OECD pooh poohs Basic Income

By Terrance Hunsley, Senior Fellow

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At the OECD social policy ministers forum in Montreal in May, an assessment of Basic Income (BI) as a policy proposal, which was produced by OECD staff last year, was being circulated. For supporters of either a universal basic income, or an unconditional negative income tax, as a means of reducing poverty and inequality, the news is bad.

The policy brief notes that some interesting BI experiments are taking place, in Canada, Netherlands, and Finland among others, but easily reaches its conclusions without awaiting the results. It presents microsimulations of different levels and approaches, with a wide variety of winners and losers. For example, a model which produces universal payments at basic social assistance levels, financed by eliminating unemployment insurance and the basic personal tax exemption, would have many more losers than winners. And reductions in administrative costs are not seen as significant enough to calculate. Changing various factors changes the winners and losers, but no option is seen as accomplishing the objective without creating more problems than it solves.

Problem is, the brief starts out by noting that OECD countries’ tax to GDP ratios are at “historically high levels,” such that any model they considered, had to be budget neutral. Some people could pay more taxes through loss of tax exemptions, but models based on general tax increases were not considered. It seems that, between 1965 and 2000, the average tax to GDP ratio in the OECD countries increased from about 24.8% to 34%. Governments were growing and providing more services. Between 2000 and 2014, it rose from 34% to a “historically high” level of 34.2%. (Source: OECD Revenue Statistics, 2016) During that period, income taxes have fallen marginally as a portion of tax revenues, while general consumption taxes and social security contributions have increased – implying a small decrease in overall progressivity.

When you think about it, such a small overall increase in taxation is surprising. The past fourteen years have seen a surge in the retirement-age population. Baby boomers started passing fifty-five about 2001, and sixty around 2006. The costs of public pensions have been on a sharp upward curve. Health care costs are growing as well, and not just because of population ageing. So while overall public spending has been pretty stable, the beneficiaries have shifted. So who lost out? Remember the 1990’s, when governments slashed unemployment and social assistance benefits? They were never restored. The Ontario Premier’s advisory group on income security reform reported recently that current social assistance is about 70% of what it would be if 1990’s levels had been adjusted with inflation.

But returning to basic income, few BI advocates are saying that this should be a budget neutral change. They want more generous assistance for low income people who are struggling in a highly selective and increasingly precarious job market. And for people who suffer from a range of disabilities and illnesses that our society has not found remedies for. And they want some rebalancing of income and wealth, given the procession of warnings from researchers, advocates, politicians and international organizations (including the OECD itself) about increasing inequality and the dangers it presents to democratic societies. They want, in essence, money to be redistributed from the top third of income earners and wealth holders, to the bottom third. And they would like more taxes to be paid by people who hide their income and wealth in tax havens. And although they have suggested some possible models, they believe that governments, especially departments of finance, have the expertise to put together a workable program. It is not the label of the program, or the problems of different design options, that is the problem. It is the lack of commitment by politicians who well understand the problems, to do something about it.

But there was a bright light at the forum. Canadian minister Jean Yves Duclos stated that the Canadian government would be announcing this summer, new steps in its commitment to reduce poverty and strengthen the middle class. We look forward to those announcements.

Terrance Hunsley is a former CEO of the Canadian Council on Social Development and International Centre for Prevention of Crime, and Fellow of Queen’s University School of Policy Studies.

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