Question Period Note: NOUVEAU RAPPORT DU BUREAU DU DIRECTEUR PARLEMENTAIRE DU BUDGET SUR LE REVENU DE BASE

The Parliamentary Budget Officer issued a report on basic income that examines how it could reduce poverty in Canada.

• The Parliamentary Budget Office’s new report helps Canadians to better understand the benefits and costs of a basic income. It is a welcome contribution to the discussion of how to address poverty in Canada.
• While the report shows that basic income would reduce poverty, there are also considerations related to the cost, the responsibilities of different orders of governments, and the implications for certain existing programs and their beneficiaries.
• The Government of Canada already has programs with many features of a partial basic income. These include initiatives such as the Canada Child Benefit for families with children, and the Old Age Security pension and the Guaranteed Income Supplement for seniors.
• The Government recently made several commitments that will help address poverty. In the Fall Economic Statement, we announced key early investments to lay the groundwork for a Canada-wide child care system, in partnership with provinces, territories, and Indigenous peoples. The Government is also investing in housing; carrying out a campaign to create jobs; supporting initiatives to improve food security; and bringing forward a new benefit and employment strategy for Canadians with disabilities.
• The Government will continue to monitor research and analysis on basic income, and we are exploring potential shorter and longer-term policy responses to promote inclusive economic growth and reduce poverty.

The meaning of basic income
• In general, “basic income” refers to programming that provides recipients with guaranteed incomes sufficient to meet basic needs, with few conditions and no requirements to have or seek employment. While benefits could be universal with tax-back provisions for higher-income recipients, Canadian experts generally anticipate income testing so that payments are only made to people with incomes below a specified threshold. A partial basic income would feature payments that cover some but not all essential needs and would supplement other income sources.
The debate over basic income
• The economic impact of the COVID-19 pandemic has caused an increase in calls from experts and stakeholders to introduce a basic income, with the goals of reducing poverty and inequality, addressing the changing nature of work (including growth of automation and precarious employment), and improving population health and well-being. Some basic income advocates also foresee economic benefits from a basic income, such as increases to employment and the Gross Domestic Product.

• In February 2021, Liberal MP Julie Dzerowicz introduced Bill C-273, a Private Member’s Bill that would establish a national strategy for a guaranteed basic income. This bill, and New Democratic Party MP Leah Gazan’s Motion M-46, have both attracted attention from basic income advocates. While Bill C-273 could come to second reading as early as this spring, it is more likely to proceed in the fall.
• Opponents of basic income express concerns about the anticipated costs and potential disincentives to work, and many oppose payments without requirements to work or seek employment. There are also concerns that important needs-based programming might be eliminated when a basic income is introduced. As well, some critics suggest that, rather than a basic income, governments should increase expenditures on social services such as Pharmacare, dental coverage, child care, and housing.
The new report from the Parliamentary Budget Officer
• On April 7, 2021, the PBO issued a report that analyses the impact of basic income on poverty. Examining a hypothetical program modelled on Ontario’s basic income pilot (described in a separate section of this QP card) but with full-scale implementation across Canada, the report indicates that such a program would reduce the number of people in Canada in poverty by almost half (by 49.0 percent, using the Market Basket Measure [MBM] with the 2008-base of the measure).
• The report indicates that the redistributive effect of this basic income model, with a set of assumptions about the elimination of certain federal and provincial programs and measures to offset costs, would include a 17.5 percent increase in the average household income for the lowest-income quintile. There would be declines in average income for the three highest-income quintiles (in each case because of the elimination of many refundable and no-refundable tax credits, a reduction in disposable income averaging below $2,000 per household). As well, the report clearly indicates that there would be declines in income for some households in the second quintile (even though the average household income for that quintile would rise slightly).
o While these effects may not align with efforts to prioritize the middle class, and show possible consequences of eliminating measures in conjunction with the introduction of a basic income, they are results of just one possible way of offsetting the costs. There is considerable potential for different program designs and approaches to offset costs of a basic income that would have different redistributive effects. For example, analysis by Basic Income Canada Network, briefly discussed below, features an approach in which declines in income are more concentrated among higher-income earners.
• The anticipated effects of this basic income model would be expected to vary greatly by province. For example, the basic income is projected to raise average incomes of the lowest-income quintile by $6,094 in Manitoba but just $2,966 on Prince Edward Island. As well, while poverty rates in Manitoba, Quebec, and Nova Scotia would decline by well over 50 percent according to the analysis, they would fall by just 13.5 percent in Newfoundland and Labrador. The report only partially explains the variation among provinces but notes that the impact on disposable incomes for the lowest-income Quebeckers is low at 15.2 percent but the effect on the province’s poverty rate is high, and suggests these findings show that incomes of many low-income households in Quebec are only a small amount below the poverty line. (Data limitations precluded analysis for the territories.)
• The report projects that basic income would have only a small effect on incentives to work, from workers either working fewer hours or entirely withdrawing from the labour force. It projects a decrease in the labour supply with a 1.3 percent decline in hours worked and a 0.5 percent reduction in total payroll. The PBO’s analysis therefore supports existing research that indicates that basic income would not have significant undue effects on workforce participation.
• The PBO finds that 1.9 percent more women would see net gains from the basic income than men. However, men would see a slightly higher average dollar increase, which the PBO suggests is because women benefit more than men from some existing programming which would be discontinued if a basic income was implemented.
• The projected gross cost for the basic income in 2022-23 would be $87.6 billion, including the estimated impact of the change in labour supply ($3.1 to $3.3 billion per year between 2021-22 and 2025-26) and the cost of the disability benefit ($3.5 to $3.9 billion per year during the same period).
• The PBO suggests that the cost could be offset by various program and tax changes. It tentatively puts forward a list of federal and provincial tax credits that could potentially be eliminated in conjunction with the introduction of a basic income (while presuming there would be compensation for resulting losses to children and seniors with separate transfers to ensure a “net-zero change” for these groups). Examples of these measures include the basic personal exemption, disability and caregiver tax credits, sales tax credits, provincial medical expense tax credits, energy-related tax measures, and the Canada Workers Benefit.
o A probable consequence of following this approach would be to help many lower-income people while leaving some higher needs people worse off financially than they were prior to the adoption of a basic income. Many basic income advocates would oppose cuts to programs to offset costs, except where the basic income covers the same needs. It should be noted that the PBO’s report analyses the impact of the fiscal offsets rather than taking a position on their merits.
o The PBO’s report does not explore potential benefits or cost savings from tackling poverty, such as the impact on costs associated with health care, the criminal justice system.
Previous analysis by the Parliamentary Budget Officer on the cost of a national basic income
• The new report from the PBO builds on its previous work on basic income.

