Imagine receiving a reliable paycheque from the government. What would you do with the extra money? Save it? Invest it? Go on vacation more often?
Currently, Bills S-223 and C-223 aim to end poverty and provide basic income support by creating a foundation for a UBI program.
Currently, there is no universal basic income in Canada provided. Although Canada has performed brief trials and tests in rural areas, it has never been fully implemented.
Below, I’ll explain a bit more about how universal basic income works, reference past experiments, and outline some of the pros and cons of a UBI program.
What Is Universal Basic Income (UBI)?
The idea of universal basic income is simple: a social benefit that provides regular, unconditional cash payments to all citizens or residents, regardless of employment status or income level.
The primary goals of universal basic income are to:
- Reduce poverty
- Reduce income inequality
- Incentivize entreprenuership
- Help repair and grow the economy
Today, you may hear politicians and economists speak about a UBI program for all. Some claim that it will eliminate the need for social services by providing enough money for all Canadians to live on.
Those on the other side argue that a basic income program would cost taxpayers more money and would be nearly impossible to implement effectively.
Universal basic income has received renewed attention since the COVID-19 pandemic. During this time, the government issued the Canada Emergency Response Benefit (CERB) and other payments. These were designed to assist those who were out of work due to the pandemic.
The idea of universal basic income isn’t new, though. It was first proposed locally in the late-18th Century by revolutionary English politician Thomas Spense.
Negative Income Tax And Universal Basic Income
One of Canada’s biggest political debates is whether or not a UBI program would work in the first place and, if so, how it would be implemented.
Perhaps one of the most pressing questions is, “What about those already earning higher incomes?“
The proposed solution to this is a negative income tax.
In simple terms, a negative income tax (NIT) is a form of income support where people earning below a certain threshold receive financial assistance from the government while those earning above the threshold pay taxes.
The amount of assistance decreases as earned income increases, eventually reaching zero at the threshold. This ensures that those with the greatest economic need receive more.
This contradicts the classical UBI model, which entails unconditional, regular payments to all citizens, no matter how much (or little) they earn.
To combine a negative income tax with a UBI, the government would provide a basic income to everyone and then adjust the tax system so that people earning below a certain threshold would receive additional support through the negative income tax.
As an individual’s income increases, their NIT benefit would decrease until they reach the threshold, at which point they would start paying taxes instead.
This combination would ensure a financial safety net for all while providing extra support for low-income individuals. However, it could also leave the country’s top earners footing the bill for UBI recipients, which not everybody agrees with.
- Related Reading: 30 Practical Tips To Reduce Your Taxes
UBI Experiments In Canada
While there’s never been a large-scale implementation of universal basic income in Canada, a couple of small-scale tests have been performed in rural areas of Ontario and Manitoba.
Here’s a brief overview of Canada’s UBI experiments.
1. Manitoba “Mincome”
The “Mincome” experiment was a Canadian Universal Basic Income (UBI) pilot project conducted in the province of Manitoba between 1974 and 1979.
Mincome aimed to explore the potential effects of a guaranteed annual income on work incentives, social well-being, and poverty reduction.
The Mincome program provided participants with a guaranteed annual income based on family size and income level.
For every dollar earned through employment, the benefit payment was reduced by 50 cents. This ensured that participants still had an incentive to continue working, as they would still receive partial benefits.
The experiment targeted two groups:
- Dauphin – a town where every resident was eligible for the program
- Resident samples from Winnipeg and rural Manitoba – the control group
The Mincome experiment was terminated before scientists and economists could analyze all of the data. However, the experiment did show some promising outcomes, including:
- Decreased mental hospitalization rates
- Increased high school graduation rates
- Decreased smoking and drinking among adult participants
Although the Mincome experiment was not comprehensive enough to draw definitive conclusions about UBI, it provided valuable insights into the potential benefits of such programs, including improved health outcomes and educational attainment.
2. Ontario Basic Income Pilot Project
Ontario’s Basic Income Pilot Project is a far more recent experiment that also shed some light on the possible implications of a UBI program in Canada.
The experiment was conducted in Ontario between 2017 and 2018, with the aim of evaluating the effects of a guaranteed income on poverty reduction, health, education, employment, and social well-being.
The program targeted 4,000 low-income participants across three regions:
- Hamilton
- Thunder Bay (one of Ontario’s most affordable mid-size cities)
- Lindsay
Those who were eligible for the program received up to $16,989 per year, while couples received up to $24,027. People with disabilities received an additional $6,000 per year.
Like the Mincome experiment, these payments were reduced by 50 cents for every dollar earned through employment, maintaining an incentive to work.
Unfortunately, the Ontario Basic Income Pilot Project was terminated in 2018 by a newly-elected provincial government. As a result, only a limited amount of data and insight were gained from the experiment.
However, preliminary findings suggested that the program positively impacted participants’ lives.
Recipients who were interviewed reported benefits, such as:
- Reduced stress
- Healthier eating habits (they could afford healthier food)
- Better mental health
- Opportunity to pursue education
- Opportunity to pursue better job opportunities
Given the short duration of the experiment, the data isn’t conclusive. However, it does show promise for the future.
A friend of mine once said, “It’s remarkable how much freedom you have when you don’t have to worry about how your bills are going to get paid.”
While you may not be able to cash in on UBI yourself (at least not yet), you can give yourself more financial breathing room by budgeting, investing, and living frugally.
