From CERB to a guaranteed income? Not so fast

‘Acrisis is a terrible thing to waste,” Nobel Prize-winning economist Paul Romer said in 2004, a sentiment Obama chief of staff Rahm Emanuel echoed during the financial crisis with his less pithy but more direct “never allow a good crisis go to waste.” The idea is that during a crisis, citizens may be open to large policy changes so reform- minded governments need to capitalize on the opportunity.

The Trudeau government’s efforts to stabilize incomes through the new Canada Emergency Response Benefit (CERB), and to a lesser extent the Canada Emergency Wage Subsidy (CEWS), has helped reinvigorate an old idea — a guaranteed basic level of income. News stories and columns spanning the ideological spectrum have appeared across the country. And 50 senators recently sent a letter to the prime minister calling for the CERB to evolve into a minimum basic income.

Unfortunately, these discussions have been generally characterized by confusion, misinformation and missing information. The idea of a guaranteed annual income has almost always focused on replacing the plethora of existing federal, provincial and municipal programs with a single program to provide some predetermined level of minimum income. In theory, governments would spend less money on administration and compliance, thus reducing the overall cost and improving the co- ordination of income support programs.

The number of existing income support programs that would have to go is impressive. Federally, they would include the Canada

Pension Plan, Old Age Security, employment insurance, the Canada Child Benefit, the Canada Workers Benefit, and a host of tax credits. Moreover, as a 2015 study catalogued, no fewer than 70 provincial programs would have to be reformed or eliminated, not including programs introduced after 2015, such as Ontario’s Electricity Support Programs. It’s hard to envision Ottawa or the provinces agreeing to vacate all these instruments of social policy.

But if recent calls to extend the CERB and create a new income support program in addition to all existing federal and provincial programs comes to fruition, that means more administration, more bureaucrats, more money spent on compliance, and even greater co- ordination problems among programs. All this at a time when the Parliamentary Budget Officer estimates the federal deficit will reach $184.2 billion this fiscal year ( 2020-21), representing 8.5 per cent of the economy, a level not seen since the deep recession of the early-1980s.

Of course, the federal government created the CERB in response to the deep — but, we all hope, not long — recession caused by COVID-19. It’s a flat benefit of $ 2,000 per month provided to eligible Canadians who apply and it will cost an estimated $ 24 billion over four months ( although a recent announcement geared at students seeking summer employment looks to have increased costs by up to $ 9 billion).

To put these numbers in perspective, the federal government expected to spend $ 340.8 billion last year on programs and transfers, meaning this four- month temporary program represents nearly a 10 per cent increase from expected spending. Annualized, potential CERB costs could approach 30 per cent of original budgeted spending. The federal government hadn’t been planning to balance the federal budget until at least 2040, a date the current recession will inevitably push back. Put simply, those advocating for the CERB to morph into a new income support program, on top of all existing programs, seem to ignore the state of government finances federally and in many provinces.

The knee-jerk solution, to simply raise tax rates (again), is also unrealistic. Canada has already lost its business tax advantage, while recent increases in personal income tax rates — federally and in most provinces — for professionals and entrepreneurs has made us distinctly uncompetitive. Of the 10 jurisdictions with the highest top combined marginal income tax rates in North America, nine are Canadian provinces. ( California is the only U. S. state to qualify.)

A currently popular rationale for a basic annual income — the changing nature of employment and the effect of technology — also falls short. The basic argument is that technology, especially artificial intelligence and automation, is replacing human labour and causing unemployment and underemployment. But one recent study found that technology is a complement — not a substitute — to labour, meaning that concerns over the loss of labour are at the very least overstated: technology may in fact lead to more, not less, employment.

Perhaps now more than ever, it’s worthwhile to have a genuine public discussion about replacing existing provincial and federal income support and related programs with one program that reduces administrative costs, better co- ordinates assistance and increases resources available to Canadians. But we need to recognize the full costs and benefits and the complicated nature of such reforms. Simply adding a new expensive income program on top of all the existing programs is something else entirely. It would further erode federal and provincial finances, add complexity to an already complicated array of programs, and divert even more money to administration and compliance.

advocates seem to ignore

the state of finances federally and provincially.