How would a basic income for everyone work?

Finland has become the latest country to propose a basic income for all. If put into practice, the scheme would eventually see all Finnish citizens receiving an 800 euro stipend, per month, tax-free.

How it would work

Social benefit systems are complex and more often than not bureaucratic. The Finnish proposal, and others like it, seek to simplify those expenses by doing away with complex benefit systems. The Finnish proposal, slated to be finalized in 2016, will first be rolled out as a hybrid programme in 2017, offering 550 euros a month while maintaining some social services. A recent poll showed that the proposal has overwhelming support at home, with 69% of Finns agreeing with the plan.

Finland has an incentive to consider the alternative. The country has an unemployment rate of roughly 9.5%. In 2014, the OECD Social Expenditure Database showed that Finland had the second highest public social expenditure as a percent of GDP. 

Not the first

Finland’s proposal of offering citizens a basic income is not the first. The Dutch city of Utrecht is preparing to experiment with a similar scheme in January 2016. While some have criticized the plan, saying it will simply discourage the unemployed from looking for work, Nienke Horst, a project manager for the Utrecht city government, told Quartz that “we think that more people will be a little bit happier and find a job anyway”.

Switzerland is also preparing for a nation-wide referendum, which, if approved, would see every Swiss citizen entitled to 2,500 Swiss francs per month.

Would it work?

The major criticism of a basic wage is its enormous cost. As Bloomberg pointed out, giving every Finn 800 euros a month would cost the government 52.2 billion euros a year, while the government’s projected revenue for 2016 is 49.1 billion euros. That number, however, can be misleading. Not every Finn is an adult of working age, and the rich, while entitled to the stipend, would still be subject to their regular taxation rates. The main incentive for a basic wage remains that a large portion of the cost would be offset by ending other costly social programmes.

History is also undecided

Historical evidence suggests that the scheme could be beneficial, or not.

The Canadian town of Dauphin experimented with a stipend programme from 1974 to 1979. It is true that a drop in working hours occurred, but there was also an increase in the time men spent in education and the amount of maternity leave women took.

A Ugandan scheme for the unemployed also resulted in an increase of workng hours by 17% while earnings increased by 38%.

In the United States, however, the 1968 negative tax experiment came to a different conclusion. A negative income tax could not provide an income benefit comparable to welfare and create incentive for work “as long as the median income remains within striking distance of the poverty line”. It should be noted that the American plan was different from Finland’s proposal in that it was only intended for the poor.

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Author: Donald Armbrecht is a freelance writer and social media producer.

Image: A teller counts euro banknotes. REUTERS/John Kolesidis