When the Citizen asked me to write on the reported latest Liberal fancy — a guaranteed annual income program — I asked whether it wanted (a) a political rebuttal (b) a constitutional rebuttal (c) a purely economic rebuttal (d) a pragmatic rebuttal or (e) some combination. It was not hubris that prompted my question — Prime Minister Jean Chretien must answer many questions if a guaranteed income program is ever to fly. 

The attraction of the program is that it has a veneer of simplicity — get rid of all government transfers to individuals, and replace them with a single program that provides a set level of income to all Canadians, which is then clawed back as income from other sources rises. A guaranteed income of $10,000 with a claw back rate of 40 per cent would mean individuals earning nothing would get $10,000 from the government, whereas individuals earning more would see their government income fall by 40 cents for each dollar earned, and would stop receiving benefits when their income from other sources hit $25,000. 

In political terms, such a massive restructuring of government transfers to individuals surely requires a greater level of democratic consent than having it sprung on the public two weeks after an election campaign. Canada’s Constitution assigns responsibility for programs for the poor by age and employment status — the federal government is responsible for seniors and unemployed individuals, the provinces are responsible for the rest. A guaranteed income program would require the provinces to give up jurisdiction for welfare, childcare, programs for the disabled and student loan programs. 

Canada functions better because the ability to tailor programs allows provincial governments to better respond to the preferences of their own populations. An expanded number of Liberal MPs from Quebec will not reduce the desire of Quebec City to retain control over these programs, to say nothing of the West’s resistance to letting the federal government become a larger presence in their lives. One size does not fit all, which our Constitution recognizes, but which the guaranteed annual income program denies. 

Guaranteed income programs have been piloted in the U.S. and Canada, with at least three bad outcomes. First, guaranteed income programs reduce wages as employers get an effective subsidy for lower paid employees — income earned from employers is replaced by income from the government. 

Second, guaranteed income draws greater numbers of people onto assistance as individuals trade a life in gainful (or above the table) employment for a life with fewer hassles (and under-the-table paycheques). Third, guaranteed income results in higher divorce rates as spouses have a new reason to forsake the economic security of marriage for the economic security of the state. 

The second part of the economic rebuttal is that guaranteed income programs are hyper-efficient in the same way that catching fish by draining the lake is hyper-efficient. Under guaranteed income, some individuals get too much money while others get their money too easily. For example, students, who typically earn a large return from their education in the form of low future unemployment and higher future wages, should borrow to get through university — they should not get a free ride on the guaranteed income program. And we already know — at least those outside of a Liberal party trolling for votes in Atlantic Canada know — that unemployment insurance with fewer entry restrictions traps individuals in dependency; imagine what a guaranteed income with no restrictions would mean. No affordable version of a guaranteed income program has been found. Even Lloyd Axworthy conceded this point. 

And a final political/economic/pragmatic note — single seniors currently have a guaranteed after-tax annual income of about $15,000 and married seniors of about $24,000. These amounts cannot be made universal without a massive increase in taxes. Therefore, a guaranteed annual income program means either seniors benefits will be cut or taxes will be raised. Which one will it be, Mr. Chretien? 

Ken Boessenkool, an economist in Calgary, is a former policy adviser to the Reform party and to Stockwell Day.