Last year, the provincial government provided $330 million worth of post-secondary education tax credits, making it the single largest expenditure on non-repayable student financial assistance. Indeed, since 2000, Ontario has spent well over a billion dollars on these credits. Collectively, Canadian governments now spend almost 40 per cent of funds allocated to student financial aid through education-related tax credits.
From a tax policy perspective, the argument for these credits is that we should not tax things we want people to consume, such as post-secondary education. While this is true in principle, the facts point to a better, more pragmatic solution to increasing participation in higher education. Upper-income families, who benefit most from tax credits, are sending their children to college and university in record numbers, while low-income students, who often pay little to no tax, are being shut out. In 2007, the university participation rate of youth aged 18 to 24 from families in the highest income quartile was 47%, more than double the participation rate of the low-income (20%) and low-middle (18%) income quartiles. If we want to provide incentives to pursue a higher education in Ontario, we should start by looking at the $6,300 in tuition fees now charged to the average undergraduate student. When faced with that price tag, a tax break on the back-end is the last thing a low-income family is considering.
While there is a demonstrated financial benefit for students and their families from tax-credits, there is broad consensus that these programs are an extremely ineffective way to distribute student assistance. First, as has already been stated, tax-credits are not targeted towards the students who need them the most. According to the Canada Millennium Scholarship Foundation, the average tax credit claimed per young person in the top income quartile is twice that of the average tax credit available per student in the bottom quartile. With the Higher Education Quality Council of Ontario reporting that the participation gap between rich and poor has increased every year between 2003 and 2007 (when the latest data is available), more needs to be done to target financial assistance to those who need it most.
A second and equally important issue regarding tax-credits is the time at which they are given out. The most sensible time to provide financial assistance to students is during the period of the school year when they accrue the majority of their costs – the start of the first semester. Unfortunately, in the case of the tax-credits, their connection to the tax cycle means that students are not able to use the credits when they most need them.
Here’s the good news: the Liberal government’s 2007 election platform recognized that these funds could be spent more wisely and promised to reallocate money spent on tax credits to up-front grants. Students have welcomed this promise and are waiting to see it become reality. Last week, at OUSA’s Student Advocacy Conference, student leaders from across Ontario met with over two-thirds of Ontario’s MPPs to discuss this and other issues of importance to undergraduate students.
In response to student inquiries about the status of this campaign promise, three barriers have been consistently cited:
- It costs too much money
- We’d have to create a new granting mechanism, which would similarly cost too much money
- Tax credits are the only assistance available to middle-income families who don’t qualify for OSAP
I’ll attempt to address these one by one.
1. The Ministry of Finance has repeatedly suggested that fulfilling this campaign promise would come at a large up-front cost. The proposed implementation plan is simply to switch immediately from providing tax credits to providing an equal value to all students or families in the form of an up-front grant. This would indeed have fiscal implications because the current cost to government of providing tax credits is spread out over a number of years, given students can carry them forward for years after graduation. To overcome this perceived barrier, students suggest a different implementation mechanism. The government should immediately stop providing tax credits for new students and, as previous credits work their way through the tax system over a number of years, money would become available to reallocate directly to targeted, up-front grants. Students acknowledge this plan would not provide each student with the same value of tax credit that they are currently collecting, but students believe that financial assistance dollars should be spent to improve access to higher education and therefore think a more equitable distribution is a better use of these funds. This plan would result in no up-front cost to the government, would still fulfill the platform commitment, would have the greatest impact on accessibility, and is the preferred distribution method for students.
2. In addition to the cost of providing the funding upfront, the government has suggested that creating a new granting mechanism also presents administrative barriers. Again, students have responded that the funds should not be provided through a new grant, but instead should be targeted to those with the highest need through the Ontario Student Assistance Program (OSAP). This would do significantly more to increase access to post-secondary education and would eliminate administrative barriers and any cost associated with creating a new grant system. If the government insists that this money should be available universally, and not just for those eligible for OSAP, then it would still be more useful to use the money spent on tax credits to reduce up-front tuition costs, rather than create a new grant. This could be implemented through changes to the tuition framework and a reallocation of tax credit spending to our post-secondary institutions over a period of time.
3. When asked about their commitment to eliminate these tax credits, many government MPPs argued that this assistance is the only thing offered to assist middle-income families whose children do not qualify for OSAP. Putting aside the fact that the top income quartile – not middle-income families – receives the most benefit from these credits, students again have a proposed solution: use the $330 million used to provide these tax credits to expand OSAP eligibility to middle-class families. Students have long pointed to the inadequacies of the OSAP need assessment formula, especially the unreasonable parental contribution expectations. An investment of this magnitude (a full four times larger than the significant package of changes introduced in the last budget) could revolutionize OSAP and extend eligibility to all middle-income families across the Province. It could also significantly reduce the portion of OSAP that is repayable, lowering student debt and reducing the debt aversion that currently acts as a barrier for many students.
The Premier, with the full support of students, recently set an ambitious 70% post-secondary attainment target. Getting there will require bringing low-income students into the system, and that in turn will require increasing the accessibility of higher education. Reallocating tax credits to up-front grants is simply good policy, as the government recognized just three years ago. Furthermore, the government continues to point to Ontario’s record deficit as a reason why further investments in financial assistance may not be forthcoming. In recognition of this reality, students have asked repeatedly for the implementation of our cost-neutral proposal on tax credits. We await a response from government on how this promise to students will be fulfilled.
-Alexi White
Executive Director
First off, my biggest concern with this blog post is the use of broad and generalizing statements such as “Students acknowledge this plan would not provide each student with the same value of tax credit that they are currently collecting, but students believe that financial assistance dollars should be spent to improve access to higher education and therefore think a more equitable distribution is a better use of these funds”
I am a student, and I do not necessarily agree with this statement nor do I agree that the system should necessarily be abandoned.
I use my tax credit specifically towards my earnings (I haven’t been able to transfer them to my parents because I used the maximum towards myself). This allowed me to get a full refund of my taxes and paid for my May rent… It was a god sent because as a student who has limited resources, I literally had no money left at the end of april for may rent and no significant earnings because I had not started full time work yet.
Hi Beth, thanks for the comment. As with all of the positions OUSA takes on behalf of undergraduate students, our tax credit policy was developed by elected students and approved by elected student leaders representing all our members associations at one of our semi-annual General Assemblies. This specific policy was part of our financial assistance policy paper, which passed unanimously at our most recent General Assembly at Brock University.
To your point of the usefulness of receiving your tax rebate in time to pay for your May rent, under the plan we are advocating, these funds would be available to you earlier in the year through a much-improved OSAP program or a universal tuition reduction.