How Much Could a Guaranteed Annual Income Cost?

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How Much Could a Guaranteed Annual Income Cost?

Summary

  • The recent implementation of the Canada Emergency Response Benefit (CERB) has sparked renewed interest in an old policy idea known as the Guaranteed Annual Income (GAI). There are many variants of the GAI concept. All of them, however, involve using cash transfers from government to ensure a minimum annual income for all individuals.
  • This bulletin uses four different policy design options to estimate the cost to the federal government of implementing a permanent GAI program. We use the $2,000 per month CERB framework as a starting point.
  • We find that providing a taxable $24,000 a year benefit to all working age Canadians (aged 18-64) regardless of their income level through a universal basic income structure generates a total net annual cost of $464.5 billion. This option would increase federal program spending from 2019/20 levels by 132.4 percent.
  • Our second scenario considers reducing program costs by “clawing back” the GAI benefit as an individual’s income rises. Specifically, we model a claw-back rate of 15 percent, with the claw back being applied once an individual’s income reaches a threshold of $77,580.
  • This approach reduces the net annual cost to $447.2 billion. Increasing the claw-back rate to 50 percent and lowering the minimum income threshold at which the claw back begins to apply to $50,000 would reduce the net cost of the program further—to $381.4 billion.
  • If the federal government structured the GAI to operate similar to Old Age Security (OAS) by reducing the maximum annual benefit from $24,000 to $7,272, the total net annual cost would be $131.9 billion.
  • In addition to estimating the cost of various GAI designs, this bulletin briefly discusses the tradeoffs these design options entail between various possible policy objectives, specifically, cost control, work incentives, and adequacy as an anti-poverty tool for individuals and families with very low incomes.

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