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The Social Deficit: Our Written Testimony to the Senate Open Caucus

Monday, February 13, 2017
Chief Economist Commentary
Public Policy
Public Policy

On February 8th in Ottawa, the Senate hosted an Open Caucus on the charitable sector, titled “Charities and Government: Modernizing the Relationship.” The result of meetings held during the sector’s Day on the Hill last October, the event is a big advocacy win and sets the stage for a potential Senate study on the charitable sector.  

This blog post features verbatim the testimony provided by our Chief Economist Brian Emmett, which provided a useful framing for panelists’ presentations on a broad range of subjects including the need for legal and regulatroy reform, social innovation, and data policy.  We have those transcripts as well, linked here:

Introduction

Thank you for the invitation to be here today. As your invitation rightly points out, charities and nonprofits play a vital role in society. Your focus on modernizing the relationship between government and the sector is apt and timely - indeed overdue.  

Today I want to paint a picture of a slowly intensifying crisis. We project that in coming years and decades, two trends will occur. The first being that the demands charities and nonprofits will face in Canada will increase rapidly and inexorably. Secondly, and connected to this, existing revenue streams, particularly donations and government grants and contributions, are not likely to keep up with this demand.

Both trends are driven by fundamental changes in economics, demographics, and culture. For example, in terms of demographics, charities will need to expand service provision to assist an ageing population; at the same time, this ageing cohort likely means a decrease in the tax base and government revenues overall. As a result, government’s capacity to support the funding of the sector will be diminished, leading to increased strain on the sector. The baby boom generation also accounts for a disproportionate amount of charitable donations; as they move towards lower and fixed incomes, there will be an effect on their ability to donate. We call the resulting gap between demand and resources the social deficit, and its effects on the charitable sector, is an area that should be of urgent concern for public policymakers in Canada.

Let me be clear, the social deficit will not appear on any financial balance sheet. Unlike governments, private sector organizations, charities are not allowed to carry red ink on their balance sheets. Instead, it will manifest itself as unmet needs in the community. Immigrants that are not able to benefit from settlement assistance. Seniors unable to obtain the assistance that helps them stay in their own homes. More homeless people without access to shelters. More low-income families waiting for affordable housing, Cancer patients who won’t get help getting to chemotherapy sessions. This may sound dramatic, but these are just some of the things that we rely on charities to do every single day.

Modernizing the relationship between charities and nonprofits and governments is urgently needed both for the sector, for government and for Canadians who rely on the sector to help Canada remain a good place to live and work.  This isn’t a case of “give us more money.” It’s a case of re-examining regulatory regimes, administrative relationships, and how we work together towards the common good.

A snapshot of today

Let’s start with a snapshot of charities and nonprofits and the economy of Canada today, then turn to the future.  Based on the best data available to us (a point to which I will return), the charitable and nonprofit sector

  • contributes a significant proportion of GDP (much more than, for example, automobile manufacturing, forestry, or oil and gas) and employs some two million people in communities of all size, all across the country
  • has grown in relation to the economy, even during the recent downturn, as charities and nonprofits have met increasing demands in areas as diverse as education, environmental protection, religious observance, senior services and other social programs, arts and culture, and health
  • currently operates with revenues generated by an economy that has been growing at a little bit more than 3% per year – a growth level that has allowed governments and households to provide current levels of financial support.

While most people think of the sector as “good people doing good things” (and it is), from a macro-level perspective and from a sustainability standpoint, it is more accurate to think of it as a triple bottom line sector: (1) it serves needed social, cultural and environmental missions; (2) it creates jobs, and (3) it contributes to economic activity and growth.  This is a highly desirable synergistic relationship and we should be working to preserve and enhance it.

Looking to the future

The world is changing.  Our projections for the rapid rise in demand for what charities and noprofits do in the coming decades is based on a number of factors, briefly addessed in my introduction. To elaborate, these drivers include:

  • The population is ageing at an accelerating rate 
  • Immigration, refugees and transitional needs of a more diverse population (it is charities that resettle newcomers)
  • Impacts of climate change on the environment
  • A desire for more inclusive, equitable economic growth – both as it pertains to individual incomes, and to communities and regions.

