Rivers: Governments let this outbreak get as bad as it is: they are doing the right thing in keeping the money flowing

Rivers 100x100By Ray Rivers

May 11th, 2020

BURLINGTON, ON

“All countries will wake up after the global pandemic with much higher debt levels. Canada is fortunate because we are starting at a much lower net debt-to-GDP level,”..…”If low interest rates are maintained, there is no good policy case for rushing to austerity — either spending cuts or tax increases.” (former parliamentary budget officer Kevin Page)

Isn’t it a rule that one is supposed to become more conservative as they age? So I’m looking at the ballooning federal deficit – and it’s a lot of money. This year’s red ink may well stretch into the three hundred billion dollar mark. Government revenue has dropped like a lead weight and these monstrous payouts are rising like hydrogen blimps.

720 billion

720 billion is what it would cost to pay out a Universal Basic Income annually.

Tory leader Scheer has grumbled that the $2000 a month in emergency funding (CERB) is discouraging folks from going to work, but CERB breezed through Parliament anyway. And he is wrong – it’s not the $2000 that is keeping folks at home – it’s the lockdown.

In fact Scheer should get on board with the other opposition parties, some voices within his own party, and even the Anglican Church, which are all calling for a permanent universal basic income (UBI). The COVID-19 health crisis landed on us with lightening speed and with it came the economic crisis, thanks to the necessary lockdown.

Since both crises will likely be with us, at least to the end of this year, those emergency funds will need to be extended. That sounds more and more like a UBI. Having already rejected implementing a proper UBI Mr. Trudeau needs a rethink. It is time for him to re-discover his social democratic roots and implement a permanent UBI or move aside for some one who will. There are those who once thought universal health care was impossible too.

UBI is not a new idea. There have been a number of pilot UBI projects around the world and the results have all been positive, even those in Ontario and Manitoba which were prematurely aborted. If mental health and income security mean anything to society UBI is a no-brainer. And there is no evidence that UBI provides a disincentive to work, so Mr. Scheer’s concern about ‘money for nothing’ turning us all into lazy bums is nonsense.

Justin Trudea flags beard

As Prime Minister Justin Trudeau has yet to take to the idea of a Universal Basic Income.

Do the numbers. A UBI at the $2000 per month level for each of the 30 million Canadian adults might seem frighteningly high. But UBI would eliminate the need for old age security, unemployment insurance and a host of other federal and provincial income support programs in addition to the complex of welfare programs administered by all three levels of government. UBI would be taxable and possibly even clawed-back for high income earners at tax filing time. In the end the numbers should be, at a minimum, a wash.

UBI or not Canada is facing a record high deficit this year. But we’ve done this before. Does anyone remember that we were once heavily invested in the second world war? The federal government, unlike the provinces or municipalities is not constrained by debt, at least not in the short run. We print our own money and the Bank of Canada is buying up most of that debt. So we owe that money to ourselves.

But we should expect inflation when it is safe to reopen the economy. We’re already seeing some of that – especially hand sanitizers and meat products as the processing plants shut down. And inflation may affect our currency exchange rates, but even much of that is unlikely. After all, if there is an upside to this being the pandemic it is in that we are all in this together – a level playing field – this economic malaise is truly global. And inflation is an eventual pathway out of the debt, since today’s obligations will be smaller in tomorrow’s inflated dollars.

We can pay ourselves back once this is over. Canada ran sizeable deficits in the later Pierre Trudeau years, and right through the Mulroney near-decade. Yet after Jean Chretien balanced the budget both Harper and Trudeau inherited and grew one of the lowest debt-to-GDP economies in the G7. And even with a deficit of $300 billion our debt-to-GDP ratio will still be lower than when Chretien came into office, unless our economy really slips into the dark side.

Canadian paper money

The federal government can just print all the money they want to distribute.

Most economists and politicians agree with the current approach of keeping the fiscal taps running. But the truth is that UBI would be more efficient than what the PM is doing now. It would cost less, avoid duplication for some and inadvertent exclusion for others. It would also avoid the inevitable double-dipping and potential cheating inherent in the current mess of hastily developed income subsidy programs.

Still we shouldn’t be too worried about those deficit numbers even as we are getting more conservative in our golden years, at least not yet. We’re doing what we can – staying home, keeping our physical distance, washing our hands often and always wearing a mask in public. Governments may have been responsible for letting this outbreak get as bad as it is here in Canada. But they are doing the right thing in keeping the money flowing.

And they will need to do even more of that once we safely open up more economic activities. Already the federal minister of infrastructure, Catherine McKenna, is calling for shovel-ready projects to get us back to work sooner than later – but hopefully only when it is safe to do so. But even when we get back to full employment UBI makes for better social policy and sounder economic sense.

Rivers hand to faceRay Rivers writes regularly on both federal and provincial politics, applying his more than 25 years as a federal bureaucrat to his thinking.  Rivers was once a candidate for provincial office in Burlington.  He was the founder of the Burlington citizen committee on sustainability at a time when climate warming was a hotly debated subject.   Ray has a post graduate degree in economics that he earned at the University of Ottawa.  Tweet @rayzrivers

 

Background links:

Deficit –   Biggest Deficit –    CERB

Wage Subsidy –    Who’s Missing –    UBI

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4 comments to Rivers: Governments let this outbreak get as bad as it is: they are doing the right thing in keeping the money flowing

  • Stephen White

    The time for a UBI is long overdue. The existing network of benefits and social assistance is convoluted, bureaucratic and grossly inefficient. Simplicity and transparency would be welcome and much appreciated.

    Maybe the next thing to be addressed should be this country’s archaic and complicated tax structure. How about eliminating taxes for persons earning less than $35K, a flat tax for those earning between $35 and 100K, and a progressive tax structure for those earning in excess of $100K? Get rid of all the tax loopholes for multi-national corporations while we’re at it.

    • Gary Scobie

      I agree with you Stephen on both the UBI and the tax structure. Trouble is, the bureaucrats paid by our governments are wedded to complex systems that even they cannot explain to each other, let alone to mere citizens. And the politicians in power over the decades, no matter their political stripe have never had the imagination and gumption to push for this simplification to help both us as citizens and our governments as well in managing our finances.

      Question now as ever is – how do we get anyone to listen to logic?

  • Alan Harrington

    New Zealand is a world leader in addressing the Covid-19 situation & they are looking at UBI Universal basic Income, so a nice touch to see their dollar bills displayed.

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