Kevin Milligan

I’m visiting the Facultad de Economía y Negocios at the Universidad de Chile this week. Today I gave a presentation to faculty and students on the landscape of public finance policy in Canada, using the challenges of population aging as a case study.

Thanks to Prof. Pablo Gutierrez for organizing the visit this week.

The slides can be found here.

Notes for my presentation to the 2023 Tax Policy Research Symposium, organized by the Waterloo Centre for Taxation in a Global Economy, University of Waterloo. The symposium was held in Toronto on May 4, 2023.

I’m here to give an economist’s view on the General Anti-Avoidance Rule (GAAR). I’m not the one to ask about case law or parsing the meaning of specific words in the legislation. What I hope I can add is an outsider’s view in what you’re engaged in.

I’ll begin with a general framework for thinking about some of these issues. I’ll then get into some specific criticism and suggestions.

My general framework comes from…the bible. I’ll introduce what I’m calling Zacchaeus problems and Moses problems and how they relate to the GAAR.

First is Zacchaeus.

Zacchaeus is from the New Testament, and he is famous for climbing a sycamore tree in Jericho in order to see Jesus. Zacchaeus had to climb the tree to remain hidden from the crowd, as Zacchaeus was unpopular. If this were Sunday School I might go on to tell you how Jesus did that thing where he was kind to the most unpopular person in the crowd. But this isn’t Sunday School, so I’ll focus on why Zacchaeus was unpopular. He was unpopular because he was a tax collector. In those days, there weren’t really tax rules and so tax collectors just kind of made it up based on what they saw. The modern term for this is ‘presumptive taxation’. The tax collector sees some things and presumes the tax liability.

Presumptive taxation typically refers to a situation where there aren’t prescribed tax rules and the tax collector has discretion in assigning tax liabilities. There are two economic consequences of a Zacchaeus kind of system.

On equity and fairness, there are threats to both consequential and procedural notions of justice. It’s not transparent and the outcomes might not be consistent.

On efficiency, the key concern is that the uncertainty will lead to a curtailment of productive economic activity. If you think it’s a “heads I win tails you lose” tax environment, you may be reluctant to make risky, productive investments for fear of losing your winnings if you should be successful.

So, a ‘Zacchaeus problem’ is tax uncertainty inhibiting productive investment.

Second is Moses.

Moses is from the Old Testament, and one of his key moments was transcribing the Ten Commandments onto two stone tablets.

Thinking about tax, this is another way to run a tax system, in contrast to Zacchaeus. You can write down rules that people should follow. The problem that arises is people innovate ways around the rules. This cycle continues and it seems that our CRA Moses can’t chip new rules in the tablet quickly enough.

What are the economic consequences of a Moses system?

On equity and fairness, people worry about economic spoils going to those with the best tax lawyers rather than the best economic ideas or the most needy.

On efficiency, economists worry that as a society, devoting resources to the tax planning industry is wasteful. Tax avoidance largely just shifts the tax burden around from one set of people to others, without producing anything useful on net.

So, a ‘Moses problem’ is economic waste through resources devoted to tax avoidance.

That’s my framework here. Zacchaeus problems stem from uncertainty discouraging productive investment. Moses problems stem from the wasteful ‘whack-a-mole’ cycle of rules-avoidance-morerules.

In this framework, what does a GAAR do?

A GAAR tries to patch the holes in a Moses tax system by applying a little Zacchaeus to fill the gaps.

How has this worked?

Did adding some Zacchaeus to the system introduce big Zacchaeus problems?

In 1988, David Dodge writing in the CTJ addressed concerns that the proposed GAAR would “seriously affect commercial life in
Canada.” (Canadian Tax Journal Vol. 36, No. 1, p. 21)

Also writing in the CTJ, Howard J. Kellough argued that the GAAR would be “all encompassing” and “herald an era of virtual total uncertainty”. (Canadian Tax Journal Vol. 36, No. 1, p. 24)

In short, I think these concerns were greatly overstated. The concerns about arbitrariness, consistency, and fairness had more bite, in my view. But I don’t much concern that the introduction of the GAAR seriously impacted commercial life in Canada or introduced economy-freezing ‘total uncertainty’.

