The time for a Guaranteed Annual Income might finally have come

By Noralou Roos and Evelyn Forget

A version of this commentary appeared in the Globe and Mail, Ottawa Life and Vancouver Province 

The time for a Guaranteed Annual Income

Could the Guaranteed Annual Income — once considered radical notion — now be an idea whose time has come?  The Dutch city of Utrecht recently announced it is starting an experiment to determine whether introducing a basic income produces a more effective society.  Closer to home, Joseph Ceci, Alberta’s new Finance Minister proposed a guaranteed income program last year on the election campaign trail, and both Calgary Mayor, Naheed Nenshi and Edmonton Mayor, Don Iveson, have also promoted such a program. Now, medical officers of health and boards of health members across Ontario are officially calling for provincial and federal governments to bring in a basic income guarantee.

So what exactly is a Guaranteed Annual Income? (GAI)

Well it turns out, GAI has been supported by generations of economists and welfare theorists, from the left and the right.  One version works like a refundable tax credit. If an individual has no income from any source at all, they receive a basic entitlement. As earned income increases, the benefit declines but less than proportionately. As a result, low income earners receive partial benefits so that they are not worse off than they would be if they quit their jobs and relied solely on income assistance.

This means that there is always an incentive to work, and people who work are always better off than they would be if they didn’t work.

So why are such a broad group of people — finance ministers, mayors and medical officers of health — pushing such a program?  Poverty, substantial evidence now tells us, is one of the best predictors of poor health.  And poor health costs everyone.

Research on the city of Hamilton, Ontario demonstrated that residents of the city’s wealthy west Mountain neighborhood lived, on average, to 86.3 years of age, while average age at death for residents of one of the poorest Hamilton neighborhoods was only 65.5 years — a shocking gap.

Way back in the 1970s, Manitoba tried implementing a Guaranteed Annual Income in Winnipeg and in the small town of Dauphin.  In Dauphin, everyone was eligible to participate.  A family with no income from other sources would receive 60 percent of the Statistics Canada low-income cutoff (LICO) which varied by family size.  Every dollar received from other sources would reduce benefits by 50 cents.  Important for an agriculturally dependent town with a lot of self-employment, the GAI offered stability and predictability. Sudden illness, disability or unpredictable economic events would no longer be financially devastating.  The project ran for four years, ending in 1979.

So did the GAI produce anything to report?  Remarkably, even this four year program had strong positive results.  Dauphin high school students were more likely to remain in school than had been true in the years before the GAI started (or in the years after the GAI stopped).  The health of Dauphin residents also improved, with fewer hospitalizations (8.5% reduction), specifically for mental illness, accidents and injuries.

So how much would introducing a Guaranteed Annual Income across Canada cost?

According to several Queens University professors, the cost of replacing social assistance (which includes welfare and disability support) and old age security (which includes a top-up for low-income seniors) and providing every adult with an annual income of $20,000, and children with an income guarantee of $6000, would be $40 billion.  The Fraser Institute calculates the total cost of Canada’s current income support system (the payout plus administrative costs) at $185 billion.

Our own estimates, which build on existing social programs, range from a gross annual cost of $17 billion for a program that (in today’s dollars) is slightly more generous than was offered in Dauphin, to a “Cadillac” version costing $58 billion that would guarantee everyone a minimum income equal to the LICO, and pay at least some benefits to people earning well above the LICO. The cost of a Guaranteed Annual Income depends on how generous it is, how quickly benefits are phased out with additional income and how existing social programs are affected.

Some of these costs, of course, would be partially recovered from the additional taxes paid by recipients, as well as the lower costs faced by so many other social programs that are driven by poverty. Hospital care alone, for example, costs Canada $63.5 billion in 2014.

Bottom line, whether it’s our calculations or those done by other organizations, a GAI is definitely do-able. And it is clear: the potential benefits of a GAI are substantial.

Maybe it is time for the rest of Canada to at least look to what Alberta is saying and focus on the health, educational and financial benefits that the Guaranteed Annual Income might offer.

Noralou Roos is the Director of EvidenceNetwork.ca and professor in the Department of Community Health Sciences, College of Medicine, Faculty of Health Sciences, University of Manitoba.  Follow her on Twitter at @nlroos.

Professor Evelyn Forget is a health economist at the University of Manitoba. Her re-examination of Mincome and ongoing work on Guaranteed Annual Income is supported by CIHR and SSHRC.  

July 2015

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