Parliamentary Budget Office Assessment of National Basic Income Needs Work

..by Terrance Hunsley

The PBO has done another analysis of the potential costs and effects of a national basic income (BI) based on the Ontario pilot project model of a few years ago. In essence the model they assessed would guarantee low income individuals a minimum of $17K per year, and couples 24K, and be reduced by fifty percent of each dollar of income above that amount. The BI level is estimated to equal about three-quarters of the poverty line. As well, individuals with a disability would receive an extra $6k per year. Combined with things like the Child Credit and earned income,  it would reduce the number of people living under the poverty line by close to half.

The program, at an assessed cost of about $87Billion, would improve incomes in the bottom 40% of the income scale, costing those above up to about 2% of their disposable income.

In the PBO modelling, the method of financing the program was to eliminate a long series of federal and provincial tax credits.  These include the basic personal exemption and several specialized credits such as HST rebates, as well as some provincial credits. The results show that people in the third and fourth income quintiles (20% slices) would lose about 2% while those in the top quintile lose only 0.8%.

Presumably if the program were implemented, the funding method would be modified so the upper ranges would be required to pay more and hopefully, the middle range might pay less. 

In assessing what behaviour changes might be stimulated by the Basic Income, the PBO focussed exclusively on labour force participation and concluded that there would be a small reduction in participation (about 1.3%), but that the overall reduction of earned wages would be only about 0.5%, as anyone reducing their work effort would likely already be at a low income.   

It seems a bit strange that work effort was the only behavioural change that the PBO explored. They did not for example, question whether low income couples would “decouple” or avoid living together, to receive a higher benefit. They did not explore whether more people would declare a disability for the extra benefit. There are many people with disabilities who don’t bother to pursue specialized credits because the definitions are too restrictive, or the benefit too small.  They did not ask whether students would pursue a BI rather than a student loan, given that no conditions were to be placed on receipt of the benefit other than low income. 

The PBO also did not assess the savings to the health care system and justice system from people having a reliable income. One of the findings of earlier studies was a substantial improvement in health status. They did not assess any kind of upward mobility that could result from low income people having an opportunity to take a course, or buy tools, or just have better food.  They did not assess the long term impact on the health, well-being and eventual incomes of the children of recipients. They did not assess the impact on consumer spending of redirecting $87B per year from the top earners to those at the bottom, who save less and spend more locally. The study is useful though, and shows that a BI would not break the back of taxpayers.

There has been some speculation about more pilot projects. Problem is, these things take a long time to set up, implement and evaluate, and the political and economic situation changes. I think a better idea would be to set up a national program in any province that wanted to participate. It should have a developmental period to iron out the problems and issues that emerge, and improve the design. In an earlier article, I suggested that the federal government consider the offer of Prince Edward Island to be the first province with a BI and use that experience to implement the program in other provinces who raise their hands. 

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