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OTTAWA—As Canadian governments, including the province of Ontario, move forward with basic income pilot projects, a Canadian Centre for Policy Alternatives (CCPA) study reveals a federally run negative income tax model is most effective approach.
The study simulates eight potential basic income models and concludes that a federal negative income tax which shrinks in value as incomes rise — so that it’s targeted to lower income individuals and phased out for the rich — is more effective at poverty reduction than providing an identical transfer to everyone.
“Canada already has 33 federal and provincial income support programs that are forms of basic income,” says the study’s author CCPA Senior Economist David Macdonald. “What is clear is that replacing existing income supports with a single, equivalent cost, basic income would either substantially worsen poverty or plunge seniors into poverty in order to lift adults and children out of it.”
Among the study’s key findings:
- Canada already has 33 basic income programs that send money with no requirements and no strings attached, such as provincial sales tax credits and Old Age Security (OAS).
- Creating a 34th program which ensures that all Canadians receive a basic income of $10,000 a year, but phases out as incomes rise, would cost $14.5 billion and would reduce poverty by 2.4 percentage points.
- Such a program would most benefit middle-aged adults who live in poverty, but it would have less impact on children, those under 30, and seniors living in poverty.
- Going even further with a basic income program designed to completely eliminate poverty in Canada would cost between $49 billion and $177 billion a year in new spending, depending on the clawback rate.
“There is no magic bullet to eliminating poverty,” Macdonald concludes. “Poverty reduction requires multiple targeted solutions. Basic income programs can be a part of the mix, but increased wages, lower unemployment for youth, and better financial support for seniors also have to be part of the deal,” Macdonald concludes.
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A Policymaker’s Guide to Basic Income is available for download on the CCPA website.
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