Three points on the GST, to end poverty?
Early framework offers some food for thought
One feature of the debate about the idea of a guaranteed annual income — minimum income, basic income, call it what you will — is wide disagreement about what it means, even amongst its supporters.
How high or low would the maximum benefit, paid to those with no other income, be? How sharply or gradually would it be clawed back as earned income rises? Would everyone receive the same universal “demogrant,” to be taxed like other income, or would the amount of the benefit vary with income, as in the “negative income tax” model? And, perhaps most contentious, what existing programs would it replace?
The intersection of these four variables can produce wildly varying cost estimates. A high maximum benefit combined with a low clawback rate will cost a good deal more than a low-maximum, high-clawback mix, while gross outlays under a demogrant will be much higher than under a NIT, even if their net hit to the budget is the same.
Last, the offsetting savings from eliminating other programs can differ by orders of magnitude, depending on the proposal: some basic income models envisage it replacing only certain forms of social assistance, while in others it would subsume much of the current welfare state.
In the absence of consensus on each, the way has been clear for critics to produce some truly eye-popping estimates, ranging into the hundreds of billions of dollars, leading many to discredit the whole idea as impracticable at best, utopian at worst.
So the Parliamentary Budget Office has done us all a service by its recent attempt to estimate the cost of a basic income guarantee, if implemented nationwide, based on the most advanced proposal made to date in this country: Ontario’s Basic Income Pilot, a negative income tax-style program currently being tested in three communities in the province.
That might seem an answer to a question that hasn’t been asked (except by Conservative MP Pierre Poilievre, who requested the study). Ontario hasn’t even decided whether to implement it yet — who said anything about a national program?
But never mind. The results, speculative as they are, are intriguing. The PBO puts the cost of a nationwide rollout of the Ontario program, guaranteeing every adult of working age a minimum of $16,989 annually ($24,027 for couples), less 50 per cent of earned income — there’d also be a supplement of up to $6,000 for those with a disability — at $76 billion.
Even that number, eyewatering as it is (the entire federal budget, for reference, is $312 billion), is a long way from the $500 billion estimates bandied about in some quarters.
But that’s just the gross figure. The PBO estimates the cost of current federal support programs for people on low-income (not counting children and the elderly, who already have their own guaranteed income programs) at $33 billion annually. Assuming a federal basic income replaced these leaves a net cost of $43 billion. That’s still a lot — one seventh of current federal spending.
But that, too, is most probably a considerable overestimate. The feds would be highly unlikely to introduce such a program on their own, in a field dominated by the provinces. Neither would a purely federal basic income achieve nearly as much as if the provinces could also be persuaded to roll their own programs into it.
As the PBO observes, a basic income “could take the form of a combined federalprovincial basic income system managed by an intergovernmental fiscal arrangement. This would replace some provincial transfers for low-income individuals and families, including many non-refundable and refundable tax credits, thereby reducing its net cost.”
Again, which of these programs to include would be a matter of some debate. But suppose we stick with the Ontario model. If implemented, it would replace Ontario Works (social assistance) and the Ontario Disability Support Program. The total savings: about $8 billion. Supposing equivalent savings were achieved in the other provinces — and federal transfers reduced accordingly — that would knock about $20 billion off the national pricetag.
So we are looking at a net cost, based on this model, of something on the order of $23 billion: roughly one per cent of GDP, or about three additional points on the federal GST. What would that buy? The income guarantee in the Ontario Basic Income Pilot, the province notes, is set at 75 per cent of Statistics Canada’s Low Income Measure; combined with “other broadly available tax credits and benefits,” it would be enough to pay for basic household needs. Indeed, it is not far off the low income thresholds defined by StatsCan’s Market Basket Measure. Three points on the GST, to end poverty. I can’t think of a better way to spend public funds.
At that, these estimates do not incorporate behavioural responses. If, as some studies suggest, putting a floor under incomes improved health outcomes; or if, by reducing the confiscatory clawback rates the current welter of income support programs often combine to produce, we stopped punishing recipients for finding work, we might find the savings were even greater. (The PBO offers evidence suggesting some recipients might work less.)
Admittedly, this remains a highly speculative exercise. It’s hard to see Ottawa committing to such a reform without the provinces, and getting the provinces on board, given their usual zealousness in defending their turf, might prove next to impossible. The greater likelihood is of something emerging at the provincial level, with the feds perhaps topping it up at some point.
But at least we now have a better handle on how much it would cost, based on a concrete proposal, with a fighting chance (depending on the results of the Ontario election) of being implemented. It’s a start.