Why we need to be careful in delivering a basic income through the tax system

September 18, 2017 -  It has been nearly a year and half since the Ontario government announced in its 2016 budget that it would proceed with testing a basic income. The pilot communities have now been chosen (Hamilton, Thunder Bay, and Lindsay), though details on the First Nations community have yet to be released, and some of the details of the basic income model have been announced. While the implementation details on the pilots are still sketchy, the pilot will run for three years and the results will be obtained in 2020 when they will be evaluated by a third-party research group. Based on the results of the pilot, the basic income may be rolled out across the province.

The nitty-gritties of the basic income pilot are that 4,000 people between the ages of 18 and 64 will be chosen across these pilot communities to receive up to $16,989 per year for a single person and $24,027 per couple. Persons with a disability will receive an additional $6,000 per year. The basic income will be decreased by $0.50 for every dollar earned through work and $1.00 received from Employment Insurance (EI) or Canada Pension Plan (CPP). People receiving Ontario Drug Benefits and the Ontario Disability Support Program will continue to do so.

How will the basic income be delivered? The recommendation made by Hugh Segal and the result of the consultations by the Ontario government regarding the pilots was that the basic income should be delivered through the personal income tax system in the form of refundable tax credits. This was also the recommendation made by Wayne Simpson and Harvey Stevens in their paper “Towards a National Universal Guaranteed Basic Income.”

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Using the personal tax system to deliver the basic income seems reasonable as it is an existing administrative structure that is already used to deliver numerous social benefits to Ontarians and provides a base upon which the basic income could be built. From the perspective of social justice advocates, the appeal of the tax system over the social welfare system to a basic income is that the tax system lacks the stigma associated with social welfare.

There is a firmly etched notion that receiving support through social welfare is shameful, yet qualifying for and receiving support through tax benefits (e.g. the HST tax credit or the Canada Child Benefit) is almost praiseworthy — often sold by politicians as a means of getting money back into the hands of “hard-working Canadian families.” However, as I recently wrote for the Northern Policy Institute, the tax system is not a panacea and many hurdles need to be addressed before rolling out a basic income in order to ensure that those who need the benefit most obtain the benefit.

Skipping over some very technical aspects, one of the most important aspects is that only tax filers will be able to obtain the basic income benefit payment. It is important to remember that individuals who does not owe any tax is not required to file and this include individuals whose taxable income is below the taxable threshold of $11,635 or whose tax collected perfectly equals taxes owed, which are often low income individuals. These are the primary people targeted by a basic income! Unfortunately, there is very little publicly available data on tax-filing rates in Canada, but some available evidence suggests that upwards of 26 percent of marginalized families do not file a tax return.

Another group that may not have to file are Aboriginal people who live on-reserve. Recent reports suggest that many of these people are not applying for the Canada Child Benefit (CCB) because they are not filing their taxes and this concern necessarily extended to a basic income delivered through the tax system.

Boosting filing rates among these groups are necessary to the success of a basic income yet there is no discussion of this important matter in any of the material put out by the Ontario government. Overlooking this important matter will limit the benefits of the program to the people most in need and most likely to benefit from the program. This oversight on the part of the Ontario government is concerning and needs to be addressed

There are many reasons why people do not file tax returns. This is not only because they do not have to file but also because of fear, complexity, lack of knowledge, accessibility, literacy, poor advice, and so on. Addressing these matters is important to ensuring that the target recipients of a basic income are reached. Yet, these are matters for the Canada Revenue Agency (VAR), as the administrate of our personal income tax system to address, as the provinces have limited capacity under to intervene directly. A way to address some of these concerns would be to implement pre-populated tax forms and other measures to ensure all individuals are able to quickly and easily file a tax return. The mandate letter for the Minister for CRA did include a directive to “offer to complete returns for some clients, particularly lower-income Canadians and those on fixed incomes, whose financial situation is unchanged year-to-year,” providing an opportunity for these concerns to be addressed through the existing structure. But what is Ontario doing to roll this out with the basic income is a question mark.

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Lindsay Tedds is an Associate Professor, School of Public Administration, University of Victoria and a member of the Research Advisory Board of Northern Policy Institute, An independent social and economic think tank based here in Northern Ontario.

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