About Basic Income

By Senator Art Eggleton

The Basics on Basic Income

What is Basic Income?

Also known as Guaranteed Annual Income (GAI) or Basic Income Guarantee (BIG) amongst other titles, it is an income security measure to help people escape or avoid poverty and to provide for themselves and their family the basic necessities of food, clothing, and decent accommodation.  It does not replace other social support programs such as housing, child care, employment supports like training and adult re-education, and supports for seniors and the disabled.

The interest in Basic Income is on the rise lately.   Why is that?

Here are three reasons:

(1) The persistence of poverty.  According to Statistics Canada, 1in7 Canadians live below the poverty line.  That is about 5 million people with at least a million being children.  In 1989, The House of Commons vowed to end child poverty by 2000 – it is higher now than then.  Almost 900,000 need food banks every month (38% children).  Four million are in need of decent affordable housing, and there are thousands of homeless struggling with street life.  And remember, poverty doesn’t just cost the poor their dignity, it costs us all billions of tax and health care dollars every year. As former Senator, Hugh Segal put it, “Our present system doesn’t fight poverty.   It institutionalizes it”.

(2) Rising Inequality.  A wide gap in wealth and income levels has evolved in the past three decades.  Our society is becoming more unequal with 20% of the population controlling 68% of the wealth, and income levels rising substantially for the top income brackets, with low and middle income Canadians either losing ground or remaining stagnant.  Neighbourhoods in many of our cities are becoming more polarized between rich and poor with middle income Canadians being squeezed out the market.  Equality of opportunity and sharing of prosperity have diminished.

(3) The changing labour market.  Globalization and outsourcing of jobs have been beneficial to many but have left others behind.  New technology has brought continuing automation with robotics and artificial intelligence on the rise.  Many manufacturing, or blue collar jobs, have given way to low paying temporary work – precarious employment.  The demographic challenge of aging means that soon we will have less paying taxes to support social and health care programs.  A Mowat Institute study suggested that 42% of current employment in Canada is at high risk of automation in the next two decades.   University of Toronto professor, Richard Florida, says “we are in the midst of the greatest, most thorough economic transformation in all of history”.

Poverty, inequality, and the changing labour market together with a feeble economy, growing stress for many to make ends meet as they live pay cheque to pay cheque, insufficient pensions, and too much debt all lead to greater anxiety and a search for a better safety net.

How would a basic income program work?

Depends on how it is designed.  There are several possibilities or variations.  The two most considered models are a universal demogrant and a negative income tax.

The universal demogrant means that everyone is entitled to an annual allowance that is non-taxable.  Earned income above that is taxable.  A variation could operate similar to the Old age Security (OAS) where the allowance starts being clawed back when income reaches a certain level and disappears totally at another level above that.

The negative income tax involves setting a level of support, say the poverty line or a percentage of the poverty line, and then topping up anyone, or any household (on a monthly basis) with income below that level as reported in their tax filing to reach the level.  Income beyond that would be taxable and eventually some or all of the top up would disappear but not till a more secure income level is reached.  This would apply to people on social welfare, disability allowances, or low wage workers and there are no conditions other than reporting annual income through the tax system.

A basic income won’t provide for the ‘good life’ but it should lift people out of poverty and ensure sufficient income to pay for the necessities of life. It will give those eligible a better foundation to focus on their future advancement with less stress in providing for those necessities.

Canada already has a basic income program for seniors. The Guaranteed Income Supplement (GIS) along with the Old Age Security (OAS) and the Canada Pension Plan (CPP) (Also the Quebec Pension Plan) has brought seniors poverty down from 30%, when initiated in 1977, to 5% today.  The GST/HST rebate and the Canada Child Benefit are examples of refundable tax credits which are similar to the negative income tax model and could be blended with any basic income system.

How much would basic income cost?

Again, that depends on the program design. Studies indicate that the universal demogrant is more expensive than the negative income tax top up.  Poverty alone costs the public purse more than $30Billion a year.  A program at that level would break even over time.   It is arguable that while there will be transitional costs, overall we don’t need to spend more money, we need to spend smarter, more efficiently, and effectively.  But that’s where a pilot project becomes valuable.

Why a Pilot Project?

To check on the cost numbers with different variations applied to some participants to see what works best.  To see how it affects peoples’ lives – the ability to provide for their needs, their attachment to the work force, or furthering education, how it affects their health outcomes (low income earners have more health care issues).  Pilot projects should be voluntary and no individual should be made worse off during or after the pilot.

A pilot project was operated in Manitoba in the 1970s which produced some interesting results.  Hospital visits dropped 8.5% and workforce attachment remained strong with only new mothers and teenagers working less.  Youth spent more time in school and graduated in higher numbers.  This pilot, called MINCOME, was cut short by changing governments.

Now, more up to date information is required and we will get the data we need, now that the Ontario government has announced more details about the pilot this year.

For a detailed outline of one suggested pilot model, see the discussion paper prepared for the Ontario government, on their proposed pilot, by former Senator Hugh Segal.

With three-year pilots beginning in Thunder Bay and Hamilton/Brantford this spring, along with Lindsay this fall, we have the opportunity to learn from this. To find out more about the pilots, see our article about the announcement.