Basic Income Grant
Basic Income Grant
In previous newsletters I have speculated on the possible impact on unemployment and inequality of the ongoing automation boom, especially as artificial intelligence comes into its own. One mitigating factor might be if governments introduced a universal basic income grant, a topic explored at length in Guy Standing’s book Basic Income and How We Can Make It Happen. Though increasingly in today’s news, this is actually a concept that has been around for hundreds if not thousands of years.
The way a basic income grant works is that the same modest amount of money is paid unconditionally to everyone in a country or region on a regular basis. There would be no differentiation between rich and poor or single and married persons. The only change in amount paid might be for people under the age of twenty or above the age of sixty. Obviously the tax structures would be tweaked so those already earning well would repay their grants through increased taxes.
The amount of the grant would aim to provide basic economic security for those with no other sources of income. As an example he talks of the amount of the grant being set at about 30% of a country’s median income. There would be no conditions attached to the receipt, spending or expected behaviour by each recipient; they would have the freedom to use the grant as they wished. In sum, a basic income gives individuals greater freedom of choice about their lives and they aren’t compelled to take jobs they would prefer not to do. Studies have shown recipients tend to spend it wisely.
A big advantage of a basic income grant is that those currently performing unpaid care for the young, the aged and the infirm would be compensated for their efforts. It also provides a basic safety net for new entrepreneurs and artists. Another benefit is that it reduces poverty and inequality. Trials have shown that side benefits include improved mental and physical well being, better educational performance, lower crime levels and reduced domestic violence. In short, quality of life would improve. Because poorer people tend to spend more on basic necessities than rich people, the retail and local manufacturing sectors would receive a financial boost.
Standing emphasises that the grant is not a minimum income guarantee or negative tax. It is also very different from a one-off basic capital grant. It is not based on need, nor is means or other testing required. Recipients are therefore not required to undergo the indignity of testing or the bureaucratic burden of making a special application. There is no paternalism involved and the grant is paid to each and every person.
One of the big disadvantages of many current unemployment schemes is that people typically experience very high marginal tax rates when moving from welfare to low paying jobs. There is also a huge bureaucratic burden as people move in and out of employment, something that is going to happen more and more in gig economies. With a basic income grant there would be no delays while paperwork is processed.
Guy also sees a basic income grant as social justice compensating residents for the use of the commons and the creation of pollution by companies and the wealthy.
Several chapters in the book address the criticisms that have been aimed at a basic income grant. The most common is affordability; however, a revised tax structure, elimination of subsidies, closure of competing schemes and cutting back redundant government bureaucracy should more than compensate for an income grant set at an appropriate level. At the same time, a basic income grant does not have to completely replace an existing system of grants. The fiscus would also benefit from the stimulus of people spending their grants on taxed items.
Other objections from across the political spectrum include that it has not been done before; it contributes to the dismantling of the welfare state; it is stupid to give money to rich and poor or to give people something for nothing; the money would be spent on “bads”; the grant would reduce already stagnant wages; it will be inflationary; and it will attract migrants. Standing addresses each of these, usually by citing the results of experiments undertaken in various places in the world.
Before devoting chapters to assist advocates of grants in their efforts, Standing briefly describes the trials that have taken place or are underway in Madhya Pradesh, India; Namibia, the Netherlands; Scandinavia; Canada; the USA; and Finland. In 2016 Switzerland held a referendum on implementing a basic income grant. Completed trials showed a sharp decline in poverty; better nutrition; food security; food diversity; educational achievement; increase not decrease in work; reduced crime; and reduced domestic violence.
Back in the mid-1990’s Guy Standing wrote a proposal for South Africa’s new democratic government to implement a basic income grant but it was turned down on the advice of the IMF and the National Party Minister of Finance. Looking at the present disarray in South Africa’s social grant system, current poverty levels, student unrest and a whole lot more, one can only conclude it was a major mistake. His proposal is included in a book co-authored with M Samson and published in 2003.
Incidentally, for those of your with an interest in South Africa, I have included on my Musings website my thoughts on how the country should proceed in light of population change, urbanisation, climate change, low cost renewable energy, mass data storage and mining, automation induced unemployment, growing inequality, globalisation and the end to growth. As you might expect, a basic income grant is top of the list!
