by Kate McFarland | Mar 28, 2016 | Research
University of Tampere
Last November, Finland’s plans to test a basic income caught the attention of international media. Although the experiments are still some months away (scheduled to begin in 2017), the Finnish Social Insurance Institution (KELA) has continued to make strides in investigating the possibilities for a basic income.
KELA has recently published a working paper that reviews the current state of the debate on basic income and assesses the pros and cons of various specific proposals.
Johanna Perkiö, a doctoral candidate at the University of Tampere, has written a useful summary of the KELA paper — including a description of the differences between the models of a basic income proposed by the Green Party, the Left Alliance, the think tank Libera, the Christian Democratic Party, and the Social Democratic Youth Organization.
Perkiö also discusses the challenge of removing disincentives to work during the study, given that traditional benefits will remain in place during the trials. She broaches solutions such as a negative income tax system and reduction of benefits on a sliding scale.
To learn more about the variety of basic income models under consideration:
Johanna Perkiö, “Universal basic income: A search for alternative models,” Tutkimusblogi, January 25th, 2016.
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by Guest Contributor | Mar 25, 2016 | Opinion
By Johanna Perkiö
First published on January 25, 2016, by Kela, the Finnish government agency in charge of welfare benefits. The original article is available here.
With the expressed commitment of the Prime minister Juha Sipilä’s centre-to-right Government to conduct an experiment to evaluate the effects of a basic income system, the idea of a universal basic income has come to the forefront of the Finnish political discourse. Discussions centring on the idea of a universally guaranteed basic income have a long and varied history in the Finnish political arena, and several initiatives and practical models have been made public since the 1980s.
A recent working paper published by the Finnish Social Insurance Institution (Kela) charts the history of the basic income debate and outlines solutions put forward for a true basic income system or one that bears some features of a universal basic income. The working paper will be used as background to analysis preparing the ground for the planned basic income experiment.
An idea with a long history
The working paper begins by presenting the history of ideas behind the discussion on a universal basic income or citizen’s wage, the latter being a term which is often used alongside ’basic income’ in the Finnish debate.
The way in which a universal basic income is conceptualized and the goals that are attached to it have varied throughout the years. In the 1980s, a universal basic income was presented as a response to unemployment caused by a decline in industrial employment and as a way to achieve meaningful participation in society for individuals outside the labour market. In the aftermath of the economic depression of the 1990s, discussion turned towards the potential of the universal basic income to increase flexibility in the labour market and to offer support to those in irregular and low-wage work. In the 21st century, the universal basic income has been discussed mainly in terms of improving incentives for work and as a way to provide economic security to those who are self-employed or employed only intermittently.
Various models for a universal basic income system have emerged from both political and academic sources. The models differ with regard to the level of the proposed income, eligibility for it, and how it would relate to the rest of the welfare system, as well as in terms of how the reform should be funded and what would be its main objectives. In addition to actual basic income models, a number of other social security reforms have been proposed that somewhat resemble a universal basic income system. The objectives that the universal basic income and other similar reforms have been proposed to meet include streamlining the benefits system, simplifying administrative structures, eliminating disincentives that have to do with the interplay between various benefits, and preventing needy persons from falling between the cracks of the welfare system.
Most of the proposals published in Finland are partial basic income models where the level of provision would be so low as to necessitate supplemental income-tested benefits, which usually means at least housing benefits. Also insurance-based income-related benefits would be left intact.
A number of alternatives exist for funding a basic income system. Generally, a reform of income taxation is proposed, which would entail clawing back via the tax system the additional money that those with medium and large incomes would gain under the basic income system. Income taxes could be accompanied by other direct and indirect taxes or fiscal policy measures. Shifting the emphasis in funding away from income taxes would make it possible to reduce marginal tax rates, which are perceived as a disincentive.
