April 2, 2020

An alternative approach to COVID-19 income supports: Temporary Universal Basic Income

Over the past several weeks, the federal and provincial governments have announced a series of policy measures to address the impact of the economic shutdown prompted by the COVID-19 outbreak. With new announcements coming several times a week, the Business Council of Alberta has been working hard to track and analyze ongoing developments.

Given the rapid pace of announcements and plethora of initiatives, there will inevitably be some gaps. With that in mind, BCA will be writing a series of “gap analysis” commentaries exploring alternative approaches that might address Albertans’ and Canadians’ needs more efficiently and effectively.

This first commentary explores the measures taken to protect displaced workers and how a temporary universal basic income might be a preferable alternative.

The Original Safety Net Was Not Built for a Pandemic

As daycares and schools close and businesses shut down or cut hours, an estimated 50% of Albertans are left at home with reduced or, in many cases, no income (Angus Reid, March 25, 2020).

This means a low-to-modest income family is facing an unexpected and drastic reduction of income as well as mounting expenses: rent, groceries, utilities, car insurance and payments, phone bills, internet, loan payments. Many families have little to no savings to fall back on to cover the difference.

Canada’s Employment Insurance (EI) program was designed to provide a safety net for people who find themselves unemployed and unable to provide for their families. But, due to its limited eligibility and emphasis on getting people back to work (e.g. benefits are delayed and amount to only a fraction of your base salary), it was not designed for a pandemic.

The New Safety Net Attempts to Fill the Gaps

The federal government has taken steps to buttress the EI program and create new temporary initiatives to fill the gaps. Some of these gaps included a delay in Canadians getting EI payments and no support for workers who need to stay home with dependents, those self-isolating because of COVID-19, or Canadians who are self-employed and do not qualify for EI.

Although well-intentioned, these changes have created a number of problems. The flurry of recent announcements has created confusion amongst Canadians about which programs they are eligible for and how to navigate the application process. The key program Canada Emergency Relief Benefit (CERB) fills many gaps but caused confusion about how CERB overlaps with EI for people who think they might qualify for both, as well as how either program might overlap with provincial income supports. It also creates additional bureaucracy and delays; CERB, for example, will not begin sending cheques until mid-April. By that time, some Canadians will have been impacted for six full weeks. Meanwhile, their bills are piling up.

After hours teasing through all the announcements and policies, even we still have more questions than space permits us to enumerate. Meanwhile, millions of Canadians are urgently trying to navigate the system and are saddened that even those of us with a background in policy cannot give them clarity or certainty.

An Alternative Approach: Temporary Universal Basic Income

All of this complexity could be greatly simplified by replacing EI, the CERB and all other temporary income supports with a temporary Universal Basic Income (UBI).

How would a temporary UBI work?

The temporary UBI would provide all Canadians 18 years and older with a monthly payment of $2,500 for the duration of the COVID-19 economic shutdown. That amount is equivalent to the capped maximum entitlement under EI. Employee and employer payments into EI would be suspended for as long as the UBI is in place, providing a modest cost saving to both. The universal payment of $2,500 is enough that every Canadian currently receiving EI or CERB payments would be better off under the new proposal.

Since the federal government has extended the deadline for filing 2019 taxes, initial UBI payments would be made based on 2018 income tax returns. Any Canadian who filed a return for 2018 would automatically receive the payment.  

How much would it cost?

There are approximately 30.4 million Canadians aged 18 and over. A $2,500 payment to each would cost the federal government about $75.9 billion every month. Temporarily canceling EI would save about $900 million a month, so the total up-front cost of a 3-month UBI would be in the range of $225 billion. While this total is undeniably large, present circumstances require bold action. Moreover, at least a portion of those up-front costs will be recouped within 12 months (see below).

What are the benefits?

A temporary UBI is simple and clear: if you are over 18, you receive a cheque. No application, means-testing, or onerous bureaucracy is required. There is no danger of people in unique circumstances slipping through the cracks. Canadians would automatically qualify, and money would begin flowing almost immediately.

What are the disadvantages?

Aside from the cost of the program, there are two main criticisms of a temporary UBI. The first is that not all Canadians over 18 file income tax returns. According to statistics from the Canada Revenue Agency, about 28 million individuals filed tax returns in 2017, representing about 95% of the population 18 and over. While this share is slightly overstated because some Canadians under 18 also filed returns, the fact remains that delivering a UBI through the income tax system will miss more than 5% of eligible recipients. One way to partially close this gap would be to encourage all Canadians to file a 2019 return. Anyone doing so who did not file a 2018 return would immediately be eligible for the UBI.

The second criticism is that a UBI casts a wide net and does not target those most in need of support. In effect, a temporary UBI would see Canadians earning 6- and 7-digit salaries collecting $2,500 monthly cheques. While true, this does not take away from the fact that Canadians most in need would also be receiving the same support. Moreover, it would be very easy to recoup the costs from those for whom the UBI was not needed.

One clawback option is that any Canadians with earnings above a certain threshold (say $70,000) for 2020 would be subject to a one-time surtax that would recover the entire amount of the UBI. Alternatively, the amount of the surtax could be tied to whether or not individual Canadians experience a substantial drop in income from 2019 to 2020.

These details can be worked out in the coming months.

The most important thing at this time is to get money into the hands of Canadians that need it. A temporary UBI is expensive, but it is fast. And right now, nothing is more important than making sure that we all get through this crisis together.

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