Liberals are considering a universal basic income, but economists have tough questions for its proponents

Posted on September 17, 2020 in Debates

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NationalPost.com – News/Politics
Sep 16, 2020.   Stuart Thomson

The government may have gotten a taste for doling out cheques with the Canada Emergency Response Benefit which functioned similar to a basic income

As far as public policy proposals go, a universal basic income couldn’t be simpler. If a Canadian falls below a certain income threshold, they get a cheque from the government.

But even proponents of the policy admit that it will be costly — tens of billions of dollars, even in the most modest estimates — for a plan that would, in their view, be a one-shot poverty-fighting plan. Detractors consider it an expensive sledgehammer, when more precise tools could do the job.

The idea has mainly been confined to think tanks and left-wing fantasies, but it will be on the agenda at the Liberal Party’s convention in November thanks to an effort spearheaded by a group of progressive MPs in the party. And the government may have gotten a taste for doling out cheques with the Canada Emergency Response Benefit that kept many Canadians afloat during the COVID-19 recession and functioned similar to a basic income.

Has the time come for a universal basic income? Prime Minister Justin Trudeau didn’t exactly sound enthusiastic on Monday about the expensive scheme being advocated by his colleagues.

“Obviously COVID has exposed weaknesses in our country where vulnerable people are continuing to slip through the cracks. We will have conversations about next steps as well but our focus is very much on what we need to do to control COVID-19,” said Trudeau, when asked about the proposal as he was heading to a two-day Cabinet retreat to discuss the government’s agenda going in to the fall session.

With the government gearing up for massive spending and “structural change” to how the government does business, it could be that a universal basic income is the natural next step for Trudeau’s government.

Liberal MP Nathaniel Erskine-Smith, who helped get the idea on the agenda, said he pushed the resolution because “our social safety net is no longer fit for purpose.”

“What we’re really talking about is not ensuring everyone receives a cheque but ensuring there’s a minimum floor below which no Canadian ought to fall. So it really is a conversation about rethinking and reinventing our social safety net,” said Erskine-Smith, in an interview with National Post.

But the program won’t be popular with everyone. Erskine-Smith spent part of the weekend tussling on Twitter with economists who were pessimist about the plan.

“I think we’ve gotten to the point where calls for a universal basic income should be treated with the same respectful attention that is reserved for calls for a perpetual motion machine,” wrote Stephen Gordon, an economics professor at the University of Laval, who neatly summed up the withering appraisal of many experts.

Even economists who aren’t dead against the proposal have issued some warnings about the cost and complications of implementing it.

Problem 1: The Cost

First off, it’s bound to be pricey.

The PBO estimated the net cost of the basic income program to be $44 billion annually. That assumes the program would include cuts similar to the ones that accompanied a recent Ontario universal basic income pilot program, saving $32 billion each year and subtracting that from the overall cost of $76 billion.

Evelyn Forget, an economist and proponent of the idea, estimates thatsubsequent cuts to duplicate programs at the provincial level could bring the net cost down to $24 billion, although she admits it would require some difficult negotiations.

Even during the COVID-19 pandemic, where red ink is dripping from every balance sheet, those numbers are still dizzying for fiscal conservatives.

There’s also the problem of administering the program. Although issuing cheques every month sounds easy, it’s much more complicated thanks to Canada’s ancient tax systems.

“The entire tax, transfer, reporting, and income support system needs to be fundamentally changed before we even consider the merits of a basic income,” wrote Lindsay Tedds, an economics professor at the University of Calgary.

“First, administratively our entire tax, transfer, reporting, and income support system is so archaic that layering a basic income on top of it would mean that those who need and deserve the support from a basic income the most would most likely be left out,” wrote Tedds.

Problem 2: The Incentives

On top of the accounting costs to government, it could also mean that some people drop out of the work force or work fewer hours, causing the government’s revenues to fall.

“That does cause a bit of an issue. If you’ve got fewer people working and you’re trying to support more people in the basic income, then this just inherently gets more and more expensive, which limits the amount of support they can get people,” said Mike Moffatt, a professor of economics at the University of Western Ontario.

A 2012 research paper by Quebec economists that was referenced by the PBO issued a stark warning about the unintended consequences of a universal basic income and the high cost for government. If basic income cheques start going out there will be “significant negative labour market effects,” the paper reads.

The paper warned that the cost to the treasury could be four times higher after the labour market effects are taken into account, due to the decrease in income taxes. The extent of these disincentives to work led the paper to a surprising conclusion.

“We find that contrary to what is often assumed, guaranteed income schemes may increase poverty rates and the incidence of low-income rather than decrease them,” the paper reads.

Problem 3: The Cuts

Although the universal basic income is an idea usually embraced by progressives, it may surprise them to know that they share an ally in former U.S. president Richard Nixon.

In the 1970s, the idea for a basic income, or negative income tax, became popular because it seemed like an easy way to provide government support and reduce the size of government by limiting bureaucracy.

Now, one of the main progressive criticisms of the universal basic income is that it will provide an excuse for cuts to other programs.

“Guaranteed annual income without affordable housing, universal pharmacare, childcare, mental health supports, boosting skills training and stronger retirement income security isn’t going to be the panacea people think,” wrote Sunil Johal, a fellow at the Brookfield Institute and the Public Policy Forum.

“(It’s) just as likely to be a Trojan horse for cuts to other essential programs and leave recipients worse off,” wrote Johal.

Even without the spectre of backdoor spending cuts, a universal basic income can make some people worse off. Moffatt crunched the numbers on the Ontario pilot project and found many of the most vulnerable people were left worse off. People who signed up for the program would receive the basic income, but would lose most of their Ontario Works or Ontario Disability Support Program (ODSP) benefits.

“In short, it would make the lives of many of the most marginalized and vulnerable citizens worse, particularly if they have a disability or a medical condition such as diabetes,” wrote Moffatt.

Moffatt argues that because people self-selected for the program, it won’t even give researchers a true look at how a country- or province-wide basic income would play out. It’s possible that many people who received those benefits did the math and decided not to apply because they would be worse off.

https://nationalpost.com/news/politics/economists-have-tough-questions-for-universal-basic-income-proponents/wcm/a925e5c0-6037-4ede-aa8c-2429c95ab1fb/

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