Roslyn Kunin: In a country as rich as Canada, no one should have to go cold or hungry. But is universal basic income the answer?
In a country as rich as Canada, no one should have to go cold or hungry. But is universal basic income the answer?
Income assistance and other programs provide for almost all of the poorest among us, although some always slip between the cracks.
No one would describe the level of support as generous, nor is accessing assistance easy. And, let’s be honest, there’s a stigma attached to being a welfare recipient.
Universal basic income (UBI) is on the radar as a way to provide a secure safety net below which no Canadian could fall. Anyone whose income was below a yet-to-be-defined basic level for any reason could receive UBI.
This sounds appealing but a few questions need to be asked and answered before proceeding.
Can we afford UBI?
Our federal government isn’t in a good financial position. We’re $1 trillion in debt and that’s expected to grow by $300 billion this year. We don’t have the details of how UBI would be implemented but we’re talking about hundreds of billions of dollars even if only $500 a month is provided to each recipient. To provide everyone with a Canadian Emergency Response Benefit (CERB) level of basic income would cost much more.
Some UBI could be recovered through taxes, as we do with pensions. But one wonders about the efficiency of a system that gives money to people and then requires them to pay all or most of it back.
We could pay benefits only to those who are below certain income levels but then we’ll have lost the universal aspect of UBI.
It depends on the details but it looks like a true UBI system is beyond our means.
Will UBI help the economy?
Initially, yes, in the same way that CERB and other government handouts helped maintain consumer spending during the COVID-19 pandemic. Such demand keeps the economy going in the short term.
In the long term, an economy prospers from producing more, not just spending more. A UBI will reduce the overall supply of labour we need to generate the goods and services we want. People who receive income without working end up working less.
Canada is already short of workers at just about every skill level, from entry jobs in the service sector on up. Businesses, especially smaller ones, are reducing output or even closing because they can’t find staff. CERB and related benefits are seen as keeping people out of the labour market.
UBI would deter even more potential workers. People who get up and go to work every morning will be paying taxes to support UBI recipients who don’t go to work. Some UBI leisure would be tempting, so other workers might jump on the UBI bandwagon.
UBI could increase the share of economic output going to those at the bottom, but it will also reduce incentives to work and cut the total supply of labour, thus diminishing the size of the overall economic pie.
Will UBI help the recipients?
Again, in the short run, definitely yes. Most people, especially if their income is low, are very happy to be given money. Many piloted guaranteed income programs have been declared successes because recipients, when asked if the program should continue, responded yes overwhelmingly.
The bigger picture isn’t quite so positive. UBI dollars increase demand through more spending and diminish supply through fewer workers. This leads to inflation.
Food prices at the grocery store will rise notably as farmers cut back their crops for lack of pickers and other workers. Eating out will be less of an option as many food outlets close for lack of staff and the remaining ones increase their prices to cover the cost of automation and/or to pay higher wages.
Many other sectors will be similarly affected by UBI.
All Canadians, not just UBI recipients, could find themselves in a shrinking economy with higher prices, and less choice of available services and goods.
Is there a better option?
Yes. In the short run, we can improve our needs-based income support systems. No longer clawing back 100 per cent of every extra dollar earned above a specific amount would make it easier for those on welfare to become independent. Even millionaires pay a tax rate less than 100 per cent.
In the longer run, teaching a person to fish does more for their long-term well-being than giving them a fish.
In places like Denmark, receiving monetary benefits is tied to taking training that will make you employable and productive. This allows poor and dependent people to become richer, more productive members of society. Everyone wins.
Troy Media columnist Roslyn Kunin is a consulting economist and speaker.
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