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How does a minimum basic income work, and who pays for it?

Cameron French
Charles Sousa; Kathleen Wynne
Ontario Finance Minister Charles Sousa, right, delivers the Ontario 2016 budget next to Premier Kathleen Wynne, left, at Queen’s Park in Toronto on Thursday, Feb. 25, 2016. (Nathan Denette/The Canadian Press via AP)

Once dismissed as a utopian dream of the left, the idea of a minimum basic income – a government guarantee that citizens receive a certain income regardless of working status – is about to be battle-tested in Ontario and is being considered in other provinces as well.

Ontario plans to launch a pilot project next year, studying the effect of replacing some of its social assistance infrastructure with a monthly payment of at least $1,320 per person. Support for such a scheme is also building in Alberta, while Prince Edward Island passed a motion earlier this month to pursue its own pilot project.

This actually isn’t the first time this has been tried in Canada. A test case was run in Dauphin, Manitoba in the 1970s, but it was cancelled when the government changed.

That the idea has come back with force is likely due in part to the increasingly uncertain employment landscape, says Trish Hennessy, director of the Ontario office of the Canadian Centre for Policy Alternatives.

“With the rise of precarious work, there are a lot of people that are looking for different answer to address when you fall through the cracks.”

How will it work?

There’s a lot of leeway here, but the principle is that all working age residents are eligible for a basic no-strings-attached income level. This can come in the form of a tax credit for those who have a job or a straight-up check from the government. Some have advocated that anyone would be eligible for the full amount, regardless of their income, but it’s more likely there would be some sort of clawback to any payment for those who earn significantly more than the minimum level.

As far as the Ontario project goes, a broad-strokes discussion paper by Hugh Segal, the province’s special advisor on basic income, advocates a minimum monthly income of at least $1,320 for a single person, with an extra $500 for people with disabilities. The payment would be non-taxable and available for adults aged 18-65.

Whether the basic income would be in addition to existing social services or would replace them is part of what will be examined in the pilot project.

What are the benefits?

The main idea of a guaranteed income is as a safeguard against poverty, and an improvement on current assistance schemes that make claimants jump through hoops to qualify.

Advocates point to the impact of the introduction of the Guaranteed Income Supplement for seniors in the 1960s, which sharply reduced poverty rates in the upper age group.

And researchers expect wider benefits, including better health, education, a more mobile workforce, and a removal of the ‘welfare wall’, the prospect of losing income and housing benefits currently faced by recipients who try to re-enter the workforce.

It would also reduce the stigma attached to seeking out social assistance, says Michael Urban, a policy associate at the Mowat Centre, a policy think tank associated with the University of Toronto.

“The idea there is that if everyone receives a payment from the government, then it becomes much more like health care than welfare. No one looks down their nose at someone for going into a hospital and making use of the universal healthcare system.”

Who pays?

One of the reasons minimum basic income has never found real traction is the cost. That much money flowing to that many people has to come from somewhere. But much of the cost could be born by reducing current social assistance programs that would become unnecessary with the minimum income. Health care costs could also come down with the spending power translating into better food decisions.

Urban says it would also reduce government administration costs, because everyone would get a payment.

“It could be administered through the tax system, so you don’t need this whole apparatus that administers all these other programs currently,” he says. “It really appeals to people who prefer smaller government.”

In the end, it seems likely taxes will have to rise to pay for it, but that will have to be weighed against the social benefits.

Yeah, but…

There are also arguments against basic income that go beyond the price tag. Some worry that a guaranteed income would be a disincentive to work. Such concerns prompted Switzerland to reject a minimum basic income in June.

“That’s always the concern that gets raised,” says Hennessy, pointing to the results of the Dauphin, Manitoba, project in the 1970s.

“A lot of people who got that basic income check said it helped them buy time to find the right job, not just the next job, and that’s important for labour market stability,” she says.

Next step

While the wheels are turning, it will be some time before this becomes ready for consideration as a widespread policy.

Ontario is currently mulling its next step and could begin to implement the pilot project early next year, with a recommended duration of at least three years.