In 2017, Ontario introduced pilot projects related to a Basic Income Guarantee (BIG) benefit in three Ontario communities. The Ontario pilot projects apply to both low-income individuals in the workforce and low-income individuals not in the workforce. The objective of the pilot projects is to assess whether there is a simple way of providing a living wage that would lift all Ontarians out of poverty.
Before assessing BIG in the context of both working and non-working low-income Ontarians, here is how the BIG benefit works in the three Ontario pilot programs now underway.
Four thousand low-income Ontario residents in three communities have been offered a spot in the pilot study. Non-working Ontarians receive a Basic Income payment instead of standard social assistance and those working will receive what amounts to a wage supplement. The annual payment is set at $16,989 for single individuals, or $24,027 for married couples. An additional $6,000 per year will be provided to individuals with disabilities. Recipients get to keep any child benefits, dental and pharmaceutical access, and disability supports to which they are already entitled. However, their Basic Income payment shrinks by 50 cents on each dollar of work related earnings, and by 100 cents on the dollar of CPP or EI income.
Eligible participants are those living on a low income (under $34,000 per year if you’re single or under $48,000 per year if you’re a couple). There are no asset tests involved in determining eligibility.
Part 1: BIG and Low-Income Workers
According to the Ontario Ministry of Community and Social services, 70% of those living below the low-income threshold in Ontario do not receive Ontario Works or Ontario Disability Support Program benefits and are eligible for the pilot projects for Ontario’s Basic Income Program. In other words, all low-income workers will be eligible for the benefit as a top-up of their earnings.
For those who are working, those eligible for the BIG will include not only the approximately 14% of Ontario workers earning the minimum wage but a majority of the roughly 30% of Ontario workers earning within $4 of the minimum wage. A back of the envelop calculation suggests that close to 50% of Ontarians eligible for the Basic Income Program would presently be in the labour force.
If close to 50% of Ontarians who would be eligible for a province-wide BIG are currently employed (whether part-time or full-time), the BIG project must be seen as a labour market initiative as much as it is seen as an attempt at income support reform.
In turn, viewing the Ontario BIG initiative through a labour market lens forces the fundamental question as to whether the best way to bring low-wage workers out of poverty is to: 1) provide these workers with an income supplement to their wages funded out of the tax base (as a BIG does); or 2) to enact labour law changes that put upward pressure on wages complemented by active labour market measures (e.g. training and apprenticeship) that encourage high wage, stable employment.
The answer to this question, in turn, begs the question as to who Ontario’s low wage employers are. In other words, are the employers of Ontario’s low-wage workers primarily small mom and pop businesses struggling to pay their rent and hydro bills or are they larger, profitable companies that can afford to pay higher wages and provide full-time employment? If Ontario’s low-wage employers are primarily very small businesses, then that strengthens the argument for a BIG as some of these small businesses may have trouble affording significant wage increases. If that is not the case, and a majority of low-wage workers are employed by good-sized, profitable companies, then the better approach is likely to be stronger labour laws and an expansion of active labour market measures that would put upward pressures on wages of large corporations that can afford the higher wage costs.
Unfortunately, definitive Canadian statistics on the size and profitability of low-wage employers are hard to come by. However, in the U.S. it is clear that some 20 mega-companies dominate the minimum-wage world. Walmart alone employs 1.3 million workers at or near minimum-wage; Yum Brands – owner of Taco Bell, Pizza Hut, and KFC is in second place; and McDonald’s takes third.
Overall, 60 percent of American minimum-wage workers are employed by businesses not officially considered “small” by U. S. government standards.
In Canada, evidence suggests that the U.S. pattern of low wage work dominated by large, profitable companies, is similar with many of the same multi-nationals ranking in the top 10 of employers of low-income workers in both countries.
The take-away from this is that the Basic Income benefits going to Ontario’s low-wage workers will directly end up subsidizing some of the world’s largest and most profitable companies – companies that have a history of virulent anti-unionism and companies for whom a low-wage, precarious workforce is a key element of their business strategy.
Of course, the use of means tested public programs to compensate for low wages is nothing new. The question is whether Ontario wants to initiate a new, large-scale program that would massively increase these sorts of subsidies to large profitable companies.
The U.S. Experience in subsidizing low-income workers – Walmart as an example
At this point, it’s useful to take a close look at the role existing U.S. programs aimed at low-income households have in subsidizing the incomes of low-wage earners. Let’s use Walmart as an example.
Looking at subsidies going to Walmart’s U. S. operations is instructive in that a fair amount of research has been done on the subject and also because the absence in the U.S. of universal health insurance and a tradition of miserly income support programs, allows for a focus on U. S. means tested programs like Medicaid and Food Stamps and therefore an easier calculation of subsidies being funneled into a particularly profitable company through means tested programs.
