universal basic income (UBI)

UBI is an old idea whose time has come due especially to the threat of automation. The idea is simple. Provide each adult with a benefit large enough to cover his or her basic needs. A smaller sum would be allocated to parents for each child. It his important that the benefit not be means-tested, i.e. that it be universal. Otherwise, paid employment would be discouraged. Recipients of income from work and savings would be taxed at normal rates, normally not higher than 50%.

OECD calculations show that a universal basic income is very affordable in many countries, since it replaces the means-tested benefits of the modern welfare state. (See the chart below for examples.)

[In the] 500 years … [since] the philosopher Sir Thomas More suggested it in Utopia, … UBI has … shown a remarkable ability to draw support from otherwise different groups. It has advocates both on the left, who see it as a just alternative to welfare schemes, and the right, who value it for its efficiency and promotion of individual liberty.

Due to a confluence of distinct social and political changes, support suddenly seems to be aligned from all sides. ….

The Indian government is debating it. Trials are under way under the aegis of governments (often local governments), non-governmental organisations or philanthropic donors, in Canada, California and the Netherlands, as well as in poorer countries such as Uganda and Brazil.

Most attention has focused on Finland, whose centre-right government is running a large trial of UBI for unemployed people. In January, the first monthly payments of €560 started going to 2,000 people, randomly selected from those receiving unemployment benefits in November last year. This basic income is tax-free and will not be reduced should the recipient find work in the two years the experiment will last. ….

In the chart below the OECD has quantified the budget implications of introducing a universal basic income at the existing minimum social assistance level in four European countries. The calculations assume that the reform is funded by removing most existing benefits (but not disability or housing aid, nor pensions except early retirement pensions), and by removing zero-rated bands in income taxes and employees’ social security levies. The chart shows the budget savings such a reform would involve, the cost of the basic income, and the amount left over or extra funding required for the scheme. The level of the monthly basic income payment is indicated next to the country name.

Martin Sandbu, “Universal basic income: renaissance for a 500-year-old idea”, Financial Times, 8 December 2017 (gated paywall).

One Response to “universal basic income (UBI)”

  1. Larry says:

    The increase in income tax receipts comes because the UBI is taxed by adding it to earned income.