Universal Basic Income In Other Countries
While UBI has been discussed globally for quite some time, very few countries experimented with it. Here are a few examples:
- Finland: In 2017, Finland implemented a two-year pilot program, offering 2,000 unemployed participants 560 Euros monthly. Results showed increased employment and better health.
- The United States: The Stockton Economic Empowerment Demonstration (SEED) provided $500 monthly to 125 residents, leading to increased full-time employment and reduced financial stress.
- Kenya: GiveDirectly, a non-profit program, is currently running a 12-year UBI program, with early findings indicating increased investments in health, education, and entrepreneurship. The program began in 2017 and is expected to last until 2029.
I’m particularly interested in GiveDirectly’s Kenya project. Given the long duration of the experiment and modern data processing technology, it will likely provide far more insight into UBI implementation on a larger scale.
Universal Basic Income (UBI) vs Guaranteed Basic Income (GBI)
Universal basic income is often confused with the concept of guaranteed basic income (which is often referred to as guaranteed livable basic income).
Both income support mechanisms aim to provide a financial safety net and reduce poverty. However, they differ in their target populations and implementation methods.
- UBI is an unconditional cash payment provided to all citizens or residents, regardless of employment status, income, or other factors
- Guaranteed Minimum Income targets specific low-income or vulnerable populations, providing financial support based on individual or household needs
UBI is more universal, which makes it simpler to administer. Since everybody receives the same amount, no additional calculations or income mathematics must be performed. Proponents of UBI also argue that this reduces the stigma associated with receiving government assistance.
In a GBI system, an individual’s eligibility and payment amounts depend on their income level and other qualifying factors.
As recipients’ income increases, GBI payments decrease, ensuring that the assistance is focused on those most in need. This is very similar to the negative income tax system of UBI.
Government Assistance Programs
Currently, Canada doesn’t offer any form of UBI or GBI programs. However, federal government assistance programs are designed to supplement income and support lower-income families and individuals.
Some of the most common include:
- Canada Child Benefit (CCB): A tax-free monthly payment for eligible families with children under 18 to help with child-related expenses. This is also a refundable tax credit.
- Ontario Disability Support Program (ODSP): Provides financial and employment assistance to eligible people with disabilities in Ontario.
There are also a number of federal and provincial tax credits that lower-income families and individuals can apply for to reduce their tax burden.
Potential Benefits Of Universal Basic Income (UBI)
Now that you have a better idea of Canada’s experiments with UBI let’s review some of the proposed benefits of a UBI program.
Reduced Poverty
Currently, around 6.4% of Canada’s population lives in poverty, according to the most recent results from Statistics Canada. This number has decreased significantly since 2015 when the poverty rate was 14.5%.
One of the main goals of UBI is to reduce overall poverty by providing additional income and financial security to those who need it most.
For those living below the poverty line, an extra payment as low as $100 per week can make a huge difference. It’s the difference between being able to afford healthy groceries and being forced to eat ramen noodles.
Lowers Income Inequality
Basic income could also lower income inequality. With a negative income tax system, wealthier Canadians would presumably pay higher taxes, which would help to fund the UBI system.
Those living below the income threshold would receive a full UBI payment, while those approaching the threshold would gradually earn less. Once an individual’s income passes the income threshold, they would begin contributing extra taxes towards the UBI system.
This would reduce wealthy Canadians’ post-tax income while increasing lower-income Canadians’ income with supplemental payments, bringing the two groups closer.
Encourages Entrepreneurship, Education, and Better Jobs
Proponents of UBI also mention that the additional income could be used to fund entrepreneurship. Those on the program could hypothetically use the extra funds to purchase equipment to start a small business.
Alternatively, the extra money could be used to reduce the number of hours an individual is required to work to keep up with their bills. This, in turn, would give them more free time to pursue professional training/education to find better-paying jobs and earn a higher income.
Could Replace Government Assistance Programs
UBI could also simplify Canada’s often-complicated government assistance programs. If a universal basic income were established, it could potentially eliminate the need for additional income assistance programs.
Potential Drawbacks Of Universal Basic Income (UBI)
Universal basic income isn’t all sunshine and roses, though. Economists also believe that there are a number of drawbacks and downsides to a UBI program.
Cost To The Public
Somebody has to pay for UBI. As with existing government assistance programs, this comes in the form of higher income taxes. Although lower-income families likely wouldn’t see increased taxes, middle to high-income families would almost certainly see increased taxes.
This could negatively affect the economy by reducing the monetary incentive to earn, spend, invest, or start new businesses.
It Doesn’t Provide Targeted Support
A pure UBI system (without a negative income tax) wouldn’t provide targeted support to those who need it most. The wealthy would have free money, which they may not necessarily need, while the poor would just be slightly better off than they were before.
It May Be Difficult To Implement
The controlled studies that have been performed typically involved fewer than 10,000 participants, which is a relatively easy number of payments to manage. However, issuing timely, accurate payments to the population of an entire country is no small feat.
There could be some serious logistical issues until the CRA and the federal government created a system for disbursing payments.
Conclusion – Will Canada Implement A UBI Program?
While multiple political parties have debated the idea of universal basic income, only time will tell if Canada will ever officially implement a UBI program. Likely, more studies will need to be performed to convince the country and its leaders that UBI is the right call.
Until then, spending time and money wisely is the best way to improve your financial standing.
Invest in yourself, educate yourself, and don’t be afraid to pick up an extra side hustle. Not sure where to start? Take a look at the best side hustles in Canada next!