First, according to a report prepared by the Americans for Tax Fairness, the annual bill that States and the U.S. government foot through means-tested programs for American working families making poverty-level wages is $153 billion – with $6.2 billion of that going to Walmart alone. In many states, Walmart employees are the largest group of Medicaid and food stamp recipients!
The study estimated that the cost to U. S. taxpayers of a single Walmart Supercentre was between $904,000 and $1.75 million per year, or between $3,000 and $5,800 on average for each of 300 workers typically employed in the Supercentres!
And Walmart is not just big – it is enormously profitable.
While $6.2 billion in Medicaid and food stamp aid was required to keep Walmart’s low wage employees’ heads’ above water, the company had $14 billion in profits in 2016 on revenues of $473 billion. The Walton family, which owns more than 50 percent of Walmart shares, reaps roughly $5 billion in annual dividends and share buybacks from the company. Taken together, the six Walton heirs are the wealthiest family in America, with a net worth of $149 billion. Collectively, these six Waltons have more wealth than 49 million American families combined. The second richest family, the notorious Koch brothers, trail far behind with a total net worth of $86 billion.
The point of this detour into the world of American corporate welfare is to shed some light on the central question of whether low income Ontario workers – who again, comprise roughly half those eligible for BIG pilot projects – can best be lifted above the poverty line through a BIG or through higher minimum wages and labour law changes that ultimately lead to increased union density in the low-wage service sector.
In the author’s opinion, the fact that in Ontario so many BIG eligible workers are employed by large, profitable employers who can afford to pay higher wages and provide more full-time work, suggests that labour law reform leading to higher private sector union densities, is the preferable route.
And to be blunt, does Ontario really want to spend billions of dollars of hard-earned taxpayer money making the Waltons (Walmart) and the billionaires who run 3G Capital (owners of Tim’s and Burger King) even richer than they already are through subsidizing the wages of their underpaid employees?
So proposition # 1: improving the lot of the working poor is best addressed by an aggressive approach to increasing the minimum wage combined with labour law reform that allows for increased union density in the low-wage, private, service sector. Companies like Walmart, Macdonald’s and RBI (the parent company of Tim’s and Burger King), should not be receiving tax-payer paid income supplements to compensate for their low-wage, precarious workforce that is a key element of these employers’ business strategy.
The argument to this point is that an aggressive approach to the minimum wage and fundamental labour law reform resulting in increased union density in the low-wage, private sector is more desirable than BIG from a policy perspective. But what is the political feasibility of fundamental labour law reform of this sort? After all, Ontario just went through a comprehensive round of labour law reform that culminated in labour legislation (Bill 148) and while there was a significant increase in the minimum wage, the modest, pro-union changes in the Ontario Labour Relations Act contained in the bill were not the sort of fundamental changes that will likely lead to increased, private sector union density in the foreseeable future.
In other words, the obvious objection to the argument that labour law changes are the answer to low-wage, precarious work is that the kind of legislative changes that would put substantial upward pressure on wages are simply not going to happen – that private sector labour has been on the decline for at least 35 years in Canada and throughout much of the developed world, and that there is no reason to think that that decline is going turn around anytime soon.
Moreover, proponents of this view suggest that the forces of globalization, automation, the so-called sharing economy, and artificial intelligence will continue to strengthen and that continued downward pressure on private sector wages and working conditions is inevitable. It is worth noting that many of the most prominent proponents of the inevitability of an increase in low-wage, precarious work – in particular the giants of Silicon Valley – are also strong advocates for a Basic Income Guarantee as they are hostile to unions and more generally any regulatory initiatives that would impinge upon their core business models.
The problem with this view is that regional labour markets are products more of politics and policy than of global macro-economic trends. And while it may be true that the general trend over the past 35 years has been policy changes that de-regulate the labour market, keep the minimum wage low and weaken unions, that has not always been the case. The fact is that the politics of labour market policy plays out in a particular time in a particular place and that there have been a number of exceptions to the general trend towards deregulated labour markets. Just looking at Canada, examples of significant initiatives towards the re-regulation of regional labour markets include Ontario in 1992, British Columbia in 1993, Alberta in 2017 and Ontario again in 2017. And Quebec has for decades maintained the strongest labour laws in North America.
In Ontario, the labour legislation passed in December, 2017 (Bill 148), certainly represented a modest tilt towards more regulation of the Ontario labour market that will result in at least some upward pressure on wages. The biggest win by far for advocates of higher wages for low-income workers was the aggressive approach to increasing the minimum wage which resulted in a $14/hr. minimum wage on January 1, 2018, and $15/hr. by January 1, 2019. Of course, the increase to $15/hr. from 14/hr. is in question should there be a PC victory in the June 7 Ontario provincial election.
