Be cautious about Ontario’s ‘basic income’ plan

The Ontario government seems poised to run a Basic Income pilot program. While the idea of a ‘basic income’ has conceptual appeal, proponents should be less optimistic about a basic income’s ability to deliver on all of its theoretical benefits.

The idea for a new pilot program was first floated in the Ontario budget last March; more details are expected to be released soon in the form recommendations from former Senator Hugh Segal. The basic income, also known as a Guaranteed Annual Income, 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.

As novel as the idea may sound to some, it’s actually been around for decades. In fact, there were several pilot programs for a basic income in both Canada and the United States from the 1960s to the 1970s. These pilot programs provided fodder for researchers, but never materialized into permanent government programs. Now, decades later, there is renewed interest and the Ontario government is set to experiment.

But we need to clear about what a Basic Income can and cannot achieve. Also, for the program to deliver on what is perhaps its main conceptual appeal—simplicity—important design considerations need be clarified.

First, it has to be a replacement to existing programs and not an add-on. A critical feature of any serious Basic Income proposal is a single program 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, the main appeal of the Basic Income arguably rests on the potential to improve efficiency and reduce government administrative costs by simplifying the income support system, which now consists of numerous, often-overlapping programs.

In theory, the potential for administrative savings is substantial. As our recent study found, 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 hard time getting it due to a complex and potentially overwhelming bureaucracy.

For administrative savings to materialize, other programs (including federal and local government programs) and their expensive bureaucracy must be terminated. Otherwise, Ontario’s Basic Income will simply be layered on top of the existing, complex system. But consolidating existing programs, many of which have different specific purposes or target different groups, can be challenging particularly because it requires coordination across mulitple government levels.

The program design details matter a lot, too. And this involves difficult questions 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). News reports suggest that Ontario’s Basic Income pilot program could guarantee an income of $22,000. An unconditional transfer at this level raises serious concerns about work disincentives from paying able bodied people not to work. Indeed, the lack of conditions for receiving the transfer could encourage dependency on government and discourage people from improving their situation. Affordability concerns also loom. Given Ontario’s current state of government finances, the government would need to be clear how it can afford a guarantee as high as $22,000 and what degree of consolidation will take place across programs, specifying which programs will be cut.

Finally, a Basic Income is unlikely to be a silver bullet for social ills such as poverty, as some claim. Poverty is a complex issue and the root causes likely run much deeper than a simple lack of income. Drivers such as mental health or addiction are unlikely to be resolved solely by handing out cash. In the case of addiction, increased cash transfers can make a bad situation worse by providing the means to fuel an addiction.

This is not to say that no one would benefit from the cash transfer; only that we should not expect this one program to be the silver bullet for poverty that some proponents make it out to be.