About Basic Income

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What is basic income?

Basic income is money distributed to eligible people, regularly, reliably, and without work requirement, and which, absent other income, should meet basic human needs. It is an income floor to help eliminate the risk of falling into poverty and to provide greater stability as people navigate transitions and challenging times

Why is basic income needed?

Whether through disability, accident, illness, addiction, divorce, precarious employment, layoff, downsizing, inflation, rising interest rates, entrepreneurial failure, or other reasons, most people are highly vulnerable to economic and financial stress. Basic income can improve stability and flexibility for people, especially in times of uncertainty. As it does so, basic income can also improve food security and nutrition, and improve physical and mental health. (There is a powerful, straight-line correlation between lower income and poorer health, and higher income and better health.)

Basic income may be notably beneficial for people who may work episodically, temporarily, or seasonally (e.g., in farming or fishing), or in the creative arts, or the gig economy or in self-employment. Basic income also supports people who engage in important work which may not be valued in the paid labour market, such as caregiving and volunteering of many kinds, or in environmental stewardship.

Basic income can also stimulate local economies. That’s because those in lower to middle incomes tend to quickly spend what basic income they may receive on goods and services in or near their home community. According to a 2019 analysis by the Canadian Centre for Economic Analysis, for every dollar distributed through the Canada Child Benefit (a longstanding form of basic income for families with children under 18), nearly two dollars is generated in Gross Domestic Product.

How does basic income work?

Exactly how a basic income program will be structured will depend on program and policy design decisions such as:

• What are the eligibility criteria?
• Should the benefit be universal (paid to everyone, and overages recovered after the fact) or income-tested, likely distributed via the tax system in the same manner as the Canada Child Benefit or Guaranteed Income Supplement?
• How is a household defined? When multiple generations share a household, such as adult children, perhaps with a spouse or a child of their own, living with their parents, how will these situations be handled?
• What is the maximum benefit amount?
• Once the individual begins earning income, at what rate should the benefit be reduced?
• Should payments be made bi-weekly? Monthly?
• Where will the funds for this program come from? What changes may be made within our tax system to support funding?
• Should the program be the responsibility of the federal government, provincial government, or both?

A 2022 survey demonstrated that 60% of Canadians support an income-tested basic income program. Under this model, those with no income would receive the full benefit, with the amount gradually being reduced as income increases until the benefit is phased out entirely. Canada already has a very effective mechanism for administering such programs; our tax system already determines eligibility, benefit amount, and distribution for a wide number of benefits from the Ontario Trillium Benefit and GST/HST Credit to the Guaranteed Income Supplement.

In 2023, the top 20% of Canadians held over 2/3 of the country’s wealth while the bottom 40% held just 2.8%. Given this disparity, basic income advocates want to see support for all lower- and middle-income households – those bearing the greatest burden of our current financial stress and uncertainty. Sound program design should ensure a large majority (80-90%) of households are better off. The remaining (10-20%) households (i.e., the wealthiest households) should feel only a minor impact.

The Canada Child Benefit, for families with children under the age of 18, and the Guaranteed Income Supplement, for seniors aged 65 and over, are examples of successful, long-standing basic income programs in Canada. Both offer monthly, tax-free, income-tested benefits, based on adjusted net family income from the most recent tax year, and are administered and distributed by our federal income tax system. And in both cases, the benefit reduces as income increases, and is eliminated entirely when a predetermined limit is exceeded.

A basic income would fille the gap between these two programs, providing income security for working aged adults 18 to 64.

Furthermore, the need for basic income-like programs is being recognized across Canada:

• Newfoundland & Labrador has implemented a basic income for youth (ages 16 to 21) transitioning out of care and receiving residential services. They have also implemented a second basic income program for adults aged 60-64, recognizing their greater vulnerability and income security until they are eligible for OAS at age 65.
• Québec has implemented a basic income for those with long-term severely limited capacity for employment.
• Prince Edward Island has recently put forward a proposal for a province-wide basic income for adults aged 18-64. Notably, basic income has garnered support by all parties in PEI.

Myths about basic income

Two common myths about basic income are that:

1. Basic income is a disincentive to work, and
2. Basic income benefits will not be used wisely, but simply be spent on drugs and alcohol

Countless studies have disproven both assertions!

Improvements in mental and physical health mean more people return to education, seek employment, and retain jobs. For example, data from the 2017-2018 Ontario Basic Income Pilot revealed that:

• 26% of participants started education/training programs
• 48% volunteered more
• 38% of employed participants found higher paying jobs

Any decreases in employment have been found to be largely by those seeking to complete or upgrade their schooling, or who engage in caregiving of children or infirm family members. However, experts agree that the total potential impact on hours worked is not significant enough to be the primary determinant in the decision-making process regarding the adoption of a basic income program.

An increasing body of research suggests that worries regarding the use of cash transfers for purchasing alcohol and tobacco are unsubstantiated.

