Just over five years ago (“It’s time to tackle inequality and poverty in Canada” The Hill Times, November 28, 2016), I made some bold predictions. I declared that high rates of poverty, real income gains only for the wealthiest households, and steadily rising income inequality were not inevitable.  

I further argued that real progress against poverty and income inequality could be achieved simply by building on policies that were working. These strategies had provided significant real disposable income gains for those at the bottom and in the middle of the income distribution and had slightly reversed the increase in market income (income less transfer payments) and disposable income (market income plus transfer payments less income tax) inequality which had occurred between 1990 and 2000.  

Data from the recently released Statistics Canada annual Canadian Income Survey for 2020 shows my optimism of a half decade earlier was not misplaced. Despite the Covid-19 lockdowns which sharply reduced employment and earned income for much of that year, all measures of poverty in Canada and disposable income inequality were at all-time lows. 

Yet this startlingly good news has been almost ignored. 

The official Canadian poverty rate, based on the 2018 base Market Basket Measure (MBM), is down to less than half its 2015 level, from 14.5% to just 6.4%. It was also at an all-time low for children under age 18 (4.7%), working-age adults 18-64 (7.8%) and for persons sixty-five and over (3.1%). The rates for all three age groups have been more than halved since 2015. The MBM counts as poor all persons in households who do not have the disposable income to purchase a basket of goods and services representing a basic decent standard of living where they live. 

Similar progress in reducing poverty is recorded in a second poverty measure used for making international comparisons. The post-income tax Low Income Measure (LIM-I AT) counts as poor all persons in households with less than half the disposable household income of the household in the exact middle of the disposable income distribution. The LIM-IAT rate was also at an all-time low in 2020 at 9.4%, down from 12.1% in 2019 and from 14.3% in 2015. Using this measure, children under age 18 (7.5%) and adults aged 18-64 (8.3%) also had record low poverty rates in 2020.  

Disposable income inequality tied its previous record low in 2020 (matching the level in 1989). However, market income inequality rose from 2019 to 2020 reflecting a decline in earnings due to Covid lockdowns which disproportionately affected low-earning workers. Its level in 2019 had been the lowest since 1990.  

What do these data tell us? They convey several positive messages, with one negative warning.  

The first positive message is that the number of Canadians in households unable to afford a basic decent standard of living plunged over 50% from just over 5 million in 2015 to 2.4million in 2020. 

Further, while real disposable incomes have risen for all parts of the income distribution, the biggest gains have come for those households with the lowest incomes. Between 2015 and 2020 real disposable income in the middle of the income distribution rose by 9.5%. But for those in the bottom 10% it rose by 37.8%, and by 25.0% for those in the next 10%. For the top 10% it rose by only 2%. The gaps between those in the top 10% and the middle and between those at the middle and the bottom are closing. 

The one cloud on all this progress is that the rise in market income inequality between 2019 and 2020 shows that households earning low incomes were particularly hard hit by the Covid lockdowns in 2020. Fortunately, large increases in transfer payments from new and existing government programs such as the Canadian Economic Recovery Benefit (CERB) and Employment Insurance to low-paid workers more than offset the declines in paid hours and earnings for most such workers. This explains why disposable income inequality declined to an all-time low while market income inequality rose. 

But will the good news about substantial progress against poverty and inequality in 2020 be reversed in 2021? We know EI benefits and CERB payments were already being reduced in 2021 as lockdowns diminished and people returned to paid work. We will have to wait for the results of the 2021 Canadian Income Survey to know for sure, but aggregate data indicate that much of this progress described above may have been maintained. 

First, while total real transfer payments from governments to households fell in 2021, they remained substantially above their level in the pre-pandemic year of 2019. Further, total real wages and salaries rose in 2021 from 2020, compensating for much of the decline in transfer payments for low and middle- income Canadians. 

If these two developments offset each other for households in the lower half of the income distribution, the result may well be a decline in market income inequality between 2020 and 2021 combined with only slight changes in disposable income inequality and in MBM and LIM-IAT poverty rates. 

