Labouring to Learn: Towards the Political Economy of Plantations, People and Education in Sri Lanka 9780333717080, 0333717082

Table of contents :
Cover
Title
Copyright
Contents
List of Tables
List of Figures
Acknowledgements
Notes on Contributors
Introduction
I.1 What form should the payment take?
I.2 At what level should the income be paid?
I.3 Should the income be paid unconditionally?
I.4 Should the income be universal, paid to all citizens in a country, or should it be targeted to a particular section of the population?
I.5 Can basic income be afforded? And how is it to be funded?
Part I Experiments
1 The United States: The Basic Income Guarantee – Past Experience, Current Proposals
1.1 Alaska’s permanent fund dividend
1.2 The guaranteed income movement of the 1960s and 1970s
1.3 From the family assistance plan to temporary assistance for needy families
1.4 Offshoots of the guaranteed income movement
1.5 The negative income tax experiments
1.6 The standard tax credit proposal and the current discussion of the basic income guarantee in the United States
1.7 The background of the standard tax credit proposal
1.8 The proposal
1.9 Why we need the STC
1.10 Response to the standard tax credit proposal
1.11 Conclusion
2 Namibia: Seeing the Sun Rise – The Realities and Hopes of the Basic Income Grant Pilot Project
2.1 History of the BIG coalition and reasons for the pilot project
2.2 The dawn of economic security for all – results from the pilot project
2.3 Will a national BIG in Namibia see the light of
3 Brazil: Basic Income – A New Model of Innovation Diffusion
3.1 The debate in Brazil: main actors, arenas and political strategies
3.2 The victory of the political entrepreneurs: minimum income at the federal capital and in the city of Campinas
3.3 An increasing political competition: from municipal to state diffusion
3.4 The federal government enters the scene: the creation of the first national programmes
3.5 The competitive adherence of the municipalities to the federal programmes
3.6 Minimum income in Brazil: a brief description of the programmes of the federal government
3.7 Conclusion
4 Canada: The Case for Basic Income
4.1 Welfare, welfare reform and a guaranteed income
4.2 The Royal Commission on the Economic Union and development prospects for Canada
4.3 Reconsidering Dauphin
4.4 Conclusion
Part II Proposals
5 East Timor and Catalonia: Basic Income – Proposals for North and South
5.1 Freedom and material independence
5.2 Basic income and freedom in North and South
5.3 Financing freedom in North and South: basic income in Catalonia and East Timor
5.4 Basic income in Catalonia: simulating a financial model
5.5 Basic income in East Timor: guidelines for a financial model
5.6 Conclusion
6 South Africa: The Continuing Politics of Basic Income Jeremy Seekings and Heidi Matisonn
6.1 Expansion without restructuring: welfare reform, 1994–2002
6.2 The Basic Income Grant and its critics
6.3 Parametric reforms as an alternative to a Basic Income Grant, 2002–10
6.4 Explaining both the extent and limit of welfare reforms: government, parliament and courts
6.5 Civil and political society
6.6 Conclusion: prospects for welfare reform
7 Ireland: The Prospects for Basic Income Reform
7.1 First approach: maintaining much of the current structure
7.2 Second approach: replacing the current structure with a basic income system
7.3 Pathways to a basic income
7.4 Government-chaired working group on basic income
7.5 Government Green Paper
7.6 Towards a half-way house: making tax credits refundable
7.7 Working Group on refundable tax credits
7.8 Social Justice Ireland’s study of refundable tax credits
7.9 Parliamentary Committee on Social Protection
7.10 Challenges ahead
7.11 Conclusion
8 Germany: Basic Income in the German Debate Sascha Liebermann
8.1 A brief history of the current debate
8.2 Precursors – similarities and differences
8.3 Manifold possibilities and peculiar obstacles – arguments and debates
8.4 Families, childcare and emancipation
8.5 A note on taxation and social justice
8.6 Basic income – just a pipe dream or emerging reality?
9 New Zealand: Prospects for Basic Income Reform
9.1 Proportional (flat) taxes and the link to basic income
9.2 Taxation and basic income in New Zealand – the numbers
9.3 New Zealand superannuation
9.4 The political challenge
9.5 Universal welfare in New Zealand, 1898–1976
9.6 Winding back universal welfare, 1978–91
9.7 Basic income proposals, 1991–2009
9.8 Criticism of basic income proposals, 1991–2009
9.9 A new proposal for basic income
9.10 Summary and conclusion
10 Australia: Basic Income – A Distant Horizon
10.1 The poverty inquiry and its aftermath
10.2 The governmental income support policies – late 1970s to mid-1990s
10.3 From “mutual obligation” to the intervention
10.4 Economic stimulation, but business as usual on the welfare front
10.5 Private superannuation
10.6 Division and downward envy
10.7 Basic income as an alternative to the existing income maintenance system
10.8 What would an Australian basic income look like?
10.9 Is a basic income affordable?
10.10 Conclusion – is a universal basic income likely to be introduced in Australia?
Conclusion: A New Day
Index

Citation preview

International Political Economy Series Series Editor: Timothy M. Shaw, Visiting Professor, University of Massachusetts Boston, USA and Emeritus Professor, University of London, UK Titles include: Leslie Elliott Armijo (editor) FINANCIAL GLOBALIZATION AND DEMOCRACY IN EMERGING MARKETS Robert Boardman THE POLITICAL ECONOMY OF NATURE Environmental Debates and the Social Sciences Jörn Brömmelhörster and Wolf-Christian Paes (editors) THE MILITARY AS AN ECONOMIC ACTOR Soldiers in Business Stuart S. Brown (editor) TRANSNATIONAL TRANSFERS AND GLOBAL DEVELOPMENT Chang Kyung-Sup, Ben Fine and Linda Weiss (editors) DEVELOPMENTAL POLITICS IN TRANSITION The Neoliberal Era and Beyond Gerard Clarke and Michael Jennings (editor) DEVELOPMENT, CIVIL SOCIETY AND FAITH-BASED ORGANIZATIONS Bridging the Sacred and the Secular Gordon Crawford FOREIGN AID AND POLITICAL REFORM A Comparative Analysis of Democracy Assistance and Political Conditionality Meric S. Gertler and David A. Wolfe INNOVATION AND SOCIAL LEARNING Institutional Adaptation in an Era of Technological Change Anne Marie Goetz and Rob Jenkins REINVENTING ACCOUNTABILITY Making Democracy Work for the Poor Andrea Goldstein MULTINATIONAL COMPANIES FROM EMERGING ECONOMIES Composition, Conceptualization and Direction in the Global Economy Iain Hardie FINANCIALIZATION AND GOVERNMENT BORROWING CAPACITY IN EMERGING MARKETS Jomo K.S. and Shyamala Nagaraj (editors) GLOBALIZATION VERSUS DEVELOPMENT José Carlos Marques and Peter Utting (editors) BUSINESS, POLITICS AND PUBLIC POLICY Implications for Inclusive Development S. Javed Maswood THE SOUTH IN INTERNATIONAL ECONOMIC REGIMES Whose Globalization?

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John Minns THE POLITICS OF DEVELOPMENTALISM The Midas States of Mexico, South Korea and Taiwan Matthew C. Murray and Carole Pateman (editors) BASIC INCOME WORLDWIDE Horizons of Reform Philip Nel THE POLITICS OF ECONOMIC INEQUALITY IN DEVELOPING COUNTRIES Marcus Power, Giles Mohan and May Tan-Mullins CHINA’S RESOURCE DIPLOMACY IN AFRICA Powering Development? Pia Riggirozzi ADVANCING GOVERNANCE IN THE SOUTH What Are the Roles for International Financial Institutions in Developing States? Eunice N. Sahle WORLD ORDERS, DEVELOPMENT AND TRANSFORMATION Suzana Sawyer and Edmund Terence Gomez (editors) THE POLITICS OF RESOURCE EXTRACTION Indigenous Peoples, Multinational Corporations and the State Matthew A. Schnurr and Larry A. Swatuk (editors) ENVIRONMENTAL CHANGE, NATURAL RESOURCES AND SOCIAL CONFLICT Adam Sneyd GOVERNING COTTON Globalization and Poverty in Africa Peter Utting, Shahra Razavi and Rebecca Varghese Buchholz (editors) THE GLOBAL CRISIS AND TRANSFORMATIVE SOCIAL CHANGE William Vlcek OFFSHORE FINANCE AND SMALL STATES Sovereignty, Size and Money

International Political Economy Series Series Standing Order ISBN 978–0–333–71708–0 hardcover Series Standing Order ISBN 978–0–333–71110–1 paperback (outside North America only) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and one of the ISBNs quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England

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Basic Income Worldwide Horizons of Reform Edited by

Matthew C. Murray Special Lecturer, Providence College, Philosophy Department, United States Political Theory Research Unit, Politics Department, Cardiff University, United Kingdom and

Carole Pateman Distinguished Professor Emeritus of Political Science, UCLA, United States Honorary Professor, Cardiff University, United Kingdom

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Editorial matter, selection, introduction and conclusion © Matthew C. Murray and Carole Pateman 2012 All remaining chapters © respective authors 2012 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2012 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN: 978–0–230–28542–2 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 21 20 19 18 17 16 15 14 13 12 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

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Contents

List of Tables

ix

List of Figures

x

Acknowledgements

xi

Notes on Contributors

xii

Introduction Carole Pateman and Matthew C. Murray I.1 What form should the payment take? I.2 At what level should the income be paid? I.3 Should the income be paid unconditionally? I.4 Should the income be universal, paid to all citizens in a country, or should it be targeted to a particular section of the population? I.5 Can basic income be afforded? And how is it to be funded?

1

Part I Experiments

9

1

The United States: The Basic Income Guarantee – Past Experience, Current Proposals Karl Widerquist and Allan Sheahen 1.1 Alaska’s permanent fund dividend 1.2 The guaranteed income movement of the 1960s and 1970s 1.3 From the family assistance plan to temporary assistance for needy families 1.4 Offshoots of the guaranteed income movement 1.5 The negative income tax experiments 1.6 The standard tax credit proposal and the current discussion of the basic income guarantee in the United States 1.7 The background of the standard tax credit proposal 1.8 The proposal 1.9 Why we need the STC

2 3 4

4 5

11 12 15 16 18 19

22 24 25 29

v

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vi

Contents

1.10 Response to the standard tax credit proposal 1.11 Conclusion 2

3

4

Namibia: Seeing the Sun Rise – The Realities and Hopes of the Basic Income Grant Pilot Project Claudia Haarmann and Dirk Haarmann 2.1 History of the BIG coalition and reasons for the pilot project 2.2 The dawn of economic security for all – results from the pilot project 2.3 Will a national BIG in Namibia see the light of day? Brazil: Basic Income – A New Model of Innovation Diffusion Denilson Bandeira Coêlho 3.1 The debate in Brazil: main actors, arenas and political strategies 3.2 The victory of the political entrepreneurs: minimum income at the federal capital and in the city of Campinas 3.3 An increasing political competition: from municipal to state diffusion 3.4 The federal government enters the scene: the creation of the first national programmes 3.5 The competitive adherence of the municipalities to the federal programmes 3.6 Minimum income in Brazil: a brief description of the programmes of the federal government 3.7 Conclusion Canada: The Case for Basic Income Evelyn L. Forget 4.1 Welfare, welfare reform and a guaranteed income 4.2 The Royal Commission on the Economic Union and development prospects for Canada 4.3 Reconsidering Dauphin 4.4 Conclusion

Part II Proposals 5

East Timor and Catalonia: Basic Income – Proposals for North and South David Casassas, David Raventós and Julie Wark 5.1 Freedom and material independence

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30 30

33

34 37 52 59

60

62 66 68 69 71 77 81 82 88 90 96

103 105 108

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Contents vii

5.2 Basic income and freedom in North and South 5.3 Financing freedom in North and South: basic income in Catalonia and East Timor 5.4 Basic income in Catalonia: simulating a financial model 5.5 Basic income in East Timor: guidelines for a financial model 5.6 Conclusion 6

7

8

110 115 115 120 123

South Africa: The Continuing Politics of Basic Income Jeremy Seekings and Heidi Matisonn 6.1 Expansion without restructuring: welfare reform, 1994–2002 6.2 The Basic Income Grant and its critics 6.3 Parametric reforms as an alternative to a Basic Income Grant, 2002–10 6.4 Explaining both the extent and limit of welfare reforms: government, parliament and courts 6.5 Civil and political society 6.6 Conclusion: prospects for welfare reform

128

Ireland: The Prospects for Basic Income Reform Seán Healy and Brigid Reynolds 7.1 First approach: maintaining much of the current structure 7.2 Second approach: replacing the current structure with a basic income system 7.3 Pathways to a basic income 7.4 Government-chaired working group on basic income 7.5 Government Green Paper 7.6 Towards a half-way house: making tax credits refundable 7.7 Working Group on refundable tax credits 7.8 Social Justice Ireland’s study of refundable tax credits 7.9 Parliamentary Committee on Social Protection 7.10 Challenges ahead 7.11 Conclusion

151

Germany: Basic Income in the German Debate Sascha Liebermann 8.1 A brief history of the current debate 8.2 Precursors – similarities and differences

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130 132 135 139 142 146

152 153 154 155 156 159 160 161 162 163 168 173 174 180

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viii

Contents

8.3 8.4 8.5 8.6

Manifold possibilities and peculiar obstacles – arguments and debates Families, childcare and emancipation A note on taxation and social justice Basic income – just a pipe dream or emerging reality?

9 New Zealand: Prospects for Basic Income Reform Keith Rankin 9.1 Proportional (flat) taxes and the link to basic income 9.2 Taxation and basic income in New Zealand – the numbers 9.3 New Zealand superannuation 9.4 The political challenge 9.5 Universal welfare in New Zealand, 1898–1976 9.6 Winding back universal welfare, 1978–91 9.7 Basic income proposals, 1991–2009 9.8 Criticism of basic income proposals, 1991–2009 9.9 A new proposal for basic income 9.10 Summary and conclusion 10 Australia: Basic Income – A Distant Horizon John Tomlinson 10.1 The poverty inquiry and its aftermath 10.2 The governmental income support policies – late 1970s to mid-1990s 10.3 From “mutual obligation” to the intervention 10.4 Economic stimulation, but business as usual on the welfare front 10.5 Private superannuation 10.6 Division and downward envy 10.7 Basic income as an alternative to the existing income maintenance system 10.8 What would an Australian basic income look like? 10.9 Is a basic income affordable? 10.10 Conclusion – is a universal basic income likely to be introduced in Australia?

183 189 190 190 200 201 202 204 205 206 208 210 213 215 220 227 229 232 233 234 236 238 240 242 244 245

Conclusion: A New Day Matthew C. Murray

250

Index

263

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Tables 1.1 1.2

1.3 1.4 1.5 1.6 3.1 3.2 3.3 3.4 3.5 4.1 5.1 5.2 5.3 9.1 9.2 9.3

The United States negative income tax experiments Summary of findings of the experiments on the “work reduction effect,” the time spent working of the treatment group relative to controls Proposal Single person Married couple with two dependent children Single parent with one dependent child, “head of household” Municipal proposals of minimum income by political party – Brazil Municipal proposals of minimum income in the states Programme Bolsa Escola implemented by the municipalities – Brazil Proposals to create the PGRM in the Brazilian States State programmes of minimum income/Bolsa Escola, by region. Twelfth grade enrolment Estimated saving in social spending with the introduction of a basic income Estimated cost of basic income for the population not covered in the sample Main magnitudes of the sample Examples of transfer for typical New Zealand residents Examples of individual tax-payers with different levels of gross earnings Examples once reform is completed

19

20 26 28 28 29 64 64 65 66 67 92 118 119 119 203 218 219

ix

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Figures 2.1 2.2 2.3 2.4 2.5 2.6 2.7 6.1 8.1 9.1

National poverty line (ALL) National poverty line (Migration) Weight for age z-scores according to WHO standard – before and after BIG Unemployment rate Average income per capita Baking bread: N$1 per roll – daughter of Frida Nembwaya Comparison of crime rates Number of social assistance beneficiaries Subway poster picture Public–private shares of New Zealand’s income

39 39 41 47 47 49 51 136 176 217

x

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Acknowledgements This volume was conceived in 2008, while we were travelling to the Basic Income Earth Network International Conference in Dublin. We were both then in the School of European Studies at Cardiff University; Matt completing his PhD and Carole as a research professor. We both felt it was important to show that basic income was not simply an abstract philosophical dream but a functioning and growing reality in rich and poor countries, and that realistic proposals exist for its introduction around the world. Basic income solutions represent an important step in the development of more equal and just societies. The book will, we hope, help encourage debate about and raise awareness of basic income; it has been written with a general audience in mind. We hope that it will have something for academic specialists in basic income and for policy specialists, but most of all we hope that it will provide individuals everywhere, who are struggling to find a better path into the future, with information and ideas and a glimpse into what has and can be done. It should allow readers to appreciate the variety of practical approaches to basic income while gaining some insight into how these systems work, what obstacles and problems they face, and what common goals they share. We would both like to thank our contributors. Carole thanks Matt, especially for the efficiency with which he cheerfully undertook most of the more tiresome tasks of putting together an edited volume. Matt would like to give many thanks to his family, to Carole, and to his friends and colleagues at Cardiff University, without whom the volume would have never come to fruition. Both Carole and Matt wish to extend their sincere gratitude to Emily Hallock (UCLA) for assisting with review and copyediting of this volume.

xi

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Contributors David Casassas is a post-doctoral fellow in Sociology and Political Theory at the Universitat de Barcelona. He is the secretary of the Basic Income Earth Network and vice-president of Red Renta Básica, the Spanish basic income network. He is an associate editor of the journal, Basic Income Studies. He is the author or co-author of several articles and is completing a book on Republicanism (2012), co-authored with Jurgen De Wispelaere. Denilson Bandeira Coêlho is Professor of Political Science at the University of Brasília. He is the co-author and co-editor of Diseño Institucional y Participación Política: Experiencias en el Brasil Contemporáneo (CLACSO), and Collection of Thematic Studies on the Millennium Development Goals (UNDP). His research is on the political competition and the diffusion of social policies in Latin America. Evelyn L. Forget is an economist and Professor in the Department of Community Health Sciences at the University of Manitoba. She has a special research interest in the determinants of health, poverty alleviation and healthy public policy, and has published in health and economics journals and consulted for a number of provincial and federal government departments and for NGOs. Her recent work examines the consequences of alternative financing arrangements for First Nations’ healthcare, alternative funding mechanisms for Canadian healthcare, and healthcare costs across the life course. Her current research includes an examination of the feasibility and desirability of a guaranteed income. Claudia Haarmann holds a PhD in Social Development from UWC and is an ordained Lutheran pastor. Together with Dirk Haarmann, she coordinated the Basic Income Grant (BIG) Coalition and first BIG pilot project in Namibia. She is a co-director of the Theological Institute for Advocacy and Research in Africa (TARA). Her research interests are economic security, social security, poverty, HIV-AIDS, alternative economic models, participatory action research and micro-simulation. Dirk Haarmann holds a PhD in Social Development from UWC and is an ordained Lutheran pastor. Together with Claudia Haarmann, he coordinated the Basic Income Grant (BIG) Coalition and the first BIG xii

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Notes on Contributors xiii

pilot project in Namibia. He is a co-director of the Theological Institute for Advocacy and Research in Africa (TARA). His research interests are economic security, social security, poverty, HIV-AIDS, alternative economic models, participatory action research and micro-simulation. Seán Healy is Director of Social Justice Ireland. For more than 25 years, he has been active in issues of socio-economic policy in Ireland. He has worked for more than ten years in Africa, and for more than a decade a member of the National Economic and Social Council (NESC). Together with Social Justice Ireland’s other director, Brigid Reynolds, Healy has written or edited 27 books on public policy as well as three books on spirituality for social engagement (2004, 2006 and 2008). Their most recent publications are A New and Fairer Ireland: Securing Economic Development, Social Equity and Sustainability (2011) and Sharing Responsibility in Shaping the Future (2011, eds.), and Social Policy in Ireland (1998, revised edn, 2006) has become a standard textbook on social policy in Ireland. Sascha Liebermann is Assistant Professor at Ruhr University Bochum, Germany and Visiting Fellow at ETH Zurich, Switzerland. He was a founding member, and remains an activist, of “Freedom not Full Employment” (www.freiheitstattvollbeschaeftigung.de). His research focus is on political sociology, the welfare state, economic sociology, theory of professions, and qualitative methods. He has published Autonomie, Gemeinschaft, Initiative. Zur Bedingtheit eines bedingungslosen Grundeinkommens [Autonomy, Community, Initiative. Considering the Conditionality of an Unconditional Basic Income] (2010) and Die Krise der Arbeitsgesellschaft im Bewusstsein deutscher Unternehmernsführer. Eine Deutungsmusteranalyse [Normative Patterns by CEOs concerning the Crisis of Work Society] (2002). Heidi Matisonn is Lecturer in the School of Philosophy at the Pietermaritzburg campus of the University of KwaZulu-Natal, South Africa. Her research focuses on the relationship between formal institutions of democracy and informal institutions of civil society, including political culture and social capital, specifically in new democracies – South Africa, Brazil, Russia – and debates in political theory, particularly between liberal and popular conceptions of democracy. Matthew C. Murray is Special Lecturer of Philosophy at Providence College, Rhode Island. He received his PhD in Political Theory from Cardiff University, where he was affiliated with the School of European Studies and the Political Theory Research Unit and served as an

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xiv Notes on Contributors

associate lecturer in the Politics Department. He also spent more than half a decade working in non-profit management and administration. Murray’s research interests and ongoing scholarly contributions are focused on the development of accounts of distributive justice and their conceptual problems, particularly in their philosophic and institutional treatments of disabilities and the disabled, charity/philanthropy and material obligations. Carole Pateman is Distinguished Professor of Political Science Emeritus, UCLA and Honorary Professor at the School of European Studies, Cardiff University. She is past-president of the American Political Science Association (2010–11). Her books include Participation and Democratic Theory (1970), The Sexual Contract (1988) and (with Charles Mills) Contract and Domination (2007). Keith Rankin is a political economist at Auckland’s Unitec Institute of Technology, where he teaches “Economic Principles” and “Financial markets and the World Economy.” Rankin’s publications, since 1990, relate to New Zealand economic history, income distribution and taxation, and criticism of macroeconomic orthodoxy. He co-authored the New Zealand economics textbook, Economic Concepts and Applications. David Raventós teaches at the University of Barcelona and is chairman of the Spanish Basic Income Network. His latest book is Basic Income: The Material Conditions of Freedom (2007). He is a founding member of the international political review, Sin Permiso (www.sinpermiso.info). Brigid Reynolds is Director of Social Justice Ireland. For more than 25 years, she has been active on issues of public policy in Ireland; she worked for more than ten years in Africa, and has worked on many government task forces dealing with a wide range of social and economic policy issues. Together with Social Justice Ireland’s other director, Seán Healy, Brigid has written or edited 27 books on public policy as well as three books on spirituality for social engagement (2004, 2006 and 2008). Their most recent publications are A New and Fairer Ireland: Securing Economic Development, Social Equity and Sustainability (2011) and Sharing Responsibility in Shaping the Future (2011). Social Policy in Ireland (1998, revised, edn. 2006) has become a standard textbook on social policy in Ireland. Jeremy Seekings is Director of the Centre for Social Science Research, Professor of Political Studies and Sociology at the University of Cape Town in South Africa, and Visiting Professor in the Jackson Institute for Global Affairs at Yale. His books include Class, Race and Inequality

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Notes on Contributors xv

in South Africa (2005, with Nicoli Nattrass), and Growing Up in the New South Africa (2010, with Rachel Bray et al.). He is completing a book on welfare-state building in Africa, the Caribbean and Latin America in the first half of the twentieth century. Allan Sheahen is a committee member of the U.S. Basic Income Guarantee Network (USBIG) and a member of the international Basic Income Earth Network (BIEN). For 25 years he published and edited a monthly magazine devoted to senior (age 40+) runners. He is the author of Guaranteed Income: The Right to Economic Security (revised and updated 2012). In 2005 he co-authored with Karl Widerquist the first true guaranteed income bill ever introduced in the U.S. Congress, which would have provided a “refundable tax credit” of $2,000 to every adult American. John Tomlinson has worked for many years as a community worker, lectured at several universities and technical colleges and is a visiting scholar at the Queensland University of Technology, Australia. His PhD investigated the political obstacles to the introduction of a guaranteed minimum income in Australia; his Master’s in Social Work investigated community work with the Aboriginal and Torres Strait Island citizens of South Brisbane. Is Band-Aid Social Work Enough? is his best-known book. Julie Wark is an Australian translator and human rights activist who has lived in Barcelona for three decades. She is co-author (with Patrick Flanagan) of Indonesia: Law, Propaganda and Terror (1983) and author of Manifiesto de Derechos Humanos (2011). Karl Widerquist is a visiting associate professor in Political Theory at Georgetown University, Qatar. He holds a doctorate in Political Theory from Oxford University (2006) and a doctorate in Economics from City University of New York (1996). He is co-author of Economics for Social Workers and co-editor of The Ethics and Economics of the Basic Income Guarantee, Alaska’s Permanent Fund Dividend: Examining Its Suitability as a Model, and Exporting the Alaska Model: Adapting the Permanent Fund Dividend.

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Introduction Carole Pateman and Matthew C. Murray

Basic income is not a new idea, but although over the years it has had advocates, including Nobel Prize winners,1 it was only in the 1990s that basic income began to attract major attention. Today, there is a good deal of activity by supporters of basic income around the world, and it has champions across the political spectrum. There is also much opposition to basic income. Nevertheless, after a long period of rejecting cash transfers, many policymakers, development specialists and the World Bank are now changing their view. Basic income is, in essence, quite simple: the economic security of individuals is ensured or improved by the guaranteed provision of resources in the form of cash. It is much less simple, as will be discussed below, to find agreement on a precise definition or on its implementation. During the period in which this book was written, many new innovations and developments have been taking place. For example, two pilot basic income projects began in India in January 2011, one in an area of Delhi and the second in eight villages in Madhya Pradesh. Swiss supporters of basic income are working to obtain sufficient signatures (100,000) for a federal referendum for a nationwide basic income. In December 2010, Iran began paying a small basic income of $480 per year to each of the 80 percent of Iranian citizens who have applied to receive it.2 Grass roots movements for basic income now exist in numerous countries; the Basic Income European Network (BIEN) was formed in 1986 and, in 2004, became the Basic Income Earth Network. There is now a very lively and growing academic debate, which from 2006 has had its own on-line journal, Basic Income Studies (www. bepress.com/bis/). In 2004, Brazil became the first country to enact legislation for basic income.

1

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2

Basic Income Worldwide

Basic income is not as well known as the growing support for the idea over the past quarter century might suggest. It is, for instance, often confused with a minimum wage, and the confusion can be compounded because “basic income” refers to a family of different schemes that have been, and are, called by a number of different names, such as guaranteed income, social dividend or dividend, a stake, citizens income, negative income tax, refundable tax credit or, in Brazil: bolsa familia. When basic income is explained, a typical reaction is that it might be a good idea but is not realistic. One aim of this volume is to counter the latter assumption. It shows that examples of successful implementation of basic income can be found in both rich and poor countries. The very broad range of supporters of basic income means they are interested in the idea for many different reasons: for example, as a device to relieve poverty, as a way to make labour markets more flexible, as a way of subsidizing low pay, as a means to reduce the size of, or abolish, the welfare state, as a policy to help to improve the position of women, or the disabled, or ethnic minorities, as a means to enhance individual freedom and opportunity on grounds of social justice, as a way of enhancing citizenship, and as a policy central to the creation of a democracy in which all citizens have a right to, and are ensured a decent standard of living. Not surprisingly, many elements in definitions of basic income are contested from a variety of quarters. However, there are two central elements of a definition on which there is general agreement: (a) a regular payment to individual adult citizens; and (b) over their lifetime. The payment will usually come from a government but, especially in the case of poor countries, NGOs or international support might be involved. A third element is often found in definitions of basic income: (c) the payment is unconditional. That is to say, it is independent of individuals’ income and assets, their marital status and whether or not they are employed. This is a particularly controversial component. Many supporters argue that some conditions are required; the recipient of the payment should in return provide a contribution of some kind to society. Indeed, basic income is surrounded by controversial questions. Some of the most fundamental are:

I.1

What form should the payment take?

For instance, will it be paid, say monthly, as a regular income stream, or as a lump sum, perhaps yearly, as a single payment? Most of the contributors to this volume discuss examples of and proposals for an income

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Introduction 3

stream and, typically, that is what “basic income” refers to. There is still another variant: a Negative Income Tax (NIT) – sometimes taken to be basic income – is a way of providing poor people with a guaranteed level of income. Under an NIT system, if an individual’s income does not reach a certain level then, through the tax system, the individual receives a credit (“negative tax”) instead of paying tax to the government. The experiments in North America with an NIT are discussed in Chapters 1 and 4, but this general idea is now being taken much further with proposals to turn standard tax deductions, exemptions or credits into standard refundable tax (cash) credits (see Chapters 7 and 9). The lump sum form of payment, often called a stake3, or dividend, is exemplified in the Alaska Permanent Fund (discussed in Chapter 1). In 2010 the Fund paid a dividend of $1,281 as a lump sum to each resident of Alaska. Another example (until 2010 when the Coalition government announced its abolition), was the Child Trust Fund in Britain. Thomas Paine was a famous early exponent of payment of what we would now call a basic income or dividend. He argued that it was owed to every individual in return for the contribution they had made during their lifetime, in cooperation with their fellows, to develop their country’s patrimony.4 In 1797, Paine advocated in Agrarian Justice what we would now see as a retirement pension. He wrote that the payment could be made in two parts by establishing “a national fund, out of which there shall be paid to every person, when arrived at the age of twenty-one years, the sum of fifteen pounds sterling, as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property. And also, the sum of ten pounds per annum, during life, to every person now living, of the age of fifty years, and to all others as they shall arrive at that age.” Perhaps Paine envisaged the yearly payment to as a single dividend, but the £10 payment could also be spread throughout each year.

I.2

At what level should the income be paid?

Should the payment be sufficient for modest subsistence or should it be below that level? The answer to this question will depend in large part on the reason for which basic income is advocated. If it is seen as another (better) way of relieving poverty, then it is more likely that the argument will be that payments should be below-subsistence level. Poor people will then have an incentive to seek employment or another means of helping to support themselves. On the other hand, if basic income is supported on grounds of social justice, or because it is argued

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Basic Income Worldwide

that in a democracy citizens should have adequate resources to enable them to exercise their citizenship, to participate fully in all aspects of the life of their community and society, then it is likely that support would be given to subsistence level income. But it can also be argued that political realism suggests that a below-subsistence level income could be introduced initially as a step towards a higher level later. This question is closely related to two other controversial issues.

I.3

Should the income be paid unconditionally?

As noted, this is a very contentious question, and it has been extensively debated in the theoretical literature on basic income. A major argument by supporters of basic income who oppose unconditional payment is that it poses a significant “moral hazard.” That is to say, the consequence of this form of income is likely to be twofold: it will (especially if the payment is at subsistence level) encourage idleness, and individuals will be getting a benefit for nothing. Therefore, it is argued, conditions must be imposed: for example, some form of employment or other social contribution must be undertaken. In Brazil a requirement for receiving the bolsa familia is that children must attend school (see Chapter 2). The advocates of an unconditional income argue that it is an extremely efficient policy it is straightforward, cheap and simple to administer and there is no need for large numbers of bureaucrats and enforcers. They also argue that any conditions will be imposed upon poor individuals because the assumption is that they, unlike the better off, will make no contribution to society unless coerced to do so. Justice demands that instead of one section of the population being singled out for coercion, the income be available to everyone as part of their citizenship. An unconditional basic income, it is argued, signals that citizens are all of equal worth and have equal standing.

I.4 Should the income be universal, paid to all citizens in a country, or should it be targeted to a particular section of the population? Again, reasons for supporting basic income will be very important for the way in which this question is answered. It is often argued, for example, that relief of poverty is best accomplished by carefully targeted means. Only those in real need of the income should receive it: to provide it more broadly is wasteful of resources. Alternatively, advocates of a

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Introduction 5

universal policy might argue that it is more efficient and less costly to pay the income to everyone, and that it can be retrieved through a fair taxation system. They also argue that a universal basic income is required by justice, and provides a symbolic affirmation of equal membership as citizens. The pilot experiment in Namibia, albeit not countrywide, provides a (universal) basic income to all those involved (see Chapter 2). The annual dividend from the Alaska Permanent Fund is paid to all residents of the state.

I.5 Can basic income be afforded? And how is it to be funded? Basic income is often dismissed or opposed on the grounds that it would cost far too much and not even the rich countries, let alone poor ones, could possibly afford it. The question of cost is, in the end, a political question of the allocation of resources and which policies should have first call on expenditure; as the old saying has it, should resources be spent on guns or butter? Readers can decide on their own answer to that question. If a government wishes to provide a basic income in some form, a variety of suggestions have been made as to how it could be funded. These include using income taxes or a wealth tax, using the proceeds of a tax on pollution or a Tobin Tax on speculative financial transactions, or the creation of a special fund derived from revenue from oil, mineral or other resources (in May 2011 the government of Singapore, which in the previous year had obtained large revenues from a high growth rate, distributed a Growth Dividend to most citizens). There are also many other controversial questions about basic income, such as: its likely effects on labour markets and on immigration patterns, how far a basic income might, or should, replace existing welfare programmes, whether it should be paid to individuals or households; how children will fit into the scheme, and whether a country’s permanent residents as well as its citizens should be included. In the chapters that follow, readers can see how some of these questions have been answered in existing examples of basic income, and how they are tackled in proposals for basic income in very different social and economic conditions and very different social contexts. The chapters also illustrate the variety of approaches to basic income and how basic income can be, and is, adapted to suit the particular circumstances of each country. *

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*

*

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6

Basic Income Worldwide

The chapters are divided into two parts. Part I contains four chapters discussing examples of basic income in the United States, Namibia, Brazil and Canada. Basic income was first established, perhaps rather surprisingly, in the United States in the form of the Alaska Permanent Fund, which now stands at over $40 billion. While inequality has been rising significantly in the United States and most of the rest of the world over the last 20 years, Alaska has been becoming more equal, with one of the lowest poverty rates in the country, due in part to the dividends from the Fund. The chapter discusses the development of the Alaska Permanent Fund, together with the experiments with NIT that were run in several states during the 1970s (the results of which were misinterpreted in the media and the public debate) and a recent proposal put before the U.S. Congress. In the same decade NIT experiments were also conducted in Manitoba, Canada, and their genesis and outcome is discussed in Chapter 4. As in the United States, attention was focused on consequences for employment, and only a small change was found. However, only the data from Winnipeg were analysed, a place where, for example, the disabled and retired were excluded from the experiment. In the rural part of the experiment everyone was included, but the data were put into storage; by 1979 the government and the political climate had changed, and income security was no longer a priority. The data remained stored and ignored until 2010. It is now being examined, and the chapter reports some preliminary – favourable – findings, with particular attention to individuals’ health. Chapters 2 and 3 consider basic income in two very different areas of the world: Namibia, a poor country, and Brazil, a country becoming a major economic force, but with an extreme level of inequality. The pilot project in Namibia began in January 2008 and was carefully studied. An unconditional payment was made to all residents under the age of 60 in the rural area of Objivero (100 kilometres from the Namibian Capital, Windhoek). At least 86 percent of the inhabitants were extremely poor and 42 percent of the children malnourished. Although the project ended in December 2009, the incidence of severe poverty declined significantly, and both adults and children were better nourished. The results were so important for the community involved that the organizers (a coalition of civil society organizations) are continuing to distribute indefinitely a smaller basic income. Chapter 3 provides an account of how basic income in Brazil was developed, first at municipal and state levels and then by the federal government, and how the bolsa familia emerged out of earlier social

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Introduction 7

programmes. In 2010, income was being paid to about 13 million families categorized as indigent or poor, on condition that their children regularly attend school. As with the other examples in Part I, the positive results are extremely encouraging: children are better nourished and attending school, and poverty has been reduced. A Brazilian slogan captures the spirit of basic income: “For Everyone – the Poor First.” In Part II, proposals and prospects for basic income in diverse countries are discussed in six chapters. These chapters show that many government and other reports have already looked at basic income (sometimes favourably). In some cases implementation would be a relatively small step from the existing social security system. The second part begins with proposals worked out in detail for a basic income in East Timor and Catalonia (Chapter 5). The constitutions of both share very similar democratic goals, but East Timor, devastated by Indonesian occupation, is extremely poor, but has offshore oil and gas; Catalonia, like the rest of Spain, is rich but badly hit by the economic crisis and has very high unemployment. This chapter shows how a basic income could be introduced by integrating the tax-benefit system in Catalonia and by using the East Timor Petroleum Fund. In Chapter 6, the prospects for basic income in South Africa are explored. In 2002 an official inquiry into Social Security tentatively recommended a universal basic income of $15 a month for each South African. Despite some grassroots activity, the policy, lacking a vigorous champion in government or in a major party, has languished since 2004, and at present is overshadowed by recent moves to reform retirement pensions and introduce national health insurance. Ireland has produced a particularly large number of reports, beginning in 1977, that include or recommend basic income, and in 2002 a government Green Paper on the subject was issued. The reports and their reception are discussed in some detail, together with the debates about, and misrepresentation of, the cost of a basic income. The chapter closes with an argument for refundable tax credits as a major move towards a basic income, and consideration of the impact of Ireland’s major economic crisis on the debate about basic income. Since 2005, there has been lively public debate in Germany (Chapter 8) about basic income, although arguments for the policy have been circulating since the 1970s. The chapter discusses the shape and form of the current debate and considers the arguments for and against a basic income, including those of proponents of workfare and the redistribution of employment by reducing hours worked. It concludes with an assessment of the likelihood of the introduction of a basic income.

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Basic Income Worldwide

The two final chapters discuss the Antipodes. Chapter 9 is about the prospects for basic income in Australia, seen as politically difficult but not too large a step from the existing system. Basic income has been debated since a report in 1975 contained a detailed discussion of a guaranteed minimum income and a federal government report looked at a Negative Income Tax. In 1995, a detailed proposal was made for a basic income. Thanks to the export of its mineral wealth, Australia is relatively unaffected by the world economic crisis. The final chapter contains a thought-provoking discussion of New Zealand and the argument that, if the country’s tax-benefit system is seen in a new light, New Zealand already (implicitly) has a basic income. New Zealand is unusual among developed countries in having a relatively flat tax structure for incomes and, rather than a social insurance welfare system, has implemented universal benefits. A detailed proposal is presented to show that it would be an evolutionary change from the existing system to introduce a basic income flat tax (BIFT) model through a system of refundable tax credits.

Notes 1. James Meade (Nobel Prize in Economics Sciences, 1977), Herbert Simon (1978) and James Tobin (1981). 2. The bi-monthly payment is compensation for the decrease in government subsidies for gasoline and other goods. According to reports, the policy is intended to be permanent. More information about these examples and other developments in basic income can be found in Basic Income News; www.BInews.org. 3. See especially, Bruce Ackerman and Anne Alstott, The Stakeholder Society, New Haven: Yale University Press, 1999). 4. Paine is best known as the author of The Rights of Man, 1791. He was born in England in 1737 and went to America in 1774. He spent most of the 1790s in France.

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Part I Experiments

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1 The United States: The Basic Income Guarantee – Past Experience, Current Proposals Karl Widerquist and Allan Sheahen

The United States might not seem like fertile ground for the basic income guarantee (BIG). It is, after all, the place where “workfare” was born, where “welfare” became a bad word, and where “welfare mothers” became demonized. It might, therefore, be surprising that the world’s first basic income, if only a partial one, was introduced in Alaska in 1982 and has been the most popular programme in the state ever since, continuing to grow in size and in popularity. It might also be surprising that the United States was the first country to have a mainstream national political movement for the basic income guarantee. In the 1970s, the United States came closer than any other industrialized country has so far to introducing a nationwide basic income guarantee, and various incarnations of the proposal continue to be discussed. This chapter discusses the history of the basic income guarantee in the United States in the last 50 years. The first part discusses the introduction and the success of Alaska’s Permanent Fund Dividend, which has provided a partial BIG for every Alaskan since 1982. The second part discusses the guaranteed income movement of the 1960s and 1970s, when the idea suddenly became part of mainstream politics in Washington. We consider the rise and fall of Negative Income Tax legislation in Congress and the Negative Income Tax experiments. Several successful offshoots of the movement continue to this day. The third part focuses on the recent movement for the basic income guarantee. Although the basic income guarantee is farther from the political mainstream now than it was in the 1970s, many current proposals, and some recent legislation, move in that direction. This part of the chapter discusses several of those proposals, focusing largely on the Standard 11

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Tax Credit, which was introduced as a bill in Congress in 2006. The original proposal for the standard tax credit is included, and we discuss its background, reception, and prospects. In our terminology the basic income guarantee is a generic term for any unconditional, government-insured guarantee that all citizens will have an income. A full BIG income must be large enough to meet an individual’s basic needs without a work requirement. A nonzero income less than that level is a “partial” BIG. The two main versions of BIG are basic income (BI) and the negative income tax (NIT). BI provides a small income to all people whether they have other income or not. The NIT provides that income only to those who lack sufficient other income. Both versions are structured so that a person who makes more money privately is financially better off than someone who makes less. Reading about BIG can be confusing because these terms are used in different ways by different people, and people use many different terms to mean the same thing. The central idea of any of these policies is to make sure everyone has a little cash without being saddled with conditions or supervision. Any policy that achieves part of that goal moves in the direction of BIG.

1.1 Alaska’s permanent fund dividend The world’s first BI (if a partial and variable one) was introduced in Alaska in 1982 under the name of the Permanent Fund Dividend (PFD). Today Alaskan politicians call it the “third rail of Alaskan politics,” by which they mean that it is so popular that the career of any politician who touches it dies. In a 1999 referendum, 84 percent of Alaskan voters rejected a proposal to redirect some of the funds that support the PFD to the state government budget. How does a programme so controversial in theory become so popular in practice? To answer that question, we will explain how the PFD works and how it came about.1 Alaska receives a great deal of revenue from the state’s oil reserves. The state government has no income tax or sales tax; oil revenue accounts for 85 percent of the annual state budget. Each year, a portion of the state’s oil revenue is deposited into a sovereign wealth fund called the Alaska Permanent Fund (APF). The principal of the APF is invested in a diversified portfolio of assets, such as stocks, bonds and real estate. Each year a portion of the returns to that fund are distributed to Alaskans in the form of the PFD. The size of the PFD is based on the average returns to the APF over a five-year period. Therefore, although the PFD varies much less than the

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13

market does year-to-year, it still varies substantially. The most recent dividend (distributed in October of 2011) was $1,174 per person, or $5,870 for a family of five. The PFD reached its highest point in 2008, when it was calculated at $2,069. That year the state government was running a substantial budget surplus and the legislature voted to supplement the PFD with an extra $1,200 from general revenue, making the total dividend $3,269 per person, or $16,345 for a family of five. The lowest dividend in recent years was $846 in 2005. The lowest dividend since its inception was $331 in 1984. Most often, dividends have tended to fluctuate between $1,000 and $1,500.2 A dividend of this size is far too small to meet a person’s basic needs. Thus, the PFD is only a partial BI. The variability of the dividend also makes it difficult for people to count on it to meet a given portion of their basic needs, and Alaskans tend to think of it more as a bonus. Yet, it makes an enormous difference to people in need. Imagine a single mother with four children living in a native village in Alaska. A check for more than $5,000, or in one year more than $16,000, has to be a great help in feeding, clothing, and housing her children and in getting them educated and prepared for life as adults. Housing delinquencies (the failure to pay rent or mortgage) in Alaska fall significantly during the time the PFD is distributed. The PFD is one of the reasons why Alaska has one of the lowest poverty rates in the United States, why it is the most (economically) equal state, and why it is the only state in which equality has been rising for the last 20 years (See Widerquist and Howard, 2012). The PFD is a BI in the sense that it guarantees that everyone unconditionally receives some basic amount of income each year without a means test or work requirement. Any U.S. citizen who meets the residency requirement and applies for the PFD gets it, whether or not they work, whether or not they are married or single, young or old, rich or poor. No one can tell Alaskans that they must do such-and-such to get the money, and no one can tell them what they must do with the money once they get it. That is the essence of BIG. The events leading up to the creation of the PFD began with statehood in 1959. The state constitution, which went into effect that year, effectively declared that the resources of the state belonged to the Alaskan people. In 1967, oil was discovered on state-owned land on Alaska’s North Slope. In 1974, newly elected Governor Jay Hammond proposed dedicating half of all oil revenues to a fund, which would be used to distribute dividends to Alaskans. By 1976, Hammond and the legislature agreed to put a smaller, streamlined constitutional amendment before the voters creating the

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APF. Instead of dedicating half of all oil revenue to the fund, the amendment dedicated only 25 percent of oil royalties. Because royalties amount to less than half of the state’s oil revenue, constitutionally mandated deposits into the APF have amounted to only about 11.2 percent of the state’s oil revenue. Over the years the state legislature has made additional deposits into the APF, bringing total contributions up to about 18.2 percent of the state’s oil revenue. The amendment prohibited the state from spending down the principal of the APF, but it said nothing about what the state could do with the returns (Hammond, 1994). That debate began later. Initially, dividends were not a very popular idea for how to spend the APF’s returns, but they were popular with the right person. Governor Jay Hammond, who appears to have been influenced by the guaranteed income movement that had been going on at the federal level a few years earlier (see part two of this chapter below), made dividends the object of his second term. He pushed for it; he made the compromises necessary to get it through the legislature; and in 1982, the state distributed the first PFDs. The APF is simply a pool of money. It was created by constitutional amendment in 1974. The PFD is the yearly dividend. It was created by a simple vote of the state legislature. The APF finances the PFD, but the two are separate programmes created at different times by different kinds of legislation. The Alaskan public had not been closely engaged in the legislative debate over the creation of the PFD. But as soon as they started receiving dividends, they became engaged. Within a few years legislators began to think of the PFD as politically inviolable. The APF and PFD are now hugely popular in Alaska, and many regional and national governments around the world are considering similar models. The governments of Iraq and Mongolia have seriously discussed the idea. The government of Iran, with little direct mention of Alaska as a model, has recently started giving out an oil-financed BI. There are many lessons in the Alaska experience for BIG supporters to draw on. One important thing to recognize is that universal programmes, especially resource dividends, are popular and work. Alaskans believe that the PFD is a rightful expression of their joint ownership of the commons. The PFD is seldom promoted as an antipoverty or pro-equality programme. Most people think of it as a way to ensure that every Alaskan benefits from the state’s oil revenues. It just happens to be very good for the poor, and it is not under constant attack like so many federal anti-poverty programmes in the United States (Widerquist and Howard, forthcoming).