• A review of 19 cash transfer studies from various regions including Latin America, Africa, and Asia demonstrated a notable decrease in total spending on alcohol and cigarettes.
• A Vancouver study on providing cash transfers to individuals experiencing homelessness found no increase in spending on alcohol, drugs and cigarettes, and in fact, substance use severity declined by 90% over one year for benefit recipients.
• A basic income study conducted in the Cherokee Nation showed a significant reduction in alcohol and drug use.
• The 2017-2018 Ontario Basic Income Pilot demonstrated:
  • 17% of recipients quit smoking
  • 40% of recipients smoked less
  • 5% of recipients quit drinking
  • 43% of recipients drank less
  • 85% of recipients ate more nutritious food

The human cost of poverty can have long-lasting and far-reaching impacts:

• Fewer education and training opportunities
• Mental health toll – anxiety, stress, depression, shame
• Social isolation and disconnection
• Chronic pain
• Intimate partner violence and abuse
• Gang involvement, human trafficking, and survival sex

Poverty bears a large financial cost as well:

Health Care System Costs:

With over 1/3 of provincial, territorial, and local budgets allocated to health care system spending, the impact of poverty on basic health is a significant factor in driving these costs. Low income is linked to higher rates of hospitalization, longer hospital stays, more frequent emergency department use, and poorer continuity of care.

Justice System Costs:

Those experiencing poverty are more likely to be victims or crime, and to show greater use of the court systems related to appeals, evictions, and injury costs. Justice system related to poverty include policing, court costs, legal aid, criminal prosecutions, corrections, and incarcerations.

Intergenerational Costs:

UNICEF reports that children growing up in poverty are more likely to experience higher rates of bullying, physical assault, and other forms of violence. They also have weaker relationships with family, peers and teachers. Cognitive development is most affected in youngsters, while behavioural outcomes are more relevant for teenagers. Poverty before the age of five is strongly associated later in life with lower adult earnings and work hours.

Child poverty has a negative and long-lasting impact on a child’s ability to learn, build skills, find employment, and avoid poverty. 20-25% of children growing up in poverty are likely to remain poor. The most recent UNICEF report on child poverty indicates that more than 1 million children live in poverty in Canada. If those 25% could escape their parents fate, and, as adult, and raise themselves to even just the 2^nd quintile in earnings (about a $20k increase in annual earnings) the extra potential income would be about $5 billion per year!

Productivity Costs:

The costs of unemployment and under-employment of those living in poverty include lost wages, lost income tax revenues, greater reliance on government-provided social services and income supports, and reduced local spending and loss of related economic activity.

In 2008 Ontario Association of Food Banks (now Feed Ontario) estimated the total cost of poverty in Canada to be $80 billion annually. With inflation, that number is likely over $100 billion now.

The cost of basic income

The cost of a basic income program depends very much on the final design and policy decisions. Economists have developed various models for a national basic income program in Canada, with gross costs ranging from $53 billion to $134 billion, with the range of numbers reflecting highly varying program design parameters.

In Nov 2023 PEI released a comprehensive proposal for a province-wide basic income program for 18 to 64-year-olds, the result of an 18-month study by some of Canada’s top economists and basic income advocates; the proposal has garnered all-party support in PEI. An innovative aspect of their design is the broader definition of a family, which reduces the gross cost of the program by 40%. Rather than considering each adult (plus spouse and children, if any) a separate household, they determined that single childless adults living with their parents should not be considered separately, but as a part of their parents’ household, ensuring more effective distribution of funds.

Key points of this proposal include:

• Benefit rate of 85% of the poverty rate (Market Basket Measure)
• Basic income reduced by 50% for every dollar in earned income
• 80% of income tax filers would be better off, while the top 20% would only see modest reductions in income
• Overall poverty rate reduced from 10% to 2%
• Eradication of deep poverty (below 75% of poverty line)
• Remaining 2% of people in poverty would, on average, see an increase from 38% to 93% of the poverty line

The PEI proposal demonstrates that a very effective basic income program can be implemented for a much lower gross cost than initially anticipated.

Financing basic income

If we use the PEI model as a basis for a national basic income program, and apply the same 40% cost savings to current estimates from recognized proposals including that of the Parliamentary Budget Office, the cost of a basic income in Canada could be reduced to approximately $50 billion.

Numerous alternative avenues for securing the required funding exist, such as refining the income tax system to ensure fairness by adjusting tax brackets and modifying refundable and non-refundable tax credits. Some of the other potential sources identified by various economists and think tanks studying this issue include (with potential savings in billions of dollars):

The revenues generated by such initiatives may be used to finance other programs as well, however the total of these items alone tops $126 billion in revenues. Especially when considering the $100 billion spent on the impacts of poverty in Canada each year, the $50 billion price tag for a national basic income program seems not only feasible, but a wise investment. Canada’s total annual budget is more than 10 times this amount ($535B in 2024). With a GDP of close to $2 trillion, a national basic income program is well within Canada’s reach.