While Bill 148 certainly included some important gains for Ontario’s workers such as the minimum wage increase, it is increasingly clear that without some sort of sectoral, broader-based bargaining regime, Ontario’s labour movement will have difficulty in reversing the downward trend in private sector, union density.
On this question, it was somewhat disappointing that the Changing Workplaces final recommendations failed to endorse some of the bolder sectoral bargaining options put forth in the interim report. Moreover, important recommendations that did make it into the final report – such as the consolidation into a single bargaining unit of franchisees with the same employer in the same region – were rejected by the government. This suggests that labour policies that move beyond the single employer, Wagner Act model, are encountering considerable resistance from both within and outside the government (i.e. the employer community).
That said, the fundamental analysis underlying the Changing Workplaces report and the overall direction of the subsequent legislation, strongly endorsed the view that the growth of low-wage, precarious work was bad for Ontario and that measures needed to be taken to begin to reverse these labour market trends.
This is a view also shared by the provincial Liberals and New Democrats.
BIG and Non-working, Low-income Ontarians
At this point, it would be possible to simply end the paper because once one declares BIG the wrong way to go in dealing with the challenges of the working poor, one essentially abandons the notion of a BIG. It is by definition a solution that applies to all those living in poverty – whether they are working or not.
But to say that BIG is not the answer for the non-working poor begs the question as to what is.
It is therefore necessary to address the roughly 50% of BIG eligible participants that are not in the labour force – many of which are receiving benefits through Ontario Works and the Ontario Disability Support Program.
To provide some narrative continuity, this article will maintain the same somewhat simplified structure in this part of the paper as was provided in the first part and assess a BIG as it would apply to the non-working poor against an obvious alternative option for improving their lot: namely the policy agendas advanced for decades – in one form or another – to bring the non-working poor above the poverty line through Employment Insurance reform, social assistance reform and related income support measures.
The first issue that jumps out when comparing the feasibility of a province-wide BIG relative to the social assistance and EI reform agendas that have been advanced for decades, is the huge cost of a province-wide BIG.
The Ontario BIG pilot project will reportedly cost the province $50 million per year and will provide basic income to approximately 4,000 people. An extrapolation from this in an attempt to calculate the cost of a province-wide roll out of BIG involves integrating so many interdependent variables, that even coming up with a cost within a broad band involves much speculation. But starting with the costs related to the top-ups of benefit levels for OW and ODSP (currently costing the Ontario treasury roughly $9 billion dollars) and then factoring in top-ups to EI recipients and low-income workers, it is hard not to come up with an annual net incremental cost of between $15 – $20 billion dollars. And by net I mean taking into account potential efficiencies to be gained by implementing a BIG, such as administrative efficiencies and the alleviation of many of the indirect costs of poverty.
And there is only one way to finance an increase in net social spending of between $15 and $20 billion – through a massive increase in Ontario provincial taxes.
Tax increases needed to roll out a BIG province-wide
Here are some numbers that suggest why such an increase is not politically feasible.
Ontario’s current program spending totals $130 billion on tax revenues of roughly $95 billion.
Other non-tax sources of revenue come from federal transfers which Ontario has little control over, income from Government Business Enterprises, and other forms of non-tax revenues involving fees, etc. These revenue categories provide very little room for growth leaving the only real option to fund a BIG massive increases in the taxes that Ontario has control over.
However, when it comes to the all important provincial Personal Income and Corporate Income taxes, Ontario has “control” only in a limited sense in that it has no say over the base on which the provincial tax rates are levied. All deductions and exemptions related to the base are controlled by the federal government so on these taxes Ontario can only increase overall revenue by increasing provincial tax rates and reducing provincial tax credits.
On the HST, Ontario still has control over the provincial portion of the rate (currently 8%) but has lost much of the flexibility to apply an increase selectively that it had under its own Provincial Sales Tax (PST). This makes it harder to tailor a HST increase in a politically tactical way. And even when Ontario had more control over what goods and services were subject to its sales tax, an increase in the old PST was always a political hard sell.
Bottom line: the Personal Income Tax, the Corporate Income Tax, and the provincial portion of the HST account for $71 billion of Ontario’s total tax revenue of $95 billion. And given that Ontario has no control over the corporate and personal income tax bases, the truth of the matter is that the only way to raise an additional $15 – $20 billion to finance a BIG province-wide, is to implement huge rate increases in personal and corporate income tax rates along with a significant increase in the provincial portion of the HST. And this is simply not politically feasible.