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15

Many people are probably under the misconception that the PFD is something only an oil-rich region like Alaska can do, when in fact Alaska is not terribly rich (ranking tenth among U.S. states), and supports the dividend almost entirely by taxes on one resource. Oil taxes in Alaska are low by international standards, and only a small portion of those taxes support the APF and PFD (Widerquist and Howard, forthcoming). Alaska does not have a resource dividend because it is resource-rich; it has it because Alaskans took advantage of the opportunity at the right time. Opportunities like it are not unusual. All over the world, every day, common resources are being privatized; each one represents an opportunity. Currently the U.S. government is considering capping carbon emissions. One proposal is to give away the right to pollute to corporations that have polluted in the past. Another proposal is to auction off the right to pollute and redistribute the proceeds of the auction in an Alaska-style dividend. These and many similar circumstances are opportunities to build on Alaska’s experience.

1.2 The guaranteed income movement of the 1960s and 1970s The Alaska Dividend was in a small way an offshoot of the Guaranteed Income movement of the 1960s and 1970s. It was a brief but substantial movement that did not produce a nationwide BIG but did produce successful by-products. Under the names of Guaranteed Income and the NIT, BIG seemed to appear out of nowhere and burst onto the mainstream policy agenda in the mid-1960s. The idea had been discussed in academic circles as far back as the 1940s. However, academics, policymakers, and welfare activists suddenly all seemed to be converging on the same idea, namely that a positive reform of the social welfare system should involve replacing many of the different polices, designed to target specific groups, with one simplified, comprehensive policy to ensure that everyone had a little money – that is, BIG. At the time, President Lyndon Johnson had declared the “War on Poverty.” The reforms of the Roosevelt administration had made great progress in reducing poverty, but they were far from eliminating it. In 1960, 39 million people (more than 20 percent of the U.S. population) still lived below the poverty level.3 People were looking for ideas. Market-oriented economists such as Milton Friedman and F.A. Hayek endorsed the NIT approach. Friedman wrote, “We should replace the ragbag of specific welfare programs with a single comprehensive programme of income supplements in cash – a negative income tax. It

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would provide an assured minimum to all persons in need, regardless of the reasons for their need” (Friedman, 1962). Progressive economists, such as John Kenneth Galbraith, James Tobin and Herbert Simon endorsed versions of the guaranteed income. Sociologist Erich Fromm, economist Robert Theobald and theologian Philip Wogaman all wrote books supporting it.4 Martin Luther King, Jr endorsed the idea, writing: I am now convinced that the simplest solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income. A host of psychological changes inevitably will result from widespread economic security. The dignity of the individual will flourish when the decisions concerning his life are in his own hands, when he has the assurance that his income is stable and certain, and when he knows that he has the means to seek self-improvement. (Martin Luther King, Jr., 1967) In 1969, a presidential commission unanimously recommended that the United States should adopt a guaranteed income for every needy American, with no work requirements. The National Council of Churches, by a vote of 107–1, also agreed. So did the Kerner Commission, the California Democratic Council, the Republican Ripon Society and the 1972 Democratic Party platform (Sheahen, 1983, 13). Johnson did not embrace the BIG model. Most of the policies that came out of his administration were expanded through enhanced versions of traditional welfare state models, including conditional programmes targeted at specific groups. The partial success of these programmes was readily apparent. By 1969, government benefits increased, and the number of people living in poverty in America dropped to 25 million (about 12.5 percent of the U.S. population).5 In 1969, the guaranteed income received perhaps the most surprising endorsement of all – from President Richard M. Nixon.

1.3 From the family assistance plan to temporary assistance for needy families In 1969, Nixon proposed his Family Assistance Plan (FAP), calling it “the most significant piece of social legislation in our nation’s history” (Moynihan, 1973). It was structured like an NIT, but it was watered-down with eligibility limits and work requirements in hopes of increasing its political appeal. For a family of four, with no outside income, the basic

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federal payment would have been $1,600 a year. States could add to that amount. A worker could keep the first $60 a month of outside earnings with no reduction in his benefits. Beyond that, his benefits would be reduced by 50 cents for each dollar earned. Under the proposal, anyone who accepted benefits was required to accept work or training, provided suitable jobs were available either locally or at some distance if transportation were provided. The only exceptions would be those unable to work and mothers of preschool children. The programmes, like the guaranteed income movement generally, found adherents on both left and right, but also found opposition from both left and right. Southern and conservative senators generally opposed the bill because they felt the minimum ($133 a month for a family of four) was too high. They also opposed the principle of a guaranteed income. “Cost is not the problem,” Senator Russell Long (Democrat from Louisiana) said, “The objection is paying people not to work.” Some liberal senators opposed FAP because they felt it was inadequate and repressive. They called it “Guaranteed Annual Poverty.” The National Association of Social Workers and the National Welfare Rights Organization were also opposed to the plan. They felt the benefit level was inadequate and the work requirements oppressive. FAP passed the House of Representatives on 15 April 1970. On 20 November 1970, after many amendments, FAP was defeated in the Senate Finance Committee. FAP proved to be the high-water mark of the guaranteed income movement in the United States. In 1972, FAP was modified and again debated in Congress. It again easily passed the House of Representatives. It was defeated by only 10 votes in the Senate. A few years later, President Jimmy Carter proposed the Program for Better Jobs and Income. The plan would have abolished several conditional welfare programmes and replaced them with a single, nationally standardized cash payment – about $3,800 a year for a family of four – for those qualifying. Although the programme retained some of the elements of an NIT, its more restrictive qualifications made it less of an income guarantee. Liberals generally felt the benefits were inadequate. Conservatives were horrified at the $20 billion in extra costs. The plan died without being debated by either house of Congress. In 1979, a scaled-down welfare reform plan, which gave no pretence of being a guaranteed income, passed the House of Representatives but died without coming to a vote in the Senate (the previous paragraphs draw on Sheahan, 1983).

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By the early 1980s, the mood in Washington had changed. Politicians turned to scaling back the welfare system rather than improving and expanding it. Substantial reform along the BIG model has not been discussed at the federal level since. Homeless people reappeared in large numbers on U.S. streets for the first time since the Depression, and soup kitchens sprang up. This trend culminated in the 1996 welfare reform bill, which replaced the 60-year-old federal programme called Aid to Families with Dependent Children (AFDC) with a new programme called Temporary Assistance to Needy Families (TANF). Instead of moving toward the BIG model, TANF moved away from it. It added work conditions to a programme that had already been conditional on parenthood. It removed what had been a permanent guarantee of assistance for qualifying families and replaced it with a limited time of eligibility for any recipient. TANF reduced welfare rolls, but it did not reduce poverty. It dumped many recipients into poverty-wage jobs. Indeed, government figures show that 39.8 million Americans still lived below the poverty level in 2008. The poverty rate was 13.2 percent. It has been in the range of 10 to 15 percent for most of the last 40 years.6 The social problems that brought BIG under consideration in 1969 persist today.

1.4 Offshoots of the guaranteed income movement Although the guaranteed income movement fell short of establishing a national BIG in the 1970s, the movement did produce several tangible results. In 1974, Congress passed Supplemental Security Income (SSI) – essentially an NIT for people over 65. Food stamps were gradually created and expanded beginning in 1964, and they became a fully national programme in 1974 (Sheahan, 1983). Food stamps are coupons issued by the government that can be used only to purchase food. They deviate from the BIG model because of the restriction to food, but they remain the only form of assistance universally guaranteed by the federal government. A person only needs to demonstrate that they are poor to be eligible for food stamps. In 1976, Congress passed the Earned Income Tax Credit (EITC), which gives money in the form of a “refundable tax credit” to low-income workers. The EITC is not a BIG because one has to earn income privately to receive it. Nevertheless, it is a negative tax in the sense that government pays low-income workers instead of asking them to pay into the government. The design and adoption of the EITC grew directly out of the Congressional discussions of FAP and NIT.

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19

The negative income tax experiments

One of the most significant outcomes of the guaranteed income movement of the 1960s and 1970s was the federal government’s decision to conduct four experiments to see how the idea would work in practice. Known collectively as the NIT experiments, they were the first large-scale social science experiments ever conducted, and they have been a model for social science research ever since.7 The researchers who conducted the experiments were aware that unconditional income support would cause people to work less than they otherwise would, so they needed to uncover precisely how much less these people would work. They needed to discover if it would decline so much that the programme would become unaffordable or unsustainable. They also needed to discover what the effects would be on the overall well-being of recipients. The experiments randomly assigned participants into a “treatment” group and a “control” group, just as medical researchers do when testing new drugs. Members of the treatment group were made eligible for an NIT (of varying sizes). Members of the control group continued under Table 1.1

The United States negative income tax experiments Data collection

Sample size: Initial (final) Sample Characteristics

Name

Location(s)

The New Jersey Graduated Work Incentive Experiment (NJ) The Rural IncomeMaintenance Experiment (RIME) The Seattle/ Denver IncomeMaintenance Experiments (SIME/DIME) The Gary, Indiana Experiment (Gary)

New Jersey & 1968–1972 1,216 (983) Pennsylvania

Iowa & North Carolina

1970–1972

809 (729)

Seattle & Denver

1970–1976, 4,800 (some to 1980)

Gary, Indiana

1971–1974

1,799 (967)

Black, white, and Latino, 2-parent families in urban areas with a male head aged 18–58 and income below 150% of the poverty line. Both 2-parent families and female-headed households in rural areas with income below 150% of poverty line. Black, white, and Latino families with at least one dependant and incomes below $11,00 for single parents, $13,000 for two parent families. Black households, primarily female-headed, head 18–58, income below 240% of poverty line.

Source: Widerquist, 2005, p. 53.

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Table 1.2 Summary of findings of the experiments on the “work reduction effect,” the time spent working of the treatment group relative to controls Work reduction relative to controls in hours per year and percent (%)

Study

Data Source

Husbands

Wives

Single females with children

Robins

All four U.S. experiments

−89 −5%

−117 −21.1%

−12.3 −13.2%

Keeley* Burtless**

All four U.S. experiments All four U.S. experiments

Robins and West Robins and West Cain et al.

Seattle / Denver Income Maintenance Experiment Seattle / Denver Income Maintenance Experiment New Jersey Graduated Work Incentive Experiment New Jersey Graduated Work Incentive Experiment Rural Income-Maintenance Experiment Gary Income-Maintenance Experiment

−7.9% −119 −7% −128.9 −7% −9%

− −93 −17% −165.9 −25% −20%

− −79 −7% −147.1 −15% −25%

−

−

−1.4% to −6.6% −8%

−50 −20% −

−

−27%

−

−3% to −6%

0%

−26% to −30%

Watts et al. Ashenfelter Moffitt

Source: Widerquist, 2005, p. 62. The negative signs indicate that the change in work effort is a reduction. * Simple average of the four experiments. ** Weighted average of the four experiments.

the existing welfare rules of their state, although they were provided with some small compensation for regularly answering the questions of researchers. Then the researchers compared the behaviour of the two groups. The following two tables summarize the experiments and some of their findings for work-effort effects. Weighted average of the four experiments The researchers found these results extremely encouraging. The workeffort effects were small. The time spent working by males receiving the NIT was only 5–7.9 percent less than that of the control group on average in the four experiments together. Women with children had a larger effect, in the range of 7–21.1 percent. However, it cannot always be a bad thing for a parent to choose to spend less time working and more time taking care of their children. Furthermore, because wives worked less than husbands did to begin with, their work-effort

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reduction constituted a smaller overall portion of the total work-effort for the family. One researcher remarked, “In no case is there evidence of a massive withdrawal from the labor force” (Robins, 1985). In the case of husbands, the reduced work-effort effect of the treatment group was explained mostly by their taking more time to look for their next jobs if they became unemployed. In the case of women with children, it was further explained by their working fewer hours each week. None of the researchers found evidence of people who simply stopped working or stopped looking for work so that they could live off the NIT (Levine et al., 2005). Despite the positive results, their publication was a public relations disaster, especially when major results came out in 1977 during the debate of Carter’s Program for Better Jobs and Income. Editorials and speeches at the time indicated that the authors believed than any size of work-effort reduction effect was too much. Many misinterpreted a 5 percent work-effort reduction effect to mean that 5 percent of the population would stop working, when in fact it meant only that people living near the poverty line would spend on average 5 percent fewer hours per week working, and that none of the work-effort reduction was explained by people who simply stopped working. Some incredulous commentators even asked why the government would run an experiment to find out whether people would work less if they were paid not to work, seemingly unaware that the question was not whether but how much (Widerquist, 2005). At least one former champion of the idea, Senator Daniel Moynihan, lost enthusiasm for the idea when the results came in (Sheahan, 1983). One of many causes of misunderstanding was the use of terms such as “work-effort reduction” effect for the relative difference in the number of hours worked by control and treatment groups. This term seems to imply that if we introduce such a policy people will work less than they do now, but the results were relative to what the control group was doing at the time, not to what subjects were doing before and after. Many other factors affected how much people changed their work hours, and whether or not a person was in the treatment group was not the most important factor. Researchers found that the most important factor determining how much subjects worked was the macroeconomic health of the economy (Widerquist, 2005). That is, if good jobs are available, people took them. Therefore, if we can keep the economy going and ensure that good jobs are available, the introduction of an NIT need not correspond with an overall decrease in work-effort.

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Furthermore, the experiments were unable to test whether any reduction in work-effort would cause a wage response among employers. Economic theory predicts that if the supply of labourers declines, employers respond by increasing wages, which would in turn lead to a smaller overall drop in work-effort and a further decline in poverty – especially among the working poor. The public debate over the results included no discussion of the positive effects of work-effort reduction. The public debate also largely ignored many positive non-labour market results revealed by the experiments. Researchers on the Rural and Gary experiments collected data on school attendance and performance – two variables that are notoriously difficult to improve by direct intervention – and found significantly positive effects. Home ownership increased. Measures of various categories of nutritional adequacy improved, and the Gary experiment found evidence that the most at-risk groups experienced a decline in the rate of low birth weight babies. Low birth weight is associated with very serious ill health at the time, and with important health deficits later on in life. Programmes that try to reduce the incidence of low birth weight have been largely ineffective, but the experiments showed that it could be addressed simply by reducing poverty (Levine et al., 2005). Although the NIT experiments had a negative effect on public perception of BIG, when looked at closely, their results provide strong reason to believe the policy is beneficial and affordable.

1.6 The standard tax credit proposal and the current discussion of the basic income guarantee in the United States Discussion of BIG did not go away when it dropped off the Washington agenda in the 1980s. The academic discussion of BIG worldwide has been on the rise since 1986 when the Basic Income European Network, which later expanded to become the Basic Income Earth Network, was founded. Although the academic discussion of BIG in the 1950s, 1960s and 1970s was dominated by economists, the academic discussion has been dominated since the 1980s by philosophers and political scientists, although social scientists of all fields, as well as public policy experts have been involved. Activists in many countries have also continued to be interested in the idea. Many articles and several books are published each year exploring all aspects of BIG.

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Discussion of BIG in the United States has risen steadily since the U.S. Basic Income Guarantee (USBIG) Network held its first conference in 2002. The authors of this chapter were both involved in the creation of USBIG. The USBIG Network is dedicated to increasing the discussion and scientific exploration of the BIG initiative.8 The earlier movement was on the mainstream political agenda seemingly from the beginning, and although BIG had been promoted by many welfare activists, it took on a top-down character as Congress implemented experiments and nearly introduced the policy before it had become widely discussed among the public. The current movement is clearly made up of academics and activists who are aware that it is a long road to get the idea back onto the mainstream political agenda in the United States. Although discussion of a full BIG continues, the proposals that have actually received attention at the federal level have usually been incremental initiatives that take small steps in the direction of BIG. One attempt that has seen some success is the Child Tax Credit, officially called the “Additional Child Tax Credit” (ACTC). Since 1998, the ACTC has made a portion of the Child Tax Credit refundable. Like the EITC, the ACTC allows people whose income is so low that they pay little or no federal income taxes to receive part of their tax credit in cash. The amount started at $400 per child in 1998 and it has since risen to $1,000 (Maag and Carasso, 2010). This policy follows the BIG model in the sense that it gets cash into the hands of the caregivers of all children unconditionally. Activists are currently pressing to increase the size of the refundable credit and to expand it to cover more people.9 Two related proposals with BIG-like components that have received high-level political support in Washington are the Tax-and-Dividend and Cap-and-Dividend approaches to global warming. The differences between the two proposals are not important for the discussion here. Both would tax polluters responsible for the emission of greenhouse gases and redistribute the revenue raised as a dividend for all citizens – thus creating a very small BIG. The justification for the BIG in such cases is quite obvious and appealing. Greater-than-average polluters will, as their punishment, be net losers from the policy. Less-thanaverage polluters will be net gainers from the policy as their reward (Widerquist, 2010). A rival proposal, Cap-and-Trade, which does not include a dividend, is also under discussion in Washington, but there is a strong possibility that the federal government or one of the states will introduce one of the strategies including a dividend.

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One proposal from the right incorporates a very small BIG. The so-called “fair tax” movement wants to replace the income tax and all other federal taxes with a national sales tax. Part of the revenue from the tax would be redistributed in the form of a very small dividend designed to ensure that no person living in poverty is a net taxpayer.10 Thus if the tax rate is 25 percent, the dividend would amount to a BI of one fourth of the poverty level. This move would be highly regressive because the more money one has the smaller portion of it one spends. The wealthiest people would pay far less taxes under this kind of a system than they do now, and low-wage workers would pay considerably more, and in most cases receive less in refundable credits and other benefits. The promoters of this policy do not stress the dividend as BI or as a welfare policy. However, to someone who is familiar with the NIT proposal, its influence (especially from the versions by Friedman and Hayek) on this movement is clear. One proposal that grew directly out of the USBIG Network’s activities made it as far as a bill in Congress. The rest of this chapter discusses that proposal.

1.7 The background of the standard tax credit proposal At the first USBIG Conference in New York City in 2002, Stanley Aronowitz told the conference audience that USBIG needed a BIG bill in the U.S. Congress. The purpose of the bill would be to act as a vehicle to use as a rallying point to generate support for the idea of a BIG. Not all groups with legislative agendas use bills in this way, but having a piece of legislation can be helpful. Allan Sheahen, with help from Steve Shafarman, took on the job of looking for someone in Congress to introduce such a bill. In June 2004, Congressman Bob Filner (Democrat from California) agreed and asked the USBIG Committee to find someone to draft a proposal for the bill. Sheahen and Karl Widerquist (the authors of this article) volunteered to write the proposal. We would have preferred a bill for a full BIG large enough to eliminate poverty. However, in keeping with the times, Filner asked for something smaller and incremental. We decided to work with the idea of refundable tax credits, which in the form of the EITC and the ACTC have proved successful ways of moving the United States in the BIG direction. We came up with the idea of transforming the standard tax deduction (which everyone who files the 1040EZ form on their federal taxes receives) into a refundable tax credit, establishing a very small but universal BIG in the United States, and significantly increasing

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the relief directed to the poorest Americans. The income tax system is needlessly complex, with too many different deductions. It is possible to streamline tax brackets and get rid of different deductions, making most people better off. However, people with low wages could easily end up paying more taxes if streamlining tax brackets means raising the tax rates on lower incomes. People with low incomes have a very high tax burden but most of it is in sales and payroll taxes rather than income taxes. Therefore, they have very little to gain from tax simplification unless tax simplification expands refundable tax credits. The following section reproduces most of that proposal. The proposal was written in 2005 and uses 2005 tax figures.

1.8 The proposal For 20 years, refundable tax credits (such as the Earned Income Tax Credit and the refundable Child Tax Credit) have proven to be simple, effective ways to help the poor. The success these policies have had in helping the poor without extending bureaucracy has made them extremely popular with Congress and American taxpayers. The logical next step is to transform the standard deduction and personal exemptions into a refundable standard tax credit (STC) of $2,000 for each adult and $1,000 for each child. The STC will provide all the poor with a small but badly needed tax credit, and give a tax cut to virtually everyone who chooses not to itemize their deductions. The plan is simple. It removes the line for the standard deduction (and personal exemptions) from the federal income tax forms 1040, 1040A, and 1040EZ, and replaces it with a line for the standard tax credit at the bottom of the form. All tax rates remain the same. The STC does not remove the line for itemized deductions from the 1040 form, and people who itemize deductions will be allowed to take a $3,050 deduction to replace each of their $3,050 individual exemptions. Therefore, those who choose to itemize deductions will be mostly unaffected by this proposal. The only change is that anyone who chooses not to itemize deductions receives the STC instead of the standard deduction. The proposal amounts to a small change in the formula for calculating taxes. The current formula begins by subtracting the standard deduction and exemptions from “adjusted gross income” (AGI) to determine “taxable income,” which is counted as zero if AGI is smaller than the deductions and exemptions. The next step is to multiply the taxable income by the tax rate to determine the level of tax.

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26 Basic Income Worldwide Table 1.3 Proposal The current system: Adjusted Gross Income − Deduction and exemptions = Taxable income × Tax rate = Tax The change: Adjusted Gross Income − Deduction and exemptions – -(out) – >| = Taxable income | × Tax rate | = “Gross” tax | − STC< – – – – – – – – – – – -(in) – – | = “Net” tax or refund The new system: Adjusted Gross Income = taxable income × Tax rate = “Gross” tax − STC = “Net” tax or refund

Under this new proposal, the formula begins by multiplying adjusted gross income by the tax rate to determine “gross tax.” It then subtracts the standard tax credit to determine the “net tax” or “net refund.” Table 1.3 shows the change in the tax formula. The current standard deduction is $4,750 for a single person and $9,500 for a married couple. The personal exemption is $3,050 for each additional member of the family, including adults and children. Suppose we wanted to create a standard tax credit that was exactly the same size as the current standard deductions and exemptions; then we must decide how large that STC would have to be. Because deduction and exemptions are subtracted before income is multiplied by the tax rate, and a tax credit is subtracted after income is multiplied by the tax rate, to equate in actual effects a tax credit has to differ from a deduction by the tax rate. If the tax rate is 10 percent, a tax credit has to be one tenth the size of a deduction to have the same effects on a person’s taxes. The current tax rate on the first $7,000 of adjusted gross income is 10 percent. Because the combined standard deduction for an individual ($4,750) and personal exemptions ($3,050) is $7,800, an STC of $780 – and $305 for each dependent child – would be roughly equivalent to the current

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standard deduction and exemptions for a family with an income of about $7,000.11 However, a tax deduction changes the relationship between adjusted gross income and taxable income at all levels of income, while a tax credit does not. Therefore, replacing a deduction with a tax credit will push people at higher levels of income into higher tax brackets. The STC will need to be slightly higher to counteract the effect of pushing people into higher tax brackets; doing so will also create a tax cut for people with lower incomes. An STC of $2,000 for each adult and $1,000 for each child will create a tax cut for everyone with an income under about $50,000 per year. Because most – 85 percent of – people with incomes greater than $50,000 choose to itemize their deductions, most of them will be unaffected by this proposal. The following three tables illustrate how the STC affects a single person, a family of four, and a single parent with one child. The levels of income chosen show the breaks between tax brackets, which gradually increase the tax rate on income from 10 percent on the first $7,000 of income to 35 percent on income over $311,950 per year. Taxpayers within each bracket will be affected similarly to the taxpayers at the edges of each bracket. The first four rows show the taxes each family pays under the current system. Rows 5 to 7 show how the same family’s tax or refund would be calculated under this proposal, and row 8 shows the change in taxes for the family, which is a decrease in most cases.12 To see how the tables work, look at column C in Table 1.1, a single person with $14,000 of adjusted gross income (AGI). Under the current system, this person is eligible for a standard deduction ($4,750) with one exemption ($3,050), totalling $7,800, leaving her with a taxable income of $6,200 and a total tax bill of $620. Under the new proposal, this person’s “gross” tax would be $1,750. However, she13 would also receive the standard tax credit of $2,000, transforming her net tax bill into a refund of $250, and giving her a tax cut of $870, compared to the current system. An additional $870 is very significant to a person who makes $14,000 per year. Column D in Table 1.2 shows the effect of this bill on a family of four with an income of $21,700 per year. This family currently pays no federal income tax. Under this proposal, they would receive an income supplement of $3,445 per year. That is an increase in this family’s disposable income of more than 15 percent, and it would make a big difference to their ability to provide for their children’s needs. A look through tables 1.4, 1.5 and 1.6 shows that this proposal will give a substantial tax cut to everyone who is likely to choose the

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standard deduction. The smaller the taxpayer’s income, the larger the tax cut she receives. It can be as much as $6,000 for a family of four with an income near zero. Thus, it gives the most money to those who need it most. However, it helps everyone who receives it, and because it ensures that income rises faster than taxes, it always gives the family incentive to earn more. Table 1.4

Single person

Column

A

1 AGI

0

Current system 2 Deduction/ exemption 3 Taxable income 4 Current tax

7,800

B

C

D

E

F

G

7,800

14,000

21,800

28,400

36,200

68,800

7,800

7,800

7,800

7,800

7,800

7,800

0

0

6,200

14,000

20,600

28,400

61,000

0

0

620

1,750

2,740

3,911

12,060

820 2,000 −1,180

1,750 2,000 −250

2,920 2,000 920

3,911 2,000 1,911

5,860 2,000 3,860

14,010 2,000 12,010

−1,180

−870

−830

−829

−51

−50

Proposed new system 5 “Gross” tax 0 6 STC 2,000 7 “Net” Tax/ −2,000 -refund 8 Increase/ −2,000 -decrease

Table 1.5 Married couple with two dependent children Column

A

1 AGI

0

Current system 2 Deduction/ 21,700 exemption 3 Taxable 0 income 4 Current tax 0 Proposed new system 5 “Gross” tax 0 6 STC 6,000 7 “Net” Tax / −6,000 -refund 8 Increase / −6,000 -decrease

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B

C

D

E

F

G

7,800

14,000

21,700

35,100

56,800

78,500

21,700

21,700

21,700

21,700

21,700

21,700

0

0

0

13,400

35,100

56,800

0

0

0

1,340

4,565

7,821

780 6,000 −5,220

1,400 6,000 −4,600

2,555 6,000 −3,445

4,565 6,000 −1435

7,821 6,000 1,821

13,245 6,000 7,245

−5,220

−4,600

−3,445

−2,775

−2,744

−576

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29

Single parent with one dependent child, “head of household”

Column

A

B

C

D

E

F

G

1 AGI

0

7,800

13,100

26,200

38,050

51,150

98,250

13,100

13,100

13,100

13,100

13,100

13,100

0

0

13,100

24,950

38,050

85,150

0

0

1,465

3,242

5,207

16,982

780 3,000 −2,220

1,465 3,000 −1,535

3,430 3,000 430

5,207 3,000 2,207

8,482 3,000 5,482

20,257 3,000 17,257

−2,220

−1,535

−1,035

−1,035

275

275

Current system 2 Deduction/ 13,100 exemption 3 Taxable 0 income 4 Current tax 0 Proposed new system 5 “Gross” tax 0 6 STC 3,000 7 “Net” Tax / −3,000 -refund 8 Increase / −3,000 -decrease

1.9

Why we need the STC

Transforming the standard deduction into a refundable tax credit will not eliminate poverty. However, it would be an enormous benefit to the poor who were completely overlooked by the tax cuts of the first Bush administration. The poor pay sales taxes, property taxes, and many other taxes, but because they do not pay very much in income tax, they have little to gain from tax simplification unless it includes something like the STC. Transforming the standard deduction into a standard tax credit will give a tax cut to everyone who files the standard deduction and has an income under $50,000 per year, and it will give the biggest tax cut to those who need it most. If the STC proves popular, it can lead to future simplifications of the tax code – simplifications that work for low-wage Americans – by transforming other deductions, exemptions, and policies into a larger STC. A larger STC can be financed by eliminating itemized deductions and/ or simplifying taxes toward a flat rate of 35 percent (the current highest marginal tax rate). If the STC becomes large enough, welfare programmes such as TANF, EITC, Food Stamps, and others can be folded into an even larger STC. Because the beneficiaries of these programmes are also the largest beneficiaries of the STC, and because the STC is much simpler than any of these programmes, collapsing these programmes into an STC can be structured to ensure that these changes benefit the recipients of

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these programmes. Each change toward a larger STC is accompanied by a more simplified tax system, and the STC has the potential to reduce the bureaucracy of both the Internal Revenue Service and the welfare system, while make low-wage American workers better off.

1.10 Response to the standard tax credit proposal Congressman Filner had his staff transform this proposal into legal language. On 2 May 2006, Filner formally introduced the Tax Cut for the Rest of Us Act. It was given the number HR 5257. The preamble to the bill read, “To amend the Internal Revenue Code of 1986 to provide a basic income guarantee in the form of a refundable tax credit for taxpayers who do not itemize deductions.” The bill was referred to the House Committee on Ways and Means. Sheahen returned to Capitol Hill several times to promote the bill. Generally, people in Congress over age 50 were familiar with BIG from FAP and other proposals in the 1970s. However, those under age 50 had never heard of the BIG idea, and had to be carefully walked through it. A few pessimistic people said that BIG might have been viable in the 1960s, but not now. HR 5257 found one co-sponsor, Representative Jesse Jackson, Jr. (Democrat from Illinois). Filner wanted to reintroduce the bill in the following Congress in January 2007, but a new snag arose. The Democrats, who now controlled Congress, had passed “PAYGO,” meaning any new bill must be “revenue-neutral.” So Filner’s aide had to send the proposal to the Joint Tax Committee to “score” (determine the cost). The JTC never “scored” the proposal, and the bill has not yet been reintroduced.

1.11 Conclusion The issue of poverty remains unpopular in the United States. It is not just BIG that lacks political discussion on Capitol Hill; no major reform proposal aimed at increasing aid to the poor has been seriously discussed since the defeat of President Carter’s Program for Better Jobs and Income. The poverty rate has fluctuated between 10 and 15 percent for the last 40 years. Politicians seem to find that an acceptable level. There is currently little ambition to say that in a country as wealthy as ours a poverty rate of no more than 0–3 percent is acceptable. Nevertheless, political moods change, sometimes quickly and surprisingly. Given the current political situation nationally, BIG supporters have concentrated on making sure they have a well thought-out proposal.

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They are poised to push for reforms that move in the direction of BIG, which ought to increase its viability. The STC is a proposal to move further in that direction. Proposals such as Tax-and-Dividend would create a small BIG, almost as a side effect of another problem. Alaska’s Permanent Fund Dividend stands as an example of how the BIG model can help the poor and be almost universally popular at the same time. Programmes and proposals like these lay the groundwork for something potentially much larger in the future.

Notes 1. For a more detailed discussion of the programme, see Widerquist and Howard (2012) and Widerquist and Howard (forthcoming August 2012), from which much of this discussion is drawn. 2. Alaska Permanent Fund Corporation (2010). 3. US Census Bureau (1961). 4. Fromm (1955); Theobald (1965); Wogaman (1968). 5. US Census Bureau (1970). 6. US Census Bureau (2009). 7. Sheahen (1983); Widerquist (2005); Levine et al. (2005). 8. US Basic Income Guarantee Network (2010). 9. Caregiver Credit Campaign (2010) 10. Americans For Fair Taxation (2010). 11. An exactly equivalent STC is more complicated because the U.S. tax system has a complex set of tax brackets, so that there is not a uniform tax rate on all income. 12. These are explanatory examples only. For the sake of simplicity and clarity, we have purposely omitted the current Earned Income Tax Credits and Child Tax Credits from the “current system” in Tables 1.2 and 1.3. 13. Hereafter, “she” represents “he or she.”

Bibliography Alaska Permanent Fund Corporation (2010) “Fund History,” http://www.apfc. org/, (Last Accessed – January 2010). Americans For Fair Taxation (2010) “About the Fair Tax,” http://www.fairtax. org/site/PageServer?pagename=about_main, (Last Accessed – January 2010). Caregiver Credit Campaign (2010) http://www.caregivercredit.org/, (Last Accessed – January 2010) Friedman, Milton (1962) Capitalism and Freedom (Chicago: University of Chicago Press). Fromm, Erich (1955) The Sane Society (New York: Fawcett Publications). Hammond, Jay (1994) Tales of Alaska’s Bush Rat Governor (Fairbanks: Epicenter Press). King, Jr., Martin Luther (1989 [1967]) Where Do We Go From Here: Chaos or Community? Boston: Beacon Press.

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32 Basic Income Worldwide Levine, Robert, Harold Watts, Robinson Hollister, Walter Williams, Alice O’Connor, and Karl Widerquist (2005) “A Retrospective on the Negative Income Tax Experiments: Looking Back at the Most Innovative Field Studies in Social Policy,” in The Ethics and Economics of the Basic Income Guarantee, Widerquist, Lewis, Pressman (eds) (Aldershot: Ashgate). Maag, Elaine and Adam Carasso (2010) “Taxation and the Family: What is the Child Tax Credit?” The Tax Policy Center: http://www.taxpolicycenter.org/ briefing-book/key-elements/family/ctc.cfm. Last updated: 4 February 2010, (Last Accessed – February 2010) McIntyre, Robert (2010) Citizens for Tax Justice, Washington, D.C. www.ctj.org., (Last Accessed – January 2010) Moynihan, Daniel P. (1973) The Politics of a Guaranteed Income (New York: Random House). On The Commons, the Cap and Dividend website (2010), http://capanddividend.org/, (Last Accessed – January 2010) Robins, P.K. (1985) “A Comparison of the Labor Supply Findings from the Four Negative Income Tax Experiments.” Journal of Human Resources 20(4), 567–82. Sheahen, Allan (1983) Guaranteed Income: The Right to Economic Security (Los Angeles: Gain Publications). Theobald, Robert (1965) Guaranteed Income (New York: Doubleday and Company). US Basic Income Guarantee Network website: http://www.usbig.net, Last accessed 2010. US Census Bureau (1961) U.S. Current Population Reports, 1961. US Census Bureau (1970) Current Population Reports, 1970. US Census Bureau (2009) Current Population Reports, 2009. Widerquist, Karl (2005) “A Failure to Communicate, What if Anything Can We Learn from the Negative Income Tax Experiments.” Journal of Socio-Economics 34(1), 49–81. Widerquist, Karl (ed.) (2010) The USBIG Newsletter, The U.S. Basic Income Guarantee Network website: http://www.usbig.net, (Last Accessed – December 2010) Widerquist, Karl, and Howard, Michael W. (eds) (2012) Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model (New York: PalgraveMacmillan). Widerquist, Karl, and Howard, Michael W. (eds) (forthcoming, August 2012) Exporting the Alaska Model: Adapting the Permanent Fund Dividend for Reform around the World (New York: Palgrave-Macmillan).Wogaman, Philip (1968) Guaranteed Annual Income: The Moral Issues (New York: Abingdon Press).

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2 Namibia: Seeing the Sun Rise – The Realities and Hopes of the Basic Income Grant Pilot Project Claudia Haarmann and Dirk Haarmann1

In January 2008, the first universal, unconditional cash transfer pilot project in the world began in Namibia, southwest Africa. In a small village 100 kilometres east of the capital of Windhoek, all residents below the age of 60 received a Basic Income Grant (BIG) of N$100 (€9) per person per month for a period of two years. This BIG pilot project was designed and implemented by the Namibian BIG Coalition, an association of various civil society organizations from unions to churches. The Coalition had set out to prove to Namibia (and the rest of the world) that a BIG is an effective and affordable tool in poverty alleviation through economic empowerment, and that it presents an innovative and necessary shift in development thinking. This chapter outlines the background and development of the BIG as a concept in the Namibian social policy debate. It provides the history of the formation of the BIG Coalition and the reasons for the implementation of a BIG pilot project. The effects of the pilot have been carefully monitored by using a panel survey, qualitative interviews, data from key informants, and case studies as well as statistics from the local school, clinic and police station. This chapter provides an overview of the key results of the BIG pilot project: it outlines the success of the BIG in the reduction of malnutrition, hunger and poverty levels, the increase in school attendance, payments for basic services, income and economic activity and the reduction in crime levels. In conclusion, the chapter assesses the political chances and challenges of the BIG being implemented in Namibia nationwide. 33

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2.1 History of the BIG coalition and reasons for the pilot project2 Following the independence of Namibia in 1990, the country’s tax system had not undergone a comprehensive revision. In 2001 the Namibian government appointed a tax commission (NAMTAX) to review the entire tax system, make the necessary international and regional comparisons, address redistribution and determine the structural changes needed (Namtax Commission, 2002, 8–9). NAMTAX found that, firstly, Namibia is characterized by extreme disparities in income, as shown by the highest measured Gini coefficient in the world; secondly, Namibia has a very serious problem of poverty (Namtax Commission, 2002). The commission found that by far the best method of addressing poverty and inequality would be a universal income grant, which became known as the Basic Income Grant (BIG). Except for a few newspaper articles supporting the proposal as good news for the poor, for a long time there was silence on this bold proposal. Government was keen on taking on recommendations of the NAMTAX commission on the income revenue side, like the proposed Capital Gains Tax, but was silent on the BIG. The Desk for Social Development (DfSD) of the Evangelical Lutheran Church in the Republic of Namibia (ELCRN) took up the proposal for the universal grant and discussed it within the communities to find out whether poor people themselves regarded it as a worthwhile programme to pursue. By 2004, the proposal had received so much grass-roots support and was endorsed by the ELCRN Synod that the DfSD organized an international conference on income security, bringing together Namibian civil society, the line ministries of Development and international experts in the field. The conference resolved to form the Namibian Basic Income Grant Coalition and, in April 2005, a coalition of several Namibian civil society umbrella bodies and individual organizations launched the Coalition officially. The aim of the BIG Coalition is to work together with the Namibian government to implement an unconditional basic income grant to all citizens of Namibia in order to reduce poverty and inequality and to foster social and economic development. The current proposal envisages a modest BIG of N$100 per month to everyone under the age of 60; at 60 they become eligible for the universal old-age pension of N$500 per month. To date the Coalition is the biggest civil society movement united in supporting a concrete poverty-alleviation

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policy since Namibia’s independence in 1990. The members of the Coalition are: ● ● ● ● ● ● ● ●

Council of Churches in Namibia (CCN) National Union of Namibian Workers (NUNW) Namibian NGO Forum (NANGOF) Namibian Association of AIDS Service Organisations (NANASO) Labour Resource and Research Institute (LaRRI) Legal Assistance Centre (LAC) National Youth Council (NYC, joined the Coalition in 2009) Church Alliance for Orphans (CAFO, joined the Coalition in 2009)

For the first two years, the Coalition embarked on an extensive lobbying campaign based on research and economic modelling. However, even detailed economic models and tax effort analyses3 could not convince the government to introduce a basic income, and the debate did not move forward. While some in government supported a BIG right from the beginning, critics claimed that a BIG would lead to dependency and laziness and pointed to the fact that a BIG had never been implemented anywhere in the world. When at the end of 2006 a delegation of the BIG Coalition attended an international symposium on basic income in Cape Town, the delegation realized that in other countries researchers had discussed a BIG already for decades without one ever being implemented. The understanding grew that something drastic and different needed to be done, since Namibia would not have the time to debate for years without any concrete impact on people’s lives. It was here that the BIG Coalition decided to move from words to action. The idea of the first pilot project of a universal cash grant was born. It is noteworthy that this understanding had grown among the Namibian delegation as well as some academics from South Africa, who had a similar experience of inequality and structural poverty. In fact, the idea did not find the support of the majority at the gathering. However, despite the scepticism, the proposal stimulated the debate at the conference, and Namibia’s BIG Coalition’s chairperson, Bishop Dr. Zephania Kameeta, who had introduced the new idea in the plenary, was termed “the buttkicker” of the conference. The idea of the pilot was in fact not naïve, but rooted in the experience of the liberation struggle in Southern Africa, where English Medium Schools or township clinics often challenged the regime to revise otherwise ideologically hardened positions. Furthermore, it drew

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on the experience with pilot projects in other countries where national programmes had been implemented, and the pilots had proven their viability. For example, pilot projects in Haiti, Rwanda and South Africa demonstrated that antiretroviral treatment could be provided effectively to poor people – even to those living deep in rural areas. These pilots helped change national and international policy, thereby paving the way for the dramatic global rollout of antiretrovirals (ARVs). The BIG Coalition hoped that by operationalizing a BIG pilot project, government leaders and others could see how the BIG could be transformed into a national programme. In 2007, the BIG Coalition decided to implement a pilot project to move the policy debate forward and to evaluate and document the impact of a Basic Income Grant on poverty and on sustainable economic livelihoods of individuals as well as on the community. The evidence was to be made available publicly to provide a basis for a constructive debate founded on empirical evidence. After careful examination of several villages in Namibia, the Otjivero settlement, including the Omitara “town” in the Omitara District, was chosen. Otjivero-Omitara was selected for its manageable size and accessibility; for its characteristics of the community reflecting the many population groups; and for its extreme poverty. Otjivero mirrored many poor communities in Namibia. Furthermore, amongst the local farmers Otjivero was known for its bad reputation as a hotbed of criminal activity. Otjivero-Omitara, located some 100 kilometres east of Windhoek, had begun to be populated in 1992, as people (mainly retrenched farm workers) started settling in the squatter camp Otjivero about 5 km from Omitara.4 After independence in 1990, despite the commercial farmers’ objections, people were no longer being forcefully removed – as so often had been the case – and could settle on this government-owned land. A feature of the area is the proximity to a large dam that supplies water to Windhoek and surrounding areas. Unusual for Namibia, the people in Otjivero have access to a free water supply, but the area is impoverished, with no access to arable land, and its people prone to diseases, such as TB and HIV/AIDS, while they struggle to subsist as a viable community. The development of the settlement has been controversial from the beginning. It is relatively small, with very little space for people to provide for their economic survival, since all around them cattle and hunting farms have fenced in the estates, leaving nothing to the majority of the people but a mere place to put up a shack. Over time, the government built a school and a clinic, but there has been persistent conflict with the surrounding commercial farmers because of illegal hunting,

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trespassing and the collection of firewood. The statement of Willemina Gawises, a single mother of three children, exemplifies the desperation and abject poverty people in Otjivero faced on a daily basis: There is a problem of unemployment and we don’t have money to travel to Gobabis and Windhoek to look for work. I have three children, aged 10, 13 and a 7-month-old baby. Now I don’t know where their father is and I have no job or money to send them back to school. I and my three children depend on my unemployed parents for food and accommodation. Sometimes I wish I was dead because I cannot stand this type of life any more. I am supposed to provide and protect my children and parents but I am failing to do that. Life is very difficult here, we live in poverty with no hope for the future. (Haarmann et al., 2009, 27) If a BIG had a positive impact in this hostile and hazardous environment, the success certainly could be replicable at least equally well in other parts of the country. The pilot implemented the following: Every resident under the age of 60 living in Otjivero-Omitara received N$100 each month from January 2008 until December 2009. This grant was given to 930 residents without any conditions. The money for children and youths up to the age of 21 was paid out to a person designated as their “primary care-giver,” which by default was the mother.

