There is a fiscally conservative argument in favour of a guaranteed annual income (GAI) which many members of Prime Minister Justin Trudeau’s government are calling for in the wake of the COVID-19 recession.
It’s that a single GAI program, replacing all other government income support programs, would be more effective and efficient than the duplication and waste caused by the many overlapping government bureaucracies that deliver these programs today.
The problem is the Liberals would, if past experience is any indication, simply layer the GAI on top of these existing income support programs — everything from the Canada Child Benefit to the Guaranteed Income Supplement.
That’s what Trudeau and many provincial governments did with their carbon taxes.
Instead of first removing all existing taxes on carbon dioxide emissions, and replacing them with one carbon tax, they layered their carbon tax on top of them.
Doing the same with the GAI would not only make it prohibitively expensive for taxpayers, who would both receive and pay for the GAI with their taxes, it would also discourage the incentive to work.
As Philip Cross, former chief economic analyst for Statistics Canada and a senior fellow at the Macdonald-Laurier Institute wrote in a recent column in the Financial Post critical of the GAI, it creates a situation where “a fool and his money are soon partying.”
A report by the Fraser Institute estimates if the government used the pandemic-inspired $2,000 Canada Emergency Response Benefit (CERB) as the basis for a GAI, providing a taxable $24,000 annual benefit to all working age Canadians aged 18 to 64, regardless of income, the cost would be $464.5 billion annually.
This would increase federal program spending from last year by 132.4%.
To pay for it, excluding taking on more public debt, the government would have to massively increase taxes, for example by hiking the 5% Goods and Services Tax to 105.35%.
Costs could be reduced by first eliminating all existing income support programs and melding them into the GAI.
There could also be an income cut-off, where the government would claw back the GAI up to 100%, when an individual’s annual income reaches a designated level.
Or the government could establish a means test to receive the GAI, meaning it would no longer be universal.
The current economic crisis caused by the COVID-19 recession would be the worst time to introduce a GAI.
It would create a ruinously expensive permanent program to deal with a temporary problem — the global recession caused by the COVID-19 pandemic, which will end eventually, as all pandemics do.
The exorbitant costs of a GAI make it highly doubtful the Trudeau government would seriously consider implementing it, at least for now, as opposed to enhancing existing income support programs like Employment Insurance, the government’s current strategy when CERB ends at the end of September.
CERB was created for a unique set of circumstances where millions of people lost their jobs through no fault of their own, because of government-imposed lockdowns.
There is no doubt some Canadians have fraudulently obtained CERB benefits, just as some Canadians commit welfare and employment insurance fraud.
But that wasn’t an acceptable justification for refusing to help the vast majority of honest Canadians who couldn’t work because of COVID-19.
There is no justification for a GAI, however, especially a ruinously expensive one which the Liberals, who love to throw other people’s money around — our money — would undoubtedly conceive.