Basic Income: A Way Forward for Canada?

Executive Summary

The implementation of the Canada Emergency Response Benefit has generated a renewed interest in a widely discussed policy idea, basic income. Basic income has become popular not only among academics but also among political actors and the general public. The introduction of Canada’s first basic income legislation, Bill C-273, in February 2021 by the Liberal Party MP Julie Dzerowicz represents a political will to design and implement a nation-wide income-support program. This article seeks to capture the Canadian opinion on basic income, highlight current arguments around the Canadian Emergency Response Benefit being replaced as a permanent basic income program, explain proposed policy options, and present an analysis of the implementation options based on four parameters of scope, adequacy, integration, and implementation. 

The Canadian Opinion

Basic income (BI) has received support from a majority of Canadians. A national poll conducted by the Environics Institute in 2013 showed that 47% of Canadians supported BI, while 42% opposed it. However, a recent survey conducted in 2020 found that support for BI has increased to 64%, with opposition reduced to 29%.[1] Given these statistics, three out of every five Canadians favours BI as an income assistance program. This support remains higher among the lower-income earners, younger Canadians, and women.[2] 

Political preference has also played a considerable role in determining support for BI. Support for BI programs is higher amongst voters supporting the NDP (84%), the Green Party (76%), and the Liberal Party (74%) than amongst voters who support the Conservative Party (43%).[3] Political preference-based support for BI could be, in part, indicative of the nature of ideology held by the political parties of Canada. [4]

Public opposition to a BI program has emerged on two main issues, the potential for lack of incentive to work, and the cost. An Angus Reid survey from June 2020 found that 55% of respondents believed that a BI program would disincentivize people from working, and 54% of respondents thought that a BI program would be too expensive for Canada. [5]

Debates on Implementing the Canada Emergency Response Benefit Permanently

With a current debate around implementing a BI program in Canada, there has also been growing support to permanently replace the Canada Emergency Response Benefit (CERB) as an income-security program to eradicate poverty and provide greater financial security and dignity. This growing support for a permanent CERB program has sparked a debate around three main issues concerning BI in Canada: eradicating poverty, incentives to work, and the cost. 

Eradicating Poverty

Existing guaranteed income programs, such as Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), have lifted the majority of seniors out of poverty, with fewer than 4% of Canadian seniors currently living below the poverty line.[6] Given the impact of other guaranteed income programs, proponents believe that implementing the CERB as a permanent guaranteed income program has the potential to alleviate poverty. [7]

In contrast, opponents believe that a permanent CERB program would do little to alleviate poverty. This is because the CERB program structure would not address the inherent income inequality that allows for the concentration of wealth, rather than the distribution of wealth.[8] Furthermore, opponents argue that putting the onus of income distribution on the public sector would disincentivize employers from improving wages and working conditions. [9]

Incentive to Work

A BI program based on the CERB program could have a less adverse effect on work incentives if provided as a $2,000 unconditional cash transfer, without any benefit reduction for working adults (aged 18 to 64).[10] Such a model implies that the recipient would earn the full benefit amount despite any earned employment income. [11]

However, if the permanent CERB program was implemented with a 15% (or higher) benefit reduction once recipients reached a certain income threshold, recipients could be more likely to be discouraged from working due to the possibility of entering into a higher marginal tax bracket. [12] A further concern is if the permanent CERB program was implemented in its current form, the benefit rate may disincentivize workers from labour market participation as many recipients have higher incomes from receiving the CERB benefit and working reduced hours compared to their income level when working full-time. [13]

Cost of Implementation

With a benefit reduction of 15%, a permanent CERB program’s net annual cost is estimated at $447.2 billion. The net annual cost decreases to $381.4 billion with a 50% reduction rate. [14] If the benefit payment was provided as an unconditional cash transfer, it is estimated to cost $464.5 billion annually. [15]

Proposals for implementing a permanent CERB program provide a number of options for additional revenue sources to fund the program. The most common revenue source is integrating the current funding allocations for OAS, GIS, and the Canada Child Benefit (CCB) into the permanent CERB program. [16] Other funding suggestions include introducing new tax and income brackets, an increase in corporate tax rates, and the introduction of a 1% annual wealth net tax on net wealth above $20 million, which would yield over $5 billion in 2021-22. [17]

Basic Income Program Implementation in Canada

The Basic Income Canada Network published a report outlining BI implementation options for Canada and the associated cost estimates. The three proposed options are outlined in Table 1. 