• In April 2018, the PBO estimated the gross annual cost of a basic income modelled on Ontario’s pilot project and implemented across Canada: $76 billion for the 2018-19 fiscal year. The PBO also calculated that $32 billion of existing federal support could be eliminated, leaving a net cost of $44 billion. As well, economist Evelyn Forget builds on the PBO’s estimate and calculates that if provincial income assistance expenditures could be reallocated and directed towards basic income expenses, the annual cost of a basic income program could be cut to $23 billion. In any case, to offset costs, a basic income would almost certainly require taxation changes and/or modification or elimination of some programs.

• In July 2020, the PBO issued another report, which estimated the gross cost of a basic income program for six months, starting in October 2020, at $47.5 billion if designed following the model of the Ontario pilot. The PBO also showed that two models featuring lower phase-out rates, with more generous treatment of earned income to reduce possible disincentives to work, would lead to substantially higher gross costs (potentially as high as $98.1 billion for six months). The projected cost for this time period is affected by the high rates of unemployment due to the COVID-19 pandemic.

• In November 2020, the PBO issued a report with longer-term costing of basic income considered in its July 2020 report. The estimate for the gross cost of a national implementation of basic income for the 2021-22 year, with benefits reduced by $.50 for each dollar earned, was $82.0 billion. With the phase out rate reduced to $0.15 from $0.50, however, the projected gross cost increased to $184.3 billion.
Ontario’s basic income pilot project
• In April 2017, the Ontario Government launched a three-year basic income pilot project. Payments were made to approximately 4,000 low-income people in selected communities aged 18 to 64. Payment levels were set at 75 percent of Statistics Canada’s Low-Income Measure (LIM). A single individual received $16,989 annually, less 50 percent of any earned income, while couples received $24,027 less 50 percent of any combined earned income. People with disabilities received an additional $6,000 per year. Participants were also eligible to receive certain benefits including the Canada Child Benefit.

• The Ontario basic income pilot tested a potential new approach to income support that would replace social assistance, and probably some other programming, if it were fully implemented.

• Following a change of government, in July 2018, the new Ontario Minister of Community and Social Services announced the cancellation of the basic income pilot. Payments to participants continued only until March 2019.
• While no official evaluation of the pilot was conducted by the Ontario government, two unofficial evaluations indicated that the discontinued pilot had produced positive outcomes for participants.

• In March 2019, Basic Income Canada Network reported on a survey of 424 participants in the Ontario pilot. Key findings of the study include:
• 34 percent of participants found that the basic income supported employment by enabling transportation, childcare, or the ability to start or expand a business.
• 74 percent of respondents said they were able to make healthy food choices.
• However, when the cancellation of the pilot was announced, 80 percent of respondents experienced previous problems returning, and 61 percent had to alter future plans.

