Canadian Economy

Poverty Is Expensive

Everyone is better-off when no one lives in poverty, says a new report

Poverty is Expensive

What is the price of poverty? A new report funded by United Way and Open Policy Ontario looks at exactly that—how much poverty is costing Torontonians. Data from the report pegs the overall cost of poverty in Toronto between $4.4 and $5.5 billion per year. We’re essentially incurring billions in indirect costs because the socio-economic strata of this city is downright uneven.

Roughly 235,000 families in Toronto live below the poverty line, according to Statistics Canada data obtained by Open Policy Ontario. They represent the poorest 20 percent of Toronto residents, earning an average $12,400 a year in after-tax income. The report is based on the underlying assumption that increasing the incomes of the bottom 20 percent of Toronto residents will result in less use of the health care system, less involvement in the justice system, and higher employment levels—all factors that lead to fewer costs for the private sector and taxpayers.

“People who are actually living in poverty are more likely to be unemployed, have higher healthcare costs, and are more prone to run-ins with the law,” says Metcalf Innovation Fellow and co-author of the report, John Stapleton.

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The conventional correlation between poor health and poverty is that the former can lead to the latter. But according to the report, this relationship is much stronger in the reverse direction. Lower incomes are actually associated with much higher use of healthcare services. In fact, data in the report tells us that raising the incomes of the poorest 20 percent of Torontonians so that they can graduate to the category of the poorest 40 percent, can see days in hospital reduced by as much as 20,470—a savings of $23.7 million to our economy.

The same is true of the impact of poverty on the justice system. The report correlates crime and poverty through the relationship they both have with low literacy. School performance is affected by poverty, and the worse off you do in school, the harder it is to gain employment and be economically sustainable, increasing your chances of having a run-in with the law and remaining in poverty. Crime costs Canada approximately $99.6 billion, and it costs Toronto $10.9 billon. A total of $436 million in crime-related costs in Toronto are attributed to poverty, says the report.

Stapleton has spent years understanding social assistance policy, and what it takes to create a more equitable society. He points out that Toronto’s poverty costs stand out compared to the rest of Canada. “Toronto is a rich city, and it is therefore also a poor city. You have very high-paying jobs in this city—doctors, lawyers, investment bankers—you’re going to have an equally large amount of people to pour their coffee and walk their dogs.”

Toronto’s economic indicators stand out. It is Canada’s most populated and richest city, comprising 11 percent of Canada’s GDP. A recent study from the University of Toronto’s Martin Prosperity Institute showed that the earnings gap between billionaires in the Greater Toronto Area and the rest of us common folk is the fourth largest in North America—behind only Mexico City, Seattle, and Dallas. This same study cited Toronto as being the 19th most unequal city in the world, with Mumbai, a city that demolishes slums to make way for luxury condos, leading the pack, a city that demolishes slums to make way for luxury condos.

Stapleton says that this high cost of poverty is a conundrum that many large cities have, but must take concrete steps to deal with.

“We need a different kind of economy,” he says. “An economy that calls for full employment. An economy that does not accept low employment, where there’s no such thing as the working poor, and where the bottom 20 percent have a real chance of getting out of this poverty cycle.”

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