Archive for the ‘Universal Transfers’ Category

towards universal minimum pensions in Cabo Verde

Saturday, June 13th, 2015

Cabo Verde, an island country with a population of 525,000 and a per capita income of four thousand US dollars, is seldom in the news. It is a located 570 kilometres off the coast of Western Africa. The former colony of Portugal became an independent state in 1975.

I was surprised, then, to learn that this small, low-income country has achieved near-universal pension coverage for residents aged 60 years and older.

According to … the International Labour Organization’s (ILO) Social Protection Department, over 90 per cent of older persons in Cabo Verde receive a pension, if you add up contributory and non-contributory coverage. ….

Beneficiaries receive a monthly payment of 5,000 Caboverdian escudos (about US$ 65).

This represents 20 per cent more than the poverty line. To qualify for the social pension, older persons must be residents of Cabo Verde, be 60 years old or above, have an income below the national official poverty line and not be covered by any other social security scheme.

The social pensions cost nearly 0.4 per cent of Cabo Verde’s GDP and are fully financed from the state budget.

ILO Newsroom, “Social protection in Cabo Verde: the little archipelago that could“, Equal Times, 8 June 2015.

This is informative, but leaves questions unanswered. Are benefits the same for all recipients, or are benefits reduced for those who have some income, though not enough to lift them above the official poverty line. Do the income- and pension-tests apply to individuals, or to households? Why hasn’t the country moved to full universal pensions, or at least universal minimum pensions (eliminating the income test)? Why are both income-tests and pension-tests retained when they deny coverage to such a small number (less than 10%) of age-qualified residents? How many older persons live in poverty, yet fail to apply for a social pension because of stigma, lack of information or bureaucratic obstacles? On the other hand, how many shameless older persons receive a social pension even though they have incomes above the national poverty line and/or access to a social security (contributory) pension?

Can a reader point us to a source of statistics with which to answer some of these questions?

means-tests for New Zealand’s universal pension?

Friday, May 22nd, 2015

New Zealand’s Labour party is out of office, opposing the ruling centre-right National party. To my surprise, the Labour leader recently brought up the possibility of re-introducing means-tests for the country’s universal pension, known as Superannuation. Some years ago, for a short period, ‘super’ benefits were clawed back from taxpayers with high reported incomes. The income-tests proved to be very unpopular, were removed after a national referendum, and the universal pension became a dreaded ‘third rail’ that politicians – until now – feared to touch.

[Centre-left] Labour leader Andrew Little has raised the ghost of broken promises past with talk of means testing the state pension. ….

On Friday morning, during a post-Budget speech, where Opposition leaders traditionally towel the Government for its lack of vision/broken promises/miserliness/feathering of mates’ nests, he managed to blurt out something that sounded like means testing state superannuation payments [New Zealand’s universal pension].

Now we know it wasn’t that, because his office said so – and so did his finance spokesman Grant Robertson.

But when someone at the top of politics starts musing about whether it is fair that those who continue working past 65 also get the state pension it is hard to think it is anything else. [Emphasis added.]

Unless, that is, what he was nutting around was withholding super from those earning wages and salaries past 65, but not those who earn other income such as dividends, rents, business income or …. capital gains?

Does he, a Labour leader, really think someone working 40 hours a week should miss out on super but not someone earning $2000 a week from investment income? [….]

Little had better have a convincing argument, because his thoughts conjures up memories of the Lange-Bolger years and the dreaded surtax, a form of means testing the universal pension […]. Prime Minister Jim Bolger famously promised to scrap it in 1993 and then retained it – a major reason why [the centre-right National party has]… been so careful to be unequivocal about leaving super alone since they took office.

Vernon Small, “What was Andrew Little thinking?“, Stuff (Fairfax Digital), 22 May 2015.

a Scandinavian solution for tax collection

Sunday, May 17th, 2015

No-one likes paying taxes, yet Scandinavian countries somehow succeed in collecting about 45% of their GDP in tax revenue, compared to about 25% in the US and about 35% in Germany and the UK. “The Scandinavians” writes FT ‘undercover economist’ Tim Harford, “have managed to raise large sums from their citizens without destroying their economies. How?”

[T]he answer is partly cultural.

