Canadian money

Ontario Proposes Basic Income Pilot Program

While I was doing research, I stumbled upon a discussion on an American Progressive forum entitled “Canada plans to experiment with giving unconditional free money.” I was stunned that I had heard nothing about it. It wasn’t mentioned in the media. More surprisingly, I caught wind of it on a US political website. So I did a little more research.

Ontario 2016 BudgetWhen the Ontario Liberal Government tabled its 2016 Budget, there was a paragraph referring to evaluation of a Basic Income pilot program:

One area of research that will inform the path to comprehensive reform will be the evaluation of a Basic Income pilot. The pilot project will test a growing view at home and abroad that a basic income could build on the success of minimum wage policies and increases in child benefits by providing more consistent and predictable support in the context of today’s dynamic labour market. The pilot would also test whether a basic income would provide a more efficient way of delivering income support, strengthen the attachment to the labour force, and achieve savings in other areas, such as health care and housing supports. The government will work with communities, researchers and other stakeholders in 2016 to determine how best to design and implement a Basic Income pilot.

Now the Ontario government is in the consultation phase of Basic Income Guarantee, otherwise known as BIG. Some call it Universal Basic Income (UBI). What is BIG or UBI and how will it impact Ontarians; or for that matter, the rest of Canada?

BIG or UBI has been gaining momentum lately. Finland is waiting for an approval this year on a project that would start at 800 Euros monthly for each citizen. Switzerland is considering holding a referendum in June to consider shelling out C$3,200 per month to each of their citizens. Former Toronto Mayor Art Eggleton tabled a bill in the senate to look at introducing a Negative Tax Rate. A non-profit group called Basic Income Canada Network as seen a spike in supporters.

So what is Basic Income Guarantee anyway?

The Huffington Post has a great primer on this that includes the pros and cons of basic income. To summarize, every citizen would be paid or, with a Negative Tax Rate – be refunded; a minimum income to supplement the basic standard of living. This would include the cost of necessities such as food, housing, transportation, and utilities. It would be paid regardless of your income level. Of course, some tax reforms would have to be in a place like a flat tax and eliminating common tax deductions. This would result in everyone having more money in their pockets. There have been a few obstacles regarding Basic Income Guarantee. How do you pay for it and doesn’t it disincentive people from working?

Cutting Red Tape?

Funding for something like this would require co-operation from all levels of governments. Billions are already spent supporting welfare or social security, (Un)employment Insurance, various tax credits and pensions. By eliminating all these social and tax programs along with recouping the costs of government bureaucracy to manage all those programs, would pay most of the Basic Income Guarantee program. I was skeptical about this but US economist Ed Dolan has done a detailed analysis of the affordability in implementing such a plan. It is also possible that more funding can be freed up because of the premise from this type of program, to reduce or end poverty entirely.

Homeless girl

Photo via Flickr by Maureen Barlin

You don’t have to be a rocket scientist to know that poverty also puts a drain on healthcare costs and increases criminal activities taxing police resources. By eliminating poverty, budgets for healthcare and police services can be reduced thus freeing up additional funding for this type of program. Ending poverty also enables low-income workers to better themselves by pursuing further education or retraining. This lessens the stress of working 2 or 3 jobs just to pay for the necessities is taken care of. This would result in better-paying jobs and equally important, more tax revenue for governments. “Yeah but, tons of people will quit their jobs and why should I pay for losers who don’t want to work” is yet another criticism about implementing such a program.

Take my job and shove it!

There have been many such pilot programs in the last couple of decades. Some, if not all; have had superb success rates. Places like India, Uganda, and even in Canada in a town called Dauphin in Manitoba resulted in various successful common factors. Increased entrepreneurship in starting successful businesses. Reduced healthcare as low-income families are eating more nutritionally. Better jobs and wages for those who pursued a better education.

There were even experiments in the US. Most were unsuccessful because they were based on a “means test” that all income supplements currently use. Some critics point to those US studies and not UBI studies I mention earlier. Again, I point you to US economist Ed Dolan who wrote another post with an analysis of why the US studies failed and that any basic income program that uses any kind of means test will always disincentive people from working.

In case you are unfamiliar with the term “means test”, it determines your eligibility for government assistance. For example in Canada, you receive Employment Insurance in which case 60% what you previously made while employed. If you find part-time work, the money earned from the hours you worked are deducted from the already reduced assistance you receive.  The same is true for welfare.