The other mystery to be solved is why this historic success in combating poverty and disposable income inequality received so little attention. It’s not as if Stats Can didn’t draw attention to the progress being made. An article accompanying the 2020 Canadian Income Survey release and a statement drawn from that article by the Department of Employment and Social Development both drew attention to significant achievements. 

Perhaps commentators were not interested in data from over a year ago. Moreover, releases from the Canadian Income Survey often receive little attention. But it still seems strange that such important developments in critical issues of public policy such as poverty and income inequality have elicited only minimal interest, while Canadians are exposed monthly to bad news stories on inflation and fluctuating developments in employment and real gross domestic product. When it comes to poverty and income inequality is good news no news? 

There’s Gotta Be a Better Way

Is a Guaranteed Basic Income (GBI) the best way to tackle poverty?

Many Canadians would answer yes. This policy is appealing because it is easy to understand. In Canada we already have such a system for people over sixty-five, based on the universal Old Age Security Pension, the income-tested Guaranteed Income Supplement and supplemental income from income-tested programs such as the GST/HST refundable tax credits.

Partly because of this system, the share of the population over age 65 living in poverty has fallen from 30% in the mid 1970s to low single digits in 2020. However, much of this welcome reduction in senior poverty rates after the mid 1970s occurred not just because of the income support programs mentioned above, but because an increasing number of seniors began to qualify for earnings-based retirement pensions under the Canada and Quebec pension plans.

Nevertheless, if a combination of universal social insurance and targeted programs reduced poverty so much among Canadians 65 and older, why can’t we have a similarly generous income guarantee for those under age 65? There is currently a private members’ bill in the House of Commons (C-223) in the name of Winnipeg Centre NDP MP Leah Gazan and another in the Senate (S-223) by Senator Kim Pate both calling for “An act to develop a national framework for the implementation of a guaranteed livable basic income program throughout Canada.”

It is worth remembering that we already have a form of GBI for the non-elderly in Canada, made up of provincial and territorial welfare benefits combined with a range of income-tested refundable tax credits such as the Canada Child Benefit and the GST/HST credits that are not deducted from welfare benefits. However, the total of these payments falls far below the official poverty line in most provinces. In Ontario for example, 2020 benefits for a single unattached person considered employable were only 42% of the official poverty line in Toronto. Benefits for couples with children, lone parents and disabled single people were more generous but were all less than 70% of the poverty line.

Why are welfare payments so low? A reasonable assumption is that provincial and territorial governments and a majority of the voters who elect them are concerned not just about the financial cost of higher benefits, but about the moral effect of guaranteeing non-disabled adults under the age of sixty-five and their families an adequate income not provided at least in part from their own earnings. This concern is expressed in a line from a song by the Québécois folk singer Felix LeClerc: “The best way to kill a man is to pay him to do nothing.”

These[MM1]  concerns are supported by empirical evidence. When welfare incomes in Ontario increased between 1986 and 1994 to levels exceeding poverty thresholds for families with children, the number of people living on welfare increased by a whopping 280 per cent. In other provinces where welfare incomes remained well below poverty thresholds the increase was 22 percent.

An income guarantee, in itself, is not a powerful disincentive to seeking paid employment. Canada’s largest GBI experiment (Mincome), funded jointly by the Canadian and Manitoba governments between1975 and 1978 in the community of Dauphin did not appear to discourage people from seeking paid employment. However, the income guarantee under Mincome for a family of four was under half the poverty line for that community.

But when – as was the case in Ontario – adequate benefits are combined with a policy where earnings reduced benefits dollar for dollar beyond very small amounts, the impetus to give up looking for a low wage job to go on welfare increases as does the risk of leaving welfare to take such a job.

Welfare benefits are essential to provide people who are unable to earn or who experience sharp declines in their incomes or rises in their living expenses from falling into abject destitution. However, the welfare model is not an effective way to tackle poverty.

That is why the goal of those asking for a GBI is an adequate basic income which does not bear the stigma of welfare or provide significant disincentives to take entry level paid work.

