Canada’s path to basic income

Montreal writer Pierre Madden has written a very interesting article in which he argues that Canada already provides a basic income for parents of children aged 0 to 17 and to legal residents 65 years of age or older, so why not extend this to all ages?. Here are the main take-aways from his article:

6.4 million Canadians can count on benefiting from about $500, tax-free, every month, no questions asked. It contributes $46 billion per year to GDP and adds $4 to GDP for every dollar it costs.

It’s called the Canada Child Benefit (CCB).

Why have we not heard that this program is, in fact, a Basic Income?

[…]

Indeed, … Canadians know how Basic Income works because one has existed for close to 70 years.

In 1951, following an amendment to the British North America Act to permit the federal government to operate a pension plan, the Canadian Parliament passed the Old Age Security Act, which provided a universal pension, or demogrant, of $40 per month financed and administered by the federal government. All Canadians aged 70 and over who could meet the more liberal residence requirements were eligible, regardless of their other income or assets. Pension payments began in 1952 and were taxable. (Source: The Canadian Encyclopedia)

[…]

Clearly, the Canada Child Benefit is a Canadian flavoured Basic Income which is as close as it gets to a UBI [universal basic income] in the real world. It is a huge success hiding in plain sight …. It is not means-tested. However, it is income-tested, which means wealthier families are phased out from the benefit. ….

A similar demonstration can be made for Old Age Security. Since the facts show the economic impact of Basic Income for ages 0-17 and 65+, why not expand the programs to all those in between? Why not start right away with ages 18-19, who need the money to stay in school or get a good start in life, some other way?

Pierre Madden, “Canada’s Child Benefit is basic income ‘hiding in plain sight’“, Basic Income News, Opinion, 4 October 2019.

According to BIEN (Basic Income Earth Network), “Pierre Madden is a zealous dilettante based in Montreal. He has been a linguist, a chemist, a purchasing coordinator, a production planner and a lawyer.”

This is a short article; though very informative, I do have some quibbles with it. Most importantly, Mr Madden cavalierly claims that government expenditure on the Child Benefit programme “adds $4 to GDP for every dollar it costs”. This is an extremely high income multiplier, one that requires the existence of substantial unemployed resources in the economy. At full employment, increased government expenditure, unless financed by increased taxes or sale of bonds, will create price inflation. Moreover, any employment or price effect applies to all government expenditure, not just to expenditure on child benefits.

In addition, it is simply not true that no questions are asked of applicants for child benefits. The government wants to know their legal status in the country, and what their family income is in order to determine if they qualify for benefits.

The Canada Child Benefit (CCB) has gone through many iterations. The benefit is no longer taxable as income, and it is now indexed for price inflation. However, it is also subject to an income test. This is equivalent to a high rate of taxation for low-income families. The maximum benefit (for the poorest families) is currently $552 a month per child under the age of 6, and $466 monthly per child between the ages of 6 and 17. In my opinion, it would be fairer to return to the previous system, providing full, taxable benefits to all children, without clawing benefits back from other income.

I would make the same point regarding Canada’s Old Age Security (OAS) pension, which began as a universal age pension, subject only to a residency requirement (at least 40 years residence in Canada from age 18 for a full pension). Currently, the OAS pension is clawed back at a rate of 15%, from those with high annual incomes, beginning at $77,580 a year. The claw-back is complete for those with incomes above $126,058. The full OAS pension for 2019 is $613.53 a month. The OAS pension, less any amount clawed back from it, is subject to income taxation at regular rates. For the very poor, there is a Guaranteed Income Supplement (GIS), roughly equal to the full OAS pension. Those with yearly income, not including any OAS pension, exceeding $18,599.99 do not qualify for a GIS. (Source: Government of Canada.) Mr Madden fails to note that the GIS income test is equivalent to a high, implicit tax on income and savings of the poor.

All figures above are in Canadian dollars, currently equal to about 75 cents of a US dollar.

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