30 Dec 2014

How to introduce an Unconditional Basic Income

Regular readers of my blog are hopefully well aware that I am a big fan of the idea of having an Unconditional Basic Income for all citizens. And I have proposed that it would be a very good idea to finance it using a tiny Universal Financial Transaction Tax on all electronically mediated transactions in a given currency, wherever they occur in the world. I estimate that with at least €2 quadrillion in euro denominated transactions occuring per year, the European Central Bank could impose a 0.1% tax that could raise enough to pay every man, woman and child in the Eurozone a basic income of 6000 euros a year (500€ a month).

Of course, the standard response is to say that as soon as you introduce even a tiny 0.1% charge,  virtually all trading will cease, and there will be nothing left to tax. I think that this argument is totally spurious. After all, virtually all banks will charge you a 2.75% or even 2.99% international charge for using your credit card in another currency - 30 times the amount I am talking about. That fee is on top of the 3-4% paid by the merchant, and is effectively a charge for multiplying the amount paid in a foreign currency by the current exchange rate. It's outrageous, especially since we know that the banks and traders do over $5 trillion in foreign exchange PER DAY without paying anything. But those 2.75% charges don't  stop me from using my card in the UK or the USA when travelling to pay for restaurants, hotels and the like.

Nevertheless, just to prove that we don't even need to finance the Unconditional Basic Income with the Financial Transaction Tax, let me just mention another neat idea for how you could introduce such a system in a country like France.

Let's have a look at where French Government spending goes, based on an official report on public spending that came out in 2013. On page 16 you can find the following pie chart.

I won't bother insisting on the outrageous interest payments (4.7% of all government spending), except to point out that these are interest payments made on loans to the government that can be created out of thin air by banks that, thanks to the wonderful Basel Banking Regulations, can be made with no capital whatsover. Enough said.

You can see that 23.6% of spending goes on Salary costs for public sector employees like myself (I work for the CNRS), but an even more impressive 45.7% goes on social benefits (unemployment, health care, housing benefits etc etc).

Now, over 6 million people in France are employed in the public sector - that's about 23% of all employed people. There are 66 million people in France. Of these, 12 million are under 15 and can't work, and 11 million are over 65 and presumably retired. Of the remaining 43 million, 30 million are active, but only 24.3 million are actually in work - the other 5.7 million are looking for work, and presumably living largely on benefits. Finally, there are 13 million people of working age (15-64 years old) but inactive. They are probably also receiving a substantial amount in the form of state benefits.

So, suppose that the French government decided to give every citizen an Unconditional Basic Revenue of say 500€ a month. The first thing that they could then do is subtract that from the Minimum State Pension (Minimum Veillesse) currently 800€ per month for a single person, and 1242€ for a couple. That would mean those entitlements would drop to 300€ ans 242€ respectively, without changing anything.

Secondly, the government could subtract the UBI value from any unemployment benefits. These vary depending on previous income,  but the amount is  currently 1029€ per month for someone who had been earning 1700€ a month, and 857€ per month for someone who had been on the minimum wage of 1050€ a month. Again, all this could be done with no cost to the government, and no change for the citizen.

Third, the government could eliminate completely the current system of child allowances (allocations familiales) - currently 165,72€ a month per child (except that, strangely, the first child doesn't count), an amount that is increased by 64,67€ a month for children over 14. Currently, these amounts are not taxed, but it would be much simpler (and fairer) if each child received a fixed amount - say 500€ but possibly less - but that the amount was included in taxable income such that high earning households would effetively receive much less.

There are no doubt other benefits that could be included and reduced with the introduction of the Unconditional Basic Income. The simplification of the system would already be a big advantage for citizens who currently have to navigate an extremely complex system. It would also mean that the administration costs could be seriously reduced.

But here is where in gets interesting. What about those 6 million public sector workers? I see no reason why I could not simply have my salary reduced by €500 - after all, it doesn't matter to me whether I am being paid by the CNRS or via the UBI. Do the same thing for all public sector workers and you will have just reduced the government's salary bill by a substantial amount. Remember that 23.6% of all public sector spending goes on salaries. And since many public sector employees are on relatively low pay, this could make a huge difference.

At the same time, the government could reduce the statutory minium wage by €500. It's currently 1445€ for a 35 hour week. This means that private sector companies would actually be able to pay their workers less - potentially only 945€ for a 35 hour week. This would directly increase the competitivity of French Industry, but reducing its costs. I presume that private sector employers would rapidly take advantage of the system to reduce their salary costs.

But it would also mean that workers would be able to work far more flexibly - something that woudl be good for both employeres and employees. For example, a family of four with a guaranteed income of 2000€ a month would be able to chose if and when to work. If they can manage without paid employement at all, then that's fine. If one of the parents wants to work for 10 hours, 20 hours, 40 hours or more to earn enough to pay for that Flat Screen TV, a new sofa, replace the car, or pay for the family vacation, then that's fine too.

We could scrap fixed working practises. But we could also scrap the idea of a fixed retirement age. People could effectively retire earlier if they want, and decide to devote all their time to voluntary work, or looking after their children and/or elderly relatives, thus reducing the pressure on massively overstretched resources.

And yes, if people decided that they would prefer to move their families to remote rural areas, a grow their own vegetables, that's fine too. It would directly reduce the pressure on the overloaded services in our cities. 

Yes, it would mean that the 13 million people who currently are of working age but not active, would get a guaranteed income. But in many respects they already are no doubt already receiving a lot of support. The difference with the Unconditional Basic Income is that no-one would feel that they are a sponger, living off the system.

Just to make things perfectly clear, let me just say that with 66 million people in France, it would cost just under €400 billion a year to give everyone a guaranteed Unconditional Basic Income of €500 a month.  That compares with a total government budget of €1151 billion in 2011. Is it not concievable that transfering 36% of that budget to a UBI would make a lot of sense?

It really does seem to me that this sort of reform can, and should, be implemented very rapidly. It makes very good sense for everyone. And yes, I really wouldn't object to having my CNRS salary cut! And after that, if we decide to finance the €400 billion with a tiny financial transaction tax instead of using VAT, Income Tax and Taxes on Business, then I think we will have made a lot of progress. Just a quick reminder - according to the BIS, transactions in France were €260 trillion in 2013. The €400 billion needed to finance a €500 a month UBI could therefore be paid for with an FTT of just 0.15%. François Hollande - are you listening?

1 comment:

  1. Very interesting blog, but I think any transaction tax will be somehow circumvented in the future by innovative money transfer tech (like bitcoin or trasferwise). Another point is maybe 500euro is too much for a start and it should be rather started with something insignificant value to have a smooth transition in the economy. Also, politically it sounds very scary to say that everybody now gets 500euro UBI, regardless to their contribution to the society. We should propose much more gentle figures and even its role should be incremental. I am thinking for example some sort of general conditional benefit whose condition can be easily controlled (based on age or living area, education, etc..). Softer than UBI proposals may accepted faster and paves the infrastructural way to finally get UBI introduced and accepted as obvious.