Bad Fiscal News from the Immigration Front

Immigration Minister Jason Kenney just announced that Canada will allow 240,000 permanent residents to enter the country next year. This is bad news for Canada struggling with a large fiscal deficit, unemployment, income inequalities and environmental problems.

The Minister should be praised for a shift of emphasis on the selection of immigrants in the Canadian Experience Class program, which fast tracks skilled foreign workers and graduate students who have spent time in Canada on temporary permits or student visas, but the effect on the fiscal deficit is minimal.

A recent study, which I co-authored with Patrick Grady, showed that recent immigrants who arrived between 1987 and 2004 cost taxpayers an average of $6,000 every year. Applying this figure to the projected number of immigrants, by the end of next year, the tax payer burden will have increased by $1.4 billion and will continue to do so for many years.

This burden does not appear in any government budgets. It arises from a fact, found in data published by Statistics Canada: Recent immigrants on average earn about 70 percent of what other Canadians earn. Because of the progressive income tax system, they pay only half of what other Canadians do. Their low incomes also cause them to pay lower amounts of other taxes.

At the same time, the immigrants are entitled to and use all of the benefits provided by Canada’s welfare state. The result is the annual net fiscal burden of $6,000 per immigrant.

This cost does not account for the other negative effect the immigrants have on unemployment, congestion, pollution and the number living in poverty. Protests about income inequality should be directed at immigration and other government policies, not the free market system.

The new policy aimed at increasing the earnings power and tax payments of immigrants is laudable, but in effect laughably small. The number in the Canadian Experience Class in the first full year of the program in 2009 was 2,545. Assuming that on average they have a spouse and one child, under the existing classification system, the program will affect 7,635 immigrants, which comes to 3.2 percent of the 240,000 total to be admitted next year. Nor will the numbers grow much in the future. Only small numbers of temporary workers and students qualify.

According to the Minister, immigrants are needed to meet labour shortages. This argument involves circular reasoning. These immigrants create demand for labour through their needs for housing, schools, hospitals, universities, roads, bridges, sewers, water supply, consumer goods and services. In fact, most of the current and projected labour shortages are the result of recent mass immigration.

The demand for housing from immigrants is especially notable. Assuming an average family size of three and the same settlement pattern as in recent years, new immigrants next year in Toronto will require 27,272 dwelling units, 2,273 every month or 568 every week of the year. The corresponding weekly figures are 235 for Vancouver and 233 for Montreal. To build these accommodations requires much labour and scarce land. It will also lead to higher housing costs and the number of homeless.

Worth noting also is the effect of these immigrants on health care. Given that the average physician in Canada has 240 patients, by the end of next year one thousand additional doctors will be needed. Canada already has a growing shortage of physicians, so waiting lists will lengthen even more, as will crowding in the emergency departments of hospitals.

If the past is guide to the future, there will not be enough doctors in next year’s cohort to meet the new demand. The granting of medical licenses to all immigrants who claim to be a doctor is not a solution either. Canadians will not stand for the deterioration in the quality of services they receive from their doctors.

Canada’s immigration policy needs to be reformed. The influence of politicians, civil servants and the immigration industry on its formulation should be minimized. The heralded points system has failed and needs to be scrapped.

In its place should be market forces used in the selection of economic immigrants (refugees raise a different set of issues and are a small proportion of the total anyway). The basic concept is that landed immigrant visas will be issued only to applicants who have a verified, pre-arranged employment contract at a pay equal to at least that of the average of Canadian. They may be accompanied by spouses and under-age children.

With this minimum income, immigrants will no longer impose a fiscal burden on taxpayers and have a positive effect on average per capita incomes of all Canadians. In addition, the annual inflows will vary according to cyclical labour market conditions, reducing unemployment when economic growth is slow.

The adoption of the proposed policy will make immigrants serve Canada, not Canada serve immigrants. Voters, including past immigrants, are bound to reward politicians who make this change.

A Proposal for the Reform of Canada's Immigration Policy

On October 25, 201, I had the opportunity to discuss with the members of the Standing Committee on Citizenship and Immigration (CIMM) of the Parliament of Canada my views on how the government should deal with a large existing backlog of applicants for immigration.