[Update: Panelist Erin Towery of the University of Georgia points me toward Jacob et al. 2022, which finds some evidence that capital investment is delayed by tax uncertainty. https://pubsonline.informs.org/doi/10.1287/mnsc.2021.4072]

But did we solve our Moses problems? I’d say not entirely. I suspect there is less stop-gap anti avoidance legislation than we would’ve seen without a GAAR. But, we’ve introduced new Moses problems by shifting attention from arguing about specific tax avoidance rules to arguing about whether the GAAR should apply in a particular circumstance. There seems to be endless parsing of the “true” meaning of words like ‘business purpose’, ‘economic substance’ and ‘bona fide transaction’. People argue about the meaning of those words in order to avoid being ensnared by the GAAR.

This was foreseen by Kellough in the same CTJ article. He predicted “the attempt to interpret and apply the rule will likely spawn a sizeable industry.” Seems like he was right.

What’s worse, the way the GAAR seems to work is that you can get away with a lot of tax avoidance if you add some windowdressing to meet whatever rhetorical bar the case law has set for avoiding the application of GAAR. So, now you get the economic waste of the tax avoidance and you stack on top of that the economic waste of devising a way to get just enough windowdressing cover within the transaction to avoid triggering GAAR. That doesn’t sound good!

So, in my view, we haven’t eliminated our Moses problems but we haven’t really pushed the limit of Zacchaeus problems.

I’ll end with some recommendations.

These are very high level as I’m not going to offer thoughts on how to interpret the meaning of legislation.

First, the circumstances where the GAAR applies should be laid out as clearly and transparently as possible. If our tax fights and wasted resources are arising from fuzziness in when the legislation intended to apply the GAAR, then the legislation should be as clear as possible. I think that’s likely obvious to everyone, but it’s still worth saying.

Second, in setting the rules for when GAAR applies, I think we should minimize the tendency to have the tax authority guess at the motives for transactions. I am wary of tax collectors substituting their judgment for a business person’s own judgment.

Who knows why people do things?

Did Elon Musk really think he could make money on Twitter? If you ask me, it is highly likely he will lose a big chunk of his $44 billion purchase price. But maybe I’m wrong and in the fullness of time his vision will win and he will turn Twitter into a $100 billion company. What I don’t want is a tax collector deciding whether he had ‘reasonable’ expectation of profit. If tax collectors made these kinds of business decisions we’d end up with very cautious decision making, and that would be bad for innovation.

Third, I think we should err on the side of making GAAR more generally applicable (in a transparent and clear way). Why do I think this? Because one of the big concerns from 1988 was that the Zacchaeus-style uncertainty from GAAR would hold back our economy. But that didn’t happen. So let’s push further.

I was the lunch speaker today at the Ottawa Economics Association / Canadian Association of Business Economists annual Spring policy conference, held in Ottawa.

It was a great day of panels and speakers.

Here are the slides I presented.

Here is all the the data (with sources / URLs).

On April 30th, 2021 I completed my Interchange appointment to the Privy Council Office. I am now back at the Vancouver School of Economics full time.

On June 15th, 2020 I started as Special Advisor (Economic Recovery) to the Clerk of the Privy Council. I look forward to the challenge of helping in the effort to spur a vigorous and inclusive economic recovery.

This position is with the Privy Council Office, arranged through an Interchange Agreement between the Government of Canada and UBC.

The Privy Council Office mandate is to “[provide] professional non-partisan advice to the Prime Minister, portfolio ministers, Cabinet and Cabinet committees on matters of national and international importance.”

I will return to UBC full-time on January 1, 2021.

[UPDATE: We have renewed the Interchange Agreement to the end of April, 2021. I look forward to returning full time to UBC in May.]

I will not be available for media comment during this time period.

My Curriculum Vita is available here.

I can be contacted at kevin.milligan@pco-bcp.gc.ca.

For information about the appointment, please contact PCO Media Centre at mediacentre@pco-bcp.gc.ca.

I’m appearing at the House of Commons Finance Committee at 1pm PDT on Friday April 24th. The topic is “GOVERNMENT’S RESPONSE TO THE COVID-19 PANDEMIC: Panel on Students, Workers and Unemployed.”

My comments are below:

—-

Thank you for the invitation to appear.

My brief comments will first address some data, followed by thoughts about the future.

Data

I analyzed the March Labour Force Survey with economists Tammy Schirle and Mikal Skuterud for the C.D. Howe Institute. Already in March at the beginning of this crisis we can see a huge impact of COVID on work.

More than 2.2 million Canadians shifted out of work. But it is important to emphasize that you can’t just look at unemployment. Some did move to unemployment. But even more shifted to some kind of furlough; keeping their job but with zero hours worked. Overall, hours worked dropped by 18 percent in March compared to February. The hardest hit occupations were in cultural work, education, and food service. It was low-wage earners, women, and young people. For example, women earning less than $15 an hour saw a drop in total hours worked of 30%.

