Financial Series: Universal Basic Income
Part 1 of 6
By Brandon Currie
This article was published in Reveal Business Magazine, Vol 1 | Issue 4
Let’s begin this series with an interesting history of social programs across the world and the landscape of financial social programs in Canada, including the UBI.
Documented social programs have existed in some shape or form since at least 500 B.C. when the Romans would hand out free or heavily subsidised grain to help feed the poor. I don’t think I’d be reaching if I stated that organized communities have supported those in need since the beginning. Maintaining the health of the group is after all an aspect of self-preservation. However, for our purposes, the most recent historical reference of individual social programs begins back in the 1800s.
In 1883, Otto Von Bismarck, the Chancellor of Germany, introduced to that country mandatory retirement at age 65, complete with a state pension. The main goal of this was essentially to head off the Marxists from rebelling against the government of the day. This pension was funded by a combination of employer/employee and state contributions. It was a good political move. It satisfied the agitators and didn’t cost the government much as, if you managed to live to the age of 10 back then, your life expectancy was 58 years old. The probability of living long enough to receive the benefit was low.
Following in Germany’s footsteps, many countries around the world began implementing and expanding their own social programs. In 1908, Britain introduced their first pension. Over the years it proved to be such a success that, after WW2 it led to the development of their National Healthcare System.
Canada followed Germany’s lead in 1927 by introducing the Old Age Pension Act. This originally offered limited assistance to low-income Canadians over the age of 70 but they were subjected to a financial means test to determine qualification. In 1952 the act underwent significant enhancements. The result was the formation of Old Age Security (OAS), which, in 2015, provided $35 billion to 5.5 million Canadian seniors over the age of 65. It also introduced the Guaranteed Income Supplement (GIS) which provided $10.6 billion in benefits to 1.7 million Canadian residents with little or no income.
Strong demand for a public pension scheme resulted in the introduction of the Canada Pension Plan (CPP) in January, 1966. This is an earnings-based retirement program that is funded primarily through employer and employee contributions. The goal of this program is for earners to continue receiving about 25% of their average lifetime preretirement employment earnings, up to a maximum amount. In 2020, this maximum was $1,175/month, indexed every year to reflect inflation. The average benefit received in 2020 was only $696.56/month. Mainly, this is due to the fact that many Canadians opt to start their CPP at age 60 rather than at 65, resulting in a 36% reduction to their benefit.
The retirement system in Canada consists of 3 main pillars: The first guarantees a minimum level of income in retirement, provided through social security benefits such as Old Age Security (OAS), Guaranteed Income Supplement (GIS) and other provincial programs. The second pillar refers to the Canada/Quebec Pension Plan, into which employers and employees contribute, providing a portion of the individual’s working income. The third pillar constitutes tax-assisted and tax-deferred savings plans such as the Registered Retirement Savings Plan (RRSPs), Tax-Free Savings Plans (TFSAs) and employer sponsored pension programs (RPPs).
Finally, the development and success of these social programs have led to a call for some sort of guaranteed income for those who don’t receive any of the above. This is what we refer to as Universal Basic Income (UBI). What is it exactly? In a nutshell it is a social program, publicly funded, where all residents who meet the qualifying criteria (as required by the various countries, states and provinces) receive a monthly benefit to give them a basic income. This income would not cease if a person were to supplement it with additional employment income. Essentially, it provides a safety-net that ensures the financial needs for the basics of life – food, shelter, clothing – are met. It is NOT income-tested. In other words, a person’s employment situation does not come into play at all.
Hopefully, you now have a much better idea of what a Universal Basic Income entails. In future articles I will delve a little deeper into the history of this program, the cost, how to define eligibilityility and ultimately, its impact on individuals.
