Archive for the ‘Universal Transfers’ Category

the ‘great flaw’ of basic income

Friday, June 10th, 2016

Canadian journalist Eric Reguly writes that that the basic-income model contains one great flaw. He is wrong. Here, in his own words, is Mr Reguly’s criticism.

When an idea is embraced by the political left, right and centre, you know it has to be too good to be true. ….

Basic income, in its purest form, would pay a guaranteed wage to everyone, including children, regardless of their income from other sources. It would be given unconditionally. The recipient would not have to prove that he or she is looking for work or even wants work; eternal sofa surfing would be allowed. ….

The great flaw with the concept is that economies might not reinvent themselves if millions of people are paid not to work. ….

Eric Reguly, “Basic income has its appeal, but it also has a very basic problem“, The Globe and Mail (Toronto), 18 March 2016.

Eric Reguly is the Rome-based European columnist for The Globe and Mail. He has a Masters in Journalism from the University of Western Ontario (London, Ontario).

Mr Reguly has it backwards. Income-tested welfare pays people remain unemployed, and takes away benefits when they return to work, even at a part-time job with low pay. A universal basic income pays people even when they work. Earned income is then taxed at normal rates.

Consider the following thought experiment. Suppose the normal welfare payment to a single person (due to job loss, for example) is $400 a week. If the beneficiary earns, say, $100 in wages, her benefits are typically reduced by this amount, leaving her total income the same ($400). Only if she earns more than $400 does her net income rise. This is an implicit tax of 100% on wage income, up to an income of $400 a week. The total tax can easily exceed 100% if there is an explicit tax on wages and/or income, which is very common.

With a universal basic income of $400, all taxes are explicit. There is no need for a personal income tax deduction (zero rate band). The basic income replaces that. Now there is an incentive to search for work. If the beneficiary finds a job paying $100 and wage income is taxed at, say, 50%, her total income rises to $450. If she works full-time for $400, her total income rises to $600.

basic income for all

Tuesday, June 7th, 2016

The idea of a basic income for everyone, regardless of employment status, wealth or income, has been in the news lately, mainly because of a referendum in Switzerland. The Swiss voted last Sunday on a proposal to provide a monthly income of 2,500 Swiss francs (US$2,555) for adults and 625 Swiss francs for each child.

The proposal was defeated, but did receive support from 23% of voters, considerably more than predicted, so backers of the Swiss Universal Basic Income (UBI) are counting this as a victory for their side.

TdJ has posted on the UBI several times, most recently here and here. UBI is similar to free trade as a policy issue, in that a majority of economists support the idea, even though it is not popular with politicians or voters. Economists like the UBI because it addresses the problem of poverty efficiently, without discouraging saving or work. Means-tested ‘welfare’ pays people to remain unemployed and poor. Since people respond to incentives, conventional ‘welfare’ can make everyone worse off, those who pay taxes as well as those who receive benefits.

Dylan Matthews at Vox has posted a blog on UBI that is worth reading if you want to bring yourself up-to-date on the subject. Mr Matthews surveys past and current experiments, and provides helpful links for those who would like to learn more about each project. Here are some excerpts. Click on the link below to download the full blog, which is very concise.

Basic income is having a moment. …. Now the Silicon Valley seed investment firm Y Combinator has announced details of a basic income experiment it’s funding in in Oakland [California]. ….

The best past experiment, in the Canadian town of Dauphin in the 1970s, was considered promising because it suggested the policy didn’t discourage people from working much; only teenagers and new moms (two groups who might be better off not working anyway) reported working less. By contrast, more poorly conducted US studies suggesting that a negative income tax (a variant of basic income that phases out as people earn more from their jobs) discouraged work were taken as a mark against basic income. ….

Right now there are two notable experiments in rich countries in the works. The first, in the Dutch city of Utrecht, suffers from the same key flaw as the US study by only targeting existing beneficiaries. The second, much more promising experiment is Finland’s, which is testing a whole bunch of approaches. The researchers are trying a pure basic income, a partial basic income paired with some existing welfare benefits, a negative income tax, and some other ideas. ….

Finally, GiveDirectly, a charity that gives cash directly to desperately poor people, is planning to launch a large-scale experiment of basic income in Kenya, with about 6,000 people getting full basic incomes and more than 15,000 getting at least some form of cash transfer. ….

But none of the three experiments is interested in the kinds of questions

universal basic income

Friday, May 27th, 2016

Regular readers of TdJ will know that I support universal pensions. These amount to nothing less than provision of a universal basic income for older people. Provision of a universal basic income (UBI) to all adults, possibly with smaller sums for each child, is an even older idea. It could mean the end of ‘welfare’ as we know it, i.e. the end of means-tested benefits. Everyone, regardless of employment or wealth, would be entitled to a basic income, subject to payment of tax on earned income. The tax on earned income could be levied at a flat rate, since the existence of UBI makes the system progressive. Net taxes (UBI less tax on earned income) are negative for those who are unemployed or have low incomes.

