Minimum income can end poverty

Posted on March 2, 2014 in Social Security Debates – Opinion/Analysis
03/1/2014.   By: Shaun Loney

The so-called war on poverty has been an abysmal failure. Most provinces still have about one in 10 living below acceptable low-income cut-offs.

Low-income Manitobans, like other low-income Canadians, fall back on myriad programs supposedly aimed at eliminating, if not reducing the impacts of poverty. Not only is there a lot of money spent on administering these programs, the overall benefit levels are inadequate, especially given the rising cost of housing.

Applying for these programs can be humiliating as administrators seek to shrink budgets by restricting the number of clients and by limiting eligible expenditures. People trying to get off social assistance are penalized as new income is clawed backed at very high marginal rates. Others on disability do not dare see what they are able to do for fear of being cut off altogether.

In order to break with institutionalized poverty, a different approach is needed.

Otherwise known as a negative income tax, the Guaranteed Annual Income (GAI) ensures an acceptable family income by using the income tax system to top up income to a minimum floor. The GAI’s simplicity is its strength. Because everyone will be assured a minimum income, income-support programs would no longer be needed, which both eliminates gaps and frees up cost savings for other priorities such as housing, child care, addictions treatment, or improving employability.

If the average top-up for Manitoba’s 100,000 adults living below the after-tax low income cut-off were $12,000, the total cost might be around $1.2 billion.

Sounds like an enormous number until we look at the direct savings to government. Low-income Manitoba families receive about $850 million a year in provincial social assistance, GST credit, Canada Child Tax Benefit and the CTB Supplement. Adding in the cost of the dozen or so relatively smaller programs such as on-reserve assistance, old age security and Manitoba’s 55+ increases this amount further. Another consideration is that the first bracket of income is currently tax exempt; however with the GAI, income earned above the minimum income could be considered taxable.

Five different GAI field experiments were conducted in North America in the 1970s. The most extensive of these studies was conducted in Dauphin. Thanks to recent work by Prof. Evelyn Forget of the University of Manitoba, new conclusions are being drawn, including that the GAI caused an 8.5 per cent drop in hospitalization. Most notably, there were fewer mental-health issues, fewer domestic-abuse issues and fewer work-related injuries, delivering a welcome cost savings to our overstressed, $5-billion health-care system.

Forget also found there was a reduction in crime in Dauphin during the field trial compared to controlled populations. Given 93 per cent of Manitoba inmates are male and 70 per cent are aboriginal, a good place to find out how a GAI would impact the Justice budget is to ask at-risk aboriginal men. I work at BUILD, a local social enterprise that hires many ex-offenders. A convened group of them agreed having a limited income each month would significantly impact the number of people selling drugs or committing robberies.

As informal as this survey was, the result is welcome news as a way to reduce the $500 million per year the government of Manitoba spends on its Justice budget (up from $300 million in 2006). The City of Winnipeg should also take notice as it has nearly doubled its police budget in the last decade.

The biggest knock against the GAI is the belief many adults would choose to stay home and live off the GAI rather than work. However, GAI proponents counter the five field studies showed very little impact on labour market participation with two notable exceptions: parents staying home longer after birthing and young adults choosing to finish high school or complete other education before entering the labour market.

The provincial government cannot implement a GAI on its own. It would need a willing federal partner. Although many people — those with disabilities, for example — will always require extra supports as well as adequate income, a GAI would still significantly decrease the need for the bureaucracy necessary to administer EIA and welfare programs, making this approach appealing to all political parties.

Given the glaring limitations of the welfare system and the high economic costs of poverty, and considering this is one of those rare ideas that garners support from both the right and the left, can we afford not to take the GAI seriously?

Shaun Loney is the author of BUILD Prosperity: Energizing Manitoba’s Local Economy and a Canadian Centre for Policy Alternatives Manitoba office research associate.

Republished from the Winnipeg Free Press print edition March 1, 2014 A15

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