Wednesday 26 October 2016

Replace welfare state with cash for all - radical, but would it work here?

Published 16/06/2016 | 02:30

People vote in a recent referendum on whether to give every adult citizen a basic guaranteed monthly income of 2,500 Swiss francs, in a school in Bern, Switzerland. Photo: Ruben Sprich/Reuters
People vote in a recent referendum on whether to give every adult citizen a basic guaranteed monthly income of 2,500 Swiss francs, in a school in Bern, Switzerland. Photo: Ruben Sprich/Reuters

Scrap almost all welfare payments - from jobless benefits to children's allowance to the old-age pension. If that sounds like a revolutionary idea, consider this: replace the welfare system with a guaranteed cheque from the State to everyone, every month for life.

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Some people might instinctively mutter "bonkers" at the idea of no-strings-attached cash for all, forever. Others would say, with widening eyes, "show me the money".

Most people, I suspect, would consider the idea just too radical. As it happens, that was the reaction of the Swiss a few weeks ago when they had a referendum on exactly such a proposal. In the Alpine state, voters were asked to back a monthly state payment of €2,250 for all. Despite the appeal of guaranteed free money from the time they turned 18 until the time they went to their graves, the Swiss overwhelmingly rejected it.

That the idea even got as far as a referendum might in itself be cause for surprise. For a developed country to dismantle its welfare state would amount to a massive change, societally, politically and economically. Little wonder, then, that no country has ever gone down the route, despite the idea having been around since one of America's founding fathers, Tom Paine, put it forward all of 220 years ago.

But just because something has never been tried by any country before is no reason not to consider it. Across the world, and the rich world in particular, there is growing debate about universal basic income payments. It has traction in Ireland too. A green paper was published on it in 2002, though that went nowhere. More recently, Fianna Fáil committed to establishing a commission on it in its most recent election manifestos. The Greens are keen on it as well.

One of the things that is unusual about the idea is that it has advocates not only on the redistributionist left of the political spectrum, as might be expected, but also those on the right. The latter support the idea because it offers the prospect of simplifying welfare systems that have become so complicated most citizens don't understand them (the idea usually includes the scrapping of tax credits/allowances and a flat tax on all other income).

One undisputed benefit of a basic income for all is security. In a world where the job for life is increasingly a thing of the past and alienation from mainstream politics is rising, a guaranteed income could address both issues if, as seems likely, the two are connected.

But what of the downsides?

Some argue that it would be too costly. That's moot. If the amount currently spent on welfare in Ireland was used to fund it, then it would be close to 'cost neutral', to borrow the bean counters' phraseology. As that figure is around €30bn annually, every adult in the country could receive €10,000 a year.

Yet if that were to happen, some of those currently on welfare, and many who have kids and are on welfare, could end up with less than they get now. Given that families who depend on welfare tend to be the least well off in society, cutting their incomes would meet with enormous resistance. If nobody was to lose out, a lot more money would probably have to be spent. That would mean a lot more taxes.

Among the biggest reasons to be sceptical about an idea as huge and as radical as basic income is how little is known about how all the changes involved would play out, and how those many changes might interact.

While policy experimentation is a good thing, and something we could do more of in Ireland, taking a leap as enormous as the guaranteed basic income would be better done after seeing how it works in other countries first. In this instance, there is a 'late mover' advantage to be had by learning from the mistakes of others, rather than being in the vanguard.

An additional reason for caution is that, once rolled out, it would be impossible to reverse, even if it turned out to be a disaster. Taking even the smallest entitlements from people once they have come to depend on them results in very negative political reactions, as the years since 2008 have shown all too clearly.

Another reason for reservations is the effect it could have on incentives to work. Advocates of the idea correctly say that the current welfare system creates traps that sometimes make it rational for people to stay on benefits rather than go to work. Because of these welfare traps, it would be better, they say, to sweep the whole system away and replace it with one in which taking up work always and everywhere means more money in people's pockets. This is one of the greatest strengths of the idea.

But a guaranteed income could have less welcome consequences. In every society there is a very broad spectrum of people, from those who are workaholics to those who are ardent leisure lovers. A basic income could make more people who prefer leisure over work do more of the former and less of the latter.

While the carrot of extra cash that comes from grafting is an important one, believing that it works universally is naive. We all need both stick and carrot at times. A basic income would do away with the stick element for all time.

A final point militating against cash-for-all is the issue of how rights and responsibilities are balanced. It is unclear what new responsibility towards fellow citizens would be created if a new right to a guaranteed income were to come into existence. A sense of entitlement without a sense of duty is rarely a recipe for long-term social cohesion.

Irish Independent

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