Guaranteed Basic Income: Proposal’s Realities Concern Experts

Senate Bill S-233, an act to develop a national framework for a guaranteed livable basic income, is at second reading in the Canadian Senate. (The Canadian Press/Richard Plume)

A Senate bill proposing a guaranteed basic income (GBI) could lead to bigger debt and deficits, higher taxes, and greater dependence on government by providing a disincentive to work, experts tell The Epoch Times.

Bill S-233, introduced by Ontario Senator Kim Pate in November 2021, calls on the finance minister to “develop a national framework to provide all persons over the age of 17 in Canada with access to a guaranteed livable basic income.” This includes “temporary workers, permanent residents, and refugee claimants.”

While the bill by the Trudeau-appointed senator is not a Liberal government bill and may not have a path to passage, the concept of a universal basic income has consistently been a feature of national Liberal Party conventions.

A report by the Parliamentary Budget Officer (PBO) from April 2021 estimated that a GBI program that guarantees individuals and couples at least $16,989 and $24,027 of income per year respectively would cost taxpayers $87.6 billion in 2022–23, rising to $93.3 billion in 2025–26.

Jack Mintz, a president’s fellow at the University of Calgary’s School of Public Policy, raised concerns about this “very expensive” cost and its implications on debt and taxes.

“We need to be a little bit more cognizant of the tax costs associated with these things, the economic costs of taxation, the problem of running big deficits, pushing huge costs onto future generations, the costs of putting ourselves into financial pressures because we end up running our debt too high and we don’t raise the taxes to pay for all this stuff,” he said. “All these things are very important.”

Bev Dahlby, a senior fellow with the Fraser Institute, expressed similar sentiments.

“If you’re increasing the amount of support, generally speaking, to people with lower incomes or standards of living now, and you have to do this in a fiscally sustainable way, you’re going to have to [increase] tax revenues,” Dahlby said.

“And you’re going to have to increase taxes on people at the higher-income levels or higher consumption standard-of-living levels.”

Disincentives to Work

Mintz also pointed to the potential of such a program to disincentivize recipients from working.

“To what extent do we provide cradle-to-grave support for people, and to what degree do we rely on their own initiative to try to have things themselves? This is an issue that’s going to come back more and more because there’s no free lunch out there. Somebody in the end has to pay for these things,” he said.

University of Manitoba economics professor Wayne Simpson says, however, that the GBI has been examined in four experiments in the United States and one in Manitoba, and the composite picture suggests some positive effects for the recipients’ mental health and their pursuit of more education.

“One of the fears was, people would go off and spend the money on either frivolous things or abusive things, [but] they didn’t find evidence of either of those things. They found that people were dealing with their needs, their nutrition and medical and so forth. So I think that was a relatively positive result, but on a small scale,” he said.

Regarding disincentives to work, Simpson acknowledged that “there were small disincentives to work associated with the plan, which is what economists had always predicted.” But he said “the sizes of those effects were not very large. … You weren’t going to lose half your working population because of it. You’re talking about a few hours a year.”

The PBO report said the disincentive to work will materialize in one of two ways—by people deciding to “potentially cut back their hours worked” in order to increase the size of their GBI, and by “lower-wage workers [deciding] to opt out of the labour force entirely as a result of a guaranteed income.”

Across the provinces, households will reduce their hours worked by an estimated 1.3 percent on average, resulting in an estimated average reduction of 0.5 percent in the payroll, according to the PBO.

Mintz pointed out that the Canadian Emergency Response Benefit (CERB) given out during the pandemic has provided fresh data on how free money can discourage employment.

“A lot of people who were working part-time, under CERB [they] got a lot more than what they would get part-time at their work. And a lot of employers will tell you they had a very difficult time trying to get people back to work when they were getting $2,000 a month,” he said.

“They may have been afraid [of contracting COVID]. They didn’t want to go back to work [maybe for that reason]. But still, once the benefits came off, they started all going back to work,” he added.

A GBI might also “discourage people from saving for retirement, because they know they’re going to get all the support when they retire. Also, it may encourage people not to work, to retire earlier rather than keep working,” said Mintz.

“So in fact a lot of economic studies found that there are a couple of areas where taxation, pension policy, things like that can have a significant influence on work behaviour. And retiring is one possibility.”

Separate ‘Health and Social Supports’ Still Needed

The GBI is intended to be a single payment that would be delivered by the tax system and that would replace the current complex system of income supports provided by separate federal and provincial programs—such as the guaranteed income supplement for seniors, disability benefits, and social assistance.

Making some of the current programs redundant could be a good thing. However, questions remain as to how such efficiencies might be offered by Bill S-233, since it calls for “national standards for health and social supports that complement a guaranteed basic income program,” and it’s also seeking no “decrease in services or benefits meant to meet an individual’s exceptional needs related to health or disability.”

Last December, NDP MP Leah Gazan introduced Bill C-223, which contains the same text as Senate Bill S-233 introduced a month earlier. The two are part of a coordinated effort from within the House of Commons and the Senate, according to UBI Works, a non-profit advocating for the implementation of the GBI, also called UBI, or universal basic income.

Simpson says the GBI idea has been around for decades, and it endures, despite its costs, partly due to the attraction that using the tax system “eliminates the bureaucratic process by which social assistance is administered.”

He added that the argument for a basic income is really an argument about the cost of poverty to society in areas like health, education, and crime. And the federal and provincial governments have had some earlier experience delivering benefits through the tax system, such as the GST/HST credit, and negotiating to develop a transfer system, such as in the case of the Canada child benefit.

“So those kinds of things have happened over time,” Simpson said, while noting that the GBI is a different story.

“This [the GBI] is a bigger deal because there’s a lot more people involved, a lot more money. I wouldn’t say that it can’t happen, but I don’t see any impetus for it at the moment,” he said.