Executive Summary
Families living in poverty would see their lives radically improved and transformed if poverty were considerably reduced or eradicated.
The consequences of poverty are both deep and far-reaching. At an individual level, poverty is linked to food insecurity, poorer health outcomes, higher stress, lower educational attainment, and inadequate or unsafe housing. However, the implications of poverty extend beyond those experiencing it, from lost economic opportunities to higher expenditures in our health and criminal-legal systems.
Therefore, families living in poverty would see their lives radically improved and transformed if poverty were considerably reduced or eradicated. But the positive impact of eliminating poverty would go beyond that: investing in people would contribute to economic activity and improve the health, self-esteem, and well-being of people in communities across the country. Indeed, a report published in 2008 by the Ontario Association of Food Banks concluded that the economic cost of poverty in Ontario was between $32.2 and $38.3 billion, or up to 6.6% of Ontario’s GDP. These costs are borne by people living in poverty but also those that are not directly affected by poverty. With one-third of these costs being borne by governments through higher expenditures and lower revenues, a program or benefit that considerably reduces poverty would not only improve the lives of individual recipients and broader society but would also become at least partially self-financing over time. Both federal and provincial governments have recognized the urgent need to reduce and ultimately eliminate poverty. Introduced in 2018, Opportunity for All - Canada’s First Poverty Reduction Strategy acknowledged that eliminating poverty is a priority and established the target of reducing poverty in Canada by 50% by 2030. Prince Edward Island (PEI) has adopted the Poverty Elimination Strategy Act that established the targets of reducing poverty in the province by 50% by 2030 and eliminating it by 2035. The Poverty Elimination Strategy Act was a follow-up to the Special Committee on Poverty in PEI established by the Legislative Assembly of Prince Edward Island.
A guaranteed basic income (GBI) - an unconditional income-tested cash transfer paid to adults living in families with income under a certain threshold - is a promising approach to eliminate poverty in Canada and the costs associated with it.
This cross-party committee tabled its final report at the end of 2020 and made 16 recommendations for eradicating poverty in PEI. One of the key recommendations of that final report was that “the Government of Prince Edward Island begin immediate negotiations with the Government of Canada for the development and implementation of a basic income guarantee program for Prince Edward Island.” More recently, PEI legislators reconfirmed their support for this recommendation in a letter signed by all provincial party leaders. A guaranteed basic income (GBI) - an unconditional income-tested cash transfer paid to adults living in families with income under a certain threshold - is a promising approach to eliminate poverty in Canada and the costs associated with it.
This report outlines a proposal for a province-wide GBI for PEI residents aged 18 to 64, jointly delivered through the tax system, and financed by the Government of Prince Edward Island and the Government of Canada. As recommended by the Special Committee on Poverty in PEI, the GBI outlined in this report has a maximum benefit of 85% of the official poverty line - estimated to be $19,252 for a single adult and $27,227 for a family of two adults in 2022 - and for every dollar increase in family’s net income, the benefit is reduced by $0.50. This new benefit would complement similar income-tested basic income benefits that already exist for children (the Canada Child Benefit) and seniors (the Old Age Security and Guaranteed Income Supplement).
While supporting the objectives of Canada’s First Poverty Reduction Strategy, we estimate that this proposed GBI benefit would put Prince Edward Island on a path to meet its poverty reduction targets by considerably reducing the poverty rate for Islanders aged 18 to 64 from almost 10% to nearly 2%. As a result, among Islanders aged 18 to 64, the proposed GBI benefit would ensure that no Islander lives in deep poverty, that is with income below 75% of the official poverty line. Indeed, those remaining in poverty would, on average, see their income increase from 38% to 93% of the official poverty line, representing a dramatic improvement in their financial situation and well-being. The proposed GBI benefit would also essentially eradicate poverty for persons with disabilities. The poverty rate for families with children would be reduced from 5.4% to 1.8% and that of single adults aged 18 to 64 would fall considerably from almost 27% to about 3%. Furthermore, the available evidence suggests that such a program would not only improve the financial situation of GBI benefit recipients, but also improve their health and, for their children, support better educational outcomes and greater intergenerational mobility.
We estimate that this proposed GBI benefit would put Prince Edward Island on a path to meet its poverty reduction targets [and] can be fully financed while ensuring that most PEI taxpayers are better off.
Basic income proposals are often criticized for being very expensive and, therefore, hardly implementable without significantly increasing the tax burden on the middle class. This issue is addressed by using a broader definition of the family to administer this new benefit—a novel approach that previous GBI proposals have not taken advantage of. By ensuring that a greater share of the GBI expenditures is provided to families living in poverty, the proposal reduces the cost of the GBI for PEI by about $120 million or almost 40% relative to a GBI where an adult child living with their parents is considered a separate family. This, in turn, means it is possible for the PEI government to tax-finance a significant share of the proposal while simultaneously raising the after-tax income of most Islanders. Indeed, only the top 20% income earners in the province would experience a modest reduction in their after-tax income. When combined with federal funding, likely reductions in provincial and federal expenditures on income-tested benefits, and reductions over time in the costs of poverty for governments, this GBI proposal can be fully financed while ensuring that most PEI taxpayers are better off.
There is also a concern that a GBI would lead workers to work less. This proposal helps to address this concern by using a broader family definition that better targets low-income families and impacts fewer workers, thereby significantly mitigating the reduction in hours worked. We found that the hours worked in PEI would be reduced by 1.6% based on recent evidence on how workers respond to changes in income and after-tax wages. This is a small reduction. For an Islander working 35 hours per week, this translates to a reduction as low as half an hour per week. We still recommend that the Government of Prince Edward Island put in place, together with the new GBI benefit, a strategy to increase participation of Islanders in the labour market and to support innovation to help address current labour shortages in the province, as well as the small impact the GBI would have on hours worked.
This proposal offers a framework for a GBI that could be implemented in PEI in partnership with the federal government. It offers a framework for either a permanent or a demonstration project. A minimum five-year demonstration project would provide an opportunity to generate evidence and allow for adjustments, if necessary, to the program, as well as a tested model for other provinces, or for a national program. We have also provided options within the report to support flexibility - particularly with respect to the financing of the new benefit - that allow for adjustments to the proposal following discussion between the Government of Prince Edward Island and the Government of Canada.
In sum, this proposal provides a roadmap for a feasible GBI for Islanders aged 18 to 64. Together with the Canada Child Benefit, the Old Age Security (OAS)/Guaranteed Income Supplement (GIS) and the new Canada Disability Benefit reintroduced in the legislature by the Government of Canada, this proposed GBI has the potential to create an Island without poverty, paving the way for a Canada without poverty.