But at the same time, economists, including those at the PBO and the Department of Finance anticipate that economic growth rates – to which sector revenues are closely correlated – will very likely slow. Again, many factors are at play, including:

  • Lagging Canadian productivity
  • Falling labor force participation rates (both of these related to demographics… ageing population)
  • Lower prices for Canada’s natural resources.

As I’ve mentioned, sector revenues are closely tied to economic growth. Historically, donations represent a steady proportion of GDP; if GDP growth slows, so does donation growth, while when GDP shrinks, so do donations. And of course, the ability of government to fund initiatives, including grants and contributions, is closely tied to revenue growth. The demand for the services provided by the sector also rises during periods of economic contraction or slower growth. This squeeze jeopardizes the ability of charities and nonprofits to maintain their contributions to our economy and quality of life.

Imagine Canada’s analysis attempts to put a number to this phenomenon by examining several potential scenarios.

Here is one scenario which I think is realistic: A slowdown in revenue growth causes governments to reduce funding somewhat below historical growth rates, but demand on charities and nonprofits increases a little faster than historically.  This generates a social deficit of 23 billion dollars in 2016 figures. 

For context, this social deficit of 23 billion dollars, is roughly twice the total of donations to the sector from households today. In other words, donations from Canadians would have to triple overnight just to cover the unmet demand for services.

The magnitude of this looming deficit indicates there will be no single bullet solution – rather it will require a comprehensive rethink by governments and by charities and nonprofits.

For example

There are serious discussions going on today about the future of the economy and the need for inclusive growth.  Charities and nonprofits are specialists in inclusive growth.  With a seat at the table, charities and nonprofits could make a creative contribution to the government’s development of smart policies that would maximize the synergistic relationship between the sector and the broader economy. But too often, charities and nonprofits are not invited to the table when governments – at all levels and of all political stripes – seek economic perspectives and advice.

We need to rethink this relationship. A productive dialogue would touch upon many policy areas of mutual benefit. Overall, these areas include:

  • Action on earned income by the sector, including the role of regulatory policies and government procurement.
  • Improved access to social and adminitrative data to improve our ability to make evidence-based program and policy decisions
  • Integration of the sector into the government’s broader innovation and productivity strategy.  
  • Action on regulatory changes to the ability of charities to do advocacy
  • AND, to ensure ongoing dialogue and partnership, we should consider the utility in stewardship at a ministerial level – someone in cabinet whose job it is to advance enabling policies for the sector, not just the enforcement role currently played by the CRA.

Final word

Canada is a great place to live and work, and this is in part because of the contribution charities and nonprofits make. Per capita GDP levels do not tell the whole story in terms of what makes a country and its communities successful. Health care, social programs, culture, inclusivity, equity, and environmental responsibility – in essence, how we support each other and our communities - all contribute to a country’s sense of wealth. In an increasingly economically borderless world – one where we are competing for talent and investment with other countries facing the same demographic challenges as us – quality of life is a significant competitive advantage, one to which charities and nonprofits make an enormous contribution.   

We want to keep it this way, and find opportunities to do even better than we have.  It’s time to modernize the relationship between government and our sector, to keep the sector vibrant, innovative, resilient, and resourseful; to create policy that best leverages and supports the work that the sector does, allowing Canada to extract maximum value out of this creative and synergistic relationship.

 

About the Author

As the Chief Economist for Canada’s Charitable and Nonprofit Sector, Brian Emmett is tasked with measuring the impact of the sector and bringing economic issues facing charities and nonprofits to the forefront of public policy decision makers. Mr. Emmett is an economics graduate of the University of Western Ontario and the University of Essex in England, and has enjoyed a long and distinguished public service career. He was Canada’s first Commissioner of the Environment and Sustainable Development in the late 1990s and worked extensively on Canada’s Green Plan. He also served as Vice-President of the Canadian International Development Agency (CIDA) in the early 2000s and has been an Assistant Deputy Minister in a number of federal government departments.

The position of the Chief Economist for Canada’s Charitable and Nonprofit Sector is made possible through funding received by Bank of Montreal, The Counselling Foundation of Canada, The Muttart Foundation, and an anonymous donor.

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