04/09/2013 01:00 EDT | Updated 06/08/2013 05:12 EDT

Why Guaranteeing the Poor an Income Will Save Us All In the End

The wrong approach to poverty reduction is to ignore the problem, letting the ideological conceit that a rising tide lifts all boats obscure the hard reality that many Canadians have no boat -- or access to anyone who has ever had a boat. The answer is automatic top-ups for those who fall beneath the poverty line.

In a world where innovation in service delivery and value for money are ever more vital for government credibility, innovation on poverty reduction is deeply absent. It certainly has been from recent federal and provincial budgets in Canada. From Washington to Ottawa to London to Paris, austerity, in different measures and calibrations, has taken the place of innovation. We do not and have not taken a fundamental new approach to poverty reduction in a quarter of a century.

While the global numbers of people who live on under a dollar a day has been reduced massively worldwide because freer trade has allowed productive economies in Asia to lift tens of millions out of poverty, that happy news has little impact on poverty reduction and its relative failure in the countries of the West.

In the Euro Zone, unemployment is historically high, especially among young people and immigrants, as it is in the U.S., Canada and the U.K. Unemployment makes poverty worse and lays the foundation for the erosion of political legitimacy and stability. In the U.S. alone, the Census Bureau reported that the recent recession has increased the poor population from forty-six million Americans to just under fifty million Americans. In Canada, among rural, First Nations and young Canadians, the recession has also made things worse.

The real problem in our approach to poverty reduction is that it depends on the state and its employees assessing whether poorer fellow citizens are deserving of support. This is both deeply inefficient, fraught with bureaucratic excess and causes the wrong incentives to prevail. Young welfare mothers lose welfare benefits (for housing or their children) when they find work. And, in most Canadian provinces and American states, welfare pays far less than the poverty line itself.

The answer, in terms of poverty reduction for working age people, is the same as it has been over decades for seniors -- automatic top-ups for those who fall beneath the poverty line. When that happened for seniors in Ontario in the mid-1970s, their poverty rate fell from over thirty percent to under five percent -- without the hiring of additional civil servants -- largely because the tax system was the chosen delivery instrument. This Ontario plan migrated to all provinces and the federal government. It brought seniors back into the economic mainstream.

There are different names for this approach. Milton Friedman called it a negative income tax, the Davis Conservative government called it the Guaranteed Annual Income Supplement. In today's Canada, a refundable anti-poverty tax credit may be the right term.

The wrong approach is to ignore the problem, letting the ideological conceit that a rising tide lifts all boats obscure the hard reality that many Canadians have no boat or access to anyone who has ever had a boat. Our prisons are disproportionately filled with younger people, First Nations people and representatives of the ten per cent of Canadians who live beneath the poverty line -- as is the case with Afro-Americans in the United States.The cost of keeping every one of these human beings in prisons is between five hundred to a thousand per cent more than what an automatic top-up would cost. Knowing that poverty is the most reliable predictor of trouble with the law, early use of our health care facilities, lower life span, illiteracy, family violence and unemployment, all of which cost tens of billions of tax dollars at a time when tax dollars are hard to find, should spur innovation. Never mind the core inhumanity of not helping the people whom we need as productive, taxpaying, full participants in our economic mainstream. And for those on the far right who resent "paying people to do nothing" remember this: The vast majority of folks living beneath the poverty line are working, on occasion, in more than one job, just not earning enough to get by.

In Canada, a federal tax-based top-up would be fiscally beneficial. Eligibility for the federal top-up would render millions of provincial welfare recipients ineligible for welfare, liberating billions of dollars for provincial coffers for other purposes like education, chronic care or necessary infrastructure.

A recent National Council of Welfare Report on the Dollars and Sense of Poverty estimated that it would cost $12.6-billion to top up the 3.5 million Canadians beneath the poverty line. That is less than five percent of the federal budget. And less than half the cost imposed on the economy by poverty and its effects.

There is a cost to ignoring poverty or staying in a path dependency rut going back and forth in the same deepening ditch. A recent Conference Board low ranking of Canada reflected poverty rates among children and working-age individuals as getting worse.

Failure to innovate, complacency, inaction and playing only to the comfortable middle-class, may be politically less risky in the short-term. In the long-term it creates a social justice and equality of opportunity deficit with serious economic, stability and social cohesion costs that are not sustainable.

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