FINLAND has become the first European country to give its unemployed citizens a guaranteed and unconditional monthly wage for doing nothing — even if they get a job.
A number of countries are toying with the idea of introducing the scheme known as Universal Basic Income (UBI).
It replaces the traditional means-tested welfare system with a no-strings-attached streamlined version which, in theory, would offer a base level of income to everyone.
But while some have claimed the scheme is more efficient and could help reduce the amount governments spend on welfare, others have labelled it a dangerous idea and economically untenable.
The trial in Finland kicked off on January 1, 2017 and marks a monumental moment for proponents of the idea who hope successful results will usher in an era of free money.
Under the two-year, nationwide pilot scheme in the country of 5.5 million, 2000 randomly picked unemployed Finns will receive a guaranteed sum of €560 ($806) per month.
The income will replace their existing social benefits and will be paid even if they find work, and government officials say it could soon be extended to other low-income groups such as freelancers, small-scale entrepreneurs and part-time workers.
Olli Kangas, from the Finnish government agency KELA responsible for the country’s social benefits, said the scheme’s idea is to abolish the “disincentive problem” among the unemployed.
The unemployment rate of Finland stands at 8.1 per cent with some 213,000 people without a job — unchanged from the previous year.
Currently a jobless person may opt to refuse a low-income or short-term job out of fear of having their financial benefits reduced drastically under Finland’s generous but complex social security system.
“It’s highly interesting to see how it makes people behave,” Mr Kangas said. “Will this lead them to boldly experiment with different kinds of jobs? Or, as some critics claim, make them lazier with the knowledge of getting a basic income without doing anything?”
THE RISE OF UBI
UBI is not a new idea having been floated by various economists and politicians across the world for decades.
But it has gained real momentum in recent years with small scale schemes being introduced in developing nations Kenya, Uganda, and India.
In the developed world a number of countries have also considered experimenting with the idea. Trials are being considered in Scotland, by councils in Fife and Glasgow to potentially be rolled out soon. Currently the Canadian province of Ontario is pushing ahead with trials to begin later this year.
Last year Switzerland held a national referendum on the issue of a Universal Basic Income but the proposal — which would’ve nearly doubled welfare spending and wasn’t backed by the government — was rejected by 75 per cent of the vote.
However a similar proposal will be rolled out in the Netherlands as the country trials a number of different versions of the scheme with a range of restrictions and sanctions in cities including Utrecht, Tilburg, Nijmegen, Wageningen and Groningen. The idea has also taken root in Italy.
Australia has not been immune to the UBI bug and the idea was explored in depth by Don Arthur in a research paper published last November by the Australian government’s Parliamentary Library.
DOES IT MAKE SENSE FOR AUSTRALIA?
Part of the potential of UBI, at least in the theoretical stages, is its appeal to both sides of politics.
Those on the right who are typically in favour of smaller government appreciate the removal of red tape and needless bureaucracy in favour of a simpler and more efficient social welfare system.
While those on the left champion the removal of the intrusive oversight and hoop-jumping inherent in the means-tested system.
Bob Douglas is the director of Australia21, a Canberra-based non profit group that seeks to address future issues facing the country, and is an “enthusiastic supporter” of the UBI idea.
For him, it’s not a socialist idea but a way to overhaul a broken welfare system and replace it with a more efficient version, he told news.com.au last year.
“The conventional welfare system isn’t doing the job it’s supposed to,” he said. Not only is it inefficient, the policing of recipients can be done in an “offensive way”.
Economist Mikayla Novak is an Adjunct Fellow with the right-leaning Institute of Public Affairs and wrote an essay published by Fairfax Media last year in which she said the trial in Finland could have applications for Australia.
“The Australian welfare state is hugely expensive, being a major contributor to our overall budgetary problems,” she wrote.
In the essay she pointed out, “each adult Australian resident could have received about $714 per month in a basic income guarantee during 2013-14, leaving the social security budget no worse off”.
In a world with completely universal basic income there would be no costly surveillance of welfare recipients like the government currently chases welfare cheats to the tune of millions of dollars. And the Centrelink fiasco that is currently dominating the news would never have occurred.
A DANGEROUS IDEA
For some economists, the introduction of a UBI in Australia is a pipedream that, if implemented, would have untold negative social and economic consequences. For others, it just seems economically untenable.
Peter Whiteford of the Australian National University’s Crawford School of Public Policy estimates that a UBI set at the level of the age pension and paid to all 18 million Australian adults would cost around $360 billion a year.
He says relying on income taxes to fund such a system would mean the top personal income tax bracket would push towards 70 or even 80 per cent.
According to government figures, the current welfare system (excluding Medicare) costs around $170 billion per year.
Gigi Foster, an Associate Professor at UNSW’s School of Economics called UBI “the dangerous idea of 2016.”
She doesn’t believe a UBI would remove the incentive to work and strive for success in the labour market but depending on how the system was structured (i.e. funded) people could be penalised for working more.
She also pointed out there is good reason to expect the market to adjust and some of a UBI would be soaked up by higher prices.
“My advice for Australia? Watch the policy experiments in Europe keenly. But don’t assume for one minute that universal basic income is a magic bullet. Compared to our current system, it is expensive, inefficient, and potentially regressive,” she wrote in The Conversation last month.
It certainly makes sense to wait and see at this stage as Finland leads the way — and Australia certainly won’t be the only avid audience.
One way or the other, the experiment in Finland will likely have a lasting global effect.
Although some see this concept as fanciful or with a limited future, this is the road to a global finance system where ALL will receive a mark on hand or forehead is in its implementary stage.