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Money Times - Januray 24, 2017

Posted by Jill Kerby on January 24 2017 @ 09:00

 

WOULD YOU WELCOME A UNIVERSAL INCOME FROM THE STATE?

Could the idea of a ‘basic income’ take off here?

A number of countries are experimenting with paying a selected group of citizens in different cities a basic monthly income as part of a wider social programme to address, they say, the profound changes in the nature of work, jobs and social support structures.

The best known pilot projects have begun in Finland, Holland and Canada where thousands of people are being paid monthly amounts in lieu of conventional unemployment or social welfare benefits, or are receiving universal monthly payments that will be subject to some income means tests, that is, some higher income is clawed back in the form of taxation.

The theory behind the basic income payment is that conventional social welfare payments are complicated, expensive to administer and distribute and act as a work disincentive because of the loss of social welfare benefits once you get a job. In Ireland, this disincentive has already fostered a range of supplementary ‘back to work’ benefits and family support payments for the job finder who remains on a low income. These extra schemes require extra bureaucrats to manage them and little or no savings for the state.

In the case of universal payments, rejected by a large majority of voters in Switzerland, the idea is that everyone receives a monthly or annual income from the state that eliminates the convention unemployment and welfare payments with higher earning clawed back by degrees.

In Ireland’s case this bill is over €20 billion, divided between a variety of pensions, unemployment and illness/disability benefits, child focussed benefits (from universal child benefit to school uniform and book allowances) and other family related benefits and supplements.

Basic income and universal payments are catching the attention of both private policy analysts and governments that recognise that the old benefits systems no longer seem very suitable given the changing nature of work and life long careers. (The coming robotics revolution is predicted to result in the loss of even more conventional manufacturing and service jobs.)

The huge cost of running our current social welfare systems is set to rise as western populations age and make increasing demands on pension and health services. In nearly every country these are paid on a ‘pay as you go’ basis direct taxation, not from invested sovereign wealth funds, Norway being the notable exception in Europe.

So how do these pilot projects work?

The most advanced one, but limited one is Finland’s where 2,000 citizens already on unemployment benefits were randomly selected in December to participate in the pilot for the next two years. Their first payment arrived this month.

Minimum unemployment benefit in Finland amounts to €560 a month and for the 2,000 is replaced with the equivalent in a basic income payment.  This time, however, even though the person remains registered with their unemployment office, there is no weekly signing on, though they may still be offered a job placement. Turning it down could result in up to 40% loss of the payment. However, any casual, part-time or full time income earned will not result in any clawback of the payment, though housing benefit, for example, could be affected by the additional income the person earns while receiving the basic income.

The question the Finn’s want answering from this pilot is whether a basic income results in better employment outcomes or job creation among the sample group. Unemployment is 8% in Finland.

While the Swiss have rejected a referendum for introduction of a universal income payment of c€2,330 a month to every adult and c€583 to every child last year (the total cost would exceed their annual welfare bill), in the city of Utrecht, the Dutch authorities have begun a more detailed pilot involving six different basic payment control groups and basic income payments.  One group will receive the benefit with no impact on additional income they earn; some will be paid extra for voluntary work; some will see some of the benefit clawed back depending on higher earnings, etc. The basic monthly payment has been set at €1,000.

The province of Ontario has begun a similar experiment in four centres with a no-strings-attached payment of Can$1,320 a month to selected individuals age18-65 on existing unemployment benefits (of about $700 a month) and $1,820 to people with disabilities(who currently receive $1,130).Their employment, health, education, food security, living arrangements, rates of illness, etc will be monitored and then compared at the end of three years.

This conversation will come here eventually.

So far, polls suggest that a majority of Finns, Dutch and Canadians support the idea of basic or universal payments. But the polls also show that people are not willing to pay higher taxes to embrace any new system. 

Pitching just the right size basic or universal payment will be the ultimate key to the success or failure of this radical proposal.

(The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)

 

 

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