Guaranteed Annual Income

Cost of living is usually the single most important issue to people, either indirectly or directly.

Terms like Universal Basic Income (UBI) and Guaranteed Annual Income (GAI) are being thrown around, while usually being presented with extreme amounts of bias and personal agendas built into their explanation.

Today we will endeavour to provide a baseline, to talk about the gargantuan policy that is UBI or GAI.

UBI and GAI are defined any number of ways and are used interchangeably, this gets confusing very quickly so in the interest of not being confusing we will just call everything UBI, policymakers can’t make up their mind on the definition anyways. 

The overall goal of UBI is to ‘solve’ poverty, so first some important background. 

Poverty has a direct, negative, causal impact on: crime, healthcare costs, long-term decision making, productivity, and more.

It is widely agreed by numerous disciplines to be the single most pervasive vulnerability which has negative ripple effects on nearly all societal systems.

Any solution which claims to solve an issue of this scale will fundamentally change society.

The solution UBI proposes is to create a form of ‘floor’ that people cannot fall below, so that longer-term decisions can almost always be made without fear of destitution or death.

As many individuals who object to UBI will state, it is critical that any policy put in place does not disincentivize labour, or cause out of control hyperinflation, especially to the point of an economy collapse. 

If the UBI causes the economy to collapse and becomes impossible to pay for, all it has done is destroy an economy after a really awesome party for a few years.

For this reason, any UBI system cannot have a breakpoint where individuals make more money not working than working. Regardless of their situation, they need to be financially better off working.

There are two main ways to do this:

The numbers used below are an example, in reality they may be higher or lower depending on things like inflation, poverty line, objectives of the policy, etc.

1. Give every individual a flat amount regardless of income, everyone gets it: the unemployed, self-employed, millionaires, everyone. This creates an absolute floor.

An example would be everyone gets $2,000 dollars a month, no strings attached.

2. Use a progressive claw-back system to push people towards the median income.

This is slightly more complex. Assuming Canada’s median income of approx. $60,000, this type of UBI system would provide a $30,000 per year supplement, but 50% of the person’s income would be ‘clawed back’ up to $60,000. 

Above that they would no longer receive the supplement as the claw back would be greater than the total supplement.

For example: Person 1 makes $0, they receive $30,000, end total $30,000

Person 2 makes $15,000, they receive $30,000, half income is clawed back, end total $37,500

Person 3 makes $20,000, they receive $30,000 half income is clawed back, end total $40,000

In all examples any given individual is always better off working, and always better off getting a raise.

This was not the case with the Canada Emergency Response Benefit (CERB), where if someone made more than $1,000 a month but less than $2,000 a month, they were better off not working and getting paid more.

Proponents for UBI will make the arguments that this program will be low cost or even a net gain through the following benefits:

1. Getting substantial budgetary requirements from other social programs that would be obsolete and replaced with this.

2. Saving on government efficiency by not needing as much bureaucracy to manage multiple programs.

3. Long-term savings on health care and policing costs from downstream effects of poverty reduction.

There has been no study on a large enough scale which has lasted long term to truly know if this is the case. We simply do not know what will happen, there are too many variables with a systemic overhaul of this size.

In 1970, the Manitoba Annual Basic Income Experiment indicated that UBI does not cause people to stop working, but that was 50 years ago, the labour market and habits may have significantly changed.

Countries in the developing world like Argentina and Namibia have indicated the viewpoint that income is a basic human right, but that does not mean UBI is any more or less feasible.

Just because a country views a certain level of healthcare as a basic human right, does not mean it can afford it.

There are several angles on UBI that have not been explored, questions that are not being asked which we might want to discuss before going down this road.

In a flat, everyone gets UBI system, entrepreneurs, small business owners, and other higher risk professions would have a baseline allowing for greater risk to be assumed.

This may result in a larger number of individuals starting small businesses and pre-existing businesses attempting to innovate more aggressively.

If the system is kept to individual and not household income, there may be a breakup of families. This was actually seen in a few studies, including the aforementioned 1970 Manitoba one.

It was theorized, but not confirmed, that this may have been from spouses being financially empowered to escape an abusive relationship and these family breakups being a positive rather than a negative.

Relating to the affordable housing issue, tying a UBI system to individuals may result in groups of people moving farther from the cities and pooling their income.

Small towns may have an influx of young-adult ‘party houses’, which to many will sound absolutely abhorrent, but may be a net positive when factoring in stimulating the local economy.

With basic needs being met in either of the two systems above, the employee may have sufficient enough bargaining power where a minimum wage is no longer necessary.

Certain individuals may even choose to be career-volunteers, effectively creating a situation where the private sector is gaining an indirect 100% labour subsidy on an employee.

Unsafe or abusive workplace an employee is only staying at out of fear of destitution? Maybe that employee quits with UBI.

What about international trade implications? Does this legally qualify as a non-tariff barrier causing massive complications with previously signed trade agreements and the penalties contained therein?

All of these potential results and more are the types of things that can happen with a broad system changing policy like UBI.

There are arguments both for and against all of these points, in many cases irrespective of the political leaning. 

The ideological left and right both agree and disagree with many of these points and will argue internally for completely different reasons.

As it stands, the public is largely not even discussing the feasibility of this issue.

If it works and it fails to be implemented because it is not being taken seriously, that is a tragedy.

If it does not work, and is hastily implemented due to popular demand, that could be a catastrophe.

As it stands both sides are guessing, we need more data.

Vezina is the CEO of Prepared Canada Corp. and is the author of Continuity 101. He can be reached at info@prepared.ca.