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.  More up to date information is now needed.

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

3 comments

  1. Nobody that talks about basic Income ever tries to cost it. Seeing it as low as $100/month would double our national deficit .

    Basic Income is a fantasy that shows the lack of math education in Canada. 🙂

    Ed

    1. Hello Ed. There are many things we do know the cost of. We know that poverty costs us between $72 billion and $84 billion a year. We know that, thanks to nearly 200 tax breaks in the income tax system, about $100 billion isn’t being collected annually by the federal government. (Many of these tax breaks are known as “boutique tax credits,” designed to favour with particular populations — certainly not good economic policy.) What if only half of this revenue was in play? As well, the amount of foreign money in offshore accounts is reaching staggering proportions. Another $6 to $8 billion per year can be found here, according to credible estimates. We know what we need to do to create a fair and equitable society. The only question that remains is how we feel about the fact that we haven’t yet done so.

    2. Hello Ed,
      Hello Ed.
      I don’t believe your view is borne out by the evidence. Not only are many people talking about the potential costs and how to fund various designs, some are doing the calculations based on a variety of assumptions about designs (which is all we have at this point). In fact, Robin Boadway, retired Queen’s University economics professor, renowned for his work internationally and recipient of the Order of Canada in 2008 has produced a costing paper which, on one set of assumptions demonstrates that a respectable level basic income can be funded without any increase in Canadian tax rates. He is currently working on two other scenarios to calculate the cost on other assumptions. Nor is he the only work addressing costing possibilities – here’s another https://home.cc.umanitoba.ca/~simpson/3360%20papers/BI%20ms%20Dec%2015%2003.pdf. To find others, google can help you.

      And to supplement the reply Roderick Benns has provided, we also know that upwards of $40 billion a year has been foregone in corporate taxes since the government began to decrease them during Paul Martin’s term as Prime Minister. Funding a basic income is a matter of priorities and political will, not of adequate resources for it.

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