Conference Board makes pitch for guaranteed annual income

Posted on December 21, 2011 in Social Security Debates

Source: — Authors: – FinancialPost/news/economy
Dec 20, 2011.    Christine Dobby

As indicators stack up showing the gap between Canada’s rich and poor continues to widen, the Conference Board of Canada is calling for a renewed look at the idea of a guaranteed annual income (GAI).

A concept that is floated from time to time by advocates on both sides of the political spectrum, a guaranteed annual income would provide a minimum level of income for every individual or family, with dollars earned above that level taxed at a relatively low marginal rate.

The idea has been touted by advocates for social justice but one of its best-known champions in North America was Milton Friedman, the free-market economist who saw what is sometimes referred to as a negative income tax as a means of reducing the role of government.

In a commentary published Dec. 15, Glen Hodgson, senior vice-president and chief economist at the Conference Board, said the prospect of both economic and social gains make it the right time to reconsider this “‘big idea’ whose time has yet to arrive politically.’”

“It would be a means of providing material income support without governments telling people how to run their lives,” Mr. Hodgson said in an interview, noting that it could help reduce the disincentives to working and break down the “welfare wall” on earned income for the working poor as it could be taxed at lower marginal rates.

Past field experiments have linked the amount to measures like the low-income cut-off rates set by Statistics Canada, which consider family size as well as location.

“I think a number some place between $12,000 and $15,000 would probably be an appropriate starting place for an individual,” Mr. Hodgson said.

But some question the viability of the seemingly simple solution, which Mr. Hodgson argues could reduce cumbersome bureaucracy and address poverty directly by providing transfers through a single administrative mechanism, the income tax system.

“The GAI is an idea whose time is always just around the corner and probably will forever stay just around the corner,” said Finn Poschmann, vice-president of research at the C.D. Howe Institute, noting that it is difficult to make a practical case for it.

The focus should instead be on easing the transition from welfare to work, where, he said, “Most of the issues are around education and skills building, rather than income issues themselves.”

What may yet spark government interest in the idea of a GAI is savings on health care, Mr. Hodgson said.

“The link between poverty and poor health is widely documented; so if a GAI reduced the prevalence of poverty, it could create better health outcomes and help slow the rising costs of publicly-funded health care,” he said.

He pointed to a study by Evelyn Forget published in the Canadian Public Policy journal in September.

Ms. Forget analyzed a GAI field experiment called MINCOME, one of five conducted in North America between 1968 and 1980, undertaken by the government of Manitoba in the down of Dauphin from 1974 to 1975.

Using health-administration data, Ms. Forget found an 8.5% reduction in the hospitalization rates for participants, along with improved mental health and completion of secondary education.

“If the MINCOME results could be reproduced and generalized across Canadian society, a GAI might produce sizable net fiscal savings, especially for provinces,” Mr. Hodgson said.

But reproducing it on that level might be the stumbling block, Mr. Poschmann said.

“In a small and relatively homogenous community we’ve seen that there can be some good results,” he said. “In urban centres and with a much bigger mix of people and issues to deal with, the likelihood of success seems a lot smaller.”

Mr. Hodgson admitted the prospect of replacing the “smorgasbord” of social supports currently in place — along with their bureaucracies and employees —is no small task and said it would probably take a government willing to run another GAI trial on a smaller scale to get the ball rolling.

“I think governments are going to have to be much more creative going forward in a very resource-strained world,” he said.

Ken Battle, president of the Caledon Institute of Social Policy, wrote in 2008 that Canada already pursues GAI-like policies through programs like the guaranteed income supplement for low-income seniors and tax benefits for families with children. But he noted that the policies are not consistent or comprehensive.

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