The pandemic and a basic income: Why talking about the CERB paves the way to a conversation on eradicating poverty

 On Saturday May 30, 2020, in large red letters in the Toronto Star’s Insight section, the question is asked: “Is the time ripe for a basic income?”[1]

Beside the headline, some supposedly provocative figures are mashed together:

  • “$2000 – Monthly amount of the Canada Emergency Response Benefit
  • $151.7 billion – Total emergency spending to date including $40 billion to 8 million on CERB
  • $86 billion – Estimated annual cost of a basic income the last time it was looked at
  • $260 billion – Revised estimated deficit, $8 billion higher than last reported.”[2]

I think what the headline and the numbers are trying to acknowledge is that, as a nation, we suddenly agreed with the idea of handing out large amounts of money to our residents who lost income because of the COVID19 crisis. We also proved that it was possible to pay out that amount of money quickly.

To those who believe that a massive spending would break the bank or bankrupt Canada, we also proved that we could spend $151.7 billion and not simply disintegrate and fall into the abyss.

Our loonie did not crash and is actually up a bit from its COVID19 bottom of less than 70 cents.

The Bank of Canada did not go into receivership and we are still able to borrow money.

The sun still rose and set.

We also proved in a backhanded way that we could afford and could pay out nearly twice the amount equivalent to a well-designed basic income without the world falling apart.

The Star article also noted:

“In the midst of a record deficit, there’s renewed talk of basic income. The NDP wants it, the national budget watchdog says it could lead to some savings, and even the retiring Bank of Canada boss Stephen Poloz has suggested that a CERB like measure could help buffer economic shocks.”[3]

What a mouthful!

So let’s take a bit of time to wade through these disparate headlines, numbers and statements and make some sense of them.

First, let’s look at the numbers. The CERB is a temporary measure paid out over 4 months and is just $8,000.  If it was paid out over a year, the amount would be $24,000 and the cost would be somewhere north of $120 billion.

The current income security system in Canada now spends about $200 billion and that represents about 10% of GDP. The addition of the equivalent of a full time CERB would add spending in the neighbourhood of about 5% of GDP given the reasonable assumption that a full time CERB would result in some spending offsets.

Then we have to look at the idea that this new program, somewhat of an equivalent to a full time CERB, would be paid out year after year. Such a program would, of course, lose its three major reasons for being assuming that the pandemic will result in a new normal at some point. This is the case as it would:

  • no longer be in place to replace earnings as record unemployment hopefully won’t last forever;
  • cease to be a one-time economic boost to deal with the pandemic; and
  • no longer be required to help people self-isolate and to stay safe.

The reality is that the CERB in its present incarnation is a reasonable design for a temporary boost. But is an incredibly badly designed vehicle for a longer term income security program.

It is exquisitely unfair, unbelievably poorly targeted; far too generous for some while inadequate for others, infinitely difficult to police and contains holes so large, that a fleet of self-driving trucks would emerge unscathed.

But wow – is it easy to administer? Just a couple of rules, one amount of money, no real income test; just click a couple of boxes and let ‘er rip.

And currently, somewhat less than 30% of all our income security expenditures are income tested. Put the crudely employment tested CERB on top of that and truly income tested benefits drop to 19%. That’s not going in the right direction.

OK. So no one is suggesting that the CERB is the type of basic income anyone would want for anything more than a few months.

But let’s also settle that the CERB is spending a one-time amount this year and this is not to be repeated. And let’s remember that a basic income in most of its incarnations is meant to involve a permanent yearly expenditure.

In other words, the $86 billion that might be required for a well-designed and generous basic income – spent in one year – won’t break the bank just as $151.7 billion spent once will not break it either. But just try spending that amount of money (7.5% of GDP) each year and ‘banking’ will start to get very difficult. Even the extra $86 billion (4.3% off GDP) is one heck of a lot of money to be spent annually and in perpetuity in the face of other priorities like climate change and childcare.

And for those who think that a basic income would result in reduced expenditures elsewhere, I am not sure they understand what it would be like to cancel such programs as Old Age Security, EI, and veterans benefits. Canadians are extremely possessive about the programs that they participate in and it would be very hard to sell them on a basic income when they have money in their hands from familiar sources.

And cutting administration doesn’t get you much. The cost to administer all of Canada’s income security system is in the $10 billion range. Cutting that in half saves $5 billion and that is not enough to make it worthwhile especially in the light of the tens of thousands of jobs that would get cut in the bargain.

I have a better idea. Let’s eradicate poverty.

The minimum cost of eradicating poverty in Canada is about $30 billion, significantly less than the CERB. So let’s design it well and spend an extra $10 billion and spend a total of $40 billion so that we don’t have to start clawing back income as soon as someone’s income reaches one of Canada’s two poverty standards (the Low income measure – LIM and the Market Basket Measure – MBM).

Forty billion dollars in new expenditures represents a spending increases of a much more modest and manageable 2% of GDP, and allows us to completely revamp welfare programs, abolish working poverty and end child poverty and poverty among seniors once and for all. It would also help to reduce homelessness

Since poverty costs us all as demonstrated in a number of ‘cost of poverty’ reports, over time, we would recoup a good part of those costs.

And with a poverty free Canada, we would also be much better equipped to withstand the next pandemic.

So thanks for asking if this time of a pandemic is ripe for a basic income because it paves the way for a much more realistic question concerning the eradication of poverty.

Js/May 31, 2020

[1] Is the Time Ripe for Basic Income?, Toronto Star, May 30, 2020

[2] ibid

[3] ibid