Building a basic income floor for Canadians to stand on.

Hugh Segal is Resident Fellow at The School of Policy Studies at Queen's University in Kingston, Ontario, an associate with the investment firm of Gluskin Sheff and Associates, and a former Principal Secretary to the Premier of Ontario and the Prime Minister of Canada.

It was at a Conservative policy conference at Niagara Falls in 1969 where, based on a paper from the research office, Robert Stanfield and his Party first reflected on the benefits of a more efficient and humane income security system implied by a guaranteed annual income. The paper envisaged an eventual end to rules-based, overlapping income security programs at the federal and provincial level in favour of a negative, income-tax-based universal income floor, above the poverty line, available to all Canadians in need.

I was 19 at the time. The paper offered practical and humanitarian reasons for the collective and individual benefits of this more holistic approach to equality of opportunity that appealed to me then, and have stayed with me in every political assignment I have accepted since. A decade after the conference, I served as Principal Secretary and then Associate Cabinet Secretary at Queen's Park, when the Davis government brought in the Guaranteed Annual Income Supplement (GAI) for seniors: a holistic response to a compelling and measurable problem of indigent seniors, largely female, facing an unacceptable prospect of prolonged poverty.

While the GAI was more generous than Ottawa's laudable but meagre Guaranteed Income Supplement, introduced in the 1960s, it was flawed in many ways. It was one initiative in one province, limited to one age segment. It topped up existing programs for which meaningful long-term guarantees were, as we have since learned thanks to federal cutbacks and transfer "re-profiling," largely illusionary.

In that regard, it simply mirrored what has been wrong with income security policy in Canada for some time--namely its failure to design a framework that responds to income collapse without regard to age, occupation, location, employment or disability--and does so non-judgmentally and without excessive bureaucracy.

A spider's web of existing programs

It is hard to fault the motivation of those academics, civil servants and politicians who crafted separate rationales, policy frameworks and operative regulations for different programs designed to address income needs resulting from different circumstances and for different reasons. But in the end, whether one injures one's back at a job site or has the local steel mill or cod fishery shut down, the issue is income. The disruption to family security, the threat to a marriage's stability, the collapse in local buying power all occur because income is gone.

Whatever the reason for the collapse in income, the local cost of living respectably above the poverty line does not change by virtue of one's being eligible for program A or ineligible for program B. Letting the condition of people's lives filter its way through regulation-driven programs until it lands in the welfare catch-all--itself highly regulated and hypothecated on provincial and municipal particularities--is no response to the core question of individual dignity and self-respect. When companies and governments buy out senior employees, the main item in the severance package is always income. The case for the status quo in government assistance might be sustainable if it could be argued that the present spider's web of programs (sticky enough to entrap but not strong enough to support) had produced real progress; less poverty overall, higher levels of return to the labour market, greater independence and increased consumer confidence. Sadly, there is no such overall progress to report.

Incomes collapse for a host of reasons, illness, infirmity, a pause to re-educate or build skills, age, youth, local and massive job evaporation. It is possible, if not simple, to establish what bringing collapsed incomes above the poverty line in different Canadian communities entails.

The principle that every citizen should have the right to bridging support at liveable levels when there is income collapse balances the principle that the state has the right to deduct tax at source from the income an individual earns. It would be the ultimate socialist excess to suggest that the state has an "a priori" right to take money from the citizen with income for its general purposes (such as hiring public servants, servicing debt or financing taxdeferral programs for industry) but has no concurrent responsibility to respond to the citizen's income collapse.

Those who argue that any such income insurance program would break the bank should first reflect on what we are now spending, in some cases quite wastefully. The MacDonald Royal Commission on Canada's economic union and development prospects (yes, the same one that called for a leap of faith to free trade) reviewed income security spending a decade ago (Vol. II, p. 771). Highlights included unemployment insurance at $11.6 billion, old age security at $11.4 billion, pension-related tax exemptions and deductions at $7.6 billion, social assistance at $6.6 billion, family allowance at $2.4 billion, child tax exemptions at $1.4 billion, a child tax credit of $1.1 billion and married exemptions at $2 billion.

