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February 24, 2020REPORT ON THE SECOND COMPREHENSIVE REVIEW OF THE MARKET BASKET MEASURE Statistics Canada has released a report on the upcoming changes to the market basket measure (MBM) of low income. The report describes proposed changes to the MBM measure which will be called the "2018-base". Changes in the MBM threshold and preliminary poverty estimates for the 2018-base are compared to the current 2008-base MBM. The transition to the 2018-base MBM will take effect at the end of June 2020.
Statistics Canada and Employment and Social Development Canada (ESC) have been conducting comprehensive review of Market basket measure to ensure that continues to reflect an up-to-date modest, basic standard of living in Canada. The current comprehensive review has been ongoing since 2018 and previous papers Previous discussion papers have been released: An update on the Market Basket Measure comprehensive review (Heisz, 2019), Towards an update of the Market Basket Measure (Djidel et al., 2019a), Defining disposable income in the Market Basket Measure (Djidel et al., 2019b).
SUMMARY OF PROPOSED CHANGES OTHER THAN THRESHOLD
Based on 2016 Census results, there are three new population centre size regions: Newfoundland and Labrador 30,000 to 99,9999, Ontario 500,000+ and Manitoba 30,000 to 99,999. There are now 53 MBM regions.
Three broad changes to disposable income calculation are being planned
1) To recognize differences in shelter costs for homeowners with equity and subsidized renters compared to the shelter component of MBM that is based on renters an adjustment to family disposable income will be made. Previously only mortgage-free homeowners received an adjustment. The new concept will be referred to as the Tenure Type Adjustment (TTA). Estimates of the difference shelter costs will be based on 2016 Census data and Survey of Financial Securities interest payments and differentiated based on age of homeowners with mortgages, homeowners without mortgages and renters in subsidised dwellings.
2) Out-of-pocket medical expenses imputation when no tax information is available will be updated to more recent survey data. Results in increase for 2018-base with Nova Scotia rising from $189 to $420, other provinces have similar change. Imputation will still only be used when tax data claims are zero or can't be linked.
3) Capital Gains taxes will no longer be deducted from pre-tax income in the 2018-base MBM. This prevents families with larger capital gains from appearing to be in poverty.
SUMMARY OF CHANGES TO MBM THRESHOLD FOR 2018-BASE
All components of the MBM basket (clothing/footwear, food, shelter, transportation and other) have methodological change for the 2018-base compared to the 2008-base. The change to methodology impact MBM regions differently, but overall there would be a higher threshold in all MBM regions with the 2018-base. Generally the rural areas and population under 30,000 have the smallest change and the specific urban MBM regions/cities have the largest increase in each province. Note the three new MBM regions do not have 2008-base thresholds for comparisons and appear as zero in the following charts.
The 2018-base thresholds for the reference family of 2 adults and 2 children in Nova Scotia would increase for rural ($2,847), under 30,000 people ($3,567), 30,000 to 99,999 people ($6,193), Halifax ($7,381) and Cape Breton ($6,009).
The 2018-base MBM for the clothing component basket of goods would adopt most recent (2012) list of goods of the Social Planning Council of Winnipeg and Winnipeg Harvest Acceptable Living Level. Previously the 2001 basket was used. The updated basket is more contemporary and responds to concerns around gender-stereotypes in quantities/types of clothing need. For the 2018-base MBM a one time collection from representative city in each province will be made with annual change based on the provincial CPI for "clothing and footwear". The component will continue to not differ between MBM regions within a province. The proposed change for Nova Scotia would see an increase in the clothing component by $19 to $2,207 when the rebasing occurs.
The 2018-base MBM will use the 2019 National Nutritious Food Basket to calculate food component and be consistent with the new Canada's Food Guide and commonly consumed nutritious foods. The change includes fresh, frozen and canned food formats to balance costs, access and availability considerations. Data collection from 38 cities across Canada will continue. The provincial CPI food price index would be used to determine change in price of the 2018-base food basket over time.
The threshold for food component would rise in Nova Scotia regions except Cape Breton. The 2018-base MBM food component thresholds for a family of four in Nova Scotia would be rural, under 30,000, and 30,000 to 99,000 persons ($12,528), Halifax ($12,001) and Cape Breton ($11,750).
The largest increase in the MBM threshold is coming from the Shelter component. The 2018-base MBM would update shelter component based on 2016 Census value and move to the National Occupancy Standard of a 3-bedroom rental unit, from the previous 2 and 3 bedroom units used in the 2008-base. The 2018-base estimate will be the median cost of a 3-bedroom rental unit by families in second income decile in the region. The 2018-base MBM proposes using the all-items index of the CPI instead of CPI-rental accommodation to update the shelter component. Statistics Canada notes that they will continue research on the component.
The change results in increase in shelter component for all Nova Scotia regions with the largest increase in Halifax and Cape Breton. The shelter component threshold for a four person family in 2018-base MBM proposed at: rural ($9,842), under 30,000 people ($10,747), 30,000 to 99,999 person ($11,516), Halifax ($15,312), and Cape Breton ($11,764).
For 2018-base the proposed change to the transportation component recognize the widespread use of cars in urban centers, even those that have public transportation. Based on 2016 Census commuting modes to work, urban areas will have a weighted transportation expenditure between public and private transportation. Rural areas and population centres under 30,000 will continue to use private transportation cost in the 2018-base. The refence basket typical compact car has been updated to reflect the longevity of vehicles and improved fuel efficiency. The change results in lower transportation threshold in rural and under 30,000 MBM region and a higher thresholds in areas that now include a private transportation component to the basket.
The "other" component of the 2018-base basket recognises need for necessary good and services not captured in the shelter, food, clothing and transportation components (i.e. household items, reading materials, etc.). A specific basket is not priced out due to larger number of items and differences between family needs. The 2018-base MBM will continue to calculate "other" costs as a multiple of food and clothing costs for each MBM region. In addition, average cell phone service expenditures of persons in the second decile of income will now be added to the 2018-base basket. Annual updates for the 2018-base of the "other" component will be based on the all-items CPI for each province. This had previously been based on food and clothing costs.
The change to the other component results in a higher threshold in the Nova Scotia MBM regions, other than Cape Breton, than most other MBM regions in Canada.
The 2018-base MBM methodology is not finalized, so estimates of poverty rate should continue to be based on the 2008-base. The higher 2018-base MBM threshold is likely to result in higher estimates of number of persons living in poverty and the poverty rate. For 2018, the preliminary 2018-base MBM numbers are higher for all provinces compared to the 2008-base. The trend rate of declining poverty rate in Nova Scotia between 2015-2018 is maintained with the preliminary 2018-base MBM.
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