2.2 The dawn of economic security for all – results from the pilot project Methodology of evaluation The BIG Coalition used a variety of methodologies to collect its own qualitative and quantitative data and to receive additional data from external stakeholders to evaluate the impact of the pilot, thereby substantiating and cross-checking the results. The evaluation was carefully done to provide a solid basis to enable an informed government policy decision. A four-fold research methodology was adopted, drawing on four types of data in order to evaluate the effects of the BIG pilot project: ●

●

The research included a baseline survey in November 2007 and a time series in July 2008 and November 2008.5 Information was gathered from key informants in the area on a continuous basis.

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A series of detailed case studies of individuals living in OtjiveroOmitara was carried out. Data obtained from the clinic (nutritional status of children, clinic registrar and income statements) and the official police statistics on crime in the area.

The Desk for Social Development (DfSD of the ELCRN) and the Labour Resource and Research Institute (LaRRI) jointly carried out the actual research on the BIG Pilot. The entire research process employed a team of 15 local field workers and 4 senior researchers. An international advisory team accompanied the research. This international expert team, who themselves came to Namibia to evaluate the research methodology and to check all data and calculations, guarantees the academic standard of the findings.6 Overview of results The overview documents the changes due to the introduction of the BIG in the community. Without being able to give a comprehensive account here, it looks at various aspects and indicators showing how the provision of income security – even at such a low level – is able to eradicate destitution and to have cross-cutting impacts on the various social and economic development processes. Poverty The inhabitants of Otjivero are diverse. However, the majority of these inhabitants are living in poverty. The following statement exemplifies the living conditions and the desperation of many of them: Unemployment, hunger and poverty are the biggest problems. Some days we don’t have anything (to eat) and we just have to go and sleep and get up again without eating. We are really hungry. – Emilia Garises (Haarmann et al., 2009, 26–27) Following the poverty definition of the Namibian government, 86 percent of the residents of Otjivero were “severely poor,” while 76 percent lived below the food poverty line in November 2007. This situation changed dramatically during the first 12 months with the introduction of the BIG in Otjivero. The following two figures show the food poverty line as well as a line defining the “severely poor” for the people in Otjivero. Figure 2.1 reflects all households, while Figure 2.2 excludes those households that were affected by substantial migration. In the households that

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“Severely poor” Food poverty line

National poverty line (all)

Figure 2.1

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Nov 07

Jul 08

Nov 08

National poverty line (ALL)

“Severely poor” Food poverty line

National poverty line (controlled for migration)

Figure 2.2

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Nov 07

Jul 08

Nov 08

National poverty line (Migration)

experienced in-migration, the BIG had a sizeable impact. However, this impact was significantly lower than in the households where everybody received a grant. One needs to remember that persons who migrated to Otjivero after the due date of the registration did not qualify for a BIG, but only benefited from the BIG indirectly through the BIG income into the household. The Basic Income Grant and its economic effects reduced severe poverty to 68 percent and food poverty to 37 percent after one year. While food poverty continuously declined over the study period, the numbers of the severely poor reversed slightly by 3 percent from July to November 2008 due to in-migration.

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Figure 2.2 pointedly shows that in households where migration is controlled for, meaning where the grant is paid universally, the poverty rate among the “severely poor,” as well as the food poverty line, have been declining rapidly over time. With the BIG, food poverty in households without substantial migration was reduced to 16 percent and the percentage of severely poor dropped to 43 percent. If a Basic Income Grant were to be introduced universally in Namibia, this is the figure that shows the effect, as migration to a “BIG area” would not occur. A reduction of food poverty from over 70 percent to 16 percent speaks for itself, and this voice of Otjivero resident Jonas Damaseb expresses what a national BIG would mean to poor people in the whole of Namibia: Generally, the BIG has brought life to our place. Everyone can afford food and one does not see any more people coming to beg for food as in the past. What I can say is that people have gained their human dignity and have become responsible. (Haarmann et al., 2009, 41)

Malnutrition Good nutrition is essential for human well-being, especially for children to grow up healthy and to develop their full potential. When describing the situation in November 2007, the local clinic nurse, a Ms Mbangu, highlighted the suffering: I have one case where a baby, who is HIV positive, received sugar water instead of food. This baby is just one month old. The mother can’t breastfeed but she also does not have food. This morning she walked to the farm where her sister stays, just to get some maize meal. Such a baby will have a low weight and then we must send the baby to Gobabis. ... Low weight is especially a problem with children who are HIV positive although some others are also under-weight. Some have relatives who work elsewhere and send them some money or maize meal. Many others go to sleep without eating and the children are so hungry. That’s when you don’t know what to do and where to find food for them. (Haarmann et al., 2009, 51–52) The shocking statistics of the weight-for-age ratio collected7 in collaboration with the clinic confirms this dire situation of the children in Otjivero before the introduction of the BIG. In November 2007 42 percent of the children were malnourished. This was significantly worse than the average in Namibia (where 24–30 percent of children under

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0

.1

.2

.3

.4

.5

five are reportedly malnourished). It is also well above the 30 percent mark, which the World Health Organization (WHO) regards as a very high prevalence of malnutrition and which is the worst classification in the WHO categories. Most (82 percent) of these children were between the ages of two and three. The BIG has helped improve the situation dramatically. This is, without doubt, one of the most important findings and outcomes of the introduction of the BIG. Just six months after the introduction of the BIG, the malnutrition situation of children less than five years of age had improved dramatically. The percentage of malnourished children had dropped from 42 percent to 17 percent. After one year, looking at the same age cohort in households that were present at all three stages of our study, none of the children was malnourished. However, this result must be treated with some caution because the number of children who could be traced throughout the whole year had shrunk due to migration. This necessarily increases the standard error when we compare distributions across time. However, the clinic collected data for all children below the age of seven years from 2007 onwards, so we have been able to extend our initial calculations (based on children under five only) to include these older children as well (see below). Figure 2.3 shows how the distribution

–4

–2

0 x Nov 2007 Nov 2008

2

4

Jun 2008 WHO normal

Figure 2.3 Weight for age z-scores according to WHO standard – before and after BIG (for children in households without significant in-migration)

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of weight for age has become more “normal” over time as the proportion of malnourished children fell. The two-sample Kolgmogorov-Smirnov test (to test for significant differences between the distributions of z-scores) confirms that the shift across the first six months and over the entire year was statistically significant (at the 95 percent level).8 The dotted line represents the WHO expected normal distribution of weight for age. The dashed line depicts the nutritional status of the children before the introduction of the BIG, with 42 percent malnutrition. The dashed-dotted blue line confirms the direct and dramatic impact the introduction of the BIG had on malnutrition, dropping to 17 percent within just six months. The solid line represents the nutritional status of children by November 2008 with malnutrition dropping even further to 10 percent. It is clear that the major shift in distribution happened in the first six months after the BIG had been introduced. The one year results confirm and reinforce this hugely positive trend. To reiterate, with the BIG, the malnutrition rate decreased from 42 percent in November 2007 to only 10 percent a year later. It is an extraordinary developmental achievement to see that child nutrition is directly and dramatically improved by giving this small universal cash grant to poor families. HIV and the effectiveness of antiretroviral therapy Since the opening of the clinic in 2002, the nurse has been actively involved in the government’s HIV prevention and treatment programme. She has educated the community about HIV prevention and the need for safe sex and has observed an increase in awareness and a decline in STDs. Nevertheless, she still regards HIV and AIDS as the biggest health challenges in the community. The research revealed that HIV/AIDS was still affecting most households in Otjivero. For example, 78 percent of households that had experienced a death in the past two years indicated that it was AIDS-related. Furthermore, poverty and lack of transport often hampered access to ARVs. Interviewed in November 2007, the nurse explained: HIV positive people have dates at which they must collect their ARVs. They must go every month but they don’t have work, they don’t have income; they don’t have people who can help them. The only thing I can do is to ask the ambulance to take them to Gobabis. Not all people who are HIV positive are on ARVs because they can’t get transport to Gobabis. It costs them about N$100 to take taxis

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from Otjivero to Gobabis and back. Then they are hungry but have nothing to eat. ... (Haarmann et al., 2009, 59) The nurse expected that the main impact of the BIG on the lives of HIV positive people would be to give them the means to travel to Gobabis to collect their ARVs. As it turned out, however, this proved unnecessary because the doctor in Gobabis was persuaded by the nurse in March 2008 to come to Otjivero to deliver the ARVs to the growing group of ARV patients there: The situation of people in Otjivero on ARVs has improved. The doctor is now coming to Otjivero and people don’t have to spend N$70 for a trip to Gobabis. How must they come back? ARVs are free of charge but transport is expensive and so we talked to the doctor [in Gobabis]. He is coming here every month to bring ARVs and to take measurements. (Haarmann et al., 2009, 59) The number of people receiving ARVs increased from 3 in late 2007 to 36 in July 2008 – a twelvefold increase. This, of course, took place in the context of the Namibian Ministry of Health’s proactive national ARV rollout. However, some people in Otjivero have expressed the view that the ARV rollout only came to Otjivero because of the public attention focused on the area because of the BIG Pilot Project. Whatever the relationship between the BIG and the ARV rollout, it is nevertheless fair to say that the BIG greatly assists people living with AIDS. People on ARVs need to be well nourished to benefit fully from their treatment. The BIG provides them with the opportunity to improve their diet. Besides the focus on HIV and AIDS, with the BIG, the residents were better able to access the settlement’s health clinic. Before, poverty prevented many residents of Otjivero from seeking treatment for illnesses. The nurse explained that many were unable to pay the clinic fees of N$4. Although she would still treat people “on credit,” many apparently felt too ashamed to go to the clinic without paying. As a result, they tended to go to the clinic only when they became very sick. The clinic records of 2008 show that whereas in a typical month in early 2007 the clinic had an income of about N$250 per month, after the introduction of the BIG in 2008, the clinic reported a fivefold income increase to nearly N$1,300 per month. This is because more residents came for treatment as they could pay the N$4, and felt comfortable exercising their rights. The increase in clinic attendance was not caused by an unusual spate of illnesses or a sudden

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epidemic,9 but rather by people seeking medical attention for common complaints which they had suffered without the benefits of health care in the past. Importantly, the nurse said that since the introduction of the BIG, she had observed a reduction in the cases of severe diarrhoea, while the people coming to the clinic in 2008 were mostly treated for more common sicknesses like flu and coughs. In short, the research observed that since the BIG, Otjivero has benefited from better nutrition and better health care – and hence that the quality of life has improved. This supports the results of the previous section on the improvement of the nutritional status of adults and children which, in combination with better access to ARVs, led to improvements in general health of the population in Otjivero. Education Otjivero has a primary school, which has been located in the centre of the settlement since 1996. It has the potential to improve the prospects of Otjivero’s children, but at the time of the baseline survey in November 2007, financial problems were keeping many children out of school. In addition, the school reported that lack of adequate nutrition had a negative impact on the performance of many children. Due to the lack of payment of school fees, the school had very limited financial resources or leverage to improve the quality of education. The teachers summarized the challenges before the introduction of the BIG and explained: Most learners are more interested in pots than in schooling. ... Many children stay away from school if they don’t receive food. Our school is part of the school feeding scheme but sometimes there is no pap [porridge]. Sometimes they get some meat, about once a week, but there are no vegetables or fruit. (Haarmann et al., 2009, 64–65) Some children don’t have school uniforms at all, others have uniforms of other schools. We tried to solve this problem in 2005 but we could not. (Haarmann et al., 2009, 65) The combination of these negative factors of inadequate nutrition, lack of finances and an often less than conducive learning environment for children at home – for example, with no place to study – led to poor school attendance, low pass-rates and high dropout rates of 30–40 percent. After the introduction of the BIG, the school experienced various substantial changes for the better. The parents used part of their BIG

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to pay school fees and the school reported a 90 percent payment rate in 2008, unprecedented for this school and many other government schools in Namibia, where the average rate of payment is only about 60 percent. The money enabled the school to buy necessary supplies, and they were able to improve on the quality of education as well. Furthermore, the non-attendance of children due to financial reasons dropped by 42 percent, and the dropout rate was reduced to 5 percent in the first six months and went down to 0 percent in November 2008. The school observed that most of the children bought the obligatory school uniform and “even” shoes. The teachers further noted a turnaround in the behaviour and performance of the children due to improvement in nutrition and their general well-being. The teachers summarized it in the following way: Learners [pupils] used to come to school with empty stomachs but now this is no longer the case. Before [BIG] the learners did not concentrate in class due to hunger but now they are more energetic and concentrate more, thus there are better results now. (Haarmann et al., 2009, 69) At the beginning of 2009, the principal of the school also reported a further improvement for those pupils who had finished their primary education at the Otjivero School. For the first time a group of nine pupils left Otjivero and are now able to attend Secondary School. Before the BIG, pupils could not proceed to this secondary level because of a lack of finances for their stay in hostels and for the higher school fees. It was also not only in the primary school where changes have taken place, but also in the use of pre-primary school facilities. We had a crèche with only 13 children last year and this year the number increased to 52 children because many parents now have the money to pay for the children. If you go to the primary school you will notice that most of the children have school uniforms and they are clean and happy. – Adam Tjatinda (Haarmann et al., 2009, 68) The kindergarten teacher, Mathilde Ganas, added: There is a tremendous change [since the introduction of the BIG]. The children come to school clean, on time and well fed. When it is break time we send the children back home to eat and they now come back on time. In the past, when we sent them home, most

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of them never returned ... because the parents did not have food to give them and therefore they could not return back. Before the Basic Income Grant things were really bad and it was difficult to teach the children. Now they concentrate more and pay more attention in class. They are generally happy because they have enough to eat at home. (Haarmann et al., 2009, 69) Given this evidence, the BIG has significantly contributed to an improved environment as far as schooling and child development are concerned. This happened without any outside pressure or attachment of conditionality to the cash transfer. People themselves decided what was good for their children. All they needed was the income to do so. Economic activity The research analysed the impact of the BIG on the economic sphere of the individuals and the community as a whole. The research placed a special focus on changes in employment and in income and expenditure patterns. From its inception, the BIG concept and the pilot project had to face the critique that giving people money “for free,” without any conditions or obligation, would lead to laziness and the withdrawal of people from the labour market. The developments in Otjivero have proven the opposite. Over the research period, unemployment decreased, employment in both the formal and informal sector rose and an increase in income beyond the value of the BIG was realized. Figure 2.4 looks at the unemployment rate among the potential labour force (adults aged 15 and above) who were present in the data throughout all three surveys, and is hence able to show the impact of BIG on economic behaviour. Figure 2.4 shows a decrease in the number of unemployed people from 60 percent to 45 percent. To put it differently: since the introduction of the BIG, employment rose from 44 percent to 55 percent of those aged 15 and above. It is important to note that the actual labour force increased slightly while the labour force participation rate increased as well. The data thus provides evidence that the BIG did not result in people deciding not to work. On the contrary, the BIG facilitated greater labour-market participation and employment. This increase in employment subsequently had positive effects on individual income situation beyond the value of the grant, even with the effect of in-migration into Otjivero. Figure 2.5 illustrates this growth in income.

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70% 60% 60% 50%

52% 45%

40% 30% 20% 10% 0% Nov 07 Figure 2.4

Jul 08

Nov 08

Unemployment rate

N$ 160

Income (wage, self-employment, farming)

N$ 150 N$ 140 N$ 130 N$ 152

N$ 120 N$ 134

N$ 110

N$ 118

N$ 100 Nov 07 Figure 2.5

Jul 08

Nov 08

Average income per capita

The BIG has hence had positive direct as well as indirect effects on income generation. By providing the BIG as a small source of secure income, people were able to increase their productive income earned. Dividing the sources of income into different categories, selfemployment came top of the list with an increase of 301 percent, wage employment rose by 19 percent and farming by 36 percent. The figures refute the notion that people would withdraw from

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productive work. In particular, the sharp rise in income from selfemployment speaks for income boosting in the area through the creation of buying power by the BIG, which supported and enabled the growth of new self-employment activities. Most small enterprises that emerged following the introduction of the BIG were in retailing, brick making and the manufacture of clothing. According to the people interviewed, the BIG was central in providing start-up capital and external demand. I started my business of making ice lollies right after the BIG started. ... The demand for ice lollies is big because I make the biggest ice lollies in the settlement. I sell one ice lolly for 50 cents and I make 50 a day. ... With the BIG, people have money to spend, that is why I make the ice lollies. – Belinda Beukes (Haarmann et al., 2009, 74) After the introduction of the BIG I started my business. I bake traditional bread every day. I bake 100 rolls per day and sell each for one dollar. ... I make a profit of about N$400 per month. My business is good and I believe that it will grow. The only problem that I have is the lack of firewood. It is often hard to get wood. But I made an application for additional help to the government in order to expand my business. – Frieda Nembwaya (Haarmann et al., 2009, 77) This is an important finding, especially in times when countries struggle to positively stimulate their local economic development. The stimulus created by the BIG resulted in a sustained personal income increase beyond the money given from the outside and an increase in self-employment activities. This change in income also had a positive impact on the savings pattern of individuals and households. Six months after the introduction of the BIG, 21 percent of respondents reported saving some of their BIG money (amounting to an average of 7.2 percent of BIG money). We obtained independent confirmation that the BIG was linked to a large increase in savings activity in Otjivero. Laurensia Nowases from the Namibian post office in Omitara reported: I work here for some years, and before the introduction of the BIG only very few people opened the smart-card saving account. But after the BIG was introduced, 100 people opened their smart-card saving accounts and they are still coming. There are also parents who opened smart-card accounts for their children. I can also say

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Figure 2.6

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Baking bread: N$1 per roll – daughter of Frida Nembwaya

that the pensioners who used to spend their pension money on food and children are now able to make savings for themselves at the post office. The post office also makes good business and it stays busy nearly the whole day. About 38 people also took out funeral policies of Old Mutual and pay N$9.99 per month. I realise that the BIG is a great help and real solution to poverty. – Laurensia Nowases; NamPost Omitara, July 2008 (Haarmann et al., 2009, 79) Besides the increase in spending on food items, people used part of the money to improve their housing situation. Before the BIG, many shacks were made out of plastic sheets or canvas that provided very

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little protection against the elements. In November 2007, a third of the respondents indicated that they would be using part of the BIG money to renovate their homes. There are strong and visible indications from the data and the observed changes in the community that this has happened. For example, the average number of rooms in households rose from 2.6 (baseline) to 3.2 (six months) to 3.3 (one year). Over a fifth of households indicated that they had improved the roof of their homes (mostly with corrugated iron, but also with plastic and canvas) and many indicated that they intended to renovate and expand their homes later. Reduction in crime Otjivero had the reputation of a crime hotspot, and the police station commander had the following description of the situation in November 2007: The criminal activities are mostly poaching, assault and housebreakings. Poaching is the most common one. Poverty and unemployment are the reasons for these criminal activities. Otjivero is a tiny place and there is no source of income there. Most people hunt or poach just for survival. ... Poverty and unemployment lead to all the other conditions like crimes, alcohol abuse, mushrooming of shebeens. As you can see, there are no proper houses in the camp. People live in shacks made up of drums or pieces of tents. (Haarmann et al., 2009, 45) The BIG Coalition wanted to monitor how the crime situation developed after the introduction of the BIG, especially crimes related to economic conditions, like illegal hunting, stock theft, other theft and fraud. According to official information provided by the Omitara police station, 54 crimes were reported between 15 January 2008 (when the BIG was introduced) until the end of October 2008, while during the same period a year earlier (15 January to 31 October 2007) 85 crimes were reported. The police statistics therefore reflect a 36.5 percent drop in overall crime since the introduction of the BIG. It should be borne in mind that this is so despite a considerable in-migration of 27 percent into the area and an increase in the number of people living there. This could rather have led to an increase in overall crime. Analysing the types of crime, Figure 2.7 points to the fact that all economically related crimes fell considerably, while other crimes remained roughly the same.

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90

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ted c

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r the

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Figure 2.7

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espa

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ntin al hu

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Comparison of crime rates

In the reported period, illegal hunting and trespassing fell by 95 percent, stock theft by 43 percent and other theft by nearly 20 percent. The residents of Otjivero echoed this change in the crime situation: We don’t hear any more people complaining of hunger or asking for food. The theft cases have also declined a lot. Many people bought corrugated zinks and repaired their houses. We buy wood most of the time and don’t have many cases of people stealing wood any more. Fighting and drinking have also reduced and we don’t hear of people fighting any more. – Johannes Goagoseb and Adolfine Goagoses, July 2008 (Haarmann et al., 2009, 47) The BIG did not eliminate all crime. Assault remains a problem, and economic crimes such as theft continue to occur, though on a lower level. The point, however, is that BIG has significantly reduced crimes related to desperation (poaching, trespassing, petty theft) and thus appears also to have improved the general quality of life in the community. Community mobilization Lastly, the Otjivero community embarked on a community mobilization process that came unexpectedly and without any influence from

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the outside. Upon registration for the BIG pilot, the community decided to elect a “BIG Committee” to assist the community and to accompany the project. The community elected an 18-member representative committee, which in the subsequent months and years worked together with the BIG Coalition and within the community to raise awareness, educate, sensitize and empower the community on BIG-related issues. The committee wrote guiding principles for themselves, in which they stated that the pilot project is “a little project with a large aim. The aim is to UPLIFT the ‘life’ of Omitara, then Namibia, then Africa and at last the world” – BIG Committee, 2007 (Haarmann et al., 2009, 37–38). The BIG pilot project ignited hope and responsibility in the community, which realized that the success of the project of an unconditional cash transfer depended solely on the recipients themselves. The awareness raising by the committee was done in a spirit of common ownership and self-empowerment without coercion. Challenges for the project, like reducing alcohol abuse, were discussed openly and in a participatory way. It should be argued that this process was also possible due to the universal nature of the project: Since everyone got the grant, the community was united instead of being divided between beneficiaries and non-beneficiaries, and issues could be discussed openly and in a spirit of unity. The overall changes within the community, the improvement of the living conditions and the economic development experienced in Otjivero have been overwhelming and exceed all expectations. While N$100 would not offer much change for people in the middle- to upperincome class, it has been proven that it does change lives and livelihoods for those who are fighting for survival every day.

2.3 Will a national BIG in Namibia see the light of day? The seminal question is whether the BIG will be implemented nationwide in the foreseeable future. Much will depend on how the politics will play out within the ruling party as well as in the public arena. While nobody can ultimately answer this question at the moment, it is worthwhile having a look at the dynamics at play and the forces conducive to a national implementation and those that are hindering it. As outlined above, when the BIG Coalition was launched, the initial reaction of government was to back the BIG proposal. Prime Minister Nahas Angula even claimed ownership of the BIG proposal when he stated at a press conference that the Coalition should remember that the original proposal was brought up by government (New Era, 9 May

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2005). However, the enthusiasm of the prime minister was quickly dampened when the International Monetary Fund (IMF) intervened in the debate. In 2005, the IMF presented calculations apparently showing that the BIG in Namibia would cost 5.5 percent of GDP and would thereby be unaffordable. However, during a meeting with the IMF, the BIG Coalition successfully refuted these calculations, and the IMF had to admit that they had confused gross and net costs. At that meeting the IMF admitted that their figures were based on oversimplified gross-cost calculations and that the real cost to the state are the net costs, which amount to 2.2 percent to 3.8 percent of GDP – as verified by independent research commissioned by the BIG Coalition. The IMF agreed to redo its calculations and change them accordingly. Nevertheless, the IMF in its report to government published the calculations already proven wrong. Based on these wrong calculations, the IMF advised the Namibian government that the BIG would not make economic sense as “IMF’s staff calculations” apparently found that it could compromise fiscal sustainability in Namibia. Closely following the IMF’s arguments, the prime minister informed the BIG Coalition in May 2006 about a cabinet resolution that a BIG would “not be viable and make no economic sense.” (New Era, 23 May 2006) When confronted by the BIG Coalition at the end of 2006, the IMF’s chief of the Article IV Mission conceded again that the IMF overstated the costs in its report to the Namibian government by at least 2 percent of GDP. Nevertheless, he was adamant that the IMF would not correct its mistake, as it would not change the IMF’s position on the affordability of a BIG. The BIG Coalition exposed the intervention of the IMF as clearly ideologically driven and not substantiated by economic calculations (BIG Coalition press release, 20 November 2006). This opened up again the debate within government, and the predecessor of the current prime minister, Hage Geingob, called on his government to introduce the Basic Income Grant (Namibian, 6 March 2007). He was also the first to contribute to the fund for the implementation of the Basic Income Grant Pilot Project. The debate gained momentum and became more concrete with the release of the first results of the pilot in September 2008 and, ultimately, with the results in April 2009. There has been extended and detailed media coverage, both nationally and internationally. Never before has Namibia seen such an intense and constructive debate about poverty alleviation, redistribution and economic empowerment. The U.K. and

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the Afrikaans media have been extremely supportive. There have been a few hostile articles in the Namibian-German press, mainly from parts of the farming community worried about possible influx into Otjivero and about a shift in the power base, with the community becoming much more self-assertive. Also, there has been criticism from the Namibian Economic Research Unit (NEPRU), claiming that the research results were not correct. A senior researcher claimed, based on the medium income figures taken from the half-year report of the Coalition, that the people of Otjivero were not poor.10 The BIG Coalition challenged these statements, and NEPRU had to admit that their claim was based on a methodological flaw. NEPRU conceded that one could not base a poverty assessment on mean figures, especially in a country of high inequality. The mean misleads in suggesting that average people are doing reasonably well economically, whereby in reality a few have nearly all the income and the rest are extremely poor. NEPRU withdrew its statement and the senior researcher left the institute. A few months later, with the aid of another German national who had only just recently come to Namibia, this researcher tried to discredit the BIG Coalition’s pilot project by claiming that the BIG project in Namibia was, supposedly, not a Namibian project, but a guinea pig for some German parliamentarians, who would like to boost a BIG in Namibia.11 However, all of these attacks, which could not be substantiated, had very little impact on public opinion. Public support and support from individual politicians grew, especially when the community of Otjivero embarked on an outreach tour, travelling to the capital and the north of the country to speak about their experiences with the BIG and answer questions about the concept and the impact of BIG on the community. Wherever they went, they filled community halls, churches and had well-received radio interviews. After five years of intensive debate, there are many reasons to believe that national implementation is on the cards. According to the government’s own account, Namibia is still one of the most unequal countries in the world, and there is an imminent crisis with unemployment having grown from 33.8 percent in 2000 to 51.2 percent in 2008. Thanks to the BIG pilot, there is for the first time extensive scientific evidence of the social and economic impact of a BIG. Moreover, there are people’s own accounts of how life has changed with the BIG, as the residents of Otjivero are a living testimony to what can be possible. The BIG proposal now enjoys tremendous public support

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and, finally – importantly – there are detailed studies confirming the sustainability and elaborating the financing options. Yet, it is by no means clear whether a national BIG will see the light of day. While the political leadership has never directly commented on the Pilot Project, they have in recent times made concerted efforts to put an end to the debate. The prime minister tried to dismiss the BIG as “not a normal concept ... making a joke out of the poor” (Namibian, 22 October 2009). When challenged about BIG in parliament, the president similarly dismissed the idea cynically by saying, “We can’t dish out money for free to people who do nothing” (Namibian, 20 April 2010). Both have charged that it would be nonsensical and, indeed, sending out the wrong incentives, to give all people – including themselves – money. This critique of the BIG seems surprisingly misinformed, as they seem not to have engaged and acquainted themselves with the basic concept or the data. They made these claims despite qualifying themselves for the universal old-age pension, so in any case they would not be eligible for a BIG. Furthermore, given their income, they would have to pay much more than they would receive through the proposed increase in taxes to finance the grant. Therefore, they would be net payers. Interestingly, as leaders of a liberation movement, they retort with neoliberal arguments against the BIG, arguments firmly grounded in the belief that everybody gets what he deserves and which therefore put the blame of poverty on the poor themselves. Whether really misinformed or out of political calculation, they have presented their critique at a level that completely ignores individuals’ experience and the results of the pilot project. Following these arguments of the political leadership of the country, the union bosses, in alliance with the ruling party, subsequently decided to pull out of the BIG Coalition. They could not conceal from the public that there was no factual basis for their change in opinion; rather, that it was out of loyalty to what was perceived as the position of the party leadership (Namibian, 20 July 2010). During this debate, the chairperson of the BIG Coalition called on government to form a consultative forum to put the discussion back to the evidence and the research. This was supported by public opinion, but it did not garner any response from the government. (Namibian, 14 May 2010) Then the unexpected happened. The union leadership’s announcement to pull out of the BIG Coalition resulted in a massive public outcry against the hypocrisy and neoliberal policies of the leadership. Every day the newspapers were full of letters and SMS (Short Messaging Service) messages in support of the BIG (Namibian cartoon, 19 July 2010). Most

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importantly, the 600 delegates of the recent NUNW Congress forced the BIG issue onto the agenda and, uniquely since independence, revoked a decision by their leadership and resolved to rejoin the BIG Coalition. This popular comeback of the BIG has added a completely new dimension to the pressure within the ruling party towards national implementation. However, this is uncharted ground for the ruling party. They have always been able to silence internal opposition as disloyalty to the party, but not in this case (Namibian, Observer, 10 September 2010). The coming months will be decisive to see whether the political pressure is strong enough to push the BIG by public demand, or whether the BIG will remain a hope on the distant horizon and the Pilot Project a reminder of what Namibia could look like with a BIG.

Notes 1. Claudia and Dirk Haarmann are ordained pastors of the Evangelical Lutheran Church in the Republic of Namibia (ELCRN) and each holds a PhD in Social Development from the University of the Western Cape, South Africa. They were the coordinators of the BIG Coalition and BIG pilot project up until its conclusion in December 2009. Currently, they are the directors of the Theological Institute for Advocacy and Research in Africa (TARA) in Windhoek, Namibia, and associate research fellows of the Centre for Social Science Research (CSSR) at the University of Cape Town. 2. This chapter draws on the research results of the BIG pilot project and the first year report: Making the difference! The BIG in Namibia. The research and the report have been joint projects of several researchers and authors, mainly Herbert Jauch, Hilma Shindondola-Mote, Nicoli Nattrass, Mike Samson and Claudia and Dirk Haarmann. The chapter uses use the results and the research report. The contribution of the other authors is hereby gratefully acknowledged. For more details and background of the research see: http://www.bignam.org/Publications/BIG_Assessment_report_08b.pdf. 3. Tax effort analysis is a methodology to compare countries and the ratio of tax collection to GDP, taking account of their economic and developmental situation. The underlying question is whether countries are over- or undertaxed compared to similar countries. 4. In the remainder of the chapter we refer to Omitara-Otjivero simply as Otjivero, as this is the name by which the pilot project has become known. 5. The pilot ran for two years. The time series could gather reliable data for the first year. Since migration changed the composition of the sample considerably (27 percent in-migration and 16 percent out-migration after the first year), it was decided – together with the international advisory group – to conclude the panel after the first year. 6. The advisory team was comprised of: Nicoli Nattrass, director of the AIDS and Society Research Unit and professor in the School of Economics, University of Cape Town (UCT), South Africa; Mike Samson, director of

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7.

8. 9. 10. 11.

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the Economic Policy Research Unit (EPRI), South Africa, and professor at Williams College, United States; Guy Standing, professor of Economic Security, University of Bath, United Kingdom, and professor of labour economics, Monash University, Australia. The collection of children’s biometric data was done on a voluntary basis. It is noteworthy that all of the sampled children came to the clinic and the trained nurse weighed them. The p-value for the test for differences between waves 1 and 2, and 1 and 3 were 0.019 and 0.015 respectively. There was also no increase in incidents of ill-health in our sample between November 2007 and July 2008. For a detailed discussion see: http://www.bignam.org/Publications/Press_ release_response_to_NEPRU.pdf. Allgemeine Zeitung, 28 and 29 April 2010; New Era, 20 May 2010.

Bibliography Hoaës, Irene. (20.05.2010) “BIG under fire.” New Era. http://www.newera.com. na/. (Last Accessed – January 2011) BIG Coalition. (18.05.2006) Press Release: Response to the NBC report about the meeting 15 May 2006 with the Honourable Prime Minister. http://www.bignam. org/Publications/BIG_Press_statement_May_2006.pdf (Last Accessed – January 2011) BIG Coalition. (3.11.2008) Press release: “They trample on the heads of the poor as upon the dust of the ground!” (Amos 2,7a ). http://www.bignam.org/ Publications/BIG_Press_statement_May_2006.pdf (Last Accessed – January 2011) Dudley. (19.07.2010) “Cartoon. Union bosses.” The Namibian. http://www. namibian.com.na/ (Last Accessed – January 2011) Haarmann, Claudia, Dirk Haarmann, Herbert Jauch, Hilma Shindondola, Nicoli Nattrass, Ingrid Niekerk and Michael Samson. (2009) Making the difference! The BIG in Namibia. Basic Income Grant Pilot Project Assessment Report, April 2009, Windhoek, Namibia: Desk for Social Development. Haarmann, Claudia, and Dirk Haarmann. (2005) “The developmental impact of a basic income grant.” in The Basic Income Grant in Namibia. Resource Book, edited by C. Haarmann and D. Haarmann. Windhoek, 31–42 Jauch, Herbert. (20.07.2010a) “Labour in crisis: the NUNW and the Basic Income Grant.” The Namibian (http://www.namibian.com.na/index.php?id=28&tx_ ttnews[tt_news]=70339&no_cache=1). (Last Accessed – January 2011) Jauch, Herbert. (10.09.2010b) “The NUNW Congress: a turn-around?” Windhoek Observer. http://data6.blog.de/media/231/4976231_5613dfbe75_d.pdf (Last Accessed – January 2011) Kisting, Denver. (28.04.2010a) “President rejects ‘money for nothing.’” The Namibian (http://www.namibian.com.na/index.php?id=28&tx_ttnews[tt_news] =67252&no_cache=1). (Last Accessed – January 2011) Kisting, Denver. (14.05.2010b.) “Throwing BIG out the window is a big mistake: Kameeta.” The Namibian. http://www.namibian.com.na/index.php?id=28&tx_ ttnews%5Btt_news%5D=67814&no_cache=1 (Last Accessed – January 2011)

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58 Basic Income Worldwide NAMTAX. (2002a) “NAMTAX report appendix 4: income redistribution and poverty relief – a universal income grant combined with indirect tax increases.” (http://www.ippr.org.na/Non-IPPR%20research/Namtax%20Second %20Section%2015Dec20021.doc). (Last Accessed – January 2011) NAMTAX. (2002b) “The Namibian tax consortium. The Namibian tax consortium report on taxation in Namibia. December 2002.” (http://www.ippr.org. na/Non-IPPR%20research/Namtax%20first%20section15Dec20021.doc). (Last Accessed – January 2011) Osterkamp, Rigmar. (28.04.2010a.) “Grundeinkommen: Von Deutschland nach Namibia und zurück? (Teil 1/2).” Allgemeine Zeitung Windhoek. http://www. az.com.na/lokales/grundeinkommen-von-deutschland-nach-namibia- undzurck-teil-1/2.106037.php (Last Accessed – January 2011) Osterkamp, Rigmar. (29.04.2010b) “Grundeinkommen: Von Deutschland nach Namibia und zurück? (Teil 2/2).” Allgemeine Zeitung Windhoek. http://www. az.com.na/lokales/grundeinkommen-von-deutschland-nach-namibia-undzurck-teil-2/2.106119.php (Last Accessed – January 2011) Shejavali, Nangula. (20.10.2009) “Prime Minister shoots down BIG.” The Namibian: 3. http://www.bignam.org/BIG_media%20-%202009.html (Last Accessed – January 2011) Sibeene, Petronella. (23.05.2006) “Govt vetoes BIG – for now.” New Era. http: //www.newera.com.na/article.php?articleid=11711 (Last Accessed – January 2011) Tjaronda, Wezi. (4.11.2004) “Namibia mulls basic income grant.” New Era. http: //www.newera.com.na/article.php?articleid=3998 (Last Accessed – January 2011) Weidlich, Brigitte. (6.03.2007) “Geingob calls for basic income grant.” http://www. namibian.com.na/index.php?id=28&tx_ttnews%5Btt_news%5D=37375&no_ cache=1 (Last Accessed – January 2011)

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3 Brazil: Basic Income – A New Model of Innovation Diffusion Denilson Bandeira Coêlho

Brazil occupies a distinctive place in the implementation of basic income, with the creation of the Bolsa Escola (school stipend) in 1995 and the Bolsa Familia (family stipend) in 2004. The country is also distinctive because programmes have been established at municipal, state and federal levels. This chapter analyses Brazil’s basic-income policy in the 1990s and 2000s. It focuses primarily on a key question: the adherence of the local, state and federal governments to income-transfer programmes. Initially, it describes the context of the reform of Brazil’s social agenda and outlines how some political actors have developed victorious strategies to implement the programmes. It is not possible to understand how the social policy of basic income has established itself in the country without analysing political processes, particularly in regard to the role of political entrepreneurs and the interconnection amongst the three governmental spheres. Brazil has a governmental structure in which the municipalities and states are autonomous federative units, and this structure enables the creation of social programmes independently of the central government. The initiatives of regional political actors at appropriate junctures have paved the way for the diffusion of this policy on a nation-wide basis. Thus, this chapter analyses how Brazil, in a short period of time, has re-implemented democracy (1985), approved a new federal constitution (1988) and reconfigured its welfare system (1990s). It then follows the implementation process of the basic-income programmes at the three levels of government, describes institutional challenges and political strategies and analyses how the political system has defined a new social agenda, marked by focused social policies. We will discuss the positive accomplishments of basic income and present specific data on 59

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social indicators and results of the policy. We will examine the unique political, social and economic aspects of basic income in Brazil and the factors likely to shape basic-income policy in the future.

3.1 The debate in Brazil: main actors, arenas and political strategies In Brazil, the initiative to reform the social agenda and create incometransfer programmes was initially led by two political entrepreneurs linked to a left-wing party: senators Eduardo Suplicy and Cristóvão Buarque, of the Workers’ Party (PT). Both politicians had a solid academic background and walked distinct paths, though towards the same destination. The formal political debate became part of the national political agenda starting in 1991 when Senator Suplicy proposed the Program to Guarantee the Minimum Income (PGRM) for all Brazilians who lived in the country, were older than 25 and earned an income corresponding to slightly above two minimum wages (Act Project 80). The project was unanimously approved by the Senate and submitted in December 1991 to the House of Representatives, where it was not taken to discussion. Other proposals for a minimum income were presented by representatives and senators of the Party of Brazilian Social Democracy (PSDB), the Party of the Brazilian Democratic Movement (PMDB) and the PT itself. This period marks the beginning of a competition among the parties for minimum-income programmes in Brazil. In 1992, the participation of Senator Suplicy in the Basic Income Earth Network (BIEN) strengthened his contribution to the international debate and brought new issues for discussion in Brazil. The movement Ethics in Politics was organized in order to press for President Fernando Affonso Collor de Mello’s (1990–92) impeachment, and this action ensured that poverty and hunger became two of the central questions on the national public agenda. Several civil society organizations from distinct social sectors actively took part, but the major NGO of the movement was the Brazilian Institute of Social and Economic Analyses (IBASE), founded in 1981 by the sociologist Herbert de Souza. In 1993, IBASE organized a nation-wide campaign to distribute food to the poor through local committees. In a few years the National Campaign of Citizenship-Action against Hunger and Misery and for Life created hundreds of committees in Brazil. Members of parliament from the PT and other parties created the Parliamentary Front of Action for Citizenship, and the Instituto de

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Pesquisa Econômica Aplicada (IPEA) issued the study, “Map of Hunger,” which revealed that the country had 54 million individuals living in poverty. These statistics were frequently discussed by Suplicy at the Brazilian parliament, and led President Itamar Franco to declare in 1993 that Brazil “was experiencing a state of social calamity.” In 1997, Suplicy strongly criticized the design of the federal PGRM. He disagreed with the low value of the stipend for poor families and with the limited number of municipalities selected by the ministries of Planning and Education. In 2001, Suplicy called upon the Senate to create the Basic Income of Citizenship (RBC) for all Brazilians living in the country and for foreigners who had been residents for at least five years (Act Project 266). The RBC consisted of a transfer, defined by the federal government according to “budgetary possibilities,” within limits established by the Fiscal Responsibility Act (LRF). The project was unanimously approved by the Senate in 2002 and in 2003 by the Committee of Constitution and Justice of the House of Representatives, and the landmark legislation was enacted in January 2004 (Act 10835). This proposal stipulated a gradual implementation starting in 2005, but the programme has not yet been effectively put into practice because the act must comply with Brazil’s overarching economic policy. Senator Cristovam Buarque sparked a debate in the mid-1980s based on the following question: “If the children do not go to school because their families are poor, why not then pay the parents, so that the children do not miss school?” A group of teachers, researchers and intellectuals of the Study Nucleus of Contemporary Brazil at the University of Brasilia (UnB) focused on this question. After a period of discussion, a consensus was reached on the feasibility of the programme, and some criteria were defined, such as the cost at an estimated 1 percent of the federal budget, and the payment of the stipend per family, regardless of the number of children. Additionally, it was decided that the sum should be transferred to the mothers of recipient families, in order to secure better control of the money. The idea was taken forward and began to be disseminated and discussed with the 1987 launching of “An Agenda for Brazil – One Hundred Measures to Change Brazil (Uma agenda para o Brasil – Cem medidas para mudar o Brasil ). From 1987 to 1994, the proposal evolved into the book, The Revolution of Priorities: From Technical Modernity to Ethical Modernity (Buarque, 2000), and it started to present reform proposals focused on education, with wide publicity around the country. In 1993, approximately five thousand individuals in 22 cities debated the proposals (Aguiar and Araújo, 2002). In that same year, an idea that

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had been defended since 1991 by the economist José Márcio Camargo, linked to the PT, gave political visibility to the projects for a school stipend, the Bolsa Escola, and Minimum Income. Camargo wrote an article, “Os miseráveis” (“The miserable ones”), in the newspaper Folha de São Paulo, arguing that basic income as proposed by Suplicy was bound to have a short-term distributive effect, and would be inefficacious in combating inter-generational poverty. He proposed a change in the design of the policy, so that its main aim would be to distribute income, under certain conditions, to families of children enrolled in public schools. In 1994, as candidate for the government of the Federal District, Buarque included the project Bolsa Escola as an education programme in his governmental plan. The distinct paths walked by the two leaders produced similar and positive results in terms of concrete actions about minimumincome policies in Brazil. Senator Suplicy began his strategy directly in parliament, and later he reformulated his political proposal from a minimum-income programme to a basic-income programme. Suplicy was also a key actor in the Bolsa Escola of the city of Campinas, having inspired Mayor José Roberto Magalhães Teixeira (PSDB) to create the first programme of municipal income transfer within Brazil. Senator Buarque first entered into the academic debate as a scholar and president of the University of Brasilia and, later, as governor of the Federal District, he implemented the Bolsa Escola.