If you include the basic exemption--which is supposed to reflect the progressive nature of our tax system--one could add another $14 billion. This still leaves native programs, veterans' pensions and training allowances. In fact, when combined with provincial expenditures, and excluding the personal basic tax exemption, the total reached $61 billion--and that was a decade ago. In 1990, total expenditures, excluding the personal basic exemption and the married exemption, totalled some $67.1 billion. (1) So this is hardly a question of new wasteful spending. There is a large, well-intentioned spending machine now operating under a huge set of different rule books and eligibility criteria.

Although the idea of a guaranteed annual income has been discussed for years, no real consideration has been given to replacing all of these programs with a GAI, mainly because the federal bureaucracy has ruled out the idea as prohibitively expensive. When I served in Ottawa in 1991, a proposal by John Harter of the International Labour Office for a guaranteed annual income was rejected by senior mandarins who maintained that any new program aimed at supplementing the income of Canadians who were among the working "poor" could not be initiated during the fight to trim the deficit. Instead, new, modest initiatives in the same direction should be considered.

The bureaucracy was in fact following the classic, incrementalist, or "Goldilocks" approach to public policy. Policy A is too extreme or too expensive: Policy C is utterly impossible in the present context: and the incrementalist policy in the centre (Policy B) is just right!

The bureaucratic preference for piecemeal income supplements by dependency category and subgroup has been sustained by a host of different reports and commissions. These included the Castonguay Report in Quebec in 1971, the federal "Orange Paper" under the Liberals in the 1970s, the MacDonald Royal Commission and Ontario's Social Assistance Review Committee. These reports have tended to take a "support and supplementation" approach to income security, assuming that the GAI is too expensive and, in any case, only income-tested programs for the working poor could be sold to the electorate.

Sadly, this is essentially the thinking behind the Children's Tax Credit offered by Ottawa's Pierre Pettigrew to the provinces and, at the time of writing, largely embraced. Even more sadly, this piecemeal approach could produce so cluttered a patchwork of expensive and poorly targeted income-security programs that we will see public support for this vital area of social justice and economic balance erode.

To give Pettigrew his due, there is a positive side to his approach. Having cut his teeth politically as an advisor to then-Quebec Liberal leader Claude Ryan, Pettigrew is inoculated against his government's centralist bias and thus remains sensitive to the need to ensure a strong role for the provinces in defining and delivering the program. His approach to negotiations on the child tax credit was an improvement over previous top-down, "Ottawa-knows-best" scenarios. Any integrated basic income floor with a hope of implementation will have to be built on such a joint and collegial social policy framework.

The twin forces of unimpeded, planet-wide capital mobility and the massive diffusion of liberating information technologies mean the end of the traditional work pattern, as part of both the life cycle and the earnings and savings cycle. This transition will bring economic growth through higher labour and capital productivity but with much less employment stability than was the case with an economy based on resource harvesting and labour-intensive manufacturing. This will continue to mean huge economic dislocation for millions of people in the industrialized world, including too many people in Canada. In regions with traditional and thus declining industries--fisheries, lumber, pulp and paper, mining, manufacturing and refining--employment devastation is particularly oppressive.

Clearly, a basic income floor would be only a small part of the answer to the increasingly jobless nature of economic growth. Policies which encourage job sharing, improve conditions for part-time workers--such as broader access to benefits and pensions--assist the volunteer sector, and encourage hiring in that sector through tax-based incentives could have a significant impact. But, there is no justification for leaving income security where it has always been. Continuing to approach income security by the norms of the 1960s when life, work and income cycles are so drastically changed is utterly unrealistic.

The notion that one's eligibility for support is to be determined by some statutory or regulatory attachment to a subgroup--the handicapped, children, the aged, the narrowly defined unemployed or welfare-eligible indigents--does much for social work caseloads and program designers but little for self-respect and personal dignity.

Operating in the '90s on a '60s model

As a relatively enthusiatic capitalist, I know that those of us who favour greater freedom to invest and thus to expand and alter the economic framework in order to liberate forces of excellence and growth cannot have it both ways. One cannot radically alter the structure and nature of work, and thus the sources of economic stability for the average wage earner--as new technology and globalization are doing--without at the same time redesigning the framework for income stability to make it more supportive of the user and less biased toward the bureaucracy.

Today, applicants for income security must find a way (however contrived) to fit into programs designed on a 1960s model--when the world is a 1990s one with far more unpredictable income and work cycles. A bias that subjects those needing income to make ends meet to 1960s rules, categories and programs, while allowing those with capital to invest to benefit fully from all the potential of 1990s technologies is a recipe for social chaos. Income gaps will grow. Inter-generational pressures will build up. Levels of social civility will decline as levels of criminal activity, non-violent and otherwise, will increase. Unless one is in the business of private security, none of this holds any promise.

