Robin Boadway is an emeritus professor of economics at Queen’s University and a contributor to the Finances of the Nation project.
In its recent Speech from the Throne, many observers expected the Trudeau government to commit to creating a basic income program to assist low-income Canadians. While that didn’t happen, the new Canada Recovery Benefit (CRB) is a move in that direction, and it could be a template for future reforms. For that reason, CRB is worth a careful look. CRB represents an innovative approach to income support. Even though it is being touted as a program to extend employment insurance to the self-employed, its structure and delivery are different from EI’s. Income support through CRB is not contingent on job loss, and benefits are income-tested.
In these ways, CRB has similarities to a guaranteed basic income of the sort that many analysts and politicians have advocated for in recent years. Although CRB is temporary and pandemic-related, and it is only available to those experiencing significant income loss, it is natural to ask whether a CRB-like program should be made a permanent feature of Canada’s social safety net.
The idea of a guaranteed basic income has considerable merit. If designed properly, it could simplify Canada’s social safety net while strengthening it so fewer people fall below the poverty line. Policy design matters though, and attempting to achieve this goal by making CRB permanent would create challenges surrounding fairness, enforcement and work incentives.
But a closer look suggests that CRB has several design problems that mean it will not function well as a guaranteed basic income.
For one thing, CRB would create strong work disincentives for some self-employed Canadians. Once a recipient’s income reaches $38,000, each additional dollar earned in the year will face an effective tax rate of 70 per cent to 90 per cent, through a combination of income taxes and the resulting clawback of CRB and other means-tested benefits. In other words, each dollar earned would increase take-home income by only 10 to 30 cents. If CRB were made permanent, that could be a problem. Self-employed individuals often have more flexibility to decide how many hours to work than other workers. For those in the range where the clawback applies, the reward of additional work may simply be too small.
CRB also raises difficult administration and enforcement issues. Applicants must attest that their preapplication income fell by 50 per cent as a result of the pandemic and that they are looking for work. Many self-employed workers receive income from sources that are not subject to third-party reporting, and reported income can be quite sensitive to tax rates for the self-employed. Moreover, verifying that self-reporting applicants are searching for work and willing to accept jobs that are offered is challenging, to say the least.
There are also questions of fairness. If it were to become available to all self-employed workers in future, significant changes would have to be made so that the self-employed were not treated more generously than employees. That could be done by making employment insurance available to the self-employed in future, but with a comparable contribution rate and treatment of earnings as for other workers.
Or CRB could become a template for a guaranteed basic income available to other members of society, such as the working poor or the long-term unemployed. But, as currently designed, extending CRB to all persons would simply be too expensive. Making CRB a basic income for all would require the elimination of employment conditions and a reduction in the generosity of the clawback provisions, which would in turn reduce administrative costs and enhance affordability.
Most basic income proposals set the guarantee level roughly at the Statistics Canada poverty line, which is about what CRB would pay if available for 52 weeks. However, a well-designed basic income would claw back earnings at much lower rates, beginning from the first dollar earned, to make the program affordable. A well-designed guaranteed basic income would also be much simpler. It would be based only on income and not on employment search, with reporting generally only required annually. A guaranteed basic income is a good idea, but for all these reasons making CRB permanent is not the right way to get there. Doing so would create challenges surrounding fairness, affordability and work incentives. Proponents of modifying CRB to make it workable as a permanent addition to Canada’s social safety net must clearly show how these issues can be resolved.
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