3.2 The victory of the political entrepreneurs: minimum income at the federal capital and in the city of Campinas In January 1995, two important cities, Campinas and Brasilia, were the first in Brazil to implement a basic income, in the form of Bolsa Escola. The Campinas Programme to Guarantee a Minimum Family Income was created on 6 January 1995. The main objectives of the programme, targeted at families with children at risk younger than 14, were to improve the nutritional state of children and the general conditions of the families, and ensure that children attended school. Some eligibility criteria were adopted, such as monthly level of per capita family income and a minimum two-year period of residence in the municipality. The benefit was a monthly cash addition to the per capita family income up to the maximum ceiling of R$35. Some conditions were imposed, such as the presence of the families in socioeducational meetings and periodic visits to the health assistance units

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and vaccines for the children. The expected cost was around 1 percent of the municipal budget, equivalent to three million reals for the first year of the programme’s execution. On 11 January 1995 the Programme of Family Stipends for Education was approved by the government. The objectives of the programme were to develop educational, political, social, human and family-integration improvements through cash transfers to families in precarious life situations who had children from seven to 14 years old enrolled in the public schools. The eligibility criteria envisioned: (a) a maximum family income of half the minimum wage; (b) a minimum five-year period of residence in the federal capital; (c) regular school attendance by children; and (d) registration of unemployed parents in the National System of Employment (SINE). The families received one minimum wage per month. A total of 1 percent of the municipal revenue was allocated to the programme. The budget of the Federal District is one of the highest in the country, and in one year the funds were sufficient to increase the number of stipends from 11,927 to 28,672. The programmes of Campinas and Brasilia attracted attention for two important reasons. First, the programmes were an important innovation in social policy because their institutional design guaranteed a conditional income transfer to poor families. Second, factors such as the programme’s relatively simple implementation, and the fact that it was an innovative programme, generated political credits for local leaders. The launching of the programme in other municipalities of the country was an independent decision of each jurisdiction, but at the same time, it was connected to these pioneering experiments. The adoption of objectives similar to Campinas and Brasília and peer-learning – political parties with the same programmes and contents – indicate that there was indeed an interconnection among the cases. In all regions of the country, municipalities administered by different political parties also emulated the model. These municipalities vary significantly in the size of their populations and in economic and social indicators, so it is intriguing that the objectives and the style of implementation of the policy were very similar. The following data illustrate the dynamism and the specificity of the Brazilian case. Table 3.1 shows the distribution of municipal proposals for the creation of the Bolsa Escola by political parties across Brazil. The survey shows that 61 percent of the 90 proposals had a PT authorship, and PSDB originated approximately 13 percent of the proposals. The result shows that the PT had a leading role in initiating proposals, along with its attempt to dominate politics.

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Basic Income Worldwide Table 3.1 Municipal proposals of minimum income by political party – Brazil (1995–2001) Political Party

Number of proposals

PT PSDB PPB PSB PTB PMDB PFL Without party More than one party Popular initiative Data not available Total

52 11 3 2 2 1 1 1 6 1 10 90

% 61.1 12.9 3.5 2.3 2.3 1.1 1.1 1.1 7.0 1.1 5.8 100

Source: NEPP/UNICAMP/UFMA and IPEA. Table created by the author.

Table 3.2 Municipal proposals of minimum income in the states (1995–2001) State São Paulo Minas Gerais Paraná Rio de Janeiro Santa Catarina Goiás Rio Grande do Sul Bahia Ceará Espírito Santo Mato Grosso Pará Pernambuco Roraima Total

Number of proposals 53 9 6 5 3 3 3 2 1 1 1 1 1 1 90

% 58.8 10.0 6.6 5.5 3.3 3.3 3.3 2.2 1.1 1.1 1.1 1.1 1.1 1.1 100

Source: NEPP/UNICAMP/UFMA and IPEA. Table created by the author.

Table 3.2 shows the distribution among 14 states of municipal proposals for the Bolsa Escola. The state of São Paulo has 53 of the 90 proposals (58 percent of the total) and is followed by the states of Minas Gerais (10 percent of the proposals), Paraná (6 percent) and Rio

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de Janeiro (5 percent). These data indicate that in proposing innovative policies the state of São Paulo is quite distinct from the rest of the country. Another analysis indicates that the number of São Paulo proposals is partly associated to the number of proposals presented by the PT. One may also observe a prevalence of states with stronger economic development. For instance, poorer states such as those of the Northeast have only 4 percent of the total proposals. Although the northeastern states have the highest poverty rates and the worst schooling indicators in the country, it is reasonable to suppose that the states of the South and Southeast presented the larger number of proposals due to their stronger economic position. These factors, coupled with the administrative capacity of their municipalities and their position in a region with a tradition of political innovation, led to a fertile climate for basic-income reforms. Table 3.3 lists the number of effectively implemented programmes by the municipalities in each state between 1995 and 2001. Once again, the state of São Paulo leads with 51 percent of the programmes.

Table 3.3 Programme Bolsa Escola implemented by the municipalities – Brazil (1995–2001) State São Paulo Minas Gerais Rio de Janeiro Rio Grande do Sul Santa Catarina Bahia Espírito Santo Paraná Mato Grosso Goiás Pará Amazonas Piauí Pernambuco Rio Grande do Norte Ceará Maranhão Total

Number of Programmes 29 5 4 3 2 2 1 1 1 1 1 1 1 1 1 1 1 56

% 51.8 9.0 7.1 5.3 3.5 3.5 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 100

Source: NEPP/UNICAMP/UFMA and IPEA. Table created by the author.

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In terms of region, 80 percent of the cases are concentrated in the South and Southeast, and the other regions comprise 20 percent. This result reinforces the finding that São Paulo stands out from other states. Two factors play a role in explaining the strength of São Paulo in fostering basic-income reforms: first, the PT governed in a larger number of city halls in this state than in the rest of the country; second, is the importance of Campinas as a model city that influences the neighbouring cities.

3.3 An increasing political competition: from municipal to state diffusion The implementation of minimum-income policies in Brazil began in the municipalities, but in some regions there were also initiatives by the state legislatures. From 1995 to 1997, 16 proposals were in transit among the 27 state legislative assemblies ( Table 3.4).

Table 3.4 Proposals to create the PGRM in the Brazilian states (1995–97) State Federal District Espírito Santo Goiás Minas Gerais Pernambuco Rio de Janeiro Rio Grande do Norte Amapá Amazonas Ceará Paraíba Paraná Rio Grande do Sul Tocantins Santa Catarina São Paulo

Party Authoring Party of the the Proposal Governor PT PT PT PT PT PT PT PSB PPB PT PMDB PTB PT PPB PT PT PMDB

PT PT PMDB PSDB PSB PSDB PMDB PSDB PPB PSDB PMDB PDT PMDB PPB PMDB PSDB

Year 1995 1995 1995 1995 1995 1995 1995 1996 1996 1996 1996 1996 1996 1996 1995–97* 1995–97*

Source: NEPP/UNICAMP/UFMA, IPEA and TSE. Table created by the author. * The surveys undertaken by the institutions mentioned as sources do not provide the exact year in these three cases. The proposals were presented between January 1995 and May 1997.

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All regions of the country had at least two state initiatives going through their legislative assemblies. The state of São Paulo was the only one in which proposals were presented by two parties. A broad PT predominance is observed; the party presented 11 of the 17 projects (approximately 65 percent of the total). The PSDB did not make proposals but members supported the creation of the PGRM in the four states governed by the PSDB, Minas Gerais, Rio de Janeiro, Ceará and São Paulo. Table 3.5 below shows the picture of implementation of the policy in two governmental periods. In the period 1995–98, five state-based programmes were approved. The experience of the Federal District meant an opportunity for the other states to copy an innovative policy that had a high level of approval among the poor population. The Buarque administration’s willingness to assist other states and parties interested in the programme in the federal capital was an important element in the decision to create the state PGRM. Starting in 1996, the governments of the states of Tocantins and Amazonas (PPB), Amapá (PSB) and Espírito Santo (PT) implemented programmes. The other 12 proposals put forward in this period either were not approved by the legislative assemblies or were vetoed by the governors, including three PT proposals in states governed by the PSDB. In 1999 new programmes were implemented in the states of Mato Grosso do Sul (PT), Minas Gerais (PMDB) and Rio de Janeiro (PDT); in 2000 in Goiás (PSDB) and Alagoas (PSB); in 2001 in Rio Grande do Sul (PT) and São Paulo (PSDB). With the exceptions of Mato Grosso do Sul and Alagoas, the other states had already put forward proposals in the previous period. Interestingly, the context of these programmes was that Table 3.5 State programmes of minimum income/Bolsa Escola, by region (1995–2002) State and Period Region

1995–98

1999–2002

Midwest

Goiás (2000) and Mato Grosso do Sul (1999) Alagoas (2000) None

Southeast

Federal District (1995) and Tocantins (1996) None Amazonas (1996) Amapá (1996) Espírito Santo (1996)

South

None

Northeast North

Minas Gerais (1999), Rio de Janeiro (1999) and São Paulo (2001) Rio Grande do Sul (2001)

Source: NEPP/UNICAMP/UFMA, and IPEA. Table created by the author.

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the states that implemented the programme in the period 1999–2002 did so under the supervision of their governors. These were precisely the states that had previously vetoed proposals by the PT. In the period 1995–98, the PSDB vetoed the PT proposal in three states: Minas Gerais, Rio de Janeiro and São Paulo. Nevertheless, the creation of the PGRM was approved when the proposals were presented either by the party of their governors or by other parties. The emblematic case was São Paulo. Governed by the PSDB in both administrations, the state parliament vetoed the PT proposal and approved the proposal of the PSDB. In Goiás and Rio Grande do Sul, which had also rejected the PGRM under the PT initiative, the programme was approved when the proposal was made by the governor’s party, in Goiás, by the PSDB and in Rio Grande do Sul by the PT itself. The state of São Paulo was the last to create its own PGRM in September 2001, entitled Citizen Income (Renda Cidadã). After São Paulo, the slowing of the impetus for state initiatives can be explained by the creation of the federal government’s PGRM, which was the object of an intense political dispute at the House of Representatives and at the Senate.

3.4 The federal government enters the scene: the creation of the first national programmes In the same period that saw the creation of municipal and state minimum-income/bolsa escola programmes, a debate started in the National Congress on a national proposal. A number of proposals were presented, and the increasingly strong interest of members of the parliament (due to the positive evaluation of the programmes by the international community and by citizens) stimulated the federal government to make a more careful study of the proposal to create a national minimum-income policy. Three factors suggest an explanation for the change of position by the federal government. First, the strengthening of the consensus around a national policy to combat poverty. Second, the rapid consolidation of Bolsa Escola as a feasible social-policy alternative, due to its low cost. Third, the high degree of political competition, which became evident in the proposals for the creation of minimum-income programmes at the municipal and state legislative assemblies, and at the National Congress. In a context of increasingly strong political competition, the Fernando Henrique Cardoso government was pressed into providing effective federal participation in programmes to combat poverty. Thus,

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the federal government decided to implement income-transfer policies focused on distinct target groups. Based on the Bolsa Escola in the Federal District, the government created the Programme of Eradication of Child Labour (PETI) in 1996. In the same year, the Benefit of Continuous Provision (BPC) was launched for elderly citizens. The year 1997 saw the launch of the PGRM, but it was effectively implemented in 1999. Meanwhile, the proposal of Senator Suplicy, approved in 1991, was obstructed until 1993 in a political manoeuvre to generate credit for the party of the president of the republic. In November 1996 the PGRM was approved at the House of Representatives with a few modifications. Roughly one year later, it reached the Senate and was approved in December 1997 (Act 9533). Considering that many municipalities governed by the PT and other parties had already established a municipal Bolsa Escola, and that regional programmes had been either under way or in voting stage, the approval of the federal PGRM in 1997 constituted a response by the PSDB to political competition represented by the PT. Thus, the political context around the emulation of the Conditional Cash Transfers (CCT) programmes and the competing proposals at the National Congress allowed the federal government to claim political credit for the minimum-income model.

3.5 The competitive adherence of the municipalities to the federal programmes The IPEA study pointed out that part of the population of around 3,300 municipalities needed cash transfers to augment their income. Nevertheless, the federal government limited the PGRM to the poorest regions, and the programme was restricted in terms of scope and focus. Thus, only municipalities with per capita incomes below their states’ average were eligible to adopt the PGRM. As a result, between 1999 and 2000, about 1,350 municipalities participated in Brazil’s first federal programme of minimum income. It was expected that the PGRM would begin in 1998 but, due to the elections for governors and for president, and even more due to the internal pressure by the mayors who were left “outside” the IPEA list, the beginning of the programme was postponed to 1999. There was criticism from mayors and even by governors who were dissatisfied with the list. The mayors presented their own calculations based on consultancy studies and on data provided by the Brazilian Institute of

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Geography and Statistics (IBGE) in order to confront the IPEA technical study. Another problem was related to two articles in the PGRM act, which left space for political pressure: § 2. The execution of the timetable defined by this article may be accelerated, due to the availability of resources. § 3. Starting in the fifth year, provided that the resources are available and considering the results of the programme, the Executive Power may extend the reach of the programme for all Brazilian municipalities and for the Federal District. Based on this information, pressure by mayors generated instability in the period before the execution of the programme and even during the implementation period. Some managers of the programme actually affirmed that there were informal agreements between the municipalities, according to which the municipalities that met the conditions would “pass their turn” to another municipality. By attempting to make this type of agreement, the mayors claimed that this was only a way to speed up the access of the municipalities to the programme. These procedures changed the process of diffusion of the PGRM throughout the entire country. In fact, the strong interest of the municipalities foreshadowed the end of the programme, but not of the model and of the policy of income transfer. The federal government changed the access rules in order to meet the demand of the mayors for a national policy of minimum income without a municipal counterpart and, at the same time, it implemented its own preferences. Thus, these factors were decisive for the substitution of the PGRM by the National Programme of Minimum Income Linked to Education – Bolsa Escola Federal in 2001. The involvement of the municipalities in programme Bolsa Escola Federal was surprising; in its first year approximately 95 percent of Brazilian municipalities were administering the programme. With the victory of Luiz Inácio Lula da Silva and of the PT for the presidency of the republic in October 2003, the programme Bolsa Escola Federal stopped being the main minimum-income programme of the country. Programme Bolsa Família (Family Stipend) was launched with the goal of centralizing the income-transfer management. Then programmes Bolsa Escola Federal, Bolsa Escola Alimentação (School and Food Stipend), Auxílio-Gás (Gas Aid) and Cartão-Alimentação (Food Ticket) were unified. In 2004, President Lula approved the Act of Basic Income of Citizenship.

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3.6 Minimum income in Brazil: a brief description of the programmes of the federal government The federal PGRM was conceived for the institutions of the school system and was based on distributive premises, following the economic theories of Milton Friedman and John Kenneth Galbraith. Galbraith proposes to balance the profit in the market system with the benefit of a planning system. This allows the unemployed to have a minimum income by means of governmental income transfers. The Ministry of Education coordinated the federal PGRM and defined the guidelines in order to raise the national levels of school performance, to reduce repeating grades and to reduce dropping out from basic school. The target public of the programme was families with a per capita income below half a minimum wage and with children up to 14 years old. The conditionality demanded regular attendance of children at school, and the families would receive a monthly stipend of R$15 per child. The funding of the stipends was equally divided between the federal government and the municipal governments. Until January 2001, the programme benefited around 850,000 families (including 1.6 million children), with an average contribution to each family of R$38. Although it evolved, there were many institutional challenges for the implementation of the programme. The difficulties of development ranged from the financial fragility and lack of institutional capacity of the municipalities to the failures of ministerial management in the application of administrative procedures and control activities. The following points stand out as factors that limited the evolution of the federal PGRM: ●

●

●

●

●

Lack of articulation with the policies of education, health and employment; Incapacity to change the profile of income distribution due to the low value of the benefit that was transferred to the families; Difficulties imposed on the poorest families’ ability to prove an insufficient income; Difficulties in controlling the selection and transfer of the stipend, and of avoiding corruption and political clientelism; Lack of a definition on the budgetary funds and on the budgetary timetable of the programme.

This last point decisively contributed to the substitution of the PGRM by programme Bolsa Escola Federal in 2001. The difficulty of the

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municipalities having to pay for half of the stipends to families, and the approval of the Fund to Combat Poverty by the National Congress allowed the federal government to finance the entire cost. Programme Bolsa Escola Federal had the initial goal of serving 10.7 million children from 6 to 15 years old, and 5.9 million families with a per capita family income of half a minimum wage. The conditionality demanded monthly school attendance of at least 85 percent, and the families received R$15 per child, up to a total of three children enrolled in the school, thus reaching a maximum monthly benefit of R$45. To avoid control problems, the federal government adopted three important measures. The first corrected the problems of the registration system for the families by creating the Unified Registry Database that could be turned into an instrument of local and national planning. The second measure was to demand quarterly municipal reports on school attendance. Third, use of a personal debit card was implemented, so that the benefit could be directly withdrawn at a federal bank by the families. From the political-institutional standpoint, the programme Bolsa Escola Federal represented an advance compared to the previous programme. With the proposal of a universal social service, all Brazilian municipalities could be in a position to sign an agreement with the federal government as long as they were willing to fulfil the following criteria: ● ● ●

●

● ●

Register the families eligible for the programme; Approve a municipal act in order to implement the programme; Decree the nominations of the Social Control Council, with at least 50 percent of the seats occupied by actors of the civil society; Declare the assignment of 25 percent of the municipal budget to basic education; Document adherence to the programme; Develop socio-educational actions and remedial-study activities;

The objectives and goals set for Bolsa Escola Federal were the following: ●

● ● ●

Allow access and regular attendance of children from traditionally excluded social strata at the schools; Integrate families into the educational process of their children; Reduce the costs of truancy and grade repetition; Combat child labour;

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Raise the quality of life of the families with the lowest income levels; Promote social inclusion by means of education.

In terms of evaluation indicators, the programme Bolsa Escola Federal demonstrated advances and limitations. There was an improvement in the conditions of life of the beneficiary families, which increased their purchasing power, particularly for food and clothing. There was also an increase in school attendance of 6–15-year-old children, particularly those from poor families in the country’s most vulnerable regions. However, there is still no empirical evidence to prove that there was an improvement in the educational performance of the students, or to show that there was an increase in the levels of employment and income starting in the period when the families joined the programme. The programme Bolsa Família was conceived after a diagnosis by the transition team of the Lula administration, which pointed out that the existing programmes were problematic because they competed and overlapped in terms of their goals and target areas. This resulted in different treatment for poor individuals and social exclusion, instead of social inclusion. Another problem was the lack of administrative planning for the programmes. The ability to secure an optimized allocation of public expenditure in order to avoid a very narrowly focused selection of the target public, and the payment of low-value stipends that would not produce improvement of the quality of life of the beneficiaries, represented further problems with the programmes. Important changes were then decided in terms of administration and operational actions of the programmes. The first change was the creation of the Ministry of Social Development and Fight Against Hunger in 2004, to articulate and centralize the management of the programmes that so far had been administered in isolation by each ministry. The second change was to update the target public of the programmes and to standardize the per capita family income, thus leaving aside the reference to the minimum wage. The third change was the adoption of a unified card system for the withdrawals of the benefit by the families, and the creation of a budgetary fund in order to centralize the cash transfers. The initial objective of programme Bolsa Família was to universalize assistance to all the families whose inclusion was aimed at. As a second step, it sought to raise the value of the stipend for two distinct target groups. The first group, in the category of indigent families, had a maximum per capita family income of R$50 monthly; and the second

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group, the category of poor families, had a maximum per capita family income of R$100. The first group received a minimum monthly benefit of R$50 and was eligible to three additional benefits of R$15, thus adding up to a maximum total of R$95 per month. The second group received a cash transfer of R$15 per child, and could reach a maximum stipend of R$45 a month. The programme Bolsa Família sought to reach all the families in poverty in the country – an estimated 50 million individuals. The number of assisted families was raised from 3.5 million in 2003 to 6.5 million in 2004, and from 8.5 million in 2005 to 11 million in 2006. In 2010, the programme included approximately 13 million families. From the standpoint of reducing inequality and poverty, the programme has produced positive results. A study by IPEA points that the Gini index was reduced from 0.58 in 2003 to 0.54 in 2008. There was also a reduction in the number of families below the poverty line, from 17.5 percent in 2003 to 8.8 percent in 2008, and in the number of poor families, from 39.4 percent to 25.3 percent in the same period. Other figures show that the poorest 20 percent of the families experienced an increase in per capita income 47 percent higher than the richest 20 percent of families. The decrease in social inequality and poverty is analysed by economists according to macro- and microeconomic variables, and in terms of the governmental transfers to poor groups in the population. Therefore, it is important to see if there is empirical evidence to show that this reduction occurred due to the minimum-income programmes. Some studies reply in the affirmative (Soares et al., 2006). It is estimated that approximately one third of the decrease in inequality is due to the income transfers of the means-tested programmes. In the case of Bolsa Família, it was estimated that the programme produced a 14 percent decrease in the inequality and a 27 percent decrease in the ratio between the 20 percent richest and the 20 percent poorest families. The consensus in the literature shows that the programmes have a decisive impact on the incidence of poverty, but not on the proportion of the poor. In other words, programmes such as Bolsa Família improve the living conditions of the poor but do not free them from poverty. The impact of the minimum-income programmes must be also analysed in a more gradual and sectorial way. Let us take the example of the education indicators. The present rate of school attendance is around 96 percent among the children assisted by the programme. When we compare them with the group of children who attend the

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same schools but do not receive the stipend, the difference for the age group of five to six years old is 8 percent. Health indicators are also positive. Data by the IBGE show that among children between one and three years old, there is a 28 percent nutritional risk decrease, whereas among children from three to five years old, the decrease is 25 percent. Research by the Ministério do Desenvolvimento Social e Combate à Fome (MDS) indicate that 75 percent of the families spend 87 percent of their stipends on food. The literature is still in search of solid data on child-labour indicators. The difficulty is to explain the relation between the time dedicated to school and to child labour, as this datum is quite variable in the country due to geographic and socio-economic distinctions. Another difficulty is to point out with a degree of certainty the real reasons for not going to lessons or dropping out of school, because the children can happen to miss classes due to health reasons or the lack of transportation, for instance, and not due to work activities. Regarding this point, the main result found by IBGE research is that the beneficiary children work more than the children who do not receive the benefit. The positive impact is centred on the youngest age groups, with a 10 percent decrease in the child-labour figure. In short, the literature has pointed out that the value of the stipend is still insufficient for families to keep a child in school for an entire year. The programme Bolsa Família has meant an important advance in the institutional structure of the Brazilian welfare system. As noted by the literature and by the stakeholders in the policy, the limitation to the participation in the programme of families when the children become adolescents poses a large potential problem. Policymakers must investigate if such programmes will remain as effective over time as a basic system of social protection if such limitations remain in place. In Citizenship Income: The Exit Is through the Door (2002, 2004, 2007), Senator Suplicy proposed that through the Basic Income of Citizenship all Brazilians and foreigners living in the country for at least five years should receive an unconditional benefit of R$40 per month. He further argued that as the country economically advances, the value of this benefit should increase. Senator Suplicy has also proposed that the Basic Income of Citizenship should be implemented first in the municipalities, as was Bolsa Escola. An historic experiment has started in Santo Antônio do Pinhal, a PT-administered municipality with a population of 7,000 inhabitants. The programme follows the model of the federal act and establishes budgetary funds for financing the stipends with

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revenues from the municipality itself and from constitutional transfers, but it also foresees donations by individuals and by both public and private national and international companies. Brazil has implemented the Basic Income of Citizenship by force of law and is the first country of the world to take this step. However, Brazil’s political and institutional setting is highly unfavourable to its effective implementation. As was previously mentioned, the act defines in its first paragraph that the cash transfers shall be made in stages and should follow the criterion of the executive power according to its budgetary availability. Article 195 of the 1988 constitution established that the policies of health, social assistance and social welfare must be funded by society as a whole, either in a direct or an indirect way, and also by the budget of the three spheres of government, by social contributions of employees, by the income of companies and by the workers. Such policy aimed at expanding and diversifying the sources of funding for social policies, which had been previously concentrated on the salaries of the workers. Although the change may mean an institutional advancement, it does not secure the funding of universal policies of basic income, such as in the case of the Basic Income of Citizenship. Furthermore, during the past two decades, the political system was quite pressed to provide answers to the variety of minimum-income proposals in the country. In other words, politicians or political parties have competed for the previous models and conquered relevant spaces in the eyes of the society; therefore, a new proposal that faces serious difficulties in its effective implementation would certainly not generate new political incentives. In this sense, the political strategy of the federal government seems to have neutralized the political entrepreneur, Suplicy, inasmuch as his proposal still finds itself obstructed. This is because it is a direct competitor to the programme Bolsa Família of President Lula, who, during his term of office, was the political entrepreneur to whom the political system had to provide immediate answers. Last, but just as important, there is also the problem of the absence of international models, with the exception of the U.S. state of Alaska. In short, in the discussions on minimum income, Brazil is noted as an interesting case, as it vacillates in its attempt to institutionalize a system of basic protection for the society.

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3.7 Conclusion The evolution of Brazil’s basic-income policy can be divided into three stages. During the first stage, political entrepreneurs defended the urgency of reform in the welfare sector and succeeded in incorporating its objectives. The reformers confirmed that the basic-income model was the best option for tackling poverty, especially because the children would have to remain longer in school. At this stage, extending from 1995 to 1999, the arenas of political dispute were the municipal and state legislative assemblies. During the second stage, the policy was structured and the federal government became interested in adopting this innovation. From 1999 to 2002, with the launching of the two first federal programmes, the National Congress became the main decisionmaking arena. And during the third stage, there was the beginning of the policy’s institutionalization, along with an extraordinary advance in terms of social results, above all in the welfare of the poorest levels of the population. This period, from 2003 to 2010, marked the total decentralization of the policy in all Brazilian municipalities. Fifteen years after its implementation, it is possible to comment on how distinctive political structures have determined the diffusion of the policy. The local programmes, especially the programmes of the federal capital, Brasilia, and the city of Campinas (located in the most important state of the federation, São Paulo), have been crucial for the image of the policy. In these two municipalities, the programme was very well implemented by the PT and PSDB governments. As a result, the diffusion of the programme took place as an uncoordinated process, without the participation of external agents such as the federal government and international organizations. Positive evaluation, the support of civil society and the interest of other political parties decisively influenced the policy in the late 1990s. At that moment, we can say that Brazil’s basic-income programmes became true political institutions. The political system incorporated the model in the decision-making political agenda and defined the basic income programme as a top policy. The course of this history is also explained by the previous legacy of the basic-income policy itself: a group of municipalities and states failed to implement it. There were problems in the payment of grants to the families, failures in the administrative capacity and poorly qualified bureaucracies, which became serious challenges to reform. From this

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perspective, the institutional fragility of local governments vis-à-vis the federal government has allowed other political actors to establish changes in the rhythm of the dissemination of the programme. The creation of the federal Bolsa Escola Programme in 2001 was a critical moment in the trajectory of the minimum-income model in Brazil, and firm adherence by the municipalities defined the second wave of political diffusion. In 2004, the unification of the income-transfer programmes into the Family Stipend programme was a successful strategy inasmuch as it prevented conflicts between federal bureaucracies. A unified process was coordinated by the Ministry of Social Development and Fight Against Hunger, and a budgetary fund was established for the policy. At the same time, municipal governments became responsible for overseeing fulfilment of the obligations of families in such areas as the vaccination of children, medical appointments and school attendance. Local authorities, along with health professionals and teachers, are directly involved in the control of the programme’s management because they must fill in forms detailing to what degree families have met their obligations. These rules have the goal of institutionalizing decentralized, yet shared, management among local and national actors and institutions. There are many challenges in the management of basic-income policy in Brazil. But what makes the basic income programme special is that Brazil’s new social policy is an innovation in the federal system, in which the central government, state governments and municipal governments jointly undertake the management of decentralized implementation, including almost all 5,565 municipalities of the country. The Bolsa Família Programme will remain one of the centrepieces of social policies in Brazil. Newly elected president Dilma Roussef (PT), and her team have made that clear. Roussef also indicated that she will continue the fight against poverty and income inequality through “productive social inclusion,” and continue an expansion of public services. The Roussef government recently implemented a new programme aiming at the elimination of extreme poverty (Programa de Erradicação da Pobreza Extrema), which establishes clear criteria on how poverty should be defined and, consequently, who qualifies for the benefits. It also recently put in place programmes aimed at improving the professional qualifications of poor people, and including them in “productive activities.” In addition, these programmes seek to involve local and state governments. Even with the creation of new social programmes, the basic-income model will certainly remain as a key component of the social safety net

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of the country. The National Act on Basic Income of Citizenship (2004) was created shortly before the Bolsa Família Programme. Both policies tackle poverty through cash transfers, but they are two different systems of social policies. The Basic Income of Citizenship has a focus on individual and universal rights, whereas the Bolsa Família Programme is conditional, with rules of participation defining which families are eligible for the stipend. There is no prospect that the two programmes will converge. While the former policy was not even implemented, the latter was the object of intense political dispute at the National Congress. There were a total of 34 proposals of change in Programme Bolsa Família, and none of them makes a reference to basic, universal social rights. However, it is already apparent that this does not mean that there will be no important changes in the basic-income policy in Brazil. As stated earlier, in 2009 a small municipality in the Southeast approved an act that guarantees that a part of its budget should be equally divided among the population, with the goal of securing a basic minimum to the citizens. Considering the Brazilian political and institutional structure, we cannot discount that this initiative may represent the first step of a new diffusion process among the basic-income programmes that are currently under development.

Bibliography Aguiar, Marcelo and Araújo, Carlos Henrique. (2002) “Bolsa Escola: educação para enfrentar a pobreza” (UNESCO). Collier, David, and Messick, Richard E. (1975) “Prerequisites versus diffusion: testing alternative explanations of Social Security adoption.” American Political Science Review 69(4), 1299–1315. Buarque, Cristóvão (1994) A Revolução nas Prioridades: da Modernidade Técnica à Modernidade Ética. Editora Paz e Terra. Buarque, Cristóvão. (2000) A Revolução das Prioridades: da Modernidade Técnica à Modernidade Ética. 2nd ed. Editora Paz e Terra. Elkins, Zachary and Simmons, Beth. (2005) “On waves, clusters, and diffusion: a conceptual framework.” Annals of the American Academy of Political and Social Science, 598(1), 33–51. Knoke, David. (1992) “Political organizations.” in Encyclopedia of Sociology, edited by Edgar F. Borgatta and Marie L. Borgatta. (New York: Macmillan), 3, 1480–84. Mintrom, Michael. (1997) “Policy entrepreneurs and the diffusion of innovation.” American Journal of Political Science, 41(3), 738–70. Soares, Fabio Veras, Soares, Sergei Suarez Dillon, Medeiros, Marcelo and Osório, Rafael Guerreiro (2006) “Cash transfer programmes in Brazil: impacts on inequality and poverty.” Working Paper no.21, International Poverty Centre, UNDP.

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Sugiyama, Natasha B. (2008) “Theories of policy diffusion: social sector reform in Brazil.” Comparative Political Studies, 41(2), 193–216. Suplicy, Eduardo. (2002) Renda de cidadania: A saída é pela porta. Cortez Editors and Perseus Abramo Foundation. Suplicy, Eduardo. (2004) “The approval and sanctioning of the basic-income bill in Brazil: how it will be implemented.” X International Conference of the Basic Income European Network BIEN. Suplicy, Eduardo. (2007) “Citizen’s basic income. Latin American program special report.” Woodrow Wilson International Center for Scholars. Walker, Jack L. (1969) “The diffusion of innovations among the American states.” American Political Science Review 63(3), 880–99.

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4 Canada: The Case for Basic Income Evelyn L. Forget

The idea of a universal minimum level of income support for all Canadians was first recommended by the Croll Committee Report in 1971. In the same year, the Castonguay-Nepveu Commission of Quebec suggested a similar scheme. In the early 1970s, a Social Security review reintroduced the concept. Based on proposals from these studies, the Canadian government, in partnership with the province of Manitoba, conducted a Negative Income Tax (NIT) Experiment called MINCOME, between 1974 and 1979. At the time, it was widely believed that this experiment would serve as a pilot for a universal programme that would revolutionize the ways in which Canadians pay taxes, receive benefits and earn income. The oil shocks and persistent stagflation of the 1970s brought different governments to power at both the federal and provincial levels, and ended MINCOME without implementation of the anticipated universal basic income proposal. In 1986, however, the idea was revived by the Royal Commission on the Economic Union and Development Prospects for Canada, known as the Macdonald Commission and, once again, the excitement generated by such a radical proposal did not translate into a universal basic income scheme. Since then, subsequent governments have continued to flirt with the idea, and the most effective new social support programmes in Canada, such as the National Child Benefit, are built on the lines of a negative income tax. This chapter examines the social and political contexts that characterize the concept of basic income in Canada. Part 2 places the MINCOME experiment at the centre of an ambivalence towards poverty elimination schemes that has dogged Canadian income assistance from its inception. Part 3 examines the policy response to MINCOME in the form of the Royal Commission on the Economic Union (the Macdonald 81

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Commission), while Part 4 offers some preliminary results from a current attempt to re-examine the social consequences of MINCOME. The final section outlines the implicit policy of gradualism adopted by subsequent Canadian governments in response to an idea that has ongoing resonance in Canada.

4.1

Welfare, welfare reform and a guaranteed income

In North America before the Great Depression, the development of social assistance programmes was a piecemeal affair. Since the beginning, welfare policy in Canada and the United States always concerned itself with work incentives. The unemployable found relief through a set of uncoordinated private charities and local programmes, but the employable were not generously treated. For those not eligible for particular programmes, the labour market was the main source of support. If earnings were inadequate, families sometimes received unreliable support from charities and, more often, went without. In both Canada and the United States, the Great Depression heralded a set of social problems not before seen and encouraged the beginnings of some national welfare policies in both countries. In the wake of the Great Depression, welfare policy in both the United States and Canada was reformed based on a shared vision of how the economy ought to function. Individuals deemed capable of working should be able to find a job that paid a wage adequate to support a family. This would be ensured by minimum wage legislation. During downturns, the government would stimulate private employment and, if necessary, directly finance public employment and public works. Over time, new programmes and insurance schemes for particular issues and problems emerged in both countries without coordination and without challenging the vision of welfare policy created during the 1930s. Long-term support would be made available only to those who were unemployable – lone mothers with dependent children, the aged and the disabled. To the extent possible, social insurance would be the basis of such support through pensions of various types and workers’ compensation for those injured on the job. Unemployment insurance would support the temporarily unemployed. For those without insurance coverage, means-tested support would be made available on a temporary or emergency basis. For those deemed employable, the expectation was always that they would earn their support in the labour market, and any income support was doled out on a temporary

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basis. Notwithstanding the changes and refinements to the systems, the structure brought into place by the Great Depression remained largely intact until the 1960s. In the 1960s, activists in both the United States and Canada began to question the status quo, and debate about income-support schemes emerged in both countries. In the United States, the old liberal– conservative debate about the appropriate level of generosity was complicated by a new set of controversies emerging in the Office of Economic Opportunity. Some began to question the basic vision of New Deal policies, wondering whether all the reforms envisioned would be sufficient to eliminate poverty. This set the stage for the emergence of four Guaranteed Annual Income Experiments that were conducted in the United States between 1968 and 1980. The distinguishing feature of these American Guaranteed Annual Income experiments is that they were based on the idea of a negative income tax or refundable tax credit. Lady Juliet Rhys Williams (1898– 1964), the British politician, is credited with inventing the phrase “negative income tax” (Rhys Williams, 1943, 1953). The most well-known advocate for a negative income tax in North America was Milton Friedman who championed the idea in Capitalism and Freedom (1962). Advocates of the negative income tax saw it addressing several problems simultaneously. It would eliminate the need for a minimum wage, which could be characterized as an inefficient incursion into the labour market. It would eliminate the “welfare trap” in which individuals moving off welfare and into the labour market encountered a strong disincentive in the form of very high marginal tax rates. Gaps in social programmes would be eliminated when the system was reformed into a seamless whole. For the first time, poverty among the working poor could be addressed. Moreover, using a single bureaucracy to administer an income tax/social security scheme in the form of a negative income tax was bound to be more efficient than a set of parallel bureaucracies administering inconsistent and overlapping programmes. Critics responded that the potential for fraud under a negative income tax scheme would exceed that of the income tax, because the monetary returns to fraud could potentially exceed an individual’s total tax liability. This would, they argued, soon require expensive policing that would wipe out any administrative savings. More significantly, critics of the schemes worried that labour markets would suffer under a negative income tax scheme because individuals, who would receive a minimum payout even if they chose not to work, would react to the disincentive. This last concern set the stage for the negative

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income tax experiments of the 1960s and 1970s (see also Chapter 1 on the United States in this volume). In Canada, there were parallel developments. After World War II, family allowances were introduced and paid directly to mothers of minor children. Canada is a federal country, and many social welfare policies remain the responsibility of the provinces although the federal government began to take leadership to ensure similar programmes across the country. The Canada Pension Plan, designed to augment Old Age Security and private pensions, was introduced by the federal government in 1966, although planning began in the late 1950s. Quebec had objected to a national scheme as an incursion into provincial autonomy, and the system was only implemented after negotiations that resulted in a separate, parallel system in Quebec. Throughout the 1960s, debates about universal health insurance culminated in a series of policy changes that saw all provinces with fully complying plans by 1972. The federal government, without provincial consultation, made major enhancements to the Unemployment Insurance Program in 1971. Income-support schemes remained the responsibility of the provinces, but the federal government increased its support of provincial plans throughout the 1960s. The centrepiece of Canadian antipoverty legislation was the Canada Assistance Plan, inaugurated in 1967. In 1970, the Department of National Health and Welfare published a report entitled Income Security for Canadians (the White Paper) that proposed to reform family allowances by introducing the Family Income Security Plan. In 1971, a Senate committee report, Poverty in Canada, called for a universal Guaranteed Annual Income (GAI) based on the negative income tax principle. At the same time, the Quebec Commission of Inquiry on Health and Social Welfare (the Castonguay-Nepveu Commission, 1971) recommended major restructuring of social programmes in Quebec. This was a period of significant social spending, but interest in social security reform was enhanced by the political situation. The Trudeau Liberals formed a minority government at the federal level and the (social democratic) New Democratic Party (NDP) held the balance of power. The Liberals were pressured by the NDP to enhance social programmes in return for political support. The NDP had been vocal in support of a GAI. However, the real impetus for a GAI came from a totally unexpected quarter. In 1971, a federal–provincial conference held in Victoria attempted to rewrite and patriate the constitution.1 On the eve of agreement, Quebec declared it could not support the “Victoria Charter” because “it failed to provide for a jurisdictional

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settlement in the field of social policy” and “no patriation of the constitution would be possible until those concerns were satisfied” (Van Loon, 1979, 474). That is, Quebec nationalism had run up against the unilaterally imposed federal changes to unemployment insurance, and Quebec would oppose patriation of the constitution unless and until the sovereignty of Quebec with respect to social programme changes was guaranteed. Disappointment in Ottawa was profound. Discontent at the 1972 conference of provincial welfare ministers focused on the federal government’s unilateral changes to unemployment insurance in 1971 and its proposed reform of family allowances. Several provinces demanded that the federal government hand over to them the jurisdiction and resources to fund the family allowance programme, and the conference called for a joint review to rationalize the social security system in Canada (Johnson, 1975, 457). The Throne Speech of 4 January 1973 called for such a review and in April of the same year the Working Paper on Social Security in Canada (the Orange Paper) appeared, setting the stage for the discussions. The GAI attracted policy attention, and policy makers were intrigued by the United States’ negative income tax experiments. The 1971 White Paper had explicitly drawn attention to these experiments: An overall guaranteed income program for the whole population that is worthy of consideration is one that offers a substantial level of benefit to people who are normally in the labor market. Therefore, a great deal of further study and investigation, like the experiments now under way in New Jersey and Seattle in the United States, is needed to find out what effects such a program would have on people’s motivation, on their incentives to work and save. Until these questions are answered, the fear of its impact on productivity will be the main deterrent to the introduction of a general overall guaranteed income plan. (41) This interest at the federal level had a counterpart in the province of Manitoba, which had just elected its first NDP government under Premier Ed Schreyer. As early as 1971, Manitoba had declared its interest in an administrative test of the GAI. In March 1973, Manitoba submitted a proposal for funding of a full experiment (rather than an administrative test or pilot project) to the federal Department of National Health and Welfare. It included a budget of $17 million and expected to enrol well over 1,000 families, with Ottawa paying 75 percent of the costs.

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On 4 June 1973, Manitoba and Canada formally signed the Agreement Concerning a Basic Annual Income Experiment Project covering costsharing and jurisdictional issues. The joint news release announcing final approval claimed: The Manitoba experiment is expected to make an important contribution to the review of Canada’s social security system launched last April by all ten provinces and the federal government. (22 February 1974) The design of the project selected families from two experimental sites: Winnipeg and the rural community of Dauphin.2 A number of small rural communities were also selected to serve as controls for the Dauphin subjects. The Winnipeg sample was designed along the same lines as the U.S. experiments: subjects were randomly selected from Winnipeg and paired with matched controls from the same community. The major advantage of this design was that subject families were isolated from one another, which made it possible to vary the parameters of the negative income tax between families. The randomly drawn dispersed sample and the use of controls also made it possible to isolate the effects of the GAI and draw conclusions about causation. The main goal was to gauge work response, and therefore the disabled, the institutionalized and the retired were excluded. This is the only part of the experiment that received research attention, and ultimately the findings were very similar to U.S. findings: secondary and tertiary wage-earners tended to have a moderate labour market response, while primary earners showed little change in the number of hours worked in response to registration in the GAI (Hum and Simpson, 1991). The Canadian experiment, however, had one unique feature. It is the only experiment that contained a “saturation” site. Every family in Dauphin and its rural municipality, with a population of approximately 10,000, was eligible to participate in the GAI. This time, the elderly and the disabled were not excluded. The justification at the time was that the isolation of the treatment sample in the classic experiments would put families in a highly unrealistic situation, quite unlike the conditions that would attend a universal programme. The Dauphin site was explained as an attempt to answer questions about administrative and community issues in a less artificial environment (Hum and Simpson, 1991, 45). The experimenters were left to consider how to introduce controls into a saturation site. They decided to create a “shadow” Dauphin by

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choosing families in a number of nearby, similar communities. Eligible families in the Dauphin sample received benefits, but their counterparts in these other communities, who did not receive funding, answered the same set of questionnaires and participated in the interviews and data collection. The actual conduct of the experiment ran into difficulties fairly quickly.3 It was understood from the outset that “research” would be a joint responsibility, but Manitoba would be responsible for administration. Midway through the experiment, with the social security review disintegrating and political support for the GAI waning, the project was altered in two ways. First, research veered away from the original focus on work incentives towards administrative issues. Second, the project was directed to adopt an “archive” strategy. That is, researchers would collect and archive data, but not engage in analysis. The main reason for this change was financial (Hum and Simpson, 1991, 43–7). The original budget of $17 million proved inadequate, largely because the inflationary price increases of the 1970s, coupled with a higher than anticipated unemployment rate, meant that the proportion of the total going to programme expenses exceeded estimates and was not under the control of the researchers. The payments to families were inflation-adjusted, but the budget was not. Moreover, these were statutory expenses. Costs for data collection also ballooned because wages paid to staff were not entirely under the control of researchers. Analysis was the last claim on the budget, and it was funded from an ever-diminishing residual. The first response was to cut secondary research programmes. Originally, there were to be four focuses. The first of these focal points was to be on an economic programme that centred on work incentives. The second was to be on a sociological programme that looked at family formation, community cohesiveness and attitudes, mobility and the like. The third and fourth were to be on an administrative programme and a statistical programme. The sociological programme was the first to go. The researchers used ethnographic methods that were unfamiliar to quantitatively oriented senior research staff – open-ended interviews, participant–observer methodologies and so on. Press accounts of this research were disparaging, claiming that families had to give up all privacy in exchange for very little money. Research on the farm labour supply was the next to go. It had always been seen as a concession to Manitoba agricultural interests, but of no real importance. When it became clear that no more money would be forthcoming, and that the original budget would not even allow a reasonable estimate of

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labour response, which was the primary motivation of the experiments, the researchers declared the research project a “success.” It was subsequently shut down. The rest of the life of the project was spent focusing on administrative issues, which would be both cheap to undertake and necessary since the money still flowed to participants. In the end, the project ran for four years, concluding in 1979, but the data collection lasted for only two years, and virtually no analysis was done by project staff. Part of the explanation is a change in the intellectual and economic climate. The social security review was no longer a priority, and the GAI no longer a fashionable interest. There was no appetite, either in Ottawa or among the public, for the large and sweeping reforms that had been talked about at the beginning of the decade. The changes in government, both federally and provincially, reflected the changing mood, and neither were interested in continuing the GAI experiments. The original data – boxes and boxes of paper files on families containing questionnaires related to all aspects of social and economic functioning – were stored in an unpublicized location by the Department of National Health and Welfare. In 1981, the Institute for Social and Economic Research was created at the University of Manitoba, with funding from the federal government and a mandate to prepare the data for research. The Institute inherited a poorly organized collection and, in the end, only created electronic files for the labour market data from the Winnipeg sample, which generated some research in the 1980s. The Dauphin data, collected at great expense and in some controversy from participants in the first social experiment ever conducted in Canada, remained unexamined until it was re-opened in 2010.