It is also partly about the comprehensive tax reporting in Scandinavia, which makes outright evasion very difficult. Norwegian tax returns are published for all to examine. ….

Not everyone will feel delighted about an all-seeing government determined to invade privacy in the name of higher taxes. But there are other elements of Scandinavian taxation that any government might want to emulate: Scandinavian countries minimise the distortions of their tax system by avoiding the bad habits of politicians in other countries.

Chief among these habits is targeting a narrow tax base. The US tax system is full of ad hoc deductions and exemptions. The UK system needlessly excludes swaths of the economy from tax. ….

The simplest way to broaden the tax base is to dismantle barriers to getting a job. Scandinavian governments subsidise education, transport and care for children and the elderly, all of which help people to work who might otherwise find themselves stuck at home. As a result, even high taxes do not keep them out of the labour market. [Emphasis added.]

Tim Harford, “Tax: a Scandinavian solution“, Financial Times, 16 May 2015 (metered paywall).

Note that if subsidies for education, transport, child care and elder care are means-tested, the result is high implicit taxes on income from wages.

Mr Harford’s column is gated, but most of the information he draws on is from an AEA journal that is freely available to non-subscribers:

Henrik Jacobsen Kleven, “How Can Scandinavians Tax So Much?Journal of Economic Perspectives 28:4 (Fall 2014), pp. 77-98.

Kleven’s article is part of a symposium on “Tax Enforcement and Compliance” that includes three related articles.

universal pensions in Zanzibar

Saturday, May 16th, 2015

This week Zanzibar’s finance minister, Mr Omar Yussuf Mzee, announced that a year from now all citizens aged 70 years and older will begin to receive a monthly cash benefit in the amount of 20,000 Tanzanian shillings (10 US dollars) a month. The monthly pension might seem small, but it is equal to roughly 20% of per capita GDP, so substantial relative to typical incomes in the territory. On the other hand, life expectancy at birth is only 57 years, so few residents of Zanzibar live long enough to collect a pension that begins at age 70.

The finance minister said care for the elderly had been improved and from April 1, 2016, the government would start paying universal pension to all old citizens aged 70 years and above.

“This universal pension will 20,000/- per month and will be granted to every eligible old citizen, regardless of his current income.

A total of 1.65 billion/- have been earmarked for this purpose,” he said. He said Government Budget Support (GBS) support had played an important role in the budget framework, especially in the execution of development projects.

Issa Yussuf, “Isles unveils 830bn/- donor-weaning budget“, Tanzania Daily News, 14 May 2015.

Zanzibar is a semi-autonomous region of Tanzania. According to the 2012 population census, its population was 1.3 million, a tiny part of Tanzania’s 44.9 million residents. The same census reveals that 36,726 persons, fewer than 2.8% of Zanzibar’s total population, were aged 65 and older. The number in the target group (70 and older) was not reported, but the finance minister implicitly anticipates, in earmarking 1.65 billion shillings for universal pensions, fewer than 7,000 beneficiaries.

It will be interesting to see if the rest of Tanzania follows Zanzibar’s example by introducing universal age pensions. There has been considerable interest in such a project in recent years, stimulated in part by the work of HelpAge International. See, for example, here, here, here, and here.

forced payments and the size of the state

Friday, May 15th, 2015

The always sensible Martin Wolf explains why it is an illusion to think that the size and power of the state can be reduced by forcing citizens to pay for their own pensions, healthcare, schooling and other services. Compulsory private payment for social services is a form of taxation, particularly if the state provides means-tested benefits to the poorest.

On the question of affordability, one must dispense with the fallacy that high taxes doom an economy. It is possible to be internationally competitive and prosperous with higher taxation and lower taxation. ….

The question of what is done via the state and what is done through private action is a social choice. So, too, is the decision on how much income to transfer among households. …. Furthermore, the decision to transfer an area of spending from public to private does not eliminate the cost. To take one example, the US spends far more on health than European countries, although (I would say, because) more of it is privately paid for. ….