Yet, despite these genuine and profound dangers, established politicians, bureaucracies and most income security experts refuse to consider a holistic approach to income security. It is fascinating how self-fulfilling assumptions and prophecies feed the holistic policy vacuum:

* As long as there is no integrated plan, there is no basis upon which to compare its effectiveness with the existing Tower-of-Babel approach.

* Using deficit constraints as a rationale for incrementalist solutions never allows any real analysis of cost savings that would result from replacing all group-specific income security programs.

* The lack of a cohesive and holistic proposal around which provincial co-operation could be solicited results in the assumption of an absence of prospects for such co-operation, which provides an excuse for not developing a cohesive and holistic proposal. How's that for a compelling tautology!

Not even prime ministers can break this logjam of self-constraining half-truisms. In November of 1991, as discussions that resulted in family allowances giving way to a Child Tax Credit heavily tilted to help the working poor were proceeding, Prime Minister Mulroney wrote to his Minister of Health and Welfare, Benoit Bouchard, encouraging his department to see this initiative as a first step in the development of what would be a sea change in income security. This reform would be set out in a White Paper that would include a guaranteed annual income as a way to radically modernize our income security system so as to enable people to address the impact of economic transformation.

As Senior Policy Advisor at the time, it was my sense that had the Prime Minister and the Minister of Health not been weighed down by the need to restart the constitutional process that had collapsed with Newfoundland's rejection of the Meech Lake Accord, the government would have made a serious social policy thrust along these lines. The Minister was, in my view, seriously interested. However, the determination of his bureaucrats, along with those in Human Resources and Finance, to kill the baby in the incubator coupled with pressures arising from the events of the time, arrested any progress on that broader front.

Beyond the piecemeal approach

Canada's social policy history reflects a bureaucratic bias towards a piecemeal approach to income security.

Prior to World War II, mother's allowances, workman's compensation and early forms of unemployment insurance began. Following the war came family allowances and elderly benefits (universal at 70, and means-tested between 65 and 69). Special social assistance was introduced for the blind, disabled and the unemployed not eligible for unemployment insurance. In the 1960s, the pace quickened: Canada Pension Plan (and Quebec Pension Plan) and Canada Assistance Plan in 1966. A host of federal labour-market programs aimed at job creation and training were developed and Old Age Pension eligibility was lowered to age 65. The Guaranteed Income Supplement for seniors was introduced in 1967 and the UIC program was significantly expanded in 1971.

To be fair to those who worked on the income security sections of the MacDonald Commission, they were sensitive to the limits of a piecemeal approach. The commissioners admitted that "... a more complete rationalization is a worthwhile target in the reform of our income security transfer system. This will mean replacing much of the present complex range of programs with one transfer delivered either through the tax system adjusted to pay out benefits monthly, or through separate cheques, a method similar to that used in current Old Age Security programmes ..." (Vol. II, p. 795).

They expressed doubts about a GAI because, according to long-held wisdom, the guaranteed levels necessary would be prohibitively expensive. But the commissioners did at least consider different administrative and cost/variable scenarios before arriving at a more modest universal income security program to be phased in over a long time.

The MacDonald Report's proposal for free trade with the U.S. was taken up, but politicians failed to respond to the lack of linkage between the benefits of free trade and the impact of structural change in the economy on people. Patrick Grady summed up the observed effects of the piecemeal approach that was left us in 1995 as follows (2):

* The current system is ineffective and too costly.

* Child benefits were, until 1993, largely untargeted.

* Most critics find the UI program too focused on passive income support rather than improving job prospects and skills for the unemployed.

* UI prolongs higher unemployment by prolonging unproductive job search and making seasonal, rather than permanent work, more attractive.

* Ninety percent of benefits do not go to low-income families.

* Existing social assistance benefits create a poverty trap and can foster dependency.

* Employment at low wages can result in limited to zero net benefit to current social assistance recipients.

* People seeking to break out of low-income or income security traps may well find any incremental earnings taxed at about 100 percent--which is twice the rate of the highest marginal tax rate on the wealthiest incomes in the country.

