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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 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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Ontario’s net debt is projected to reach $298 billion in 2015/16, by far the highest level in its history. This amounts to just over $21,600 in provincial government debt per Ontarian. Ontario’s net debt has increased dramatically since 2003/04, with the province running budget deficits in 10 of the past 13 years. These annual deficits have ranged from $1.6 to $19.3 billion, averaging $9.7 billion over the whole period.

The primary reason for Ontario’s persistent deficits is spending growth over the past decade, which has significantly outstripped key economic metrics. Between 2003/04 and 2015/16, provincial program spending increased by 71.6% from $70.4 billion to $120.9 billion. On average, program spending  increased by 4.7% annually during this period, greatly surpassing the average annual rate of inflation plus population growth (2.8%) and of economic growth (3.2%) in the province.

If the government had restrained program spending growth to the rate of nominal GDP growth since 2003/04, the province would be facing a projected $10.7 billion surplus this fiscal year instead of a $7.5 billion deficit. If program spending had been held to the pace of inflation plus population growth over this period, the surplus in 2015/16 would be even larger.

Under both scenarios of restrained spending growth, Ontario would have run just one budget deficit over the past 13 years instead of 10, and the large-scale run-up in provincial net debt since 2003/04 would have been avoided.

Authors:

Ben Eisen

Associate Director, Provincial Prosperity Studies, Fraser Institute

Charles Lammam

Director, Fiscal Studies, Fraser Institute

Milagros Palacios

Senior Research Economist, Fraser Institute

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By Charles Lammam
and Ben Eisen
The Fraser Institute

VANCOUVER, Troy Media: Each year the Fraser Institute measures and ranks the performance of Canada’s premiers in terms of how well they managed provincial finances while in office. Premiers who managed spending more prudently, balanced the books and paid down debt, and reduced and maintained competitive tax rates, rank higher. This year, Premier Christy Clark ranked first overall, essentially tied with Quebec Premier Philippe Couillard for the best record, followed closely by Saskatchewan Premier Brad Wall.

Let’s start with what Clark has done well over the period she is evaluated (2011/12 to 2014/15).

Clark managed the growth in government spending more prudently compared to her counterparts. During her tenure, she increased program spending by an average annual rate of 2.1 per cent, just enough to keep pace with the combined rate of inflation and population growth.

BC Premier Christy Clark’s biggest weakness with respect to fiscal policy is in the area of taxation

Importantly, the rate of government spending growth under Clark’s tenure was less than the rate of economic growth (3.7 per cent). As a result, the size of B.C.’s government – measured as spending relative to the provincial economy – decreased, meaning the provincial government now plays a less prominent role in B.C.’s economy.

Another bright spot for Clark is that her government has consistently balanced the books. In recent years, several provinces have consistently run budget deficits while B.C. has posted surpluses. In fact, Clark is one of only two premiers (along with Saskatchewan’s Brad Wall) to maintain a small budget surplus, on average, while in office.

Despite finishing on top, Premier Clark’s record has weaknesses. For example, despite avoiding annual budget deficits, Clark has allowed government debt to grow under her watch – by almost $7 billion. This is mainly the result of substantial capital spending by the B.C. government being financed by debt. As a percentage of the economy, the provincial debt burden has grown from 15.7 per cent to 16.4 per cent.

But Clark’s biggest weakness with respect to fiscal policy is in the area of taxation. Two problems stand out.

First, she increased B.C.’s general corporate income tax rate from 10 to 11 per cent, making the province less competitive for investment compared to other jurisdictions. And this increase came on top of reinstating the economically damaging Provincial Sales Tax, which taxes the business inputs used by entrepreneurs and raises the cost of investment.

Second, Clark presided over, and has so far failed to reform, a relatively complicated personal income tax system with five separate tax brackets – the second most among her provincial counterparts. She also enacted a temporary increase in the top income tax bracket for two years that was ultimately eliminated in the 2016 tax year.

In order to build on the strong elements of B.C.’s fiscal policy framework, and to make the province’s tax system more competitive, the Clark government should reverse the recent corporate income tax rate hike and implement a plan to offset the marked increase in the cost of business investment associated with the re-introduction of the PST, especially since almost all of B.C.’s competitors have moved to a value-added tax like the now-abolished HST.

On personal income taxes, simplifying the system by reducing the number of tax brackets and the existing top rate would give B.C. a key competitive advantage over other jurisdictions.
All told, Premier Clark’s record on fiscal policy is positive. There is still, however, room for improvement.

Charles Lammam is director of fiscal studies and Ben Eisen is associate director of provincial prosperity studies at the Fraser Institute. The study, Measuring the Fiscal Performance of Canada’s Premiers, is available at www.fraserinstitute.org.

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