Guaranteed annual income program could cost $465 billion per year
In late February, Liberal MP Julie Dzerowicz introduced Bill C-273, which calls on the federal finance minister to assess a potential guaranteed annual income (GAI) in Canada. Although there are many different types of GAI, the basic idea is to alleviate poverty by ensuring a minimum income to all individuals through cash transfers from the government. However, both the price tag and scale of tax increases required to pay for such a program mean it’s unlikely to be effective or affordable.
Two recent Fraser Institute studies analyzed several straightforward GAI models to assess the cost implications for Canadians. Our first model acts as a “universal” program where the government provides $24,000 annually (or $2,000 monthly, similar to the CERB) to all Canadians aged 18 to 64, regardless of their income level. Such a design provides a relatively large cash transfer to all working-age Canadians—but comes at an enormous cost of roughly $465 billion annually, nearly $100 billion more than all federal spending in 2019/20.
If the government wished to reduce the cost and better target low-income Canadians, it could implement a phase-out rate and/or lower the amount of cash transfers.
Our second GAI model assumes that all Canadians aged 18 to 64 receive Old Age Security (OAS), which is essentially a basic income for seniors. Recipients would receive a maximum cash transfer of $7,272 annually and the benefit would be reduced (or “phased out”) by 15 cents for every dollar of income that exceeds $77,580. Under this model, the GAI would cost an estimated $132 billion each year.
While the cost of the program drops, new problems emerge. For instance, phasing out the benefit as income rises can create strong disincentives to work. Further, reducing the cash transfer to $7,272 annually means recipients receive far less money and the program would likely fail to lift all Canadians out of poverty.
Regardless of the design, Canadians must pay for the additional government spending through tax increases, either today or at some point in the future through borrowing. Raising taxes on the wealthy is often mentioned as one way to pay for the GAI.
In reality, however, the federal government could not pay for a GAI even if it confiscated the entire disposable (after-tax) annual income of Canadians earning more than $250,000 or more. In fact, the combined disposable income of Canada’s top earners would fund only 25 per cent of the GAI under our first model and only 87 per cent under our second model. Simply put, increasing taxes on the wealthy would be grossly insufficient to pay for the program.
Implementing a GAI would instead require a host of substantial tax increases, imposed on Canadians from all income levels, and likely include hikes to the GST and personal income tax rates. The debate about Bill C-273 must recognize the cost implications and tax hikes required to implement a guaranteed annual income in Canada.