• In March 2020, economist Wayne Lewchuk of McMaster University and colleagues released a separate report, based on a study of 217 former pilot participants in the Hamilton area. Findings include:
• For some participants, basic income was “transformational, fundamentally reshaping their living standards as well as their sense of self-worth and hope for a better future.”
• A majority of respondents who were employed before the pilot continued to work while receiving a basic income. Some moved to better paid jobs.
Existing federal programming and initiatives
• Provinces and territories have significant authority in the area of income support. Previous communication from ESDC has indicated that the federal Government recognizes the importance of working with provinces and territories to find solutions to common challenges, while stating that it is up to the provincial and territorial governments to make decisions around the design of social assistance systems and policies in their own jurisdictions.
• Nevertheless, some federal programs have many of the features of a partial basic income for specific groups. This includes the Canada Child Benefit (CCB), which provides income support to families raising children. For Canadian seniors, the Old Age Security (OAS) program and Guaranteed Income Supplement (GIS) play a significant role in providing income security. As well, although their payments are relatively low, the GST/HST Credit and Climate Action Incentive can be viewed as partial basic income programs.
• The Government has made significant efforts to address the short-term needs of Canadians facing economic hardship as a result of the COVID-19 pandemic. These initiatives include temporary programs such as the Canada Emergency Response Benefit (CERB) and Canada Recovery Benefits, as well as several one-time payments to specific groups.
• As well, the Government of Canada recently made several commitments that will help address poverty. Its Fall Economic Statement announced key early investments to lay the groundwork for a Canada-wide child care system, in partnership with provinces, territories, and Indigenous peoples. The Government is also investing in housing; carrying out a campaign to create jobs; supporting initiatives to improve food security; and bringing forward a new benefit and employment strategy for Canadians with disabilities.
Basic Income Canada Network’s (BICN) report
• In January 2020, BICN issued a report advocating the introduction of a basic income in Canada. The report proposed three options featuring benefits of $22,000 per year for individuals ($31,113 for couples in two cases), either targeted to Canadians with low incomes or universal with costs recovered through the tax system. A clawback rate of 40 percent on earned income applied to the first two options.

• With more generous benefits than the model analysed by the PBO, these models have higher gross costs ($134 billion for the least expensive option). However, BICN’s report explains that each of the options could be paid for mainly through changes to the tax system, along with modifications to or elimination of certain existing federal and PT programs.

• The benefit levels would lead to a greater estimated impact on the poverty rate; each of BICN’s models is projected to reduce poverty by at least 92 percent. (This amount, using an after-tax Low-Income Cut-Off measure, is considerably higher than the projected 55.6 percent reduction in the new PBO-Ontario analysis using this measure; BICN’s report does not use the MBM measure.)
UBI Works’ report
• In December 2020, UBI Works, an organization of businesspeople who support basic income, released a report on the economic impacts of basic income in Canada. According to the report, a basic income of $2000 for individuals (and a higher amount for couples) would not only dramatically reduce poverty, but would also contribute to increases in employment and the Gross Domestic Product. These considerations do not appear to have been explored in the PBO’s analysis.

• While UBI Works’ report appears to assume that the federal government would implement, deliver, and fund a basic program, some thought has been given to how such an initiative would be paid for. The report considers different possible approaches; it leans towards approaches that rely on taxes paid by households, particularly those with higher incomes, with a potential role for debt funding for a certain time after the basic income is introduced. (Business taxes would cover only a small fraction of the costs.)

• The report takes the view that cuts to other social programs, unless justified because their functions are covered by BI, should be avoided.

• Separate from the December report, UBI Works has suggested several actions to help pay for a basic income, including introducing a land value levy, increasing taxes on businesses or higher-income earners, implementing a “microtax on financial transactions,” and raising the Goods and Services Tax rate.
Reference
• Office of the Parliamentary Budget Officer, Distributional and Fiscal Analysis of a National Guaranteed Basic Income at https://www.pbo-dpb.gc.ca/en/blog/news/RP-2122-001-S--distributional-fiscal-analysis-national-guaranteed-basic-income--analyse-financiere-distributive-un-revenu-base-garanti-echelle-nationale.

• On April 7, 2021, the Office of the Parliamentary Budget Officer (PBO) issued a report on basic income.

• Examining a hypothetical program modelled on Ontario’s basic income pilot with full-scale implementation across Canada, the report indicates that such a program would reduce Canada’s poverty rate by almost half (by 49.0 percent) in 2022, using the Market Basket Measure. Moreover, the report indicates that the redistributive effect would include a 17.5 percent increase in income for the lowest-income quintile.

• Focused on low-income, working-age adults, the Ontario model paid up to $16,989 per year to individuals and $24,027 to couples (75 percent of the Low Income Measure), as well as an additional $6,000 to persons with disabilities. Basic income payments were reduced by $.50 for each dollar of earned income.
• In this model, there would not be alterations to the Canada Child Benefit, Old Age Security, and Guaranteed Income Supplement.

• The projected impact is roughly comparable to the government’s target of achieving a 50 percent reduction in poverty by 2030 relative to 2015 levels.

• The projected gross cost for the basic income 2022-23 is $87.6 billion, which the report suggests could be offset by various program and tax changes.