A Distributional Analysis of a National Guaranteed Basic Income – Update
This report provides an update of PBO’s distributional analysis of a Guaranteed Basic Income.
Summary
This report provides an update to the Parliamentary Budget Officer’s (PBO) previous distributional analysis of a guaranteed basic income (GBI) in response to ongoing interest from parliamentarians. The updated analysis captures changes in economic and demographic conditions in recent years while maintaining the GBI program parameters used in our previous reports.
Since PBO’s previous report published in 2021, the use of the nuclear family unit for GBI eligibility has raised fairness concerns among parliamentarians and stakeholders, leading to interest in using a broader family definition. In response, this analysis provides fiscal and distributional impacts of the GBI using two different definitions of the family unit, that is the nuclear family and the economic family.
PBO estimates that the gross cost of the GBI, excluding behavioural costs, rises to $107 billion in 2025 under the nuclear family unit definition. The same cost measure is roughly cut in half to $53 billion when using the broader economic family unit. Consistent with previous analysis, PBO assumes that existing federal and provincial tax credits targeting low-income individuals would be eliminated to offset these costs.
For both family definitions, the GBI and its fiscal offsets have a progressive impact on household disposable income. The largest benefit is observed in the lowest income quintile, while higher income quintiles experience a loss in disposable income due to the elimination of various tax credits and relatively lower GBI transfers.
Based on the Market Basket Measure (MBM), the GBI would reduce poverty rates in Canada in 2025 by 34 per cent under the nuclear family definition and by 40 per cent under the economic family definition. The updated poverty impact is lower than the 49 per cent previously reported by PBO in 2021. This reflects both a significant upward revision of the MBM threshold and that earnings of low-income families have not kept pace with the increased threshold in recent years. This finding suggests that more families are now classified as living in poverty according to the updated official rates, highlighting the growing challenges of meeting basic living standards.
In 2025, the cost of the behavioural response to the GBI under the nuclear family definition would amount to $5 billion, compared to $3.6 billion under the economic family definition. As noted earlier, all other gross GBI costs would be fully offset by adjusting the tax system, leaving the behavioural cost of the GBI as the only net cost for the government.
Introduction
This report provides an update on the PBO's 2021 distributional analysis of a guaranteed basic income (GBI) in response to ongoing interest from parliamentarians.[^1] This interest is reflected by the introduction of House Bill C-223 and Senate Bill S-233 in the first session of the 44th Parliament, which propose the development of a national framework for a guaranteed livable basic income.[^2]
The updated analysis includes projections for 2025, capturing changes in economic and demographic conditions since 2021 and their subsequent impact on poverty levels in the country.[^3]
How is GBI defined?
Consistent with previous analysis, PBO uses the parameters set out in Ontario’s 2017 basic income pilot project. The project ensured that participants received up to 75 per cent of the low-income measure (LIM).[^4] In 2025, this would amount to $21,903 for a single person and $30,975 for a couple. The GBI amount is then reduced as a family’s net income increases, at a rate of $0.50 for every additional dollar.[^5] Moreover, individuals with a disability would receive a universal additional amount of $7,355 per year.[^6]
The Ontario pilot uses the nuclear family as the basis for determining eligibility and administering the guaranteed basic income. Boadway et al. (2023) argue that this approach is consistent with the goal of simplicity because the nuclear family is already used by the Canada Revenue Agency to administer benefits such as the Canada Child Benefit and the GST/HST credit.[^7]
The nuclear family consists of an individual, their spouse or common-law partner (if applicable) and their children under the age of 18 residing in the same dwelling. Other family members (such as grandparents and adult children) sharing the same residence are considered separate nuclear families.
The economic family consists of a group of individuals related by blood, marriage (including common-law relationships) or adoption/guardianship who are living in the same dwelling.
Some parliamentarians and stakeholders have raised concerns about the fairness of using the nuclear family for GBI eligibility. Under that family definition, children over the age of 18 living with their parents are considered separate nuclear families and can independently qualify for the full GBI amount. Adopting a broader definition of the family unit, such as the economic family, would account for the net income of adult children and other relatives living in the same household as part of the family income used to determine GBI eligibility. To address these concerns, this report examines the fiscal and distributional impacts of the GBI using both the nuclear family and economic family definitions.[^8]
PBO assumes that many federal and provincial programs and tax measures intended for low-income individuals and families would be cut to fund the GBI program.[^9] Furthermore, the federal and provincial basic personal amounts are reduced to finance the remaining gross cost of the GBI (excluding the behavioural cost).[^10] The fiscal offsets identified in this analysis are largely consistent with those in PBO’s 2021 report.[^11] Appendix A contains the updated list of federal and provincial tax credits used as offsets in this analysis.
