How would you feel about donating to a charity that uses more than half of your money for overhead costs? If that puts you off, then you should feel the same way about paying your income taxes.
Governments are notoriously inefficient at delivering taxpayer-financed programs. But finding data about how much of each dollar is spent for its intended purpose is difficult. Provincial budgets list expenditures by ministry (health or education, for example) but do not differentiate administrative overhead from total program cost. The 2012 Drummond report on reform of the Ontario public service gave a big clue: “We estimate that labour costs amount to about half of all program spending.”
But administrative overhead involves more than labour; it also includes the capital and operating cost of government offices. This means the net amount of the Ontario taxpayer dollar reaching program beneficiaries is less than 50 cents. Other provinces may use taxpayers’ money more efficiently than Ontario, but I doubt it.
Measuring the federal government’s spending efficiency is complicated by the fact that 60 per cent of its revenues flow to provincial and municipal transfer payments. For money deployed directly, Ottawa’s spending efficiency compares well with other Organization for Economic Development and Co-operation countries.
A study, “Relative Efficiency of Government Spending and its Determinants,” presented by professors Eric Wang and Eskander Alvi at last year’s Asia-Pacific Economic Association conference in Seattle assessed the degree to which government spending contributed to an increase in GDP in 10 Western countries in the 1981-2008 period. Canada ranked fourth, behind the United States, New Zealand and Germany – a big improvement from 2001, when Canada ranked last.
But much more needs to be done. A Fraser Institute study published last month, using federal auditor-general data, said that federal governments had wasted as much as $197-billion over the past 25 years, leaving the Harper government’s drive to improve efficiency a lot of room for improvement.
Not surprisingly, the Wang/Alvi study found that government spending efficiency improves as private-sector production, consumption, investment and exports increase; it declines as government spending rises. Interestingly, it also found that “monetary expansion,” or increasing the money supply, lowers government spending efficiency. And it found a strong correlation between government spending inefficiency and economic malaise. This is aptly demonstrated by economically stagnant, debt-laden France, which has the highest spending-to-GDP ratio of any OECD country.
When it comes to efficient government spending, Singapore offers a straight stick against which others can be measured. A recent World Bank paper (“Social service delivery: Singapore”) shows the country delivers high-quality public services at a low cost. It spends just 2.6 per cent of GDP on education, half the OECD average, yet students rank 10 places above Canada in math, science and reading skills. Singapore creates strong incentives for students to perform well in standardized national tests and chooses educators from the top 30 per cent of teaching graduates. The result is superior achievement for students and high public esteem for teachers.
More astounding is the value-for-money achieved by Singapore’s health-care system. Government health-care spending is a meagre 1.4 per cent of GDP, the World Bank paper notes, compared with the OECD average of more than 7 per cent. Life expectancy is 81.4 years and child mortality is just 2.2 per thousand births. Singapore hospitals publish online reports of waiting times, including how long it takes to see a doctor in emergency and, if needed, get a hospital bed. (Last week, that waiting time averaged less than five hours.)
The Singapore system provides universal coverage through a combination of compulsory savings and government subsidies to ensure affordability for all. The private sector provides about 75 per cent of publicly funded patient care. Those wanting upgraded accommodation make co-payments beyond what the state covers. The result is the world’s most efficient and effective universal public health care system.
The combined spending of Canada’s federal, provincial and municipal governments totals more than $750-billion per year. Improving the value-for-money from these enormous expenditures couldn’t be more important. Laying a straight stick alongside our country’s bent and twisted ones would be a good place to start.