That was in March. What’s happening now?

The answer is hard to know because we lack timely data. Large business, small business, charities and families are making big decisions about their futures every day, and they need fresh data in this fast-moving economy.

Statistics Canada has reacted effectively by expediting GDP numbers and putting out innovative and timely data products. In addition, we now have administrative data on CERB applications three times a week—so we know that 6.82 million Canadians have now applied for CERB.

But we need more data to guide Canadians with crucial decisions:

• provincial breakdowns of CERB administrative data
• When available, administrative data on other emergency programs like CEWS, CEBA, and CESB.

The future

To close, I emphasize that even in the middle of this emergency, we need to keep our eyes on a plan for the future.

We need to consider how the emergency benefits we are now designing and implementing will serve Canadians in the partially-open economy that may be with us for some time.

We need to give employees and workers clear signals about how we will transition away from the emergency benefits at the appropriate time. Clear advance signals about the transition are needed so that everyone can plan.

Finally, we need to ensure we learn lessons from this crisis about how we support unemployed workers, and how we support our public service who deliver the programs that are needed when a crisis hits.

Thank you.

[PDF version of this letter]

My conflict disclosure is here.

This is the text of a letter written by me to Liberal policy advisor Tyler Meredith.

Re: Basic Personal Amount

Tyler Meredith
Liberal Party of Canada
tmeredith@liberal.ca

September 21, 2019

Dear Mr. Meredith,

I am writing about your request to provide information about the proposal by the Liberal Party of Canada to expand the Basic Personal Amount. Under your proposal, the Basic Personal Amount will increase between the 2020 and 2023 tax years to $15,000. In this letter, I am happy to provide the information requested about your proposal.

As a professor at a public university, engaging with public policy is part of my job. In this role over the past four years, I have provided advice to a Member of Parliament (CPC) on his Private Members Bill, the Government of British Columbia (NDP) on tax policy and poverty initiatives, and to the Government of Canada (LPC) on several matters of public policy.

In this same spirit, I hope the analysis I provide will better inform the voting public as it considers policy options during the current election campaign. I invite you to quote this letter in your public communications, and I will make this letter available to the public on my website as well.

During this election cycle, the Parliamentary Budget Office is providing cost estimates for policy proposals. I fully support this development, but the PBO is limited to providing total cost estimates and is not providing estimates of the impacts on different populations of Canadians. I therefore view the information I am providing with this letter to be complementary to the fine work of the Parliamentary Budget Office.

My efforts here should not be interpreted as an endorsement of your party or its proposal by me, my employer, or any institution to which I am affiliated.

The main finding of my analysis is that the proposal to expand the Basic Personal Amount will remove about 690,000 Canadians from paying federal income taxes by 2023, and lift 38,000 Canadians above the poverty line (MBM).

I also show that Canadians from all family income groups benefit from this tax cut and provide a comparison to the recent tax cut proposed by the Conservative Party of Canada.

These estimates are offered with a moderate level of uncertainty. The uncertainty arises from assumptions about the future incomes of Canadian out to 2023. More detail on the findings and the methodology are in the attached memo.

It has been my pleasure to assist you with this request. I sincerely hope it helps to inform the public debate during this election campaign.

Yours truly,

Kevin Milligan
Professor of Economics
UBC Vancouver School of Economics

Details and Methodology

The proposal is to increase the Basic Personal Amount and the Spouse or Common-Law Partner Amount according to the schedule set out below. It is phased out over the 2^nd highest tax bracket according to individual income.

The ‘Default BPA’ is the default path from 2020-2023. The ‘proposed BPA’ is the proposed schedule you provided me. The BPA gives rise to a 15% credit and is non-refundable. These are not changed under your proposal.

My analysis makes use of two sources of information:

• The Canadian Income Survey microdata.
• The Canadian Tax and Credit Simulator (CTaCS).

I project forward to future years the pattern of incomes using the Canadian Income Survey. Then, these incomes are processed through the Canadian Tax and Credit Simulator to generate an estimated tax liability, including all federal and provincial taxes and benefits. This process is repeated first under the status quo and then with the proposed policy in place. The change in taxes is used to assess the size of the tax cut and whether any federal income tax is owing. After-tax income is then used to assess each individual and family’s position relative to the poverty line.

