Considerations for Basic Income

by Terrance Hunsley

I had a nice chat with Sheila Regehr, Chair of the Basic Income Canada Network (BICN). Basic income and BICN have had an amazing growth in public support over the past year.  Despite their disappointment at the lack of mention of it in the Throne Speech, BICN are continuing to build momentum. Their expanding base of support among community groups, minorities, main stream politicians and business leaders is very impressive. Strangely it seems to me that labour unions are their biggest obstacle. 

It got me thinking about the big picture for basic income. The BICN proposal suggests a shift of about 5% of national income to the bottom third of the population on the income scale. Most of that would come from the top third, probably supplemented by a tax on wealth. They are suggesting a guaranteed minimum of $22000 per year for an individual, and  about $31000 for a couple,  phasing out to nothing at about $50000.

In relation to the future of work, it represents a shift away from relying on a long term employment relationship to provide basic security of life. The role of employers in providing health and sickness insurance, disability insurance, unemployment insurance, retirement pensions and job security,  has been on a diminishing path for some time. Government has been doing more and employers have been happy to shed the responsibility and liability.  Working for an income in future is less likely to mean an ongoing relationship with an employer, as new forms of work are invented. 

It is perhaps indicative that Ontario and the federal government had to cough up $500m support to the auto industry to keep them producing in Canada. Nice that they also directed that money to support electric vehicle production, but it does show the precarity of pretty much all private sector employment.  

Basic income would mean finally complying with the Universal Declaration of Human Rights.  We would stop providing the poor with less than subsistence income in order to force as many as possible to accept jobs where the wages don’t provide a living income. But there might be a possibility for governments to do away with minimum wage legislation (BICN probably would not agree with this),  and let the world of work evolve where people can choose their work without fear of starvation. 

Interesting that basic income is almost always discussed as a cost, when subsidies to businesses are often considered economic stimulants.  Pretty much everyone right now agrees that the economy needs to be stimulated. So government can decide to subsidize the production of selected products or services through tax abatement or production or payroll subsidies. Or it can stimulate consumption of the products most needed by the population by passing money directly to people. In the long run, the consumption choices of the population are going to determine which businesses expand and which fade, so why not stimulate demand?  Some economists have told us that lower income people use most or all of their income to consume, while the rich tend to save more or spend more out of country.  So could it be that the BI would contribute to a more robust economy, more jobs and more government revenues? I have elsewhere referred to this as “trickle up economics”.  

And following on that, a thorough economic modelling of basic income would be useful. The people who model the impacts of various policies on overall economic behaviour tend to be in the finance department, or economists who are much like them. These people very likely have already modelled the impact of a basic income on overall economic activity and labour force behaviour and government revenue generation. If they have, their results are influencing their advice to their elected leaders. 

The issue here is that in modelling, the results depend heavily on the assumptions made in determining the inputs to the calculations.  Options for levels of benefits and tax back rates interact with assumptions made about work related choices, consumption choices,  rates of economic growth and unemployment, the health of the population, interest rates, etc etc. If they use assumptions which are different from those used by the BI proponents,  then of course their conclusions can differ substantially. It would be useful for the modellers to share their work with the public in order to minimize needless disagreement and mistrust. 

How to implement: all at once? pilot project? staged implementation? 

First, please – let’s do away with the pilot project idea. The one thing we have learned clearly from past pilots is that they serve to kick the issue down the road to a time when any chance for political support will probably be gone. 

The best way to implement a BI would be on a nationwide basis. It can be adjusted as we go.  It doesn’t necessarily have to be started simultaneously everywhere, especially because the role of provincial governments is not entirely clear. 

The BICN is basically suggesting that the federal government put it in place unilaterally, expecting that provincial governments will thereby reduce social assistance payments to zero in all but the most extraordinary instances. But BICN wants provinces to maintain their other services and subsidies, such as subsidized child care, subsidized housing, special disability benefits, pharmaceutical subsidies, etc.  

That may not be what happens. Antipoverty programs are primarily within provincial jurisdiction. Federal programs like Old Age Security, Guaranteed Income Supplement, Employment Insurance and Canada Pension Plan, required prior provincial approval or shared decision-making (CPP). Even if it is totally federally-funded, the tax revenues still come from people living in the provinces and provincial governments will look hard at the tax and benefit impacts. 

Provincial governments also may not agree with the philosophy of the program and could mount a legal challenge to the federal government for infringing on their jurisdiction.  Even if they are convinced not to do that, there are several areas where they could decide to withdraw or reduce subsidies and services. The social service subsidies mentioned above would be targets, as well as student loans and grants. Income-tested copayments for some services could be increased, as could tuition fees. Some provinces could demand an adjustment of equalization payments to reflect the new geographical distribution of government spending. Provincial and federal finances are intricately interlaced, and that is a source of constant fiscal competition.  

In other words, national implementation of a basic income could be messy, and entail some hard bargaining.

So could the PM announce a staged approach?

Yes. He could announce the plan, and make it subject to bilateral agreements with the provinces. The poorer provinces would probably opt in first as they would have the most to gain. In the other provinces, participation could be subject to election results, or to the activism of community groups. Whether the program would encourage migration of low income people to participating provinces would have to be considered. 

He could also go part-way using existing federal programs. The pandemic emergency subsidies to individuals and employers are examples of temporary efforts. But he could, on a permanent basis, beef up the Canada Workers Benefit to provide a substantial working income supplement for low wage workers. By setting a working income floor equal to something like 3/4 of the median wage in the economic region (as a national average it would be something like $18.50/hour), he would not only go a long way to meeting the antipoverty objectives of BI, but also provide a kind of portable wage subsidy that workers could take with them to the employer of their choice.  Businesses hard hit by the pandemic could apply to lower their wage contribution to less than minimum wage for a temporary period.   

He could then negotiate to convince provinces to buy into the whole show.     

Terrance Hunsley
Terrance Hunsley

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