This backlog was created by a Liberal government policy enacted in 2002, which promised consideration for immigration permits to anyone who had paid a small submission fee. The backlog consists of about one million applicants and keeps on growing, in spite of the fact that the government has increased the acceptance of applications and raised the level of immigration to the highest levels in decades.

Here is my message to the Committee:

Let me begin my presentation with a radical proposition. The question before this committee should be whether or not to get rid of the backlist altogether, not on how to make is shorter.

The question about the best immigration levels to shorten the list involves a moral, bureaucratic, political and practical morass. As you will have noticed already, no witness has produced any objective criteria for determining the number of immigrants. The reason is simple. There are none. All recommendations of numbers are basically arbitrary and driven by hidden moral and political motives.

Let me suggest that instead moral and political criteria should be replaced by the following fundamental principles:

• Let us set policies so that immigrants benefit Canada, not so that Canada benefits immigrants – a slogan clearly inspired by President Kennedy’s famous “Do not ask what the country can do for you, ask what you can do for the country”.

• Let us use our country’s desire to help foreigners only after we have provided adequately for the many of our compatriots who need healthcare, caregivers, housing, special educational attention, help with their addictions and many other problems. If we want to contribute to the welfare of foreigners, let us continue to admit genuine refugees and send foreign aid to the needy abroad.

My suggestions are based on the realization that there is almost universal agreement among economists that immigration has no significant positive effect on the incomes of Canadians but if it involves large numbers, depresses wages and raises profits, effects which are deemed undesirable by many citizens.

This traditional view on the merit of immigration that I have taught and written about for decades as a professor of international economics has become obsolete with the existence of the welfare state in which everyone in Canada is entitled to a large array of social benefits and the progressive income tax system requires recent immigrants with average low incomes to pay fewer taxes than the average Canadian.

In a joint study with Patrick Grady, we have estimated that these provisions of the welfare state are putting a fiscal burden of about $20 to $30 billion on Canadians every year. Since we do not wish to get rid of the welfare state, immigration does not benefit Canadians. Instead, it results in higher taxes and contributes to the current deficit.

All traditional arguments about the merit of immigration are bogus and do not stand up to careful analysis. To mention just a few of these arguments, immigrants are not needed to fill job vacancies, in fact they can create shortages with their demands for housing, infrastructure and doctors. They do not solve the problem of unfunded liabilities of social programs and may worsen it. Their contributions to multi-culturalism are marginal and at the border line of becoming negative. Many countries without immigration are doing very well indeed economically and socially, from Korea and Singapore, to China and India.

For these reasons, I recommend that we should adopt policies, which bring into Canada only immigrants who pay taxes high enough or have access to funds that match the costs they impose on our social programs.

Before I offer some thoughts on a system for attaining this objective, let me present my radical proposal for dealing with the backlog. Simply, pass a law, which repeals the existing legislation promising that anyone who pays a fee is guaranteed consideration for an immigrant visa. Dissolve the existing backlog by sending each applicant a letter saying, in diplomatic language of course, that “the parliament has decided that Canada is no longer obligated to consider your application. Attached to this letter is a refund of the fee you have paid, including interest.”

Parliaments pass this kind of legislation all the time. The Wheat Board will be dissolved. The Gun registry will be scrapped. The National Energy Policy no longer exists. Transfers to the Provinces were changed in the 1990s. I could go on, but the point is clear. No past legislation is immune from change or repeal by current parliaments. All such changes are accompanied by much opposition and debate, sometimes very heated, but this is not something to be regretted or feared. It is intrinsic to democracy. Elections are the ultimate arbiter of the public on the merit of such changes.

Now to a brief discussion of an immigration policy that brings benefits to Canadians living in the welfare state. Issue immigration visas only to applicants who have a pre-approved employment contract at a pay at least equal to the average earned by Canadians and subject to passing normal health and security standards. Parents and grandparents should be given such visas only if their offspring posts a bond large enough to cover their expected costs of healthcare and pays for their living expenses they might need. Under these provisions, immigrants no longer impose fiscal burdens on Canadians.

