Targeting Doctors May Be Good Politics — But It's Bad Policy
The misunderstood economics of doctorhood makes physicans easy prey for big-spending politicians.
Image by 8photo on Freepik
Notwithstanding the false claim that it will affect only 0.13 per cent of Canadians, the federal government’s recently announced tax increase for capital gains impacts hundreds of thousands of small businesses, including restaurant owners, accountants, and plumbers as well as entrepreneurs and innovators.
The measure is also aimed at doctors. Which isn’t surprising, because we make fat targets.
Many people think that all doctors are rich government employees invested with platinum indexed-to-inflation pension plans, top-shelf disability and sick pay, plentiful and paid vacations, gold-plated parental leave, and lucrative drug and dental benefits.
That perception is inaccurate. But it doesn’t matter; what matters is that a good chunk of the public believes those things to be true. Which makes us easy pickings for big-spending politicians selling “soak the rich” tax measures to the electorate. (Those politicians aren’t bothered one bit, of course, by the fact that they themselves do enjoy such benefits, and that their packages are more generous — by far — than those of any other government employees.)
It’s extraordinarily difficult for physicians to dispute the “rich doctor” narrative; the sound of doctors discussing money resonates with the public as sweetly as nails dragging on a chalkboard.
I’m going to tackle the topic anyway, in the interests of exposing some financial truths around being — and becoming — a doctor.
To be clear, I’m not looking for sympathy; nor are my colleagues. We recognize that it’s a privilege to be physicians; and for the most part our work is awesome and well remunerated. And no one put a gun to our heads and forced us to become doctors.
But some transparency — and honesty — is in order.
First, we are not government employees. We’re often described as “independent contractors”, since we contract our services to provincial governments. But that’s not accurate, either: independent contractors in any other profession are free to set and adjust their prices as they see fit when they bid on contracts. Physicians have no such freedom: we must accept what the government is willing to pay, and we have little influence on setting that level of pay, regardless of market conditions. Better to describe us as dependent contractors.
And we do not receive pensions, paid sick and parental leave, paid vacations, or drug and dental benefits. All those things, if we wish to have them, we must fund ourselves, just like all other Canadians who either don’t work for government or aren’t endowed with company or institutional benefits.
The average annual pension income received by retired civil servants in 2022 was $35,000 (for retired RCMP officers it was $45,000), which is equivalent to an annuity of $875,000 paying out a four per cent annual return. Which means that any non-pensioned Canadian retiring today would need to have piled up $875,000 via savings and investments to enjoy the same income stream as retired civil servants — and that doesn’t include the indexed-to-inflation nature of those civil servants’ pensions, nor their ongoing drug and dental benefits. (The pensions of politicians — for which they need only serve six years in office to qualify — are substantially richer.)
That aside, doctors have historically been paid well. As we should be, given what goes into becoming a physician.
The quickest route to hanging out one’s shingle as a family doctor involves ten years of training after high school; for specialists, it’s thirteen to fifteen years. Those are years in which our contemporaries develop careers, grow businesses, and start families; years in which they begin building nest-eggs for their children’s education and for their own retirements.
Doctors-in-training build nest-eggs of a different sort: eggs composed of enormous yolks of debt surrounded by expanding egg-whites of interest. And the cost of those years goes beyond the financial. Most of us defer starting families during the arduous years of training, an issue particularly for women, who currently make up the majority of medical school enrolees: fertility drops off sharply after the age of 30.
The average debt for a finishing doctor is currently around $165,000. Sixteen per cent owe more than $200,000, with the costs of medical school marching ever higher; the cost of tuition alone for four years at most Canadian medical schools now sits at $100,000.
I’ve twice personally witnessed colleagues taken out by terminal cancer diagnoses at or near the end of all those long and expensive years of training; in each case they left behind young families saddled by mountains of debt. There were no government agencies or programs riding to their rescues, I can assure you.
Most of us avoid that fate, thankfully, and move on to productive careers as fully qualified doctors. But newly minted physicians start out encumbered with debt, and we launch our careers much later than peers in other professions. We must first retire that debt from after-tax earnings; and then, while continuing to paying taxes at or near top tax rates, we must set aside enough money to fund retirement (not to mention sick leave, dental care, and parental leave) while covering all the other household and child-rearing expenses with which all Canadians are familiar.
