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Why A Guaranteed Annual Income Is Unlikely to Solve Poverty

01/08/2015 05:42 EST | Updated 03/10/2015 05:59 EDT
Skincare University

An idea that would fundamentally change the way governments provide income support has received renewed attention in Canada and around the world. The idea: replace the current complex tangle of government income support programs with a single cash transfer to individuals or families -- without conditions such as requiring recipients to work -- that ensures some minimum level of income. In Canada, the program is generally referred to as a guaranteed annual income (GAI).

The concept has been debated for decades but recent events have brought it back in vogue. Most notably, delegates at last year's Liberal Party of Canada Biannual Convention endorsed a GAI as a policy resolution and Switzerland will soon be holding a referendum on creating a Swiss GAI. Despite the renewed interest, a GAI reform isn't likely in Canada due to arguably insurmountable implementation hurdles.

Critically, a GAI must be a replacement, not an add-on, to the existing income support system. With the cost of the existing system (including spending and tax measures by all levels of government targeting people with low-income, the disabled, the elderly, and parents with young children) estimated at $185 billion in 2013, or roughly 10 per cent of the economy, this would be a major undertaking.

According to Statistics Canada, cash and in-kind government transfers to people (referred to as "social benefits") account for 22 per cent of program spending by all levels of government. A GAI would therefore require reforming about one quarter of total government activity -- not a small policy reform by any measure.

The GAI's main appeal is the potential to reduce government administrative costs by simplifying the income support system which consists of numerous, often-overlapping programs at the federal, provincial, and local government levels. A single program providing an unconditional transfer would do away with administrative duplication and not require an expensive monitoring apparatus to ensure recipients comply.

In theory, the potential for administrative savings is substantial. A non-trivial portion of spending on income support currently goes to administration rather than directly on transfers to people.

But in practice, a GAI that maintains its conceptual simplicity and produces administrative savings is unlikely to be implemented in Canada.

It would require the federal and provincial governments to first agree on a comprehensive reform with at least one government level abdicating its power and responsibility in the existing income support system (remember: local governments also provide income support through, for instance, social/subsidized housing).

If the federal government administered the GAI, as most proponents envision, every provincial government would have to stop providing social services programs such as welfare. At the same time, federal programs (such as Employment Insurance, Old Age Security, the GST/HST Credit, and many others) would have to be integrated into the new GAI program.

Many provincial governments, especially Quebec, have historically been reluctant to cede powers or responsibilities to the federal government. This may be particularly the case when it comes to social services because it is key component of provincial government policy-making, representing 11.7 per cent of combined provincial government program spending in 2012/13.

Since building sufficient agreement among Canadian governments for much more modest reforms has encountered major difficulties (read: a national securities regulator), it seems highly unlikely that agreement could be achieved for a reform as wide-ranging as a GAI.

Strong internal political pressures would also exist in terms of opposition to the large-scale lay off of bureaucrats which is required to achieve substantial administrative savings.

The risk is that a GAI would become just another program within a larger web of existing government programs. Some programs that target specific groups, particularly groups less able to work -- such as the severely disabled or the elderly -- may be difficult to consolidate into a single "one-size-fits-all" universal program like the GAI.

But if some programs are preserved, this would bolster the argument for making further exceptions. As more programs are preserved, the potential for administrative savings diminishes, undermining the main advantage of a GAI.

So while a guaranteed annual income may sound like an appealing idea in theory, in practice it's not likely to deliver.

This piece was co-written by Hugh MacIntyre, Fraser Institute analyst.

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