Costing a Guaranteed Liveable Income

Costing a Guaranteed Liveable Income

The costing of Guaranteed Liveable Income (GLI) depends on the size of the guarantee and the rate of clawback for those earning income. The “clawback” means how we tax the money a person earns above the guaranteed minimum level, until the GLI payment disappears completely. This ensures that the GLI recipient is able to transition back into full-time work in a reasonable way.  

The size of the guarantee should be set at a level to ensure all recipients can live at or above the poverty line.  Currently, welfare and disability recipients eligible for the existing hodge podge of federal/provincial/municipal allowances, tax credits etc., receive substantially less than the poverty line. In contrast, elderly Canadians eligible for Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) generally receive support that is at or above the poverty line.

To design a GLI, economists will estimate the size of the "poverty gap", that is, the total amount of money needed to bring everyone up to the poverty line. (See e.g. Derek Hum and Wayne Simpson, 2003, “The Cost of Eliminating Poverty in Canada: Basic Income with and Income Test Twist”). In addition to estimating the “poverty gap” and setting the minimum GLI, implementing the GLI requires establishing the tax back rate on income earned above this minimum GLI, and the level at which the GLI payment is phased out completely. All these variables affect the overall cost of the GLI program.  For example, using a more progressive tax back rate could reduce the overall cost of a GLI, while raising the size of the minimum guarantee could increase it. The Canadian Centre for Policy Alternatives explored this in a paper published in November 2009 entitled “Possibilities and Prospects: The Debate Over a Guaranteed Income” by Margot Young and James P. Mulvale. Their cost estimates are all net of the savings obtained by eliminating welfare programs.

To establish a GLI that ensures all recipients can live at or above the poverty line, the income guarantee could be set at the Stats Can LICO (low-income cut-off) measurement. LICO currently varies depending on a person’s location, family size etc., but is approximately $23,000 for an adult Canadian in a medium-sized city. Using an aggressive and progressively increasing tax back rate of over 50% (over 50% of the additional money earned above the minimum GLI is taxed back until the GLI payment is phased out completely and relatively quickly) and assuming an income guarantee at the Stats Can LICO poverty line, the cost of the program could be roughly estimated to be approximately $25 billion. 

In my view, a program that delivers a reasonable GLI (close to the Stats Can poverty line of about $23,000) would involve a cost that is manageable from a responsible budgetary planning perspective, especially after undertaking the serious tax reforms supported by the Green Party (and, interestingly, would be considerably less than what we currently spend on the OAS/GIS program). Implementing a GLI would indeed bring about a valuable transformation in policy structure that would benefit Canadians.  

Professor Robin Boadway

Department of Economics

Queen’s University