The Practical Challenges of Creating a Guaranteed Annual Income in Canada
Charles Lammam and Hugh MacIntyre
Fraser Institute

January 6, 2015

Abstract:

The idea of replacing the existing income support system with an unconditional cash transfer from government to individuals or families to provide a minimum annual income has entered and exited Canadian policy discussions for decades, with support coming from across the ideological spectrum. The concept, usually referred to in Canada as a Guaranteed Annual Income (GAI), has received renewed attention, so this paper examines it in more detail. It concludes that while the idea has conceptual appeal, particularly the potential for greater efficiency and administrative savings in the delivery of income support programs, there are important practical challenges that cast serious doubt on the plausibility of a GAI reform for Canada.

The existing income support system—after accounting for federal, provincial, and local government spending and tax measures—is estimated to have cost $185.1 billion in 2013, or roughly 10 percent of Canada’s economy. Together, Canadian governments collectively spend 22.0 percent of program expenditures directly on cash and in-kind transfers for social benefits. Introducing a GAI would therefore mean fundamentally reforming approximately a quarter of total government activity in Canada, as measured by total program spending.

The potential for administrative savings and increased efficiency is by far the most compelling conceptual argument in support of a GAI. It would, in principle, be much simpler and less costly to administer than the current income support system because it would do away with administrative duplication that inevitably occurs in a multi-program, multi-government system.

However, there are practical design challenges that stem from a lack of clarity and agreement on even basic design features. The biggest challenge is implementing a GAI that captures the full benefit of simplicity and administrative savings. For this to happen, all three levels of government (federal, provincial, and local) which share responsibility for operating Canada’s income support system would have to agree on reform, and some governments would have to abdicate their responsibility in the existing income support system to make way for a single GAI. There is also the risk that the GAI will become just another income support program within the larger web of existing government programs.