A Canada-wide basic income could increase the size of the economy by tens of billions of dollars a year and create hundreds of thousands of new jobs, a new research paper says.
In a report issued Wednesday, the Canadian Centre for Economic Analysis (CANCEA) looked at two potential models of a basic income, and found that both of them would raise about 2.3 million families above the federal poverty line.
Both models studied would result in larger economies and more jobs in the long run, though how much larger, and how many more jobs, depends on how generous the program is, and whether or not it’s funded by debt spending, the study found.
Basic income advocates have long argued the policy would result in a larger economy because, out of necessity, low-income earners spend all their money. So money funneled to low-income households ends up as an immediate economic stimulus.
Watch: How the pandemic has boosted the idea of a basic income to fight poverty. Story continues below.
“This analysis by CANCEA demonstrates that the economic return can be actually much greater than the cost,” Hugh Segal, a former Progressive Conservative Senator and one of Canada’s most vocal backers of a basic income, said in a statement.
“It demonstrates that when you replace inefficient and punitive welfare programs with a basic income, you support those living beneath the poverty line and our gross domestic product. This is a vital and material part of the discussion our society needs to have sooner rather than later.”
Depending on how the program is paid for, it would increase the size of the economy by 1.6 to 3.2 per cent annually, or about $40 billion to $80 billion in added economic activity, creating between 298,000 and 593,000 additional jobs.
The study found that if the government relies heavily on borrowed money to fund the basic income, it would be better, economically, in the short term ― more jobs created, higher business incomes.
But the cumulative debt burden would make the program unsustainable in the long run. And if it were funded heavily through business taxes, it would slow business creation and job growth.
“However, when a program is funded largely or entirely by (upper-income) households, a basic income program could support positive, long-term economic returns,” the report concluded.
More cash for investment, more startups
One of the key impacts is that businesses’ higher revenues will mean they are forecast to have as much as $32 billion more cash on hand, collectively, for reinvestment. This would mean more hiring.
And with Canadians having a cushion of financial security, more people will be willing to take risks and start new businesses, something that will be especially important in the wake of the devastation of the COVID-19 pandemic, said Floyd Marinescu, executive director of UBI Works, which commissioned the CANCEA study.
“We all know that wealth is created by innovation, by taking risks,” Marinescu said in a call with media Wednesday. “That cannot be forecast, but imagine the impact of people being able to take risks, of going back to school. I would expect this would have a profound impact on our economic recovery.”
The two models of basic income the study looked at were a “guaranteed minimum income” of $2,000 a month or $2,900 a month for a cohabiting couple, with up to $500 a month in disability benefits. For every dollar earned in the labour market, 50 cents would be clawed back from payments.
The other model was a “universal basic income” with two parts ― a $500 monthly “dividend” paid to every adult with no clawbacks, plus a $1,500-a-month guaranteed minimum income, or $2,000 per two-adult nuclear family, that is clawed back at 50 cents for every dollar earned at work.
The first model was designed by Segal for Ontario’s basic income pilot project. The second model was designed by UBI Works.
The cost of disbursing the cash under the first program would be $122 billion per year, but that would be offset by up to $80 billion in new government revenue, thanks to a larger economy, the report projected. The cost of the second program would be $235 billion annually, with up to $109 billion offset by higher government revenue.
These cost estimates are higher than the cost estimates from the Parliamentary Budget Office, which estimated ― prior to the pandemic ― that a basic income would cost $43 billion annually. This is because the program modeled by the PBO is less generous than the ones modeled in the new report.
A more recent PBO analysis found that its version of the basic income would cost less per month than the Canada Emergency Response Benefit (CERB) the federal Liberals introduced as income support in the pandemic.
Neither the PBO numbers nor the new report include indirect savings from fewer poverty-related costs. Health-care costs in Canada could fall by $19 billion annually, if a national basic income has the same health-care outcome as the 1970s “minimum income” experiment in Dauphin, Man.
Will people still work?
However, many economists and business groups argue a basic income would act as a disincentive to work, pulling people out of the workforce and shrinking the economy.
“Although compassionate in principle, universal basic income causes a number of negative externalities for the economy. In particular, it creates a disincentive to work and relatedly, the higher taxes needed to fund this would also create a disincentive to work in higher-income/paying jobs,” said Carl Gomez, chief economist at CoStar Group.
Gomez was among Canadian economists surveyed by personal finance site Finder.com on their thoughts about a basic income, which found 22 per cent of Canadian economists back the idea. The numbers suggest that, while experts largely remain opposed to a basic income, the idea has moved out of the fringes of political debate and into the mainstream.
Paul Smetanin, president of CANCEA, disputes the disincentive-to-work assertion, saying the research on basic income experiments is “inconclusive” on that point. Marinescu points to studies that have concluded some people do leave the workforce when a basic income comes along, but primarily to care for children or extend their education.
Philip Cross, the former chief economic analyst at Statistics Canada, argues the country’s recent run-up in debt makes this a bad time to contemplate an expensive new government benefit.
“In view of the record deficit the federal government is running, this is not the time to introduce major new social programs. We can use this time to study the impact of income support programs introduced in 2020 on labour force participation,” he said, as quoted at Finder.com.