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COVID-19 sets the stage for basic income, but can it work?

It is evident that universal programs in Canada targeted at specific age groups, such as children and seniors, have been successful in ameliorating poverty. But what if there were an opportunity to reduce poverty further through a program like basic minimum income?

In a country where most individuals live above the poverty line, Covid-19: Setting the stage for a basic minimum income plan, examines the fiscal actions that could be taken to improve the situation of those, especially working-age adults, living below the poverty line, as determined by the Market Basket Measure.

Actuaries have consistently played a key role in the development of Canada’s system of social protection. As such, this discussion highlights the many areas for actuarial advice as we try to improve this system for Canadians in the post-COVID era.

A wheel in motion

Basic minimum income is a concept that may seem easy enough to understand, yet even the World Bank Group (Gentilini et al., 2020) avoids the phrase deeming it ambiguous and confusing. But with the pandemic highlighting the income insecurity of many Canadians, a fast-growing movement has emerged to not only define the term and its parameters but also to understand whether it can work.

When a 2018 cross-national survey by the Organisation for Economic Co-operation and Development asked respondents where governments should do more, 30% of respondents in each age group (18 to 29, 30 to 54, 55 to 70) ranked a guaranteed transfer sufficient to cover basic needs as one of the top three supports to make them/their families feel more economically secure. This level of response was almost equivalent by age group and the only social spending option to exhibit this characteristic, thus confirming a growing and general interest in basic income (BI).

When the pandemic hit in 2020, BI, once just a theoretical concept, became a very real possibility. With forced business closures and widespread loss of income, several temporary support programs were introduced, some of which contained features resembling BI. But what emerged, more importantly, was the finding that employment insurance (EI), with its many eligibility restrictions and benefit levels tied to earnings history, could not sufficiently address the general population’s need for income assistance.

Yet despite an increasing number of proponents and COVID-19 creating the perfect conditions for BI to gain traction, there still remains significant challenges that stand in the way of implementation.

Special implementation challenges in Canada

It is not the report’s purpose to recommend that a BI be implemented or not. However, should BI be implemented, or at the very least a discussion be had, then it is important to recognize some of the special challenges that exist.

What stays and what goes

Examples such as EI, previously called unemployment insurance; Old Age Security and the Guaranteed Income Supplement; the Québec Pension Plan; the Canada Health Act; and the National Child Benefit, illustrate that when initiative is taken by the federal government, with provincial consent, programs for services can be delivered successfully nationwide.

Where the trouble arises, however, is if implemented, regardless of design, decisions must be made about what to do with existing programs. Some would likely need to be eliminated or modified to avoid the risk of BI being seen as an additional and more significant burden. The difficult question then becomes which programs stay and which ones go?

A program in dire need of revision

COVID-19 has exposed the weaknesses in Canada’s current EI system. First, many workers are not covered, one such group being the self-employed. There are also significant numbers of individuals who do not qualify because they have not contributed for the requisite period, or their cessation of work is not considered a qualifying event.

If the concept of BI is accepted in principle, or if for whatever reasons it is decided that a common BI for all Canadians is not feasible, then a partial solution to improving the situation of unemployed Canadians may be to revise the eligibility rules for EI. Ensuring more unemployed Canadians qualify and raising the minimum benefit to an adequate level presents the advantage of making changes that are more affordable for governments without creating a vast number of “winners and losers.”

Thinking beyond COVID-19

Given that we are still in a global pandemic, it’s hard to know what lies ahead. However, what we can foresee is:

  • much higher levels of government debt at both the federal and provincial levels;
  • some businesses will be dramatically changed, due to loss of customers, lack of employees, or bankruptcy;
  • greater inequality of circumstance among the population, especially women (see Desjardins and Freestone, 2021); and
  • increased and continuing calls for support and change in multiple areas.

Despite these factors, there are still concerns regarding rising inflation, or how to manage the increased debt burden. For researchers Cross (2020), Savoie (2020), and Mintz, the ballooning of provincial and federal government spending will require strong action to restore control, not sweeping in costly new programs like guaranteed income.

Surprisingly, not all economists agree. In the latter’s view, rebuilding the economy provides an opportunity to renew the social contract, strengthen the social protection system, and restore the fairness of the tax-transfer system.

In the post-COVID economy, there will likely be competing calls to manage the debt incurred and ease the damage done by the pandemic. That said, some form of BI is still likely to be advocated by some groups and with it the spending implications that accompany such proposals.

Recommendations and areas for future research

Covid-19: Setting the stage for a basic minimum income plan looks at the ways governments can address the causes and conditions of poverty among Canadians with special consideration given to introducing some level of BI, especially for working-age adults. 

When it comes to determining what programs to introduce, modify, or eliminate, at least a partial cost-benefit analysis would be helpful. It is important to assess if we are delivering assistance efficiently, whether the focus of programs remains appropriate, and how we might accomplish our objectives more effectively.

COVID-19 has revealed some critical vulnerabilities within Canada’s system of social protection. And while BI is a possible approach to addressing some of these vulnerabilities, as many have observed, it is not a panacea.

Read the full paper for a detailed analysis of the findings and recommendations.

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