4.2 The Royal Commission on the Economic Union and development prospects for Canada By 1983, the economic turmoil of the 1970s was past, but had left an enduring legacy in the form of a relatively large federal deficit and ongoing acrimony between the provinces and the federal government. In this context, the Royal Commission on the Economic Union and Development Prospects for Canada was appointed in 1982 under the direction of Donald Macdonald, who had been a senior federal minister in the energy and finance portfolios. It was given a broad mandate to examine all aspects of the ways in which the Canadian economy functioned. One aspect of that overall review was to look again at the arrangements for social security provision across the country. Once

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again, a strong case for a Guaranteed Income in Canada was made, included in the Macdonald Commission’s 1986 report and several of its background research studies. Among its recommendations was a sweeping transformation of the ways in which Canadians pay taxes, receive benefits and earn incomes. The commission itself described its proposals as “radical, not cosmetic, and wholesale rather than tinkering at the margin (vol. 1, 48). The Commission’s report (vol. 2, 778–83) documented what were widely perceived to be limitations of the current system. These included the lack of a national minimum standard for assistance and, consequently, differential support levels among provinces. There were also administrative inefficiencies that left some families eligible to receive benefits simultaneously from two or more different programmes. There was also a confusing array of programmes that recipients often could not understand. Lastly, and perhaps most importantly, there was an inability to deal with the working poor. Welfare recipients were discouraged from moving from support to the labour market, since any earnings result in a dollar-for-dollar reduction in their benefits. The commission attempted to address these defects with a Universal Income Security Program (UISP), which would “simplify and rationalize the existing aggregation of programmes” (vol. 1, 49). Always aware of the cost of social programmes, the commission did not argue that social expenditures for income support should be reduced, but did suggest that there be “no increase in the cost of transfers and tax expenditures” (vol. 2, 795). Perhaps fearing public reactions, the commission went out of its way to argue that its proposals should not be considered a guaranteed annual income scheme (vol. 2, 795). Nonetheless, a GAI is precisely what it proposed. The design of the programme replaced some existing programmes by the UISP: Family Allowance, Child Tax Credits, income tax exemptions for dependents, the personal income tax exemption, Guaranteed Income Supplement, and federal contributions to social assistance payments (Canada Assistance Plan) and federal social housing programmes. In 1984 dollars, UISP would grant $3,825 to each adult (and first child in a single-parent family) with each additional child receiving $765. Families with income from other sources would have benefits taxed back at a 20 percent rate. The personal income tax rate structure would remain. This programme, listed as Option A, would be funded from reallocated programme expenditures from the discontinued programmes and, therefore, imposed to net cost. The commission calculated that a family with two children and an income below $30,000 would gain

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under UISP. Families with earned income in the $8,000 to $12,000 range could expect an increase of $5,000 to $7,000. Option B would retain the personal income tax exemption and guarantee slightly lower incomes. In both cases, families without other earnings could expect a provincially funded and administered “top-up” since the UISP would replace only federally mandated programmes. Old Age Security payments would be retained, since many seniors planned their retirements upon the current system, and tax-back provisions would be eliminated for single pensioners (vol. 2, 796). In order to garner public support, the commission suggested that payments to young recipients might be dependent upon an active job search, demonstrated earnings or participation in locally administered training programmes. Moreover, payments to those under age 35 might be restricted to half the payout level for those over 35 years of age (vol. 2, 798). The commission declared that the scheme could be delivered either by a system of demo-grants or through a negative income tax, and acknowledged the complexity of the design considerations involved in the actual delivery of either programme (vol. 2, 799). Supplementing the UISP would be a reformed system of Unemployment Insurance (UI) designed to strengthen its social insurance basis. According to the commission attempts to use the UI system as a system of redistribution weakened its usefulness as social insurance. (vol. 2, 539, 602) Moreover, less emphasis would be put upon a minimum wage as an antipoverty programme, and a greater emphasis would be placed upon allowing the market to function. The commission placed a good deal of emphasis on mobility, training and education, introducing schemes such as a Transitional Adjustment Assistance Program which would provide grants for training, mobility, short-term employment and other adjustment subsidies to the unemployed (vol. 1, 54). The Macdonald Commission did not convince subsequent federal governments to undertake the radical transformation promised by its UISP. Nevertheless, the most successful and far-reaching social programmes introduced since 1986, especially the National Child Benefit, build on the principles inherent in the Macdonald Commission.

4.3

Reconsidering Dauphin

More than two decades have passed since the publication of the Macdonald Commission Report and the fundamental problem of poverty amidst plenty persists in Canada. Over the past few years, there has been a re-emergence of interest among social agencies, as well as

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some federal and provincial government departments, in the idea of a wholesale reform of social security along the lines of a GAI.4 Most persistent in this regard is Senator Hugh Segal, who perseveres in raising the idea in various venues.5 One aspect of this renewed interest is ongoing work to document the actual consequences of the MINCOME experiment that were not reported at the time. The Dauphin saturation site is important for several reasons. The researchers believed themselves to be using a saturation site to gather data on programme administration and agricultural labour supply. Michael Loeb, founding research director, also imagined that a universal GAI might affect aggregate demand, and a saturation site might provide evidence of that effect. A saturation site, however, is a very different kind of social experiment than the dispersed samples of the other experiments, and in principle can provide a different kind of insight more amenable to sociology than to economics. Imagine that you are a 16-year old boy in Dauphin in 1974, trying to decide whether to register for grade 12. Your family will come from one of three informal social classes (Rhyne 1979).6 You might be “English.”7 If so, your family may belong to the economic elite of Dauphin – professionals, some business owners, large landowners and many of the civil servants employed in Dauphin fell into this category. You are probably going to grade 12 and, later, to college or university in Winnipeg or Brandon. You might be Métis.8 Your family may well be living on the other side of the river, in a community dubbed “little Chicago,” with a much lower family income. Your parents may be seasonal farm workers who experience regular bouts of unemployment. You probably do not plan to continue high school. Perhaps you are “Ukrainian.”9 Your family will probably attend one of the two large Ukrainian cathedrals in town – the Orthodox or the Catholic. Your father will probably be a tradesman or work for the railway, and your mother will be a homemaker, a nurse in the large regional hospital, an elementary school teacher or a retail clerk. Your parents may own a small business that services the agricultural community. For you, the decision about whether to continue to grade 12 will be difficult. There are good jobs for strong boys without a high school diploma in Dauphin in 1974; you could work for the railway, in the trucking industry or in the trades like your father, and expect a decent lifetime income. You may experience considerable family pressure to contribute to family income. Grade 12, and ultimately university, will not be a foregone conclusion. To make your decision, you (and your parents) will take into account the probable income your family will receive next year from all sources,

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including the GAI. Your decision, even in the classic experiments, would be useful because researchers could know how the extra income security associated with the GAI would affect incentives for human capital formation. In Winnipeg, however, you would be making that decision in isolation from other young people whose families could also benefit from the GAI. In Dauphin, not only would your decision be affected directly by the expected income associated with the GAI, but also by the fact that all your friends would be making a similar decision and all could expect to benefit from the GAI if family income warranted it. That interaction effect would show up in Dauphin, but not in the classic experiments. When I decided to re-examine the data from the Dauphin site, I was confronted with 1,800 dusty boxes and traces of a few obsolete data tapes. I wondered if we could examine the consequences of the MINCOME experiment by taking advantage of a unique population health database maintained in Manitoba. Some U.S. experiments had gathered data on health outcomes, and I thought we might be able to replicate some of their findings (Kerachsky, 1977; Lefcowitz and Elesh, 1977). Before I could justify access to that data, however, I needed some evidence that it could, in principle, work. One of the effects that we expected might occur was that more adolescents, and especially more adolescent males, might continue high school beyond the mandated age (Mallar, 1977; Maynard, 1977; Maynard and Murnane, 1979; McDonald and Stephenson, 1979; Rea, 1977; Weiss, Hall and Dong, 1980). We accessed aggregate data from the Department of Education, presented in Table 4.1. Grade 12 Enrolment as % Previous Year Grade 11 Enrolment

120.0 100.0 80.0

Dauphin Winnipeg Non-Winnipeg

60.0 40.0 20.0

19 80

19 79

19 78

19 77

19 76

19 75

19 74

19 73

19 72

19 71

0.0

Table 4.1 Twelfth grade enrolment

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93

Grade-11 enrolments as a percentage of the previous year grade-10 enrolments show a similar pattern. We could not disaggregate by gender. This figure is based on aggregate enrolment data provided by the Department of Education and does not control for underlying population dynamics. However, the population was stable and there were no discernible classification issues. Money flowed to Dauphin families from MINCOME between 1974 and 1978. Dauphin students seemed more likely to stay in high school than their rural or urban counterparts during the experiment. Before and after the experiment, their behaviour was not significantly different from their rural counterparts in that they were significantly less likely than urban children to finish high school Intrigued, Manitoba Health – the provincial department that funds health insurance in Manitoba – allowed access to the provincial Medicare data, which extends back to 1970. Ethical considerations would not allow us to identify families in receipt of payments under MINCOME, so we looked for community-level effects. The benefit of MINCOME to those who collected payments is obvious, but those whose incomes exceeded the threshold and therefore did not qualify also benefited. Because this is an agricultural community and even those working in other sectors had incomes dependent on harvests and agricultural prices, few people knew in advance whether they would qualify or not. The health and social benefits, including the willingness to allow adolescent children to stay in school rather than encouraging them to work, is dependent on perceived risk, not directly on whether the family qualified for support after the fact. This is consistent with the conceptual framework of R.G. Evans and G.L. Stoddart (1994) who emphasized the social determinants of health. Evans and Stoddart argued that economic well-being is fundamental to the health of populations. However, the precise pathways by which income influences health outcomes are less clear. Research has examined the relationship between health and each of the related concepts of mean family income, income distribution and the incidence of poverty. Our focus is on a different dimension of economic well-being: income security, which is a concept distinct from income or socio-economic status. Income security, the guarantee that all participants can expect a basic annual income whether or not they work, gives people a longer planning horizon, allowing them to get beyond just making ends meet. Moreover, a universal programme avoids targeting individuals because they are “unemployed” or “single parents.” Universality promotes social cohesion; a universal GAI becomes a shared social experience rather than simply an individual benefit.

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For some individuals whose families were promised income security during particularly vulnerable periods of their lives, the health and social consequences may have lasted much longer than the experiment (Brownell et al., 2004a, 2004b; Chen et al., 2002; Connor and Brink, 1999; Haveman and Wolfe, 1994; Hertzman, 1999). Adolescents, for example, may have been able to graduate from high school, rather than entering the labour force earlier or working on family farms. Table 4.1 summarizes aggregate enrolment data that seems to suggest that an unusually large “lucky cohort” of adolescents in the saturation site did continue in high school during the experiment. Their contemporaries elsewhere in rural Manitoba, by contrast, seemed to follow earlier patterns of leaving school before graduation. The life chances of adolescents in the experimental site may have been permanently altered and, although more tenuous, their own children may have benefited from the better economic outcomes of their parents (Haveman and Wolfe, 1994; Hertzman, 1999). In Manitoba as elsewhere, young children in rural areas suffer higher rates of accident and injury than their urban counterparts (Brownell et al., 2002, 2003). Did young children in the experimental site have better outcomes than their counterparts elsewhere because an income guarantee for their parents made it less likely that children would undertake age-inappropriate tasks during a harvest, or more likely that adult supervision would exist? Our data allow us to revisit the experimental population, almost three decades after the experiment ended, in order to document any lifelong health and social differences. Several other Canadian provinces have organized data in a similar fashion, but the breadth and depth of the Manitoba database with its population-based research registry offers unique opportunities. The research registry contains no names or street addresses, but it does include an encrypted “health insurance” number assigned to each resident. It also contains demographic characteristics, family composition, dates of arrival and departure, including births and deaths, and place of residence (a sixdigit postal code). Time-sensitive data elements (place of residence, family composition) are updated using “snapshot” registries provided every six months since 1970 (Roos and Nichol, 1999). This registry includes all Manitobans, making it possible to track residence in Dauphin during MINCOME, as well as moves into, out of, and around the province. Births and deaths in Dauphin and elsewhere can also be tracked. The encrypted identifier allows for linkages across databases and years of data, making it ideal for both cross-sectional and longitudinal research.

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The repository is a collection of administrative databases that holds records for virtually all Manitobans’ contacts with the health care system, as well as more recent data from the education system and family services system. The health data are available from 1970 on, and the education and family services data are available for the past decade. The health data have been extensively validated for research purposes (Roos and McNicol, 1999; Roos et al., 1993; Metge et al., 1999; Robinson et al., 1997). One of the strengths of the original experiments is, however, that they used a case-control methodology. We can find everyone who lived in Dauphin during MINCOME and was therefore eligible for incomecontingent supplementation. Nevertheless, we have no way of finding the original controls. We decided to use a quasi-experimental design to construct a new cohort of controls, this time correcting the ambiguity in the original design that made it unclear whether individuals or families were the primary unit. Our controls were selected from small towns very much like Dauphin in south and central Manitoba. We matched each subject to three controls, using propensity scores on age, sex, whether or not the individual was part of a single-parent female-led family and whether the individual lived in a small town or rural area. A check of the matches showed 99 percent of those under 60 in 1974 matched exactly on age and sex, while more than 95 percent matched overall.10 Then we went to the 1971 census and compared Dauphin subjects with our weighted controls on all the factors we could draw from the census. We found only two significant differences: Dauphin subjects were more likely to list Ukrainian heritage than were the controls, and farmers in Dauphin had a greater proportion of farmland planted in canola than other crops. The latter likely had little impact on health outcomes, and was therefore ignored. Ethnicity could well have affected outcomes, but we noted that the Ukrainian heritage cited was not recent; most “Ukrainians” in Dauphin in 1974 were second, third or fourth-generation Canadians. We discovered that hospitalizations among Dauphin residents declined during the MINCOME experiment, relative to the controls, but that after the money stopped flowing in 1978 the original pattern began to reassert itself.11 The two areas most affected were hospitalizations for mental health issues and for “accidents and injuries,”12 both areas that are often related to poverty in population health analyses. Perhaps even more significant is what we have not found – any effect at all on family dissolution or divorce rates. The one factor that was so heavily politicized in U.S. debates had no apparent impact in Canada. In fact,

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all of the great fears of opponents to GAI seem vanquished: there is no significant effect on employment for primary earners, and the reduced employment of secondary and tertiary earners – married women who used a GAI to finance maternity leaves and adolescents who used a GAI to stay in school longer – is a positive outcome. Families did not split apart when offered a GAI; divorce rates did not soar. There is no basis upon which to suppose that fertility rates increased. If anything, girls who stay in school and marry later probably have fewer births over a lifetime than their poorer counterparts. The most telling results, however, come from the participants themselves. Amy Richardson, a mother of six in the 1970s, remembers MINCOME as a welcome programme that allowed her “to put some cream in the coffee”; she reports spending the additional income on luxuries like school books, and notes: “It was to bring your income up to where it should be.”13 Hugh Henderson says, “If a kid wants an education, and he’s willing to pay for it, I think the government should help.” His wife, Doreen Henderson, insists, “Give them enough money to raise their kids. People work hard, and it is still not enough. This is not welfare. This is making sure kids have enough to eat.” Perhaps most telling is Barbara Livingstone, who initially wanted nothing to do with MINCOME despite qualifying; she eventually applied because “my friend assured me it wasn’t welfare, it was an experiment.” The Dauphin component of the MINCOME experiment is uniquely interesting. Building on a foundation of population health that sees communities rather than individuals, or even families, as units of interest, we have found some evidence that a GAI does have at least some community-level effects. Our analysis is only possible because of an accident of history: just before MINCOME was undertaken, universal healthcare emerged in Canada and, with it, the requirement for a large and detailed database. Without that database, we would have no capacity to uncover any of the effects of the Dauphin component of the experiment. That delicious irony is just the latest manifestation of the unexpected ways that “science” has brushed up against “politics,” and of the sheer serendipity in the history of antipoverty policy in North America.

4.4

Conclusion

It is time to reflect on what can we conclude about the history of the Guaranteed Annual Income (GAI) debate in Canada. This is an idea that waxes and wanes in popularity, but it constantly re-emerges as

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we struggle to rationalize the ways in which we pay taxes and deliver social support in Canada. For four decades we have repeatedly come close to introducing a wholesale reform of social security, but each time concerns about cost, about the “morality” of weakening labour market commitment among young people and married women, and about whether giving people an adequate income is “sufficient” to solve the problem of poverty undermines will. There are two reasons to be optimistic that such a much-needed reform may yet be implemented. First, interest is again re-emerging among some agencies that fund and deliver social programmes, and ongoing work on costing reasonable programmes is underway. The Public Health Agency of Canada has followed this research on health services utilization during the MINCOME experiment because it fits well with a current mandate to consider the economic benefits of prevention. The Canadian Institutes for Health Research, which funded the project described in this chapter, has just renewed funding for a follow-up that will allow researchers to estimate the costs of various formulations of a Guaranteed Annual Income. Provincial healthcare decision-makers are equally interested in health system savings generated by adequately addressing poverty. This “official” recognition of the link between poor health and poverty – and, conversely, between a GAI and reductions in health expenditure – makes sense to ordinary Canadians as well. As we present our results, we find a particular resonance among women. While women have always been at particular risk of poverty, we sense at least some of the support comes about because so many women work or have worked in the areas of health care and social services. Ordinary Canadians can see the costs of poverty, and can appreciate the benefits of adequately addressing income insecurity. This groundswell of support among ordinary Canadians is mirrored by growing political interest. In 2009, the Senate’s Standing Committee on Social Affairs published In From the Margins, which called for increased research on the costs of a GAI. In 2010, an all-party committee called for a GAI for Canadians with disabilities. Quebec has gone further, advocating a GAI for all citizens. All of this is supported by a growing grassroots movement and increased press attention. A Globe and Mail story in late 2010 generated over 1,400 responses to its online posting.14 A second reason for optimism exists because we already have in place an architecture that would allow the implementation and expansion of a GAI. In the wake of the Macdonald Commission (1986), federal government departments of various political casts have introduced

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significant new programmes in a format that builds upon the architecture of the refundable tax credit. The Child Benefit is, arguably, the most significant social programme introduction of recent years, and it has been responsible for reducing the poverty rate among low-income families with children. This is, in fact, a GAI for families with children. The Guaranteed Income Supplement is a form of GAI for low-income pensioners. In some sense, we have been slowly moving towards a GAI in Canada since the mid-1960s. There is a reluctance to use that label because of the fear that it would be politically unacceptable, but the principles of a GAI are the foundations for the best of our recently implemented social programmes. It is unlikely that, in the foreseeable future, Canada can abandon its preoccupation with means-tested benefits, but the principles of ensuring a minimally acceptable level of income are well entrenched and this provides the architecture for seamlessly delivering such a programme. What is still missing is a commitment to extend the principle of a basic income to all Canadians, including childless adults and the working poor, at a level adequate to sustain a reasonable life.

Notes I am grateful to the Canadian Institutes for Health Research (CIHR) which funded the project upon which this chapter is based (MOP 77533). The results and conclusions are those of the author; I am indebted to Health Information Services, Manitoba Health, for providing data. No official endorsement by Manitoba Health is intended or implied. 1. At the time, more than a century after the birth of the country, Canada was still governed by the British North America Act which was housed in London. There was no Canadian “constitution.” 2. See Forget (2011) for a full description of the analytical features of the MINCOME experiment, and our analysis of health and social outcomes in the Dauphin site. Much of this chapter is based on that study. 3. The details of the MINCOME experiment and the way it operated came from working papers and articles, when cited, but most come from formal and informal conversations with Ron Hikel (the senior Manitoba civil servant charged with overseeing the experiment, Michael Loeb (founding research director), Derek Hum (second research director) and Wayne Simpson (a labour economist who, with Derek Hum, has published some work describing the labour market reaction of the Winnipeg sample). 4. See, for example, In From the margins: A Call to Action on Poverty, Housing and Homelessness, a report published by the Standing Senate Committee on Social Affairs, Science and Technology released in December 2009. 5. Michael Enright conducted an interview with Hugh Segal, as well as E.L. Forget and Ron Hikel, for CBC Radio Sunday Edition, 18 October 2009. http: //www.cbc.ca/thesundayedition/2009/10/october-18-2009.html

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6. Darla Rhyne completed a sociology thesis at the University of Toronto in 1979, under the supervision of James Turk, on class and ethnicity in “River City,” the pseudonym for Dauphin. She was one of the controversial ethnographers, who lived with families in Dauphin and collected data on all aspects of social life. 7. This means, in the context of Dauphin, not Ukrainian and not aboriginal. Everyone else is “English.” 8. Metis are descendents of the Scottish and French fur traders and their aboriginal wives. There is ongoing negotiation to declare the Metis a “First Nation,” which would confer certain rights similar to aboriginal Canadians with First Nation status; however, this has not yet yielded results. 9. Ukrainians in Dauphin are not recent immigrants; most “Ukrainians” in Dauphin in 1974 would be second, third and fourth-generation Canadians. 10. Since women have a greater life expectancy than men, we could not find three perfect matches for every man over 65. In that case, we selected the best match using propensity scores. 11. See Forget (2011) for details of the analysis. 12. This category includes not only the obvious automobile accidents and workplace injuries, but also the effects of family violence, suicide attempts, assaults and so on. 13. Amy Richardson, Doreen Henderson, Hugh Henderson and Barbara Livingstone were among the participants interviewed by Lindor Reynolds in a Winnipeg Free Press article on our study: see Reynolds (2009). 14. ht t p://w w w.t heglobea nd ma il.com/news/nat iona l/to - end-pover t yguarantee-everyone-in-canada-20000-a-year-but-are-you-willing-to-trustthe-poor/article1806904/ (Last Accessed 15 March 2011).

Bibliography Brownell, M., Friesen, D. and Mayer, T. (2002) “Childhood injury rates in Manitoba: socioeconomic influences”, Canadian Journal of Public Health 93(supp): S50–S56. Brownell, M., Lix, L., Ekuma, O., Derksen, S., DeHaney, S., Bond, R., Fransoo, R., MacWilliam, L. and Bodnarchuk, J. (2003) Why is the Health of Some Manitobans Not Improving? The Widening Gap in the Health Status of Manitobans. (Winnipeg: Manitoba Centre for Health Policy). Brownell, M., Roos, N., Fransoo, R., Guevremont, A., Frohlich, N., Kozyrskyj, A., Bond, R., Bodnarchuk, J., Derksen, S., MacWilliam, L., Dahl, M., Dik. N., Bogdanovic, B., Sirski, M. and Prior, H. (2004a) Manitoba Child Health Atlas 2004: Inequalities in Child Health: Assessing the Roles of Family, Community, Education and Health Care. (Winnipeg: Manitoba Centre for Health Policy) http: //www.umanitoba.ca/centres/mchp/repotts/child_inequalities/ (Last Accessed – March 2011). Brownell M., Roos, N.P., Fransoo, R., Guevremont, A., MacWilliam, L., Derksen, S., Dik, N., Bogdanovic, B. and Sirski, M. (2004b) How do Educational Outcomes Vary with Socioeconomic Status? Key Findings From the Manitoba Child Health Atlas 2004. (Winnipeg: Manitoba Centre for Health Policy).

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Chen, E., Matthews, K.A. and Boyce, W.T. (2002) “Socioeconomic differences in children’s health: how and why do these relationships change with age?” Psychological Bulletin, 128(2): 295–329. Connor, S. and Brink, S. (1999) “Understanding the early years. Community impacts on child development”, Working Paper W-99–6E. (Ottawa: Human Resources Development Canada). Enright, M. (2009) The Sunday Edition. CBC radio. Air Date: 18 October 2009. Evans, R.G. and Stoddart, G.L. (1994) “Producing health, consuming health care”. In Evans, R.G., Barer, M.L. and Marmor, T.R. (eds) Why are Some People Healthy and Others Not? Determinants of the Health of Populations. (New York: Aldine de Gruyter). Forget, E.L. (2011) “The town with no poverty: the health effects of a Canadian guaranteed annual income field experiment”, Canadian Public Policy, 37(3): 283–305. Friedman, Milton. (1962) Capitalism and Freedom. (Chicago: University of Chicago Press). Haveman, R. and Wolfe, B. (1994) Succeeding Generations: On the Effects of Investments in Children. (New York: Russell Sage Foundation). Hertzman, C. (1999) “Population health and human development”. In Keating, D.P. and Hertzman, C. (eds) Developmental Health and the Wealth of Nations: Social, Biological and Educational Dynamics. (New York: Guilford Press). Hum, D. and Simpson, W. (1991) Income Maintenance, Work Effort, and the Canadian Mincome Experiment. A study prepared for the Economic Council of Canada. (Ottawa: Canadian Communications Group). Johnson, A.W. (1975) “Canada’s social security review, 1973–1975: the central issues”, Canadian Public Policy, 1(4): 456–72. Kerachsky, S.H., (1977) “Health and medical care utilization: a second approach”. In Watts, H.W. and Rees, A. (eds), The New Jersey Income-Maintenance Experiment, vol. III: The Impact on Expenditures, Health, and Social Behavior, and the Quality of the Evidence. (New York: Academic Press). Lefcowitz, M.J. and Elesh, D., (1977) “Health and medical care utilization”. In Watts, H.W. and Rees, A. (eds), The New Jersey Income-Maintenance Experiment, vol. III: The Impact on Expenditures, Health, and Social Behavior, and the Quality of the Evidence. (New York: Academic Press). Mallar, C.D., (1977) “The educational and labor-supply responses of young adults in experimental families”. In Watts, H.W. and Rees, A. (eds), The New Jersey Income-Maintenance Experiment, vol. II: Labor-supply Responses. (New York: Academic Press). Maynard, R. (1977) ‘The effects of the Rural Income Maintenance Experiment on the school performance of children’. American Economic Review 67(1): 370–75. Maynard, R. and Murnane, R.J. (1979) “The effects of a negative income tax on school performance: results of an experiment”. Journal of Human Resources 14(4): 463–76. McDonald, J.F., Stephenson Jr, S.P. (1979) “The effect of income maintenance on the school-enrollment and labor-supply decisions of teenagers”. Journal of Human Resources 14(4): 488–95. Metge, C., Black, C., Peterson, S. and Kozyrskyj, A.L. (1999) “The population’s use of pharmaceuticals”. Medical Care 37(supp): S42–S59.

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Canada 101 Rea Jr, S.A. (1977) “Investment in human capital under a negative income tax”, Canadian Journal of Economics, 10(4), 607–20. Reynolds, Lindor. (2009) “Dauphin’s great experiment”. Winnipeg Free Press. November 28, H1, H3. Rhyne, D. (1979) “Organization life in River City: a case study of class, ethnicity, geographical mobility and status”. PhD Thesis. University of Toronto: Department of Sociology. Robinson, J.R., Young, T.K., Roos, L.L. and Gelskey, D.E. (1997) “Estimating the burden of disease: comparing administrative data and self-reports”, Medical Care, 35: 932–47. Roos, L.L., Mustard, C.A., Nicol, J.P., McLerran, D.F., Malenka, D.J., Young, T.K. and Cohen, N.M. (1993) “Registries and administrative data: organization and accuracy”. Medical Care 31: 201–12. Roos, L.L. and Nicol, J.P. (1999) “A research registry: uses, development and accuracy”, Journal of Clinical Epidemiology, 52(1): 39–47. Royal Commission on the Economic Union and Development Prospects for Canada: Report. (1985) 3 vols. (Ottawa: Supply and Services) [The Macdonald Commission]. Standing Senate Committee on Social Affairs, Science and Technology. (2009) In From the Margins: A Call to Action on Poverty, Housing and Homelessness. (Ottawa: Supply and Services) Van Loon R. (1979) “Reforming welfare in Canada”, Public Policy, 27: 469–504. Weiss, Y., Hall, A. and Dong, F., (1980) “The effect of price and income on investment in schooling”, Journal of Human Resources, 15, 611–40. Williams, Rhys (1943) Something to Look Forward To: A Suggestion for a New Social Contract. (London: MacDonald). Williams, Rhys and Evangeline, Juliette, Lady (1953) Taxation and Incentive. (London: William Hodge and Company).

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Part II Proposals

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5 East Timor and Catalonia: Basic Income – Proposals for North and South David Casassas, Daniel Raventós and Julie Wark

In November 2007, the Universal Declaration of Emergent Human Rights was approved at the Universal Forum of Cultures in Monterrey, Mexico. Article 1.3 reads: The right to a basic income or universal citizen’s income that guarantees to every human being, independently of age, gender, sexual orientation, civil or employment status, the right to live in material conditions of dignity. To this end, a regular cash payment, financed by tax reforms and covered by the state budget, and sufficient to cover his or her basic needs, is recognized as a right of citizenship of every member-resident of the society, whatever his or her other sources of income may be.1 The importance of article 1.3 of the Monterrey Declaration lies, first of all, in the fact that, rather than speaking of the right to subsistence, or of having certain minimal vital needs covered in case of the onset of poverty or some catastrophe, it specifically upholds the “right to a basic income or universal citizen’s income” as a guarantee to every single individual of the “right to live in material conditions of dignity.” This is tantamount to pledging that no individual will be excluded from the possibility of engaging in social life and exercising his or her rights and duties as a citizen because of acute poverty. From the standpoint of the historical republican tradition, it is envisaged as a mechanism that could make democratic participation possible for everyone. Moreover, it conceives of this right on a universal scale, which is to say for rich and poor, developed or developing countries alike. 105

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While basic income is by no means a cure-all, we believe that it could be a very effective antidote to several serious ills of the modern world. We have taken the cases of two very different societies, Catalonia and East Timor, in order to argue our point. In Catalonia, clear advances have been made in arousing interest in basic income across a broad spectrum of society, including intellectuals, social groups and political parties.2 In contrast, there is no official or any other kind of public support for basic income in East Timor. Our choice of East Timor in arguing the case for basic income as being widely applicable public policy in poor nations as well as rich ones has been influenced by close, first-hand knowledge of the country and, in particular, our desire to break a bit of theoretical ground, because very little research has been done to date on what a basic income might contribute in a poor country and how it might be financed. Although we have chosen these two apparently very different cases precisely because they are so different, the constitution of East Timor and the Statute of Autonomy of Catalonia (2006) show that they have quite a lot in common in their democratic goals. The constitution of East Timor declares that the state aims “To defend and guarantee political democracy and participation of the people in the resolution of national problems; [ ... and to] promote the building of a society based on social justice, by establishing material and spiritual welfare of the citizens” (part I, section 6, “Objectives of the State”). The Catalan statute states that, “Each individual has the right to live in dignity, safety and autonomy, free from exploitation, from ill-treatment and from all types of discrimination, and has the right to freely develop his or her personality and personal abilities” (chapter I, article 15, 2). These overlapping concerns – democratic participation and free development of one’s individual and political personality, along with social justice, whether it is in the form of material welfare, or freedom from abuses and exploitation – compel us to provide a brief account of the theoretical foundations of historical republicanism, since this is the basis of our normative or ethical approach in which we see basic income not just as a povertyreducing mechanism but one that also makes political and social participation possible. In the Catalan case, the work done on these normative foundations for a basic income has reinforced the political process leading to its incorporation on the political agenda. We believe that the same normative guidelines would apply in the case of East Timor since effective freedom is essential for real economic, social and political participation in a society.

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The first new sovereign state of the twenty-first century, East Timor (population 1.2 million; GDP $732 million), which occupies 120th position in the Human Development Index, only achieved independence in 2002. It had been subject to a brutal 24-year occupation by the Indonesian military regime during which it is estimated that approximately one third of the population perished. After a UN-supervised referendum in September 1999, pro-integration militias destroyed about 70 percent of the country’s infrastructure, killing several hundred people and forcibly displacing some 200,000 others into camps across the border into Indonesian West Timor. In October 1999, the administration of East Timor was taken over by the United Nations Transitional Administration in East Timor (UNTAET), and independence was formalized on May 20, 2002, with the former resistance leader, Xanana Gusmão, being sworn in as the country’s first president. The country has yet to rebuild infrastructure, strengthen the administration and deal with extremely high unemployment levels and endemic rural poverty. The development of oil and gas resources in offshore waters has greatly increased revenues. However, there are no production facilities in the country and the oil industry has done little to create jobs. The main economic policy challenge East Timor faces is how best to use oil and gas wealth to stimulate the non-oil economy and reduce poverty. Catalonia (population 7.5 million; GDP (in 2009) 201.1 billion euros) is an autonomously governed region of Spain with a modern industrial and service economy along typical European lines. The Catalan economy is affected by the processes of pauperization of poor and middle classes, which are occurring throughout the capitalist world. In April 2011, after eight consecutive months of rising unemployment, it was expected that the figure for Catalonia would drop from 604,000 to below 600,000, but it remains to be seen whether the improvement consolidates. Again, this figure must be seen in the context of the official unemployment rate for Spain as a whole, which has risen to more than 20 percent in general, with a staggering youth unemployment rate of 42.8 percent. As in many other Western countries, the mechanisms that were once introduced in order to combat poverty and social exclusion have turned out to be highly ineffective. Unemployment is becoming structural, and all the indices denoting job insecurity are increasingly gloomy. Neither the job market nor the means-tested benefits of “workfare” and suchlike schemes have been able to furnish as much as minimal guarantees of economic security. In brief, new mechanisms are urgently needed to guarantee economic security as a right of citizenship and greater democratization of social relations.

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In what follows we shall cover three main areas. The first consists of a brief account of the classical republican emphasis on the centrality of material independence for effective freedom and the exercise of citizenship. Second, we shall describe how, as part of a package of measures, a universal and unconditional basic income might guarantee this material independence in poor and rich countries alike. Third, we present two specific basic-income proposals, one for Catalonia and the other for East Timor. Both are conceived to be in keeping with the normative and political approaches described in the two earlier sections.

5.1

Freedom and material independence

We argue that the overlapping concerns in the East Timor constitution and the Catalan Statute of Autonomy – democratic participation and free development of one’s individual and political personality, along with social justice, whether in the form of material welfare or freedom from abuse and exploitation – require a basic income, not as a mere measure of poverty relief but to provide the means of material existence that will make political and social participation possible. Our perspective here is the basic idea of classical republicanism: that a person is not free without a guaranteed material existence.3 Being dependent on others for sustenance means seeking their permission to live, day after day. When poverty denies access to certain necessary consumer goods and productive resources, difficulties of integration in the community arise. Making available to citizens a set of institutionally guaranteed material resources as a condition of their civic participation is a very ancient political concern. It is interesting, then, to go back to the Aristotelian (classical republican) distinction between rich people and poor people, which is to say that between “independent people” and “dependent (on others) people,” respectively. “Rich” people in this framework would be those who enjoyed the status of citizens precisely because they had their means of existence guaranteed by the property (mainly land) they held. Prior to the revolution led by Ephialtes, Pericles and Aspasia in Ancient Greece (561 BCE) only the rich could occupy non-remunerated public positions. This situation was rectified with the introduction of the misthon, a publicly financed payment for these jobs. For the next 140 years the polis of Athens was directly (and practically uninterruptedly) governed by the party of the thetes, which is to say of the poor free men. Nowadays, this guaranteed material existence for the exercise of effective freedom and for engagement in all areas of social life could,

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we believe, be attained by means of a basic income. In these times of very high unemployment, when neoliberal policies are slashing public spending and when the welfare state and workers’ rights are under attack as never before in the name of measures against the crisis, the issue of poverty and its corollary of the virtual impossibility of citizen participation are all but excluded from the agenda.4 Basic income is a relatively simple instrument for addressing poverty, not only in the economic and social domains, but in political terms as well. In contemporary societies, the rich have a set of material resources that guarantees their material existence, while the poorer members generally have to sell themselves five or more days a week to the owners of these material resources in order to subsist. They become wage labourers or, in other words, subject to the will of others. This distinction between rich and poor is not simply a set of two groups defined by their quantitative access to resources. The main point is that the rich minority can impose the economic and social conditions that perpetuate the dependence of the poor. In the capitalist societies of today, those individuals or groups of individuals who possess great quantities of material resources, for example exceedingly rich people or transnational corporations, gain sweeping control over the material resources of entire populations. They have the capacity to interfere arbitrarily in the sets of opportunities of individual citizens because they can manipulate supply and demand and mould the structure of markets, and hence can determine the nature of entire economies. They can impose, in the heart of productive units – and in many parliaments as well – the conditions of work of those who depend on them in order to live. One only needs to look at the role of rating agencies in influencing the conditions for loans (draconian cuts in public spending, for example) in countries like Greece, Portugal and Spain. In rich and poor countries alike, they can dispossess millions of poor people of the means necessary to sustain traditional forms of life and of alternative resources for managing productive realms, and they can sway political decisions and agendas. This was noted as far back as 1935 by President Franklin Delano Roosevelt in his second State of the Union Address in January 1935: Americans must forswear that conception of the acquisition of wealth which, through excessive profits, creates undue private power over private affairs and, to our misfortune, over public affairs as well.

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We believe, therefore, that basic income could be of cardinal importance as an integral part of a package of measures designed to guarantee the material existence of all people and their possibilities of living according to their own life plans or, in other words, the freedom of citizens as described in the classical republican tradition. Below, we present two specific unconditional basic-income proposals, one for Catalonia and the other for East Timor.

5.2

Basic income and freedom in North and South

Starting out from the idea that the material existence conferred by property is an indispensable condition for the exercise of freedom, republican supporters of basic-income champion the idea of “universalizing property.” In a world where, at least on paper, de iure citizenship (through which all people are, in their own right, fully fledged members of their societies) has been universalized, the essential condition of truly effective citizenship – property – could also be universalized in the form of a basic income. This idea of universalizing property must not be taken too literally, but simply understood as providing the essential conditions for material and, hence, social existence to everyone. A guaranteed basic income above the poverty line for all members of a society would offer socio-economic independence, an autonomous base of existence that would be much firmer and infinitely more widespread than that available to a good part of today’s citizens, especially in the more vulnerable and most subjugated sectors (wage workers, the poor in general, the socially excluded, the unemployed, women, and so forth), as we shall now argue. In both rich and poor countries, the economic independence furnished by a basic income would establish a kind of domestic “counterpower” that could modify relations of domination between the sexes. It could increase the bargaining power of women within the family, especially those who are dependent on the husband or male head of the family, or those whose earnings are very low in badly paid, parttime or discontinuous employment. In Pateman’s (2003, 115) words, “A basic income is important for ... democratization precisely because it is paid not to households but to individuals as citizens” [her emphasis]. It would provide an autonomous base for a significant percentage of women who, on a daily basis, depend on the male household head for their material existence. In the daily struggle for subsistence, both farmers in the poor countries and workers in the developed countries are in a precarious

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situation. In capitalist countries, unemployment is comparable with the landlessness of small farmers in agrarian societies. Workers and farmers are at risk in terms of their material existence. What brings these two economies together is the fact that dispossession in both private and public spheres, of land and of other means of production, is a prominent feature of the capitalist system and, even more acutely since the end of the 1970s, of the neoliberal system which, one way or another and largely negatively, affects everyone. The dispossessed must sell their labour to the person who owns land or other means of production in order to acquire the means that permit subsistence. This situation has been dubbed the “commodification of labour,” since the capacity for work by those who do not possess the property that might enable them to avoid wage labour is treated as just another commodity. This commodification (or decommodification) of labour power occurs to different degrees5 but, whatever its extent, a basic income would constitute an effective tool for decommodifying labour power, as long as it was of a quantity that would permit “the freedom not to be employed” (Pateman, 2004, 104). It would guarantee that workers might have their subsistence needs covered outside the market and would thus extend their effective freedom. This applies to both industrial and service sector based economies like Catalonia’s and overwhelmingly rural economies like East Timor’s, since what is at stake in both cases is largescale dispossession – whether of land, jobs or other means of material existence for very large sectors of the population – although this may have occurred at different times and by way of different processes. Another interesting effect of basic income would be the increased bargaining power that workers would gain vis-à-vis the employer.6 The labour relationship under capitalism is highly asymmetrical. The financial security held out by a guaranteed basic income could lessen the pressure on workers to accept jobs under more or less abusive conditions. Leaving the job market becomes a viable option, which would mean a bargaining position (or position of resistance, as it has sometimes been called) that is much stronger than workers have now. This is very different from the situation in which power is almost entirely on the side of the employer, who can replace combative workers with machinery or by other workers from the ranks of the unemployed “industrial reserve army.” If one knows that one’s subsistence depends, directly or indirectly, on the person with the whip hand on the other side of the table, one’s bargaining power is very weak. With a basic income, workers could effectively and convincingly reject unwanted situations and conditions, besides being able to contemplate alternative

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kinds of work that might offer a higher degree of personal satisfaction. In dependent economies like that of East Timor this possibility of different kinds of non-dominated organization of labour power could have an important part to play in articulating alternative networks of production and distribution that would have beneficial effects in considerably raising levels of development and social and economic independence. In both North and South, and especially in the South, a basic income could act as a mechanism for promoting well-integrated, autonomous social and productive development. While a basic-income proposal for a poor country would primarily be concerned with eradicating hunger, starvation and the extreme forms of poverty, it would also improve general income distribution and create labour and professional opportunities. For example, a group of small farmers could buy a tractor (or, in the case of rice cultivation in some hamlets of East Timor, buffaloes), fertilizer to increase their agricultural production, and a truck to take their produce to a market. This would expand productive networks and reinforce sustainable community development, which would then give communities a more effective voice in claiming essential or improved infrastructure, for example schools, clinics, roads and bridges. In a post-conflict situation like that in East Timor, a basic income would also have less quantifiable beneficial social effects in enabling a return to traditional forms of production, which require a close-knit community.7 One significant example of this is traditional labourintensive rice cultivation,8 which also entails buffalo husbandry, since these animals are an important part of the process of preparing the ground for planting and also providing manure fertilizer, quite apart from their importance in community ceremonial events. East Timor has a large group of ex-combatants who spent the years of their youth in the mountains engaged in guerrilla warfare against the Indonesian occupation. Their dependents are also affected, bringing the total to some 40,000 people, or some 3.6 percent of the population. Other segments of the population have been disadvantaged by the conflict in different ways. There are many displaced people. Others are afflicted by different types of physical and psychological trauma related with direct experience of, or exposure to great violence. Many people have no schooling or training, and then there are the former members of pro-Indonesian militia groups. All these individuals face distinct challenges in being integrated into communities that do not exist because they have no sound productive basis. Including militia returnees in a basic-income

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scheme could be important in enabling them to make a productive contribution. The past violent actions of these youths and men make their reintegration into society very difficult. This also affects their non-militia relatives in small communities that have been devastated by tragedy, torn apart by suspicion and hugely affected by the economic effects of losing many able-bodied men and women, as well as having their land confiscated and livestock slaughtered in the long years of the Indonesian occupation. A basic-income scheme could go a long way towards reintegrating former militias and underpinning social acceptance of their families, thus establishing peaceful coexistence by offering everyone real, productive membership in society. In short, such a socially inclusive economy would favour many essential processes of reconciliation, in great part because it would grant everybody the set of material assets that would enable people, individually and collectively, to redefine their plans and projects. It would help to defuse the potential for violence that flares up periodically and dramatically in East Timor, in particular among disaffected, uprooted young people who have no opportunities to work, or because evident signs of increasing social inequality in such a traumatized society are a permanent flashpoint for ever-burgeoning frustrations and a generalized feeling of injustice. In poor countries like East Timor, foreign-funded development policy typically takes the form of ill-fated, one-off, isolated and often capriciously selected initiatives that fail to coordinate with local priorities in terms of the real political, social and productive needs of the different regions.9 These initiatives may take the form of the production of biofuel crops in areas that are subject to famine, introducing tourist attractions and facilities that gobble up a lot of scarce resources, or unsustainable, short-lived forms of fishing or forestry. Such incongruity has detrimental effects in such key matters as agrarian reform, cooperative endeavours, local-scale agricultural projects, environmentally sustainable projects, improving the territorial balance between rural and urban areas, security, public education, and health service facilities.10 The material independence guaranteed by a basic income could create the conditions for sustained economic progress precisely in these spheres by opening up, on a universal, consistent and guaranteed basis, autonomous collective or individual productive opportunities for the population, which might take the form of local handicrafts industries, transport services or food production and processing, for example. Creating the conditions of food security based on independent local production, so that the population is not obliged to pay high prices

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for less-nutritional, more expensive food produced by foreign multinationals, is of vital economic and social importance. Such a basic matter as a well-balanced diet could be greatly favoured if it were possible for people to transport vegetables to the coast and fish to inland villages. This alone could make a notable difference in the overall health of the population. According to the 2006 United Nations Development Program (UNDP) report, optimistically titled “The Path out of Poverty,” the annual 2004 per capita GDP in East Timor was US$370, which is marginally over US$1 a day, but in rural areas the daily figure was only fifty cents (Website of United Nations Development Programme, Timor-Leste Human Development Report (2006; 16 April 2011). As dire as these estimates are, they do not reveal the extreme vulnerability of the most disadvantaged groups, which include small farmers in flood and/or landslide prone areas, people without livestock, families with many dependants, street children, female-headed households, individuals without education or living in isolated rural areas, victims of violent or criminal activity, maimed people, victims of psychological trauma, as well as homeless and internally displaced persons. Some donors, in attempting to alleviate these problems, offer targeted microcredit programmes. However, these can only have partial, discontinuous and insufficient effects because poverty and poverty-related problems are national in scope, socio-economically structural by nature, and likely to be resolved only if the antipoverty programme is as long-lasting and comprehensive as is basic income. In terms of agricultural development, production, food security and sustainable development, a basic income in East Timor (and in developing countries in general) would constitute sound policy compared to any targeted cash-transfer scheme. Targeted cash schemes do not permit articulation of a productive network or a domestic market and, hence, of an independent, wellintegrated society. Users depend on the will and whims of those in charge of the programmes – the bureaucrats, state and international agencies or large and small NGOs – and are not given any real opportunity to make decisions about their projects in keeping with their actual wishes and needs, and with the particular circumstances of each local and national economy. In our view, economic development is better achieved by breaking ties of dependency and promoting the emergence of robust productive projects at both the individual and group levels – projects that are autonomously conceived and planned from within the society, as opposed to the often highly inappropriate schemes that are imposed from outside or above.

