Budget 2021: Time for Basic Income

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J.G. Foster, B.Sc. E.E., MBA- Economics 


Creating budgets is always a challenge. There are multiple demands but limited resources.  Like most other countries, Canada has borrowed extensively during the pandemic, which adds to the difficulty in creating the Spring Budget.

With that in mind, what should be the spending priorities this year?  What programs, new or modified, will produce the best results under these particular circumstances?

Much has been said in the past year on the subject of income. Decreased income has resulted from the loss of jobs and collapse of small businesses due to the pandemic, causing growing mental stress and challenges to personal and community health. 

While considerable sums have been poured into the economy, this patchwork process is administratively expensive and burdensome for both governments and recipients. It often plays a catch-up process, as it fails to deal with urgent new needs as they emerge. And critically, it has had limited impact on economic growth and stability. This latter element is essential for ensuring that we as a society emerge stronger after the pandemic.

Some of the funding priorities the government is considering include housing, daycare, seniors care, pharmacare, and other stimuli to boost the economy. Making wise choices is not easy. Ensuring adequate housing for everyone is long overdue. It is a moral and economic issue that deserves immediate, continuing attention. Positive steps have now been taken that are good for people, as well as for national politics. Daycare has the advantage of supporting parents, mostly women, in returning to the labour market. Again, good for the economy and for politics. Evidence suggests that pharmacare has definite economic advantages for Canada and can be considered a contribution to health transfers. (Depending on other priorities, can it be phased in gradually?) Seniors care requires immediate study to determine what the federal government’s role should be. 

What new financial investments, then, will give the greatest return on investment?  Regardless of any new directions, elements of other programs as they currently exist will likely be needed for some time yet. 

There are a number of factors to consider at this stage. What is doable, affordable, efficient, and administratively simple?  What has an immediate and lasting positive economic impact? What tackles recognized needs across sectors, targets the greatest number of citizens, assists in rebuilding the economy, and promotes unity and economic stability?  And what is politically feasible (low risk)?  A tall order!

Along with other initiatives to get us through and beyond the pandemic, there is one program that can satisfy all of the above demands, one that promotes income security for the greatest number of Canadians at the least cost. Yes, it is a Basic Income program. I am fully aware of the government’s hesitancy to embark on this national program at this time, but let me provide justification.

Is it Doable?

National programs require careful evaluation. However, we already have a Child Benefit program, Old Age Security and the Guaranteed Income Supplement, which are forms of a Basic Income. We also know that Basic Income programs have been implemented either as pilots or as full-fledged programs here and around the world. There is ample evidence to prove their efficacy.  The combined Basic Income Canada Network (BICN), Ontario Basic Income Network (OBIN) and other regional organizations, Basic Income Canada Youth Network (BICYN) and Coalition Canada have a vast amount of expertise ready to assist the government in all aspects of introducing a national Basic Income. The political risk is minimal. 

While it will be necessary to collaborate with other levels of government, the Federal Government has the jurisdictional authority to proceed if it chooses. PEI is willing to be the first location to “test” the program. This is important. Beginning where there is strong support is essential for working out the glitches that are normal for all new programs. 

The first steps will be to evaluate the data already collected by PEI and others, and then contract for the development of the software program to meet the needs of a variety of individuals. (Canada has a number of qualified financial and software organizations that are capable of bidding on such a contract.) This program should be flexible so that it can be expanded to incorporate other provinces/territories as they come on stream. The software is the cornerstone for a successful program. A Basic Income, funded through the CRA, must require a minimum of oversight and therefore eliminate any concerns regarding paternalism, racism, etc. It should be designed to require very limited federal bureaucracy involvement, thereby reducing rather than adding to “Big Government”. It must be able to react quickly to changes in income. The tax-back process must be automatic and should also be designed to encourage work by having a progressive rate of claw-back above the poverty line. 

Once the PEI program has been initiated, the Federal Government can then begin negotiations with other provinces and territories, prioritizing those most in need and eager to collaborate. Parallel to this, legislation must be drafted and approved to ensure sustainability of the program with legal authority to expand regardless of the party in power. Yes, it is doable, and the government should begin immediately. However, the government should not be rushed into a national program until it is thoroughly tested and has growing support.  To gain acceptance by all parties and minimize risk, it may take a few years before full implementation is completed.

Is it Politically Feasible?

Windows of opportunity to undertake major initiatives for governments are rare.  While problems may exist for many years, a crisis such as Covid-19 brings into focus issues that mobilize public opinion and demand action. Such is the present situation. While a Basic Income was recommended 50 years ago and more recently in 2010, only now is there wide support for this program. Initiatives providing direct income support have long been favoured by those working to ameliorate the negative impacts of poverty.  Academics have been researching social and economic inequalities and their impact on not only “The Poor”, but also on society in general. It is well-established that the enormous inequities now present in Canadian society are not good for business or the economy. Organizations ranging from those of doctors to artists, as well as MPs and Senators, have led the charge for action. The recent Environics Survey reported that two-thirds of Canadians now support a Basic Income. This is a rare opportunity for government to respond to this popular concept by introducing a Basic Income program for Canada.  As Hugh Segal accurately and simply stated, “We can’t afford poverty anymore”.

Will it Create Jobs?

