Notes on the Front

In 2017 the Finnish Government launched a two-year experiment in Universal Basic Income (UBI).  2,000 unemployed people were selected at random and paid an unconditional €560 per month (though, in the complex Finish social protection system, they still retained social assistance, housing and sickness allowance).  Even if they found work they continued to receive the €560 per month – as per the nature of UBI. The experiment is over and an initial report published.  The two main findings are:

• The experimental UBI didn’t increase employment among the recipients; however
• There was a marked increase in well-being

It is important to note this initial assessment only covers the first year of the experiment.  So we are looking at half-time results.  Things may have changed for recipients by the end of the second year.

The experiment has been criticised on the grounds that (a) the sample size was too small (it was originally intended to be 10,000); (b) only unemployed people were selected, whereas UBI would have benefits to those both in and out of work – for instance, the low-paid; (c) its design focussed almost exclusively on the impact on the labour market; i.e. whether it would increase employment among recipients. 

Regarding the last criticism, if UBI were to create jobs it would be due to a substantial redistribution to low and average income earners which would boost demand in the economy (though it could also increase inflationary pressures).  The limited experiment was not designed to test demand-boost so the employment result is not all that surprising.

Yes, a number of people felt better but is that worth the price?  There are identifiable fiscal benefits that come with this enhanced well-being.  For instance, in the experiment the UBI recipients claimed an average of €121 in sickness allowances compared with €216 for a control group of non-recipients.  That would yield significant savings if applied across the economy. 

So where does that leave the UBI debate in Ireland?  It seems stuck between proponents arguing for a fundamental systemic change, and those who have economic and social objections to UBI in principle as well as those who pragmatically oppose it on grounds of cost and unintended consequences.  In short, the debate is spinning its wheels.

This is unfortunate, because one does not have to be a proponent of a full-blown UBI to see the potential common sense in many aspects of it. 

Here is an example of a policy based on certain UBI principles but which could win support of UBI sceptics. 

The Government could transform personal tax credits into a basic or minimum guaranteed income for all.  Currently, everyone at work – except for those whose income is below the entry threshold – receives a cash payment of €63.50 per week through the tax system:  the combined personal and PAYE tax credit. 

If that were paid to everyone the benefit would be almost exclusively focused on low earners – in particular, those in low-paid precarious work. 

• No one in the tax net would benefit – after all, the ‘cash’ payment is only equal to what they get today in personal credits
• Social protection recipients wouldn’t receive any benefit either, as the cash payment would be absorbed into the current payment (which is not to say that social protection benefits shouldn’t be increased but that is a separate issue)

The only beneficiaries would be the low-paid who, if below the tax threshold, do not currently get the full benefit of the personal tax credits.  It would also guarantee a minimum payment for those on precarious hours regardless of how many hours they work. 

The cost would be substantially less than the Taoiseach’s promised tax cuts of €3 billion.  A back-of-the-envelope calculation suggests that, in 2016, paying everyone in work €63.50 per week would cost €9.6 billion.  There would be a saving of €8.0 billion in abolishing personal tax credits.  This would result in a net cost of €1.6 billion.  This should be considered an outer bound figure (other calculations put the net cost lower). 

But these are headline estimates.  There could be further costs and savings through the interaction of social protection, subsidies and work income depending on the range of personal circumstances. 

For instance, this new payment would replace most of the means-tested student grants and be available to all households (currently many average-income households are excluded).  This could happen with other programmes. 

€63.50 per week (€3,300 per year) sounds like a small amount and it is – but it would be an improvement for those on low pau and in precarious work.  For instance, someone who can only find work for 26 weeks of the year on the minimum wage would gain €1,260.  If this is shown to have social and economic benefits this minimum income floor could be raised over subsequent years. 

This is would not be a substitute for other measures to combat precariousness.  That will require a number of strategies – collective bargaining rights, statutory reforms and fiscal instruments such as outlined here.

Ultimately, the advantage of this approach is that one does not have to be a supporter of UBI to see the advantage of transforming personal tax credits into a minimum payment to all.  And if the benefits revealed so far by the Finnish experiment are replicated here, we would be promoting social well-being as well.

Not a bad day’s work for a little common sense.