The philosophical divide

In order to frame a holistic guaranteed income policy (or basic income floor, as I prefer to call it) we must be frank about the philosophical divide that lies at the core of policy debates on income security in most industrialized countries. Not to do so is to be naive about the political process of design, advocacy and implementation, and to seed any new initiative with the ingredients of failure.

The way a society poses the question of why income collapses traditionally carries with it a moral judgment about the person whose income it is. Classically, American conservatives have worried that any automatic eligibility, rather than one based on infirmity, illness or age, necessarily bestows societal approval on the non-earning citizen. Furthermore, the concentration of unemployment in a specific area or region, or among a specific group, gives rise to judgments about collective dependency attributes, judgments too often quickly embraced by policy makers and fellow citizens who should know better.

Lawrence M. Mead, not a supporter of entitlement programs, addressed the difference between liberals and conservatives around the issue of poverty in this way: (3)

"Liberals tend to be pessimistic about competence, viewing people as overwhelmed by their environment. So they ask special help for them and tend to be permissive about enforcing conventional mores. Conservatives are much more optimistic, hence more demanding and less permissive...

"Liberal analysts are quick to find impediments to employment, because they view the poor as helpless victims. Conservatives see fewer barriers and call for less help, because they impute more ability to the poor...

"The poor are either innocent supplicants of whom nothing can be expected, or they are lazy exploiters who can and should shape up. These are not disagreements that any hard evidence can resolve."

While this American take on the issues around poverty may well strike many Canadians as irrelevant to a Canadian debate, the truth is that similar biases have distorted Canadian income security policy. Governments have felt comfortable with programs that respond to income collapse only for collectively defined statutory groups ("unemployed," "aged," "handicapped," "injured in the workplace," "veteran," "child") largely because those were seen as the categories for which voters would accept income support.

The fact that someone was simply short of sufficient income to live with dignity was not seen as sufficient justification for societal support. Yet, interestingly enough, we seem not to care about the reasons we get tax revenue from individuals. We care not if they were brighter, worked harder, studied more, had great business sense, received a legal stock tip or got outstanding tax advice. We care not if they worked 40 hours a week or 90. We do not care if they are alcoholics or have three colour TVs.

How their income reaches a certain level is unimportant. The state simply taxes it. Yet when income collapses the state takes a more judgmental view. As a Canadian conservative I am troubled deeply by this double standard. If the state uses no moral magnifying glass as it taxes on the way up, what possible rationale, other than a meddlesome, self-important and moralistic political and bureaucratic bias could be used to justify the contrary view when incomes collapse.

In order to find solutions in this area today, it is imperative to understand the blurring between social and economic policy that has occurred and the need to think beyond these policy silos.

A society that promotes free trade, mobility of people and capital, the unrestrained expansion of technology to enhance competitive advantage and institutional investment through pension funds, with their built-in bias for transactions that produce quantum earnings growth through strategic economies of scale, cannot ignore the resulting job dislocation and changes to the structure of the workplace and the labour market.

To do so is to be mindful of the prosperity for those with capital or those who manage it, and completely disengaged from those not so blessed--namely the vast majority of law-abiding taxpayers.

A basic income floor as a good investment

In this context, a basic income floor is not a new social program or an added fiscal burden. It is simply another essential investment vital to promote productivity, competition and economic growth. Jobless economic recoveries, employment-free growth cycles and structural employment barriers caused by rapid technological change are unavoidable elements of the current economic framework. This framework is neither reversible nor reprehensible--it is simply the reality of a competitive world. Failing to build a basic income floor in Canada to adapt to the vicissitudes of that new reality will be as harmful to Canada's economic development as would be banning software development--somewhere between madness and myopia.

If it is done right, instituting a basic income floor could diminish federal-provincial and labour-management tensions. If it is done right, it could, over time, reduce the net burden of state spending.

The starting principle for a working paper exploring how to design and implement a basic income floor is clear: it should ultimately replace all non-contributory transfers to individuals from Ottawa, the provinces and municipalities except for health care and education. The operating principle is also clear: transfers would be done via the income tax filing process--which automatically includes all provinces and Ottawa.

Many of the relevant design issues were well addressed in a paper released by Human Resources Canada in 1994 as part of Mr. Axworthy's stillborn social policy review. (4) It stated that the goal of a universally available income top-up would be to assist the working poor first and later be expanded to include the unemployed in a staged and realistic way. It then considered formulaic overlays to account for special costs such as those generated by a disability or to account for higher local costs in remote regions.

