Financial Series: Universal Basic Income
Part 4 of 6
By Brandon Currie
This is a 6 part series on the concept of a Universal Basic Income (UBI), to provide people with the fundamental knowledge necessary to reach their own informed, knowledgeable opinions and conclusions on the topic.
In the last article we discussed how a UBI program could be implemented in its purest, unmodified form. But in reality, would it fly? After all, we can make anything work on paper. It sounds like a no-brainer, assuming the conclusions reached in the Mincome experiment which state that the workforce would not suffer a loss in numbers, holds true. So where to begin? We begin where all government funding starts, by figuring out the cost. Statistics Canada supplied the following data for the year 2019:
- There were 30,366,622 people aged 18 and over living in Canada
- Taxes collected that year totalled approximately $284 billion
- Federal contribution to social programs was $221 billion
- General Government Revenues (all sources) totalled $940 billion
- The average annual Canadian salary was about $58,000
To implement UBI in its purest form – meaning a non-taxed, no conditions attached benefit of $2,500/month or $30,000/year for all adults – it would cost our federal government around $911 billion. I know what you’re thinking: “But Brandon, you said that social programs that are currently in place would no longer be needed….”. Yes, but the cost of those federal programs currently represents only $221 billion. The UBI in this form would eat up 67% of the total federal government’s revenue, leaving only about $330 billion for everything else. Obviously, these numbers do not work.
Back in the first paragraph of the first article in this series I described UBI as a common yet complex term. Here is where it starts to get complicated. There are many parts and pieces, all linked together and reliant one upon the other, in any smooth-running system. If one piece is changed, removed, or affected in any way, it creates a domino effect overall. Let’s break this down.
To offset the massive $911 billion expense, we need to start tinkering with the basic tax-free, no conditions concept of the UBI. One place to start would be to insert into the benefit a small tax component and mandatory CPP contributions. The reasoning is this: Currently in Canada, an employee pays 5.25% on every dollar earned from $3,501 – $58,700, and this creates a contributory base of $55,200 (58,700 – 3,500 = 55,200). If an earner does not contribute to CPP on at least the first $30,000 of income (the annual UBI per adult) it creates two problems:
1) Using the average income of $58,700, the CPP as we know it would be significantly underfunded as the employee would only be contributing on his/her remaining $28,700 of income.
2) Keep in mind, the purpose of the CPP is to provide a retirement income covering approximately 25% of a worker’s pre-retirement income. If no contribution is being made against the $30,000 UBI benefit it would mean, based on the average income in Canada in 2019, that 51% of the earnings are not being accounted for in the retirement benefit, which would in turn greatly impact the retirement allowance later in life.
On the other hand, since everyone would be receiving a guaranteed level income, the number of social programs that this UBI would replace is significant. The following is a list of both federal and provincial programs that would no longer be needed for people beyond the age of 18:
Employment Insurance (EI)
Federally administered, paid by both employee and employer to receive 55% of employment income, up to a maximum of $54,200 adjusted to inflation annually. The maximum benefit is $573.27/week, taxed.
Ontario Disability Support Program (ODSP)
Provincially Administered, and notably one does not get the ODSP benefit unless they qualify for the Disability Tax Credit (DTC), a form which is filled out by a physician and adjudicated by Revenue Canada (CRA). Also, the maximum in 2020 that an individual can earn while on ODSP is $6,000 annually, and it comes with an asset ceiling of $40,000 for a single person, $50,000 per couple and no more than $500 per dependent other than a spouse. Otherwise, a claw back of the ODSP benefit occurs, as discussed in a previous article.
Ontario Student Assistance Program (OSAP)
Administered provincially, this program is income-dependent and provides grants and loans for students looking to pursue post-secondary education. Since these students would already be receiving $30,000 a year (provided they’re 18 years old), the UBI would replace the OSAP loan/grant program as it would no longer be necessary.
Old Age Security (OAS)
Federally Administered, tax payer funded, income tested (dependent). This benefit starts at age 65, is taxed and the maximum one can receive currently on OAS is $613.53/month. This benefit also gets clawed back once a retiree earns more than $79,054 in 2020 dollars.
Guaranteed Income Supplement (GIS)
Administered federally, tax payer funded, income tested. This benefit is NOT taxed; however you can only receive it if you are on OAS and your annual income (or in the case of a couple, combined annual income) is lower than $18,600 (individual) or $24,576 (combined) to receive a maximum monthly benefit of $916.38 (individual) or $551.63/person (couple).
Canadian Child Benefit (CCB)
Administered federally, tax payer funded, income tested. This benefit is tax-free and consists of a maximum annual amount of $6,765/child under the age of 6 and $5,708/child from the of 6 through to the age of 17 as of July 2020. The phase out reduction, or claw back of the benefit, starts when the family’s net income goes above $30,000 annually.
These are only some of the ongoing social programs currently in place that could be eliminated and consolidated into the UBI, therefore making the administration of this benefit much more streamlined. The true cost savings remain unknown at this time as the majority of social programs are implemented at the provincial level. Furthermore, there would be bureaucratic and administrative eliminations that would also benefit the bottom line.
Individuals in favour of the UBI argue that it would greatly benefit the less fortunate, as everyone would qualify regardless of income or criteria. All you would have to do is file your tax return and be a Canadian resident. It could also be argued that much of the bureaucracy and the “loopholes” inherent in these programs would be eliminated. But we cannot overlook the fact that this is meant to be a universally beneficial program. In other words, ideally it should not benefit some at the expense of others. Or, if there needs to be an imbalance of sorts, what is acceptable? As you can see, the implementation of a Universal Basic Income, even in a modified form, is a complicated issue and a bold proposition. There are so many moving parts that need to be addressed. Ignoring this fact would certainly result in failure.
In my next article we will continue to peel back the layers by tackling what the impact of a taxed UBI would be on different groups, and its overall effect on the average Canadian.