From: cbbrowne@csi.uottawa.ca (Christopher Browne)
Subject: Universality (was Re: Ontario "socialism")
Organization: Dept. of Computer Science, University of Ottawa
Date: Fri, 2 Oct 92 14:08:40 GMT

In article <1992Sep30.211927.1174@ee.ubc.ca> jmorriso@ee.ubc.ca (John Paul Morrison) writes:
>If we support the idea of Family allowance, then it hardly makes sense
>to give family allowance to everyone. The Torie's are removing Family
>Allowance for middle income and the rich. Big deal: it'll leave more for
>people who need it, and cut the amount of civil servants needed to process
>so many cheques.

The beauty of the "universality" principle was that it sometimes
actually reduced the overall costs.

Question:  What's more expensive?
1) Printing cheques for everyone
or
2) Setting up a system to evaluate those people who should or
shouldn't receive assistance

The cost of processing one cheque, once the number of cheques passes
the 100K mark, is pretty small.

The cost of running the "new" family allowance office could easily
outweigh any savings the government would have from taking benefits
from the "rich" (whatever that class actually is these days.
According to some of the definitions, that may be any family unit
earning more than $60K.  In Toronto, that's probably below the poverty
line :-().

Or, to put it into a better dollars and cents framework; I believe
that the monthly allowance is in about the $80 range?

Option i): The "old" system (benefits taxable; everyone gets it)

The "rich" people wind up paying about half the money back at the end
of the year (actually, there's an implicit funds transfer to the
province, since part of that 50% goes to a province).

Federal Government pays $960 per year; and gets back $480.  
Cost of preparing cheques: $30
Capital cost at 10%: $96
Net cost: $608

Option ii): The current "clawback" (if you make too much, it all gets
added to your taxes)

Payout: $960  Return: $960
Cost of preparing cheques: $30
Capital cost at 10%: $96
Net cost: $126

There is no effective cost to evaluation in this approach, since it
piggybacks quite nicely onto the income tax system, which is the most
sophisticated means test available in Canada.

Option III): Figure out who should get cheques, and send them based on
some new means test:

I don't know what this will cost; I'm pretty sure that the evaluation
process will NOT be cheap.

The combination of infrastructure & auditing (looking for "welfare
cheaters") could EASILY run to $100 per family.  It ain't cheap to
have an office in every city in Canada!

Guess what?  You saved $26 for each of the "rich people", but there's
an extra $100 spent for every family allowance recipient.  With this
savings level, the break-even point is to have 80% of the population
deemed "rich", and 20% deemed "poor".  

If the cost of verification is $100, and MORE than 20% of the
population is considered deserving of assistance, then it would be
CHEAPER to give money to EVERYONE.

Trying another "cost level", $50, the breakeven point is for 60% or
less of the population to be considered deserving of help.  And $50
won't buy much in the way of economic analysis.

These numbers are certainly "back of the envelope", and certainly can
be questioned.  But they DO indicate a point...

Universality of financial programs have some definite economic
benefits, in that they do not require much analysis of an individual's
financial means.

Is it really social justice to add a means test, if it's going to mean
that there is less money to actually spend on the benefits?

Remember - in this analysis, I do not say ANYTHING about actually
changing the benefit levels.  (Well, there IS a difference in benefits
between Taxable family allowance and the Clawed-back case.)

>An interesting example from an economics study: 
>
>A college campus has a student health center. It gets a lot of people in.
>When they moved the health center a few blocks further away, the number
>of visits dropped by a large amount (don't recall). This kind of approach
>cuts costs without preventing anyone from getting the services, if they
>really need them. Human nature will always take advantage of something,
>if it is free and convenient. Yet services are NOT free; and if a lot
>of people are using a service when they don't need it, that leaves a lot
>more time, money and services for people who need it more.

Which might imply that the best answer isn't necessarily user fees;
there could be some good non-cash barriers.
-- 
Christopher Browne
cbbrowne@csi.uottawa.ca
University of Ottawa
Master of System Science Program
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