Let Them Eat Cake: UBI’s Lessons for Redesigning Canada’s Social Welfare System

In almost every aspect, 2020 has interrupted the global status quo and demanded innovative solutions. This includes Canada’s welfare system, which saw the Canadian Emergency Response Benefit (CERB) sidestep the heavily regulated and selective income relief system in just a few clicks. Likened to a Universal Basic Income (UBI), the CERB propelled alternative welfare models back into the mainstream. UBI’ was one of the biggest buzzwords of 2020, but debate surrounding the welfare system has existed for decades among academics and politicians. While British Columbia’s recent report on UBI did not ultimately advocate for the model’s adoption, it highlighted how we can draw on elements of UBI to improve Canada's current welfare system. 

UBI is often dismissed as a delusionary concept advocated by the extreme left. Yet this assumption frequently stems from misconceptions about what a UBI is. Multiple interpretations of UBI exist, which each conceptualize how a UBI should be modeled, and what the benefit levels should be, very differently. UBI can take many different names, such as a “basic income guaranteed”, “guaranteed livable income”, and “minimum income”, which hints that there may be subtle differences between them. This article refers to a UBI which, at its core, is an unconditional cash transfer that guarantees a livable income regardless of work status. This differs from Canada’s current philosophy on welfare, which disincentivizes individuals from receiving financial support. Existing theories on UBI also disagree on the cost and administration of such schemes depending on what form they take, such as a universal demogrant or a Negative Income Tax (NIT). 

Under the NIT model, individuals lacking a steady source of income would receive the maximum benefit. As earnings from other sources increase, the benefit is decreased by a proposed tax back rate per dollar earned until the benefit is reduced to zero. This type of model is not foreign to Canada, as the Guaranteed Income Supplement essentially acts as a negative income tax targeted towards seniors. On the other hand, a universal demogrant provides a cash transfer to all citizens regardless of income. The Old Age Security credit is an example of a universal demogrant also specific to seniors, which is taxed back later from higher-income earners. This approach, which does not use means-testing, often generates the high up-front costs that can make a UBI appear wildly unaffordable.

While implementing a UBI would not be a quick fix to alleviating poverty, the current patchwork of Canada’s social assistance programs has been failing to help those most in need for decades. In 2018, approximately 3.2 million Canadians lived below the poverty line. While many are caught by existing social safety nets, the vague requirements of these programs, which are also subject to personal biases, often cause many Canadians to fall through the cracks.

Though social assistance regulations differ across provinces, their administrative frameworks remain relatively the same; applicants are subject to asset limits, which are the threshold of resources individuals may own and still be eligible for income assistance. Unfortunately, low liquid asset limits, such as the  $300 threshold for a single employable person in the Northwest Territories, restrict recipients’ abilities to save enough to become independent of income support.

UBI skeptics typically raise concerns surrounding work disincentives, but current social assistance can be just as discouraging. In Quebec, a couple with two children receiving social assistance can only obtain $300 of net earnings before their benefits are reduced by a dollar for each additional dollar earned. Unless a recipient is deemed to have a disability, income support is almost always contingent on proof of work search. This requirement excludes Canadians struggling with mental illness or addiction, those with young dependents, and those engaged in full-time unpaid work such as caregiving. In British Columbia, single parents are considered “employable” when their youngest child is just three years old. 

Despite MP Leah Gazan’s motion last August to make CERB a “permanent guaranteed income,” Canada will likely not adopt the model in the foreseeable future. This is not to say that there hasn’t been enough serious thought from politicians about UBI. In fact, a UBI pilot occurred in Manitoba in the 1970s  and again in Ontario in 2017. The 2017 pilot saw working-age participants receive monthly payments equivalent to 75 percent of the low-income measure, reduced by fifty-cents for every dollar of employable income earned. Both pilots showed positive impacts on the health, education, employment, and financial stability of participants. 

However, a 2018 report by the Parliamentary Budget Office estimated that the cost of the Ontario pilot on a national scale would reach $76.0 billion in 2018-2019 and nearly $79.5 billion by 2022-2023. While the report estimates the 2018 net costs could be reduced to $44 billion if the program replaces other federal income supports, this remains a deterrent for most policymakers. Additionally, a federal UBI would require buy-in from every province, as welfare services fall under provincial jurisdiction. Such a drastic rebuild of Canada’s welfare system is unlikely, but understanding the beneficial aspects of a UBI could play an important role in improving what currently exists. 

Unlike existing social assistance programs, UBI has lower barriers to entry and administrative costs thanks to its unconditional nature. Many social programs require extensive documentation to prove continued eligibility, which poses a great time-cost for applicants. For example, the Ontario Disability Support (ODS) requires beneficiaries to report their net income every month and submit pay stubs and receipts for verification, leading ODS employees to process nearly 35,000 documents per day. With research supporting that time spent navigating bureaucratic barriers exacerbates poverty, it is crucial to implement a program that eases paperwork requirements by having less stringent eligibility conditions.

Contrary to Employment Insurance, a UBI protects gig economy workers, who account for 8-10% of Canadian workers, against involuntary job loss. Gig workers were only protected under the CERB, which was a merely temporary measure. By determining eligibility based on income, rather than working conditions, UBI eliminates Employment Insurance gaps and is better adapted to the modern labor economy.  

In addition to protecting all workers, UBI differs from other welfare programs in that it ends, rather than perpetuates, the cycle of poverty. Current government assistance places stringent conditions on how recipients must pay back and utilize the aid they receive. The high tax on earned income for social assistance recipients constrains their ability to take risks, like searching for more rewarding employment opportunities or starting entrepreneurial ventures. In some provinces, it is also very difficult to combine social assistance with student grants and loans, which limits recipients’ ability to pursue educational opportunities that would expand their job prospects. 

With few limitations on how the cash transfer can be spent or combined, UBI allows recipients to invest in their education or find more rewarding employment opportunities. This was shown in the 2017 Ontario trial, where the provision of a basic income encouraged many participants to leave low-paying jobs and take risks to reshape their careers. In fact, a third of those that responded to the post-pilot survey shifted to higher-paying opportunities, and one-quarter enrolled in educational programs. 

Finally, UBI diverges from existing programs in that it aims to provide recipients with a livable income, rather than a minimal cash transfer that fails to cover their basic needs. In Ontario, for instance, a single employable person would have been granted a maximum annual income of $8,796  under existing programs, well below Toronto’s $24,163 Market Based Measure (MBM), which reflects the cost of basic goods and services. In contrast, the 2017 pilot provided single participants living in select Southern Ontario municipalities with $16,989 — double the previous amount.

 Policymakers should consider including several of UBI’s characteristics in the redesign of Canada’s social welfare programs. UBI involves a simpler bureaucratic framework than existing welfare schemes and incorporates more inclusive eligibility conditions. UBI is also better adapted to the modern labor market, providing critical income support to gig economy workers. Lastly, unlike existing social assistance programs, UBI’s unconditional cash transfer allows participants to escape the cycle of poverty. Although B.C.’s report found UBI unsuitable to target the diverse needs of the province’s residents, this innovative scheme offers an alternate welfare model based on accessibility, unconditionality, and simplicity that policymakers can learn from.