Recent proposals for a universal basic income reform
Most recently, theoretical models for a universal basic income system have been put forward by the Green Party (in 2007/2014) and the Left Alliance (in 2011). Under the Green Party model, all persons of working age who are covered by the Finnish residence-based social security system would receive a basic income of EUR 560. This would be financed by taxing annual earnings of less than EUR 50,000 at a rate of 41 percent and any earnings above that at 49 percent. Investment income under EUR 40,000 per year would be taxed at 33 percent and at 35 percent above that. Additional funding would come from raising the property tax rate and from reducing environmentally harmful tax subsidies. The model also incorporates a small basic tax deduction for individuals with low earnings in order to incentivize employment.
Under the model proposed by the Left Alliance, all persons of working age would receive a basic income of EUR 620 per month. This could be supplemented by an additional EUR 130 which is subject to welfare eligibility conditions. The basic income would be financed by taxing earnings and investment income on a progressive scale of 30-57 percent.
Under both models, supplementary provision would be available in the form of housing benefits, additional payments under the social assistance programme, and certain earnings-related benefits. Microsimulation analyses show both models to reduce poverty and income disparity by a small amount. The Left Alliance model has a greater impact on poverty and income disparity because of the proposed higher level of basic income and supplemental welfare provision and the progressive tax rates outlined in the model. Other analyses show that the desired effects of the basic income models described above, especially in regard to creating greater incentives for employment, might not necessarily be achieved. This is due to reciprocal effects between the various forms of welfare.
A handful of models for reforming the social security system with certain similarities to a universal basic income have been published in recent years. The ”basic account” model advanced in 2014 by Libera, a Finnish think tank, is founded on the idea of a loan-based system of social provision. Under this model, each person would receive an initial payment of EUR 20,000 which would be deposited into their personal account and which they would grow by paying 10 percent of their income taxes into the account. The model would allow unlimited withdrawals as long as the account remained at least at its initial level, or EUR 400 per month should the account dip below the initial balance. The account could have a negative balance of any amount, and any deficit would be forgiven when the account-holder reaches the age of 65 years. Means-tested welfare benefits could be retained to supplement the basic account. According to Libera, by adjusting the parameters of the model it can be aligned more closely with either side of the political spectrum.
Also the model put forward in autumn 2015 by the Christian Democratic Party, which it refers to as ”active welfare”, includes the idea of an individual citizen’s account to which both salaries and social security payments would be deposited. This model is akin to a universal basic income in the sense that it would consolidate all welfare benefits into a single form of support which (unlike the basic income) would be means tested. Taxes and benefit payments would be adjusted in real time according to each person’s current level of income so as to retain financial incentives for work.
The ”general security” model proposed by the Social Democratic Youth Organization consists of three tiers: the lowest is a means-tested but automatically disbursed guaranteed income, which functions in the same way as a negative income tax; the middle tier is a conditional “general” income; and the highest tier is an ”active” income provided in reward for taking personal initiative in improving one’s employability. Also under this model, there is real-time coordination between earned income, social security and taxation so as to ensure that any amount of gainful employment will always provide additional income.
The challenge of removing disincentives
An analysis of the universal basic income models proposed shows that each of the models require further development if they are to eliminate the disincentives in the way of employment. Because the welfare system is complex, and there would still remain benefits which supplement the basic income, the desired incentivizing effects might not be achieved. One potential solution to this would be to adjust the link between earnings and benefits, most importantly housing benefits (or even to include housing benefits in the basic income scheme), and a suitably high level of basic income that would prevent continual need for social assistance. Any incremental amounts paid for dependent children should also be factored into the proposed models for a universal basic income.
One possibility would be a negative income tax system offering benefits only to those under a certain income limit and reducing, on a sliding scale, the amount of income transfers as personal income increases. A proposed national registry of incomes, allowing the real-time tracking of incomes from any source, would make this possible. Compared to a proper basic income, a system based on negative income tax would be more responsive, for example, to fluctuations in housing costs or to the type or amount of assistance needed as family circumstances change.