The principle underlying my proposal is simple and clear. Let market signals, not politicians, technocrats and vested interests determine who should be admitted and how many immigrants should enter Canada annually. Relying on market signals in the operation of the economy has served Canadians and the rest of the world well. It should do so for the selection of immigrants.

Let me conclude with some observations about the politics of immigration policy. Recent opinion surveys show clearly that most Canadians are in favour of reduced levels of immigration or the maintenance of current levels.

In considering these survey results it is important to note that these sentiments are strongest in the country’s largest cities, where immigrants have settled in the past but where, importantly also, the largest numbers of parliamentary seats are at stake.

Through my own limited contact with immigrants I have noticed that they are very much aware, more than the average Canadian, of the cost immigrants impose on us, fiscally, through congestion and pollution, high housing costs and other channels.

For these reasons, parties that embrace policy reforms of the sort I am proposing can expect electoral gains rather than losses in ridings in which immigrants reside in large numbers. To verify the correctness of my views, I urge politicians to make their own surveys and remain critical of survey results produced by organizations that may be supported by the immigration industry and allege to show that Canadians want more immigrants.

STOPPING THE IMMIGRATION OF PARENTS AND GRANDPARENTS – FAIRLY

There has been much huffing and puffing by politicians, the media and immigrant lobbyists about the government’s plan to reduce the number of parents and grandparents joining their immigrant offspring in Canada next year.

Yes, the policy change is unfair. Many immigrants have come to Canada having been promised that their parents and grandparents could join them so that they can continue the cultural traditions of their homelands and receive help with family chores and child care.

While immigrants clearly benefit from the existing policy, the reality is that the benefits to immigrants come at the expense of Canadian taxpayers. New data and studies show just how great this fiscal burden is.

Official statistics indicate that recent immigrants have lower average incomes and tax payments than other Canadians, even ten years after their arrival. At the same time, these immigrants on average absorb at least the same amount of social benefits as other Canadians.

As a result, $6,000 is annually transferred to the average immigrant at the expense of Canadian taxpayers. In 2006 the value of these transfers to all of the 2.7 million immigrants who arrived between 1987 and 2004 and still live in Canada came to $16.3 billion. Taking account of the 1.5 million immigrants who arrived since 2004 the fiscal burden comes to $25 billion in 2010. These fiscal costs represent a significant proportion of the $55 billion deficit of the federal government projected for the fiscal year 2011.

Important here is the fact that parents and grandparents lower the observed low average incomes of all immigrants. The reasons are obvious. They tend to be elderly, have poor language skills and possess few marketable skills. The numbers of immigrating parents and grandparents are high: 84,917 or 6.7 percent of the 1.3 million immigrants admitted during 2006-2010.

The fiscal transfers to parents and grandparents are much higher than those of the average immigrant not only because of their low incomes but also because they tend to be of an age where their demand for costly medical services is at its highest level. In addition, many arrive in Canada with medical conditions that went untreated in their home countries. Recently, at the Dubai airport I noticed a long line-up of elderly persons in wheelchairs about to enter a plane headed for Toronto, presumably in transit from India.

In the light of these facts it is obviously in the interest of Canadian taxpayers to end the admission of parents and grandparents. This can be done fairly by stipulating that immigrants arriving after some future date will no longer have the right to have their parents and grandparents join them as permanent residents, though temporary visits would be allowed. Important for the present debacle, immigrants already in Canada or arriving before the set date should continue to be able to have their parents and grandparents join them permanently.

Under the proposed policy, the number of parents and grandparents admitted into Canada annually would decrease and ultimately become zero. The fiscal burden they impose on taxpayers would similarly decrease through time. These outcomes are not as prompt and large as is desirable fiscally, but this disadvantage is outweighed by the absence of the ethical and political costs of the alternative of reneging on past promises.

One problem with the proposed policy is that it may discourage some potential and otherwise desirable immigrants from applying for visas. However, Canada’s pool of applicants for immigration is very large and while it may shrink somewhat, there should remain enough highly qualified economic immigrants to be selected for admission.

Politically, the proposed policy would be a winner. All Canadians would welcome the fiscal benefits it would bring, including recent immigrants whose offspring would also face lower tax burdens in the future.