Although the idea of UBI has a long history, no country has yet implemented it, except in the form of a universal pension (UBI for older people, who are not expected to work). Swiss citizens will soon vote on introduction of a UBI of SFr30,000 ($30,275) a year, but opinion polls suggest the June 5th referendum will be defeated. (more…)

universal pensions and Hong Kong values

Wednesday, May 25th, 2016

Some Hong Kong businessmen are very mean-spirited. Moreover, they fail to understand that means-tested benefits are ‘welfare’, whereas universal benefits are not. Examples of universal benefits in Hong Kong are basic schooling and health care. Both are provided freely to all legal residents regardless of income or wealth.

Prominent members of the Hong Kong business sector have decried universal welfare as going against Hong Kong values during a forum on retirement protection held by the Chamber of Commerce yesterday.

Addressing fellow attendees, including Chief Secretary Carrie Lam, chairman of the Chamber Stephen Ng said, “Welfare which everyone can get is not the Hong Kong spirit.”

SCMP [South China Morning Post] reports that many present at the forum “lamented” that government policies (like minimum wage) had “created hardship” f

US vs UK healthcare

Tuesday, May 17th, 2016

FT journalists Aimee Keane in New York and Hannah Murphy in London compare healthcare systems in the two cities. Their article compares the experiences of one man in each city, aged 28 and 27 respectively, who fall ill and are diagnosed with multiple sclerosis (MS).

Each system has flaws. An important distinction is costs – and who bears them. The New York patient was fortunate to have private insurance through his employer. His diagnosis was speedy (one day), but he had to pay the first $2,000 of the $14,367 bill for a single day of care. The British patient, with access to universal healthcare (NHS), had to wait two months for a diagnosis, but paid nothing out-of-pocket.

In the US, access to affordable medical care is a critical factor. According to the National Multiple Sclerosis Society in the US, 70 per cent of MS patients report

the appeal of targeted social benefits

Friday, May 13th, 2016

British anthropologist Stephen Kidd has written a superb, very concise paper on the history and political economy of ‘poverty targeting’. Here are extracts from the introduction and conclusion of the paper. Click on the link below to access the full paper, which is a joy to read.

It is one of the great paradoxes of social security that neoliberals

old age poverty in Hong Kong

Monday, May 9th, 2016

This is an excellent 25-minute documentary film on pensions, poverty and old age in Hong Kong.

Office workers rush past, oblivious to the army of grey-haired residents toiling in the shadows of Hong Kong’s soaring skyscrapers.

Dragging trolleys laden with waste, they sell whatever they can collect for just a few dollars.

Hong Kong is home to 64 billionaires and has the highest number of Rolls-Royces per capita in the world.

But one in three elderly people lives in poverty – one of the highest senior poverty rates in the developed world.

Drew Ambrose, “Hong Kong: Aged and Abandoned“, AJ101East, Al Jazeera, 5 May 2016.

on the Hong Kong government’s rejection of universal pensions

Monday, May 2nd, 2016

Chief Secretary Carrie Lam delivered a speech two months ago that effectively “killed any hope for a universal pension”. Michael Littlewood, from the University of Auckland’s Retirement Policy and Research Centre, wrote a letter in response, addressed to the editor of a major Hong Kong daily.

Chief Secretary Carrie Lam Cheng Yuet-ngor … said such a [universal pension] scheme would cost HK$22.6 billion a year, raising questions of sustainability and equity, and much has already been done to support the old. She also said the cost was HK$2,395 billion over 50 years. That kind of projection is statistically irrelevant; the annual cost is the only one that matters.

HK$22.6 billion is just about 1 per cent of Hong Kong

support for universal pensions in the Philippines

Thursday, April 28th, 2016

Negrense senatorial bet [candidate] Neri Colmenares said … he would … like to push for a P1,500 [US$32] social pension for all senior citizens regardless of their status, whether or not they are members of the SSS [Social Security System] or GSIS [Government Service Insurance System], or with children abroad.

At present, the social pension is only P500 [US$10] and those who are SSS or GSIS

universal pensions in Lesotho?

Saturday, April 23rd, 2016

Lesotho, a small country completely surrounded by South Africa, in November 2004 began to provide its citizens aged 70 and older with a non-contributory Old Age Pension. The OAP was pension-tested, but not tested against other family income or assets.

OAP monthly benefits have increased over time, and are now equal to 40 US dollars (37% of per capita GDP). For a county as poor as Lesotho, this is a very generous pension. The age of eligibility, however, remains 70 years.

Lesotho’s Old Age Pension from the beginning excluded existing pensioners, so was not universal. I was very pleased to see a recent note, published by the ILO, with the title “Lesotho: Universal Old Age Pension”. Is it possible that Lesotho has removed the pension test for its social pension?

The Old Age Pension (OAP) is a tax-based scheme for all older persons . ….

With more than 4 per cent of its population above the age of 70, Lesotho has a larger share of older people than many countries in sub-Saharan Africa. All citizens of Lesotho over 70 years of age are entitled to a monthly pension benefit of 550 Lesotho Maloti (LSL), equivalent to US$40. The OAP was introduced to lift older persons out of poverty and is the largest regular cash transfer in Lesotho, covering about 83,000 persons (4.5 per cent of the population). While coverage of eligible persons is approximately 100 per cent, it is estimated that many more benefit indirectly .

Prior to the OAP