Among the effects that a universal basic income system would be likely to produce, the most interesting are obviously those which are of a dynamic nature, i.e., related to the behaviour of people and enterprises. The experiment planned by the Government will go some way towards meeting the need for such information. It is quite likely, however, that many of the psychological, social and structural effects of a universal basic income system will not emerge during the two-year experiment. The choice of model included in the experiment, as well as the overall economic situation, naturally will also affect the final results. Still, the experiment is an important step towards creating a more functional system of basic welfare provision.
Source: Perkiö, Johanna (2016) Suomalainen perustulokeskustelu ja mallit. (Public debate and proposed models for a universal basic income system in Finland.) Kelan työpapereita.
Johanna Perkiö is a basic income expert and a doctoral student at the University of Tampere (Finland).
by Kate McFarland | Mar 23, 2016 | Research
Source: Springer
Economist Maximilian Sommer (Katholische Universität Eichstätt – Ingolstadt) has published a book-length investigation into a financially feasible basic income scheme for Germany, encompassing arguments for an unconditional basic income, implementation details, and anticipated consequences of the policy.
The model that Sommer proposes is based on a negative income tax.
From the publisher’s description:
“This book analyzes the consequences that would arise if Germany’s means-tested unemployment benefits were replaced with an unconditional basic income. The basic income scheme introduced is based on a negative income tax and calibrated to be both financially feasible and compatible with current constitutional legislation. Using data from the German Socio-Economic Panel (GSOEP) the author examines the impact of the reform on the household labor supply as well as on both poverty and inequality measures. It is shown that by applying reasonable values for both the basic income and the implied marginal tax rate imposed on earned incomes, efficiency gains can be reconciled with generally accepted value statements. Furthermore, as the proposal includes a universal basic income for families, child poverty could be reduced considerably. The estimates are based on the discrete choice approach to labor supply.”
Free previews of the books are available at the publisher’s website.
Reference:
Maximilian Sommer, “A Feasible Basic Income Scheme for Germany: Effects on Labor Supply, Poverty, and Income Inequality“, Springer, 2016
by Jonny West | Mar 21, 2016 | News
On 30 January 2016, BasisInkomen, the Dutch association for a basic income, hosted the International Congress on Basic Income Experiments in Maastricht, Netherlands, to celebrate its 25th anniversary. This was an opportunity for those interested in the idea of a basic income to come together to reflect on recent developments – particularly in the Netherlands, Finland and France – and look towards the future. Keynote speakers included Julia Backhaus, Sjir Hoeijmakers, Stanislas Jourdan, Markus Kanerva, Otto Lehto, Philippe van Parijs, Bono Pel, Guy Standing and Nicole Teke. This article is a summary of the key points from the congress.
Guy Standing opened the congress by reflecting on the journey that the basic income idea has made over the previous 30 years: from the impossible to the ridiculous to the absurd and now perhaps even to the cusp of the inevitable. Two key themes ran through Guy Standing’s presentation: the necessity for further experimentation in order to gain political legitimation and, moreover, the importance of designing these experiments based on normative principles of social justice, such as wealth redistribution and social emancipation. If political legitimation can be won, based on principles of social justice, then a basic income will provide a pathway toward a dignified life for individuals within a good society — a society in which the collective wealth of the community is shared equally within and across generations, and in which each individual makes a moral commitment to actively participate in society. The idea of a basic income represents a rejection of the opportunistic politics of today in favour of a positive vision for tomorrow’s good society.
Guy Standing
After Guy Standing’s expansive introductory speech, discussion turned to the details of social experiments currently being planned in the Netherlands, Finland and France. In each case, recent developments demonstrate broad support for some type of basic income across the political spectrum.
In the Netherlands, nineteen municipalities are currently developing some form of social security experiment, which will remove the condition that beneficiaries must participate in workfare schemes, and tackle the poverty trap that beneficiaries experience when transitioning between the social security system and work. While many of these municipalities initially proposed introducing a basic income as part of the experiment, current legislative restrictions have limited this number to three. Four municipalities have lobbied the Dutch Ministry for Social Security and Employment to revise these legal restrictions, though the government has yet to respond. Despite this legal scuffle, the proposed Dutch experiments reveal widespread support for a basic income experiment across the political spectrum, with each major political party represented among the nineteen municipalities.