There is a standard myth that Basic Income discourages people from working. The evidence from around the world dramatically proves otherwise. Both the Mincome experiment in Manitoba and the short-lived pilot in Ontario showed this to be inaccurate. Yes, there was some reduction in those “working”, but this was mainly due to individuals taking time off for training to improve their skills and employability.  In some cases, women chose to stay home with small children, which is in the long-term interest of the community. Small businesses, as we know, are the economic engine of the country. The pandemic has played havoc with this sector, with many businesses now permanently closed. A Basic Income will provide a degree of financial security so that people are more willing to take the risk of starting new businesses. It should also be remembered that money in the hands of individuals provided by a Basic Income is more likely to circulate locally and support small business owners. Basic Income can therefore be viewed as an investment for economic growth.

Is it Affordable?

The cost of poverty will continue to rise if we do not take bold action. The figures, especially those currently borne by municipalities, are alarming.  Costs of poverty will, however, not be further discussed in this paper, which is focused on immediate budget expenditures. 

There are many variants of a Basic Income. One that is most often mentioned is the UBI which gives everyone an equal cash payment, with the assumption that this money will be injected into the local community and will be refunded via the normal tax system. These assumptions are dubious. Financial “gifts”to the well-to-do will most likely be put into savings or spent on luxury items such as foreign travel or goods. There are some questions that have been raised as to whether most or all of this extra money can be effectively taxed back. Also, the idea of giving the wealthy a Basic Income is not popular. 

Canada has a number of programs that serve certain target groups, in particular, seniors and children. While some may argue that there can be improvements to these programs, the majority of cash-strapped individuals who urgently need support are between 18 and 64. Focusing a Basic Income on this group limits the investment needed. Using an income-tested model that provides funding for those living below the poverty line with the gradual claw-back of earnings beyond this amount would further limit the cost of the program. (This gradual claw-back mechanism provides an incentive to find paid work where appropriate, as has been the case in previous pilots and programs.) The reasonably generous model reviewed by the Parliamentary Budget Office confirms its affordability. Moreover, this investment excludes the economic growth generated and the proven cost reductions to the health and justice systems. In fact, the argument may be made by the Federal Government that this can be a partial response to the growing demands for increased health transfers. 

As noted above, once the project is initiated, it will still take some months for the preparatory work to be completed.  The preferred option is to expand the program gradually, fine-tuning as needed.  Required financial inputs will be modest for at least the first couple of years. This will enable the government to provide funding for other pressing priorities during the pandemic, while also immediately starting the process of implementing a Basic Income. 

What is the Overall Impact?

Since a Basic Income puts money into the hands of the neediest across the country, it will have an immediate impact on the individuals it supports and their local communities. Improving their ability to pay for housing, food, and other basic necessities also contributes to the well-being of the community and local business.  A Basic Income will allow the homeless to participate in the new housing program now being planned.  Building back our economy requires the courage and innovation of small business owners.  Opening a small business is risky even in good times. A number have said that a Basic Income will help to “keep bread on the table” during the lean months of a startup. Thus, a Basic Income will act as an insurance and incentive in helping to rebuild the economy.

Conclusion 

I am not easily convinced. It has taken a number of years to persuade me that a Basic Income Program is the best use of our scarce resources.  Growing up in a poor family influenced my childhood and academic years, and it has helped me to empathize with those living in poverty.  My personal experience has also made me cautious with respect to the use of money and affected my views on public spending. Nevertheless, I accept and endorse taxes as being necessary for the common good and the services we enjoy.

For many, statistics on food banks, homelessness, bankruptcies, etc. tend to be viewed as numbers to study and monitor.  However, individuals under stress due to not having a sufficient income are not figures but living and suffering human beings.

Not unexpectedly, there continues to be a diminishing but vociferous number of individuals who claim, either through misinformation or ideology, that a Basic Income is not needed or affordable, and that adding to existing patchwork programs is better.  On the contrary, as we look for new directions, we should avoid spending on projects that require considerable administrative resources, unknown costs and impact.   

You will note that detailed information and references have been intentionally avoided in this short paper. However, there is a vast amount of credible information available from the organizations noted above providing strong evidence to support the introduction of a national Basic Income now.  There is also an extensive body of experts able to provide clarification if and when needed. Likewise, the costs of poverty and resulting reductions in social expenditures are not factored into the calculations of this paper. 

To counter-balance the rapidly changing global economy and work environment, a Basic Income should be viewed as a necessary, logical component of a renewed social and economic infrastructure to “build back better and stronger”. It would act as a unifier at a time of national stress by reaching out to all corners of the country, relieving economic hardship, and creating the most jobs at the least cost.

Discussion of the social havoc of income insecurity has been avoided here. I wake up every morning thankful that I have a modest pension and savings to ensure that I have all of the basic needs covered with a bit left over, and time and energy to contribute to my community.  However, we know that income security is increasingly out of reach for many Canadians. 

A Basic Income will be a major step in correcting some of the glaring injustices we now admit exist in Canada.  By design, it is impartial to social status, race, and gender. Fundamentally, a Basic Income is a Human Rights issue as expressed in the Universal Declaration of Human Rights for which Canada is a signatory. Internationally, a Basic Income introduced in Canada would be seen as evidence of our genuine intention to be a world leader for Human Rights.

In summary, from a political, social, and economic perspective, an income-tested Basic Income should be viewed as an essential component of the 2021 Budget.  

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