Therefore, the danger is that if too many eggs are put into the Basic Income Guarantee basket and the government of the day comes to believe that it is a political necessity to push a BIG out the door province wide, we are very unlikely to get a benefit level that ensures that no one is in poverty (and supplementary programs are maintained) because the increase in taxes to do this would be politically unacceptable. In fact, we are more likely to get a small Universal Basic Income well below the poverty line combined with social program cuts because the initiative would be scaled back to fit politically feasible tax increases.
There is also a danger of the Basic Income project replacing (or at least stalling momentum on) other initiatives under way in Ontario that have similar goals to the Basic Income for the non-working poor but are much farther along in terms of working out the details and are more political feasible. These include the proposals contained in the Income Security Reform Working Group’s report, Income Security: A Roadmap for Change.
At the federal level, there is also the danger that EI reform and efforts to significantly increase the Working Income Tax Credit might be undermined by the Basic Income – albeit admittedly there does not appear to be a whole lot of momentum behind these initiatives.
An alternative policy agenda to ensure a living income for Ontario’s working and non-working poor.
So, what’s the alternative agenda if you have your doubts about BIG but believe government should commit to a living income for all?
Here is a partial policy agenda:
- Implement the Changing Workplaces recommendations that were not included in Bill 148 but also include Changing Workplaces options considered in detail in the interim report on the OLRA side – particularly those related to broader-based bargaining. For example, implementing the so-called B.C. sectoral bargaining model has the potential to significantly increase union density in the low-wage service sector reducing the need for a BIG.
- Implement a $15 minimum wage in 2019 along the lines announced by the Ontario government but consider annual increases above inflation in future years.
- Pick up the pace of implementing the Income Security Reform Working Group’s report, Income Security: A Roadmap for Change. The 2018 provincial budget announced that that there would be a 3% annual increase for both Ontario Works and the Ontario Disability Support Program over 3 years and that limits on cash and other liquid assets will increase to $15,000 for singles and $20,000 for couples receiving Ontario Works and will be fully eliminated for those receiving Ontario Disability Support Program Benefits, effective during the 2019–20 fiscal year. However, more can be done by implementing other recommendations from the Road Map report. This could be combined with reform of the Canada Pension Plan Disability benefit.
- Implement E.I. reforms including setting a fair qualifying period of 360 hours that will ensure EI is available for Canadians paying into it; make all workers eligible for up to 50 weeks of EI benefits; and raise EI benefits to 60% of earnings calculated on a worker’s best 12 weeks of earnings.
- Gradually increase the federal Working Income Tax Credit. The 2018 federal budget proposes to introduce the Canada Workers Benefit (CWB), an enhanced, more accessible version of the Working Income Tax Benefit. The actual rate increase announced in the budget is extremely small and more can certainly be done by gradually increasing the benefit on an annual basis.
- Implement the provincial Gender Wage Gap report recommendations more aggressively.
Incrementality in all its messiness and complexity is sometimes preferable to a silver bullet that solves all problems. The search for a silver bullet such as BIG to once and for all eliminate poverty and increase equality has its attractions, but it can undermine a set of practical and incremental initiatives where there is already momentum, where many of the details have already been worked out, and which represent substantial steps that taken together, move us closer to the long-term goal of a living income for all in Ontario.
Perhaps the BIG pilot projects will give us some useful information. There are a range of administration and integration issues that will have to be worked through that can be integrated into the agenda outlined above.
But the danger is that the BIG “silver bullet” approach to eliminating poverty will end up with a weaker social safety net, inadequate labour laws, and a Basic Income benefit that falls far short of ending poverty. This would largely reflect the fact that Ontarians are extremely unlikely to support the kind of tax increases that would have to be implemented to finance a province-wide BIG that would truly give all Ontarians a decent living wage.
In Ontario, much of the hard work of developing detailed policy options to reduce poverty has been completed or is well advanced and are detailed in a variety of recent reports (e.g. Changing Workplaces, Gender Wage Gap and Income Security: A Roadmap for Change). Of course, the extent to which any future provincial government will actually implement these policy options remains to be seen but the past year has certainly seen some modest progress in assisting low-income Ontarians. Whether that progress continues obviously depends upon the results of the June 7, Ontario election.
Social progress is always a long-term endeavor. And if incrementalism sometimes seems frustrating and the complexity of actual implementation sometimes seems overwhelming, the truth is that it has been ever thus. There really are no alternatives to improving the lot of low-income Ontarians and reducing inequality in this province.
These days, simple solutions are much more the domain of those who want to hurt low-income Ontarians than to help them. For proof of that assertion simply Google Doug Ford.