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A basic income could get rid of the welfare state

The basic income does what it says on the tin. Every citizen over a certain age would receive an income from the state, writes Aaron McKenna.

Aaron McKenna

FIANNA FÁIL IS good at making suggestions in the run up to elections, which, straight faced, basically runs to “ya know, if only we got into government again, you’d really deserve a few quid more in your pocket from the state”.

They bankrupted the country after the 1977 giveaway election and they did it again in the 1997-2011 era with such thinking, increasing government spending at amazing rates that eventually led to a predictable outcome.

Even a broken clock can be right twice a day, however, and while it’s easy to be cynical about spending proposals from political parties in the run up to an election; the suggestion put forward by the party’s social protection spokesperson Willie O’Dea that we introduce a basic income has some merit.

The basic income does what it says on the tin. Every citizen over a certain age would receive an income from the state.

It could work

Though I suspect that Willie and Co might not think much further than the idea of providing cash to people who might vote for them, this actually has a very radical effect on how the welfare state and our economy would work.

For one, you’d eliminate the administrative structures of the welfare state completely. You wouldn’t need a Department of Social Protection and dole offices and the likes, just a small unit of an existing body like the Revenue Commissioners to make sure everyone gets their payment.

At a stroke of a pen you would eliminate reams and reams of paperwork that goes into means tests and administering a labyrinth of different social programs.

For seconds, you would eliminate the minimum wage. When you provide a basic income, people can take up work that is nowadays otherwise obsolete. Do you ever stop and wonder why petrol station attendants are so rare nowadays?

€8.65, soon to be €9.15 an hour is why. One of the key drivers of youth unemployment and unemployment of the uneducated and those at the margins is the minimum wage, which makes their labour uncompetitive to many employers who cannot extract enough value from customers to make it worthwhile.

A basic income

It may sound like a basic income shifts the burden of paying these folks over to the government from employers, but in actual fact today that burden is shifted already. It’s called long term unemployment benefit. A basic income would make it easier to get folks into the labour force if they could add additional income beyond their basic, rather than be in a situation as today where you take up a job but lose the dole and are left wondering if the extra few quid every week is really worth the effort.

This is an example of a poverty trap that is created by the welfare state in conjunction with welfare-driven policies like the minimum wage. We all know that too low a difference between welfare and work leads to people staying on welfare, and every year we have studies looking into how many people are better off entirely on welfare versus working thanks to the myriad payments in existence.

Introduce a basic income and folks can come along and just add and add to their income as they work, making it more attractive. It does risk making it more attractive for a certain class of scrounger to sit on the basic income and do nothing else, but we already have that problem.

Even during the boom there were tens of thousands of people on long term unemployment benefits despite the fact that we had so many jobs available that we were importing a sizeable population from the post-2004 EU accession states to work here.

A basic income would not negate the need to find ways to prod the languorous into labour, but so too at some certain point one just has to accept that in today’s system or any other there will always be people content to sit in their own filth and sponge off their fellow citizens rather than get up go find a job.

Of the ways to implement a basic income, I am in favour of something known as the “Negative Income Tax.” The idea is that as you earn more money, the basic income is withdrawn slowly until you eventually start to pay tax. Critically, the basic income is not withdrawn in direct €1:€1 proportion to what you earn, making it worthwhile taking up work.

How it works

In this system, we will all receive a compulsory tax credit which is the amount of the basic income. Lets say €10,000 per year, a little over €192 a week. If you earn €0 then you will receive a €10,000 payment from the state in the year. We then introduce a subsidy rate of, say, 50%, which means that for every €1 you earn we will remove €0.50 of the basic income you receive.

In practice this means that if someone earns €5,000 in work, they will lose €2,500 of their basic income; but still have an income of €12,500 to show for themselves. If they earn €10,000 then they will have an income of €15,000 and so on. Once a person earns €20,000 then they will no longer receive any basic income, and at €20,001 they will begin paying income tax on each additional euro either at the same 50% rate or, more likely, a reduced flat rate to incentivise more work.

That this measure is being proposed around an election time is perhaps predictable, and three key barriers to adoption are predictable: Firstly, the cost would probably require a major re-think of government spending in all other areas. It’s expensive, but on the other hand it could solve a lot of social problems at the flick of a pen. Secondly and as my Times columnist colleague Jason O’Mahony eloquently put it, good luck getting the idea of dismantling the public administration of welfare past the unions.

Irish public bodies have an unerring ability to become primarily about the people who work in them rather than the people they ostensibly work for. Thirdly, Irish politicians really wouldn’t get the idea of a basic income as a “there you go, that’s it,” payment.

They’d want to start adding gravy on top for certain groups, negating the whole point of the exercise as a simplification of the welfare state and elimination of all its bad points around poverty traps and over burdensome administration.

Nevertheless, don’t scoff at the idea completely out of hand. It’s worth exploring and costing, if only so we can take a hard look at the byzantine welfare system we have today; which really is the product of giveaway budgets and electioneering more than any attempt at pure social good.

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