Abstract
In this paper, we present the estimates of the fiscal transfer to immigrants from native-born Canadians. The fiscal transfer is the amount of money that immigrants absorb in public services less the amount that they pay in taxes, suitably adjusted for scale effects in public provision of services, life cycle effects in tax payment, and so on. Our work builds on previous works in the literature, updating from the last scholarly work in this area by Akbari (Can Public Policy 15(4): 424–435, 1989) with new and richer data. Akbari found on the basis of the 1981 Census data a small fiscal transfer from immigrants to the native-born amounting to about $500 per year per immigrant. Over time, the composition and income attainment of immigrants has evolved somewhat unfavorably for immigrants, and we find on the basis of the 2006 census data, a small fiscal transfer from the native-born to immigrants of about $500 per year per immigrant.
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Notes
Measuring the consumption of public services, Akbari (1989) only looks at government transfer payments, educational services, and health care services.
There are also a number of errors and inconsistencies in their analysis, and this study presents a corrected estimate of the fiscal transfer that they sought to estimate.
Total income refers to total money income received from the following sources during the calendar year 2005 by persons 15 years of age and over: wages and salaries (total); net farm income; net non-farm income from unincorporated business and/or professional practice; child benefits; old age security pension and guaranteed income supplement; benefits from Canada or Quebec Pension Plan; benefits from employment insurance; other income from government sources; dividends, interest on bonds, deposits and savings certificates, and other investment income; retirement pensions, superannuation, and annuities including those from RRSPs and RRIFs; other money income.
This is likely to overestimate (underestimate) the fiscal cost (benefit) of immigration because older cohorts of immigrants, on average, have higher incomes relative to more recent cohorts.
This column is needed to calculate the numbers in column (7).
Grubel and Grady (2011) find the ratio of investment income between Canadian-borns and natives (1987–2004) to be 41 %. They discount it by 72 % to arrive at the ratio they use for corporate income tax (41*72 = 30 %).
The numbers reported in Table 3 are consolidated and exclude intergovernmental transfers.
The numbers are from Statistics Canada, Table 385-0001.
Assuming that immigrants benefit from government spending on labor, employment, and immigration by more than 20 % is not going to significantly change our results. For instance, a 50 % higher benefit, compared to 20 %, only changes our estimated fiscal transfer by $22.5. In addition, it should be noted that immigrants to Canada pay a Right of Permanent Residence Fee and also an application fee to become a Canadian permanent resident. These fees currently around $1,000/per person and add up to about $200 million in revenues annually. This partly offsets the expenses on immigration that are only enjoyed by immigrants.
According to the figures of government expenditures provided by Statistics Canada, total spending on social assistance alone amounted to 55 % of spending on social services at all government levels in 2006.
The expenditures on national defense in 2005/2006 is estimated to be $14.7 billion dollars (Defence Budgets 1999–2007). We use expenditures on research establishments as a substitute for science and technology.
Looking at Table 2 in the study by Grubel and Grady, where they estimate the difference in average per-capita taxes paid by immigrants [1987–2004] and all Canadian residents, there are several inconsistencies between the text and the numbers that appear in the table. (1) The text (page 6, the line before the end line) claims that “the ratio for corporate income tax is assumed to be 30 %” while the ratio used in the table is 20 %. (2) To justify the use of 30 % as the ratio for corporate income taxes (although they end up using 20 % in their table), Grubel and Grady argue that “according to the PUMF data, the [recent] immigrants' investment income is only 41 % of the average of all Canadians and that this probably includes a disproportionate amount of investment other than corporate stocks.” However, a closer examination of the PUMF data reveals that this number is in fact 46 %. (3) Grubel and Grady claim that “it was assumed that the amounts paid as property and related taxes and other taxes were related to total income.” However, the ratio used in Table 2 to calculate the property and related taxes paid by immigrants is 41 %, which has nothing to do with the total income ratio (which is 72 % as calculated in Table 1 by Grubel and Grady).
This is consistent with Auerbach and Oreopoulos (2000). They also conclude that “the overall fiscal impact of immigration is unclear. Whether there is a gain or loss depends on the extent to which government purchases rise with the immigration population” which, in turn, depends on the proportion of government purchases that are “public” in nature.
Examples include the studies by the Ornstein and Sharma (1983); Li (1988, 1992); Economic Council of Canada (1991); Boyd (1992); Abbott and Beach (1993); Christofidies and Swidinsky (1994); Reitz and Breton (1994); Bloom et al. (1995); Baker and Benjamin (1997); Reitz and Sklar (1997); Pendakur and Pandakur (1998); Hum and Simpson (1999); Reitz et al. (1999), and Thompson (2000), among others.
Reviewing the figures provided by Statistics Canada on government finances, there are significant changes in government finances over time. For instance, on a per-capita basis, spending on social services in Canada has increased by 80 % between 1989 and 2007. In comparison, health expenditures and expenditures on environment have increased by 136 and 116 %, respectively. On the other hand, spending on the labor, employment, and immigration has declined by 17 % (Statistics Canada 2007). Similarly, looking at consolidated revenues at all levels of government, the total personal income tax revenue collected by the government has increased by 140 % between 1989 and 2009.
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Acknowledgments
The authors wish to acknowledge the financial support of the Social Sciences and Humanities Research Council through its Metropolis program and Metropolis British Columbia for institutional support.
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Javdani, M., Pendakur, K. Fiscal Effects of Immigrants in Canada. Int. Migration & Integration 15, 777–797 (2014). https://doi.org/10.1007/s12134-013-0305-5
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DOI: https://doi.org/10.1007/s12134-013-0305-5