Richard Bird - Institute for Public Economics - University of Alberta

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alleviation, Canadians indeed appear to want targeting, at least in the senseof ensuring minimal inclusion in the welfare system of those who should not bethere. For other important redistributive programs, however, such as thoserelated to children, the elderly, and the health sector, it is much less clear thateven the best targeting system -- indeed, perhaps especially the best targetingsystem -- will survive the ultimate test of political acceptability.This question has become more important now that we have the ability toadminister targeted benefits fairly effectively through impersonal, and largelyinvisible,accountingsystems. 51 The visiblestigmaof singlingout the poor as"second-class" citizens has lost most of its force, as indeed demonstrated bythe general public acceptance to date of such income-conditioned targeting asthe Child Tax Benefit and the Seniors Benefit. Nonetheless, furtherdevelopment of such narrowly targeted social policy reforms may prove neitherpopular nor even feasible unless the majority who now benefit from universalprograms are also given some immediate and visible benefits such as tax relieffor the private provision of equivalent services.To the extent social policy becomes more effective in targeting benefits to thepoor, rather than making them universally available to all, some compensatingoffset to middle-class losers may thus be required to ensure continued politicalsupport for the whole social policy package. One way to achieve this aim maybe by providing increased tax relief for what the Carter Commission called"non-discretionary expenditures" 52 -- particularly those related to suchprominent social policy objectives as child welfare, education, and health.Unless this is done, the tax-transfer system may come increasingly to beperceived as unfair in the sense that non-low-income individuals who incurspecial living costs -- for example, owing to physical disability or supporting fourchildren -- are worse off than those with similar incomes who do not incur these51Two examples may be offered: First, complementing the universalpension system (OAS) described in note 37, Canada has a supplementaryGuaranteed Income System (GIS) -- in effect a "negative income tax" for theelderly which insures (in 1996) a minimum annual income of $11,280 for asingle person over 65 and $14,688 for a couple both over 65. The GIS is paidout monthly with the OAS payment, with the amount paid being based entirelyon information in the previous year's income tax return: about 40 percent ofpensioners get such supplementary payments. Second, several systems havebeen suggested that could identify who is eligible for how much subsidy onwhat without the "stigma" problem: see the early discussion in Marjorie Wilcoxand Selma J. Mushkin, "Public Pricing and Family Income: Problems ofEligibility Standards," in Selma J. Mushkin, ed., Public Prices for PublicProducts (Washington: The Urban Institute, 1972), p. 395, and the earlierdiscussion of pricing health policies at note 38. The increasing use of "smartcards" would appear to make such systems increasingly workable.52See Royal Commission on Taxation, Report (Ottawa: Queen's Printer,1966), vol. 1.19
53costs. A similar development may well occur with respect to such educationalcosts as tuition, as education is increasingly perceived as a needed tool forone's children to secure a job and hence a satisfactory lifestyle in this rapidlychanging world.In some social policy areas, the budgetary choice now facing us may not be"all" (universality) or "nothing" (nothing) but "targeting" or "nothing." But tomake even targeted social programs possible, some sops (tax reliefs) to themiddle class may prove politically necessary. In any case, as I suggestedearlier, in at least some instances a good efficiency and equity case can bemade for tax relief (partial subsidy) for some private substitutes for publiclysubsidizedservices. For example, contrary to the arguments made by someto reduce tax-assistance to savings for retirement, such provisions mightperhaps be extended to allow taxpayers to save for expenditures on trainingand education. Moreover, contrary to the reforms of the 1980s, in which taxdeductions were turned into tax credits and hence made less remunerative formiddle and upper income taxpayers, the future may see a return to deductionsfor non-discretionary expenditures related to such items as disability andmedical costs which are in part subsidized under universal programs -- andperhaps even for children who are now supported only through incomeconditionedtargeted programs.To sum up this somewhat scattered argument, tax policy can and should beused like any other policy instrument to respond to evolving economic andpolitical circumstances. Tax "neutrality," the Holy Grail of many tax reformersin recent years, should be replaced by an approach that treats taxation as justone of a broad set of public policies attempting to secure particular objectives.Along these lines, for example, the personal income tax may perhaps berevised to encourage training and education by allowing more deduction ofmonetary outlays for such purposes.In addition, as has already occurred with respect to transfers for both childrenand the elderly -- although one hopes more comprehensibly and with moreattention to maintaining the integrity of the tax system as a means of fairlyfinancing government -- the personal income tax may continue to be explicitlyor implicitly integrated with the transfer system and used to deliver targetedsocial assistance. If so, however, there may also be increased pressure for,as it were, "compensatory" recognition of the costs incurred by taxpayers topurchase similar services themselves. Strict egalitarians may not like thisoutcome, but those concerned with maintaining political support for policiesaiding the poor should, I suggest, take a more positive attitude to theintroduction of such differentiation into Canadian social policy.53For an example of this line of argument, see Michael Krashinsky, UserCharges in the Social Services: An Economic Theory of Need and Inability(Toronto: University of Toronto Press, 1981), at p.28.20
Page 3 and 4: The Eric John Hanson Memorial Lectu
Page 5 and 6: PreviousInauguralLecture IILectures
Page 8 and 9: I like to think my heart is in the
Page 10 and 11: potential trade-offs even within th
Page 12 and 13: increased taxes are increased expen
Page 14 and 15: More broadly, not only educational
Page 16 and 17: First, as the millennium approaches
Page 18 and 19: successful "targeting" of benefits
Page 20 and 21: Guidelinesfor ReformA first basic g
Page 24 and 25: Much discussion of social policy co
Page 26 and 27: arising from secondary smoke, for e

Richard Bird - Institute for Public Economics - University of Alberta

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