The Broadbent Blog


Why we need a practical approach in the basic-income debate

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The idea of a basic income guarantee for all Canadians has again moved to the front burner with the House of Commons Finance Committee and the Ontario government supporting further study and experimentation. This could be an important step forward, but incremental reform towards an income tested guarantee for working age Canadians delivered through the tax system will be the best path forward as opposed to more visionary “big bang” solutions.

The concept of a basic income has won support from both the political right and left. For the former, it promises to simplify complex income security programs and to replace most if not all welfare state programs with a single cash payment which would allow individuals to meet their needs in the market. For the latter, it is a means to free people from dependence upon the job market, a tool for social solidarity amidst a rapidly changing world of work, and a means to abolish poverty.

The visionary concept of an adequate basic income delivered to all citizens as of right is morally compelling. But a universal payment high enough to eliminate poverty would inevitably mean extremely high tax back rates on incomes from employment. Another key problem is that a large, universal transfer would likely swallow up existing programs, such as Old Age Security and Employment Insurance, which have purposes other than to just provide a minimum income guarantee. 

A more practical way forward is to selectively improve refundable income tax credits and other income support programs so that all household incomes after taxes and transfers meet a basic level of adequacy.

Canada already has a guaranteed income for seniors through the income-tested Guaranteed Income Supplement to Old Age Security, which comes close to pushing seniors above the poverty line. And pending improvements to income tested child benefits promised by the Trudeau government will deliver a maximum transfer which comes close to the cost of raising children and will significantly reduce child poverty.

By contrast, our current system of social assistance falls woefully short of delivering an adequate income for working age Canadians who have no or limited employment income. Collecting social assistance requires a person to exhaust almost all assets, and recipients can earn only extremely limited amounts before income benefits as well as health, housing and child care benefits are clawed back.

The key reform we need is to provide a non stigmatizing and adequate income to working age persons who cannot work, usually due to disability, or who receive only low incomes from work due to low wages and limited hours. The ranks of the working poor have been growing rapidly due to major changes in the job market and rapidly shrinking eligibility for Employment Insurance benefits. 

The most obvious step forward, as recommended in the 2013 report of the House of Commons Human Resources Committee, is to increase the federal Working Income Tax Benefit or WITB to supplement the incomes of low earners who are not eligible for social assistance and who do not usually qualify for much if any Employment Insurance benefits due to current rules and low and unstable earnings.

WITB benefits go to some 1.2 million low wage Canadian workers. The main problem with the program is that maximum benefits are far too low (about $1000 per year for singles and $2000 for couples and single parents) and that they are lost completely at very low levels of employment income (about $11,000 for singles and $16,000 for couples.) 

There are several important issue to consider if we are build on programs like the WITB. It is important to ensure that higher benefits do not simply work to subsidize low wage employers, which means that the floor of minimum wages needs to be improved.  And it is also important to ensure that households with modest incomes from work do not face punitive claw back rates as income supplements are phased out.

A well-designed system of income tested benefits for low income workers, including disability benefits, is needed to set a basic income floor for all Canadians and to replace our inadequate and punitive social assistance system. Practical reform is an important stepping stone towards more visionary solutions.

 

Andrew Jackson is Adjunct Research Professor in the Institute of Political Economy at Carleton University, and senior policy adviser to the Broadbent Institute.