The Measurement of Poverty in Canada - Essay Example

Question: Why is measurement of poverty a debated issue in Canada? Which side of the Debate would you support? Why? The debate surrounding the measurement of poverty in Canada stems from the simple fact that Canada does not have any official or formal definition for poverty. There is no official methodology and as a consequence, poverty lines are yet to be formalised. Therefore, though it is admitted that in spite of Canada belonging to the elite group of wealthiest economies poverty is prevalent, the true extent of this is yet to be officially identified (Ligaya, 2007). This lack of official identity has stemmed from a polarization of opinions regarding measuring poverty in Canada. The basic distinction in views lies in identifying whether poverty is to be measured as a relative or absolute concept. On one side there is an unofficial coalition of government agencies, departments and many private sector organizations who posit their common mandate to be alleviating poverty. This group is in essence socialistic in its support for a highly regulated economy where, significant increases in government spending towards social problems are favoured (Goldberg & Pulkingham, 1999). On the other hand, there is the ‘pro-market’ coalition. This group is populated by both government and private sector agencies and institutions which converge towards a primary objective of promoting business in Canada and increasing trade between Canada and other nations. The ‘pro-business’ group supports a much less regulated economy and may be classified as political and fiscal conservatives who favour much less spending by the government on social issues and decreased taxation (Ligaya, 2007). The difference among these groups regarding the notion of poverty and its measurement finds its source in the way poverty is defined and measured by each of these groups. The first group assumes income to be the defining quality and arrives at a set of poverty lines for both individuals and families for different regions. As an example, the poverty line was set to be $33,365 for a family of four persons living in Toronto in 2004. Thus, families with similar characteristics whose pre-tax income was less than the foresaid amount were said to be living in poverty (Pohl, 2002). The second coalition, the ‘pro business’ group, contradicts the first group by describing their measures to be too broad to be pragmatic and thus deducing that, the set poverty lines resulting from the measures are inflated; thereby exaggerating condition of poverty in Canada. This group adopts a definition of poverty which is more restrictive and their means of measuring poverty is based on the cost of the purchasing an assortment of basic needs (Sarlo, 2001). Using this approach they arrive at poverty lines that are half of those of the first group. Personally, I would support the second approach, which takes into account the expenditure incurred on basic needs or in other words ‘consumption poverty’ approach for measuring poverty than the income based approach. The approach based on Basic-Needs finds its major strength in being precise and transparent. It states exactly what the basic necessities are and quantitatively qualifies each of the commodities and the costs involved for each item. This makes it very convenient for determining whether the ‘poverty lines’ arising from the measure provided by this approach are realistic. It becomes much easier to determine whether the provisions made in the list of basic necessities are appropriate for a given situation. Since this method is so transparent and it measures the actual costs rather than pre- tax income ratios, there is room for debate and critical evaluation. The same thing cannot apply for the income based approach for measurement of poverty, better known as, Low income cut offs (LICOs). This approach to poverty measurement was developed as a way of capturing the extent of lowness in income by Jenny Poduluk back in 1960 and 1961 data was used. The method involved adding a 20 percentage mark-up to the observed percentage of expenditure on certain basic necessities to engender a benchmark in terms of percentage of income expended on such necessities to identify any individual or family as belonging to the low income group (Valetta, 2006). However, it is revealed in recent census data that an average Canadian family expends about 34.7 percent on the three basic necessities (Statistics Canada, 2004), and if any arbitrary 20 percent is added following the Poduluk methodology, we arrive at 54.7 percent. Thus, according to the advocates of the LICOs as adequately true measures and proper poverty lines: “[A]nyone spending about 55 percent of their pre-tax income on food, shelter or clothing is living in poverty. This would also mean that anyone living at the poverty line would have a “discretionary income” of 45 percent of their annual pre-tax income, which would mean, by definition, that they could not possibly be poor.” (Pohl, 2002) The simple fact that using this measure leads to the conclusion of poor people having approximately 45 percent as discretionary income, pre-tax reveals its weakness as those for existing in or about poverty this cannot be true. The discretionary income pre-tax if any, is likely to be much lower for the poor. Noting this does reflect the possibility that the calculations are likely to yield bloated results (Sarlo, 2008). Furthermore, income is often not a fair indicator of poverty rates. Since in this kind of measurements figures and indicators have a major role to play, it is critical that each figure completely indicates what it implies. Income is flawed as an indicator where, the family’s income is augmented by gifts and pay in kind (subsidized goods, furniture etc). It may be noted that in poor families such gifts may be sources of income and may actually contribute towards measuring the poverty levels. Thus an examination of only the household’s pretax income inflates the condition of poverty significantly (Goldberg & Pulkingham, 1999). Another factor which contributes to errors in the LICOs measures is the fact that incomes are often understated by people so that taxation may be avoided. All the census data is based on ‘reported income’, stated by the tax payer. This problem contributes to a major share of errors on the estimates of poverty lines, thus rendering the LICOs approach unreliable. A very notable aspect of the Basic-needs approach is that it gives an absolute measure of poverty. The LICOs based approach assumes a certain level of income, below which poverty exists. Thus it is relative measure of poverty, which is largely based on assumptions. On the contrary the Basic-Needs approach can fairly certainly quantify the expenditure on basic needs of families and weigh the factors while taking into consideration the relative qualities such as the society, geographical area and the like. Hence, one may point out that LICOs are only successful to the point where they may measure the extent of inequality in a nation, and can to a good extent estimate the portion of the population who are less well off than the arbitrary average. Whereas, the Basic-Needs approach fits to the accepted definition of poverty much better by giving an accurate estimate of the portion of the population who are ill-housed, hungry, lack adequate healthcare and have inadequate clothing (Heiz, 2007). Therefore, what emerges from the discussion above is that though poverty is an open concept that can be measured in both relative and absolute terms in case of Canada particularly due to the Methodology adopted in measuring relative poverty and generating poverty lines in the LICOs approach often the true state of deprivation is not captured. Relative measurements serve well as measures of inequality as it is in essence the state of income of any particular group in relation to the average that is measured in such approaches. Thus, in spite of a rising living standard, if the distribution of income remains unaltered proportionally, the relative poverty of the economy shall remain the same. Thus, if it is the state of deprivation that is to be identified then adopting the basic needs approach and identifying the necessary level of income required to secure access to the basic needs seems to be much more relevant and adequate. Further, given the enhanced transparency of the basic needs methodology, it does become significantly appealing. References: Goldberg, M. and Pulkingham, J.,(1999) “Defining Poverty in Canada: A Discussion Paper,” Income Security and Labour Market Committee, Social Planning and Research Council of B.C. (SPARC) Heisz, A., (2007) “Income Inequality and Redistribution in Canada: 1976-2004.” Research papercat #11F0019MIE,no.298. Ottawa: Statistics Canada. Ligaya, A., (2007) “The Debate Over Canada’s Poverty Line.” CBC NewsOnline. Digitaldocumentavailableathttp://www.cbc.ca/news/background/economy/poverty-line.html. Pohl, R., (2002) “Poverty in Canada” Street Level Consulting and Counselling, Calgary, Alberta http://www.streetlevelconsulting.ca/homepage/homelessness2InCanada_Part2.htm Ross, D. P., Scott, K. J. and Smith, P. J., (2000) “The Canadian Fact Book on Poverty”, Canadian Council for Social Development, Ottawa Valletta, R. G., (2006). “The Ins and Outs of Poverty in Advanced Economies: Government Policy and Poverty Dynamics in Canada, Germany, Great Britain, and the United States.” Review of Income and Wealth 52, 2 (June): 261-284. Read More