The Malta Independent 24 September 2021, Friday

Universal basic income

Sunday, 25 July 2021, 09:00 Last update: about 3 months ago

Anthony R. Curmi

In his article under Business (TMIS, 11 July) George M. Mangion stated "it is undoubtedly true that our social security system is failing to protect people from destitution and hardship". While I do not disagree with his statement, I very much doubt if, in the local context, the solution is the adoption of the concept of a universal basic income (UBI). I lay no claim to being very familiar with the range of social benefits that are available in Malta to protect those for whom these are intended. However, having recently read the very enlightening book, Robots, ethics and the future of jobs by Columbian missionary Sean McDonagh, I remain sceptical that, on balance, UBI would be an improvement on the range of social benefits that have been broadened and enhanced by successive governments over the years in Malta.


Mangion seems to base his opinion on Spain's experience when it introduced a minimum basic income in May 2020 to reach about 2% of the population in response to Covid-19.  He also quotes a similar experience in Kenya. This opinion, I feel, is too narrowly based so as to conclude whether the benefits of UBI outweigh the disadvantages; more so considering that, in both the cases quoted, the measures were introduced hurriedly in response to an exceptional crisis and not after a deep study of the situation in those countries under a situation of normality.

McDonagh devotes an entire chapter in his book on UBI and bases his considerations on its long history going back as much as over 200 years when Thomas Paine (1737-1809), and English-born political theorist and revolutionary, issued an influential pamphlet which helped inspire the American revolution. Basically, he had proposed landowners paying a ground rent and from this tax two kinds of payments would be made to each person. Everyone would receive £15 on reaching 21 years of age as a way of supporting them on the threshold of adulthood. At the age of 50 they would receive £10 to help them in their old age. Paine claimed that administration costs would be quite low compared with the bureaucracy and cost of administering a welfare system.

Before highlighting the pros and cons of UBI as seen by McDonagh, based on his wide experience, including working for some 20 years in the Philippines, it is worth noting a more recent definition of UBI as was given in 2016 by Sean Ward from Social Justice Ireland at a conference. UBI was said to be "a substantial unconditional and tax-free payment from the exchequer to all citizens on an individual basis, financed by a flat tax on all income. It would replace tax credits and tax allowances for those in paid employment and welfare payments for those who are not in paid employment".


Proposals for and the experience of UBI in various countries

In 2018 the Institute for Fiscal Studies in Britain stated that "above-inflation increases in Britain's minimum wage are putting rising numbers of workers at risk of being replaced by machines". Thereupon a financial journalist suggested that one of the best ways of tackling this issue of people being unable to find paid employment is by giving a UBI, because the rise in automation means that there will be less work for people. This argument is given a lot of weight by McDonagh in his book. Other countries experimented with UBI ranging from Canada (1974) to Brazil and India (2013) with varying degrees of success. Canada discarded the idea whereas in Brazil, research into an income support system introduced there, found that most people used such income sensibly especially when it was given to women in families. Similar positive results were experienced in India from a programme which, however, was not funded from taxes but by UNICEF and the World Bank, that is, UBI was not funded internally, as is usually the case, but from external sources that cannot be relied upon indefinitely.

Social Justice Ireland supported a strong political bid in Ireland towards introducing UBI. It was argued that this would narrow the gap between rich and poor, treat men and women equally and, from a bureaucratic perspective, would make the whole process of supporting the poor much simpler. It was estimated that the funding of this scheme would entail introducing a flat income tax rate of 45% to replace the more normal rising scale of income tax and employers' 8% tax on payroll. The proposal did not fall on fertile ground and was not implemented. Even in Britain, over the years, support was expressed for UBI especially by the Unions and by the Labour Party. The latter's former leader, Jeremy Corby, is on record as having said that, for Britain, UBI is the best way to protect workers against insecurity of a rapidly changing labour market. In this he had the support of his Shadow Chancellor, John McDonnell. The idea died a natural death when Labour was heavily defeated by the Conservatives.


Arguments in favour of UBI

The main arguments in favour of UBI are that this empowers people, which in turn, builds their confidence because it gives them the opportunity to make choices that can improve their lives. It is argued that this does not happen with welfare programmes because bureaucrats, who are not familiar with the daily pressures that poor people face, are often more concerned about following proper procedures and filling out forms correctly. Supporters claim that UBI eliminates the poverty trap while, at the same time, ensuring that no one is financially better off unemployed, because income from work should always be greater than that provided by UBI. Another contention is that UBI gives more bargaining power to individual workers in dealing with their employers than would have been conferred by membership of trade union. However, some economists argue that consideration should be given to the impact of technological changes in the modern economy. They note that increased employment flexibility can be a mixed blessing. On the one hand, it can help in balancing the demands of work and family. Alternatively, it can be a back door for employers to extract more effort from employees with the expectation that they are always accessible on their mobile phones. There lies the dilemma for the Unions. Feminists do promote UBI as they see this as a means of better recognition of their crucial work.


Arguments against UBI

Those against, including the UK's Conservative Party, see UBI as a disincentive to work because it seems to be rewarding idleness and, therefore, undermining the economy. Research to date does not support this thesis. McDonagh rightly comments that, whoever expressed such a view, must be horrified by the fact that the current Tory Chancellor gave away over £60bn in extra public spending to fight Covid-19. Nonetheless, there is a danger that, if everyone gets UBI, many people might not be willing to make the effort to continue their studies up to the third level. By way of example, what would be the attitude of struggling secondary school students who know that they will receive a guaranteed income, regardless of whether or not they continue their education? That is considered to be a powerful and perverse disincentive to achieving one's full potential. For that reason, a safeguard that is advocated is paying a somewhat higher income to, say, those who pass "A" levels or equivalent.


McDonagh's conclusions

He accepts that many consider UBI is a radical move but he expressed concern that there is a failure to recognise that we are living in a time of unprecedented change. He opines that, if new technologies currently being developed lead to widespread unemployment, and if some sharing mechanism such as UBI is not introduced, societies around the world can begin to prepare themselves for massive struggles, possibly violence. Although his book was published earlier this year, this was before the recent important move to gain consensus among all OECD countries to adopt a minimum corporate income tax rate of 15%, thus putting a stop to the current system of multinational, especially high tech, companies (such as Amazon, Microsoft, Google and Facebook) taking advantage of low tax jurisdictions, including Malta, instead of being taxed at higher rates in those countries where their actual sales take place. Once such companies start paying a realistic rate of tax on their profits, the pressure for funding from such sources, the introduction of UBI is bound to accelerate.


Is there a case for UBI in Malta?

Clearly, one cannot attempt to answer this question without a proper study of the implications as Malta's economic and labour situation is not comparable with most of the countries mentioned above. What is certain is that, presently, we are in a situation where certain sectors - especially in hospitality and construction - we are experiencing a shortage of manpower. Still, one needs also to plan well ahead for the possibility of a reversal of this trend through, not only a declining birth rate, but also because of the impact on employment needs of jobs being taken over by Artificial Intelligence and other developments in the scientific field. This is a subject which some budding University student of Economics could well pursue as a thesis.



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