It's important to note that whenever physicians speak about money, someone inevitably digs up “gross billing” numbers and conflates them with income. But from those billings all overhead costs associated with running a practice must be paid (office rent and utilities, medical supplies, payroll for nursing and office staff, cleaning services, and so on), which chews up as much as forty percent of that amount; what’s left is pre-tax income.
It’s not by accident, suffice it to say, that family doctors in this country retire on average at age 70 while civil servants hang it up at 58. Many doctors can’t begin saving in earnest until well into their thirties; not only that, the fact that they start their families later means many physicians in their late fifties still have kids at home or in university — retiring at that age is simply out of the question.
Some years ago, in recognition of this and in place of granting doctors higher fees, provincial governments began allowing physicians the opportunity to incorporate, which provided us with some “small business” advantages toward effective retirement saving and planning. More than sixty per cent of Canadian physicians are now incorporated.
But politicians keep changing the rules, and the advantages inherent to corporate planning are gradually being stripped away. It’s frustrating, to put it mildly: it would be nice to be able to plan our financial futures without the goal posts constantly being shifted. And it would be nice if we weren’t perpetual punching bags for political gain.
It’s true that most physicians manage to live quite comfortably, despite the challenges. But again, I would argue that doctors deserve to be properly rewarded for absorbing the costs and risks of becoming physicians, for their long hours of work, and for the heavy responsibilities we carry. And advocating for just rewards shouldn’t invite recriminations.
Instead, disrespect for doctors from governments of all stripes is an almost constant drumbeat. The present capital gains gambit by the Liberals is but the latest dig; as Canadian Medical Association head Dr. Kathleen Ross said, it feels like a “beat down” for an “already morally defeated and beleaguered physician workforce coming out of the pandemic.”
The capital gains tax grab will negatively impact many of us who for years have saved diligently for retirement within our corporations. But to be clear, it has very little relevance to younger doctors buried under enormous mountains of unpaid administrative work and squeezed between paying down debt, skyrocketing overhead costs, and professional fees which in recent years have lagged far behind inflation — a bump in the capital gains tax is the least of their worries. They’re busy trying to keep their practices afloat, which is why family medicine in this country is in crisis, a crisis on which our government should be focusing rather than pilfering the retirement savings of physicians.
And without question, our political leaders should be even more focused on the crisis of affordability confronting our youth. With the cost of housing and everything else spiralling out of control, Generation Z is increasingly beset by hopelessness; unless we can restore their prospects and rejuvenate their optimism, we as a country are in deep trouble.
But the way forward is not to array the more affluent against the poor, the more successful against the less advantaged, the doctors and small businesspeople against everyone else. We’re all in this together, and we need solutions that lift all our boats; punching holes in the hulls of those who are floating does absolutely nothing to rescue the ones who are sinking.
Targeting doctors, small business owners, entrepreneurs, and innovators might seem like a political winner, but it’s a losing proposition, a move far more likely to harm than to help.
Our politicians would do well to remember these words from Thomas Sowell:
“On closer scrutiny, it turns out that many of today’s problems are a result of yesterday’s solutions.”
Well said--and I couldn't agree more. It's no wonder young physicians don't want to practice office-based family medicine. They can't afford to! For those of us nearing retirement, the government is constantly, as you say, changing the goalposts around which we have planned our financial lives.
This constant, relentless attempt to squeeze more and more out of the productive, hard-working and entrepreneurial segment of the population--not just doctors but all the hard-working people out there in the private sector--is eventually going to turn us into Venezuela, sans the nice weather. Meanwhile they keep harping on about all the "free" stuff they're giving out. Newsflash, Justin and Jagmeet, it's not free! And the cost, if we don't stop this nonsense, is going to be terrifying.
Well said, Sir!
I am a retired accountant and I witnessed many of the issues that you raise in my (now former) clients.
I have often compared doctors to farmers, or is it the reverse? My point is that both docs and farmers do what they do IN SPITE of the income that they earn simply because their job defines who they are in pretty much all respects. Yes, there are wealthy docs and, yes, there are wealthy farmers but I can absolutely tell you that the wealthy ones are absolutely the exception.
In truth, I am constantly astounded that more medical professionals do not leave Canada for greener financial pastures. The obvious such green financial pasture is the US but there are many countries that are seeking doctors where the financial rewards are much better than Canada. Please do not think I am suggesting that doctors SHOULD emigrate; it is just that I am surprised that more do not. And I do hope that my own doctor does not see this post!