Table 1: Basic Income Implementation Options for Canada proposed by the Basic Income Canada Network. [18]

The maximum benefit has been calculated at $22,000 for an individual and $31,113 for a couple. Options 1 and 2 are income-tested, and a reduction rate of 40% is proposed. The maximum income threshold to receive the full benefit is $55,000 for an individual and $77,782 for a couple. [19]

The next section analyzes these three implementation options based on the parameters of scope, adequacy, integration, and implementation. 

Scope 

Scope refers to the range of population that the BI program would cover and ultimately impact. [20] 

Options 2 and 3 would be provided to all adults above the age of 18 and would replace the OAS and GIS benefit for adults over 65. Adults over age 65 would not benefit from Option 1 as they are not eligible for BI and would receive benefits through OAS and GIS. 

The impact of Option 1 on disposable family income is estimated to be progressive, with families in the bottom half of the income spectrum (income under $61, 300) seeing an increase in their disposable income. In Option 2, estimates show working-age families seeing a 4.8% increase in their disposable income, but a decrease in disposable income for families with an adult over 65 years of age. Estimates for Option 3 show a significant increase in recipients’ income in the bottom income deciles amongst both working-age adults and adults over age 65, and income inequality is reduced by 18%. [21]

Adequacy

Adequacy involves determining the benefit amount, estimating the program cost, and identifying revenue sources for funding. [22]

The benefit amount for all three options has been determined through the square root equivalence method (based on the square root of family-size). [23] The benefit amount is estimated at $22,000 for individuals and $31,113 for a couple, which is set near the Low-Income Measure and adjusted for family size. The sources of revenue for funding the three options would be generated both federally and provincially. 

At the federal level, changes in personal income tax rates, corporate tax rates, and tax fairness reforms, in addition to the replacement of federal programs with one of the three BI options would result in a revenue of over $150 billion. [24] Tax reforms and integrating provincial sources of revenue (GIS top-up, social assistance benefits, and non-refundable tax credits) into BI program funding would generate between $0.6 billion to $173 billion in revenue. [25] If there were a provincial deficit, the Canada Social Transfer (CST), currently provided to provinces and territories to support social services and education, would offset the deficit. [26]

Integration

Integration refers to the extent of assimilation of existing social assistance programs within the BI program. [27]

All three options would require reallocating federal and provincial program funding where the mandate could be fulfilled through the BI program. 

Federally, these programs include the Working Income Tax Benefit (WITB), WITB Supplement for Disabilities, GST/HST Credit, spousal allowance, and GIS and OAS in the case of Options 2 and 3. 

Provincially, major social assistance programs involving direct cash transfers and a portion of their administrative costs could be rolled into the BI program. However, some employment assistance services such as Employment Insurance, employment counselling, and healthcare benefits such as disability supports and prescription drug benefits, would remain unaffected. [28]

Implementation

Implementation determines the jurisdiction for policy execution. 

Despite being proposed as a national program the degree of co-operation between the federal, provincial, and territorial governments for the execution of a BI program remains a matter of debate. [29]

Conclusion

The prevalence of income insecurity in Canada has gained renewed and widespread attention from the public, unions, political parties, and academics due to the implementation of the CERB during the COVID-19 pandemic. Amidst growing support to convert the CERB into a permanent BI program, there has also been an extensive debate around the CERB’s potential to eradicate poverty, address the concerns of a disincentive to work, and ensure sufficient funding for program implementation. Non-profit organizations, government agencies, and academic research institutes have proposed various BI policy alternatives to address these three concerns. These proposals have raised key policy questions such as: who would be eligible to receive the benefit, how much they would receive, what methods should be used for distribution, and what programs would be replaced. Answering these questions would mean determining Canadians’ policy priorities and values surrounding poverty alleviation that underscore the decision to introduce and execute a BI program in Canada.