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Why Canada Needs a Basic Income Pilot To Reduce Poverty

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Imagine you are a young single mother on social assistance. You decide you want to further your education by enrolling at your local university. When you are accepted as a mature student, you are thrilled! But as soon as you inform your case worker that you've been accepted, your social assistance benefits are terminated, leaving you short on your rent.

Or imagine you are a 40-something IT worker, recently laid off from a good-paying job at a large company. After your health benefits from your severance run out, and your employment insurance runs out, you are unemployed and cannot pay for your wife's prescription drugs out of pocket. As a married couple, you don't qualify for a provincial drug benefit that would cover some of the costs of the drugs. So you are forced to consider formally separating from your wife and renting an apartment so she will qualify for the drug coverage.

These are some of the consequences of our existing array of income security programs at the federal and provincial levels, and they are but two examples out of thousands.

The truth is that, despite our efforts to date, one in eleven Canadians still lives in poverty, as measured by the Low Income Cut Off (LICO). The status quo system of income security is failing them, and all of us.

This weekend, Liberal Party members have an opportunity to endorse a policy that would help to dramatically reduce the number of Canadians living in poverty. It's a policy that's supported by members of all four major federal parties, and one that's worked well for low income families with children (through the Canada Child Tax Benefit) and low income seniors (through Old Age Security and the Guaranteed Income Supplement).

That policy is a basic income for Canadians sufficient to bring them out of poverty. Instead of the existing array of tax credits and provincial social assistance programs, a basic income would provide more income and be simpler to administer, topping up any Canadian whose income falls below the poverty line. Similar to the existing Canada Child Tax Benefit and OAS/GIS, it would operate like a negative income tax, requiring low income Canadians to simply file their income tax returns to qualify, something they can do at any point throughout the year.

The resolution on the table at the Liberal convention calls for a pilot of a basic income, in cooperation in with provincial and municipal governments, in order to test one or more implementations of the idea.

Basic income is fully in keeping with Liberal principles of "individual freedom, responsibility and human dignity within the framework of a just society" -- principles taken directly from the party's constitution. It should come as no surprise, then, that it was the Liberal government of Pierre Trudeau and the NDP government of Ed Schreyer in Manitoba that worked together to implement the first basic income pilot in Dauphin, Manitoba, in the 1970s. The results of that initial "Mincome" pilot are encouraging in terms of health, education and labour force participation.

But it is not just within the Liberals and NDP that you will find supporters of basic income. Indeed, for many years, Conservative Senator Hugh Segal has been the strongest and most vocal proponent of a basic income, arguing that it is both a more dignified way of providing funds to low income Canadians and a more efficient policy instrument. The Green Party has also adopted the policy.

More recently, the idea has been embraced by physicians and health policy experts who recognize that income is a major determinant of health, and that income sufficient to provide for the basic needs of life helps to avoid many illnesses.

Several nonpartisan Canadian economists have also endorsed the idea of a basic income pilot, including Don Gilchrist at University of Saskatchewan, Robin Boadway at Queen's University, Mike Moffatt at the Ivey School of Business and Lindsay Tedds at University of Victoria.

Among Canadians more broadly, a recent poll by Environics suggests that roughly 46 per cent of Canadians support the idea of a basic income. Support for the idea is higher for Canadians earning less than $100,000 per year (52 per cent), Quebecers (55 per cent) and Vancouverites (52 per cent support). Support is slightly lower but still significant in Alberta (38 per cent).

So here we have an idea that is well aligned with the principles of the party and its focus on evidence-based policy. It appeals to a wide range of Canadians who recognize that it is time for a better approach to reducing poverty, one that is more dignified and allocates a greater proportion of funds directly to helping Canadians.

But basic income is not a silver bullet that will end poverty overnight without requiring anything of Canadians.

One concern is what the effects of a basic income for working-age Canadians will be on labour market participation. There were relatively small effects in the Mincome pilot, but more recent theoretical work suggests that the labour market effects might be more significant.

Initial static estimates of the gross costs of a basic income, helpfully tabulated by Kevin Milligan at UBC, range from $32 billion to over $328 billion, depending on the amount of the initial transfer and the claw back rate. A high initial transfer ensures that the most Canadians will be lifted out of poverty. A low claw back rate is good in terms of its effects on labour market participation, but increases the cost of the program as many more Canadians would receive a modest supplement in addition to their labour income. Finding the optimal combination of a sufficient initial transfer and a claw back rate that encourages labour market participation would be one of the primary goals of a basic income pilot.

To fund the more affordable versions of a basic income, many existing federal and provincial tax credits and social assistance programs could be rolled into a national basic income. For example, the federal and provincial GST/HST credit cost in excess of $5 billion, the Canada Child Tax Benefit costs $10 billion, and the various provincial social assistance programs cost in excess of $10 billion. The longer term savings in terms of direct health care expenditures are also likely to be significant (for more on how income affects health outcomes and health expenditures, see this brief by the Canadian Medical Association).

However, in order to lift a significant number of Canadians out of poverty, some increase in tax revenue will likely be required. There are several ways of raising the required revenue. For example, a reduction of the federal basic personal amount by $2,500 would generate approximately $6 billion and restoring the GST to 7 per cent would add $10.8 billion (see this worksheet for sources).

The point is not that these specific credits or programs should be replaced or these specific tax increases should be adopted -- but that it will take change on this scale to introduce a basic income that will make a real difference in terms of poverty. If we are serious about reducing poverty, we must confront these choices head on.

Fortunately, a modern day pilot of a basic income will help to answer these important questions about the labour market effects, direct costs and benefits of the policy. Even if it turns out that a basic income is not better than the status quo approach of a complex array of tax credits and social assistance, we will learn important lessons from the pilot. And a pilot -- even a multi-year, multi-site pilot that tests more than one implementation of the policy -- is certainly affordable.

A basic income pilot is not a magical solution to poverty, but it is a step we can take right now to make a real difference for the millions of Canadians who live in poverty. The status quo is not working and too many people lack opportunities to realize their full potential.

If my fellow Liberal Party members enthusiastically endorse the idea of a basic income pilot at the convention this weekend, we will send a signal that we are serious about dramatically reducing poverty in Canada. Dignity, liberty and opportunity for all Canadians -- let's take one step closer to that vision.

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