The Malta Independent 23 May 2024, Thursday
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UBI – a theme which resurfaces during pandemic

George M Mangion Tuesday, 30 March 2021, 09:38 Last update: about 4 years ago

One is sad to read about the number of persons feared to have fallen in the poverty trap.

Due to the lack of part-time job opportunities and many closed businesses, it is becoming more difficult for low-income persons to earn extra money. It is no surprise that the proportion of persons in Malta (including pensioners) at risk of living in poverty is increasing year-on-year.

This rate reaches 29.1% of over 65s and unfortunately this rate will grow further. As can be expected, older women are more likely to teeter on the brink of poverty due to having to rely solely on their husband's pension. In Malta, with a population of just over 500,000, a sizeable amount of 90,000 people are on the verge of falling into poverty or social exclusion.

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Naturally, on account of social exclusion alone, this factor has increased the size of this cohort due to a partial lockdown imposed during Easter. This begs the question; do we need to invoke a universal basic income (UBI) for all? In a recent interview of finance minister Clyde Caruana by retired PBS journalist Reno Bugeja, the minister was not so keen to propose the living wage concept or increasing wages. In his words, he replied "not in the foreseeable future".

Asked how one can surmount the problem of people in poverty the finance minister answered "...if there is anyone out there who still thinks that we should add to local industry's burdens, so that we can make a public show of solidarity with workers... do you know what would happen? That same month, those workers will have to register for the dole. We have to be realistic here. Many of our industries are hanging by a thread and we cannot be the ones to give them the kiss of death..."

This may be a stoical view expressed by government at a time when the furlough schemes in operation are compensating over 50% of the working population, yet the Opposition remark that more is needed to save jobs. Obviously for Malta to implement such a grand economic theory (that is, UBI) into a workable policy is far from easy. So, if a recession is to be avoided once the pandemic clears, what is the best solution to alleviate the growing number of persons facing poverty?

An easy answer is the introduction of some form of basic monetary assistance. In its most basic form, a UBI is a guaranteed cash benefit that government provides to all citizens. This is not a new idea, but one that resurfaces from time to time. Benefits are given to all without any filtering, regardless of their own or their family income.

By definition, UBI does not make a distinction between "deserving" or "undeserving" individuals when making payments. Opponents argue that this lack of discrimination is unfair but then in Malta for many years, we continue to pay stipends to thousands of undergraduates regardless of the social status of parents. What is the origin of UBI?

Historically, we read how an English philosopher, Thomas More proposed such an idea in his novel Utopia in 1516, although it wasn't until the 1960s and 1970s that economists began to think more seriously about how it could be applied. The US economist Milton Friedman proposed an idea related to UBI called a negative income tax in 1962, in which those earning under a certain amount would receive supplemental funds from government rather than paying tax.

Most European countries are suffering from a rise in unemployment after the Covid crisis which means insecure, unstable jobs are the norm and the precariat will slowly grow to include middle-class professionals. The pandemic has forced a re-evaluation of the social contract, in particular how risk should be divided among individuals, employers and the state.

Just reflect, how the powerful Covid-19 fiscal stimulus packages have made even the financial interventions of the global financial crisis of 2007/8 seem like minnows. The expansion of the welfare state has been the greatest in living memory. By sheer comparison to the 2007/8 crisis, one may conclude that government bailouts of citizens (furlough and business recovery schemes), rather than banks, could mark a new chapter in its history. Proponents of guaranteed income schemes argue that poor people will benefit more from unrestricted funds than from current welfare systems, which tend to have stringent requirements that often leave recipients trapped in poverty.

The Covid-19 pandemic has triggered a surge of interest in basic income as a way of compensating people for the economic hardships imposed by forced lockdowns. Understanding that a regular payment to all individuals, regardless of income or employment, as fair, non-discriminatory and comprehensive, unlike the emergency safety-net Covid-19 schemes that some governments have scrambled to put in place.

For example, during a referendum in June 2016, a fifth of the Swiss electorate voted in favour of introducing a UBI, although it seems likely that only a minority of these supporters would have been able to provide a consistent answer to the financing question. Spain introduced minimum basic income, reaching about 2% of the population, in response last May 2020 "to fight a spike in poverty due to the coronavirus pandemic".

"The scheme aims to guarantee an income of €462 per month for an adult living alone, while for families, there would be an additional €139 per person, whether adult or child, up to a monthly maximum of €1,015 per home. It is expected to cost state coffers €3bn a year since Spain was one of the hardest-hit countries in the early days of the pandemic. A nationwide lockdown curbed the spread of the virus, but came at a staggering financial price resulting in millions losing their jobs as the economy shrank rapidly, putting many of the most vulnerable citizens at risk. Other countries have considered starting the introduction of a UBI; like Finland, which has begun a trial, as has Ontario in Canada.

In Stockton, California, it is planning to roll out its own experiment later this year. With hindsight, Covid-19 has demonstrated the dangers of placing blind faith in populist and autocratic leaders who care more for power than people. Tackling unemployment is clearly not enough and more must be done to improve wages, pensions and children who live in families within the at-risk-of-poverty threshold.

 

The writer is a partner in PKFMALTA, an audit and business advisory firm


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