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Ontario’s basic income plan poses a threat to existing social programs

When the Ontario Government included a paragraph in the 2016 budget discussing plans for a pilot program testing universal basic income, those on welfare and disability income support probably took notice.

Currently, if you’re collecting monthly Ontario Works payments – the province’s version of welfare – you receive a maximum between $681 per month as a single person and $1,408 as part of a couple with two children. The maximum monthly cheque for those on the Ontario Disability Support Program [ODSP] is a bit higher, between $1,110 for a single person  and $2,025 for a couple with two children. Neither payment is anywhere near the average cost of living in Ontario. The Canadian Centre for Policy Alternatives, which sets the living wage for the province ($18.52 per hour, per person), puts average expenses for a family of four in Toronto at $65,850.55 a year. The ODSP payment at its maximum would pay out $24,300 a year.

This means those who are eligible for Ontario Works and ODSP require their rent to be subsidized just to afford it and then must use what’s left to afford basic necessities. But a Guaranteed Basic Income, like the one Ontario plans to test this fall, has the potential to bring their income closer to the actual cost of living in the province.

“We believe that in order for basic income to be effective, it has to allow people to live with dignity and be at a level where people can make choices and have power and control in their own lives, not at a level that continues to trap people in poverty,” says Jenna van Draanen, secretary on the board of directors for the Basic Income Canada Network.

Right now, the income support system really does “trap people in poverty,” as van Draanen says. While some who receive support cannot work due to severe illness or disability, many who do work simply don’t make enough to afford to give up income support completely. A beneficiary of ODSP is only entitled to receive $6,000 in gifts and income over a 12-month period and can only hold assets totalling $5,000. The inability to save money or build on past income mean many stay dependent and never become financially self-sufficient, in spite of their efforts to do so.

“I think some of the clawbacks and things you have to do to prove that you need welfare actually end up leaving people restricted to the point they don’t have the ability to pursue their education or start a small business because all kinds of things violate the terms under which they receive welfare,” says van Draanen.

She hopes that a Guaranteed Basic Income program would allow people to make those life choices on their own and have the flexibility to pursue those goals in a way that makes the most sense for them. However, there are still a lot of questions around what a Guaranteed Basic Income Program will look like in this province and whether Ontario’s government would be able to afford it.

One Size Does Not Fit All

When we talk about basic income, what exactly are we talking about? It’s a good question and one that those quoted in this article believe the Ontario Government hasn’t figured out an answer to yet. All we know is the pilot plan is to start in the fall, the goal is to ease poverty and the government continues to consult with stakeholders, including Basic Income Canada Network members, about what the program will look like.

Generally, basic income models fit into two categories: Universal Demogrant and Negative Income Tax. Universal Demogrant is the idea being proposed in Finland, where every citizen gets a regular, non-taxable payment from the government each month regardless of their employment or economic status. In Finland, each citizen would receive €800 (roughly C$1,170) each month and an initial pilot program would pay €550 (C$805). Though the Basic Income Payment isn’t taxable, all other sources of income would be at a higher rate. This extra tax money would be used to pay for the program. This income would replace other benefits those on Finland’s social welfare system currently receive.

“In Europe the way they talk about it is about $10,000 annually to every person over 18 and half that amount to every person under 18. What the amount actually is varies quite a bit, but in Canada $10,000 a person costs around $250 million, so it’s pretty hard to see how that would actually operate,” says Michael Mendelson, a senior scholar at The Caledon Institute of Social Policy who co-authored a paper  in 2010 outlining a reformed basic income plan for those with severe disabilities.

The other model is the Negative Income Tax Model. This version is administered through the tax system. Whether you get it is determined by your income. Only those under a certain income get any kind of benefit. A reduction rate determines by how much the benefit goes down for additional income above the benefit rate or maximum allowable level and the break-even point is the point at which you receive no benefit. Mendelson and van Draanen agree this model is a lot more likely in Ontario, but Mendelson does not believe it is workable in practice.

“When you fill out your income tax in 2016 your reporting on income from 2015 and people need current income, they don’t want last year’s income. It doesn’t reflect where they are now,” he says. “However, you could do it exclusively among severely disabled and elderly populations because on average, their income tends not to change on an annual basis.”

Still, the Negative Income Tax model is attractive to governments looking for a  cheaper option. It would only go to those below a certain income and it’s basically the model used in the 1970s for The Mincome Experiment – the last time anywhere in Canada tested Guaranteed Basic Income.

Will We Still Have the Incentive to Work?

The Mincome Experiment took place from 1974 to 1979 in Dauphin, Manitoba and was meant to determine whether those receiving Guaranteed Basic Income would no longer feel the incentive to work. It gave families three randomly assigned income levels that took into account family structure and normal income received. Those earning above $13,000 in a two-child, two-adult family were excluded from the pilot program and the three guaranteed income levels for everyone else were $3,800, $4,800 and $5,800 with three tax-back rates on every additional dollar earned of 35 per cent, 50 per cent and 75 per cent. The most generous and least generous combinations were not tested and the experiment had a control group that was not eligible.