In Finland, the government has proposed a number of social experiments, including a basic income experiment. The government’s aim is to better align social policy with societal demands, as well as to reduce disincentives to work and decrease the role of bureaucratic processes in social security. A research consortium led by Kela, a government agency responsible for social security payments, is responsible for designing and implementing the basic income experiment. A first hearing for the basic income experiment was held on 5 December 2015, while a preliminary report will be released on 30 March 2016 and a final hearing will be held on 15 November 2016. A budget of €20 million has been allocated to the basic income experiment, which is expected to begin in 2017 and last two years. Different variations of a basic income are currently being considered, including a ‘full’ basic income, a ‘partial’ basic income, a negative income tax and a participation income. The models propose a basic income of between €400 and €1,200 per participant per month, with many models retaining supplementary allowances. One major challenge is the constitutional requirement to treat all citizens equally. To meet this requirement, participation in the experiment will be voluntary. A basic income experiment enjoys broad public support across voters of all major political parties in Finland, and recent public opinion polling indicates that more than 50% of the public supports the idea.
Nicole Teke (Credit to: MFRB)
In France, parliamentary support for a basic income has been increasing. Current proponents include Jean Desessard MP (Green Party), Frédéric Lefebvre MP (Les Républicains), and Gaetan Gorce MP and Delphine Batho MP (Parti Socialiste). Furthermore, the Minister of Economy, Industry and Digital Affairs Emmanuel Macron expressed support for the idea of a basic income and a government agency on digital affairs recommended introducing a basic income experiment. In addition, the Sirugue Commission, a parliamentary working group led by Christophe Sirugue MP (Parti Socialiste), is under increasing pressure to examine the case for a basic income experiment as part of its comprehensive review into the existing social security system. Meanwhile, the regional coalition government in Aquitaine is developing its own proposal for a basic income experiment. However, social security policy is a departmental rather than regional competency, and the regional governmental tier is currently being restructured with welfare allowances likely to become a central government competency, which might pose difficulties for regional experimentation.
All such experiments, however, will be limited in what they are able to prove. In his presentation, Philippe van Parijs challenged the audience to reflect on three such limitations. First, an individual is likely to make different labour market decisions depending on whether the basic income is temporary or permanent, which will distort the effect on labour supply. Second, participants receiving a basic income within an experiment will only account for a small fraction of the total labour force rather than the whole labour force, which will distort the effect on labour demand. Third, voluntary participation in the experiments will likely attract net beneficiaries rather than net contributors, which will distort the effect on financing. Philippe van Parijs then articulated the social justice case for a basic income: a basic income is an intergenerational redistribution of the currently unfair and uneven allocation of the efforts of previous generations as well as accessible natural resources. Furthermore, a basic income is a gift, which deserves a counter gift. If this counter gift were a commitment to actively participate in society, it could nurture a renewed ethics of responsibility. This is a strong case for a basic income, which exceeds the scope of the experiments planned in the Netherlands, Finland, France and elsewhere.
In all, the congress was one of optimism buoyed by a sense that the basic income movement is on the cusp of something momentous. The various developments in the Netherlands, Finland and France were also a reminder that if we truly want change, we can find a form for that change that fits our unique circumstances. We are not restricted by whether our political systems are centralised or decentralised, majoritarian or multi-party, left or right, a republic or a constitutional monarchy – we our restricted only by our imaginations and our tenacity.
More information at:
Basisinkomen.org, “Interviews and Lectures about #basicincome from Maastricht 2016”
by Josh Martin | Mar 6, 2016 | News
Kangas’s slideshow, shared by Dylan Matthews from Vox, lays out the plan for the Finnish basic income experiments that should start in 2017. The pilot will last two years and will explore different models like a full basic income, a partial basic income, a negative income tax, and others.
Olli Kangas, “Experimenting Basic Income in Finland”, SlideShare, 7 December 2015.
