Jonathan Kates

Earlier this month, Hugh Segal, former Canadian Senator, current Master of Massey College and Ontario’s Special Advisor on Basic Income, released his discussion paper Finding a Better Way: A Basic Income Pilot Project for Ontario. In the paper Mr. Segal recommends that Ontario introduce a three-year randomized control trial pilot to test various ways in which a guaranteed basic income could address the “welfare trap” that exists for recipients of Ontario Works and the Ontario Disability Support Program (ODSP).

Recipients of these two programs are the perfect participants for Segal’s pilot in two ways. First, pre-existing recipients would only require a modest top up to the monthly allowance they already receive. Second, a lump sum that eliminates “the broad policing, control, and monitoring” of the programs would free up public servants’ administrative time and energy. If successful, it gives credence to Segal’s argument that these administratively-costly programs should be eliminated entirely. But first, back to the welfare trap.

Addressing the welfare trap

Currently, if program recipients begin to work they have their benefit clawed back as they gain additional income – a process which can start at an income as little as $200 a month – and they may also have other benefits like rent-assisted housing or free dental care for their children taken away from them. When potential benefits are perceived to be more valuable than the income gained from working, this creates a disincentive for those on social assistance from working as much as they could.

To eliminate this disincentive, participants in Segal’s proposed pilot would not lose their benefits at any level of income earned per month. Instead, any earned income that is above a pre-established threshold would be taxed at the same marginal rate as Ontarians who are not participating in the pilot. The thinking is that this scheme will provide participants with better benefits than under the old system, at least for the duration of the pilot.

Basic income pilots: Not without precedent

This is not the first basic income pilot project to be conducted in Canada. From 1974 to 1979, the federal and Manitoba provincial governments partnered to administer a basic income pilot project in Dauphin, Manitoba called MINCOME. Dauphin was a “saturation site”, which meant that everyone below a certain income threshold was invited to receive the benefit (although roughly only a third qualified at any one time). Following a change in Manitoba’s government, the project was quietly ended, but University of Manitoba researcher Dr. Evelyn Forget unearthed and analyzed data from the project in a paper published in 2011. She found that “hospitalizations for accidents and injuries and mental health diagnoses declined for MINCOME subjects” compared to control groups in comparable neighbouring towns who did not receive a basic income. In the treatment group, high school graduation rates for young men rose, while pregnancy rates for women aged 25 or younger declined dramatically.

The concept of basic income isn’t unique to Canada, either. A company called GiveDirect hosts a crowd-sourced basic income of $30 per day per person for extremely poor individuals in Kenya. In Oakland, Silicon Valley’s Y Combinator also has plans to launch a pilot as part of its long-term plan to the test the effect of a basic income on “people’s happiness, well-being, and financial health.”

Perverse incentives?

But neither is the idea of a basic income pilot without controversy. Many believe that welfare recipients would rather just live off the state, a sentiment that led the Swiss to overwhelmingly vote “no” in a June 2016 national referendum on a proposal to give every citizen 2,500 Swiss francs ($3433 CAD) each month. For comparison, Segal’s proposal would see eligible participants receive a minimum of $1320 per month, with those on disability receiving $500 per month more than the base sum. These sums represent modest increases from current rates but will be at least revenue-neutral in the long-run if Ontario can reduce poverty and administrative costs at the same time.

Ethical issues associated with the pilot must also be considered. One such issue is how to reduce participants’ income after the three-year pilot has ended. Segal suggests a phase-out time period following the program’s completion so that no participant experiences a drastic overnight reduction. The way in which people will be selected to participate in the program is another important ethical consideration. No matter the program’s structure, there must be an individual who does not receive a basic income for every participant that does. In other words, out of the eligible pool of participants, how do we decide who will participate in the pilot (treatment) and who will be excluded (control)?

Ontario’s pilot: Set up to fail?

With these ethical issues in mind, and a budget allocation of only $25 million, Ontario’s pilot almost seems doomed from the start. MINCOME cost $17 million in 1974 dollars, the equivalent of $81.7 million today, and the federal government covered 75 per cent of the cost (compared to 0 per cent for this pilot). The fact that Dauphin was considered vastly underfunded in 1974 is cause for concern.

These fiscal realities will make it difficult for the program to provide the level of benefits needed for statistically significant causal claims about the program’s effect on poverty. If Ontario wants data worthy of the pilot’s costs, the government should keep two things in mind: structure and usability.

Structure

In addition to an RCT in a major urban neighbourhood or community, Segal suggests applying the pilot to up to three saturation sites – “ideally[…]one in Southern Ontario, one in Northern Ontario and one in close collaboration with First Nations communities.” But with a limited budget this is likely too ambitious, and is also inefficient. According to Dr. Forget, the saturation of Dauphin may have actually muddled the causal link in her analysis. Because all of Dauphin’s residents knew about the program and most were eligible to apply, some of the program’s success may have been due to behavioural adjustments and social attitudes – commonly referred to as “spillover effects.” This is great for sociology but not for economics. Additionally, research on this specific program design is already available and Ontario should aim for its pilot to provide as much new data as possible.

In order to do this, Ontario should target the neediest candidates rather than an entire geographic region. To maximize value for money and gather the richest data, the pilot should target pre-existing program participants who are considering to be “working poor”, which was roughly 7% of Ontario’s overall working population in 2012, and families with children who live below the low-income measure after-tax (LIM-AT).

Usability

Usability is also an integral part of the pilot’s success. Generally, governments don’t have a great track record on delivering easy-to-use services, but the current Ontario government is actually studying it in a number of ways. Because participants need to be able to easily access their income, the government must ensure that it’s delivered punctually and without issue. A simple way to ensure that this happens is to mandate that participants have an existing bank account with direct deposit capabilities. To his credit, Segal makes explicit note of this in the discussion paper, and this should not be too difficult since many current Ontario Works and ODSP recipients are already subscribed to the Ontario direct deposit system.

Looking forward

This pilot is a fascinating opportunity for the government of Ontario to test whether a basic income can improve the lives of people living in poverty, and save the government money in the process. With a tight budget and time frame, the structure and usability of the program will be key to its success (or failure).

And for those wondering about how a possible political shift in the 2018 election could ruin this program, both Segal and Forget agree that starting the pilot in 2017 for a period of three years will assuage any of these concerns. Ontario has the chance to be a leader on this policy file; let’s not squander the opportunity by making the same mistakes as in the past.

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Jonathan Kates is a 2017 Master of Public Policy candidate at the University of Toronto’s School of Public Policy & Governance, and he holds a bilingual Bachelor’s degree in International Studies and Sociology from Glendon campus at York University. His policy areas of interests are cities, social policy, innovative approaches to governance and service delivery, and how individuals are influenced by their environments. When not perusing the internet, Jonathan is probably checking his fantasy basketball team…ok, teams.