Fortunately, a policy tool to do just that is already available. Since the mid 1990s, governments have gradually developed targeted support payments that improve adequacy of income, are non-stigmatizing and minimize disincentives to earn up to adequate household net income levels. This tool is the refundable income tax credit for specific socio-demographic groups. Examples include the Canada Workers Benefit for households with low earnings and the Canada Child Credit for families with dependent children. These benefits can be applied for simply by filing an income tax return. They also minimize disincentives to take low-paying jobs since the maximum benefit is not reduced at all until an adequate net household income level is reached and is reduced only gradually above that income level.

As was pointed out in the most recent report of the National Advisory Council on Poverty, despite significant declines in overall poverty rates since 2015 poverty remains highly concentrated among specific socio-demographic groups such as persons with disabilities, lone parents, and unattached persons under age 65. The refundable income tax tool enables precise targeting of benefits to persons in such groups with low incomes and thus reduces poverty on a more cost-effective basis than a universal payment.

A key reason it took so long for this tool to be developed is that influential supporters of income support programs such as the former leader of the NDP Ed Broadbent argued from the early 1970s on that all federal income support programs should be universal rather than income tested. They contended that programs which benefited only the poor and near poor were “poor programs” and would be vulnerable to cutbacks since their direct beneficiaries would amount to only a small minority of the voting-age population. This argument delayed the introduction and enrichment of the Guaranteed Income Supplement (GIS)  to the universal Old Age Security pension and efforts to add income-tested supplemental payments beyond the universal Family Allowance to low-income parents with children.

The fear that targeted programs would be more vulnerable to cuts than universal programs proved misplaced. It was the universal benefits that were threatened by cutbacks in the 1970s and 1980s while benefits to income-tested programs have steadily been enriched in real terms since their introduction. Moreover, the broad reach of programs such as the Canada Child Benefit, which provides substantial benefits to all but the most affluent families with children, provides a powerful political constituency for this program.

However, its advocates argue that only an adequate Guaranteed Basic Income can make substantial inroads against poverty among the non-elderly. If that is so, substantial poverty reduction in Canada is a lost cause because there is no evidence that either a universal or an income tested GBI has enough public support to be taken on by any Canadian government. Why? For the same reason that no government over the past fifty years chose to tackle poverty by paying adequate benefits under such universal programs as the Old Age Security pension and the former Family Allowance program.

Adequate benefits that are truly universal, rather than income-tested, would be enormously expensive. And an income-tested program like the GIS, the Canada Child Benefit and the Canada Workers Benefit would not, by definition, be universal. Either a universal or an income tested GBI would thus disappoint at least one of the constituencies now attracted to the idea of a single simple program to address poverty.

Yet, poverty data between 2015 and 2020 provide ample evidence that a combination of relentless incrementalism in the generosity of targeted benefits such as the Canada Child Benefit and the Canada Workers Benefit, steady increases in inflation-adjusted (real) minimum wages by the provinces and territories and expanding employment opportunities with rising real wages can also meet the challenge of substantially reducing poverty in Canada. Over that period, poverty rates for the overall population, for children under age 18 and for working-age Canadians 18-64 have all been more than halved, taking over 2.5 million Canadians off the poverty rolls.

This multi-pronged approach lacks the theoretical simplicity of a universal GBI, but it has been delivering the goods in practice. And there is scope for more progress using the refundable tax credit tool to enrich income support for groups, such as persons with disabilities, accounting for a disproportionate share of the poor. Just before the 2021 federal election, the federal government introduced a Canada Disability Benefit bill modelled on programs like the Canada Child Benefit. When it died on the order paper with the dissolution of Parliament for the election, the Liberal party pledged in their election platform to reintroduce a monthly Canada Disability Benefit “for low-income Canadians with disabilities aged 18-64.”

The reintroduction and passage of such a bill would be a significant addition to the multi-pronged approach which has been so successful in reducing poverty since 2015.

There is indeed a better, and more politically realistic way to tackle poverty than a GBI.

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