[Reducing costs by charging beneficiaries] is highly implausible unless one is prepared to cut sharply into the use of services by the worse off. The attempt to charge generates complex means testing, which creates perverse incentives. If instead, people were encouraged to save for such expenditures, one would either have to provide costly incentives or impose compulsory savings, as in Singapore. Compulsory saving is not so different from taxation, particularly if the state contributes on behalf of the poorest. ….

The [UK] election has delivered a government that has promised to reduce British state spending to US levels. But it is still required to provide services and transfers that meet British expectations. The challenge for the government is to persuade the British that they are happy with US spending. If it succeeds, it will have delivered a political revolution. My bet is that it will fail.

Martin Wolf, “Nothing is certain except death and taxes (or compulsory saving)“, Financial Times, 15 May 2015 (metered paywall).

a call for universal pensions in Canada

Sunday, April 12th, 2015

Canadian Conservative MP Dave Van Kesteren (born 1955) would like to see the federal government introduce a universal pension of CA$24,000 (US$19,000) a year for every Canadian from age 65.

Very simply, it means that everybody is going to get the same pension,” he said.

The MP said 65% of Canadians rely solely on CPP [contributory public pension] payments of approximately $12,000 a year.

He noted that a universal system would be more fair than the current system, which he believes is unsustainable.

Blair Andrews, “Local MP suggesting $24,000 pension for every Canadian“, Chatham This Week, 10 April 2015.

Mr Van Kesteren failed to mention that Canada had a universal pension from 1951 until 1989, when benefits were suddenly ‘clawed back’ – at the rate of 15% – from older residents with substantial income from other sources. If the MP did mention this in his talk, the journalist who wrote this report failed to mention it.

TdJ has covered the history of social pensions in Canada in earlier posts. Of particular relevance are three posts from 2011. They can be viewed here, here and here.

End poverty now!

Friday, February 13th, 2015

How? With a Universal Basic Income (UBI).

True, a UBI is undeserved good news for the idle surfer. But this good news is ethically indistinguishable from the undeserved luck that massively affects the present distribution of wealth, income, and leisure. Our race, gender, and citizenship, how educated and wealthy we are, how gifted in math and how fluent in English, how handsome and even how ambitious, are overwhelmingly a function of who our parents happened to be and of other equally arbitrary contingencies. Not even the most narcissistic self-made man could think that he fixed the parental dice in advance of entering this world. Such gifts of luck are unavoidable and, if they are fairly distributed, unobjectionable. A minimum condition for a fair distribution is that everyone should be guaranteed a modest share of these undeserved gifts. Nothing could achieve this more securely than a UBI. ….

Herbert A. Simon observes “that any causal analysis explaining why American GDP is about $25,000 per capita would show that at least 2/3 is due to the happy accident that the income recipient was born in the U.S.” He adds, “I am not so naive as to believe that my 70% tax [required to fund a UBI of $8,000 p.a. with a flat tax] is politically viable in the United States at present, but looking toward the future, it is none too soon to find answers to the arguments of those who think they have a solid moral right to retain all the wealth they earn.’” See Simon’s letter to the organizers of BIEN’s seventh congress in Basic Income 28 (Spring 1998) [p. 8].

“Forum: A Basic Income for All”, Boston Review, 1 October 2000. Philippe Van Parijs, “Opening the Debate“.

Université catholique de Louvain professor Philippe Van Parijs (born 1951) is a left-libertarian Belgian philosopher and political economist.

The research of the brilliant Herbert Simon (1916 – 2001) spanned many fields (including psychology and computer science), even though his formal training was limited to political science (BA and PhD from the University of Chicago). In 1978 he received the Nobel Memorial Prize in Economics “for his pioneering research into the decision-making process within economic organizations”.

Past BIEN congress papers – and much more – can be downloaded from the home page of the Basic Income Earth Network.

I shamelessly take this opportunity to point out that a universal age pension is a UBI, albeit one limited to those older than a specified, mature age.

universal pension inaction in Hong Kong

Friday, January 16th, 2015

HK journalist Tim Hamlett has written an interesting column on this subject. Nothing new, but the arguments are nicely phrased.

Chief Executive Leung Chun-ying announced in his third Policy Address that HK$50 billion would be earmarked for “retirement protection”, and a consultation would be held later on how this protection should be implemented.

Somewhat optimistically, Leung looked forward to “rational and pragmatic discussions with a view to arriving at a community consensus”.

Unfortunately this is a recipe for continuing inaction. ….

Employers will inevitably voice their vigorous opposition to any sort of proper pension scheme, with universal liability to pay and universal rights to receive.

Of course, they will not put it quite like that.

The message will be that universal pension schemes are what ruined the finances of European countries, that any scheme will be a financial millstone because people are living longer, and that such plans are a socialistic blemish on Hong Kong’s tradition of small government, likely to see us demoted in meaningless rankings produced by distant free-market ideologues.

The European point is nonsense. Greece has a pension scheme. However so does Denmark, widely regarded as providing the peak of happiness to which all developed countries should aspire. The demographic problem is genuine, but not insoluble. Most people, given the chance, show a preference for later retirement these days. The tradition of small government should not be an excuse for offering Victorian standards of social welfare.

A more interesting objection is that a universal pension can be claimed by paupers and millionaires alike. Some of the money will go to people who do not need it. The obvious answer to this objection is that because of Hong Kong’s growing wealth gap the millionaires are increasingly outnumbered by the needy. And after all they do pay taxes.

Connoisseurs of social welfare reform will also note that means-tested benefits are cheaper not only because they exclude the rich, but because they exclude large numbers of other people who are too shy, too proud or too disorganized to make a claim, even though they do need the financial support.

Tim Hamlett, “No easy answers to the retirement questions“, China Daily, 16 January 2015.

universal pensions in Myanmar

Friday, January 16th, 2015

The good news is that Myanmar’s universal age pension will be launched in April. The bad news is that it will very likely be restricted to resident citizens aged 100 years and older instead of the initial promise of age 65 and older.

Dr San San Aye [deputy director general of the Department of Social Welfare] told The Myanmar Times in an exclusive interview last week that it [the universal pension] would be restricted initially to people aged over 100 because of insufficient funds. The plan has allocated K1.145 trillion (US$1.17 billion) for the social pension program in 2015-16, including existing civil service pensions.

“The pension amount was originally set in the plan at K25,000 [US$24.50] a month, but if it is limited to those over 100 years then they will almost certainly receive more than that,” she said, declining to state an exact figure.

Retired civil servants will receive the national pension in addition to their civil service pensions, said Dr San San Aye. She said the pension program was initially supposed to focus only on poorer people, but the government decided that the expense and complexity of means-testing made it cheaper and simpler to pay everybody. “Maybe K25,000 is not significant for the rich but it will be a good support for the poor,” she said. ….

Currently, Myanmar spends less than 0.5pc [of its GDP] on social protection and other services, the lowest in the ASEAN region. Almost all of that goes to civil service pensions.

Htoo Thant, “Budget concerns cripple pension expansion“, Myanmar Times, 15 January 2015.

Means-testing, I agree, is complex and costly. In addition, it stigmatises recipients. But elimination of civil service pensioners from the social pension is not complex, costly nor stigmatising.

The age of eligibility should be lowered from 100 to at least 70 or 75, even if it means some loss of universality.

no country for old pensioners

Friday, January 16th, 2015

Hong Kong’s Chief Executive effectively ruled out discussion of universal pensions. It is a sad day for Hong Kong’s elderly population.

Elderly Hongkongers were in despair after Leung Chun-ying’s policy address, describing it as a “slap in the face” for the needy. They criticised the chief executive for announcing few social policies and effectively ruling out pensions for all by saying there were “divergent views” on the issue. ….

In his speech on Wednesday, Leung said HK$50 billion would be “set aside” for retirement protection. But he offered no concrete plan for the money and poured cold water on the idea of a pension without a means test, saying the idea was controversial and questioning whether it would be sustainable.

Au Yeung Kwun-tung, organiser of the Alliance for Universal Pensions, said Leung’s comments showed a disregard for elderly people. “He said a universal pension was not sustainable and was controversial … but the current welfare system for the elderly is just as unsustainable. As for controversial – constitutional reform is controversial, but the government is pushing forward. It’s double standards.”

Jennifer Ngo, “Hong Kong’s elderly reel from CY Leung’s ‘slap in the face’ on pensions“, South China Morning Post, 16 January 2015 (metered paywall).