Economy Lab

Why budgeting for education is in government's interest

The Globe and Mail

(Chris Bolin/Chris Bolin For The Globe and Mail)

Budgets can be heavily politicized documents, often exposing a government’s true agenda. After all, politicians are trying to keep their jobs. But what happens if you take out the politics? A couple of Canadian economists suggest some programs that would directly or indirectly have benefit for all citizens and argue why it would be worthwhile for a government budget to include them.

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An RESP for every newborn:

Philip Oreopoulos, associate professor of economics at the University of Toronto and research scholar at the Canadian Institute For Advanced Research

The Government of Canada should automatically open up education savings accounts for every newborn. RESPs provide an excellent way to save for a child's postsecondary education regardless of family income, yet only half of all eligible households and only one in five low-income eligible households use them. A cumbersome sign-up procedure, lack of information, and an attitude of “I'll get around to doing this later” are all reasons why many fail to take advantage of this program. The Omega Foundation has helped remove some of these barriers by increasing awareness and removing red tape, but much more could be done with direct (and cheap) government attention.



Setting up RESPs automatically at birth, including the $2,000 Canada Learning Bond (for low-income families), would eliminate entry barriers and motivate families from the start towards college and university. An account certificate to hang on the child's wall, annual reminders, and making it easy for grandparents and others to contribute would also increase savings and foster interest towards higher education.



Past and recent evidence point clearly to significant and growing benefits from a postsecondary education (whether from community college or university) compared to stopping at high school. In addition to individual returns, other studies point to important social benefits from raising the country's overall education attainment rate, including higher productivity, more civic participation, better health and lower crime. Family income remains a major determinant to postsecondary access and many youth cite concerns about costs and a need to work as major obstacles for completing a program. Saving just $500 each year with an RESP starting at birth would go a long way towards funding a child's entire undergraduate experience.





Support for international postsecondary students:

Christopher Worswick, professor of economics at Carleton University

Concern over the relatively poor economic performance of immigrants in Canada over the past 30 years has raised important questions about how we select immigrants who can find jobs suited to their skills. The Canadian Experience Class of admission for immigrants represents a new way for graduates from Canadian postsecondary institutions to gain landed immigrant status in Canada. This important policy initiative creates a clear link between the selection of immigrants and the decisions on the part of colleges and universities to admit more international students. For example, if a university were to expand the number of international students admitted, more foreigners would come to Canada, learn about the country, and create networks here making it more likely that they would want to settle in Canada permanently after graduation. International students receive either no financial support or very little support from provincial governments. Instead, the universities charge fees to these students that are typically twice the fees paid by domestic students. However, there is a clear role for the federal government to support universities and colleges in taking more international students since they may go on to apply for landed immigrant status through the CEC stream of immigrant admission.



A simple way to implement such a scheme would be a financial transfer from the federal government back to the university or college for each graduate of that institution who went on to gain landed immigrant status. There are examples of these types of arrangements in other fields. For example, this would be similar to the payments that NHL teams make to the CHL clubs who coached and developed their draft picks. This improves the incentive on the part of the junior hockey club to develop talent since there is an additional benefit to doing so beyond just the revenue generated from ticket sales. In the context of international students, a per immigrant transfer back to the Canadian postsecondary institution where the immigrant studied would create a greater incentive on the part of postsecondary institutions to take on more international students. This would in turn lead to an increase in the number of applicants with Canadian postsecondary credentials wishing to immigrate to Canada in the future.



This link between international students and immigration is one of a number of indirect benefits to Canada from the presence of international students, which are likely ignored by postsecondary institutions when deciding on international student numbers. International students contribute to the Canadian economy through their expenditures on food, housing, travel, entertainment, as well as through taxes paid to the different levels of government. A system that rewards postsecondary institutions for taking on international students would encourage more international students to be admitted leading to an increase in these benefits to the Canadian economy as a whole.

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