Experimenting Basic
Income (BI) in Finland
9 June 2016 Kela
Olli Kangas ([email protected])
Professor, Research Director
Kela, Social Insurance Institution of Finland
The preliminary report delivered
thge 30 March 2016
• Which models are the most suitable for the
experiment
• What is the level of the monthly payment
• How to combine BI with income-related benefits
and other basic benefits
• Tax treatment of different models
• What are the strengths and weaknesses of
different models in the context of the EU and the
Finnish Constitution
• Recommendation: what is / what are the
model/models to be further explored
2
The working group evaluates the models,
research setting and samples to be
experimented
• The task for the working group is to make a plan
for the experiment
• After the first report (due to 30 March 2016) the
Government decides which models should be
further developed
• Later in the year 2016 the Government will decide
which model/s will be experimented, what is the
target population and what is the experimental
setting
• That is under preparation
3
Models explored and developed
• Full basic income (BI)
• The level of BI is high enough to replace almost all insurance-based
benefits
• Must be rather a high monthly sum, e.g.1 000€-1 500€. Realistic?
• Partial basic income
• Replaces all ’basic’ benefits but almost all insurance-based benefits left
intact
• Minimum level should not be lower than the present day minimum level
of basic benefits (€ 550 - € 600 a month)
• Plus income-related benefits and housing & child allowance
• Negative income tax
• Income transfers via taxation system
• Other models
4
• Perhaps low BI plus ’participation’ income
What next?
• Writing the law on the experiment (before summer 2016)
• Hearing of interest organisations
• Parliamentary discussion
− Constitutional committee
• Specifying the model (before summer 2016)
• Levels (net)
• Basic unenmpl.
• Social assistance
single +2 children
€589 €724
€486 €1069
sngl parent+2 chld
€724
€1190
• What is the right level of benefit. Not too costly but eliminates the need for
social assistance?
• How to take into consideration specific needs of single parents?
5
Experimental settings
(an example of an optimal research setting, nothing selected yet)
• To get scientifically reliable results and evidence for
policy making the experimental setting must
• Include a sufficient number of households
• rather than individuals
• Be nationally representative
• A nation level randomization
• local experiments in order to capture networking,
institutional and interaction effects and various
externalities
• e.g. local municipalities with 10%, 30% random sampling.
• To increase the sample size:
• Kela benefits will be used as a source of extra funding (sample 7,000)
6
Experimental setting
Significant effect
Model
BI €
Tax rate
A0
590
PRESENT
A1
590
40%
A2
590
45%
B1
690
45%
B2
690
50%
7
Sample size
Effective marginal tax rates in the present
system and in the €750 BI world (Flat rate tax = 52%;
single mother, 2 children live in Helsinki, rent €750)
• Effective marginal tax rates
remain high also in the BI
model
• The main problems are
linked to housing
allowances and ’adjusted’
unemployment
compensation
• BI as such is not a solution
• Taxes in the BI model
’behave’ more logically
• BI may solve bureaucratic
traps and waiting periods
when moving from a status
to another one
8
Effective marginal tax rates in the present
system and in the €550 BI world (single person,
lives outside capital area, rent €570, present taxation).
Social
assistance
Housing
allowance
Tax
Work
income
• If the BI is financed through
the present tax system,
effective, marginal tax rates
are much lower than in the
present social policy
system.
• The main problems are now
linked to social assistance
and housing allowance
• Both problems are smaller in
the BI model
• In 0 –income group there still is
a need for social assistance
• Problem: the model is not
cost-neutral
• Extra resources are needed
9
BI may solve other problems and create a
number of new ones…
The model
Flat rate
tax
Gini
Poverty
(60%)
Winners
(000)
Losers
(000)
Present
system
--
26.9
15.6
--
--
BI 500€
41.5
26.4
15.3
1,849
774
BI 550€
43.5
26.0
14.8
1,807
816
BI 600€
45.0
25.7
14.3
1,826
796
BI 650€
46.5
25.4
13.9
1,832
791
BI 700€
49.0
25.0
13.5
1,770
853
BI 750€
50.5
24.6
13.1
1,786
836
BI 10800€
52.5
24.2
12.6
1,752
871