Introducing a UBI in NZ – Insights from the Finnish Trial
Finland began a Universal Basic Income (UBI) pilot at the start of 2017. Will its findings be useful in informing the policy debate in New Zealand? The idea of a UBI scheme has attracted growing interest in recent years: the New Zealand Treasury produced a paper on the topic in 2010; in 2016 a Labour Party commissioned discussion paper considered an annual basic income of $211 as an alternative to existing social welfare programmes (Harris and Bierema, 2016); a UBI for some groups is policy for The Opportunities Party, and a number of AUT briefing papers (e.g. Keith Rankin and Michael Fletcher) have investigated the cons and benefits of UBI based schemes in recent years.
Among the key debates that mark basic income initiatives are the budgetary consequences and impacts on poverty and labour market participation (Treasury, 2010; Harris and Bierema, 2016). According to many supporters of UBI schemes, the introduction of a UBI can encourage labour market participation (for example, by removing welfare traps where a beneficiary loses their entitlement at around the same rate as their income increases), reduce poverty and curb government expenditure by removing unnecessary red-tape and administration costs related to multiple benefit programmes.
However, a UBI scheme as a type of an unconditional social security policy is in stark contrast with the current New Zealand welfare system, where there is a significant stigma attached to most beneficiaries and a high degree of targeting and conditionalism (e.g. labour market activation) is applied to many of the welfare programmes. In contrast, proponents of a UBI argue that its very universality is a virtue, because it destigmatises social security, as witnessed with recipients of New Zealand Superannuation – a form of UBI for the over 65s.
The New Zealand social security system is by no means unique, but in many so called ‘liberal welfare state regimes’ (Esping-Anderson, 1990) strict eligibility rules and stigmatising are common. The international evidence highlights how many countries’ social protection programmes have been subject to fewer rights and more conditions since the 1990s (e.g. Clasen & Clegg, 2007; Gerven, 2008; ILO, 2014). Conditonalism and stigma are often believed to result in fewer people taking an advantage of the available support. There is a concern that unconditional benefits, such as the UBI scheme, can result in a significant rise in the government expenditure. For instance, according to Treasury’s 2010 calculations a guaranteed minimum income of 300$ per week would cost 44-52 billion dollars a year. Treasury took a negative stance, concluding that the high cost would not necessarily result in reducing poverty and could have a “damaging effects on the tax system and economic growth” (Treasury, 2010, p. 3). Similarly, Michael Fletcher argues that a UBI, set at an average level, would be insufficient to meet the income support needs of some groups, such as single parents unable to undertake additional paid employment. However, a UBI set at a level high enough to meet the needs of the most-needy, would put serious pressure on budget expenditure. Hence, Fletcher argues, we also need a separate targeted welfare system to avoid poverty gaps and significant tax increases.
One of the main problems around UBI initiatives is the lack of empirical evidence. The first modern day pilots took place in the 1960s and 1970s in the United States and Canada, and more recently, basic income reforms have been trialled in countries such as Namibia, India, and Kenya (Harris and Bierema, 2016; Kangas & Pulkka, 2016). However, many of the pilots indicate contradictory results and/or have been limited to a small sample of people. Thus, we still know relatively little of the impacts of comprehensive UBI schemes.
This might be about to change. At the start of 2017 Finland became one of the first countries to introduce a basic income scheme at a national level. The Finnish Government’s key objective is to examine whether the UBI adoption provides incentives for increased labour market participation. This two-year trial guarantees 560 euro (tax free) per month ($850 NZD), replacing the existing unemployment benefit programme for the UBI recipients. The level of the unemployment benefit is somewhat more generous, but revoked if the recipient engages in any job activities. Within the Finnish UBI scheme the benefit payments will continue regardless of the recipients’ attempts to, and future success in, finding employment. (Information on the Finnish UBI trial in English can be found in here)
Could the insights and findings from the Finnish trial help inform the New Zealand policy discussion? Unfortunately, the Finnish implementation design poses various challenges in this regard. In the local context, the limitations of the trial have been criticised by researchers and opposition parties. The trial group consists of randomly selected 2000 people who are currently unemployed and between ages of 25 and 58. According to the UBI research team a sample of at least 10000 people would have been necessary for more reliable results (Kela, 2016a). Also, by narrowing the trial to 25-58 year old currently unemployed people, the findings have limited applicability to other segments. In other words, it remains unclear what type of behavioural changes might take place among groups such as young adults and people on low incomes. Amendments addressing these issues have been recently recommended by the UBI research team (Kela, 2016b). Also, the Finnish trial was not implemented with changes in the tax system, which can significantly bias the results.
Many have also criticised the financial sustainability of the trial design, as the annual cost of the reform – if spread out over the whole population of 5.5 million – would be more than 15 billion dollars (NZD). Hence, the Finnish implementation design has serious limitations to the extent it a) mirrors the impacts of a comprehensive UBI system and b) can be perceived as financially sustainable in the New Zealand context, with a population only slightly smaller than Finland.
Nonetheless, the Finnish UBI can provide pivotal guidance to New Zealand researchers and policymakers. The trial has potential to shed light into one of the key areas, namely, whether or not a (specific) UBI programme model (dis)incentivises employment. Unfortunately, the first results will be not available before 2019. The transfer of findings from New Zealand to Finland will, however, warrant caution as the outcomes are likely to be affected by local culture, differences in the labour market environment, and existing public policy arrangements. For instance, the Finnish welfare system (including the unemployment benefit scheme) is more universal in nature, a factor that is highly likely to influence the outcomes of the UBI trial. Hence, one needs to understand the exact implementation design and environmental factors to maximise comparability across the two countries. A sound understanding of the errors made in the Finnish policy trial can also help avoid similar mistakes if a UBI policy is advanced on the New Zealand policy agenda.
This paper was first published on the Briefing Papers site under a Creative Commons License. The original version is available at this link: http://briefingpapers.co.nz/introducing-a-universal-basic-income-in-new-zealand-insights-from-the-finnish-trial/