What is to be done

Let me conclude with the core working principles underlying a basic income floor and getting from here to there.

The basic income floor proposal should be developed by a federal-provincial working group, with input from business, labour and the volunteer sector. It should offer meaningful incentives for provinces to participate and to pool resources.

During its implementation phase--likely no less than five years--a basic income floor program should track contributions to its costs from federal and provincial programs that are scrapped as they are replaced and obviated by basic income floor implementation.

A Basic Income Commission could well be a joint federal-provincial body to administer the year-to-year operation in terms of rates of top-up. It would also track the impact of changing demographics. The program would be delivered through the income tax system. With the GST Tax Rebate system in place we already have a mechanism which recognizes that those who may not earn enough to justify a tax return can file for tax credits and receive them well before the tax filing cycle.

These are manageable working principles. The core notion that every law-abiding Canadian has the right to live reasonably above the poverty line is no different from the core principle that every law-abiding investor has the right to do with his or her money whatever he or she pleases. The two principles should co-exist in some balance in our institutions and policies.

The somewhat premature debate these days about what we do with a balanced budget dividend rings rather hollow when accumulated debt is still being added to by the big provinces and systemic waste in education, health-care and social spending are far from fully addressed.

But that debate could acquire new significance and urgency if someone had the courage and will to put the goal of a consolidated basic income floor on the public agenda. Its benefits would be enormous.

Billions of dollars now spent for group-related social programs would be spent far more efficiently as the costs of bureaucracies and caseloads in many of these programs were eliminated.

The issue of tax cuts as a boon just to the wealthier would disappear, with all being eligible to a boost from the tax system when incomes fell.

The implicit affirmation of the dignity of all citizens without state judgment or meddling would be affirmed.

The basic income floor would provide clarity and purpose in a balanced economic policy for a free society.

What of the argument that such a program would produce disincentives to work? Critics who make that argument level the same charge against the current system, with its plethora of unemployment insurance, welfare and income supplement programs. During the fight to slash the federal and provincial deficits, eligibility criteria have been tightened and rules changed to make it more difficult to collect benefits. But this has not produced any increase in employment, largely because of the structural changes discussed above, and the bureaucracy charged with designing and delivering programs piecemeal lumbers on.

A White Paper on a universal basic income floor would, of course, have to address the issue of incentives. But to simply dismiss the idea on grounds that it would create disincentives to work ignores the massive inefficiencies in the current, tangled mess of programs. And it ignores the human and economic benefits of streamlining them into a single, universal approach.

In time, the basic income floor could become as intrinsic to the Canadian identity as our universal health-care policy. And it would not amount to an expansion of the state--as large parts of the state's apparatus at the federal, provincial and municipal level would be shrunk to help finance it. Being tied to the filing of tax returns, it would give a significant boost to voluntary compliance and thus enhance the government's fiscal position. It could be structured along interprovincial lines, with Ottawa providing the fully equalized tax points essential to its operation in return for agreements on portability and access. It would be flexible, sensitive and firmly connected to local quality of life and cost of living. Those who file dishonest returns would face more serious sanctions under the tax laws than the small percentage of welfare and employment insurance fiddlers now face.

It would mean a society-wide commitment to the dignity and self-respect of every resident of Canada. It would respect the privacy of applicants in the same way as the privacy of those seeking investment tax credits is respected.

For some in government and academe, a basic income floor is too troublesome, too bold a stroke, insufficiently deferential to all that has come before. But we live in an age where economic, technological and industrial policy are changing at precisely that rate and in that way.

There is no reason that policies which address the dignity and self-respect of all people, regardless of age, sex, ability, health or walk of life should fail to keep pace.

(1) . Michael Krashinsky, Putting the Poor to Work vs. Helping the Poor (Toronto: C.D. Howe) p. 99.

(2) . Patrick Grady, Income Security Reform and the Concept of a Guaranteed Income (Queen's University School of Policy Studies, Government and Competitiveness Papers) pp. 168-72.

(3) . Lawrence M. Mead, "The New Politics of the New Poverty," The Public Interest, 1993, pp. 13-16.

(4) . "Canada, Guaranteed Annual Income," a supplementary paper (Ottawa: Queen's Printer, 1994).