The poverty concept used for this analysis is the Market Basket Measure, which has recently been adopted as the official poverty indicator for Canada.

The estimates do not account for behavioural response.

The results are below in Table 1 and Table 2.

[PDF version of this letter]

My conflict disclosure is here.

This is a letter written by me to Liberal policy advisor Tyler Meredith.

Re: Old Age Security

Tyler Meredith
Liberal Party of Canada
tmeredith@liberal.ca

September 16, 2019

Dear Mr. Meredith,

I am writing about your request to provide information about the proposal by the Liberal Party of Canada to expand Old Age Security benefits. Under your proposal, basic Old Age Security benefits would increase by 10% for those age 75 and older starting in 2020. In this letter, I am happy to provide the information requested about your proposal.

As a professor at a public university, engaging with public policy is part of my job. In this role over the past four years, I have provided advice to a Member of Parliament (CPC) on his Private Members Bill, the Government of British Columbia (NDP) on tax policy and poverty initiatives, and to the Government of Canada (LPC) on several matters of public policy.

In this same spirit, I hope the analysis I provide will better inform the voting public as it considers policy options during the current election campaign. I invite you to quote this letter in your public communications, and I will make this letter available to the public on my website as well.

During this election cycle, the Parliamentary Budget Office is providing cost estimates for policy proposals. I fully support this development, but the PBO is limited to providing total cost estimates and is not providing estimates of the impacts on different populations of Canadians. I therefore view the information I am providing with this letter to be complementary to the fine work of the Parliamentary Budget Office.

My efforts here should not be interpreted as an endorsement of your party or its proposal by me, my employer, or any institution to which I am affiliated.

The main finding of my analysis is that the proposal to expand Old Age Security benefits by 10% for recipients age 75 and older will lead to a reduction in MBM poverty in this age group of 14.5%. In 2020 this corresponds to 10,500 individuals, growing to 21,000 by 2024. Approximately two thirds are women.

These estimates are offered with a moderate level of uncertainty. The uncertainty arises from assumptions about the future incomes of Canadian seniors out to 2024. More detail on the findings and the methodology are in the attached memo.

It has been my pleasure to assist you with this request. I sincerely hope it helps to inform the public debate during this election campaign.

Yours truly,

Kevin Milligan
Professor of Economics
UBC Vancouver School of Economics

Details and Methodology

The policy is proposed to begin on July 1, 2020. Basic Old Age Security benefits will rise by 10% on that date for eligible Canadian recipients age 75 and higher. No other changes are contemplated.

My analysis makes use of three sources of information:

• The Canadian Income Survey microdata.
• The Canadian Tax and Credit Simulator (CTaCS 2019-1).
• Demographic projections from CANSIM.

I project forward to future years the pattern of incomes using the Canadian Income Survey. Then, these incomes are processed through the Canadian Tax and Credit Simulator to generate an estimated tax liability, including all federal and provincial taxes and benefits. This process is repeated first under the status quo and then with the policy in place. The change in after-tax income is then used to assess each individual’s position relative to the poverty line.

The poverty concept used for this analysis is the Market Basket Measure, which has recently been adopted as the official poverty indicator for Canada.

The estimates do not account for behavioural response. Labour market participation at these ages is very low, so no impact on labour markets were modeled.

This 2020-2024 time period shows substantial population growth in the over-75 age group because the baby boom generation arrives at this age in this time period. I rely on CANSIM demographic projections (Table 17-10-0057-01, medium growth scenario) to obtain population estimates.

The results are below in Table 1.

Kevin Milligan
Professor of Economics
UBC Vancouver School of Economics

kevin.milligan@ubc.ca

May 31, 2019

Discussion of the papers in the CEA session “Promises and Prospects for a Guaranteed Basic Income in Canada / Promesses et perspectives d’un revenu de base garanti au Canada”

Basic Income: The good, the bad, and the ugly.

Thanks to the presenters and to Kourtney Koebel and Diane Pohler for organizing this session.

I’ve organized my discussion of the presentations into three parts: the good, the bad, and the ugly.

The Good:

Let’s start with the good.

The recent wave of advocacy and research on basic income has brought forward several things that I think are good, and you can see these good aspects in these papers.

Foremost in my mind is a focus on poverty alleviation; ensuring that those who are struggling have sufficient income to meet their reasonable needs and participate fully in society. You can see this focus on poverty alleviation in all four of the presentations here today.