“The Mincome Experiment was based on monthly income, not taxable income and people had to report their income every month, similar to ODSP, but there were no real conditions for eligibility or an asset test. It was much less stringent as far as what you had to report,” says Mendelson who worked on The Mincome Experiment himself.

The experimenters saw that participants were not changing their workforce participation significantly, except for two small subgroups: pregnant women were taking longer maternity leave and young men who chose to focus on finishing high school instead of working part-time or dropping out to get a job.

“I think these are positive indications because these women were raising the next generation and we know the first five years of a child’s life are absolutely crucial to their development. Plus,we know people have more opportunities and higher incomes if they stay in school,” says van Draanen.

But Mendelson remembers Mincome’s guaranteed income amounts were also fairly arbitrary and not based on a living wage or the poverty line, a line which carries no definitive definition in Canada.

“The total amount of money that was allocated was fixed and there began to be very high inflation during the life of the experiment, so the actual benefits paid were radically decreased in terms of their real purchasing power. By the end of the experiment the welfare rates of Manitoba were higher than the amounts being paid by The Mincome Project,” says Mendelson.

Ontario’s Guaranteed Basic Income Pilot Program will need to take inflation into account, but when it comes to those collecting income supports, it will also need to account for additional income benefits those individuals may be entitled to, especially those with disabilities.

The Real Cost of Effective Basic Income

“You would need to have a system that first was universal, that stressed a level of adequacy, that was linked to a strategy of full employment and that didn’t seek to erode the adequacy of other social programs,” says John Clarke, an organizer for the Ontario Coalition Against Poverty.

Those programs include, but are not limited to, a drug benefit, a dental benefit, an assistive devices benefit, a child care benefit, a job training benefit and a work clothing allowance, all of which are included with income support for those eligible. The skepticism around the results of Ontario’s Basic Income Pilot is that the income amount will replace these existing supports.

“Unfortunately, from Milton Friedman on, there has been a competing vision of Universal Basic Income that basically has a free market notion that you provide this universal payment, you destroy parallel programs from public healthcare to public housing and pensions. Then, everyone becomes a consumer in a private market, buying their services from a privatized system,” says Clarke.

“The thing you have to ask yourself is what is likely to prevail in 2016, given the international reality of where public policy is going? In the statement that was part of Ontario’s provincial budget it stressed the possibility of cost savings in healthcare and other areas, so the lights are already flashing in that regard.”

Of course, there are other programs such as Worker’s Compensation, Canada Pension Plan Disability and even private insurance that are much more generous than ODSP because they are based on previous earnings, so while he agrees that basic income should certainly replace Ontario Works and ODSP like Clarke, Mendelson also strongly argues basic income shouldn’t replace all other forms of social and income assistance.

“If your basic income program goes to everybody – regardless of income – then there wouldn’t need to be differentiation in the amount between people with disabilities and able-bodied people, assuming that you have other programs to provide compensation specifically for disability,” he says.

How Can Ontario Afford Basic Income?

Perhaps this additional compensation could be based on the Old Age Security/Guaranteed Income Support Pension [OAS/GIS] that Mendelson used as a basic income model in his 2010 paper. The OAS/GIS would amount to $1,344.12 per month for a single person, which is slightly better than the current monthly ODSP benefit.

Mendelson’s Basic Income model also made the Disability Tax Credit refundable, so that would add $2,000 additional dollars a year. The plan also takes into account couples, dependents and those living in the northern part of the province. It would not eliminate welfare entirely (although, the program would be significantly smaller) and would keep disability specific stipends intact. The first $100 earned every month would be exempt from the overall reduction rate of 50 per cent each year as income increases.

But with Mendelson and van Draanen each advocating for basic income, while some existing social supports remain intact, some wonder how they can have their cake and eat it too?

“My concern is the sales pitch for basic income is often predicated on simplifying the administration of social supports and having a simple, transparent and clear benefit. But, if you’re keeping the existing supports and then just throw a basic income on top of that, you’re not really solving the problems a Basic Income Program purportedly solves,” says Kevin Milligan, a professor of economics at the University of British Columbia.

Mulligan agrees with necessity of keeping  the existing special benefits for people with different circumstances, but when you layer a Guaranteed Income Benefit, he points out it’s all very expensive and asks, “if your keeping these special benefits, where will you get billions of dollars in revenue to pay for the basic income?”

Van Draanen, a public health researcher, believes a Guaranteed Basic Income Program would eventually pay for itself.

“I’m really interested in the concept of the social determinants of health. We know the social factors that shape people’s lives actually determine their health outcomes more than anything else. When we invest in people’s social needs we actually end up improving their health outcomes, so I personally think a basic income will pay for itself downstream,” says van Draanen.

She argues that the savings from fewer people visiting hospitals and savings from fewer people ensnared in the criminal justice system – due to our early investment in a quality basic income – can then be reinvested to pay for the program down the line.

“The government finds money to do the things that it views as a priority and in my opinion there could be room to rearrange budgets, or look at corporate taxation, There’s spending in lots of areas and when it’s a priority, the government seems to find a way to make it work.”

Going further, van Draanen hopes that Guaranteed Basic Income becomes such a part of Canadian social identity that, like the healthcare system, the fact of its existence is immune to the whims of any parliamentary administration.