The Canadian government has a wide array of programs in place to alleviate poverty. At the federal level alone, the government spends 10 per cent of GDP on a multitude of cash transfer programs. Despite this, around nine per cent of Canadians still live in poverty. The solution could be to guarantee an income to all Canadians who fall below a certain threshold through a Negative Income Tax (NIT).
An NIT is a variant of a basic income, which is a payment granted unconditionally to all citizens regardless of financial need. Currently, individuals are allowed to earn a certain amount of income tax-free. Under a NIT, if an individual earned no income at all, they would get a cash payment from the government of half the tax-free allowance. For each additional dollar earned, the transfer would be reduced by 50 cents. As such, the supplemental income received as a result of a transfer will be half the remaining amount that the person needs to reach the upper limit of no income taxation. Once individuals reach the threshold, they would neither pay income tax nor receive a cash transfer.
Though seemingly radical, there are many advantages to an NIT. Presently, the current myriad of welfare programs fails to provide adequate income security to those in need. By replacing them with an NIT, a floor could be created below the living standard of every Canadian citizen that is above the poverty line. In addition, the NIT does not impose heavy disincentives on low-income people seeking to work. Under many of the current welfare programs, for each dollar of income a recipient earns, the individuals can often have benefits scaled back by two dollars. In contrast, as demonstrated in the example above, the NIT would always leave a recipient better off in work than on assistance. If set at an appropriate level, the NIT could provide a more generous level of income support than most of our existing cash transfer payments.
In an age of increasing economic uncertainty, the NIT could also help Canadians adjust to economic shocks. Technological innovation, while bringing benefits to the population at large, is likely to destroy many jobs in its wake. Given that many people who lose their jobs are likely to have difficulty finding new ones in a similar industry or at a similar skill level, the NIT could provide a broader sense of economic security.
Perhaps most importantly, the NIT would also allow many who currently suffer from poverty to live as responsible, independent citizens. The present set of welfare programs often treat beneficiaries in a paternalistic manner. They often stipulate what recipients can spend their money and can be sources of shame as well. Under the NIT, the poor would be given cash and regarded as responsible adults, capable of spending the money they receive on what they need most.
The NIT is also superior to a flat basic income that is given to all citizens regardless of initial income. While this would reduce poverty, it would do nothing to improve income inequality and would cost far more than a targeted program.
To be politically viable and affordable, the NIT should replace all existing cash transfers. This would mean that all existing programs that provide cash assistance to Canadians, ranging from Employment Insurance to provincial social assistance, would be abolished. Instead, an NIT would create a more adequate safety net and do away with large proportions of Canada’s vast welfare bureaucracy.
Although Canada is a very developed nation, it is still an unfortunate reality that many citizens still struggle to meet basic necessities. The NIT, if designed correctly, could create the means for Canada to attempt to eradicate much of the poverty that remains.