A basic income would give every citizen a set amount of money, regardless of situation, but will it improve the world of work?
How can a country go about solving unemployment? How can it help those working but still falling below the poverty line?
Earlier this year, Finland became the first country in Europe to pay an unconditional monthly sum – known as a basic income – to its unemployed citizens.
Starting on 1 January, Finland began paying 2,000 unemployed people between the ages of 25 and 58 a guaranteed sum of €560 per month.
The payment replaces their existing social welfare benefits but, unlike other welfare payments, would continue even when they find work.
Basic income is not means tested, nor does it require proof of job searches from unemployed people.
While basic income is not a new concept, discussions of its implementation are only now beginning. For basic income to work, it would need to be set at the right amount for each country. Some think it should be based on the living wage, while others think it should match current social welfare payments.
According to The Guardian, Scotland could also be trialling a basic income scheme soon, with two councils, Fife and Glasgow, investigating the idea.
Furthermore, in a poll last year, 64pc of Europeans said they were in favour of an unconditional basic income. While Switzerland overwhelmingly voted against a similar proposal to Finland’s last year, the Swiss initiative proposed a much higher universal income.
Replacing social welfare
If Ireland were to adopt a basic income as a simple replacement for social welfare, everyone would receive €188 per week, regardless of their situation.
This would take the stigma away from those who currently have to prove that they are looking for work. It would also remove the risk of losing social welfare payments due to long-term unemployment and, perhaps, remove the temptation to deliberately stay out of work.
Currently, someone who works more than three days a week is not entitled to Jobseeker’s Benefit, regardless of how much they are paid or how many hours they work during those three days. This discourages people from taking part-time work that may make a dent in their current payments. On a basic income, this would no longer be a concern.
Another problem the basic income addresses is that of low-income earners who fall below the poverty line due to a lack of benefits, but who are fully taxed and facing a number of bills.
Under a basic income system, the tax credits employees currently receive would be replaced by the €188 weekly payment. This would be almost three times the weekly amount of the standard tax credits, which work out at approximately €64 per week.
This is another way a basic income could incentivise people to find work. While the payment would catch those who currently fall through the cracks of the social welfare system, it would also offer visible benefits for anyone who wants to look for work. Neither income would negatively impact the other.
A basic income could also encourage more entrepreneurship. For many, starting a new business means going without a wage for six months once they commit to the business full-time – and that’s if the start-up becomes profitable very quickly.
Having a buffer of non-means tested basic income would give people the flexibility to reduce their working hours or give up work entirely, without worrying about not being able to pay their bills or being an official jobseeker.
It would also act as security for entrepreneurs who fall on hard times after they have run a successful business.
Currently, when a company goes bust, its employees will receive social welfare for a certain amount of time before they’re means tested, depending on their PRSI contributions. However, according to the Irish Small and Medium Enterprises Association, self-employed people who pay Class S PRSI are not entitled to claim Jobseeker’s Benefit. Instead, they must satisfy a means test in order to claim Jobseeker’s Allowance, which is more complex than for former employees and gives rise to delays.
A basic income could also take the pressure off new parents when it comes to childcare expenses.
Currently, maternity benefit in Ireland is paid for 26 weeks at €235 per week. After this period, parents may have to either stay off work and reduce their income, or return to work full-time and pay childcare costs. These costs average out at about €167 per week, though this figure is even higher in the cities.
One parent’s basic income of €188 could take care of the childcare costs, or could supplement their reduced income if they choose to work part-time.
How much would basic income cost the State?
Proposing to cap the basic income at the same figure as social welfare would reduce the cost to the state. However, paying it to those who are employed, too, would nearly triple the cost of giving tax credits.
According to Micheál Collins, senior research officer at the Nevin Economic Research Institute (NERI), implementing a basic income this way would cost the State about €30bn.
Basic Income Ireland proposes a flat tax rate of 45pc, which would give those on low incomes higher take-home pay, while those on middle incomes wouldn’t see much of a difference and high earners would be getting less.
Could a basic income improve the lives of the unemployed, reduce the numbers of those who fall below the poverty line, and even improve employment?
With Finland’s experiment running for two years, only time will tell.