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Fraser Institute

Ottawa touts wait lists for dysfunctional child-care program

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4 minute read

From the Fraser Institute

By Matthew Lau

Ahead of its April 16 budget release, the Trudeau government effectively admitted its national child-care program, which it began implementing in 2021, has created widespread shortages. “We’re seeing wait lists increase across the country,” said Jenna Sudds, federal minister in charge of child care.

The government has tried to cast the shortages as the result of skyrocketing demand for a popular federal program. But when government makes billions of dollars in subsidies available, of course there will be massive demand among people wanting to get their hands on the cash. That doesn’t mean the program is a success; it means the government is wrecking a market by throwing supply and demand out of whack.

Vancouver has a shortfall of about 15,000 child-care spaces for children up to age 12. In Niagara Region, the wait list for toddlers and preschoolers has expanded by 227 per cent in just the past two years. Clearly, the child-care sector has been thrown into disorder.

But if shortages illustrate a government program’s benefits, then the average 44-week wait time to get orthopedic surgery in Canada is evidence of the success of government health care. Our health-care system must be great—look how many people are lining up for it!

To try to mitigate the shortages, the Trudeau government announced $1 billion in low-interest loans and $60 million in non-repayable grants to expand and renovate child-care spaces. Additional money will be spent in the form of student loan forgiveness and training for workers in the sector. Both the shortages and new spending confirm what skeptics of national government daycare predicted from the outset—the original budget of $30 billion over five years, then $9.2 billion annually after that, underestimated what taxpayers would eventually shell out.

The new spending also exacerbates two government-created problems in child care. The first is that the $1 billion in loans and $60 million in grants are available only to public and non-profit providers. So excluded from the program are parents who want to take care of children at home, children who are cared for by grandparents or other relatives, and private for-profit providers. Instead of getting child-care help, they’ll foot the tax bill to pay for the government-preferred forms of child care.

The discrimination against private for-profit providers is a clear problem with the existing federal child-care strategy. “Frankly, Canada’s national daycare system excludes many more Canadians than it includes,” Cardus researcher Andrea Mrozek wrote last year. In Nova Scotia, where the federal government wants to move “to a fully not-for-profit and publicly managed system,” even provincial Liberal Leader Zach Churchill has lamented the exclusion of the private sector.

The second problem made worse is the spending is done increasingly through different streams and programs, diverting money towards administrative and bureaucratic bloat instead of actual child care. Based on a municipal memo back in 2022, it’s already estimated Peel Region in Ontario needs 40 additional bureaucrats to deal with child care. In British Columbia, the City of Cranbrook recently issued a 26-page request for proposals for consultants to prepare grant applications to the provincial government for child-care funds.

The ever-increasing government budget for child care, apparently, is great for the government sector and consultants hired to help move government money around. It’s a disaster, however, for parents who cannot find child care and taxpayers who pay billions for shortages—a reality unchanged by the Trudeau government’s latest announcement.

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Alberta

Alberta’s fiscal update projects budget surplus, but fiscal fortunes could quickly turn

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From the Fraser Institute

By Tegan Hill

According to the recent mid-year update tabled Thursday, the Smith government projects a $4.6 billion surplus in 2024/25, up from the $2.9 billion surplus projected just a few months ago. Despite the good news, Premier Smith must reduce spending to avoid budget deficits.

The fiscal update projects resource revenue of $20.3 billion in 2024/25. Today’s relatively high—but very volatile—resource revenue (including oil and gas royalties) is helping finance today’s spending and maintain a balanced budget. But it will not last forever.

For perspective, in just the last decade the Alberta government’s annual resource revenue has been as low as $2.8 billion (2015/16) and as high as $25.2 billion (2022/23).

And while the resource revenue rollercoaster is currently in Alberta’s favor, Finance Minister Nate Horner acknowledges that “risks are on the rise” as oil prices have dropped considerably and forecasters are projecting downward pressure on prices—all of which impacts resource revenue.

In fact, the government’s own estimates show a $1 change in oil prices results in an estimated $630 million revenue swing. So while the Smith government plans to maintain a surplus in 2024/25, a small change in oil prices could quickly plunge Alberta back into deficit. Premier Smith has warned that her government may fall into a budget deficit this fiscal year.

This should come as no surprise. Alberta’s been on the resource revenue rollercoaster for decades. Successive governments have increased spending during the good times of high resource revenue, but failed to rein in spending when resource revenues fell.

Previous research has shown that, in Alberta, a $1 increase in resource revenue is associated with an estimated 56-cent increase in program spending the following fiscal year (on a per-person, inflation-adjusted basis). However, a decline in resource revenue is not similarly associated with a reduction in program spending. This pattern has led to historically high levels of government spending—and budget deficits—even in more recent years.

