04/19/2018 10:39 EDT | Updated 04/19/2018 17:12 EDT

A Canadian Basic Income Could Cost Much Less Than The $43-Billion Estimate. Here’s How.

Savings to health care costs alone could offset nearly half the bill.


The Parliamentary Budget Office (PBO) this week released an estimate of what it would cost to make basic income a reality in Canada. If the whole country adopted the model currently being tested out in Ontario, the net cost would be $43 billion a year: $76 billion for the basic income payments, minus about $33 billion in savings from the welfare and disability benefits it would replace.

About 7.5 million Canadians, or roughly a fifth of the population, would see some money coming in from a basic income, the PBO estimated.

The numbers seemed to justify everyone's preconceived notions about the idea. For supporters, it's nowhere near the massive cost some would have expected. Given that Canadian governments in total spend well in excess of $600 billion a year, this looks like a drop in the bucket — albeit a fairly large drop.

For opponents of the idea, the price tag justified the notion that such a scheme would simply be unaffordable without massive economy-damaging tax hikes. That's certainly the view of Pierre Poilievre, the Conservative MP who had asked the PBO to carry out the cost estimate.

But this raw cost estimate is a very simplified snapshot. It just models what the government would have to spend to deliver the basic income, if nothing else changed. But with a basic income, plenty would change.

First, we could expect a steep drop in the poverty rate. And that, in turn, could mean big savings for governments, because poverty is a major expense — particularly when it comes to health care.

"Poverty is the greatest predictor of hospitalization and health problems," says Hugh Segal, the retired conservative politician who essentially designed Ontario's basic income pilot project.

Watch: Elon Musk advocates for a universal basic income

Segal, who worked as chief of staff to Prime Minister Brian Mulroney and served for nine years in the Senate, points to research by University of Manitoba professor Evelyn Forget, who is credited with rediscovering a long-forgotten basic income experiment in Dauphin, Manitoba, in the 1970s.

When the town's residents were given a "mincome" for three years, use of the health care system dropped by 8 per cent, Forget's research showed.

Given that Canada spent an estimated $242 billion on health care costs in 2017, that would amount to a savings of more than $19 billion nationally, if a similar scheme was implemented. That would offset nearly half of the PBO's estimated cost.

Earlier on HuffPost Canada:

"If you began to get that kind of savings growing as more and more people ate better and lived better and were no longer candidates for early disease, that would begin to be very salient," Segal told HuffPost Canada last month.

There would be savings in other areas as well. For instance, incarceration costs would likely drop. Eighty per cent of Canada's prisoners come from the 15 per cent of the population that lives below the poverty line, Segal notes.

Start small?

Forget herself has been arguing vocally that Canada can afford a basic income "if we want to afford it." She suggests that one way to do that, without sudden and massive redistribution of income, is to start off with a small benefit, and gradually increase the amount paid out as the economy grows.

She says if Canada had introduced a gradually-increasing basic income decades ago, its growing costs could have been covered by economic growth (meaning rising government revenues) rather than through tax hikes.

"If we did it all at once, we would have had to redistribute income. High income earners would have had to pay higher taxes. Some people would benefit and others would lose," she wrote in an email to HuffPost Canada.

But if it was introduced gradually, with the amount increasing slowly over time, "we wouldn't have to take anything away from anyone; all it would mean is that the rich would have grown even richer at a less obscene rate than actually happened."

But wouldn't people leave the workforce and shrink the economy?

That's one of most hotly-debated issues surrounding this topic. The PBO itself raised this concern in its report, noting that "some studies show that a guaranteed minimum income could have a negative impact on labour force participation and hours worked."

But the evidence available so far — thin as it may be — doesn't support that conclusion. Forget's research found that in Dauphin in the 1970s, there was only a slight decline in workforce participation, and most of that was due to moms staying at home with newborn children and young people staying in school longer. If the experiment had run longer than its three years, it's likely Dauphin would have seen a more educated workforce, and as a result, better economic opportunities.

And Segal argues that the basic income — at least the type being tried out in Ontario — actually eliminates the disincentive to work created by existing welfare schemes. Under existing welfare, any money that you make or is given to you is clawed back from your benefits. But under Ontario's basic income, only half the money is clawed back, meaning it makes sense to take a job, even a low-paying one, if you're on basic.

"Any engagement with the workplace is better than zero engagement," Segal says.

He isn't willing to speculate on just how much of the cost of a basic income could be offset — that's part of what Ontario's pilot project is meant to find out, he says.

But today Canada's governments spend about $172 billion a year in direct economic transfers to people, not including education and health care, Segal notes, and governments may not be getting their money's worth.

"The number of people living beneath the poverty line has gotten worse in some places, and generally hasn't moved much through that annual expenditure," Segal says.

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