Governments around the world reacted to the COVID-19 pandemic the same way. They restricted the movement and ability of citizens to work while opening the floodgates of spending and borrowing to make up for lost productivity. The result has been predictable as inflation sets in and economic pressures hit everybody while the cost of living rises.
Inflation is inevitable when a government overspends and floods the economy with currency through borrowing. Central banks then respond by raising key interest rates to try to cool the economy and temper inflation. Raising interest rates is an effective method of curbing inflation, but it also crushes new capital investment projects and sends housing costs into the stratosphere as mortgage rates become untenable.
The cycle is as predictable as the seasons, yet governments can’t seem to resist the temptation to try and spend nations out of poverty. Canada’s government is currently examining the possibility of what would become the granddaddy of all social programs through a guaranteed basic income scheme. If they go ahead with it, the economic repercussions will be massive.
Bill S-233 has been quietly creeping its way through the Senate since fall 2021, and has reached the committee stage. It will make its way to Parliament soon. The bill calls for creating the framework for what it calls a “guaranteed, basic livable income” (GBI). This differs from universal basic income schemes as it is supposed to only apply to lower-income people rather than everybody. All the same, the costs for such a program would be astronomical.
The CERB program gave us all a taste of what a GBI program would look like and how effective it would be.
To begin with, the price tag for CERB rose dramatically from early estimates as the program unfolded. This is typical of any government program and we can expect a GBI program to blow by its already eye-popping $90 billion price tag quickly.
I wish we could pretend that Canadians at large were so honourable that fraud in a GBI program wouldn’t quickly become endemic but CERB proved otherwise. A significant number of ineligible people would collect GBI and the administrative costs of attempting to weed them out would be high.
The GBI program going through the Senate proposes a benefit of $17,000 per year for recipients. The wording of the plan calls for a “liveable” income. Advocates would surely be lobbying for increases in the program the moment it was implemented, as they make the case that $17,000 per year isn’t a liveable subsidy in their minds. The spending spiral would continue upwards.
If a GBI were implemented, taxes would rise as would inflation, while the government deficits grow. Productive Canadians would be economically pinched further while the segment of non-productive citizens grows. In other words, it would be a fiscal disaster.
Prime Minister Justin Trudeau wants a legacy as his term in office approaches its end. Canadians need to speak up now and ensure the legacy isn’t a GBI scheme. We just can’t afford it.
