5.3 How is Education Financed?

The funding of education has changed dramatically in Canada over time. When Canadian schools were first established, most of the funds were provided locally through fees, property taxes, or, in the case of religious schools, support from the church. During the twentieth century provincial governments took on a steadily increasing role in governing and financing education. Tuition fees were eliminated and a growing share of costs for schooling were paid from provincial rather than local tax sources. Until fairly recently school boards in most of the country continued to levy local property taxes to meet a large part of the budgets they set.

Gradually, most provincial governments have eliminated local taxation by school boards in favour of providing almost all the funding from provincial revenues. Quebec was one of the first provinces to make this shift, and others followed. Up until 1994, about 40 percent of total school funding in Canada came from local property taxes raised by school boards, but now only Manitoba has significant local property taxes for education. The change in the relative roles of the various providers indicates a change in our national beliefs about education. At one time, education was seen as a local matter. Students and their families were regarded as the prime beneficiaries of education and therefore as the appropriate sources (through fees and local taxes) of revenue for education. We now accept, as a country, that we should provide elementary and secondary education free of charge to all students, and that there should be some consistency in the quality of education regardless of place. In Canada’s Constitution, education and other social services are the responsibility of provinces with the federal government helping to equalize provinces’ ability to finance these services, so it makes sense for provinces to pay more of the cost of education (with a significant local role in deciding how this money is spent). The caveat to this is that our Constitution also sets up a jurisdictional tension for First Nations education on reserve. Although public education has been designated as a provincial responsibility through section 93 of the Constitution, section 91(24) grants the federal government responsibility for “Indians, and lands reserved for Indians.” What this has created is a parallel system of educational resourcing for First Nations communities funded by the federal government at levels that are not yet on par with provincial authorities. This has led to concerns regarding quantity and quality of service provision and jurisdictional issues related to student mobility across systems.

The policy change away from fees and local taxation is not self-evident. Rather, it reflects the view that education is not simply a benefit to the student who receives it. Instead, we think of education as a public good from which every member of society benefits. It is an integral part of our understanding that all of us should pay for education through our taxes because we believe that a more educated population will be better for all of us.

Yet clearly there is a private benefit to be derived from education. For example, those who receive more education generally tend to earn more. The 2016 Census data indicate that the average employment income of Canadians was above $65,414 (Statistics Canada, 2016). The range of this average included $43,676 for those with no certificate, diploma or degree; $58,239 for those with an apprenticeship or trades certificate or diploma; $61,100 for those with a college certificate or diploma; $81,213 for those with a university bachelor degree, and, $101,228 for those with a university credential beyond a bachelor degree. We have tuition fees in colleges and universities because it makes sense that those with more education pay part of the cost directly since their potential earning power is much greater. In public schools, however, the absence of fees reflects several other beliefs including that no student should be prevented from obtaining an education because of poverty, and that our tax system will, in any case, result in those who earn more paying more. As we shall see, the evidence does not necessarily provide a high level of confidence that either of these assumptions is correct.

Students are not the only beneficiaries of education. What about employers, who are provided through public funds with an educated labour force that they employ to earn profits? In Canada, companies do not pay for the school system directly, and pay only a small proportion of the total taxes governments use to support education. Moreover, the total share of taxation raised through corporate taxes has been declining in Canada for many years. Yet, as the Howe (2017) report that focused on bridging the Indigenous education gap through post-secondary programming such as that offered through the Gabriel Dumont Institute in Saskatchewan notes, increased education levels lead to a stronger labour force that contributes billions to the Growth Domestic Product and reduces social costs. To that end, an equity argument might also justify more financial support for education from private industry. Thus, there is nothing magical about our current division of the financial burden of education, even though we tend to take it for granted as the natural way of organizing things.

In recent years, there has been much argument in some countries about the virtues of market systems and the desirability of having education conducted through market mechanisms. Advocates of this approach, as noted in chapter 1, believe that education would be improved if people had more choice about the schools their children attended. (See, for example, in Canada the publications of the Fraser Institute www.fraserinstitute.ca and the C.D. Howe Institute www.cdhowe.org). Others have acknowledged that open market choice may support the privatization of schooling and/or lead to a polarizing of public schooling whereby those with privilege have the means to make choices that reaffirm their privilege in “schools of choice” whereas those families that are less privileged are forced to remain in schools that become further marginalized (Bergman & McFarlin, 2018; Ellis & Yoon, 2019; Lenhoff, 2020). .

Chapter Three discussed some aspects of markets as social policy devices. The argument for applying market approaches to the financing of education has a certain appeal, but it has also been subject to much criticism. Given the important public benefits of education, inevitably there will be a significant degree of public regulation of schools, a position acknowledged by even the staunchest advocates of market systems. Indeed, all markets rest on a framework of public governance and law, which creates things such as courts to enforce contracts and regulations to prevent fraud. In schooling, there is no country in the world in which the state does not play the major role in establishing, regulating, providing, and financing primary and secondary education. Thus, the issue that is usually debated in education is less about some kind of free market than it is about the degree of choice people should have in selecting schools and the extent to which funding of schools should be based on enrolment.

This question aside, since governments are, and will likely remain, the predominant source of funds for education, it is important to understand something about how they obtain and allocate their money. We will begin with some general comments about taxation, and then consider in turn each of the three levels of government in Canada: federal, provincial, and municipal. Because of the political and constitutional make-up of Canada, each level is intimately connected with the others.