Another good aspect is figuring out ways to consolidate and rationalize our existing tax and transfer system into more coherent structures. There is duplication and redundancy. This complexity and overlap can lead to unintended-harsh incentives and renders our system opaque to those who don’t have accountants to sort out the problems. Moreover, theoretical models of optimal income taxation often treat the tax and transfer system as a unified structure, so thinking about how to turn our system more into a negative income tax-like system can help to fill in the gap between theory and reality. All of the empirical work presented today does this in various ways, and it’s a solid contribution.

Finally, providing hard numbers is good. Having numbers on the structure of potential basic income programs and what they would cost is crucial for the public to evaluate whether they are worthwhile. The presentations today are all based on hard numbers, and these numbers that help to move the policy discussion onto firmer ground. That is good!

The Bad:

Many models of basic income foresee the basic income displacing social assistance, pensions, unemployment insurance, and other income supports. The idea is to take all of these programs and put them in one big basic income bucket. In the US, I’ve seen the Medicare and Medicaid health insurance expenditures lumped into the basic income bucket too.

The basic income models presented here have been much more of the Negative Income Tax style, and the Boadway Cuff and Koebel paper explicitly discusses the role of straight transfers vs social insurance, arguing that both should likely coexist beside each other.

I agree with BCK on this, because models of basic income that aim to put all social insurance programs into one basic income bucket are bad.

Why are they bad? For two reasons.

First, the different programs we have respond to different risks and different needs. It is hard to imagine one basic income bucket meeting all these needs. Moreover, if you tried to replace them all with one program and missed the mark, we’d soon enough see these programs sprouting anew to respond to the basic needs and demands of the population for social insurance. When observing the proliferation of programs, it may be wise to consider that at least some of that multitude exist for solid reasons; separate reasons.

The second reason why putting social insurance in the basic income bucket is bad is because insurance programs pay out based on need. You get EI if you are unemployed. You get disability supports if you are disabled. You get GIS if your life lasted longer than your savings. It is a very bad idea to replace these programs with a straight lump-sum transfer across all citizens independent of need—which is the basic premise of basic income.

To understand why, consider disability payments under provincial Social Assistance programs. For most (if not all) provinces, the disability component of SA has more recipients than the regular SA program. Right now, if you are a low-income kid with a disability, you can get a wheelchair if you need it. With a Rawlsian mindset, we should imagine that could happen to any of us or any of our kids. I think we want a world where a low-income disabled kid can get a wheelchair.

If you instead cancelled all Social Assistance payments and put them in a basic income bucket, that kid doesn’t get a wheelchair. He gets a cheque for his per-capita share of a wheelchair. He doesn’t need that cheque, he needs a wheelchair.

Cancelling social insurance to fund a basic income is the privatization of social insurance and would be a very bad move.

To repeat, the basic income models presented here today were not of this type, but many other basic income proposals do try to replace social insurance programs in order to fund them, and in my view such efforts should be treated with high skepticism.

The Ugly

I think there are three basic ugly truths that we must confront about any basic income schemes.

The first is that the numbers for basic income schemes are tough. And by ‘tough’ I mean that almost surely impossible to make work.  This is very clear in the numbers presented here today. We see large increases in transfers to the bottom three or four deciles, paid for by very large increases in taxes in the middle and upper deciles.

There is some appetite to ‘soak the rich’ to be sure, but these proposals presented today are funded more by heavily increasing taxes on the middle class than the rich. I think it is very hard to argue that a basic income program funded by cutting the incomes of families making only $55K a year by 5% or more is a good deal.

I don’t think this is the fault of the capable and smart researchers who wrote the papers we saw presented today. I think the task—to fund a massive increase in transfers to low income families without a massive increase in taxes—is almost impossible.

This doesn’t mean anyone should stop advocating for a massive increase in transfers to low income families. It does mean that calling the transfer program a ‘basic income’ doesn’t allow you to avoid the ugly math.

The second ugly truth is that designing and administering a basic income scheme is really, really hard.

The negative income tax proposals we saw today would all be delivered through the income tax system. That’s a good and feasible way to do things, and I think that is likely the best way to go.

But let’s be clear, there are challenges with using the tax system. There are nonfilers who would slip through the system. There is also timing: if you suffer a negative income shock today on May 31, 2019, you wouldn’t see any change to your basic income cheque until after your next tax filing; so perhaps one year later.

Another ugly design challenge is the definition of the family unit. This may strike you as trivial—and I didn’t see serious consideration of it in the papers presented today. But it is actually a central and vexing challenge for basic income models.

