Oh, High Cost of Living Canada!

A cousin asked me for my take on whether or not universal healthcare is a reason for Canada's high priced food.  He works at a Costco in Bellingham, Washington, not far from the Canadian border, and he has seen a lot of Canadians shopping for food in his store.  "For example," he wrote, "a block of Tillamook Colby/Jack cheese is $24 in Canada!  One gallon of milk is over $5, and so on. . .(I checked Tillamook's online store--you can get a 2lb baby loaf of Colby/Jack for $16).

While I appreciate his confidence in my knowledge, I'm no economist.  But I rarely let the lack of expertise stop me from giving an opinion, so here's my shot at this interesting question.

First off, across the board, the cost of living (COL) in Canada is much higher than it is in the US.  Here's some numbers according to Numbeo:

Indices Difference

Consumer Prices in United States are 16.46% lower than in Canada

Consumer Prices Including Rent in United States are 13.21% lower than in Canada

Rent Prices in United States are 4.66% lower than in Canada

Restaurant Prices in United States are 18.36% lower than in Canada

Groceries Prices in United States are 17.06% lower than in Canada

Local Purchasing Power in United States is 29.00% higher than in Canada

Not only that--again according to Numbeo--the average net monthly salary for Canadians is $3,000 compared to around $3,360 in the US (both in Canadian dollars).  So on average, Canadians are paying more with less in their pockets.  We should keep in mind, though, that the COL varies from province to province, from city to city.  According to Statistics Canada, using 2002 as the baseline (COL=100), British Columbia's COL in September 2013 for food was 127.0, the lowest of any the provinces (Ontario's was 131.7 for example).

So is the COL in Canada higher due to higher taxes necessary to pay for universal healthcare?  In other words, one could suppose that in order to pay for universal healthcare, Canada would levy higher taxes in order to pay for it, and those higher taxes would be passed off to consumers in the form of higher prices. Turns out it's not that easy to answer that question because it's hard to compare the Canadian and US taxation systems.  Comparing income taxes, as one source explains,

is like comparing the stats of hockey player with those of basketball player. . .[and using] an average is also problematic as the very poor and the very rich skew it on both ends.  In general, lower income Canadians pay less in tax for the services they receive and rich Americans are better off than rich Canadians" (Investopedia).

How about corporate taxes?  The Business Roundtable reports that the effective corporate tax rates were lower in Canada (21.6%) than in the US (27.7%) over the years 2006-2009 ("effective tax rate is defined as total income taxes divided by pretax income).

On top of that, as in many other advanced industrial economies, the marginal tax rate for top earners in Canada has dropped significantly over the past 40 years (see "Do falling tax rates explain the rising income of the top 1%?").

In short, I don't think we can attribute higher food prices in Canada to the taxation needed to fund universal healthcare.  But there are all sorts of factors shaping food prices.  Canada doesn't subsidize agriculture near as much as does the US.  Fuel prices are higher in Canada, which drives up prices for transporting food, and proportionately fewer Canadians than Americans don't or can't buy locally.  Also there are just economies of scale.  The US population is almost ten larger than Canada's--a huge maw of demand, met by a huge and diverse welter of food producers--that interaction of supply and demand is another reason why food prices are lower in the US than in Canada (see "Canadian consumers cope with dramatic increase in food prices").

As well, it is difficult to attribute soaring food prices in the present to an institution--Canadian universal healthcare (which is called Medicare) that's been around since 1946.  If there were a relationship--then food prices would be astronomical by now.

That said, it's plausible to suppose that Canada's somewhat stricter regulatory environment, and proportionately bigger welfare state, in general raises the price of everything.  It's a tradeoff.  Local taxes raise the price of doing business in Grand Rapids, and those costs also get passed on to me as a consumer.  But I also get something for it--parks, pretty good snow plowing on public roads, subsidized garbage and recycling collection, among other things.  Canadians have a higher cost of living, they may have to wait longer to get in to see a doctor or get a procedure, but they don't have to deal with the bureaucratic nightmares that private health insurance companies routinely give health providers and consumers (see Care Abroad: Canada).  They spend less on healthcare individually, and as a whole (the US spends the equivalent of 9.5% of its Gross Domestic Product on healthcare, Canada spends 8%).  And Canada has better results.  According to the UN's Human Development Index (for Canada, for the US):

Under five mortality (per 1,000 live births)--Canada: 6; US: 8

Life expectancy at birth--Canada: 81.1; US: 78.7

Overall health index--Canada: .964; US: 926

I know my cousin's question wasn't about comparing healthcare in the US and Canada, but I couldn't resist some talk about that comparison.  After 20 some years of hearing my wife's experience as health care administrator, and fifty some years of living in a country that sadly tolerates a great deal of inequality (see map below for example), I'm all for single-payer universal health (with opt-out options for the rich who can't bear to mix with the masses).  But I realize that's fanciful.  We can't seem to even get a market-based, private-insurance-friendly healthcare reform off the blocks.

http://www.washingtonpost.com/blogs/worldviews/wp/2013/04/15/
map-how-35-countries-compare-on-child-poverty-the-u-s-is-ranked-34th/