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5.3 Financing freedom in North and South: basic income in Catalonia and East Timor The amount of the proposed basic income and how to finance it are crucial questions. In rich and poor countries alike, the basic principles are the same, which is another of the reasons why we have opted to analyse two such different countries, societies and geographies as Catalonia and East Timor in order to make our case. Both financing schemes share the following characteristics: (1) The basic income is situated at or just above the poverty threshold (below this level basic income loses many of the advantages we have described). The basic income is allocated on an individual basis and never by groups of cohabitation or households. (2) The provision of the basic income is integrated into the taxation system (although in different ways). (3) It is assumed that the need for universal health care and free high-quality education remains constant. These services are as important as a constant income flow in guaranteeing the inalienable social standing that gives individuals and communities the socio-economic security that is so necessary for local and national development.

5.4 Basic income in Catalonia: simulating a financial model The proposal for financing a basic income in Catalonia11 entails thoroughgoing reform of the present-day Spanish IRPF12 (personal income tax) system to provide a basic income for all citizens in order to achieve a substantial reduction in inequality of income distribution, and greater simplicity and internal coherence in the taxation and social benefits systems. This focus was chosen not only because it was possible to obtain individualized IRPF data for Catalonia, but also because this tax is especially informative in showing the resulting redistribution of income and other changes that would occur if a basic income were introduced. The research is based on a microsimulation programme that was specifically designed for the study. It was applied to a database compiled from a sample of 110,474 tax declarations in Catalonia in order to evaluate different policy options for tax-benefit integration, which would include a basic income. The study demonstrates that the proposal is

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viable in economic terms and that the distribution of income would be highly progressive. Among the studies on financing basic income, the most interesting and informative are those that use microsimulation for estimating the costs and distributive impact of its introduction. Microsimulation programmes that work with data of income distribution and with samples consisting of direct taxpayers are particularly indicated for evaluating the distributive effects of a basic income because the general idea behind the reform is tax-benefit integration. The microsimulation model permits many variations but is based on the following criteria: (1) Tax-benefit integration. (2) A full, universal basic income to be paid directly and unconditionally to each individual. (3) This basic-income proposal would replace any existing public cash benefit of a lesser amount. If it is higher, the basic income is topped up until it is equal to this benefit (in both Catalan and Spanish cases, this would occur in particular with a certain number of earnings-related state pensions or unemployment benefits, whose amounts are tied to previously existing salaries). (4) The amount of a basic income envisaged for adults varies according to the examples chosen. (5) Minors do not necessarily receive the same amount as adults. In our simulation models they are allocated 100 percent, 50 percent and 30 percent of the amount determined for adults. (6) The tax rates are equalized for every income regardless of its source, so that the same rate applies for both the general tax base and the particular tax base. (7) Any other tax relief, allowance or exemption of the present personal income tax is dropped. (8) Basic income is not taxed, but any other additional income is taxed from the first euro upwards. The database used in the Catalan study consists of an individualized stratified and, naturally, anonymous sample of income tax (IRPF) payers for Catalonia in the year 2003. As stated, it consists of more than 110,000 cases and is representative of the main variables that enable analysis of the social and family circumstances of the taxpayers: age, marital status, number of people in the household and so forth. This large sample was used as the basis of the microsimulation model that was developed in

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order to present a proposal for financing a basic income in Catalonia in the conditions of 2003 and to analyse its distributive impact. Although this database performs very well for several microsimulation purposes, it does have two major limitations when used for simulating basic-income schemes: (1)

The sample only covers the taxpayers among the population and their households, which is to say some 74 percent of the total. The microsimulations do not include, therefore, people who do not pay tax, a particularly significant part of the population where basic income is concerned because they tend to be the worst-off in terms of income distribution. This limitation may be addressed in two different ways: (1.1) It is possible to calculate the amount required to pay a basic income to the population not covered by the sample, adding it to the total cost of the reform simulated with the sample. Depending on the proposed size for the basic income, there will be a greater or lesser difference between the cost of the basic income and the savings it would permit in replacing other benefits. Table 5.1 shows the savings in social expenditure estimated for the simulation an annual basic income of €5,414 for adults and €2,707 for minors. Tables 5.2 and 5.3 demonstrate the cost and sample breakdowns of a basic income for that part of the population that does not pay personal income tax and is excluded from our sample of taxpayers in the first simulation. The difference between the savings represented in Table 5.1 and expenditure on basic income for the non-tax-paying segment of the population in Table 5.2 is €492.7 million. This quantity is therefore the deficit that the first simulation can accept. (1.2) The database does not permit us at this stage to integrate the income distribution data from the sample of taxpayers with that of the rest of the population that is not covered in the IRPF “sweep.” However, it would be reasonable to assume that the segment of population excluded from the sample does not pay income tax – tax dodgers and a few other exceptional cases aside – because it has a much lower average income than that included in the sample. This is an interesting detail because it means that our microsimulation model will tend to underestimate the progressiveness of the redistributive impact of the reform on the total population; it only works with the sample of taxpayers. In other words, if the model (and we shall see that this is indeed the case) predicts much

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(2)

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more egalitarian income distributions after the reform, then we can easily assume that the real resulting distribution would be still more progressive when it includes the poorer population not covered by the sample. The second major drawback of the database is that the sample unit is the taxpayer, not the household. There is no direct variable available that would enable us to know the number of taxpayers per household in those cases where the tax declaration is individual. Nonetheless, we have been able to estimate the number of households “present” (1,853,232) in the population by means of an indirect method that combines variables such as “type of income tax declaration” (individual or joint), “number of dependent children” and “marital status.”

Some of the more relevant details of this microsimulation model, which illustrates different examples of financing and the distributive impact of a basic income, are discussed below. It should be stressed that the model is readily applicable to other countries, geographic zones and autonomous communities (as in the case of Spain) by means of a simple substitution of the database with an appropriate one, bringing it into line with the fiscal reality of the zone under study. Of the many possibilities offered by simulation, we have offered the three we believe are the most interesting, for different reasons. The idea is to find out which flat-tax rate would finance a basic income of €5,414 per year or €451 per month, and half of this for minors. Table 5.1 Estimated saving in social spending with the introduction of a basic income (Catalonia, 2003) Basic Income = 5,414 euros/year (451 euros/month) Source Contributory pensions lower than 390 euros Contributory pensions higher than 390 euros Civil servants’ pensions Non-contributory pensions Non-contributory unemployment benefits Contributory unemployment benefits exceeding BI Minimum Insertion Income (PIRMI) Child benefits Educational grants Social Security bonuses Active Income for Job Insertion TOTAL

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Saving (millions of euros) 1,407.1 5,390.6 255.1 238.3 228.0 715.8 54.2 450.3 18.8 488.2 2.7 9,249.1

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Table 5.2 Estimated cost of basic income for the population not covered in the sample (Catalonia, 2003) Basic Income = 5.414 euros/year (451 euros/month) Population

Not covered Cost of the BI for population not covered by sample by the sample (millions of euros)

Under 18 18 years and over TOTAL

159,492 1,551,043 1,696,990

Table 5.3

431.8 8,324.6 8,756.4

Main magnitudes of the sample

Data for 2003 SAMPLE Sample (number of taxpayer declarations) Income tax filers Spouses Over 18 years of age Under 18 years of age Total population

110,474 2,964,232 650,872 3,891,310 940,494 4,831,804

We can make some remarks about the results of this simulation, bearing in mind four commonsense criteria for their evaluation if the aim is to achieve feasible and desirable basic-income schemes: (1) The reform should be self-financing (meaning that there is no net deficit, so that the present amount of tax collected is respected and the reform is neutral in this regard). (2) The redistributive impact should be progressive. (3) More than 50 percent of the population covered by the simulation ends up gaining (bearing in mind, too, that almost all of the population not covered by the simulation would in all likelihood gain, for the reasons outlined above). (4) The real or effective tax rates after the reform (once we have taken into account not only the new nominal tax rates but also the effect of the basic income) must not be excessively high. With these criteria in mind, the proposed simulation requires a flattax rate of 49.9 percent. For obvious reasons, a nominal tax rate can be very different from the real tax rate. This rate would raise enough tax revenue (€32,619.8 million) to finance a basic income for the

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individuals covered in the sample (€23,613.5 million) plus the quota of tax revenue raised by present income tax rates (€9,501.1 million).13 The reform would have a very progressive impact on income distribution as the different indices show (the Gini index, for example, would be much lower, dropping from 0.409 to 0.38 in this simulation). The figure for net winners after this reform would be 63.3 percent (among which are included the dependent members of the taxpayer’s household). To these we would have to add the proportion of the non-tax-paying population, which amounts to the very high figure of 26 percent. It is no exaggeration, then, to say that the proportion of the population that benefits from the reform would be 80 percent or over. Surprisingly, the real tax rates would be very high only for the top part of the decile of the population with the highest income, which is to say for the rich among the rich. The first six deciles representing the sector with the lowest income would have lower real tax rates than under the present income tax regime; the seventh decile would remain approximately the same; and the eighth and ninth deciles would face a substantial, but not huge, rise. The real rate would go up to over 23.5 percent only for the highest income decile. The main point is that the real tax rates for the first five deciles would be clearly negative. It is important to remember that, with changes to the database, this microsimulation study is applicable to all countries with similar taxation systems. However, it is not exportable to countries with modest public coffers, for example those of Latin America or Africa. This is not just because of the scarcity of resources but also because of problems of capacity and efficiency in tax collection. To go no further, we have had to take all this into consideration with our study of East Timor.

5.5 Basic income in East Timor: guidelines for a financial model We believe there are three main options for financing a basic income in East Timor: changing budgetary priorities, adjusting the income tax structure or increasing VAT and excise duties on luxury goods such as cars, alcohol or tobacco. These options are not mutually exclusive, and a combination of the first and third might be the most feasible choice in East Timor at present. Changing budgetary priorities would necessarily involve oil and gas revenues since they account for such a large part of the budget. In the 2006–07 budget petroleum revenues represented 92 percent of the total, an expenditure of approximately US$400 million. However, the expected revenue from petroleum activities is around 215 percent of

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planned expenditures, generating a large surplus (Website of Australian Government, “What proportion is the oil and gas revenue from the Timor Sea to the annual budget of East Timor,” 16 April 2011). The East Timor Petroleum Fund Quarterly report stated recently that on 31 December 2006, the fund had net assets of approximately US$1.3 billion. Both fiscal and current account balances in 2006 recorded surpluses of more than 100 percent of non-oil GDP and these were expected to rise in 2007–08, reflecting large and growing revenue from offshore oil and gas fields.14 The other two options for funding a basic income – adjusting the income tax structure and increasing VAT and excise taxes – would ensure that higher earners and spenders bear part of the cost of benefiting the poor. The latter option in particular makes sense in a dual economy like East Timor’s with its harsh contrast between the high-spending capacity of the urban-based international agency, expatriate and business sector, and the extreme poverty in the rural sector. Between 2002 and the end of 2006, East Timor received US$3.5 billion in aid from the UN and other international agencies. However, the bulk of the money went into the wages of aid officials, consultancy fees and contracts with companies based in the donor countries. In accordance with donor stipulations, this money is essentially used for providing infrastructure and services for businesses and foreign investors. Partially financing a basic income with higher VAT – except for necessary goods – and excise taxes might help to stem the flow of resources into foreign hands while countering World Bank, Asian Development Bank and IMF policies that threaten to undermine East Timor’s economic independence as well as exacerbate the visible gap between the haves and the have-nots. Whatever funds might be raised from adjustments to the taxation structure or VAT and excise taxes, oil and gas revenues would seem to present the largest source of possible funding for a basic income in East Timor. In January 2006, the Treaty on Certain Maritime Arrangements in the Timor Sea, signed by Australia and East Timor, provisionally resolved a bitter maritime boundary dispute between the two nations (Scheiner, 2006). One of the smaller deposits, the Bayu-Undan field, began production in February 2005, whereupon the government’s budget rose from US$80 million to almost double that in 2006. It is estimated that this field will generate about US$250 million per annum over a projected 20-year life span, around US$5 billion in total. Another area, the Greater Sunrise field, is expected to bring in US$10 billion in the 30 years of the project’s projected life. Seeking to avoid the pitfalls of a sudden steep rise in revenues from a single resource (as in Chad and Nigeria), the Mari Bim Amude Alkatiri

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government (2002–06) established the Petroleum Fund to manage the flow of revenue and curb corruption. The fund legislation requires that all oil and gas revenue be deposited into a single account. The government can spend only a small fraction of this revenue, depending on gains made by the fund’s investments (mainly in low-risk bonds), so that when the oil and gas reserves are exhausted, future generations will still have substantial wealth. The law establishes monitoring organizations to supervise fund management, and periodical reports are issued for public scrutiny. A basic income in East Timor partially financed by oil and gas revenues would bring about an immediate distribution of a regular micro income (as opposed to microcredits) received every month without external interference. For instance, a basic income of US$30 would bring recipients considerably above the rural poverty line. For a total population of 1.2 million, the overall annual sum of a universal basic income of US$30 per person per month would be US$432 million. Another proposal could be a basic income of US$30 for people over 15 years of age (US$216 million) and US$15 for children under 15 (US$108 million), some 50 percent of the population (United Nations Development Programme, 2006, 8.), a total of US$324 million. A poverty-line basic income paying just over 60 U.S. cents per day for the entire population (US$20 per month), would cost US$288 million. With a basic income of just US$20, a poor family with six dependents would receive a guaranteed monthly income of US$160 or US$1,920 per year. In a hamlet of, let us say, 20 similar families, this basic income could bring in US$3,200 per month or US$38,400 per year, a figure which gives an idea of what this income flow might mean for small communities such as those in East Timor. In general terms, models of tax-based financing involve integrating the basic-income financing strategy into the taxation system, either by reforming existing taxes and displacing the burden of some taxes onto others, or by creating new taxes. In brief, it means, as with the model for Catalonia, taking more in taxes from the richest members of the society than what they receive as a basic income. Some of the middleincome citizens may pay a little more in taxes but would still benefit overall, while the poorest benefit outright. Nobody would be living below the poverty line. Just what proportion of East Timor tax revenue could go towards paying a universal basic income of US$30 (at a total cost of US$432 million) would become clearer with a tax-effort analysis evaluating the country’s taxable capacity based on the structural characteristics of the

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economy and its capacity to raise taxes. Whatever the case, three administrative conditions need to be met in order to implement a basic income for all citizens. First, the efficiency of the existing taxation system must be maintained or (almost certainly) improved. Second, an identification system for every citizen or accredited resident must be installed. Third, a smooth, cost-effective basic income delivery system is needed.15 This may be complex, but it is much less difficult than dealing effectively with the chronic social, economic and political drains of poverty and persistent food insecurity. It is certainly less complicated than trying to solve intractable structural problems by means of conditional programmes that are very costly to administer, that are stigmatizing and paralysing for beneficiaries and that, in not being preventive, only lead to further problems in their piecemeal attempts to cure.

5.6

Conclusion

Both Catalonia and East Timor, as do many other countries, show a stark contrast between a crude, socially polarizing capitalist model on the one hand, and the democratic principles enshrined in the fundamental legal frameworks of each state – the East Timor constitution and the Statutes of the Autonomous Region of Catalonia – which uphold the basic principles of democratic citizenship and freedom. If we look at the progress of the basic-income proposal in other parts of the world and sketch a scale of stages crucial to its political viability – agenda setting (South Africa), legislation (Brazil) and implementation (Alaska, to a certain extent)16 – Catalonia would fall into the first category while, in the case of East Timor, the proposal has not even entered the realm of intellectual debate. There is growing interest at the grass-roots level in Catalonia as the effects of the crisis become more acute, precisely at a time when the government, deeply in debt (to the extent of 16.2 percent of Catalonia’s GDP in the first quarter of 2011) and under enormous pressure to slash public spending, is less inclined to consider it. Today’s prevailing economic and social doctrines pose a huge impediment to the application of any new system that is seriously committed to the idea of social freedom and its natural relationship to economic standing. When control of economic activity is governed by the decisions of a few rich and powerful people, privilege-protecting and hence freedom-throttling market relations are given the highest priority in the organization of social life. Apart from upholding the need to embrace an idea of freedom based on people’s material existence in both rich and in poor countries, we

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have endeavoured to offer a glimpse of what new possibilities and solutions to structural problems might be offered by a basic income in Catalonia and in East Timor. This is not a panacea that would solve all the social and economic problems of these societies, but it would mean much more widely spread opportunities for people to participate in productive activities, enhanced social inclusion within reinforced local communities, greater political participation, and a major reduction of poverty and poverty-related problems. The material independence a basic income would confer upon Catalonia’s and East Timor’s citizens would expand their options for leading free and autonomous lives as individuals and as community members and would, thus, constitute an effective instrument for guaranteeing and nurturing freedom.

Notes This chapter was written under the auspices of the European Research Council’s Seventh Framework Program (FP7/2007–2013/ERC/Agreement No 249438 – TRAMOD) (Casassas) and the Spanish Ministry of Science and Innovation Research Project FFI2009–10941 (Raventós). We are grateful to Matthew C. Murray and Carole Pateman for the invitation to contribute to this volume and for detailed comments on earlier drafts. 1. Our translation from the Spanish. 2. For example, point 5.5 of the programme of the tripartite Catalan government (2003 to 2010) sets as a priority: “To redefine the Minimum Income of Insertion so that it becomes a basic income of citizenship, and to study the different proposals for its progressive setting up.” Indeed, the Catalan parliament was the first in the world to debate basic income as an unconditional right of citizenship (Porta, 2002). 3. Proponents of academic neo-republicanism including Quentin Skinner, J.G.A. Pocock and, in particular, Philip Pettit are well known for their distinction between interference in general and different forms of arbitrary interference when they set about defending the republican conception of freedom based on an absence of arbitrary interference. We believe that this neorepublican account glosses over the relationship between property and republican freedom while also understating the essential connection between democracy and property. Pettit theorizes republican freedom as a dispositional concept, contrasting it with the purely negative liberal freedom based on non-interference. This version of republican freedom would entail absence of domination and of arbitrary interference from other individuals or groups, including the state. Herein lies a crucial difference since, for historical republicanism, the essential source of vulnerability and arbitrary interference is the absence of material independence owing to lack of property. The set of opportunities of any individual is clearly delimited by the material resources that do or do not enable him or her to lead an autonomous social existence. This is not any old set of opportunities. Full citizenship is not possible without material independence or without some “control” over the set of possibilities we have just specified. If the essential material

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4. 5. 6. 7.

8.

9.

10.

11. 12.

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roots of the historic role of property and the capacity of property owners to dominate are overlooked, then the notion of “domination” is diluted and stripped of its institutional nature. Moreover, other more personal aspects of human relations that have never been deemed politically pertinent by historical republicanism, such as cheating or swindling, which arbitrarily interfere in the life of the person so deceived, then come under the heading of “domination.” See Pettit (1997); Domènech (2004); Raventós (2007) and Domènech and Raventós (2008). See Lo Vuolo et al. (2010). See, inter alia, Pateman (2004); Van Parijs (2006) and Domènech and Raventós (2004). See,Casassas and Loewe (2001); Raventós (2002); Raventós and Casassas (2003); Wright (2006). The constitution of East Timor declares that the state aims “to promote the harmonious and integrated development of the sectors and regions and the fair distribution of the national product” (Constitution of East Timor, part I, section 6, “Objectives of the State,” [I]). A well-known description of the processes entailed (in the Indonesian case but also partially applicable to East Timor, at least inasmuch as their community-based labour-intensive aspects are concerned) is given by Clifford Geertz (1963). To give one striking example of the general problem, The New York Times (21 April 2011) reports in an article titled “World Bank Faults Itself for Slow Process in East Timor”, that an unwontedly self-critical draft report by the bank’s internal auditors has admitted inter alia that “[A]t the urging of the bank – which provides loans to developing countries with an explicit goal of fighting poverty – East Timor saved too much of its precious petroleum revenues rather than spend them on social projects, an approach that contributed to needlessly high levels of poverty and unemployment.” It is also noteworthy that the report allows that, “poverty rose significantly through most of the evaluation period and declined only after 2007, when the government, against bank advice, increased its spending using petroleum resources.” The article cited above (note 9) notes that, “The World Bank delayed the opening of four desperately needed hospitals for a year because it adhered too rigidly to its own procurement rules. This was in a country where the child mortality rate was among the highest in Southeast Asia, life expectancy was barely over 55 and there had been “a total breakdown of the health care system.” This section is largely based on Chapter 3 of Arcarons et al. (2005), on Arcarons and Raventós (2010) and Casassas, Raventós and Wark (2010). IRPF (Impuesto de la Renta de las Personas Físicas) is direct taxation on personal income received. While it is a very common form of taxation, it does have its own particularities in every state of the European Union and other geographic zones. Hence, much of what is discussed here should be of interest for many other geographic areas with taxation systems that resemble that of our study. To our knowledge, there are no exhaustive studies to date on financing a basic income on the basis of other kinds of taxes, for example corporation, inheritance, luxury goods and tourist taxes, which would mainly target the rich.

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13. It should be recalled once again that when we add the cost of a basic income for the population not covered in the sample, and deduct the savings in social spending due to the reform, the difference in this first simulation is a positive balance of €492.7 million. Hence, if we include the non-tax-paying population in the sample, the condition of self-financing is still satisfied because the outlay on their basic income is covered by this amount. 14. See Website of World Bank, East Asia Update, 16 April 2011. It is worth noting at this point that, since 1982, the Government of Alaska has paid out to each person who meets state residency requirements an equal share of publicly-owned oil reserves. This takes the form of a Permanent Fund Dividend (PFD) which is held in the Alaska Permanent Fund (APF) and amounts to annual grant of roughly $1,000. Although the grant is well below the poverty line and the initiative thus lacks many advantages of a fully fledged basic income, this dividend “is the sole example of a large-scale economic policy combining resource taxation – effectively transforming a depleting natural resource into a sovereign wealth fund – with the individual and unconditional distribution of (part of) the revenue stream to all resident share-holders” (Casassas and De Wispelaere, 2011). 15. For a detailed analysis of the technical and normative challenges involved, along with the difficulties of administering a basic-income system, see De Wispelaere and Stirton (2009). 16. See Clua-Losada (2006, 22).

Bibliography Arcarons, J., Boso, A, Noguera, J.A. and Raventós, D. (2005) La Renda Bàsica de Ciutadania. Una proposta viable per a Catalunya (Barcelona: Mediterrània). Arcarons, J. and Raventós, D. (2010) Al voltant de la Renda Bàsica (Lleida: Universitat de Lleida, Oficina de Cooperació i Solidaritat). Bertomeu, M.J. and Domènech, A. (2006) “El republicanismo y la crisis del rawlsismo metodológico (Nota sobre método y substancia normativa en el debate republicano),” Isegoría. Revista de Filosofía Moral y Política, 33, 51–75. Casassas, D. and Loewe, G. (2001) “Renta Básica y fuerza negociadora de los trabajadores” in Raventós, D. (ed.) La Renta Básica. Por una ciudadanía más libre, más igualitaria y más fraterna (Barcelona: Ariel). Casassas, D. and De Wispelaere, J. (2012) “The Alaska Dividend Model: A Republican Perspective” in Howard, M. and Widerquist, K. (eds) Exporting the Alaska Model: How the Permanent Fund Dividend Can Be Adapted as a Reform Model for the World (Basingtoke and New York: Palgrave). Casassas, D. and Raventós, D. (2007) “Propiedad y libertad republicana: la Renta Básica como derecho de existencia para el mundo contemporáneo,” Sin Permiso, 2, 35–69. Casassas, D., Raventós, D. and Wark, J. (2010) “The Right to Existence in Developing Countries: Basic Income in East Timor”, Basic Income Studies, 5 (1), 1–14. Clua-Losada, M. (2006): “Basic income on the agenda: the Catalan experience” in The Selected Works of Monica Clua-Losada, available at http://works.bepress. com/monica_clua_losada/2 (Last Accessed – 18 April 2011).

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De Wispelaere, J. and Stirton, L. (2009) “Universal basic income: reconsidering the administrative factor”, paper presented at the Social Policy Association 2009 Conference (Edinburgh, 29 June–1 July 2009). Domènech, A. (2004) El eclipse de la fraternidad. Una revisión republicana de la tradición socialista (Barcelona: Crítica). Domènech, A. and Raventós, D. (2004) “La Renta Básica de Ciudadanía y las poblaciones trabajadoras del primer mundo”, Le Monde diplomatique (Spanish edition), 105. Domènech, A. and Raventós, D. (2008) “Property and republican freedom: an institutional approach to basic income”, Basic Income Studies, 2 (2), 1–8. Geertz, C. (1963) Agricultural Involution: The Process of Ecological Change in Indonesia (Berkeley, Los Angeles and London: University of California Press). Lo Vuolo, R., Raventós, D. and Yanes, P. (2010) “The war on social and working rights. Basic income in times of economic crisis”, available at http://www. counterpunch.org/vuolo11052010.html (Last Accessed – 14 April 2011). Pateman, C. (2003) “Freedom and democratization: why basic income is to be preferred to basic capital” in Dowding, K., De Wispelaere, J. and White, S. (eds) The Ethics of Stakeholding (Basingtoke and New York: Palgrave Macmillan). Pateman, C. (2004) “Democratizing citizenship:some advantages of a basic income”, chapter 5 in Wright, Erik Olin (ed.), Redesigning Distribution: Basic Income and Stakeholder Grants Asalternative Cornerstones for a More Egalitarian Capitalism. The Real Utopias Project, volume V, Politics and Society, 32 (1), Sage Publications, 2004. Pettit, P. (1997) Republicanism. A Theory of Freedom and Government (Oxford: Oxford University Press). Porta, C. (2002) “Un dret de ciutadania”, Ca la Dona, 38. Raventós, D. (2002) “La RendaBásica i la llibertat com a no-dominació”, Diàlegs, 11–25. Raventós, D. (2007) Basic Income: The Material Conditions of Freedom (London: Pluto Press). Raventós, D. (2008) “60 años de derechos humanos y uno de la declaración de Monterrey”, available at http://www.sinpermiso.info/textos/index.php?id =2221 (Last Accessed – 15 August 2010). Raventós, D. and Casassas, D. (2003) “La Renta Básica y el poder de negociación de ‘los que viven con permiso de otros’”, Revista Internacional de Sociología, 34, 187–201. Scheiner, C. (2006) “Drilling East Timor: Australia’s oil grab in the Timor sea”, Multinational Monitor, 27 (1). http://www.multinationalmonitor.org /mm2006/012006/scheiner.html (Last Accessed – March 2011). United Nations Development Programme(2006) http://www.undp.org/content /undp/en/home.html. Van Parijs, P. (2006) “Basic income versus stakeholder grants: some afterthoughts on how best to redesign distribution” in Ackerman, B., Alstott, A. and Van Parijs, P. (eds) Redesigning Distribution (London and New York: Verso). Wright, E.O. (2006) “Basic income as a socialist project”, Basic Income Studies, 1 (1). http://www.degruyter.com/view/j/bis.2006.1.1/bis.2006.1.1.1008/bis. 2006.1.1.1008.xml (Last Accessed – March 2011).

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6 South Africa: The Continuing Politics of Basic Income Jeremy Seekings and Heidi Matisonn1

Our social assistance programme is witness to the African National Congress (ANC) government and our society’s way of putting into practice the values of social solidarity. This we do by providing cash transfers to those of our citizens who, through no fault of their own, cannot find gainful employment. With this small, but important resource that we provide, older persons, parents with young children, people with disabilities and others are able to buy the bare necessities, primarily food for themselves, their families and their children. This provides the indigent with a measure of dignity, as they feel that they are part of society. For as long as our society remains one of the most unequal in the world, with high levels of structural unemployment and accompanying social exclusion, we must as a society continue to state unequivocally: The ANC government ... will ... lead in our efforts to mitigate against the worst impacts of poverty and unemployment and also, implement programmes aimed at reducing inequalities. We are often confronted by comments and suggestions that our social assistance programme is unsustainable. ... [I]t is time that we change the discourse here in Parliament and society. Our new discourse should focus on the unsustainable inequality in our country; as this is the key inhibitor of real economic growth and progress towards a more stable and cohesive society. Honorable Members (of Parliament), that means that your questions to us should focus on what our progress is towards building a comprehensive social security system that will, over time, facilitate a more socially inclusive South Africa. (Molewa, 2010) South African government ministers routinely profess their commitment to mitigating poverty and inequality, including – if necessary – 128

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through broad and expensive welfare programmes. The South African state redistributes approximately 3.5 percent of GDP through noncontributory social-assistance programmes, paying out in 2010 more than 13 million grants every month, in a country whose total population was about 50 million. No other major country in the global South spends as much on social assistance or reaches as high a proportion of the population. Yet, many poor people remain beyond the reach of the public welfare system, and many of these poor people vote for the governing party, the African National Congress (ANC). This would seem to be fertile ground for the introduction of a basic income grant (BIG) reaching all citizens (and voters). Indeed, in 2002, a governmentappointed committee of enquiry recommended (albeit tentatively) the introduction of a BIG. Proposals for a BIG have, however, prompted strong opposition within the government and ANC themselves. Government ministers insist that South Africa does not, and should not, have a “welfare state.” Echoing the discourse used by their apartheid-era predecessors, government ministers and spokespersons bemoan both the financial costs of “handouts” and the social and economic costs in terms of the ensuing “culture of dependency and entitlement.” Whilst endorsing the concept of a “caring society,” they prefer the imagery of the “developmental” state to that of the “welfare” state. The government has expanded its existing social-assistance programmes in part to ward off calls for a BIG. It instead favours the expansion of contributory social-insurance programmes in part to reduce the claims made on its tax-financed social-assistance programmes. The BIG lacks strong, single-minded advocates within either party politics or civil society. The ANC, which enjoys a strong parliamentary majority and voter support, has equivocated. Some opposition parties have called for a BIG, but this is not enough to make these parties attractive to poor voters. Civil society organizations were more supportive. Churches, trade unions and NGOs joined in the Basic Income Grant Coalition in support of a BIG in the early 2000s. The coalition never achieved much traction and ceased to play any role by mid-2005, primarily because its own constituent organizations had other priorities, whilst the coalition itself suffered organizational difficulties.2 The prospects for a BIG seemed to improve from 2007, when supposedly pro-BIG trade unions acquired increased power within the “ANC Alliance.” However, the unions, and the union-based faction within the ANC, did not prioritize a BIG, focusing instead on issues of greater importance to their immediate constituencies. In the absence

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of strong interest groups specifically representing the poor, a BIG is unlikely to be a serious possibility unless partisan realignment results in political parties competing for the votes of the poor.

6.1 Expansion without restructuring: welfare reform, 1994–2002 South Africa’s first democratic government, elected in 1994, inherited an unusually pro-poor welfare system targeted on specific categories of “deserving poor.” South Africa’s welfare state dates from the late 1920s, when non-contributory, means-tested old-age pensions, based on the British model, were introduced for poor men and women who were classified as “white” or “coloured.” Further social-assistance programmes were introduced for the blind and otherwise disabled and for poor mothers and their children. These programmes were partly de-racialized in the 1940s, in that people classified as “African” or “Indian” became eligible for most (but not all) benefits. The state discriminated by race, however, in terms of the level of the benefits paid. In the 1950s, the apartheid state considered but did not implement the abolition of African people’s rights to social assistance, instead freezing benefits at a low level whilst increasing benefits paid to white people. Responsibility for administering pensions was devolved, wherever possible, to the “bantustans” or “homelands” established as part of the apartheid programme of creating separate and ostensibly independent political structures for black South Africans. In the 1980s, however, explicit racial discrimination became more and more of an embarrassment to the apartheid government, and the real value of benefits paid to black people was increased steadily. In 1993, racial discrimination in benefit levels was finally eliminated. The ANC-led government, elected in 1994, thus inherited a system of non-contributory grants and pensions that reached a significant minority of poor people. About 2.4 million grants were paid monthly. Old-age pensions accounted for the lion’s share of more than 1.6 million grants, whilst more than 500,000 disability grants were paid. The third largest programme comprised the state maintenance grant paid to their mothers for about 200,000 children. At the time, the total South African population was more than 40 million, so about 1 in 16 South Africans received a grant. Given that about one quarter of the South African population had incomes below the international standard of US$1 per person per day (adjusted for local purchasing power), there were many poor people who did not receive government grants or pensions. Nonetheless, social-assistance programmes had a

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significant effect on poverty (Ardington and Lund, 1995; Case and Deaton, 1998; Van der Berg, 2001). South Africa also had what might be called a semi-social insurance system. The only contributory programme run by the state itself was the Unemployment Insurance Fund (UIF), which covered some (but not all) formal sector employees. The state as an employer was, however, also involved indirectly in privately run retirement funds or medical aid schemes – through the million-member Government Employees’ Pension Fund – and through its provision of legal backing to industryspecific agreements between employers and trade unions (Seekings, 2008). The UIF, which was extended after 1994 to cover agricultural and domestic employers/workers, pays out well under 1 percent of GDP. Pension and provident funds alone pay out in benefits each year the equivalent of about 5 percent of GDP. This semi-social insurance system covers few chronically poor people, however, because only former contributors are eligible for benefits (and only for a short period). South Africa’s social assistance and semi-social insurance systems provide income support for many people who are unable to work due to age or infirmity, or who are caring for children. However, the systems inherited by the post-apartheid state in 1994 make very little provision for people who are poor despite being fit, healthy and of working age. Post-apartheid South Africa inherited an exceptional unemployment rate. One in four working aged adults – or one in three participants in the labour force (i.e., those who are working or want to work) – is unemployed. Few unemployed people are eligible to receive UIF benefits because they have never made the necessary prior contributions to the fund. The patchiness of the welfare system contrasts with the broad ambitions of the state. In 1996, South Africa adopted a new constitution that included, for the first time, a Bill of Rights. This set out a bold vision for the public welfare system. Section 27 (1) specified that “everyone has the right to have access” to a set of rights, including “(c) social security, including, if they are unable to support themselves and their dependents, appropriate social assistance”. Section 27 (2) required that the state “take reasonable legislative and other measures, within its available resources, to achieve the progressive realization” of this and the other socio-economic rights specified in the section 27 (1). The government also reiterated its commitment to a “comprehensive” system of income support, stipulating in its 1997 White Paper on Social Welfare that, “Every South African should have a minimum income, sufficient to meet basic subsistence needs, and should not have to live

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below minimum acceptable standards” (South Africa, 1997: Chapter 7, paragraphs 26–27). In the late 1990s, the new government made little effort to achieve income security through the welfare system, emphasizing instead “development.” In 1994, in his inaugural presidential address, Nelson Mandela spoke of his government’s commitment “to confront the scourge of unemployment, not by way of handouts but by the creation of work opportunities” (Mandela, 1994). The 1997 White Paper committed the government to the goal of “developmental social welfare” and “re-orienting (its) services towards developmental approaches.” In 2000 the Department of Welfare was renamed the Department of Social Development. This developmental emphasis was informed by severe fiscal constraints in the second half of the 1990s, but senior members of the government and ANC continued to denigrate “handouts,” even after the fiscal crisis had abated (Coleman, 2003; Meth, 2004), ignoring arguments that welfare can itself be developmental. The real value of expenditure on grants peaked in 1996, and remained below its 1996 level for the following five years. Expenditure on grants fell significantly as a proportion of GDP. The one major reform of this period entailed the replacement of the state maintenance grant for poor children with a new “child support grant.” The state maintenance grants were generous but reached only a small proportion of the potential beneficiaries. The governmentappointed Lund Committee recommended that a new child support grant be introduced. Because this new grant had far fewer generous benefits and was restricted to very young children, the government could afford to extend it much more widely than the old one (South Africa, 1996; Lund, 2008). By 2001, the expansion of child support grants meant that the total number of grants paid monthly was beginning to rise. In April 2001, seven years after the transition to democracy, the number of grants paid had risen by more than 50 percent, to about 3.6 million. The total sum paid out in grants, however, only recovered to its 1996 level. Nor was there any change in the pattern of grants – or in the pattern of who was excluded.

6.2

The Basic Income Grant and its critics

Although its primary focus was on “development,” the government reiterated a rhetorical commitment to a “comprehensive system of social security.” In 2000, after the Congress of South African Trade Unions (COSATU) raised the call for a BIG at the 1998 Presidential Jobs

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Summit, it appointed a Committee of Inquiry into a Comprehensive System of Social Security, chaired by Viviene Taylor, Professor in the Department of Social Development at the University of Cape Town. The Taylor Committee reported in 2002. Its report criticized the relevance of ideas about welfare from the global North because of the prevailing assumption of full and formal employment and the related understanding of the “deserving” poor. Instead, the committee turned to the concept of “social protection,” with its stronger developmental emphasis. Comprehensive social protection for South Africa seeks to provide the basic means for all people living in the country to effectively participate and advance in social and economic life, and in turn to contribute to social and economic development. Comprehensive social protection is broader than the traditional concept of social security, and incorporates developmental strategies and programmes designed to ensure, collectively, at least a minimum acceptable living standard for all citizens. It embraces the traditional measures of social insurance, social assistance and social services, but goes beyond that to focus on causality through an integrated policy approach including many of the developmental initiatives undertaken by the state. South Africa, 2002, (41) This meant going beyond the payment of cash benefits, although these would remain crucial. The most difficult question facing the committee was what to do in the short term to reduce income poverty; “South Africa’s social safety net has a very loose weave” (ibid: 59). The committee recommended a BIG, payable to all South Africans without a means test, and set at the modest level of R100 (approximately $15) per person per month. The gross cost of a BIG would amount to about 4 percent of GDP. The committee accepted that administrative and fiscal constraints meant that a BIG could not be implemented immediately, but it should be phased in over time. As an immediate measure, the existing child support grant should be extended to cover children to the age of 18 years. In a second phase, between 2005 and 2015, the CSG would be extended into a BIG covering all adults to retirement age. The committee also proposed reforms to help the unemployed (including public works programmes, reforms to the UIF, and active labour-market policies), a move towards a national health insurance system to cover medical expenses, and the reform of contributory

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retirement provision, especially through contributing to privately run schemes compulsory for all employees with earnings above a certain threshold. The committee proposed also that the government abolish the means test for non-contributory old-age pensions, and establish a national savings scheme to which low-wage workers could contribute voluntarily. The parliamentary hearings on the Taylor Report only occurred after intensive lobbying by the BIG Coalition and, somewhat unsurprisingly, the predominant reaction within the government was negative. The minister of finance, Trevor Manuel, questioned both its affordability and administrative feasibility, and also opposed the idea on ideological grounds, describing the BIG proponents as “populist.”3 President Thabo Mvuyelwa Mbeki resisted unconditional “handouts” to the poor. The issue was discussed first at a government lekgotla (extended meeting) in July 2002. Following the meeting, government spokesman Joel Netshitenzhe reported that the cabinet was moving towards a rather different “philosophy”: Able-bodied adults should not receive “handouts,” but should be helped to “enjoy the opportunity, the dignity and the rewards of work.”4 A month later, Agriculture and Land Affairs Minister Thoko Didiza (also head of the ANC’s social transformation department) warned that, because it could “create dependency,” a BIG would need to be carefully considered, and the “discussion at the moment is about the values underpinning such a grant.”5 The cabinet did not make a formal decision, however, perhaps because the ANC was due to hold a policy conference in September and a national conference in December 2002. The conferences revealed division within the ANC. The policy conference did not endorse a BIG but did conclude that “the Taylor report provides a basis for the ‘development of ... a social security policy,’” and “called on government to continue with plans towards a comprehensive social security system.”6 At the December national conference, the ANC’s National Executive Committee reportedly proposed that the BIG proposal be rejected, and the conference’s Commission on Social Transformation threw out this proposal.7 The cabinet lekgotla in January 2003 failed to make a decision. President Mbeki did not mention the BIG in his State of the Nation address opening parliament in February 2003, but he warned that “the government must act to ensure that we reduce the number of people dependent on social welfare, increasing the numbers that rely for their livelihood on normal participation in the economy.” After intense lobbying from civil society, the parliamentary Portfolio

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Committee for Social Development held hearings on the BIG in June. Pro-BIG groups used the opportunity to make a strong case. Mbeki himself expressed further criticisms of grants a month later, at the next cabinet lekgotla, in July 2004, emphasizing instead the “dignity” of work through public works programmes. During this period, there was considerable lobbying of policymakers by advocates of BIG. Trade unions, churches and NGOs had joined in mid-2001 to form a Basic Income Grant Coalition. This coalition published regular newsletters (Masitye) from July 2002 onward, and employed a national organizer from October 2003. The coalition also convened a “BIG financing reference group” of sympathetic economists to advance the argument that a BIG was affordable. Although it seems no decision was ever taken, by early 2004 it was clear that the government was not going to pursue a BIG. Many proponents thought that the BIG issue would feature prominently in the 2004 elections, given the apparent support from both the political left (COSATU) and right (the Democratic Alliance) (Coleman, 2003, 134). However, government ministers and officials seemed more persuaded by the argument made by, among others, the economist Servaas van der Berg of Stellenbosch University, that poverty should be attacked through incremental reforms of targeted social assistance (see, e.g., Van der Berg and Bredenkamp, 2002).

