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Editorials and Rejoinders

 
 

Richard Pereira’s proposal lacks political realism

by Jonathan Rhys Kesselman

My original contribution to Inroads on the issue of all-cash policies to eliminate poverty in Canada carefully distinguished among the basic income, the guaranteed income and the fill-the-gap method. Each of those program structures was shown to have unique attributes, but all were found to pose major disincentives, massive financial costs and barriers to public acceptance. In his critical commentary on my article, Richard Pereira ignores the distinctions among these program formats and blithely shifts from one to another without acknowledging the differences. Pereira’s critique focuses on my ballpark cost estimates for these programs. He asserts that my analysis “does not include any multibillion-dollar figures as savings to be derived from implementation of basic income.” In fact, my article cited potential savings from the displacement of provincial welfare spending and the federal Old Age Security and Guaranteed Income Supplement. However, I argued that Employment Insurance and the Quebec/Canada Pension Plan should be maintained even if an expanded cash transfer program were implemented, since both are contributory programs that serve to maintain workers’ accustomed living standards when their earnings are disrupted.

Pereira repeatedly cites the projections by Young and Mulvale of $132 billion in annual savings (2005 figures) that could accompany the implementation of a basic income.1 To reach that sum would require the elimination of programs such as provincial welfare, Employment Insurance (which Pereira himself states should be retained), the OAS/GIS and the Child Tax Benefit. It would also require eliminating the Quebec/Canada Pension Plan unless offset by abolishing the basic personal tax exemption. Thus, it would impose income tax hikes for all Canadians even before considering the steep tax rate increases that would be needed to finance the proposed basic income.

Set against this putative $132 billion in program cost savings would be the $350 billion that would be the gross annual cost of even a meagre basic income averaging $10,000 per Canadian adult and child – far below any decent notion of the poverty line. Even Young and Mulvale projected the cost of a basic income granting $15,000 per year only to persons aged 18 to 64 at $327 billion, and that was for 2006.

Pereira also repeatedly cites the much lower projected $30 billion cost of a “fill-the-gap” or “top-up” version of a major cash transfer program.2 Yet he fails to note the extreme disincentive effects of this program structure. This kind of program provides the individual with a cash transfer equal to the full difference between his or her earnings and the target level, such as the poverty line. For a single individual in a larger metropolitan area, the Statistics Canada low-income cut-off is nearly $25,000. Thus, with that target, an individual earning $15,000 would be granted the shortfall of $10,000. If that individual stopped working – or began working off the books – the transfer would rise to the full $25,000. The extreme disincentive effects of such a program structure are apparent, and the true cost of the program could easily balloon to a multiple of the naive $30 billion figure. Moreover, the severe disincentives of traditional welfare programs would be extended to a far larger part of the population.

Pereira further refers to many other areas where an expanded cash transfer program, of whatever form, could draw financing. He cites the many “tax shelters” such as TFSAs, RESPs, and RRSPs – and presumably workplace pension plans should equally be regarded as tax shelters. He characterizes these programs as “benefiting very disproportionately those who do not need this government support.” In short, he contemplates with equanimity massive tax increases for the broader Canadian public on the scale of the massive cost of the transfer programs he espouses. This aspect points to the proposal’s lack of political realism.

A telling wrap-up for this response is to cite the conclusion of the Young and Mulvale study, which was published by the “progressive” think tank Canadian Centre for Policy Alternatives: “A full-fledged version of guaranteed income is out of our immediate financial reach.”

Notes

1Margot Young and James P. Mulvale, Possibilities and Prospects: The Debate Over a Guaranteed Income (Ottawa: Canadian Centre for Policy Alternatives, 2009).

2 I had drawn this $30 billion figure from another article and did not reconfirm it: Hugh Segal, “Scrapping Welfare,” Literary Review of Canada, Vol. 20, No. 10 (December 2012).

 

Jonathan Rhys Kesselman holds the Canada Research Chair in Public Finance with the School of Public Policy at Simon Fraser University in Vancouver.



About the Author

Jonathan Rhys Kesselman
Jonathan Rhys Kesselman holds the Canada Research Chair in Public Finance with the School of Public Policy at Simon Fraser University in Vancouver. His research specializes in taxation and social policy.




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