The following section provides an overview of fiscal and distributional impacts of the GBI for calendar year 2025. Detailed breakdowns of the distributional and budgetary impacts of the GBI can be found in Appendices A through F.
Results
Gross static cost of GBI
Table 1 shows that the gross static cost of the GBI, that is the base amount and the disability supplement, using the nuclear family unit definition is estimated to be $107 billion.[^12] This updated estimate is higher than the $90 billion projected for the same period in the 2021 report. The increase can be attributed to higher inflation rates and lower growth in earnings for low-income families in recent years than previously anticipated.
The base cost of the GBI is cut in half to $53 billion when the economic family unit is used instead of the nuclear family. This is because the economic family aggregates the earned income of all related individuals in a household, unlike the nuclear family, which considers only single adults, childless couples, and parents with children under 18. As a result, higher aggregated income leads to greater reductions in the GBI.
PBO assumes that existing federal and provincial tax credits that target low-income individuals and families would be eliminated to fund the GBI. Further, basic personal amounts at both the federal and provincial level would be reduced as needed to fully offset the gross static cost of the GBI. These reductions would be more substantial when using the nuclear family unit compared to the economic family unit, as the gross cost associated with the GBI under the nuclear family definition is higher.[^13]
In 2025, these adjustments would raise federal and provincial income tax revenues by approximately $56 billion and $50 billion, respectively, or $28 billion and $25 billion if using the economic family unit, covering the overall gross costs shown in Table 1. A provincial breakdown of these offsets is available in Appendix A.
Impact of GBI on household disposable income
For both family definitions, the introduction of the GBI and its fiscal offsets has a progressive impact on household disposable income. The average effect is broadly consistent across most income quintiles under both family definitions despite the notable difference in gross GBI costs between the two, as shown in Table 1. The greatest benefit is observed in the lowest income quintile, with an average amount around $6,100 (that is, about 21 per cent of average disposable income). However, higher income quintiles experience a loss in disposable income resulting from the elimination of various refundable and non-refundable tax credits combined with relatively lower GBI transfers. For a detailed provincial breakdown of GBI impacts, refer to Tables B-1 and B-2 in Appendix B.
Impact of GBI on poverty rates
At the national level, the GBI significantly reduces poverty rates in Canada, as shown in Table 3. Based on the Market Basket Measure (MBM), the GBI would reduce poverty rates in 2025 by 34 per cent using the nuclear family definition and by 40 per cent using the economic family definition, with variation across provinces.[^14] Tables C-1 and C-2 in Appendix C provide the impact of GBI on low-income Canadians using different poverty lines: the MBM; the low-income cut-off (LICO); and the low-income measure (LIM).[^15]
The updated poverty impact calculated using the nuclear family definition is lower than the 49 per cent previously reported in PBO’s 2021 report, with a similar downward revision at the provincial level. This reduction is due in part to the significant upward revision of the MBM threshold, which now uses the 2018 base instead of the 2008 base.[^16] The revised threshold reflects higher costs for housing, food, transportation, and other necessities, updated to account for inflation, modern consumption patterns, and regional cost variations.
In this analysis, GBI transfers are defined based on the LIM, consistent with the Ontario 2017 pilot project. The LIM is a measure of poverty based on household income rather than on the cost of goods and services. Therefore, the lower poverty impact of the GBI in 2025 also suggests that the earnings of low-income families have not kept pace with the MBM threshold increase in recent years. As a result, while the poverty impact appears lower, the combination of higher MBM thresholds and the lower household income growth suggest that more families are now classified as living in poverty according to the updated official rates, highlighting the growing challenges of meeting basic living standards.[^17]
Table 3 demonstrates that poverty reduction is greater when using the economic family definition (40 per cent reduction at the national level) compared to the nuclear family definition (34 per cent reduction). This can be attributed to two main factors:
a) For both family definitions, the GBI has a comparable impact on the average household disposable income in the first quintile, where poverty is most concentrated (as shown in Table 2), despite the substantial difference in gross costs (as shown in Table 1).
b) The reduced cost of the GBI under the economic family definition leads to a lower tax burden on individuals and families, reflecting the smaller reduction in basic personal amounts.
The varying impact of the GBI on poverty rates across provinces shown in Table 3 is due in part to differences in the distribution of earnings and provincial government transfers. In addition, while the GBI program parameters are defined at the national level in this analysis, the MBM poverty line varies across Canadian regions.[^18]
Behavioural impact of GBI
The behavioural impact of GBI was assessed at the intensive and extensive margins using labour supply elasticities from Green (2020), consistent with PBO’s 2021 analysis.[^19] These include:
1. Elasticity of hours worked with respect to after-tax wage.
2. Elasticity of participation with respect to after-tax wage.
3. Elasticity of hours worked with respect to after-tax income.
4. Elasticity of participation with respect to after-tax income.
The introduction of the GBI can affect labour supply by increasing both the marginal effective tax rate (METR) and participation tax rate (PTR). The increase in METR results in a reduction in hours worked from lower-wage workers, an intensive margin response. The increase in the PTR results in some workers leaving the workforce entirely, an extensive margin response.
