4 questions you probably have about basic income
Ontario is testing the program. Here's how it works
Ontario is testing the program. Here's how it works
Update 08/01/2018: It’s come and it’s gone. The Ontario PC Doug Ford government has announced it’s scrapping the basic income pilot project
Anyone who took the time to read through Ontario’s 2016 budget in its entirety may have noticed a small discrete paragraph announcing the province’s plan to design and implement a “basic income” pilot program.
While details remain vague, economists say the intent of the initiative is to lift people out of poverty by providing all residents with a guaranteed minimum income every month—regardless of whether they work or not.
But how a provincial government might feasibly implement a basic income program, and what the fallout would be for getting it wrong is the subject of much debate.
Right now, other provinces, including Quebec and Alberta, are flirting with the idea of studying basic income, and federal interest is growing as well. Even outside our borders, it’s a key conversation: This year, Switzerland will vote on a proposal that would guarantee 2,500 Swiss francs a month to all its residents.
While there’s no standard definition of basic income, “what you’re seeing in the Ontario budget is an interest in putting an income floor on Ontarians to ensure that everyone has a minimum level of income,” says Craig Alexander, vice president of economic analysis at the C.D. Howe Institute.
This means that Ontarians participating in the pilot program would receive a monthly cheque from the government regardless of whether they’re actively employed or seeking work. That cheque would replace employment insurance and many other types of social program benefits. “There are big cost savings associated with eliminating programs that would no longer be needed,” says Alexander.
But how Ontario will define the minimum standard of living and what number you put that income level at is a complex endeavour. “It’s the minimum you need to not just survive but to have a reasonable standard of living,” says Benjamin Tal, deputy chief economist of CIBC World Markets Inc. “So the threshold will be a function of the cost of living.”
5 questions you probably have about Ontario’s free tuition plan »
Basic income isn’t a new concept in Canada. In fact, it’s been around for decades. It was previously tested in Dauphin, Man., back in the 1970s as a project jointly funded by the Manitoba government and the Canadian federal government under Prime Minister Pierre Trudeau.
The purpose of that study, says Tal, was to determine whether a guaranteed minimum income would discourage participants from working. “The main criticism of such a program is that you’re giving residents free money, meaning people will say, ‘I don’t have to work!’”
For basic income to make sense, adds Alexander, you want it to incentivize savings and investment. “But you don’t want it too high so as to deter people from working.”
Interestingly, research gathered from the Dauphin experiment didn’t find a significant decline in labour force participation, except within two subgroups: new mothers, who had more money to take a longer maternity leave, and high school students, who stopped working part-time.
Still, major conclusions shouldn’t be drawn from this one study. “Because it was a pilot program, you don’t treat its findings as permanent,” says Tal.
Major structural and technical changes impacting Canada’s labour market have brought basic income back to the forefront of our national dialogue.
“Globalization means you can produce anything anywhere in the world,” explains Alexander. “A worker in Canada is competing with China or India. But the Canadian market can’t compete on labour costs, which means businesses here need to produce better products and require higher-skilled workers to create them.”
And then there’s the race against machines replacing labour. “You particularly see the pressure on middle-skilled workers in Canada,” says Alexander.
Right now, governments see basic income as a potential panacea for these problems: It’s a giant safety net to guarantee Canadians a minimum income if they fail in the labour market and fall below a certain standard of living.
Tal concurs with this analysis. “We all realize that we are in a midst of significant change in the way the economy is functioning,” he says. “We will have a situation where the skill-sets will not be consistent with what the economy needs. There will be a transition where fewer people will be employed and able to find a job.”
Intuitively, basic income sounds very appealing. “It can reduce poverty. It can reduce government program costs,” says Alexander. But scratch below the surface, he adds, and it quickly becomes unwieldy.
For starters, there’s no unilateral way for governments to roll out such a program. In Ontario, let alone the rest of country, no minimum standard of living could be equally applied to all residents—particularly in cities like Toronto and Vancouver where shelter costs far exceed national averages. If such a program were to be rolled out nationally, “are you going to have higher annual incomes in Ontario versus Manitoba?” asks Alexander. “You could have people moving away from provinces to get income.”
An even bigger question is how governments will pay for basic income. In a perfect world, basic income would create smaller governments by eliminating many programs for low-income individuals. But that doesn’t mean it still wouldn’t be an incredibly expensive program to get off the ground and running.
This is why basic income is always a reoccurring theme, says Alexander. “Even though governments are interested, it’s something that will require a lot of investigation. It would be a huge fiscal cost to launch it, but if you get it wrong there would be a huge fiscal consequences.”
Plus, here are some TFSA investing ideas
UBI is proposed as a way to ensure that...
Don't be a victim for a CERB scam, CRA...
Tax hike in Canada to pay for the pandemic;...
With the threat of unemployment, a slacking economy, and...
Presented by BDO Debt Solutions
Mortgage rates have been falling since the 1980s—but that...
With the election approaching, we asked a financial planner...
Finally, the Ontario budget brings clarity to financial planner...
We put them to the test
A budget full of winners. Everyone from seniors to...