Tackling Canadian Poverty Through A Basic Minimum Income

Robert St. Pierre

Speaking to the Globe and Mail last week, Minister of Families, Children, and Social Development Jean-Yves Duclos toyed with the idea of a national basic income in Canada. The minister has already been specifically mandated to increase the guaranteed income supplement for seniors by 10 per cent, and to design and implement the Canada Child Benefit, a means-tested financial support program for families. This will replace the Conservatives’ previous Universal Childcare Benefit, which was not means-tested. Since these two issues were election promises, they will take priority, according to the minister. However, more broadly, the mandate includes a directive to lead and develop a Canadian Poverty Reduction Strategy. Mr. Duclos has admitted to being pleased that the idea of a minimum income is being touted, and therefore talk of a national basic income may not be all that far-fetched.

While poverty in Canada remains difficult to measure, Mr. Duclos will in all likelihood understand that being “low-income” (i.e. earning less than half the median income) has steadily been on the rise in Canada since 2008, for nearly every category of family. These and other trends of rising poverty extend particularly to marginalized groups including children, seniors, and racialized communities.

Advocates may be excited by the steam that the idea of guaranteed basic incomes is gaining in European countries, including the introduction of pilot projects in the Netherlands, Switzerland, and Finland in the next two years. The idea has even been piloted in Canada before, in the shape of the MINCOME program, which took place in the small town of Dauphin, Manitoba from 1974-1979. Results suggested that even a modest amount of basic income could lead to savings on healthcare costs, and, interestingly enough, the only groups who worked significantly less because of the income were new mothers and teenagers. For every dollar earned, MINCOME was reduced by 50 cents. As a result, new mothers were found to be opting to spend more time at home with newborn children, and teenagers felt less pressure to work in support of their family, meaning that a greater proportion of high school students continued on to Grade 12.

Proponents of the idea have suggested that basic income is attractive because, unlike means-tested income schemes such as welfare or social assistance, people using the program don’t have any disincentives for earning more. In other words, the basic income is guaranteed regardless of particular qualifications. In past iterations like MINCOME, its reduction has been tied to dollars earned, meaning that all levels of earners face the same marginal effective tax rate. As it stands, earning more subjects social assistance users to both higher taxes (in a graduated system), and the extra burden of reduced social assistance benefits. The problem is that social assistance benefits aren’t necessarily removed in an adequately graduated manner as earnings increase, potentially encouraging users to rely on them. This creates what many have referred to as a welfare trap. Earners in higher brackets who do not rely on these benefits effectively face a lower marginal tax rate . For instance, research has indicated that after the introduction of the National Child Benefit System (NCBS) in 1997, in the next decade the effective marginal tax rate for beneficiaries (accounting for the removal of NCBS cheque) actually rose above what it was before the NCBS.

If it is the case that targeted guaranteed income schemes do create a welfare trap, a basic income may function better as a poverty reduction strategy. However, opponents are skeptical of what ‘basic’ may mean, and more importantly, how much basic might cost. The Basic Income Europe organization cites ‘basic’ as being an amount that can “prevent material poverty and provide the opportunity to participate in society and to live in dignity”. As for cost, the Finnish example cited 800 € ($1200) per person monthly; in a Canadian context, this likely means taxes would need to go up to fund such a program. And, without directly targeting those who are in the most need, it would be difficult to see how it might be of greater benefit than existing social support systems.

Would a basic income strategy be effective in preventing material poverty, or at least reducing poverty in Canada? The answer to this is unclear and likely depends on the fate and co-ordination of other existing policies. For instance, the Liberal government has already scrapped the Child Tax Benefit/National Child Benefit and will be replacing it with the Canada Child Benefit (CCB). Once enacted, the CCB will provide low income families with $6400, the effect of which is estimated to lift 315,000 children out of poverty. If a basic income strategy supplements existing targeted programs, it may contribute to their efficacy. If it either replaces existing social assistance programs or reduces their current rates, then the results are potentially more questionable, depending on the size of the basic income guarantee.