Consider this: If this fiscal year the Smith government received an average level of resource revenue (based on levels over the last 10 years), it would receive approximately $13,000 per Albertan. Yet the government plans to spend nearly $15,000 per Albertan this fiscal year (after adjusting for inflation). That’s a huge gap of roughly $2,000—and it means the government is continuing to take big risks with the provincial budget.

Of course, if the government falls back into deficit there are implications for everyday Albertans.

When the government runs a deficit, it accumulates debt, which Albertans must pay to service. In 2024/25, the government’s debt interest payments will cost each Albertan nearly $650. That’s largely because, despite running surpluses over the last few years, Albertans are still paying for debt accumulated during the most recent string of deficits from 2008/09 to 2020/21 (excluding 2014/15), which only ended when the government enjoyed an unexpected windfall in resource revenue in 2021/22.

According to Thursday’s mid-year fiscal update, Alberta’s finances continue to be at risk. To avoid deficits, the Smith government should meaningfully reduce spending so that it’s aligned with more reliable, stable levels of revenue.

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Business

Ottawa’s avalanche of spending hasn’t helped First Nations

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From the Fraser Institute

By Tom Flanagan

When Justin Trudeau came to power in 2015, he memorably said that the welfare of Indigenous Canadians was his highest priority. He certainly has delivered on his promise, at least in terms of shovelling out money.

During his 10 years in office, budgeted Indigenous spending has approximately tripled, from about $11 billion to almost $33 billion. Prime Minister Trudeau’s instruction to the Department of Justice to negotiate rather than litigate class actions has resulted in paying tens of billions of dollars to Indigenous claimants over alleged wrongs in education and other social services. And his government has settled specific claims—alleged violations of treaty terms or of the Indian Act—at four times the previous rate, resulting in the award of at least an additional $10 billion to First Nations government.

But has this avalanche of money really helped First Nations people living on reserves, who are the poorest segment of Canadian society?

One indicator suggests the answer is yes. The gap between reserves and other communities—as measured by the Community Well-Being Index (CWB), a composite of income, employment, housing and education—fell from 19 to 16 points from 2016 to 2021. But closer analysis shows that the reduction in the gap, although real, cannot be due to the additional spending described above.

The gain in First Nations CWB is due mainly to an increase in the income component of the CWB. But almost all of the federal spending on First Nations, class-action settlements and specific claims do not provide taxable income to First Nations people. Rather, the increase in income documented by the CWB comes from the greatly increased payments legislated by the Liberals in the form of the Canada Child Benefit (CCB). First Nations people have a higher birth rate than other Canadians, so they have more children and receive more (on average) from the Canada Child Benefit. Also, they have lower income on average than other Canadians, so the value of the CCB is higher than comparable non-Indigenous families. The result? A gain in income relative to other Canadians, and thus a narrowing of the CWB gap between First Nations and other communities.

There’s an important lesson here. Tens of billions in additional budgetary spending and legal settlements did not move the needle. What did lead to a measurable improvement was legislation creating financial benefits for all eligible Canadian families with children regardless of race. Racially inspired policies are terrible for many reasons, especially because they rarely achieve their goals in practise. If we want to improve life for First Nations people, we should increase opportunities for Canadians of all racial backgrounds and not enact racially targeted policies.

Moreover, racial policies are also fraught with unintended consequences. In this case, the flood of federal money has made First Nations more dependent rather than less dependent on government. In fact, from 2018 to 2022, “Own Source Revenue” (business earnings plus property taxes and fees) among First Nations bands increased—but not as much as transfers from government. The result? Greater dependency on government transfers.

This finding is not just a statistical oddity. Previous research has shown that First Nations who are relatively less dependent on government transfers tend to achieve higher living standards (again, as measured by the CWB index). Thus, the increase in dependency presided over by the Trudeau government does not augur well for the future.

One qualification: this finding is not as robust as I would like because the number of band governments filing reports on their finances has drastically declined. Of 630 First Nation governments, only 260 filed audited statements for fiscal 2022. All First Nations are theoretically obliged by the First Nations Financial Transparency Act, 2013, to publish such statements, but the Trudeau government announced there would be no penalties for non-compliance, leading to a precipitous decline in reporting.

This is a shame, because First Nations, as they often insist, are governments, not private organizations. And like other governments, they should make their affairs visible to the public. Also, most of their income comes from Canadian taxpayers. Both band members and other Canadians have a right to know how much money they receive, how it’s being spent and whether it’s achieving its intended goals.

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