As I understand the proposals today, they would be focused on the tax-filing unit, being the parents and any under-18 children. But, families and people live in a variety of ways. If you focus on the tax-filing unit, that means that a 19 year old living with their parents would be an independent family unit for the purposes of the basic income.

If you are going to ask families in the 5^th decile to take a 5% cut to their incomes in order to pay for a basic income, I think many of those 5^th decile families would be interested to know if the recipients of the basic income is going to be 19 year olds living with their parents. This is not trivial—I ran some microdata simulations a few years ago suggesting that Ontario’s basic income pilot would pay out between half and 2/3rds of its funds to over-18 adults living with their parents. Maybe that’s a good idea—but also maybe many voters would find that to be a tough sell.

The third ugly truth is that the ‘pilot’ approach to learning about basic income is likely a dead end. It’s a dead end because what we learn from them is very limited compared to the cost. In Wayne Simpson’s presentation, note that sample sizes on many of these pilots. One has only 100 families! Why are the sample sizes so small? It’s because the pilot programs are very expensive. $1000/month for two years would cost $24 million for just 1000 people. And it is empirically very hard to learn much from just 1000 people. I don’t think more basic income pilots are going to yield very much useful information.

The path forward

Let me end on a more positive note. Here are four things I think would be a productive focus for research and policy advocacy.

First, we should continue the focus on poverty alleviation. This means targeting transfers based on family income and family situation.  It also means that we must continue to make the case that poverty alleviation is important.

Second, we should continue the work on NIT-style consolidation of credits and taxes into a more coherent system. The resulting amounts may not be enough to fully fund a ‘basic income’, but it is still worth doing.

Third, we should make use of quasi-experimental and non-experimental evidence where available to learn about the impact of income transfers.

Fourth, if we are doing experiments, they should be tightly focused on clear questions. They should aim to build a base of evidence brick by brick and not try to do everything at once.

Thank you and I look forward to the discussion.

Kevin Milligan
Professor of Economics, University of British Columbia
Testimony to the House of Commons Standing Committee on Finance: Bill C-97
Opening Statement, via video conference
May 9, 2019

Merci pour m’avoir invité.  Je m’appelle Kevin Milligan, et je suis professeur d’économie a l’Université de la Colombie-Britannique ici à Vancouver.

I am going to direct my remarks to changes to the Guaranteed Income Supplement that are proposed in Bill C-97.

The GIS was introduced in 1967 and has grown into a vital part of Canada’s income security system for seniors. The GIS is focused on lower-income seniors, with over two million now receiving this benefit—about one third of all seniors.

The GIS is vital to poverty alleviation among seniors. Some arrive at retirement with too little income—maybe unemployment or health problems made it difficult to save while younger. Others start retirement on a solid footing, but end up outliving their savings and risk falling into poverty at older ages. In both these cases, the GIS tops up the incomes of low-income seniors and allows them to afford a dignified retirement.

A challenge for the GIS arises from how it is phased out with income. As someone earns more income, the GIS is reduced at rates of 50 and even 75 cents on the dollar. For low-income seniors who want to work after age 65, these phase-out rates impose a very high effective tax rate on earned income.

Many seniors are happy to retire from the workplace; others are unable to work because of health or family needs. For those Canadians, the GIS is there for them to top up their incomes.

However, some older Canadians want to continue working. Perhaps a new Canadian who arrived in Canada at middle age and wants to build more savings before retiring. Perhaps someone who wants to continue to ply a trade part-time. For those Canadians who want to work, the phase out rates in the GIS can present a barrier to work.

In Budget 2008, Finance Minister Jim Flaherty established an exemption of $3,500 for earned income in the GIS. This exemption currently allows seniors to earn up to $3,500 per year before starting to lose their GIS payments through the phaseout.

In Budget 2019 and here in Bill C-97, Finance Minister Bill Morneau has proposed to extend and enhance this GIS exemption in three important ways.

• The basic exemption is proposed to move to $5,000 per person.
• A partial exemption will be applied on the next $10,000 of earnings
• Self-employment earnings will now qualify for the exemption.

Combined, this means that a senior earning around $20,000 will now be further ahead by almost $3,000 per year.

In my assessment, this measure is well designed and should be supported for two main reasons.

First, the GIS is left in place for those who need it most—seniors at highest risk for poverty, and this proposal leaves every dollar now going to needy seniors in place.

Second, for those able to work, this measure allows them to keep more of their earnings and build a more secure income base for their own future retirement.

Thank you for this opportunity to testify, and I look forward to your questions.