Feb 25, 2016
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Creating an effective guaranteed annual income challenging

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One appeal of the GAI rests on the potential to reduce government administrative costs by simplifying the income support system

By Charles Lammam
and Hugh MacIntyre
The Fraser Institute

VANCOUVER/ Troy Media: The federal Liberals appear to be considering overhauling Canada’s income support system with the creation of a guaranteed annual income (GAI). Jean-Yves Duclos, the federal minister tasked with the social policy portfolio, mused publically about the benefits of a GAI. In fact, his government has gone so far as to invite experts on GAI to participate in the pre-budget hearings.

There is certainly some merit to the concept of a GAI, and there even seems to be growing public support. The question, however, is what would it take to create an effective GAI? A lot.

A GAI is a cash transfer to individuals or families that ensures a minimum level of income, without conditions such as requiring participants to work or look for work. It’s generally conceived as a single program that would replace all – or at least a significant portion – of the existing income-support system (broadly defined as the complex web of programs and tax measures that increase a recipient’s income through cash or in-kind transfers).

Indeed, this sort of reform appears to be what Duclos has in mind, which is a good sign because being a replacement rather than an add-on is a critical feature of any serious GAI proposal. After all, a main conceptual appeal of the GAI rests on the potential to reduce government administrative costs by simplifying the income support system, which now consists of numerous, often-overlapping programs at the federal, provincial and local government levels.

In theory, the potential for administrative savings is substantial. A non-trivial portion of spending on income support currently goes to administration rather than directly on transfers to people. And many Canadians who need the support often have a hard time getting it due to a complex and potentially overwhelming bureaucracy.

But what would it take to create a GAI in practice?

First, consider the magnitude of a reform that replaces the existing income support system with a single GAI program. In a study published last year, we estimated the cost of the existing system at $185 billion in 2013 or roughly 10 per cent of the economy (this includes spending and tax measures by all levels of government targeting people with low-income, the disabled, the elderly, and parents with young children). By any measure, GAI reform would be a major undertaking, perhaps one of the most fundamental government reforms in Canadian history

Much of that spending is done by the provinces, so a federally administered GAI – as many propose – would require the provincial governments (and local governments to a lesser extent) to agree to relinquish their role in income-support programs such as welfare. Effectively, this means provincial governments would cede some of their powers and responsibilities to the federal government, something that many provinces have traditionally been reluctant to do.

Putting aside the need for federal-provincial agreement, creating a GAI would also require consolidating existing programs, many of which have different specific purposes or target different groups. And there are difficult questions surrounding program design such as the basic benefit amount and whether it should vary depending on people’s circumstances (where they live, how old they are, whether they have kids).

More broadly, a GAI would presumably require the large-scale lay-off of bureaucrats to achieve substantial administrative savings, a move that would obviously face strong internal political opposition.

All that said, there is much to like about the idea of a GAI that would simplify Canada’s income-support system. But in practice, the process would face many hurdles that undermine the case for reform. Perhaps a more realistic path forward is to reform existing income-support programs in ways that improve their functioning and effectivess, with the additional goal of simplifying the system by consolidating existing programs that serve similar purposes.

Charles Lammam Director Fiscal studies - Fraser Institute Photo Courtesy: Fraser Institute

Charles Lammam Director, Fiscal Studies Fraser Institute                 Photo Courtesy: Fraser Institute

 

Hugh MacIntyre is a Policy Analyst at the Fraser Institute

Hugh MacIntyre Policy Analyst Fraser Institute

Charles Lammam and Hugh MacIntyre are co-authors of the Fraser Institute study, The Practical Challenges of Creating a Guaranteed Annual Income in Canada.

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