Financial Series: Universal Basic Income
Part 6 of 6
By Brandon Currie

This is part 6 of a 6-part series on Universal Basic Income (UBI) allowing the reader to come to their own conclusion based on the facts provided.

Well what a journey this has been.  I hope that you have found these 6 articles insightful and at the very minimum have given you some additional knowledge surrounding the notion of a Universal Basic Income.

To recap what we have discussed:

• Social programs, in some capacity, have been around for a very long time and in the modern era from as early as 1883 in Germany.In response to this, Canada, several decades later, introduced the Old Age Pension Act in 1927, essentially beginning the guaranteed pension for low-income seniors with an income test.  This quickly evolved and in 1966 Canada also introduced the Canadian Pension Plan (CPP).
• The notion of a UBI has been conceptualized for a while around the world, however no country has implemented a pure UBI.A UBI briefly flirted with Canada in 1974 when a partnership between the Federal Government of the day and the Provincial Government of Manitoba implemented a 5-year test to see the economic impact.  No one, of course, reviewed this data.  Finally, Evelyn Forget, 30 years later, started to analyze the data.
• If we were to use a Federal minimum wage of $15/hr, at 40 hours per week that would be $30,000/year or $2,500/month.If implemented this would be beneficial to students who want to go to school and cannot secure funding or loans from financial institutions.  This would eliminate the need for OSAP (in Ontario) for example.  GIS and OAS would no longer be needed, nor would EI (federal) as all these programs are income tested and in the case of OAS and GIS, are tax-payor funded.  EI is funded by both the employer and employee up to a gross income maximum ($54,200 in 2020).
• The ONLY way that this could even conceivably work is if you eliminated other income tested benefits and you applied a CPP “tax” to ensure some tax is being collected and CPP contributions continue to ensure proper funding of CPP.
• With over 30 million people over the age of 18 as of 2019, this program would cost the federal government approximately $911 Billion -> with total tax revenues in 2018 (from all sources) being $940 Billion, Canada would have to almost double their total tax revenue. Even after you strip out all the income tested benefits, you are still left with a $690 Billion shortfall, as Federal contribution to social programs were $221 Billion in 2018.If the current Marginal tax Rates stay in place as they are currently in 2020/2021, Canadians would pay more tax however their net income would increase.  This would drive inflation though.
• We now, in 2021, have an idea of what happens when you place an income tested benefit across the population.It turns out, with CERB, people who were earning $20/hr (or $40,000 per year) or less decided to simply stay home and collect CERB as the income test level was that you could not earn more than $1,000/month.  Therefore, someone who used to make $20/hr ($40,000/year fulltime) could make up to $1,000/month and still earn $2,000 from CERB, making their taxable gross salary for the year $36,000/year.  Not a significant drop in revenue at all.  However, the labour shortage has had a massive impact on the economy, driving up inflation.
• Furthermore, if it is not done properly, as we have now seen the implications of this rippling through the economy, we would have massive inflation.In November of 2021, inflation for Q4 was on track to be 6% annualized.  Which means prices for 2021 would have risen 6% in one year.  We will not know the full economic impact of inflation until the 2021 number comes out at the end of Q1 2022.  However, one can safely assume it will be one of the highest growths to inflation that we’ve seen in decades.

A Universal Basic Income (UBI) is a great concept when it is being conceptualized, however in reality it just is not feasible as we are now learning going through a pandemic.  As a Certified Financial Planner (CFP®) I deal with people’s budgetary constraints all day.  The three main areas of costs that make up a person’s budget is food, shelter and transportation.  We now know that if you increase the money supply (i.e. free money or low interest borrowing) you increase demand for goods and services.  If the supply of those goods and services are not increased at the same rate, this drives up the cost of those goods and services.  For example, in 2021, you could not get a used car, let alone a brand new one, if you even wanted to.  This is turn drove up the cost of used vehicles and therefore drove up the cost of transportation.  This happened throughout all supply chains of food, building supplies and homes.

Now this may not seem to be a big deal to most, if you have a high disposable income, the impact of inflation is not as severe as someone at the bottom of the food chain.  The irony is the UBI was conceptualized to help the less fortunate, and to pick them up out of poverty, however inflation just ends up punishing the people with less.

Here is another example.  In the Niagara Region, Province of Ontario, Canada, it was determined, by the Niagara Poverty reduction Network, the livable minimum wage was calculated to be $18.90/hr in 2021.  This is an increase of $0.78/hr from 2019 due to the increase in the costs of transportation, shelter and food (amongst other things).  This represents a 4.3% increase over two years, this is directly correlated to the impact that inflation has had on the local economy.

The better solution is governments at all levels need to start taking these costs seriously and to stop kicking the proverbial “can down the road”.  Start investing in more affordable housing making it easier and more profitable for developers to build affordable housing.  For example, did you know that the costs to start developing a 10-unit complex in the GTA is relatively the same as a 100-unit complex?  So why would a developer invest in 10-units when they can build a 100-unit complex and make a better return?  Eliminate this red tape!  Less costs, equals more developers, which increases supply and lowers prices.

Transportation is a massive cost for people on the lower end of the income spectrum.  Invest in regional transit.  Just recently in 2021 the Niagara Regional Government, along with the 12 municipalities voted in favour of integrating a regional transit system, this after a regional transit system was started in 2011 to help alleviate the costs.  Yup, 10 years!  I guess better late than never?

I started out this 6-part series with an open mind to really look at the facts and to really see if this was even implementable, however, with the recent events happening during the pandemic along with historical context on how it would/should be implemented, notwithstanding the fiscal impact on the government coffers a UBI in Canada, without raising taxes significantly to make up with the $690 Billion shortfall, just is not feasible.

Governments need to start eliminating red tape and investing into everyday extra costs that impact an individual’s everyday life, like transportation and access to affordable housing, rather than considering a Universal Basic Income.  That my friends are how you would really help people and encourage individuals to continue to contribute to the Canadian economy.

Thank you so much for coming on this journey with me.  It may not have been the answer that you wanted to read but it is through these thought experiments on how we come to better conclusions and solutions to the persistent problems that impact an everyday Canadian’s life.