Reducing administrative costs in complicated, means-testeded social assistance programs may have some merit, but rather than administrative costs, might it be the underfunding in these programs that proves most problematic? In Ontario, Ontario Works (OW) and Ontario Disability Support Program (ODSP) constitute a complex system of social assistance benefits. They have been critically underfunded since their reform in 1998 under the Social Assistance Reform Act. Although the rates are adjusted on a yearly basis in provincial budgets, these adjustments happen at a rate less than inflation, and sometimes not at all. For instance, Ontario had an annual inflation rate of 0.9 per cent at the time of release of its budget last October. While single OW and ODSP users received an increase to compensate for this, for the third year running ODSP claimants who have dependents did not receive a bump in rates. Inflation spiked to 1.7 per cent by year’s end as well, further exacerbating the problem. The Canadian Union of Public Employees estimates that, since the rates were initially cut by 21.6 per cent in Ontario 1995, as of 2015 they are 55 per cent lower than they should be to account for inflation.

Introducing a basic income might be more logical if means-tested programs were funded to a point where they could be successful as targeted programs. However, restoring funding levels and widening eligibility criteria to OW and ODSP might also have the same effect on reducing poverty as a potential basic income model.

Perhaps rather than impacting poverty, a more telling question is how a basic income strategy may impact inequality in Canada. Some studies have shown that the greater the inequality in a society, the longer it takes to address poverty through economic growth, while others have shown that lower poverty rates are associated with lower GINI income inequality coefficients. Tackling Canadian poverty through tackling Canadian inequality might be a worthwhile endeavour, or at least one worthy of consideration.

Interestingly, a recent report from the Canadian Centre for Policy Alternatives has noted that, from 1997-2007, inequality has grown at a tremendous rate in Canada, where the top 1 per cent made 32 per cent of all income gains, four times as many made during the 1960s.

Astonishingly, or perhaps not so, is that this trend has more or less coincided with Canada’s experience with the above-mentioned Social Assistance Reform Act. Maybe the issue with both inequality and poverty then is not the lack of a universal basic income benefit, but the general trend of reforming welfare programs during times of economic growth in the late 90s and early 2000s. In Ontario, Social Assistance Reform did not have the effect of reducing unemployment – the reason for the reform was to reduce costs for government, while putting more of the onus of finding work on the individual by linking eligibility to means-tests.

The potential introduction of a basic minimum income program could be helpful as a poverty reduction strategy in Canada in the future. However, for it to be successful at tackling the problem of poverty, it would need to be coupled with targeted programs aimed at tackling inequality. Other countries that have been toying with the idea recently, like the aforementioned Finland, Switzerland, and Netherlands have lower inequality than Canada, along with lower populations. It may be that these countries are in a better position to decrease targeted programs than Canada. According to the 2014 UN Human Development Report (HDR), Finland (10.8 per cent), Switzerland (13.2 per cent), and Netherlands (11.8 per cent) all ranked above Canada (13.9 per cent) in inequality in income percentages. Income inequality percentages were calculated by using the Atkinson Index, the first UN HDR to use this index in place of the Gini coefficient. Quite tellingly, the Atkinson index places a greater weight on income poverty than the Gini coefficient did, further underlining the link between poverty and inequality.

Given its slightly higher amount of inequality than its European counterparts, maybe Canada will not be as well-equipped to tackle poverty through a basic minimum income as Finland, per se. Basic minimum income would have the impact of furthering the role of the federal government in social assistance, as such a program would be implemented by the federal government, reducing this burden from financially stressed provinces and municipalities. Nevertheless, this should not be at the cost of existing social assistance programs, if we are to close the inequality gap and, ultimately, reduce poverty in Canada.

 

Robert St. Pierre is a Master’s of Public Policy Candidate of 2017, having previously graduated with a B.A. in Global Studies from Wilfrid Laurier University in 2012. He is interested in social policy, foreign policy, and aboriginal affairs, as well as travel, sports, and gardening. In fact, he has embarked upon a life-long quest to produce the perfect zucchini and recently set a record for most pears consumed in one month from his friend’s pear tree in Kitchener-Waterloo, in September 2015.  

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2 responses to “Tackling Canadian Poverty Through A Basic Minimum Income

  1. Pingback: The ins and outs of Hugh Segal’s basic income pilot | The Public Policy & Governance Review·

  2. Pingback: Exploring Alternatives to the Universal Basic Income | The Public Policy & Governance Review·

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