Ontario Shows the Way on School Choice

By Michael Taube

Thanks to a new Ontario law, parents in the province who send a child to private school will receive a tuition tax credit of $700 Canadian dollars starting in the 2002 tax year. That credit will increase by C$700 per year over the next five years. When fully phased in, Ontario parents will be able to deduct up to 50% of total tuition paid to a private school to a maximum of C$3,500.

The tuition tax credit will be a great financial relief for many Ontario families who already use private schools, and an incentive for others to make a switch to the school of their choice. There are presently 733 private denominational and non-denominational schools in the province. Roughly 103,000 students are enrolled. Whereas six Canadian provinces currently provide money directly to private schools, Ontario Premier Mike Harris’s scheme will send the savings directly to parents.

Mr. Harris’s plan has been hailed as revolutionary by education reformers world-wide. In the Economist, Mr. Harris was credited with being “much braver” than George W. Bush for bringing in a plan “far more radical than anything yet seen in the United States.” Since Mr. Bush had to shelve his strategy for wider availability of school vouchers, it would be worthwhile for Republican strategists to observe and analyze Canada’s new experience with school choice. Since half of Ontario’s private schools are aligned with religious organizations, the tax credit has not surprisingly gained overwhelming approval from Christian, Jewish and Muslim groups. The reaction has also been positive at the country’s leading think tanks. Claudia Hepburn, director of education policy at the Vancouver-based Fraser Institute, stated that Ontario’s tax credit plan is “the best education policy in North America today” since it will refund money back “for families that do not pay enough provincial tax to equal the value of the credit.” Thus, low-income families with low tax payments will have private education within reach.

Yet aside from the financial assistance that tax credits provide, they are also likely to improve the quality of all schools because of increased competition. Brian Lee Crowley, founding president of the Nova Scotia-based Atlantic Institute for Market Studies, says that the tuition tax credit “is likely to create more school choice and, more importantly, will create a greater possibility of competition between schools and school systems.” Friendly competition between Canada’s public and private schools can only help the education marketplace and create more efficient institutions.
William Robson, vice-president and director of research at the Ontario-based C.D. Howe Institute, correctly pointed out that “Ontario is the only major province in Canada that does not currently fund independent schools, and has had a school system in place in which bottom-up pressure to improve has been weak.” Placing private schools on a more level playing field with public schools would dramatically increase “the pressure on under-performing schools in the fully funded system to improve.”

At the same time, Mr. Robson has noted that while the tuition tax credit would benefit Ontario, “the principal defect in the current proposal is the decision to provide a credit only in respect of 50% of total tuition fees when fully phased in.” Rather, he felt that it would have been better “to provide a credit of 100% up to the maximum of $3,500.” If this had occurred, parents of students who attend schools with low tuition fees would “still see some appreciable benefit,” and schools with fees below the maximum level would not have had as much incentive to raise them. Naturally, Ontario can refine its tax-credit strategy over time.

Mr. Harris deserves credit for this strategy to increase school choice and potentially reform the province’s stagnant education system. The notion of school vouchers has never been popular in Canada, and even certain members of the Ontario Tory party caucus were ready to speak out against any type of voucher initiative. On the other side of the political aisle, shifting government funds to private schools, whether through vouchers or tax credits, continues to be anathema. As Larry Solway, a columnist for the left-wing Straight Goods web site, has argued, “the tax break on private school fees is the opening gun in the (George Bush loves it) voucher system.”

In the U.S., there are already a number of states, including Arizona, Illinois, Iowa and Minnesota, which use modified systems of tax credits and tax deductions to increase education choice. A variety of policymakers and analysts have already jumped on the tuition-tax-credit bandwagon as the best possible model to reform the U.S. education system.

Washington-based Cato Institute scholars Darcy Ann Olsen, Carrie Lips and Dan Lips have devised an interesting two-tier education tax credit model. In Cato’s May 1 issue of Policy Analysis they described it as a parental choice credit “under which any parent could receive a dollar-for-dollar reduction in income-tax liability of up to $500 per child for money spent on tuition at a nonpublic school,” and a “scholarship credit” that is “a dollar-for-dollar reduction in income-tax liability of up to $500 per taxpayer for donations to a scholarship clearinghouse,” which serves low-income families.

According to the Cato scholars, the parental choice credit could help approximately 330,000 students in the U.S. attend new schools and make private schooling more affordable. The money from the scholarship clearinghouses could provide another 3 million students with scholarships worth $2,000 apiece, two million of whom would be new students. Taking both components together, and adding in the current private school enrollment of 5 million, about 7.3 million students would be able to attend a school of their parents’ choice. In an ideal world, education would be completely free from any and all government interference. But the tuition tax credit may be the best education strategy for Canada and the U.S. today.

Wall Street Journal August 10, 2001 p. A9