The behavioural impacts of GBI are smaller under the economic family definition compared to the nuclear family definition. Hours worked decrease by 1.1 per cent for the economic family definition versus 1.4 per cent for the nuclear family definition. Similarly, payroll decreases by 0.4 per cent compared to 0.5 per cent. This is because the introduction of a GBI under the economic family definition results in a smaller increase in METRs and PTRs, as shown in Tables E-1 and E-2 of Appendix E, due to the lower fiscal burden of funding the GBI under that definition.[^20] The impact on payroll is less pronounced than on hours worked because the behavioural impact of GBI is more significant among low-wage workers, whose earnings represent a relatively small share of total payroll. Similar results are observed at the provincial level, as detailed in Appendix F.
The behavioural cost of GBI using the economic family definition amounts to $3.6 billion, compared to $5.0 billion for the nuclear family definition. This reflects smaller changes in hours worked and payroll under the economic family definition, showing how the lower fiscal burden of funding the GBI under that definition results in a reduced impact on labour supply.
Total gross cost of GBI
The total gross cost of the GBI includes costs related to the GBI base amount and the disability supplement (as shown in Table 1 for 2025), as well as the GBI behavioural cost (as shown in Table 4 for 2025). Combining those three components brings the total gross cost to $112.4 billion under the nuclear family definition and $57.0 billion under the economic family definition in 2025-26. By 2029-30, the total costs increase to $127.7 billion and $63.8 billion, respectively (Table 5).
As previously mentioned, the gross cost of the GBI base amounts and the disability supplement would be fully offset by eliminating existing federal and provincial tax credits that the GBI would replace. Consequently, the behavioural cost would remain as the only net cost for the government.
Sources of uncertainty
The estimates presented in this report are highly dependent on the design of the GBI program and its fiscal offsets. The assumptions used to model the GBI for this analysis represent only one of many possible ways to structure the program.[^21] Moreover, the government may consider different approaches to fund the GBI beyond the elimination of various tax credits and the adjustment of basic personal amounts. There remains considerable uncertainty surrounding how a national GBI would ultimately be structured and financed.
It is also important to note that the magnitude of the labour supply impact resulting from the GBI is subject to uncertainty. For instance, Boadway and al. (2023) use somewhat higher labour supply elasticities to estimate the change in payroll and hours worked from a provincial GBI for Prince Edward Island. The behavioural cost of a national GBI showed in this report may represent a lower bound estimate.
Lastly, the SPSD/M microsimulation data used in this analysis has notable limitations. The demographic and income data for certain vulnerable groups who stand to benefit from the GBI may not be fully represented or accurately reflected. As a result, SPSD/M likely does not capture the full scope of poverty in Canada.
Appendix A: Changes on tax payable and government transfers, by province
-
Federal
- Non-refundable
- Basic personal amount*
- Spouse or common-law partner amount*
- Amount for an eligible dependant
- Canada caregiver amount
- Disability tax credit
- Refundable
- Canada Workers Benefit
- Canada Workers Benefit disability supplement
- GST/HST credit
- Refundable medical expense supplement
-
Provincial
- Non-refundable
- Provincial basic personal amount*
- Provincial spouse or common-law partner amount*
- Provincial amount for an eligible dependant
- Provincial caregiver tax credit
- Provincial medical expenses tax credit
- Provincial disability tax credit
- NL, PE, NS, NB low-income tax reduction
- NS basic amount enhancement
- QC tax credit for career extension
- QC amount for living alone
- ON low-income workers tax credit (LIFT)
- ON tax reduction
- MB family tax benefit
- BC low-income tax reduction credit
- Refundable
- Social assistance
- NL income supplement
- NL, NS home heating assistance rebate
- PE sales tax credit
- NS affordable living tax credit
- NS poverty reduction credit
- NB refundable HST credit
- QC work premium, adapted work premium and supplement to the work premium
- QC natural caregivers tax credit
Office of the Parliamentary Budget Officer.
Office of the Parliamentary Budget Officer.
\*When defining GBI eligibility using the nuclear family unit definition, the federal basic personal amount and spousal or common-law partner amount are fully eliminated. The provincial equivalents of those amounts are reduced to 17 per cent of their reference value. Under the economic family definition, the federal basic personal amount and spousal or common-law partner amount are reduced to 57 per cent of their reference value and the provincial equivalent of those amounts are unchanged. The basic personal amount adjustments mentioned above (17 per cent and 57 per cent) were determined to ensure that the revenues generated from all changes made to the tax system are roughly equal to the gross static cost of the GBI.