Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

Hart House at the University of Toronto. (JENNIFER ROBERTS FOR THE GLOBE AND MAIL)
Hart House at the University of Toronto. (JENNIFER ROBERTS FOR THE GLOBE AND MAIL)

Canada’s education tax breaks are flunking Add to ...

Canada’s hodgepodge of federal and provincial tuition and education tax credits for postsecondary students are expensive, not well understood, loosely targeted, and in desperate need of change.

Federal tuition and education/textbook tax credits are the most costly postsecondary student aid program in Canada. They cost the federal government about $1.6-billion in 2012; meanwhile the Canada Student Loan Program cost less than $1-billion. The tax credits – when combined with their provincial counterparts – cut the cost of postsecondary education by just over $2,000 a year for the average Canadian university student, and a bit less for college students.

More Related to this Story

The tax credits are non-refundable, meaning you need sufficient taxable income against which to claim them. So students from low-income families benefit least from them, while students from relatively well-off families benefit more. But these credits often do not go to the students themselves. Some students pass along these credits to their parents. Others carry them forward until post-graduation employment.

Tax credits are vote getters. They are also administratively simple. But lessons from economics, including behavioural economics, show us that these tax credits are unlikely to affect youths’ decisions to undertake more study, or to help reduce the financial burden of study for those who need it the most.

Another major shortcoming is that potential postsecondary students do not know about the tax credits, especially in advance of applying.

The tax credits are not mentioned on the national financial aid website (CanLearn) that gives students estimates of the cost of postsecondary education. Nor are they mentioned on most provincial student aid websites (Ontario is a commendable exception), or in tuition fee or financial aid documentation. The credits really only pop up on year-end tax forms, buried along with a bunch of other tax credits. So many students do not know the credits exist, let alone how much they might save.

Good policy must time payments right – people do not change their behaviour as much for future benefits as they do for immediate gains. And support must be targeted. If the goal is to get more kids studying in our colleges and universities, then we should target aid to those whose choices are most amenable. Canadian research suggests that – unsurprisingly – kids from richer families do not change their education choices because of a couple of thousand dollars a year in aid, but kids from poorer families do. So if the intent of the policy is to boost the education level of Canadians, it makes sense to give more to kids from low-income families – the opposite of what the tax credits currently do.

One simple change would be to make the tax credits refundable. This would allow individuals to claim them regardless of earned income. And this would make the credits more efficient and equitable, since it would allow all students, not just those whose parents earn enough to have a tax liability, to claim them sooner rather than later.

It’s easy to improve the billions we spend on postsecondary tax credits each year. Making them refundable is a simple, low-cost change that would improve fairness and economic efficiency, and that would garner broad political support.

Christine Neill is associate professor of economics at Wilfrid Laurier University. Her commentary, “What You Don’t Know Can’t Help You: Lessons of Behavioural Economics for Tax-Based Student Aid,” can be found at www.cdhowe.org.

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories