Wednesday, November 30, 2016

EUROPE - UBI IS A GAME CHANGER - Re-inventing a fair social security....

Credit:  Roland Duchatelet (BIEN)
About 25 years ago, when internet emerged, I addressed an audience saying: “If newspapers [didn’t already] exist today” there is “no way investors or bankers would support the business-idea to collect news, print it on paper around midnight and dispatch this printed stuff using thousands of vehicles to bring it to shops and individual readers before morning comes”.
In most western countries, social security became significant approximately 70 years ago, when it got an extensive legal basis. It now plays a crucial role in developed countries to give purchasing power to citizens who do not have an income from a job. Moreover, in many countries it provides free health care for everybody.
Just like internet changed the way news is distributed, the fact that computers and robots replace human work is a “game changer” for social security, which was totally based on labour contributions since its inception. More and more jobs are subsidised and therefore do not really “contribute” to the social security system anymore. Just like we continue to get news, even better and faster, we want to keep social security and improve it despite paid labour becoming less important in our economic system. In most West European countries, the amount distributed by the social security system increased constantly as a share of income of households and is now, if you include benefits in kind, more or less equal to the net pay households get from work. There is little political awareness of this fact.
Assuming social security never existed and we decide to create it, how would we organise the cash redistribution part of it?  Just like blood in the human body redistributes blood cells to make all parts of our body work, money fulfils a similar role in society: allowing exchange of goods and services amongst individuals.
Like the heart of the human body pushes blood in various parts of our body and collects the blood on the other side, the social security system injects money, purchasing power, into society to fuel exchanges of goods and services.
In the future, the total amount of money distributed should be no less than today, and should gradually increase when automation further decreases the demand for paid labour in our economic system because we need purchasing power to drive economic activity.
The conditional character of the current social security system limits freedom to work, to move in with friends and so on. It is a huge deterrent to work and enjoy life. Assume a Belgian person gets 1200 € unemployment benefit and could get a job paying 1350 € net per month. Because that person loses the 1200 € as soon as she/he starts to work, the marginal reward is 150 € per month. Since there are approximately 150 working hours in a month, it is only worth 1 € per hour. Stupid system, yes indeed.
Therefore, the biggest part of the new social security system’s cash distribution, around 90 percent, should be a straightforward unconditional basic income distributed to everyone, the amount solely depending on the age. In the example above, this unconditional basic income could be 800 € per month for the 26 to 67 age group, lower than the highest “replacement income”, but not much lower than the average unemployment benefit in Belgium today. A second layer to the system should be conditional, based on specific needs or situations like invalidity, requiring administration. By comparison the administration cost of the new social security system would be roughly 90 percent lower than the current one.
There is no need of for additional taxes in the new system (see this Economist graph) if the basic income becomes a part (and does not come in addition) of the current income from work (or current social security benefits). For example if we decide the basic income for adults in the US to be 900 $ per month and a person’s net income from work is presently 1900 $, his pay-check will read: “basic income 900$, income from work 1000 $”. This could be done in two ways. The first way is the employer pays the basic income of his employee. The second way is that the state pays the basic income to the employee but charges a tax equal to the basic income to the employer. Either way, the employee keeps getting the same income, the employer has the same employment cost as before and the state has no extra cost.
Only citizens which have no income at all or less than 900 $ would get more cash from the new system than what they get today. This extra distribution of money can be funded thanks to the lower administration cost of the basic income system in comparison to the present one.
If we could start all anew, we would cherish the local economy, promoting free and uncomplicated exchanges of goods and services between individuals to improve our well-being. With an unconditional basic income based social security, working for each other would be allowed. It would be even better if there were no labour taxes on services individuals provide to each other in the “proximity economy”.
Would the state lose much of the revenue from the income tax? Not much, since those exchanges of services do not tend to occur now, unless in “black”. But there would be an increase in revenue for people involved in proximity services, like for those who do not perform paid work today. Retired people would also consider earning money on top of their pension if they are sure there is no paperwork hassle and no risk for them to lose part of their retirement benefit.
The extra income would – for example – be spent in restaurants. That spending will yield income taxes and consumption taxes for the state, paid by those restaurants.
The social security system we know is a 70-year-old house to which our governments did not stop adding extensions. Meanwhile, they changed the windows, put in a new kitchen and bathroom, isolated the roof and connected everything by lots of cables.
We can reorganise the redistribution or purchasing power in a much better way: let’s build a new house.

SPAIN - Catalonia tackle "autonomic framework" limitations and inequalities...

Catalonia not able to fight poverty within the “autonomic framework”, report finds


Barcelona (CNA).- The Catalan Ministry for Economy and Tax Office presented this Thursday ‘Economy note 103: Analysis and tools to tackle poverty and inequality’. The document includes 19 extensive articles from around 30 experts, technicians and academics and stresses that the “autonomic framework” regulating the economic and social policy of the Catalan Government does not leave “enough room” to cope with poverty and inequality. In this sense, Catalan Vice President and Catalan Minister for Economy and Tax Office, Oriol Junqueras, said that this situation has forced him to prepare a budget for next year “that is neither the one Catalans deserve nor what they need” because it does not correspond to the “economic and fiscal effort” made by the citizens. The Secretary for Economy, Pere Aragonès, stated that the findings of the study constitute another reason for independence. “We want a state to be able to tackle inequalities”, he said. 

The document confirms that “the restrictions on powers and availability of income of the current autonomic framework limit the scope of Catalan Government’s public policies”. The report mentions, for example, the tax system and notes that “the current tax design should be reconsidered so that it has a more redistributive nature”. However, the text points out that “the Catalan government is unable to make this changes, because the major taxes are managed by the [Spanish] State”.
In this regard, Aragonès opened the event by ensuring that the preparation and publication of the study also aims to explain why the Catalan Government “wants a Catalan state to deal with inequalities” in a more effective way. The general director of economic analysis, Natàlia Mas, also stressed that this desire “offers a unique opportunity to discuss what should be the economic and social priorities of the new State”. 
“Despite us striving to make the budget better, it is never what the people need and deserve. It is not what they need because it requires more resources in many extremely important areas, and it is not the one they deserve because we make a fiscal effort much important than the resources the Catalan Government has”, explained Junqueras.
Regardless of the difficulties, the Catalan Vice President ensured that the economy “will continue to devote the highest percentage possible” to fighting poverty. “The budget proposal we are working on focuses on the attempt to solve entrenched poverty, which the macroeconomic recovery has not addressed”.  
Budget for 2017 to be “the most social ever”
After extending the budget for 2015 due to pro-independence radical left CUP’s veto to the proposal for 2016,the Catalan Ministry for Economy and CUP have agreed to put to vote the budget for 2017, which Junqueras considers “the most social ever”.The draft increases social expenditure by 989 MEUR in comparison to the amount allocated for this purpose in 2015. 391 MEUR will be allocated to education, 407 MEUR to the Health System and 191 MEUR to the Work and Social Affairs Department. Thus, the amount assigned to social expenses for 2017-2018 totals 24.4 billion euro which represents nearly one million more than in 2015 and 611 million more than in the last bill, rejected by CUP last June.
Moreover, the draft is set to include tax reforms as well as the introduction of new taxes especially oriented toward avoiding property speculation. Amongst these, the document which CUP’s National Board will have to put to vote this Saturday, foresees the increase of tax on property transfers which are worth more than 1 MEUR. This will allow the Government to collect 27 MEUR more in 2018. The draft also foresees the creation of a new tax on non-productive assets which will affect legal entities which have properties and vehicles which are not used for any economic activity.
Poverty in Catalonia
In 2015, the risk of poverty in Catalonia affected 19% of the population, 1.9 points less than in 2014. This rate is lower than the Spanish average (22.1%), but higher than the EU (17.2%). In terms of inequality, Catalonia would be the 11th most unequal country in the EU and Spain is the 7th according to the Gini index, which measures inequality. 
The study also notes the correlation between the price of houses and the poverty index. Between 1997 and 2007, wages increased by 51%, whereas the price of homes did so by 287%. The housing system in Catalonia is among those with the highest proportion of private ownership of property (almost 98% of the total). In contrast, the average of homes owned by the State or social entities is around 15% in the EU. In fact, in Austria and Germany it is close to the 25%, and in the Netherlands it exceeds 30%.
Regarding the economic recovery, the document says that it is enabling a significant reduction in unemployment. However, the risk of poverty faced by workers in Catalonia is still very high (11.2%), one of the highest in the euro zone (which has an average of 9.5%) and the EU (average of 9.6%). This shows that structural problems related to high unemployment, high temporary and long-term unemployment persist, despite the recovery.
The study also refers to the elderly and states that the crisis has had a real impact on them. It emphasises the economic consequences resulting from investment in preference shares (80% of the people affected are older than 65 years), the consequences of energy poverty (16% of elderly people cannot keep their homes well-heated) and the non-deployment of the Law of Dependency. It also stresses that older people have been key in cushioning the impact of the crisis on members of their families: in 2010, 23.8% of elderly helped relatives financially.
Recommendations to address inequalities
The document stresses that “it is necessary to review in-depth the social benefits so that they are more flexible and adaptable to the new forms of poverty”. “Some of them are inaccessible, outdated or arrive at the wrong time”, it states. 
In this regard, one of the articles of the study proposes to create a Basic Income in Catalonia and believes that “it is possible to finance it”. Indeed, the authors advocate for an “unconditional monetary allowance for all people” of €7,471 per year for adults and €1,494 per year for children under 18. This income “would replace all the current benefits” of lower amounts, representing “a saving of €92,222 million, according to 2010 data”. The authors believe that it is possible to finance the income if in Spain “everyone pays a single rate income tax of 49%”. These measures, according to the text, would reduce the inequalities and would be a “driving force for the emancipation of young people”.
Catalonia to create an observatory of poverty  
Pere Aragonès explained that the study serves also as a “first step” to create a permanent observatory of the indicators of welfare and poverty in Catalonia. The aim is to “monitor poverty and inequality” from the Ministries for Economy and Tax Office and Employment, Social Affairs and Families. The Secretary for Economy detailed that the two Ministries are working on the “design of a table of indicators of social progress to complement economic variables such as GDP”. The aim is to obtain data that helps to take “political decisions and improve the Government action”. 

Tuesday, November 29, 2016

UBI - About Basic Income

About basic income

basic income is a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement.

That is, a basic income has the five following characteristics:
  1. Periodic: it is paid at regular intervals (for example every month), not as a one-off grant.
  2. Cash payment: it is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on. It is not, therefore, paid either in kind (such as food or services) or in vouchers dedicated to a specific use.
  3. Individual: it is paid on an individual basis—and not, for instance, to households.
  4. Universal: it is paid to all, without means test.
  5. Unconditional: it is paid without a requirement to work or to demonstrate willingness-to-work.
A wide variety of Basic Income proposals are circulating today. They differ along many other dimensions, including in the amounts of the Basic Income, the source of funding, the nature and size of reductions in other transfers that might accompany it, and so on.
Although BIEN has not endorsed any particular proposal, and it is open to people who favor very different proposals, BIEN’s 2016 General Assembly endorsed a very broad description of a proposal in the following resolution:
A majority of members attending BIEN’s General Assembly meeting in Seoul on July 9, 2016, agreed to support Basic Income that is stable in size and frequency and high enough to be, in combination with other social services, part of a policy strategy to eliminate material poverty and enable the social and cultural participation of every individual. We oppose the replacement of social services or entitlements, if that replacement worsens the situation of relatively disadvantaged, vulnerable, or lower-income people
In keeping with BIEN’s charter (as an organization to “serve as a link between individuals and groups committed to, or interested in, basic income”), this motion is not binding on BIEN’s members or affiliates. But it does reflect a widely-shared aspiration among BIEN members, affiliates and supporters.
A Basic Income at this level is often called a “full Basic Income,” and a lower one is often called a “partial Basic Income.” However, the definitions of “full” and “partial” are highly controversial, and BIEN has not attempted to define them officially.
Some short-term proposals currently focus on the so-called “partial Basic Income.” Such a scheme would not be full substitute for other redistributive measures, but would provide a low – and slowly increasing – basis to which other incomes, including the remaining social security benefits and means-tested guaranteed income supplements, could be added. Some members see this as a path toward a full Basic Income; others prefer the strategy of pushing for a full Basic Income from the start; and perhaps some favor only a partial Basic Income.
A full Basic Income could replace at least some existing social policies, but there is controversy among Basic Income supporters about how many and which programs it could replace. The issue of how high is high enough to eliminate material poverty is also controversial among Basic Income supporters.
Many reasons have all been invoked in Basic Income’s favour, including liberty and equality, efficiency and community, common ownership of the Earth and equal sharing in the benefits of technical progress, the flexibility of the labour market and the dignity of the poor, the fight against inhumane working conditions, against the desertification of the countryside and against interregional inequalities, the viability of cooperatives and the promotion of adult education, autonomy from bosses, husbands and bureaucrats.
The inability to tackle unemployment with conventional means has, in the last decade or so, become a major reason for the idea being taken seriously throughout Europe by a growing number of scholars and organizations. Social policy and economic policy can no longer be conceived separately, and Basic Income is increasingly viewed as the only viable way of reconciling two of their respective central objectives: poverty relief and full employment.
Grassroots activism for Basic Income has increased greatly since 2010. In addition, many prominent European social scientists have now come out in favour of it – among them several Nobel laureates in economics. In a few countries some major politicians, including from parties in government, are also beginning to stick their necks out in support of it. At the same time, the relevant literature – on the economic, ethical, political and legal aspects – is gradually expanding and those promoting the idea, or just interested in it, in various European countries and across the world have started organizing into an active network.