Guaranteed Annual Income contains three words: Let’s talk about the ‘annual’ part

Submitted by John Stapleton on February 4, 2015 - 6:52am

We all understand the concepts of a guarantee and what is meant by an income but what do we really mean when we say that a guaranteed income should be ‘annual?

OK – we know that ‘annual’ means ‘yearly’ but does it mean something else? I think it does. To me, it means that we move away from the welfare approach to income that calls for reporting and reconciliation of income on a monthly basis.

I talked about this in recent Toronto Star articles and an op-ed in December 2014 (1). But the whole idea of annual reconciliation of income should be one of the first steps towards a true GAI for reasons other than it being a good first step. Here are some additional thoughts on the matter.

When Ontario’s new welfare computer system started to get into trouble, it was significant that overpayments and underpayments came to the fore as the main problem.

There is a reason for this. Welfare programs in Ontario and in many other places reconcile their accounts in the most heavy-handed and time-consuming manner possible. Unlike every other system, they reconcile all their payments to recipients each and every month.

If this doesn’t sound that odd to you, think for a moment what it would be like if some other organizations with large accounts did the same thing.  

The biggest of all accounts in Canada is the personal income tax account at the Canada Revenue Agency. If the CRA implemented monthly reconciliation, you would have to do your taxes each and every month. Each month, you would get a refund (an underpayment in welfare parlance) or you would have to pay. Using welfare terminology, this would be an ‘overpayment’ since you had paid too little in tax the previous month.

I don’t have to tell anyone what a nightmare this would be for all taxpaying Canadians. But let’s move on to other large accounts like large utility billers. Utilities like heat and electricity encourage customers to move to flat monthly billing as there are always cold snaps, heat waves and different levels of usage throughout the year.

At the end of the year, the utility companies catch up sending you a larger bill for greater usage or a lower one for lower than estimated usage.

We don’t refer to utility customers as being over-watered, over-powered, over-heated or over-cooled. Utilities don’t think of their customers as underpaid or overpaid and neither does anyone else. Yet if utilities ran their accounting like welfare, all these heating, cooling and water consumption and electricity would be fully reconciled every month. Hotter or cooler weather would trigger massive overpayment collections on each and every bill.

Sound efficient?

Next stop on our tour of large accounts is government. They routinely pay billions of dollars in old age supplements and refundable tax credits. How do they do it? They decide at tax time what they will pay the next year based on last year’s income and they set out a schedule of payments that they keep paying throughout the year in the same amounts.

The Guaranteed Income Supplement works like this. Child credits works like this. Ontario’s Trillium program works like this. They all work like this. How radical is that?

And can you imagine for a moment if they didn’t? Can you imagine what it would be like if you had to submit your income to government each month and if your earnings went up, to be told you were overpaid the previous month? Now think what this would be like 12 months a year.

If the Canada Revenue Agency, large utilities and government departments had to build   accounting systems like Ontario’s social assistance system, I can almost guarantee that they would be having the same computer problems that Ontario welfare is currently experiencing.

But the real question is: why do welfare departments continue this tortuous and archaic system of reporting and reconciliation when no one else does?

The answer lies in the mistaken view that welfare has to be much more closely managed than anything else no matter how much it costs. This is misguided because all the unwieldy accounting at exorbitant cost does not increase accountability one iota. It’s also ill-conceived as governments prove decade-in and decade-out that such systems are so complicated that they are well-nigh impossible to build and implement in the first place.

So where do we go from here? Start by placing all social assistance recipients (and public housing rents for that matter) on a yearly schedule based on last year’s income (or experience) just like every other large accounting system.

If someone gets overpaid, calculate it once a year and set up a schedule of payments. Where recipients get underpaid, send them a cheque. Build in a responsiveness system for recipients for people whose income drops when they are paying an overpayment. Hint: the federal government has such a system for the Working Income Tax Benefit (WITB). 

It’s a win-win-win-win. Staff are freed up to do the work they were hired to do. Recipients can better plan their lives on a fixed income. And two more things: our welfare computers would probably function as planned and we would be another step closer to a GAI.

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