With a universal basic income program, there is no means test and people that have lost their job can freely pursue part time work or retraining until they find the job they really want. They are not being penalized for what little income they have, had they been reduced.

I can see why people fall into the welfare or unemployment trap of not working. Not to mention the lost revenue in the underground cash economy and the spiral effect of alcohol and drug abuse because people at below poverty have given up.

On the flip side, there is tons of bureaucracy implementing these means test type social assistance programs. They result in big governments employing thousands of public civil servants and public money being wasted on these inefficient programs. A Universal Basic Income program would displace a lot public civil servants because there no set criteria. Very Canadian or American would get a monthly set amount making this more efficient. It’s not only the civil servants that will be losing their jobs, there are potentially hundreds of thousands or even millions of job losses in other sectors.

The Age of Skynet

In my post about the possible end of globalization, I briefly talked about manufacturing jobs being lost to robotics and automation. It isn’t manufacturing that is going to be affected but other sectors as well, particularly low-wage jobs such as drivers. Amazon is experimenting with drones to deliver their packages and Alphabet (“Google”) got the green light from the National Highway Transportation Safety Administration that computers qualify as drivers. Other low-wage jobs such as warehouse workers or even fast food employees will be replaced with the next generation “Atlas” from Alphabet’s subsidiary Boston Dynamics

It is only a matter of time before Atlas serves your Tim Horton’s coffee at your local drive-thru. It will be enviable that a lot of jobs are  replaced with technology. We are in the transition from the Industrial Age to a Creative/Technological Age. Paul Vallée, founder and CEO of Pythian which is an IT management firm based in Ottawa; was quoted in a CBC article regarding Basic Income:

Anybody who’s involved in computer science or information technology at all is essentially in the business of replacing people with software

I worked for a GPS company that manufactured hardware and software that enabled farm tractors to drive themselves. Or large ships to maneuver into ports without the aid of a pilot boat. Both using GPS technology. Working as a Systems Administrator for the last 15 years, that type of position is becoming more scarce. More businesses are moving to the Cloud or other Cloud services – such as Software or Infrastructure as a Service. My consulting practice is focused on moving businesses in that direction.

Governments are still ill-prepared to handle this transition. Many traditional jobs are being replaced with technology in some form or another. Heck governments are ill-prepared for the influx of Baby Boomers retiring. Most haven’t saved enough money for retirement and are saddled with debt.

I was skeptical at first, but after doing some deeper research; I believe Universal Basic Income would be beneficial not only for no or low-income individuals and families but for the economy as well. People with little or low incomes will have a little cushion to spend a little more because they are not penalized for earning more income. This is the case with the means test programs in place today. Middle-income earners will have the same cushion. People will be able to pursue their dream job or passion more easily. As other similar programs can attest to, an increase in entrepreneurship and quite possibly more unique innovations might be sparked. This would all result in increase tax revenue as wages rise and more taxpayers move into higher tax brackets.

It would also benefit social welfare or in layman’s terms – well-being and happiness. Parents can spend more time with their young children when it is critical to their children’s early development. Non-Profit and charities would see an increase in volunteering.

It is time to move forward and plan correctly on implementing Basic Income program. It will need a different mindset from individuals, businesses, unions and government. There a few options on how to implement this type of plan. There is the Negative Tax Rate tabled by Art Eggleton that would be paid out based on your income after submitting your yearly tax return. What happens if you suddenly become unemployed mid-year or after filing your taxes? Remember there would be no Employment Insurance or any other type of assistance as Basic Income would replace all assistance programs. Would we have to change to quarterly tax filings?

The other option is a Universal Basic Income that is paid out monthly and would be less bureaucrat and more be efficient. But how would you calculate what the monthly amount would be? Would you divide it to what the national average yearly poverty line is? What about factors such as living in large urban centres like Toronto and Vancouver, where there are sky-rocketing housing prices, rentals and fuel costs?

We need a Universal Basic Income plan and I am glad there is a renewed interest. Canada is in for some harsh times as our commodity-based economy is seeing record lows that will take a long time to recover. Along with stock market uncertainty, technology increasingly replacing traditional jobs and an ever growing aging population, it won’t be as easy. It will take a lot of political willpower, leadership and common sense to get us out of it and living in the 21st century.

Feature Image: Photo via Flickr by Moni Cah  Check out my Pinterest board “Universal Basic Income” for articles I used for this post, along with other articles related to this topic.