6.3 Parametric8 reforms as an alternative to a Basic Income Grant, 2002–10 In his budget speech in February 2004, the minister of finance said that he had received submissions supporting a BIG: I have sympathy with the underlying intent. [The] Government’s approach, however, is to extend social security and income support through targeted measures, and to contribute also to creating work opportunities and investing further in education, training and health services. This is the more balanced strategy for social progress and sustainable development. The social security system would be “consolidated,” he said. This would entail some expansion, especially for children, “who cannot be expected to provide for themselves.” The government would continue to define the deserving poor as only those people who cannot work due to age or disability. Working age adults would not receive benefits,

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but instead would be offered “work opportunities,” in part through expanded public works programmes (Manuel, 2004). The expansion of social assistance entailed reforms to existing programmes, through widening eligibility and raising benefits. Whilst the government did not introduce any new programmes, its reforms nonetheless permitted a massive expansion in the number of socialassistance grants paid out (see Figure 6.1). Between 2001 and 2010, the number of grants paid monthly almost quadrupled, from 3.6 million to more than 14 million, primarily resulting from a tenfold increase in the number of child support grants paid monthly. This increase was due primarily to amendments to the eligibility rules. When the child support grant was introduced, benefits were payable until a child’s seventh birthday. The cut-off age was raised to a child’s 9th birthday in 2003, its 11th in 2004, its 14th in 2005 and its 15th in 2009. By the end of 2009 there were many more children aged 7 to 14 receiving grants than in the original 0 to 6 age band. It was later announced that grants would be payable until a child’s 18th birthday, on condition that the beneficiary attended school. The age of eligibility for old-age pensions was also amended. The government inherited in 1994 a programme under which women were eligible from the age of 60, subject to the means test, but men only from the age of 65. In 2007, the government announced that the age of eligibility for men would be lowered in stages to 60 also.9 By mid-2010, 250,000 men aged 60–64 received the old-age pension (SASSA, 2010, 14).

16 14 12 state maintenance grant child allowances

10 8

child support grant

6

care dependency grant

4

foster care grant disability grant

2

old age

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 6.1

Number of social assistance beneficiaries

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The sums spent on social assistance also rose in real terms (i.e., considering inflation). Expenditure on social assistance was two-and-a-half times higher in the 2009–10 financial year than in 2001–02. This was also a period of sustained economic growth, so the rising expenditure was more modest in relation to GDP. Nonetheless, social assistance as a share of GDP rose from 2 percent to 3.5 percent. Responsibility for the administration of grants and pensions was transferred from the provincial governments to a new dedicated state agency, the South African Social Security Agency (SASSA). At the same time as it was expanding the reach of social assistance, the state continued to use a discourse of developmentalism alongside a discourse of “social solidarity.” The Department of Social Development’s “Strategic Plan” for 2006–10 referred to the continuing commitment to a “paradigm shift” from a welfarist approach to “developmental welfare” (South Africa, 2006a). The ANC, in its 2007 policy discussion document on “social transformation,” emphasized the “dignity of work” and the importance of public works programmes as an alternative to social assistance. Arguing (rather unclearly) against a BIG, the ANC suggested that discussion should take place “in the context of our challenges as a developmental state rather than against the ideological backdrop of a welfare state” (ANC, 2007, 3, emphasis added). The primary emphasis of the “attack on poverty” should entail empowering people “to take themselves out of poverty.” South Africa’s welfare state has always focused on social assistance rather than social insurance. The relatively rich account for the lion’s share of the membership of pension and provident funds – as well as medical aid schemes – and even the state-run UIF reaches only those unemployed who have been privileged enough to work and contribute to the fund previously. The government estimates that only 60 percent of formally employed workers are members of retirement funds (South Africa, 2002, 93; South Africa, 2007, 5). Expanding the coverage of contributory schemes would help to contain the rising costs of social assistance. The government therefore proposed (tentatively) to make participation in contributory retirement funds compulsory for all formal sector employees. The state faces two problems in achieving this goal. The first is that low-wage workers can only afford meagre contributions from their own wages (and thus only earn modest benefits), whilst substantial contributions levied on employers would serve to discourage low-wage job creation. The second problem (from the point of view of the government) is that many of the low-income workers who already contribute

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to pension or provident funds withdraw their savings prior to retirement – often to tide them over periods of unemployment. Trade unions have been very opposed to restrictions on such pre-retirement withdrawals. In 2007 the Treasury proposed abolishing the means test on the non-contributory old-age pension whilst making participation in a basic national social security system compulsory; participation in additional private retirement funds would be compulsory for higher-earning workers. Low-wage workers and their employers would be compensated through a wage subsidy, estimated to cost between 1 and 1.5 percent of GDP. There would be some restrictions on workers withdrawing their “savings” in a lump sum before or even at retirement, rather than as a post-retirement pension. The Treasury emphasized that the proposed contributory system would be “complementary” to the existing social assistance system. Discussion of contributory retirement funds seems to have been set aside when a separate aspect of social insurance rose up the government agenda. In 2007, the ANC proposed the overhaul of health care through the introduction of a system of national health insurance (NHI).10 The existing system entailed an expensive private sector catering for a small minority of the population, and financed mostly through private, contributory medical aid schemes, and an inefficient public sector funded through taxation that provided for the poor majority. Under the proposed new system, everyone would be required to contribute to NHI. Contributions from rich people would be used to cross-subsidize poor people. Private hospitals and clinics would either be nationalized or might be allowed to provide services to the NHI. Rich people might be allowed to pay additional contributions to private medical aid, and private hospitals and clinics might be allowed to provide services to them, separately from the NHI. The basis of the proposal was thus to fund an expanded and more egalitarian public health care system through converting the medical aid premium paid by the rich into taxes. The establishment of an NHI was affirmed at the ANC’s National Policy Conference (Midrand, June 2007) and at the following National Conference (Polokwane, December), and was included in the ANC’s 2009 election campaign. In his first State of the Nation address opening the new parliament, President Jacob Gedleyihlekisa Zuma reiterated the government’s commitment to introduce an NHI within five years. In practice, however, the ANC and government were slow to work out the details of how an NHI would operate. In 2008, before the election, the ANC appointed a Technical Task Team, chaired by

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a former director-general of health, Olive Shisana. The committee reported in 2009, prompting the government to announce that it intended to publish an official plan in November 2009 and would have legislation ready by July 2010. As of September 2010, however, no plan had been published. Converting the ambition into a viable reality was no easy task. Both the retirement pension reforms and the NHI initiative underscored the lack of priority attached to a BIG by the government. The likely cost of either the NHI or subsidies for a more encompassing contributory retirement pension system precludes major new expenditures on cash transfers. The fact that the ANC and government have committed themselves to an NHI indicates that neither is necessarily opposed to additional taxes on the rich. The BIG is opposed because it is both expensive and also not a priority.

6.4 Explaining both the extent and limit of welfare reforms: government, parliament and courts At the most general level, the expansion of social assistance was a response to the persistence of income poverty. In its election campaign in 1994, the ANC had promised “a better life for all.” Its election manifesto – the Reconstruction and Development Programme (RDP) – promised that “attacking poverty and deprivation” would be “the first priority of the democratic government.” All South Africans should enjoy “a decent living standard and economic security” (ANC, 1994). In the late 1990s, however, income poverty worsened. The poverty headcount grew both in absolute numbers and as a proportion of the total population, and the poverty gap widened (Meth and Dias, 2004; Hoogeveen and Özler, 2006) – as the government itself conceded (South Africa, 2003, 17). Poverty, however, often persists under democratic governments. Poverty might generate pro-poor policies in most democracies, but there is no necessary reason why poverty converts into pro-poor policies as radical as a BIG. This and the following section focus on a range of political mechanisms in South Africa through which pro-poor policies might be adopted. This section considers the possible proactive and resistant roles of the different branches of the state, that is, the executive branch of government, parliament and the courts. The following section considers the roles of civil and political society. The prospect of a BIG being introduced were substantially weakened by the fact that, as Coleman (2003, 121) noted, “there does not appear to be an open champion of BIG in government, although there

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is significant sympathy and support for the idea by certain government leaders . . . and by certain ANC MPs.” The minister for social development from 1999 to 2009 was Zola Skweyiya. Widely lauded for his integrity and deep commitment to redressing poverty, Skweyiya seemed reluctant to push hard for a BIG – at least in his capacity as a government minister – preferring instead to promote parametric reforms of welfare programmes. Whilst he had good personal relationships with advocates of a BIG in civil society, he did not throw departmental resources behind the issue, instead retaining faith in “social development,” and he failed to develop any clear vision for the progressive realization of the constitutional right to income security. However, Skweyiya did preside over a massive expansion in spending on social assistance. Given the centralized character of decision-making under Mbeki, not even strong support for a BIG from the Department of Social Development would have sufficed to overcome the strong opposition of better-placed government ministers and officials. Minister of Finance Trevor Manuel reportedly opposed a BIG as early as April 2002, before the release of the Taylor Committee report, in a summit meeting of the ANC Alliance. Manuel reportedly put the cost of a BIG at an unaffordable R66 billion or 6 percent of GDP and was furious with the committee for disregarding the Treasury’s criticisms of a BIG. As we have seen above, there was also strong opposition from within the presidency. Differences between Skweyiya and Manuel persisted. In 2006, Skweyiya hinted that the government was “investigating a form of universal income transfer,” and that “something like a BIG” would be debated at the ANC’s 2007 Policy Conference (see below). He told Parliament that he “personally” supported a BIG. Manuel retorted that the country would go “bankrupt” if the state “was forced to introduce a BIG.”11 In practice, it is difficult for governments to introduce new polices that dramatically change the distribution of spending between departments. The Department of Social Development secured a larger share of government expenditure in the 2000s; it is difficult to imagine other members of the cabinet being enthusiastic about setting aside their own spending priorities in order that the government could double or triple the Social Development budget to finance a BIG. Nor is there in South Africa any prospect of Parliament overruling the executive. The party leadership of the ANC generally exercises considerable power over its MPs, in part because of its powers of

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patronage, in part because MPs are elected through party lists (in a system of proportional representation). Neither Parliament as a whole nor its portfolio committee on Social Development in particular has done anything more than nudge the government towards reform. The judiciary, however, does enjoy a measure of independence from the executive (although the governing party’s role in appointments and its general powers of patronage serve to compromise that autonomy). Through interpreting constitutional commitments to social and economic rights, the courts play a role in policy reform. In a number of cases the courts have found against the state, and in the 2000s activists sought to use the constitution to demand the extension of social assistance. The courts imposed minor reforms of welfare policy, and the possibility of defeat in court seems to have pushed the government to further reforms. In 2004, the Constitutional Court heard two cases (Khoza and Mahlaule) concerning foreign permanent residents of South Africa. A majority of the court found against the state, emphasizing the constitutional commitment to building “a caring society.” Non-citizens given permanent resident status should not be abandoned “to destitution if they fall upon hard times” and – as in the case of the elderly and children – are unable to earn a living for themselves. In Roberts, a case about the eligibility of men aged between 62 and 64 years for an old-age pension, the government rolled out, in stages, pensions to such men before a judgment was handed down. Several cases also were brought against aspects of the child support grant, especially over the age threshold (Hall and Proudlock, 2008). In Mahlangu, the applicants argued that children had a constitutional right to income support until their 18th birthday. Soon after the case was heard in the High Court, in March 2008, the government conceded and amended the age limit. No judgment was ever handed down in this case. The South African courts have generally interpreted their constitutional role not so much in terms of direct interference with the policy-making powers of the executive and legislature, but in promoting a culture of justification, requiring that the executive justify its policies in terms of its constitutional obligations. In Khoza and Mahlaule, the court found that the state’s defence was not reasonable. In both Roberts and Mahlangu, it is likely that the possibility of losing in court was a contributory factor pushing the state towards reform, in each case conceding the precise reforms demanded by the plaintiffs. These cases also indicate the limits to the role of the courts. The High Court judge in the Roberts case eventually (March 2010) handed

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down an extraordinary judgment that endorsed without qualification the state’s defence. It is very unlikely that a court would entertain the argument that every citizen had a right, under the constitution, to a BIG. The state could present reasonable arguments against a BIG. It would point to resource constraints and show that it was progressively expanding its support for the poor through parametric reforms to its existing, targeted social-assistance programmes (together with its public works programmes). The courts would not want to take over the roles of the legislature and executive branches of government in deciding how, precisely, poverty should be addressed.

6.5 Civil and political society If pressures for reform from within the state remain modest, it is important to consider whether there are any pressures for reform from outside of the state, through either civil society or political society (i.e., political parties and electoral competition). Civil society has worked effectively through the courts as well as the media in the past. The performance of civil society with respect to a BIG has, however, been poor, relative not only to the role that the Treatment Action Campaign (TAC) played in improving treatment for AIDS, but even in comparison with lesserknown groups campaigning over other aspects of welfare reform. Whilst some of the opposition political parties have rhetorically embraced the BIG, it has not become a significant factor in any real competition for the votes of poor people. Nor has factional competition within the ANC pushed the BIG up the ANC’s agenda. In short, pressure from outside the state also seems weak. The BIG Coalition was essentially a coalition of sympathetic organizations, with (for a while) a small, dedicated administrative office. The coalition got off to a promising start (Frye and Kallman, 2003), but it had lapsed into passivity by mid-2005.12 The last public statement issued by the coalition appears to have been in March 2005, soon after the finance minister’s Budget Speech (in which there was no mention of a BIG). The coalition has apparently not held a national conference since 2004. Subsequent to the collapse of the coalition, some of its constituent NGOs formed the low-key National Working Group on Comprehensive Social Security Reform.13 The initiative was in part in response to a series of consultative meetings with civil society organizations hosted by the Department of Social Development. In order to formulate a clearer, collective position, civil society organizations held a conference

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in Johannesburg in March 2009. Rather than merely reiterate their demand for a BIG, the conference participants called on the government to produce a “roadmap” setting out its plans to realize the constitutional right to income security.14 The various civil society organizations that had combined in the BIG Coalition continued to call for a BIG, but their calls often seemed almost ritualistic.15 Elections provide a potentially important mechanism through which the poor can influence the policy agenda. In South Africa, however, not even poor voters are unambiguously supportive of a BIG. Public opinion clearly favours the extension of social assistance, but not unconditionally. A 2003 survey in Cape Town found that poor adults supported a BIG, whilst middle-income and rich people were equivocal or hostile (although they agreed that the government should help the unemployed in some other way). When asked more specific questions about who they considered deserving of public assistance, however, poor and rich adults alike oppose the government providing financial support to people who are unemployed due to their own behaviour – for example, because they lost their jobs because they were late for work, they drank, or they stole. (Seekings, 2007, 2010). Whilst the widespread discourse of “rights” in post-apartheid South Africa seems to have fuelled the perception that the government has a responsibility to provide social assistance to at least the more responsible section of the unemployed, it does not seem to have led to solid support for a BIG. Voters seem to share the government’s preference for job creation over social welfare. Voters’ ambivalence about a BIG has made it easier for the ANC to procrastinate on the issue. The ANC won large majorities (with approximately two-thirds of all votes) in all four post-apartheid elections. Not even the formation in 2009 of a breakaway party, the Congress of the People (COPE), made a significant dent in the ANC’s share of the vote. It would be a mistake to conclude, however, that the ANC has not felt threatened. When COPE was launched by former ANC leaders, many commentators anticipated that the new party could easily win 15 percent of the vote and perhaps even reduce the ANC’s share to less than 50 percent. The ANC responded with aggressive campaigning, especially in the Eastern Cape where it was felt that COPE posed a major threat. The ANC’s strong response, combined with ineptitude on the part of COPE’s divided leadership, resulted in COPE winning only 7 percent of the vote (Southall and Daniel, 2009). Welfare reform did play a significant role in the partisan competition between the ANC and COPE, but the reform that featured prominently was national health insurance (NHI) rather than income support. In

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its election manifesto, the ANC emphasized expanded public works programmes (in response to unemployment) and NHI (in response to poverty). Most of the opposition parties adopted a more pro-BIG position than did the ANC. The official opposition party, the Democratic Alliance (DA), first discussed a BIG in private in late 1999, going public in February 2000. A year later, formal proposals were released in the party’s budget proposals for 2001. Sceptics wondered whether the DA’s position was not cynical; supporting a BIG allowed the DA to criticize the ANC for being elitist, whilst not really having to worry about the practicality of introducing a BIG. The NGOs and unions that had formed the BIG Coalition fell over themselves to distance themselves from the DA; the ANC, in turn, accused COSATU of consorting with the enemy.16 The Inkatha Freedom Party (IFP) – which provides a broadly Zulunationalist opposition to the ANC in the province of KwaZulu-Natal – also supported a BIG. IFP leader Mangosuthu Buthelezi explained that “for those of us on the centre-right, BIG does not pose an ideological conundrum,” in part because “the low level of the grant is unlikely to prove to be a disincentive for people to find work that pays more than the grant” (Buthelezi, 15 February 2007). The Independent Democrats (ID), which enjoyed support primarily in the Western Cape Province, also endorsed the BIG (or a “minimum income grant”) in its 2004 election manifesto. In 2009, all three of the DA, IFP and ID supported a BIG in their election manifestos. The DA and ID proposed a BIG of R110 per month. In the IFP’s 2009 election manifesto, the party openly promoted a BIG on the grounds that it “would go some way towards lessening crime and addressing poverty and hunger.”17 The IFP proposed substantial increases in all grants and pensions. The ID proposed that the BIG be funded through increased VAT, whilst the DA and IFP seem to have been quiet about the financing mechanism.18 None of the DA, IFP and ID posed a serious electoral threat to the ANC in 2009. COPE, however, posed a much more acute threat to the ANC, but it is unclear what would have happened had COPE staked out a platform comprising distinct positions on policies such as a BIG, or what would happen if COPE (or a party like COPE) were to do so in future. In the absence of any real electoral pressure to extend welfare programmes further than the parametric reforms of the ANC itself, the most important source of change might be internal to the ANC Alliance. The ANC has become increasingly factionalized, and the BIG has become one of the issues dividing the major factions. Crucially, the left of the ANC Alliance, based around COSATU and the South African

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Communist Party (SACP), has included the BIG in their demands, whilst the more conservative grouping associated with former President Mbeki has opposed it. The BIG surfaced in disputes within the ANC Alliance as early as the late 1990s, when COSATU put the idea on the policy agenda (Coleman, 2003, 120; Vavi, 2003, viii). The SACP came out in support of a BIG in April 2000. The appointment of the Taylor Committee was in no small measure an attempt to placate COSATU and paper over cracks in the Alliance. The ANC’s 2004 election manifesto included a commitment to NHI, but did not mention a BIG. In 2005, factional divisions within the ANC deepened. COSATU joined with other groups in supporting Jacob Zuma against Mbeki (Zuma had served as deputy president of both party and country). Zuma assumed the national presidency after the 2009 elections. Because his support base was broad, Zuma’s election to the presidency of the ANC, and later the country, were ambiguous victories for the left. Indeed, COSATU seemed poorly represented in the ANC’s list of candidates for election in 2009, and its concerns were unevenly reflected in the ANC’s election manifesto. After the election, unionists and other leaders of the left within the ANC Alliance were appointed to some important government positions, but the Alliance soon lapsed into acrimonious division. One issue that the left did succeed in pushing up the ANC’s agenda was the NHI. Trade unionists played a prominent role in planning within the ANC before and after the 2009 election. COSATU was reportedly instrumental in having the ANC minister of health, Barbara Hogan, replaced in May 2009, when she seemed hesitant about this proposed reform. To some extent, at least, the advocacy of NHI crowded the BIG off the reform agenda. Prior to the election, in 2008, the ANC was reported to be costing various proposals to expand financial assistance to the poor through a raft of possible policy reforms including a BIG; the extension of the child support grant to the age of 18 years; a mandatory social insurance system; and a national health insurance scheme with free health care.19 Whilst the results of this costing exercise have not been made public, it is clear that the items on the list are mutually exclusive because of their cost and there are other expensive proposals on the ANC’s and government’s agenda, including the expansion of public works programmes and wage subsidies for unemployed youth. Unsurprisingly, after the elections, some ANC leaders again cited the costs of a BIG as evidence of its impossibility. The provincial premier of KwaZulu-Natal, Zweli Mkhize, a prominent supporter of Zuma, described a BIG as unaffordable: “[I]t is not something that we are considering implementing as it would bankrupt government.”20

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Conclusion: prospects for welfare reform

The ANC government has certainly resisted fiscal profligacy, but a BIG is “unaffordable” only because scarce fiscal resources are allocated to other government programmes. That affordability is not the whole story is acknowledged implicitly, even by Mkhize, who added that the “main problem” with a BIG is that “you are giving money to everybody irrespective of what they are doing to upgrade themselves”; it is, he says, a “disincentive,” presumably meaning to work and self-reliance.21 The conservatism of ANC and government leaders contrasts with the rising appeal of cash transfers internationally. The World Bank now advocates “conditional cash transfers” to the poor, mostly based on Mexican and Brazilian programmes that provide grants to poor families with children on condition that the children attend schools or clinics. “Just giving money to the poor” has become a serious alternative to standard models of “development” (Hanlon et al., 2010). South Africa surely remains fertile ground for radical welfare reform. As long as unemployment remains high, poverty will persist and remain beyond the reach of current welfare programmes. In addition, the government has no coherent answer to unemployment. Indeed, its policies are arguably the major reason why the required low-wage, low-skill jobs do not exist. A BIG remains nonetheless much less of a priority than other spending programmes, not only for the more conservative factions within the ANC Alliance and government, but even for COSATU and left factions within the ANC. Trade unions continue to profess their support for a BIG. COSATU officials admit that whilst the campaign “did lose some steam in recent years, (this) should not be construed as a change in COSATU’s support for the BIG.”22 In September 2010, COSATU published a long “framework document” on the need for a new economic growth path (COSATU, 2010). In this document, COSATU called for a BIG, to be financed out of a substantial increase in taxation. However, COSATU also called for a range of other initiatives, including NHI, the growth of employment at decent wages in the public sector and, especially, an employment-guarantee scheme. References to the BIG were clearly of secondary importance in comparison with these other, expensive proposals. In 2003, COSATU’s general-secretary, Zwelinzima Vavi, criticized those who expressed pessimism about the prospects for a BIG. He dismissed our argument that the BIG was less important to COSATU than issues such as privatization and labour-market policy. “On the contrary,” he

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wrote, “COSATU sees the Basic Income Grant as a critical component of the social wage, the defense of which is a non-negotiable plank in COSATU’s programme for socio-economic transformation.” (Vavi, 2003, ix). Vavi also pointed to the strong support from “every sector of civil society” during the parliamentary hearings in 2003. Almost a decade later, Vavi’s optimism seems misplaced. The parliamentary hearings led nowhere, the BIG Coalition collapsed, and COSATU has certainly failed to treat a BIG as “non-negotiable.” Crucially, the state’s expansion of social assistance seems to have served not as a path towards a BIG, but as an alternative path away from a BIG. It remains unclear from where else pressure for a BIG might come. The Department of Social Development remains nominally committed to further investigations of a BIG for the unemployed, but the department faces opposition from the Treasury and other government departments. Neither the president nor any other senior ANC leader shows any interest in championing a BIG. The courts might require the government to develop a coherent plan concerning “comprehensive social security:” the strategy of the National Working Group on Comprehensive Social Security Reform is a sensible one. Nevertheless, it is difficult to imagine any South African court arbitrating over the relative efficacy of public works programmes, education and health care programmes, labour market and macro-economic policies, and social insurance or assistance in terms of promoting income security. The political voice of the poor appears muted, especially given the weakness of political opposition. Whilst electoral competition is an important consideration for the governing ANC, and the ANC is likely to continue to resort to welfare reforms for political purposes, it would require a transformed political landscape for the ANC – or any credible alternative – to adopt a BIG as a way of winning votes. In the unlikely event of the ANC splitting, and a union-backed rival emerging, it is possible to imagine a BIG becoming politically attractive. It is difficult to see how pro-BIG groups in civil society could reconstitute a multi-class coalition. In short, whilst a BIG loiters on the fringes of the policy agenda in South Africa, the prospects for implementation remain poor.

Notes 1. The authors are grateful to Isobel Frye for helpful comments. 2. A considerable contributor to the weakening of the BIG Coalition was the embezzlement of funds by the co-ordinator of the coalition, who was charged and served a prison sentence. 3. Business Day, 22 February 2002.

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148 4. 5. 6. 7. 8.

9. 10.

11. 12. 13.

14.

15.

16. 17. 18. 19. 20. 21. 22.

Basic Income Worldwide Sunday Times, 28 July 2002. Business Day, 14 August 2002. Masitye, 3 November 2002. Masitye, 5 January 2003. “Parametric” reforms refer to changes to the parameters of public policy – such as the age or other conditions of eligibility – in contrast to the introduction of new policies or the termination of existing ones. “A better country for old men” Mail and Guardian 12 July 2008. When Mbeki announced major changes in the social security system, in his February 2007 State of the Nation address, some hopeful commentators mistakenly believed he was referring to a BIG. Cape Argus 11 February 2007. The Star, 10 November 2006; “Poor May Get the Dole,” 26 Jan 2007, http: //zasocdev.blogspot.com/ (Last Accessed – March 2010). It produced only one newsletter after early 2004, and its website (www.big. org.za) was last updated in April 2006. The Working Group comprised the Black Sash, National Welfare Social Service and Development Forum, the Studies in Poverty and Inequality Institute (SPII) and the South African Council of Churches. It was initially called simply the NWG for Social Security. “Civil Society Platform for Comprehensive Social System in South Africa” (sic), adopted at March 2009 conference, http://www.blacksash.org.za/images /docs/platformpdf.pdf. (Last Accessed – April 2012). See, for example, the Declaration of the Civil Society Jobs and Poverty Conference, 18–19 June 2007, Birchwood Conference Centre, Boksburg; TAC, Equal Treatment no. 27 (June 2009). http://www.tac.org.za/community /files/file/etmag/ET27English.pdf; and successive policy documents from COSATU, including COSATU (Last Accessed – June 2010). Weekend Argus, 11 January 2003. Statement by IFP spokesperson Zanele kaMagwaza-Msibi, Durban, 2 March 2009. See SPII Talk, special edition 2009 for the election (Johannesburg: Studies in Poverty and Inequality Institute). Amy Musgrave and Karima Brown, “Social welfare system revisited,” Business Day 21 October 2008. Mail and Guardian Online, 23 July 2009. Ibid. Email correspondence with COSATU spokesperson Prakashnee Govender, 13 September 2010.

Bibliography Ardington, Elizabeth and Francie Lund. 1995. “Pensions and Development: Social Security as Complementary to Programmes of Reconstruction and Development.” Development Southern Africa 12(4): 557–77. ANC. 1994. The Reconstruction and Development Programme. Johannesburg: African National Congress. ANC. 1999. “Working Together We Can Do More.” 2009 election manifesto.

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ANC. 2004. “A People’s Contract to Create Work and Fight Poverty.” 2004 election manifesto. Johannesburg: African National Congress. ANC. 2007. “Social Transformation.” African National Congress Policy Discussion Document. Buthelezi, Inkosi Mangosuthu. Buthlelezi’s weekly newsletter to the nation, 15 Feb 2007, available online at http://www.ifp.org.za/Newsletters/070215wn. htm (Last Accessed April 2012) Case, Anne and Angus Deaton. 1998. “Large Cash Transfers to the Elderly in South Africa.” Economic Journal 108(450): 1330–61. Coleman, Neil. 2003. “Current Debates around BIG: The Political and SocioEconomic Context.” In The Basic Income Grant in South Africa, eds Guy Standing and Michael Samson. Cape Town: UCT Press, 120–42. COSATU. 2010. A Growth Path Towards Full Employment. Framework document, http://www.polity.org.za/article/a-growth-path-towards-full-employmentcosatu-policy-perspectives-september-2010–2010–09–14 (Last Accessed – April 2012). Frye, Isobel and Karen Kallmann. 2003. “The BIG Coalition in South Africa: Making it Happen.” In The Basic Income Grant in South Africa, eds Guy Standing and Michael Samson. Cape Town: UCT Press, 102–19. Hall, Katherine and Paula Proudlock. 2008. “Litigating For a Better Deal.” Children’s Institute Annual Report 2007/08 (Cape Town: Children’s Institute, University of Cape Town): 23–5. Hanlon, Joseph, Armando Barrientos and David Hulme. 2010. Just Give Money To The Poor: The Development Revolution from the Global South. Sterling, Virginia: Kumarian Press. Hoogeveen, Johannes and Berk Özler. 2006. “Poverty And Inequality in PostApartheid South Africa.” In Poverty and Policy in Post-Apartheid South Africa, eds Haroon Bhorat and Ravi Kanbur. Pretoria: Human Sciences Research Council Press, 59–94. Lund, Francis. 2008. Changing Social Policy: The Child Support Grant in South Africa. Cape Town: HSRC Press. Mandela, Nelson. 1994. “State of the National address”, 24 May 1994, http: //www.info.gov.za/speeches/1994/170595002.htm. (Last Accessed – April 2012). Manuel, Trevor. (2004). Budget Speech. http://www.info.gov.org /speeches/2004/04021815151001.htm. Matisonn, Heidi, and Jeremy Seekings. 2003. “Welfare in Wonderland? The Politics of the Basic Income Grant in South Africa. 1996–2002.” In The Basic Income Grant in South Africa, eds Guy Standing and Michael Samson. Cape Town: UCT Press, 56–76. Meth, Charles. 2004. “Ideology and Social Policy: ‘Handouts’ and the Spectre of ‘Dependency’” Transformation 56, 1–30. Meth, Charles and Rosa Dias. 2004. “Increases in Poverty In South Africa. 1999– 2002.” Development Southern Africa 211, 59–85. Molewa, Edna. 2010. Speech by the national minister for social development, introducing the 3rd reading of the Social Assistance Amendment Bill, National Council of Ministers, 31st August, 2010; http://www.dsd.gov.za/index.php? option= com_content&task=view&id=253&Itemid=1. (Last Accessed – April 2012).

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150 Basic Income Worldwide SASSA. 2010. “First Quarter Indicator Report (01 April to 30 June 2010).” Pretoria: South African Social Security Agency. Seekings, Jeremy. 2007. “The Mutability of Distributive Justice Beliefs in South Africa,” South African Review of Sociology 38(1)(June): 20–44. Seekings, Jeremy 2008. “Deserving Individuals and Groups: The Post-Apartheid State’s Justification of the Shape of South Africa’s System of Social Assistance.” Transformation 68, 28–52. Seekings, Jeremy 2010. “Racial and Class Discrimination in Assessments of ‘Just Desert’ in Post-Apartheid Cape Town.” In Discrimination in an Unequal World, eds Miguel Centano and Katherine Newman. New York: Oxford University Press, 63–87. South Africa. 1996. Report of the Lund Committee on Child and Family Support. Pretoria: Government Printer. South Africa 1997. White Paper on Social Welfare. Pretoria: Government Printer. South Africa 2002. Report of the Committee of Inquiry into a Comprehensive System of Social Security for South Africa. South Africa 2003. Towards a Ten Year Review Pretoria: Policy Co-ordination and Advisory Services, the Presidency. South Africa 2006a. Strategic Plan 2006/7–2009/10. Department of Social Development. Pretoria RP 22/2006. South Africa 2006b. Linking Social Grants Beneficiaries to Poverty Alleviation and Economic Activity, discussion document, Department of Social Development, Pretoria (November). South Africa 2007. Social Security and Retirement Reform: Second Discussion Document. National Treasury. Southall, Roger and John Daniel (eds) 2009. Zunami! The 2009 South African Elections. Johannesburg: Jacana. Standing, Guy and Michael Samson. (eds) 2003. A Basic Income Grant for South Africa. Cape Town: University of Cape Town Press. Van der Berg, Servaas. 2001. “Redistribution Through the Budget: Public Expenditure Incidence in South Africa. 1993–1997.” Social Dynamics 27(1): 140–64. Van der Berg, Servaas and Caryn Bredenkamp. (2002), “Devising Social Security Interventions for Maximum Policy Impact,” Social Dynamics 28(2): 39–68. Vavi, Zwelinzima. 2003. “Commentary by COSATU.” In The Basic Income Grant in South Africa, eds Guy Standing and Michael Samson. Cape Town: UCT Press, viii-x.

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7 Ireland: The Prospects for Basic Income Reform Seán Healy and Brigid Reynolds

In 1977 Ireland’s National Economic and Social Council (NESC) published a report on how personal income tax and welfare transfers might be integrated (Dowling, 1977). The report studied three options, one of which was basic income. The fact that a study of this nature was produced by NESC is significant; NESC is Ireland’s major “think tank.” Appointed by the government, it draws together social partners (i.e., employers, trade unions, farming organizations, community and voluntary sector and environmental organizations), government officials and independent nominees chosen by the government to review and make proposals to the government on economic and social policy. NESC’s analysis of basic income had little impact, however, as the report’s recommendations on tax reform became the major focus of policy in the following years. In the 1980s, two major reports were produced by commissions established by the government. The first analysed taxation (Commission on Taxation, 1982); the second analysed the social welfare system (Commission on Social Welfare, 1986). Both looked at basic income but rejected it without conducting any serious analysis. The Commission on Taxation made a very cursory analysis of the cost of introducing a basic income system and claimed it was too costly. Its projections on the cost were simply wrong, however, and studies conducted during the following decade (discussed below) showed this to be the case. In fact, the authors of the Commission on Taxation report subsequently expressed regret that they had not done more detailed analyses before they produced their report. Their failure was exacerbated when the Commission on Social Welfare report simply cited the Commission on Taxation’s conclusion as sufficient evidence for rejecting the idea of a basic income. 151

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Much of the discussion on basic income in the subsequent period was dogged by persistent references to the fact that both commissions had rejected the idea. Many of those making these comments were unaware of the cursory nature of the analysis conducted by the commissions and the lack of any research to support their conclusions. The idea did not go away however. In fact, over the past quarter of a century two approaches to basic income were developed.

7.1 First approach: maintaining much of the current structure In 1987, economist Patrick Honohan published a study on basic income (Honohan, 1987).1 In 1994, Tim Callan and colleagues from Ireland’s Economic and Social Research Institute (ESRI) also produced a study on basic income (Callan et al., 1994). Both preserved key elements of the existing tax and spending systems. The Honohan and Callan models were very similar: each adult of working age would receive an untaxed basic payment equivalent to the welfare payment paid to people who were long-term unemployed. The payments for older people were a little higher, and for children they were lower. These payments would be a basic income. In this model all welfare payments would be discontinued. However, “discretionary” tax breaks would be retained (e.g., mortgage interest relief, employee pension contributions, etc.). All government spending programmes would also be retained. Both Honohan’s and Callan’s teams found that tax rates in excess of 65 percent would be required on all personal income if such a system were to be financed. Both studies asserted that such a high tax rate would be a disincentive to people taking up paid employment. The Callan team also concluded that the income-distribution effect of the proposal did not benefit many low-income households. Both Honohan and Callan concluded that these models of basic income should be rejected. A number of official reports produced by government departments, agencies and working groups endorsed Callan’s conclusion that a basic income system was not viable in Ireland. These reports were produced by the Department of Enterprise, Trade and Employment (1996), Forfás (a subdivision of the Department for Enterprise, Trade and Development, also in 1996) and the Expert Group on the Integration of the Tax and Social Welfare Systems (1996).

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7.2 Second approach: replacing the current structure with a basic income system A different approach was developed and pursued by CORI Justice, an arm of the Conference of Religious of Ireland. It analysed and critiqued public policy from a social justice perspective. Its main focus was on issues related to poverty, inequality, social exclusion and sustainability. Its work, including on basic income, was taken over by Social Justice Ireland in 2009. A study by Sean Ward (1994) outlined an approach that would retain the main benefits of basic income, but would reduce the cost so that the tax rate could be kept below 50 percent. This study looked very closely at Ireland’s budgetary situation and presented detailed figures which showed what could be done to reduce public expenditure. The system proposed by Ward included the following elements: ● ● ● ● ●

●

A full basic income would be paid to older people and to children. A partial basic income would be paid to people of working age. People who were unemployed would receive a “top-up” payment. All discretionary tax reliefs would be abolished. A range of public expenditures would no longer be needed (e.g., payments per head paid by government to farmers for cattle), community employment payments (for unemployed people participating in work experience and training programmes), and so forth. Employers’ social insurance payments would be abolished and government support for industry would be reduced.

Ward’s study found this approach would benefit many low- and middleincome households in terms of net income and work incentives. It would provide more equity, both horizontal and vertical. More horizontal equity meant that people on the same levels of income or in very similar situations would be treated in a more equal manner than was currently the case. More equity at a vertical level meant that people with higher incomes would not be favoured as they are by the current system. Ward also found that this approach would improve incentives to recruit labour and to seek work, and it would provide greater simplicity and certainty. Such a system would be better than the current taxation and welfare systems in tackling problems of poverty, work incentives and exclusion. Poverty would be reduced because a basic income

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entitlement would mean that fewer people would be falling through “safety nets.” Every person would receive the basic income and would continue to receive it after taking up a job. Having taken a job, a person would be liable to pay tax from the first penny they earned while retaining their untaxed basic income. This means that unemployment traps (experienced by people who want to take up employment but would find themselves worse off if they did so) would be reduced. There would also be no situation in which a person would lose out by taking up a job in these circumstances. In practice there would always be a gain for the employee in taking up a job and for each additional hour worked.

7.3

Pathways to a basic income

One of the challenges constantly raised concerning the basic income approach in Ireland is the question of whether or not a viable pathway can be found from the current structure to basic income. To address this issue a study was commissioned by CORI Justice and conducted by two economists, Charles Clark and John Healy. 2 This study looked at the CORI Justice plan for a partial basic income contained in the report, Planning for Progress (CORI Justice Commission, 1997). It looked at the financing as proposed in that plan and had this checked by the Irish tax authorities (i.e., the Revenue Commissioners). The study found, and the Revenue Commissioners confirmed, that the plan for a basic income had been substantially underestimating the income that would be available for funding a basic income. In fact, a full basic income could be implemented in Ireland within a three-year time frame. The study looked at a number of variations on the proposals, looking particularly at two full basic income options. The study paid particular attention to implementation and analysed three different implementation options. It came up with a recommendation on how to proceed to implementation of a full basic income system over a three-year period. The study went on to look at the whole issue of efficiency and the impact on the labour market. It also considered the issue of equity and the income-distribution effects of introducing a basic income into Ireland. The study concluded by looking at three conventional strategies which could be used in the years ahead, given the financing that would be available from economic growth in that period. It is clear from this study that a full basic income system could have been implemented in Ireland within a three-year period at that time.

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Government-chaired working group on basic income

In Ireland, from 1987 onwards, the government negotiated with employers, trade unions and farmers’ organizations to develop three-year national plans. In 1996, an additional pillar was added to this partnership process, this one representing the community and voluntary sector. CORI Justice was one of the organizations recognized as a full social partner as part of this new pillar. A new national programme was agreed to cover the period 1997–99. In the course of the negotiations for this new programme, called Partnership 2000 (1996), CORI Justice was successful in getting agreement from the other social partners to include a section on basic income, which reads as follows: Further independent appraisal of the concept of introducing a basic income for all citizens will be undertaken, taking into account the work of the ESRI, CORI and the Expert Group on the Integration of Tax and Social Welfare and international research. A broadly based steering group will oversee the study. (Partnership 2000 for Inclusion, Employment and Competitiveness, 1996, section 4.35, 23) To implement this commitment, a working group was established, which included one of the authors (Seán Healy). The working group decided to divide its work into two phases. Phase One examined the tax rate needed to fund basic income and the distributional implications of introducing basic income with this tax rate. Phase Two looked at the dynamic effects of the proposal, including its effects on employment, economic growth and short and long-term budgetary implications, and at the gender dimensions of all of these. The studies were completed and published (Clark, 1999; Callan et al., 2000a, 2000b). The studies found that a basic income system would have a substantial impact on the distribution of income in Ireland. Compared with the present tax and welfare system, it would: ●

●

Improve income of 70 percent of households in the bottom four deciles (i.e., the four tenths of the population with lowest incomes). Raise half of the individuals who would be below the 40 percent poverty line under “conventional” options above this poverty line.3

According to the studies, these results would be achieved without any resources beyond to those available to “conventional” options. CORI

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Justice welcomed the fact that the P2000 Working Group Report vindicated CORI Justice claims that a basic income system would have a more positive impact on reducing poverty than the current tax and welfare systems. It would reduce the number of people in poverty while requiring no further public expenditure. It would also target resources on the poorest two fifths of the population, that is, those with the lowest incomes. While the tax and welfare system reduces poverty, these studies found that a basic income system would reduce poverty even further without allocating any additional resources. It was a more effective and targeted use of resources than any other option being proposed at that time.

7.5

Government Green Paper

The normal procedure in Ireland is that a Green Paper is followed by a discussion which, in turn, is followed by a White Paper outlining what the government proposes to do. This then forms the basis for a bill which goes before parliament. In the build-up to the 1997 Irish general election, CORI Justice canvassed all political parties to include a commitment on basic income in their election manifestos. The incoming government (Fianna Fail/ Progressive Democrats coalition) made a commitment to introduce a Green Paper on basic income within two years. This was a further breakthrough as it ensured that the work being done on basic income would be considered within the official policy making process of government and the results would be published. This Green Paper was published in the autumn of 2002 (Department of the Taoiseach [prime minister], 2002). This was a very welcome development after all the work that had been done to get such a paper published. The Green Paper’s most significant conclusion, from the perspective of supporters of basic income, was that it would have a far more positive impact on reducing poverty than did the present tax and welfare systems. The Green Paper also concluded, as did the Working Group’s study, that a basic income system would have a substantial positive impact on the distribution of income in Ireland and would result in a significant reduction in poverty. It was also very significant that, according to the Green Paper, this would be achieved without any resources additional to those available to “conventional” options. The Green Paper showed that a basic income system was far more effective at tackling poverty than was the present tax/welfare system.

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Commenting on employment, the Green Paper concluded that the positive and negative effects put forward reflect the impact of financial incentives to work, with some improvement in the financial incentive to work for the unemployed, as measured by replacement rates. But the incidence of high replacement rates rises for those in employment and women engaged in “home duties.” These findings are not particularly sensitive to the tax rate required to finance the basic income. The marginal direct tax rate for those in employment is roughly constant for top rate taxpayers, but rises by about 20 percentage points for the majority of those in employment. Combining these findings with the available evidence on labour supply, we can conclude that a fall in labour supply is more likely than an increase. (Green Paper, 46) The impact on net migration was also examined in the Green Paper and it was found to be small. The longer-term impact on growth was seen as more difficult to assess. On the one hand it was possible that it would be negative because “[a]rise in the time allocated to home duties and voluntary and social economy activities can be expected insofar as participation in the paid labour market falls” (Green Paper, 46). On the other hand, the Green Paper acknowledged that basic income could “facilitate increased innovation and entrepreneurship and greater participation in adult education. In that event, economic growth prospects would be boosted, with positive effects on the demand for more highly skilled labour and the prospect of a lower average tax rate to fund the system, with more positive effects on labour force participation” (Green Paper, 46). Those who favoured a basic income approach argued that it was clear it should form part of a comprehensive strategy to totally eliminate income poverty in the years immediately ahead. They also pointed out that the resources that had been available in the immediately previous years had been more than adequate to introduce a full basic income system in Ireland. What was clear from the Green Paper’s analysis and conclusion was that the introduction of a basic income system would have produced a much fairer tax and welfare system. All discretionary tax reliefs would be abolished. The larger tax reliefs were of far greater benefit to those with large incomes. This bias would be eliminated in a basic income approach. It would also be far more effective than the present tax/ welfare system at addressing the income inequality, increased insecurity

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and social exclusion that accompany the “new economy.” With the changing nature of the labour market and the fact that many people were depending on part-time employment, a basic income approach brought significant gains. It would provide a guaranteed income “floor,” and so it would be far easier for people to take up a part-time job or work some additional hours because there would always be a gain; poverty traps (experienced by some poor people at times when they moved from one tax band to another) would be removed, and so would unemployment traps. The Green Paper highlighted the fact that there would be “losers” if a basic income system were introduced. Some of these were better-off people, not a major issue; others were in the poorest 40 percent of the population. Over a three-year implementation period of a basic income system all the “losers” would be better-off than at the beginning; they would be receiving a higher income than was the case three years previously. They would simply not gain as much under basic income as they would under the then-existing system. Advocates for basic income had already made proposals to target and compensate the losers among the poorest 40 percent through the Social Solidarity Fund that they proposed as part of the basic income structure. In practice this meant they would not be losers in reality if a basic income system were introduced. On the macroeconomic level the Green Paper itself acknowledged that the findings of previous studies were very tentative, speculative and hard to quantify. It concluded that a basic income system could encourage some people to move from the unofficial economy into regular employment. On the issue of taxation, the Green Paper used the tax rate (including the Pay Related Social Insurance, or PRSI social insurance payments replacement) of 47.7 percent which previous studies showed was required to fund basic income, based on January 1999 estimates. The government’s own conclusion, however, was that since then the economy had grown significantly, the real tax rate, based on Revenue Commissioners estimates of the tax base, would be likely to be below 43 percent (note that this tax rate was calculated on the basis that it would replace all income tax and social insurance payments). The Green Paper found in fact that a basic income system would go some way to reducing the unofficial economy and would require a far lower tax rate than had previously been claimed by some analysts. Advocates of basic income argued that the critical test of any tax and welfare system is its impact on people with lower incomes. While many poor people had benefited from development, especially through employment, the gap between poor people and the rest of society had

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widened over the previous 12 years. The percentage of households and persons below every income poverty line measured was higher in 1999 than it had been in 1987. Obviously, the introduction of a basic income system would have had an immediate and positive impact on those most in need in Irish society. The choice between a basic income system and “conventional” tax/welfare options is a trade-off between greater equity and a possible risk of slightly lower economic growth versus less equity and less risk to higher economic growth. That the conventional approach was failing to create a fairer society strengthened the argument in favour of introducing a basic income system.

