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People walk on the grounds of the University of Toronto in Toronto, on Sept. 9, 2020.CARLOS OSORIO/Reuters

George Fallis is professor emeritus of economics and urban studies at York University.

Canadian universities are struggling financially. Laurentian filed for creditor protection in 2021; Alberta universities have had to make severe budget cuts; McGill and Concordia are in danger of plunging enrolments because of the mandated increase in out-of-province tuition fees; Queen’s has a large structural deficit and its provost declared that Queen’s could cease to exist if we don’t deal with this issue.

This is a huge problem, and not just for the universities. The economies of high-income countries are increasingly knowledge-based and Canada has been performing poorly relative to its peers. Real GDP per capita has grown more slowly over the past 20 years and the OECD has forecast that Canada will have the lowest growth among OECD countries to 2030. The underlying problem is poor productivity – output per hour worked – and raising productivity means working smarter. Universities lie at the heart of both the problem and solution.

We need to increase investment, both through new businesses and in existing firms; we need an increasingly skilled and educated labour force; we need research into new technologies and more rapid adoption of technologies developed elsewhere. Actions to improve productivity need a supportive context, countries need entrepreneurship and business leadership, a sound financial system, good government, and, most importantly, a good university system from which all of the aforementioned flow. During the 20th century Canada built a first-rate university system, but we have been letting it slip away through inattention and poor policy.

The financial problems are most acute in Ontario, home to 42 per cent of Canada’s university enrolments. In 2019, the Doug Ford government cut tuition fees by 10 per cent and has frozen them since but has not replaced the lost tuition revenue with an increase in government grants. The universities try to cut costs by increasing class sizes and by substituting part-timers for full-time faculty, but they have been following this strategy for 20 years and most cost cutting reduces academic quality. After cutting tuition, Mr. Ford largely ignored the university sector but belatedly had to confront the problems and appointed a Blue-Ribbon Panel on Postsecondary Education Financial Sustainability.

The panel reported in November, 2023, and called for an immediate 10-per-cent increase in per student funding and a 5-per-cent increase in tuition, followed by annual increases indexed to the CPI. So far, Mr. Ford has made no commitments, saying only that he wants to be sure universities are being run efficiently. Sadly, greater efficiency for the Premier means lower cost per student with no analysis of academic quality.

Faced with declining revenue, what did Ontario universities do? They aggressively recruited international students who are charged very high tuition. At some universities, international fees now approach half of total tuition revenue. With these new revenues, the universities carried on, glad that their shortfalls had been remedied. The provincial government was okay with things because it didn’t have to spend more money.

But the basis of university finances had fundamentally changed. Certainly, people worried that the increased reliance on international student fees carried risk – what if geopolitical tensions in the world flared up, causing an abrupt drop in international students – but the worry was not enough to demand change.

Then in 2024 the risk of plunging international enrolments became real and the ramshackle edifice of Ontario university finances may come tumbling down, although ironically not because of geopolitical crises but because of the housing affordability crisis here at home. Statistics Canada reported a huge surge in population over the past few years owing entirely to immigration – causing a surge in demand for housing.

After a few weeks of muddled responses, the federal Minister of Immigration, Refugees and Citizenship acknowledged that the immigration system had gotten out of control, then announced that only 360,000 international student study permits would be issued in 2024, a drastic reduction. The available permits are allocated to the provinces on the basis of population; Ontario’s permits will be cut by almost half.

While certainly the surge in international students was a problem, this sudden reduction has come with its own cost, bringing a significant reduction in university revenue.

What is to be done now?

The logic to answering the question is straightforward. Our economy needs a high-quality university system; high quality requires better funding; we cannot be reliant on international student fees; domestic tuition and government grants must increase.

Unfortunately, we in Canada are unwilling to pay the taxes to sustain the high-quality system we built in earlier generations. It reminds me of our health care system.

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