm of KPMG has rated Vancouver as the lowest-tax jurisdiction of 41 international cities it surveyed.

Which is a good thing when it comes to fostering investment.

But it takes more than investment capital to make an economy hum. It also takes human capital — something that will be in ever-shorter supply in our aging society as older workers retire and there are too few new ones to take their places.

If we’re to continue to prosper, one answer must be to squeeze more value from the relatively smaller workforce. Which means it’s time to focus on policies that will boost education levels and productivity, especially for young workers.

Post-secondary education in Canada is high quality. And, by the standards of much of the world, it’s not particularly expensive. But the cost is creeping up. And enrolment stats, which show disproportionate numbers of students in university coming from higher-income families, at least hint that these growing costs do deter many.

This is not so surprising given that, for a decade and a half, the thrust of federal assistance for students has been tax breaks of one type or another.

Education and tuition fee tax credits — often claimed by high-income members of a student’s family — add up to nearly $2 billion a year in forgone federal revenue. There are also breaks available through such things as Registered Education Savings Funds, which are primarily of value to those who can afford to salt away the maximum each year.

In other words, as the Canadian Federation of Students is fond of pointing out, most of the help goes to the people who need it least.

I don’t think simply lowering tuition fees would be much of an improvement. This would simply further subsidize the better off, who are overrepresented in our universities.

Nor would lower tuition deal with the extra financial burden carried by students who come from small towns or rural areas with no post-secondary schools. A big part of their cost is for accommodation, and low tuition wouldn’t help with this.

And making low tuition fees a cornerstone of post-secondary education policy would make it impossible to properly balance costs between individual students and the broader society. Both the individual and the nation benefit when a worker is educated, so it’s only fair that both pay some of the cost.

The student federation argues for more needs-based grants, and this might be one way to go. But I think income-contingent loans, along the lines of what’s offered in Australia, are also well worth considering.

The Australian loans are repaid through what is, in essence, a surcharge on graduates’ income tax, so it doesn’t cost much to administer these loans, and it’s very difficult for scammers to avoid repaying.

The income contingent system has been criticized as being unduly costly for graduates who don’t make big salaries and therefore take a long time to repay. But this could be solved with something as simple as a cap on eventual repayment costs.

There are no doubt many more ideas out there, and I’d like to hear them. But the point is that it’s time for post-secondary education to get more thoughtful attention. It’s human capital’s turn.

dcayo@vancouversun.com

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