Lawrie McFarlane: Basic income will go nowhere if provinces aren't on board

Liberal MPs want their government to introduce a guaranteed basic income. They intend to make it their first priority at the party’s November convention.

How a GBI should be structured hasn’t yet been addressed, and whether the prime minister is on board remains unclear.

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But the principle is that everyone is guaranteed an income sufficient to meet basic needs. That income is paid by the state.

After this, though, things get murky. Do we all get this money whether we need it or not? Or should a means test apply?

Does GBI replace existing support mechanisms, like employment insurance and social assistance, or is it provided on top?

It’s fair to say there is no consensus on these rather important details. And since no country has successfully adopted GBI on a nation-wide basis (Iran tried for a year out two and gave up), we don’t have a lot of history to go on.

However, it appears unavoidable that any such program would be expensive, and hugely so if a means test isn’t applied. So how might the federal government pay for it?

Let’s look at the options. I doubt a serious tax increase is on the cards, both for political reasons and because the business community is still reeling from the COVID outbreak.

It might appear the more practical approach would be to cut back elsewhere, freeing up the necessary funds. But that gets ugly in a hurry.

We sometimes think of our national government as a bloated bureaucracy with dozens of agencies chewing up cash. But in reality, the majority of federal departments have only limited scope.

If you took out a hatchet and eliminated every agency not clearly essential, you would save around $20 billion. That may sound like a lot.

But Ottawa spends $330 billion a year (this is a pre-COVID number). So where does all that money go? Yes, there are hefty budgets for a handful of tasks, like national defence, prisons and running the Canada Revenue Agency.

But assuming we can’t demolish these (though blowing up the CRA has its attractions), the money needed to pay for a GBI can only come from one place — transfer payments to the provinces. That’s where two-thirds of the federal budget goes.

In reality, our national government is primarily a money exchange. It takes in billions more than it spends, and flows that money back to the provinces.

This isn’t altruism or generosity. It’s the law. Our constitution reserves most program delivery to the provinces.

Now here we do have some history. Back in the 1960s, Ottawa convinced the country’s premiers to buy into a universal medicare plan by promising to pay half.

However, as federal deficits soared over the following three decades, that promise was broken. Today, the provinces are reimbursed for less than 25 per cent of their health-care costs.

And that is the reason to be concerned about Ottawa launching a GBI program. Basically, the Liberal caucus wants credit for being progressive, while knowing the financial burden can, and will, be offloaded.

What can be done? That depends, in part, on what the provinces think of the scheme.

You could probably sell it to the NDP administration in B.C., and perhaps in Quebec, though that province shies away from nation-wide endeavours. Maybe one or two of the Atlantic provinces might bite.

But I doubt it flies on the prairies, and it would take serious bribery to get Ontario on board.

Can Ottawa go it alone? Not sure. Again, the Constitution Act is a barrier.

In 1935, the government of R.B. Bennett attempted to introduce an Employment and Social Insurance Act, but a constitutional challenge stalled its passage.

Medicare only worked because the provinces agreed to deliver it.

Basically then, this feels more like window dressing for a potential fall or early spring election. Given the already parlous state of our country’s finances, let’s hope it’s no more than that.

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