How a guaranteed minimum income could work in Canada

Posted on June 7, 2016 in Social Security Debates – Full Comment
June 6, 2016.   Andrew Coyne

The Swiss may have just voted to reject a proposal for a guaranteed minimum income — also known as a guaranteed annual income, basic income guarantee or, increasingly, just basic income — but that hardly means the idea is dead. Pilot projects and feasibility studies are in the works across the developed world, from the Netherlands to California. In Canada, the federal Liberals, along with governments in Ontario, Quebec and Alberta have expressed interest in the concept.

What the Swiss vote did highlight, however, is the widely diverging notions represented by that deceptively simple label. While the basic income is often said to enjoy support across the political spectrum, it’s clear that left and right have very different ideas of what it would mean, both in terms of how generous the income guarantee would be, and how it would be financed.

The model on which the Swiss voted was at the outer limits of what anyone has imagined a basic income could or should entail. At 2,500 Swiss francs a month (about $40,000 a year) for every man, woman and child in the country, the gross cost of such a program in Canada would come to about $1.4 trillion, or more than two-thirds of our gross domestic product. Even netting out the money not spent on the programs it replaced, the Swiss plan was reckoned to cost a quarter of GDP in additional taxes. No wonder voters rejected it.

A pilot project Finland has planned for next year, paying $1,200 a month, is more modest, but would still entail a gross cost of $515 billion annually if implemented in Canada. Both are a long way from the proposal put forward 30 years ago in this country by the Macdonald royal commission on the economy. Its Universal Income Security Program (UISP) would have paid a maximum of just $3,750 annually per adult, or $9,000 per family of four. Even allowing for the rough doubling of prices since then, that’s a relatively meagre proposition.

The arithmetic is inescapable: the more generous the basic benefit paid to those with no income at all, the more sharply it must be taxed back.
Still, in the broad strokes the idea’s supporters have much in common. Take today’s jumble of overlapping income support programs, some in cash, some in kind, each with a different clawback rate, and rationalize them into one income-adjusted payment. The universality of the benefit would ensure no one falls between the cracks. Simplification would mean less confusion on one side of the exchange, less bureaucracy on the other. Converting in-kind benefits, such as subsidized housing or drugs, into cash would give recipients more control over their lives.

Most important, slashing the steep, often confiscatory implicit tax rates facing welfare recipients, as earned income rises and benefits are reduced — they can end up worse off for taking a job, when benefits in kind are taken into account — would restore incentives to work. As the Senate committee on social affairs reported in 2009, “the system that is intended to lift people out of poverty is substantially broken, often entraps people in poverty, and needs an overhaul.”

(One of the oddest objections to the basic income idea, in this light, is that it might reduce work incentives. Whatever minimal inducement to idleness there may be in, say, a $10,000 annual income guarantee, it is trivial compared to the benefits of cutting implicit tax rates to 20 or 25 per cent. Neither is a basic income needed as a substitute for wage labour, as some advocates contend: robots are no more likely to make humans obsolete in the 21st century than threshing machines did in the 18th.)

The differences arise when you get into the details. The arithmetic is inescapable: the more generous the basic benefit paid to those with no income at all, the more sharply it must be taxed back, if the costs of the program are to be kept within realistic bounds. Conversely, gentler tax-back rates imply a much lower base amount.

There are limits, too, to the sorts of programs a basic income can or should replace. There’s a reason we have separate, contributory employment insurance and pension programs, for example — they serve a different purpose, maintaining incomes at levels comparable to what contributors earned at work, rather than merely assuring them of a decent minimum. Even the narrower aim of rationalizing traditional welfare programs typically runs into resistance, whether out of concern that simply handing out cash to vulnerable people isn’t enough to get them back on their feet or for more venal motives.

OK, so maybe a one-size-fits-all basic income guarantee is out of reach, at least at one go. It’s still possible to move in that direction, one piece at a time. Indeed, we already have what amount to basic income guarantees for children in the new Canada Child Benefit (combining the old Universal Child Care Benefit, the Canada Child Tax Benefit and the National Child Benefit Supplement) and the elderly, via Old Age Security and the Guaranteed Income Supplement. The federal Working Income Tax Benefit is a basic income for the working-age population, in embryonic form.

Could the WITB be merged with OAS/GIS, the basic personal exemption, other federal and provincial tax credits, and provincial social assistance programs to create a universal adult income guarantee? In principle, certainly. Would it be worth some additional cost? Again, yes: ensuring no one goes without, while restoring work incentives and granting greater choice in public services, would seem one of the best uses of public funds imaginable.

But getting federal and provincial governments to agree on this? Alas, some things are too much to hope for.

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