Reference:
Guardian article on European pilots
OECD report on basic income
Guardian article on Swiss Referendum
In previous newsletters I have speculated on the possible impact on unemployment and inequality of the ongoing automation boom, especially as artificial intelligence comes into its own. One mitigating factor might be if governments introduced a universal basic income grant, a topic explored at length in Guy Standing’s book Basic Income and How We Can Make It Happen. Though increasingly in today’s news, this is actually a concept that has been around for hundreds if not thousands of years.
The way a basic income grant works is that the same modest amount of money is paid unconditionally to everyone in a country or region on a regular basis. There would be no differentiation between rich and poor or single and married persons. The only change in amount paid might be for people under the age of twenty or above the age of sixty. Obviously the tax structures would be tweaked so those already earning well would repay their grants through increased taxes.
The amount of the grant would aim to provide basic economic security for those with no other sources of income. As an example he talks of the amount of the grant being set at about 30% of a country’s median income. There would be no conditions attached to the receipt, spending or expected behaviour by each recipient; they would have the freedom to use the grant as they wished. In sum, a basic income gives individuals greater freedom of choice about their lives and they aren’t compelled to take jobs they would prefer not to do. Studies have shown recipients tend to spend it wisely.
A big advantage of a basic income grant is that those currently performing unpaid care for the young, the aged and the infirm would be compensated for their efforts. It also provides a basic safety net for new entrepreneurs and artists. Another benefit is that it reduces poverty and inequality. Trials have shown that side benefits include improved mental and physical well being, better educational performance, lower crime levels and reduced domestic violence. In short, quality of life would improve. Because poorer people tend to spend more on basic necessities than rich people, the retail and local manufacturing sectors would receive a financial boost.
Standing emphasises that the grant is not a minimum income guarantee or negative tax. It is also very different from a one-off basic capital grant. It is not based on need, nor is means or other testing required. Recipients are therefore not required to undergo the indignity of testing or the bureaucratic burden of making a special application. There is no paternalism involved and the grant is paid to each and every person.
One of the big disadvantages of many current unemployment schemes is that people typically experience very high marginal tax rates when moving from welfare to low paying jobs. There is also a huge bureaucratic burden as people move in and out of employment, something that is going to happen more and more in gig economies. With a basic income grant there would be no delays while paperwork is processed.
Guy also sees a basic income grant as social justice compensating residents for the use of the commons and the creation of pollution by companies and the wealthy.
Several chapters in the book address the criticisms that have been aimed at a basic income grant. The most common is affordability; however, a revised tax structure, elimination of subsidies, closure of competing schemes and cutting back redundant government bureaucracy should more than compensate for an income grant set at an appropriate level. At the same time, a basic income grant does not have to completely replace an existing system of grants. The fiscus would also benefit from the stimulus of people spending their grants on taxed items.
Other objections from across the political spectrum include that it has not been done before; it contributes to the dismantling of the welfare state; it is stupid to give money to rich and poor or to give people something for nothing; the money would be spent on “bads”; the grant would reduce already stagnant wages; it will be inflationary; and it will attract migrants. Standing addresses each of these, usually by citing the results of experiments undertaken in various places in the world.
Before devoting chapters to assist advocates of grants in their efforts, Standing briefly describes the trials that have taken place or are underway in Madhya Pradesh, India; Namibia, the Netherlands; Scandinavia; Canada; the USA; and Finland. In 2016 Switzerland held a referendum on implementing a basic income grant. Completed trials showed a sharp decline in poverty; better nutrition; food security; food diversity; educational achievement; increase not decrease in work; reduced crime; and reduced domestic violence.
Back in the mid-1990’s Guy Standing wrote a proposal for South Africa’s new democratic government to implement a basic income grant but it was turned down on the advice of the IMF and the National Party Minister of Finance. Looking at the present disarray in South Africa’s social grant system, current poverty levels, student unrest and a whole lot more, one can only conclude it was a major mistake. His proposal is included in a book co-authored with M Samson and published in 2003.
Incidentally, for those of your with an interest in South Africa, I have included on my Musings website my thoughts on how the country should proceed in light of population change, urbanisation, climate change, low cost renewable energy, mass data storage and mining, automation induced unemployment, growing inequality, globalisation and the end to growth. As you might expect, a basic income grant is top of the list!
Reference:
Guardian article on European pilots
OECD report on basic income
Guardian article on Swiss Referendum
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