An Alberta Guaranteed Basic Income: Issues and Options

Abstract

Poverty remains a persistent problem even in advanced economies, and Alberta is no exception despite robust long-term economic growth.\xa0 Serious discussion of poverty reduction through a basic or guaranteed income has reemerged at the federal level and among the provinces, including Quebec and Ontario, coinciding with renewed efforts to address child poverty through the Canada Child Benefit and the Alberta Child Benefit.\xa0 These relatively new income support programs provide federal and provincial tax credits that are refundable; that is, unlike many current nonrefundable tax credits, they provide a benefit to families that is larger the further their income lies below the level of the credit.\xa0 This paper analyzes the prospects for Alberta poverty reduction today through a basic guaranteed income achieved by tax reform that would make most of the current existing nonrefundable tax credits refundable.\xa0Our paper demonstrates that a guaranteed basic income achieved by transforming most existing nonrefundable tax credits into a single refundable credit can have substantial impact on poverty in Alberta because it more effectively transfers the income support provided by these credits to lower-income families.\xa0 Using version 26.0 of the Social Policy Simulation Database and Model (SPSD/M) from Statistics Canada, we are able to simulate the impact of various options for an Alberta Guaranteed Basic Income (AGBI) that might emerge from this tax change.\xa0 Our analysis sets a budget for the AGBI based on current expenditures for the Basic credit and five other nonrefundable tax credits that have a total value of $5.36 billion in Alberta.\xa0 For this budget, a wide variety of program options are available based on different combinations of an income guarantee that would be the maximum amount available to a family with no other income and a benefit reduction rate that reduces the income benefit as family income from other sources rises.\xa0 We consider the impact of a variety of these program options along multiple dimensions, including the poverty rate based on Statistics Canada’s Low Income Cutoffs poverty line, the depth of poverty calculated as the amount by which family incomes fall below the poverty line, income inequality measured by the Gini coefficient, earnings from the labour market, and the distribution of beneficiaries.\xa0 \xa0We illustrate our approach by choosing an AGBI with a relatively low benefit reduction rate of 10% that yields income guarantees of $6,389 and $9,305 for families with one and two adults, respectively.\xa0 While our plan is illustrative, we argue that it is sensible in light of the inevitable trade-offs between changes in the degree of poverty reduction, labour earnings and the proportion of families that benefit from a program of this nature. \xa0The plan provides benefits to 37.3% of families, effectively delivers benefits to the families with the lowest incomes, and reduces the rate of poverty and its depth by more than 20%.\xa0 Single parent families and non-elderly and elderly single persons benefit overall from the AGBI, and poverty is completely eliminated for single parent families.\xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0 We also consider an AGBI linked to a comparable federal plan, since the federal and provincial tax systems are integrated and the federal Liberal government has expressed interest in poverty reduction through a basic income.\xa0 The federal plan we consider transforms the same set of nonrefundable tax credits as the provincial AGBI option and also eliminates the federal GST credit for a combined guaranteed basic income program budget of $11.36 billion for Alberta.\xa0 We opt for a federal plan with a modest benefit reduction rate of 15% that provides income guarantees of $7,285 and $10,302 for families with one and two parents, respectively.\xa0 The combined federal and provincial guaranteed basic income plans provide income guarantees of $13,674 and $19,338 for single and two-parent families with no other income and reduce the income support benefits at a moderate rate.\xa0 Disposable income increases by 50.4% for the poorest 10% of families and by 6% for the next poorest 10% of families, and one-third of Albertans received benefits under the combined plan.\xa0 As was the case for the provincial AGBI, single parent families and non-elderly and elderly single adults experience an overall increase in their disposable income but the poorest families receive significant benefits on average for all family types.\xa0 The rate of poverty among all Albertans drops by 44% and is completely eliminated for single parents and non-elderly and elderly couples.\xa0 While poverty remains for two-parent families and the non-elderly single person, its rate declines substantially and its depth is cut by more than half.\xa0 The non-elderly single person, the family group that exhibits by far the most poverty, receives the most benefit from the combined plan, as the families with bottom 40% of incomes show gains on average in this group.\xa0 Overall inequality, measured by the Gini coefficient, falls by 2.2% compared to 1.6% for the provincial AGBI alone.\xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0\xa0 Our plan relies on the filing of an income tax return to obtain benefits.\xa0 In this regard, it is worth noting that the rate of tax filing in Canada is very high, as about 95 per cent of persons 15 and over file a return.\xa0 Those who don’t file a return and those whose incomes fluctuate can rely on social assistance as a source of income, as our plan would supplement that existing basic support program.\xa0 In this regard, the provincial social assistance program could be used in concert with the AGBI to reach those who don’t file a tax return and those who require emergency funding within the taxation year because of a sharp decline in income. Our analysis has attempted to illustrate the impact that a straightforward tax policy change toward refundable tax credits can have on poverty in Alberta, particularly with federal participation in a comparable plan.\xa0 As concerns about technological displacement of workers and rising inequality grow, discussion of the need for a guaranteed basic income is unlikely to abate, and we believe that tax reform to make existing tax credits refundable can be effective in delivering what amounts to a guaranteed basic income for families without serious economic disruption.\xa0 Most Canadians now file taxes, making such a guaranteed basic income plan a sensible consideration for the future.