7.6 Towards a half-way house: making tax credits refundable Following the government’s Green Paper, making progress at a political level was, however, exceedingly slow and difficult. (We address this issue later in this chapter.) In more recent years, many advocates of basic income in Ireland have suggested a policy that envisions it being initially developed through making tax credits refundable. Such an innovation would see everyone in Ireland having an entitlement to a payment of some sort (e.g., child benefit for all children, state pensions for all older people, social welfare payments and/or refundable tax credits for all people in between). But the proposal to make tax credits refundable has also met with considerable resistance. Much of this resistance has come from officials in the Department of Finance rather than from political parties or others involved in discussion of these issues. Ireland’s traditional income tax allowance system was replaced by a tax-credit system in Budget 2001. In practice, a tax-credit system means that a person’s tax is calculated from the first penny they earn, the tax credit is subtracted from this and they pay the balance to the government as their actual tax bill. If the person’s tax bill is lower than the value of their tax credit then the tax bill is zero. This means that people at all income levels could benefit to the same extent from these credits, which was not the situation with the tax allowance system. A person is entitled to tax credits depending on their personal circumstances: for example, married person’s tax credit, employee (PAYE) tax credit, and so forth. These tax credits are used to reduce tax on a person’s gross pay. The tax credit is subtracted to determine tax payable (gross tax less tax credits = tax payable). However, one problem persists from the old system of tax allowances: low-income people do not benefit from the full value of the tax

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credit. If a person does not earn enough income to use up his or her full tax credit, then he or she will not benefit from any tax reductions introduced by government in its annual budget. This is how it happens: In a normal situation the Irish government’s annual budget reduces people’s income tax and increases social welfare rates. This ensures that people’s incomes do not fall in real terms when inflation is rising. Those with incomes high enough benefit because an increase in the value of tax credits means people’s tax bills go down and they keep more of their income for themselves. Social welfare recipients also benefit as they gain from increases in social welfare rates. However, one group gains nothing. A person whose income tax liabilities are zero when his/her tax credit is subtracted from their tax bill before the budget will still have a zero tax bill but will have received no increase in income after the budget. In effect, this means that those with the lowest pay, many of whom are among the working poor, would be the only group not to benefit in any way at budget time. A solution exists to rectify this problem: a person in this situation would receive a payment from the government, a refund equivalent to the value of the portion of the tax credit they have lost. This is known as a refundable tax-credit system or a negative income tax system. For the most part, in Ireland it is referred to as the former. This would mean that the part of the tax credit not needed to meet an employee’s tax liability would be “refunded” to that person by the state. The major advantage of making tax credits refundable would lie in addressing the disincentives currently associated with low-paid employment. The main beneficiaries of refundable tax credits would be low-paid employees (full-time and part-time). All of the benefits from introducing this policy would go directly to those at the lowest incomes. Following the introduction of refundable tax credits, all subsequent increases in the level of the tax credit would be of equal value to all employees. There would be real equity in using this tax-credit instrument to distribute the benefits and burdens of budgetary taxation changes. The benefit to all categories of income earners (single/couple, one-earner/couple, two-earners) is the same. Consequently, in relative terms, those earners at the bottom of the distribution do best.

7.7

Working Group on refundable tax credits

The Working Group, consisting of government officials and social partners and chaired by the Department of Finance, examined the feasibility of refundable tax credits, but did not complete its report

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(Seán Healy was a member). The draft final report of this group had two major flaws: (1) It refused to quote the government’s own Green Paper on basic income (which was positive), but insisted instead on quoting an earlier report (on integrating tax and welfare) which was much more negative. The latter’s methodology was subsequently seriously challenged. (2) The costings it provided for making tax credits refundable were for a proposal that nobody was making. It did not provide costing for a number of proposals that were presented to the group including, in particular, the proposal that underpinned the government’s Green Paper and the work of the Social Partnership working group on basic income. The report of the Working Group on making tax credits refundable was never published because Seán Healy insisted it should include a footnote indicating these two points. However, in subsequent briefings to government ministers, and in answers to parliamentary questions, the Department of Finance constantly used the costings contained in the report. In 2001 these costings were estimated to be €2 billion. By 2009 this estimate had risen to €3 billion.

7.8 Social Justice Ireland’s study of refundable tax credits Social Justice Ireland commissioned a peer-reviewed study on making tax credits refundable (Social Justice Ireland, 2010). The results of this study were published in 2010 in a report entitled, Building a Fairer Tax System: The Working Poor and the Cost of Refundable Tax Credits. This study addressed two key issues in Irish social and economic policy: ●

●

The need to reform and develop Ireland’s taxation system so that it becomes fairer. The need to address the issue of the “working poor.” Many people with jobs receive an income that is below the poverty line – one in every three households at risk of poverty is headed by a person with a job.

This study showed that: ●

Making tax credits refundable would benefit 113,000 low-income individuals in an efficient and cost-effective manner.

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When children and other adults in the household are taken into account the total number of beneficiaries would be 240,000. The cost of making this change would be €140 million. This costing is in stark contrast to the estimate provided by the Department of Finance to the Oireachtas Committee on Social and Family Affairs in 2009, which claimed the cost would be €3 billion.

Two issues arose from these conclusions: ●

●

Concerning tax credits: the government should make tax credits refundable. Making tax credits refundable would: ❍ Make Ireland’s tax system fairer (by ensuring that people employed in low-income jobs would not lose out in the annual budget, for example) ❍ Address part of the working-poor problem (by ensuring that all of those working-poor people who benefited previously from only a part of the value of their tax credit would benefit from its full value once tax credits were refundable, and thus would have a higher income) ❍ Improve the living standards of a substantial number of people in Ireland (as there would be more than 240,000 beneficiaries who would benefit from higher incomes). Concerning costs: the study raised serious concerns regarding the Department of Finance’s calculations. Evidence-based policy making should be based on solid evidence. The costings supplied by the Department were over 95 percent incorrect. The proposal has been very badly served by poor “evidence” from a source on whom we should be able to rely.

The Department of Finance has been doing this since 2001, despite repeated challenges and a range of research showing that their calculations were wrong. (We will return to this issue later in this chapter.)

7.9

Parliamentary Committee on Social Protection

The results of the Social Justice Ireland study were presented to the Parliamentary Committee on Social Protection on 15 September 2010 (Dail Eireann, 2010). A response to this study was presented to the committee by the Department of Finance and the Revenue Commissioners. In this response they revised downwards their estimates of the cost of making tax credits refundable from €3 billion to

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€700 million. While this reduced the gap in estimated costing between them and Social Justice Ireland’s estimate by more than 75 percent, it still claimed the cost would be five times higher than estimated by Social Justice Ireland. The Parliamentary Committee on Social Protection asked Social Justice Ireland, officials of the Department of Finance and the Revenue Commissioners to meet to see if the differences between their respective studies could be reconciled. The meeting took place later in 2010. The differences seemed to flow from the different estimates of the labour force used in the two studies. The Social Justice Ireland study used the labour force as estimated by the Central Statistics Office and published in the census. The Department of Finance used a labour force estimate that was substantially higher; it included many elderly people who had a taxable income but were not employed and, even if they were employed, would not have been eligible to receive the refund as proposed. The Parliamentary committee went on to commission the parliament’s research office to analyse the two studies and provide an assessment of how the different estimates of cost might be explained and/or reconciled. A report from this work was expected back to the committee in mid-2011.

7.10

Challenges ahead

There are a range of challenges that the basic income approach has to address if it is to become part of Ireland’s reality. These include: ●

●

●

●

Economic challenges: for example, can it be funded and, if so, would it undermine economic development? Political challenges: for example, will any major political party be prepared to promote and sponsor this approach? Cultural challenges: for example, why should a system be introduced that would allow people to benefit even though they did not engage in paid employment, or which might undermine public commitment to job creation? Social challenges: for example, would the commitment to shared social responsibility be strong enough to support the development of such a proposal?

We now examine each of these challenges. The first of these are the economic challenges. The key economic issue here is the cost of

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introducing a basic income system. Most would agree that if the costs were viable, there is less likelihood of the proposal being rejected as not promoting economic development and the proposal would have a much better chance of being implemented. As discussed, there has been constant disagreement concerning the cost of introducing a basic income. A key and helpful development in this area was publication of The basic income Guarantee: Ensuring Progress and Prosperity In the 21st century, by Charles M.A. Clark in 2002 (Clark, 2002). This provided a detailed set of proposals, which included potential expenditures, for introducing a full basic income system. Initially, Clark states that “the great challenge of the twentyfirst century economy is to promote real efficiency and equity not only to ensure future progress, but also to ensure that all get to benefit from this progress” (2002, 22). He outlined a full basic income guarantee proposal, and his costings have provided the basis for much of the work done since. The issue of costs was also dealt with effectively in the studies done for the Working Group on basic income. The differences in various costings were effectively reconciled in the government’s Green Paper and should not have been contentious. As the pathway towards implementation came to focus more on making some tax credits refundable as a first step, major problems emerged. As we have seen the Department of Finance has now acknowledged to a Parliamentary committee that the cost would be, at most, less than a quarter of their original estimate. Closer study of their revised estimate shows that it should be reduced much further. This is a likely outcome of the investigation currently being conducted by the Parliamentary Research Office for the committee. There are also political challenges. The basic income proposal has received a range of responses from political parties in Ireland. It has also met serious bureaucratic resistance from within a key section of the civil service, the Department of Finance. At the political party level Fianna Fail (the largest political party in Ireland between 1927 and 2011, but lately experiencing a sharp decline following the public’s response to their role in the crises Ireland faced from 2008 onwards) was prepared to produce a Green Paper if elected in 2002, and did so. The Taoiseach, however, did not see himself as having any responsibility to promote basic income once the Green Paper had been produced. This was a strange and rather unfortunate response to his own government’s Green Paper, which had been relatively positive on this new approach.

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The Labour Party had proposed the publication of a White Paper on basic income if re-elected to government in the 1997 general election. They lost the election and, subsequently, under new leadership, the Labour Party simply did not engage with the issue, but some of its parliamentary party and its regular members continue to support basic income. However, it would be fair to say that the party would be open to considering a proposal along these lines that was clearly viable. This party became part of the new coalition government formed in March 2011. The Progressive Democrats party (later disbanded), while a small minority part of the government that produced the Green Paper, opposed the proposal. Its opposition in the beginning was based on the high cost. When that claim was overcome they continued to oppose it, asserting that people should not be receiving money for doing nothing. The Fine Gael party (which became Ireland’s largest political party in 2011 and formed a coalition government with the Labour Party) simply ignored the proposal. However, given their ideological perspective, they would most likely have taken the same approach as the Progressive Democrats. The Green Party was for a long time the main political advocate for the introduction of a basic income. They saw it as one of a suite of measures that would be required if development in the twenty-first century were to be fit for purpose in a world dominated by problems such as climate change and resource depletion. It remains one of the key Green Party policies. While part of government in the period 2007–11 this party made no progress towards implementing a basic income system. The most recent supporter of the basic income approach is the Sinn Fein party. While it is early days for this political party, it has been promoting policies consistent with, and is likely to adopt, this approach as part of its political platform in due course. Discussion in parliament about basic income has tended to degenerate into incoherence and party-line political point-scoring rather than producing any serious discussion or debate. A good example of this can be seen in the parliamentary record for the debate on basic income (Dail Eireann, 2003). The discussion was underpinned by an assumption that the current system is best. Bureaucratic resistance is also important, especially the role of the Department of Finance. The department’s insistence on a very inflated costing for almost a decade has had huge political consequences for both refundable tax credits and basic income. The high costing meant successive ministers for finance were not prepared to consider the proposal in any serious manner. In

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an era that places ever-greater emphasis on evidence-based policy, these oversights are evidence of a profound failure at the very core of government’s policy development system. This failure is particularly regrettable as Ireland was gaining competitiveness and moving into a boom period when basic income was stymied by the false claims concerning the cost of refundable tax credits. The authors would argue that a basic income system would have gone some way to protect Ireland from the excesses of its Celtic Tiger years, especially in the mid-to-late 2000s. Now that the real cost of making tax credits refundable is becoming clearer, and is seen to be much smaller than previously claimed, it is likely to return to the policy agenda, in particular as a means to address the problem of the working poor. With the arrival of a series of crises, including fiscal and economic, in 2008, and the subsequent series of government decisions that led to the EU/ IMF bailout of the Irish government in 2010, the introduction of a basic income system will not be among the government’s primary concerns. But the sobering effects of the bailout could provide a new opportunity for consideration of a basic income approach in the near future as alternative pathways to a better future are sought. There are also significant cultural challenges. Wherever basic income is discussed there are questions raised concerning its impact on employment and work, which have been addressed very well in a variety of situations around the world and should not present Ireland with a major problem. Of greater concern in Ireland is the very high priority given to job creation. Basic income has been opposed because some people are convinced it would lead to a weakening of government commitment to full employment. They argue that unemployment is one of the most serious issues facing the country and must be prioritized. Full employment is constantly held up as the solution to Ireland’s poverty. For close to a decade, up to 2008, Ireland had very low levels of unemployment; that situation has now been transformed and unemployment in 2011 was over 14 percent, with little hope of being reduced soon except by an increase in emigration. It is possible that a solution may emerge which will challenge the priority given to paid employment over all other forms of work. Most people recognize that a person can work very hard even though they do not have a conventional job. Much of the work carried out in the community and in the voluntary sector fits under this heading. So, too, does much of the work done in the home. Such work contributes to the development of the individual, of the community and of the wider society. As this fact is recognized, and its potential for securing

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meaningful work for all is appreciated, it may well result in new policy developments. To make such an approach work in practice, however, it requires some form of income guarantee to make it viable, especially for people with few resources. A basic income guarantee provides an economic floor that would allow people the space to explore the possibilities for entrepreneurial experimentation and for creative arts, and to maintain a balance between caring and employment roles and between study and employment. Further social challenges must also be addressed. The series of crises that in 2008 hit Ireland, much of the Western world and beyond, has also raised very serious questions concerning the model of development being followed and its underlying assumptions. A basic income requires a sense of solidarity and a commitment to the common good. Developments over the past decade and more, and the government’s response to the multifaceted crises Ireland has been encountering, have produced a situation which is dominated by fear, individualism, anxiety and greed. Individualism – in the sense of people being seen as isolated, selfsufficient, economic individuals – grew dramatically. More and more the individual has come to be seen as the primary unit of social reality, and community connectedness is downplayed and resisted. Individualism is seen as a virtue, and the individual is seen as autonomous, owing nothing to anybody, accountable to nobody, responsible for nothing and relying on no one except himself or herself. Such a person is seen almost exclusively in economic terms. According to much of the rhetoric of recent years, individuals deserve to “get their own money back” by keeping taxation low. The sum of Irish people’s individual decisions, it is claimed, would produce far better results for Ireland than allowing the government to decide how best to use the money. This assumption has proved to be very false. When pushed to the extreme, individualism gives way to anxiety. Anxiety follows the growing realization that such individualism is not an adequate basis for making long-term progress or securing people’s well-being. Self-worth is measured in terms of possessions, especially money. One never has enough or done enough to be safe and satisfied. As a result, the autonomous individual is caught in an endless rat race of achievement that produces bottomless anxiety and insecurity – about the market, about performance, about self-worth – which, in turn, feeds into the wider society and how it perceives itself. Individuals often respond by seeking to get more, to have more, so as to control the future.

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The result is often greed, generating what has been described as ravenous acquisitiveness so that life becomes a passionate pursuit of every form of security. This in some ways explains why people who have the most usually think they do not have enough. Those with less imitate this ravenous greed. The series of developments that saw the growth of individualism, anxiety and greed formed part of the core of why Ireland (and much of the Western world) is in the current crisis. There is a growing realization that a new direction is required. But that direction is far from clear. Across the world today there is growing poverty and precariousness; increasing public and private over-indebtedness; increasing environmental risks; increasing mistrust of institutions. There is also a growing recognition of the limits of the welfare state, the limits to growth and the limits of the environment. New approaches are required if these challenges are to be met. These new approaches need to recognize the importance of shared social responsibility, a crucial issue if integrated development is to be achieved. Acceptance of shared social responsibility would lead to acknowledgement that all have a responsibility to contribute towards addressing current problems, finding solutions and moving forward. No one sector or group can deliver a future that is viable for all. Different groups or sectors have different levels of responsibility, depending on the issue being addressed. Moving from aspiration to achieving the reality of shared social responsibility is one of the major challenges currently facing Ireland, Europe and the wider world. If this aspiration were achieved, it would make the introduction of initiatives such as a basic income system much easier to attain. One interesting step in this direction is the work done by the Council of Europe in developing the new Charter on Shared Social Responsibilities, launched in draft form for discussion at an event jointly hosted by the European Commission and the Council of Europe on 1 March 2011 in Brussels. It argues that it is essential for social responsibilities to be shared equitably among all actors and stakeholders, and suggests this is an alternative to the status quo. If such an approach were adopted, then introducing a basic income system would encounter far fewer challenges and objections than at present.

7.11

Conclusion

Ireland is in a very difficult situation at present. It faces decades of challenging economic pressures and stringent fiscal parameters as it

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seeks to repay debts caused by banks and financial institutions, but which are now being repaid to a great degree by the Irish taxpayer. This whole series of crises gives pause for thought. Ireland is not a poor country; GDP per capita in 2009 was €35,801 (Central Bank, 2010). Most people would believe that Ireland has the capacity to deliver a society where, among other things, every man, woman and child has sufficient income to live life with dignity. There is scepticism among many about traditional approaches, but basic income is an alternative that could achieve this outcome. As Ireland reflects on the crises of recent years, it will seek pathways to a future in which these failures will not be repeated. In this search, basic income has a lot to offer and, in due course, the logic of its position may come to be acknowledged and acted upon. In the meantime making tax credits refundable would go quite some way towards that ultimate destination. If tax credits were refundable then every person in society would have an entitlement to some payment: older people would be entitled to a state pension, younger people would be entitled to Child Benefit and people in between would be entitled to a refundable tax credit or a social welfare payment. The levels of these payments, of course, would vary. However, everyone would be entitled to some payment. Making tax credits refundable would also mean that a structure was in place for dispensing these payments. The structure could be simplified and integrated over time to maximize its efficiency and effectiveness. All of which would bring Ireland much closer to a basic income system. Making tax credits refundable, however, is still only a half-way house on the road to the more efficient and effective structure that is basic income. As the world continues its dramatic pathway of change in the twenty-first century (and traditional approaches to work, income distribution, poverty alleviation, social inclusion and to so much more fail to meet this change in an effective manner), the authors believe basic income will be recognized for what it is: society’s best option currently available for producing a more humane and fairer world in which all people have the income and resources required to live life with dignity.

Notes 1. Honohan became the governor of Ireland’s Central Bank in 2010, having spent time with the World Bank and Trinity College, Dublin. 2. Clark and Healy, 1997.

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170 Basic Income Worldwide 3. The 40 per cent poverty line was calculated as 40 percent of the median income in the society. Other poverty lines were set at 50 percent and 60 percent of the median.

Bibliography Callan, Tim, G. Boyle, T. McCarthy, B. Nolan, J. Walsh, R. Nestor and D. van de Gaer (2000b), Dynamic Effects of a basic income: Phase 2 of a Study for the Working Group on basic income. Dublin: Department of the Taoiseach. Callan, Tim, C. O’Donoghue and C. O’Neill (1994), Analysis of basic income Schemes for Ireland. Dublin: ESRI. Callan, Tim, B. Nolan, J. Walsh, J. McBride and R. Nestor (2000a), basic income in Ireland: A Study for the Working Group on basic income. Dublin: Department of the Taoiseach. Central Bank (2010), Irish Economic Statistics 2010. Central Bank, Dublin. Central Statistics Office (2007a), Measuring Ireland’s Progress 2006. Dublin: Stationery Office. Central Statistics Office (various), Quarterly National Household Survey, (various quarters, various years). Dublin: Stationery Office. Clark, Charles M.A. (1999), Report for Working Group on basic income. Dublin: Department of the Taoiseach. Clark, Charles M.A. (2002), The basic income Guarantee: Ensuring Progress and Prosperity in the 21st Century. Dublin: Oak Tree Press. Clark, Charles M.A and J. Healy (1997), Pathways to a basic income. Dublin: CORI. Clark, Charles M.A. and C. Kavanagh (1995), “basic income and the Irish Worker” in S. Healy and B. Reynolds (eds), An Adequate Income Guarantee for All, Dublin: CORI. Collins, Micheál, Seán Healy and Brigid Reynolds (2010), An Agenda for a New Ireland. Dublin: Social Justice Ireland. Combat Poverty Agency (2006), Policy Statement: Promoting Equity in Ireland’s Tax System. Combat Poverty Agency: Dublin. Commission on Social Welfare, (1986), Report of the Commission on Social Welfare. Stationery Office: Dublin. Commission on Taxation, (1982), First Report of the Commission on Taxation. Stationery Office: Dublin. CORI Justice Commission, (1997), Planning for Progress. Dublin: CORI. Dail Eireann (2003), Dail Debates, 9 April 2003 which may be accessed on the web at: http://www.socialjustice.ie/sites/default/files/file/basic_income/leaders _questions_9_04_03.pdf, date accessed 27 August 2011. Dail Eireann (2010), Parliamentary Debates, 15 September 2010 which may be accessed on the web at: http://debates.oireachtas.ie/FAJ/2010/09/15/, date accessed 27 August 2011. Enterprise, Trade and Employment (1996), Growing and Sharing Our Employment: Strategy Paper on the Labour Market. Dublin: Stationery Office. Department of Social and Family Affairs (2007), Green Paper on Pensions. Dublin: Stationery Office.

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Department of the Taoiseach (2002), basic income: A Green Paper. Dublin: Department of the Taoiseach. Dowling, Brendan (1977), Integrated Approaches to Personal Income Taxes and Transfers. Dublin: NESC. Expert Working Group on the Integration of the Tax and Social Welfare Systems (1996), Report of the Expert Group on the Integration of Tax and Social Welfare. Dublin: Stationery Office. Forfás (1996), Shaping Our Future. Dublin: Forfás. Healy, Seán and B. Reynolds (1995), “An Adequate Income Guarantee for All” in B. Reynolds and S. Healy (eds), Towards an Adequate Income for All, Dublin: CORI. Healy, Seán and B. Reynolds (2005), Socio-Economic Review 2005: Pathways to Inclusion. Dublin: CORI. Honohan, Patrick (1987), “A Radical Reform of Social Welfare and Income Tax Evaluated”, Administration, vol. 35, no. 1. Jordan, Bill, P. Agulnk, D. Burbridge and S. Duffin (2000), Stumbling Towards basic income. London: Citizen’s Income Study Centre. National Economic and Social Forum (2006), Report 33: Creating a More Inclusive Labour Market. Dublin: NESF. Partnership 2000 for Inclusion, Employment and Competitiveness.(1996), Dublin: Stationery Office. Pettit, Philip (1997), Republicanism: A Theory of Freedom and Government. Oxford: Oxford University Press. Pettit, Philip (2007a), “Republican Liberty: Three Axioms, Four Theorems,” in C. Labourde and J. Maynor (eds.) Republicanism and Political Theory. Oxford: Blackwell. Pettit, Philip (2007b), “A Republican Right to basic income?” in basic income Studies, vol. 2, no. 2, 1–8. Pettit, Philip (2008), “The Basic Liberties,” in M. Kramer (ed.) Essays on H. L. A. Hart. Oxford: Oxford University Press. Raventós, Daniel (2007), basic income: The Material Conditions of Freedom. London: Pluto Press. Rawls, John (1971), A Theory of Justice. Oxford: Oxford University Press. Revenue Commissioners (various), Statistical Report (various years). Dublin: Stationery Office. Report of the Working Group on the Integration of the Tax and Social Welfare Systems (1996), Dublin: Stationery Office. Sen, Amartya (1985), Commodities and Capabilities. Amsterdam: North-Holland. Social Justice Ireland (2010), Building a Fairer Tax System: The Working Poor and the Cost of Refundable Tax Credits. Social Justice Ireland: Dublin. Van Parijs, Philippe (1995), Real Freedom for All: What (If Anything) Can Justify Capitalism? Oxford: Clarendon Press. Van Parijs, Philippe (2001), “A basic income for All,” in J. Cohen and J. Rogers (eds) What’s Wrong With a Free Lunch? Boston: Beacon Press. Ward, Seán (1994), “A basic income System for Ireland” in B. Reynolds and S. Healy (eds), Towards an Adequate Income for All, Dublin: CORI. Ward, Seán (1998), “basic income” in S. Healy and B. Reynolds (eds) Social Policy in Ireland, Dublin: Oak Tree Press.

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Ward, Seán (2006) “basic income: Recent Analyses for Ireland” in S. Healy, B. Reynolds and M. Collins (eds) Social Policy in Ireland, Dublin: The Liffey Press. Whelan C.T., R. Layte, B. Maitre, B. Gannon, B. Nolan, W. Watson and J. Williams (2003) Monitoring Poverty Trends in Ireland: Results from the 2001 Living in Ireland Survey, Policy Research Series No. 51, Dublin: ESRI. Wilkinson, R.G. (1996) Unhealthy Societies: The Afflictions of Inequality. London: Routledge.

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8 Germany: Basic Income in the German Debate Sascha Liebermann

One of the most vigorous debates in Europe on basic income is under way in Germany, with advocates and opponents drawn from across the social and political spectrum. Basic income (BI), in a very general sense, has been discussed at intervals in Germany since the 1970s, although mostly confined to certain milieux around the ecology movement (out of which the Green Party emerged), groups of unemployed, precariously employed (BAG-SHI, 2008) and academic circles. The idea of citizenship as constituent of political community remains underestimated. Particular emphasis has been placed on its unconditional dimension since the turn of the new century.1 Why is “unconditionality” so important? Because the German welfare state provides an assortment of different insurance benefits (e.g., unemployment benefit I, statutory pension insurance scheme), assistances and allowances managed by independent funds. All are conditional; they either require willingness to work (unemployment benefit I and II, wage-related), acquired entitlements, or claims to benefits through contributions (unemployment benefit I, statutory pension insurance scheme), a certain age (child benefits), or means testing (social assistance) (Fleckenstein, 2008). After being largely secluded in academic circles, or at best featured in a few magazine articles, BI became a public issue around 2005. In the beginning of the debate it was common, to claim that was a BI was a neo-liberal as well as a communist idea, and encouraged lazy people or excluded them from society. Some pundits blamed BI for providing “drinks for free for all.” Activists were condemned for arguing like “evangelicals.” But the idea was also warmly received. Some stressed that citizens as individuals, and citizenship as the basic building block of a national community, would be recognized as such. By providing 173

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BI, others argued, a community signals trust in the citizens’ will to contribute to the well-being of the polity and, hence, fosters solidarity. Furthermore, stigmatization that accompanies the present welfare system would be abolished. Concepts of BI vary, and they have undergone changes since the debate started. Advocates weight different aspects. Of course, the level of a BI is contested. Some argue BI should be high enough to secure a livelihood; it should be a cultural rather than an existential minimum, which allows beneficiaries to take part in the community’s life and would raise trust in BI’s impact on social freedoms and democratic participation. Others follow a human rights approach; they regard citizenship as an indispensable criterion and consider as necessary additional goals like minimum wage and distribution of working hours. Regional pilot projects as means to show critics and sceptics the positive effects a BI would have, are favoured by some; others, however, argue that projects create “enclaves,” and findings of such experiments cannot be compared to those on a national level. The pros and cons encompass a wide range of arguments, so I will begin by tracing a brief history of the current debate. Then I will turn to its precursors in the 1980s and provide some reasons why BI might have been off the agenda in the 1990s following German Reunification. I will give a general idea of the main arguments and objections to BI, which constitute the major controversies in the German debate. Finally, I will turn to prospects for BI in Germany and discuss whether it is just a pipe-dream or likely to be introduced.

8.1

A brief history of the current debate

In Germany in the 2000s, as in other countries, such as the United Kingdom or, much earlier, in the United States and Switzerland, employment was regarded as “the best way out of poverty” and became the utmost goal of social policy. This led to stronger measures against unemployed persons and even greater focus on the willingness to work. Workfare was widely celebrated as the best way out of unemployment. In April 1998, following the idea of “Arbeit vor Sozialhilfe.” (“Work before Welfare)”, the city of Frankfurt, like some other cities, introduced the position of “Präventionshelfer ” (“prevention assistant”) by which long-term unemployed people, who met certain criteria, were pledged to patrol in the city, equipped with red jackets and baseball caps. Their task was to oversee issues of order in public places. In 2001, Roland Koch, the former prime minister of the State of Hesse,

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travelled to Wisconsin (United States) and brought back as a souvenir the “Wisconsin Works” concept. In 2002, former chancellor Gerhard Schröder launched the Hartz Commission,2 an advisory board in charge of designing welfare reform. In 2003, the Schröder government set up “Agenda 2010” (Bundesregierung, 2003), reinforcing workfare policies as a remedy for high unemployment. Schröder did not invent workfare ideas; he followed policies that already existed (Fleckenstein, 2008). The trade unions were involved in the Hartz Commission and also signed the report. Following Hartz legislation in 2004, unemployed persons were put under the authority of the Bundesagentur für Arbeit (National Department of Work). In a cynical or euphemistic use of the term, the agency refers to unemployed persons as its “customers,” even though these “customers” cannot choose whether to turn to this agency. If they do not do so, they forego their unemployment benefits. When unemployed, one receives a “letter of invitation” for an interview; nevertheless, page 2 of the letter informs recipients about the consequences of turning it down – more a summons than an invitation. To understand how this political atmosphere boosted attention to BI activities, it is also helpful to take a closer look at a selection of slogans parties used to gain attention in election campaigns: “There’s no place like a work place” (Sozialdemokratische Partei Deutschlands (SPD), 1998); “Brothers, into the sun to more jobs”3 (Bündnis 90/ Die Grünen, (Green Party) 2002); “Work is to govern the country” (Die Linke (The Left) 2002); “That is social which creates jobs” (Christlich Demokratische Union (CDU) 2003). In an early stage of the current debate over BI, public response largely followed a December 2003 poster campaign in Frankfurt, initiated by the group “Freiheit statt Vollbeschäftigung ” (“Freedom, not Full Employment”). We – the author is one of its founding and still active members – rented advertising space and put up 50 posters (see Figure 8.1) in several subway stations so that people waiting on the platform and passengers in the coaches were able to see them 4 It seemed to be an appropriate way to address and reach our fellow citizens. Surprisingly quickly, within the first two weeks of campaigning, we received a large number of emails and, a few weeks later, interview requests arrived after journalists saw the posters in subway stations. Television journalist Henning Burk has been working since 2003 on the subject of German unemployment legislation. He produced a five-part feature called “Hartz-Reise” (“Hartz Journey”),5 alluding to the Hartz Commission. Part five, “Freiheit statt Vollbeschäftigung ” (“Freedom,

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Figure 8.1 Subway poster picture

not Full Employment”), included brief interviews with group members Robert Kurz, Claus Offe and this writer. It was broadcast on the German public television programme 3Sat in March 2004 (an invitation to a talk show followed in May). The Frankfurter Allgemeine Zeitung was the first to print an article, by Thomas Loer, appearing in May 2004 (Loer, 2004). In September we were interviewed by the German newspaper tageszeitung (taz), and the Frankfurter Rundschau printed an article by Sascha Liebermann “Freiheit der Bürger statt Arbeitszwang ” (“Freedom of Citizens, not Coercion to Work”) (Liebermann, 2004).6 As far as I know, at that time no other groups or individuals were publically advocating BI to initiate a debate among fellow citizens. There were

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people in favour of BI, or at least amenable to it, who discussed the pros and cons among themselves. A group consisting of unemployed and precariously employed people supported “Existenzgeld” (“Subsistence allowance”; see BAG-SHI, 2008) and a subdivision of Attac called “Genug für alle” (“Enough for all,” founded in October 2003) argued for BI as well. Also, a few social or political scientists such as Ulrich Oevermann (Oevermann, 2001), Claus Offe (Offe, 2005, founding member of the Basic Income Earth Network) and Michael Opielka (Opielka, 2000) were discussing BI. In July 2004 the German “Netzwerk Grundeinkommen” (“Network BI”) was founded. It has been trying to serve as a platform for activists with some success, organizing conferences and talks, but it has also attracted much criticism of its policies. Initially, even though people of different views joined the Network, it had a strong anti-capitalist orientation and tended to ignore or exclude more liberal activists and arguments, often decried as bourgeois. Subsequently, it has changed and today the German Network BI brings together people from different backgrounds, many of them without any affiliation, and is open to different concepts of BI. Most active groups are registered and displayed on a map now provided by the German BI Network, several of them members of the Network.7 The Network itself, affiliated with the international Basic Income Earth Network (BIEN), has continuously increased its membership, from 700 in June 2006 to 3,166 in August 2011, of which 96 were organizations.8 Using media attention as a relative measure of success, 2005 was a turning point in the debate. From well-known daily newspapers such as the Frankfurter Allgemeine Zeitung, the Süddeutsche Zeitung and Die Welt, to smaller ones such as Frankfurter Rundschau, Tagesspiegel and tageszeitung, to weekly newspapers such as Rheinischer Merkur and Die Zeit, to monthly magazines such as Brandeins, BI was widely recognized as an important issue. Articles, features and interviews on television and radio frequently offered discussions on BI.9 It was, largely Götz W. Werner, founder and former CEO of the drugstore chain DM, who got the ball rolling.10 Being a very successful company owner and business leader, Werner astonished people by proposing a high BI in a clearly radical version, focusing on individual freedom. In March 2005, he gave an interview to the magazine Brandeins, which used the headline, “We live under paradisical circumstances” (Werner, 2005). He emphasized the enormous wealth in Western European countries and their ability to produce a large surplus of goods and services. Consequently, Werner contended, a BI should

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be introduced to free people from the obligation to work. In November 2005, Werner initiated a newspaper campaign by taking out a half-page advertisement entitled “Ein Grund für die Zukunft: das Grundeinkommen” (A Reason/Basis for the Future: Basic Income). In the adverts’ text, he pointed out why BI would help solve problems and foster initiative. Later, in an April 2006 interview with the magazine Stern, he blamed social policy following “Hartz IV”11 for treating welfare recipients as inmates of an open penal system (“offener Strafvollzug ”). Media response increased in 2006. In early summer the former prime minister of the Free State of Thuringia, Dieter Althaus (CDU), released his concept of “Citizen’s Solidarity Allowance” (Borchard, 2007; Althaus and Binkert, 2010), apparently inspired by the ongoing debate.12 His proposal, not as far-reaching as BI and recently renamed partial BI, seemed to indicate that he realized that it was time to turn to alternatives and no longer stick to the full employment idea. The level of minimum income he proposed, though, was too low to live on, and based in a certain sense on the Negative Income Tax. However, for the public debate, it was an important step to have a politician taking it seriously, emphasizing the decoupling of “willingness to work” and eligibility to benefits. Another turning point was reached in 2006. Activists were condemned for arguing like “evangelicals,” as if they were disseminating the religious beliefs of a sect. Since 2006 the debate has become more realistic and moderate. Still, objections are elaborated from all sides. For example, former Federal Minister of Labour (1982–98) Norbert Blüm (Blüm, 2007), member of the Christian Democratic Party and a persistent critic of welfare retrenchment under the Schröder Government, attacked BI in the weekly newspaper Die Zeit. In his article titled “Wahnsinn mit Methode” (“Madness with Method”), he characterized the idea of BI as being unjust and against solidarity, as a means to abolish the “Sozialstaat ” (see as well, Butterwegge, 2007). Some pundits – market liberal economists as well as their critics – argue BI makes achievement obsolete and rewards laziness (for the former, Siebert, 2007; for the latter, Busch, 2005; Schlecht, 2006). Advocates and critics are to be found on each side of previously established ideological standpoints. In November 2007, the German Council of Economic Experts published its annual report 2007–08 dealing with Althaus’s proposal. The experts concluded that “[a] completely misguided idea . . . is the endeavor to replace the social welfare state in its traditional form by a guaranteed basic income scheme (Grundeinkommenssicherung) by largely abolishing the participative equivalent (teilhabeäquivalent) statutory unemployment

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and pension insurance schemes and, in contrast to the present basic allowance concepts would entitle everyone to an unconditional claim to a government transfer in the amount of the socio-cultural subsistence minimum level of existence” (German Council, 2007, 17). BI has also been the subject of documentaries, which were a great help in spreading the idea. In 2006, Daniel Häni and Enno Schmidt (in Basle) began filming interviews about BI with people on the street. They made the videos available online and later included parts of these in a BI documentary called “Kulturimpuls Grundeinkommen. Ein Essay ” (“Cultural Impulse Basic Income. An Essay”; see Movies and Videos, Häni and Schmidt, 2008). Released in September 2008, this film became the most popular documentary on BI in Germany, shown at many places all over the country. It is available online, and also in an English dubbed version. In 2007, Christoph Schlee produced and directed a documentary titled, “Götz W. Werner – Grundeinkommen für alle” (“Götz W. Werner – Basic Income for All,” see Movies and Videos, Schlee, 2007a), and another – “Six Positions toward Basic Income” (Schlee, 2007b), gathering statements by well-known advocates. Jördis Heizmann, together with Andreas Zgraja (see Movies and Videos, Heizmann and Zgraja, 2007), released a documentary in the same year called “Designing Society.” This movie combines interviews with advocates and critics. The way it was assembled evokes striking insights into the resistance confronting BI. Especially statements by people who would directly benefit – a woman who, as she says, works off the books, not just to improve her pension but to meet people; or a man who was ill for a long time and not able to work – provide a whole range of arguments for BI. However, they do not support BI. Almost rudely, the man declares that he who does not work shall not eat, while the woman fears collective stultification and the decline of civilization. Since 2008 the “Woche des Grundeinkommens” (“Week of BI”) is held around mid-September. Throughout Germany, local activists organize panel discussions, talks and movie screenings to spread the idea and to get fellow citizen’s attention.13 In December 2008, Susanne Wiest, referred to by the media as “Tagesmutter aus Greifswald” (“Independent Day-care Professional from Greifswald”), submitted an online petition to the German Bundestag proposing to introduce an Unconditional Basic Income (Wiest, 2008). In her case for the petition, she suggests an amount of €1,500 for adults and €1,000 for children per month, nearly doubling the currently defined minimum income for single households with no children – in kind and in cash benefits altogether (Federal Ministry of Finance, 2008).

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Nearly 53,000 people signed the petition within six weeks. The hearing by the Petitionsausschuss (Commission that Treats Petitions) took place on 8 November 2010.14 Susanne Wiest has given many interviews and talks since then. It took only three years, from winter 2003 to winter 2006, until almost all established political parties – Sozialdemokratische Partei Deutschlands (Social Democratic Party, SPD), Christlich Demokratische Union (Christian Democratic Party, CDU), Bündnis 90/ Die Grünen15 (The Green Party), Die Linke (The Left)16 – associations of employers as well as employees, think tanks and churches responded. One reason why the German Council of Economic Experts only commented on the problems and prospects of Solidarisches Bürgergeld (Solidarity Citizens Income) might be that this concept is one of the few in which the workings have been sketched out in detail. Other advocates such as, for example, Götz W. Werner, focus on basic arguments to show that many seemingly disparate aspects are, in fact, intertwined. Generally speaking, supporters are found within trade unions, churches, (especially) the Catholic Workers Movement, several interest groups and among business people, but rarely among top-level parliamentary members. The number of video and audio recordings of talks and panel discussions on BI are now available on the Internet – for example, via YouTube, as well as articles in newspapers and magazines. An increasing number of academic works confirm and record the level of intense and lively discussion, although this has not made its way into the daily news. By different means such as poster campaigns, talks and panel discussions addressing fellow citizens, websites and weblogs, activists have been very successful in spreading the idea.

8.2

Precursors – similarities and differences

BI did not appear in Germany out of nowhere; as stated above the idea has been around since the late 1970s within small circles. But those involved rarely considered how a BI could reinforce citizenship and so strengthen the political community. As earlier stated, the idea of citizenship as constituent of political community remains little explored.17 Ralf Dahrendorf (Dahrendorf, 1986) was one of the few who pointed out that BI should not be seen from the point of view of the tax system. First, citizen rights have to be defined, and then the means must be found to provide the income that these rights should guarantee. Going back to the mid-1970s, writings dealing with “die Krise der Arbeitsgesellschaft ” (“Crisis of the Labour/Employment Society”)18

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increased because the number of unemployed persons was increasing. In the early 1980s congresses were held picking up the idea of Guaranteed Income, or at least an income irrespective of work obligation. The number of publications was huge. A well-known article by Dahrendorf was published in the German monthly magazine Merkur, “Im Entschwinden der Arbeitsgesellschaft ” (“The Disappearing Employment Society,” Dahrendorf, 1980). Later in the 1980s two books became particularly popular. The first, Befreiung von falscher Arbeit (Liberation from False Work, Schmid, 1984–86) was published in two editions (the second completely revised). Garantiertes Grundeinkommen (Guaranteed Income, Opielka and Vobruba, 1986) has become a classic when referring to the 1980s. In 1982 it was, in particular, associations of unemployed and recipients of Sozialhilfe19 (social assistance, see Arbeitsloseninitiativen 1983) at a conference in Frankfurt, who demanded the “right to income,” which was picked up later (in 1992) and turned into “Existenzgeld.” The same year, 1982, the biannual congress of the German Sociological Association focused on “The Crisis of the Employment Society,” a congress often referred to when talking about the BI debate. Within the Green movement and then within the Green Party (founded in the early 1980s) BI gained some support, often related to ideas of social ecology or ecological libertarianism. Nonetheless, BI never entered official statements, and where BI is mentioned in Green Party programmes it is much closer to the means-tested but less bureaucratic cash benefit that a Negative Income Tax provides. It is quite often suggested that BI belonged to the Green agenda. I did not find any statement or party programme from 1979 on to substantiate this. Reading articles published in 1986 closely recalls arguments outlined today, as if times have not changed at all. In Die Zeit, for instance, WolfDieter Hasenclever’s (Hasenclever, 1986) “Ein Weg ins Schlaraffenland? Das Grundeinkommen für jeden Bürger könnte ein Schritt zur sozialen Freiheit sein” (“A Way to the Land of Milk and Honey? A Basic Income for Every Citizen Could be a Step Toward Social Freedom”) elaborates the pros and cons of BI. Some of his arguments could easily be transferred to the present. When Hasenclever subsumes heterogeneous proposals under the notion of BI, social dividend as well as minimum pension or Negative Income Tax, the same confusion is found as in the present debate. He also presented arguments for and against BI that are still encountered today. For example, lasting unemployment, social assistance below the poverty level, distribution of working hours, more part-time work and increasing social justice are countered by the need

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for qualitative growth, increasing demand in the ecological sector and separation between BI recipients and those who remain employed. Furthermore, he asked whether performance or accomplishment can still be ascribed to an individual alone when division of labour is the overall principle of modern economies. If achievement evolves from collective effort, how can income strictly be linked to individual labour? Stressing how much the relation of work-based and capital-based added value in the economy shifts to capital, Hasenclever concluded, that a “social [citizen’s] right” to income is fundamental. Although BI was a hot issue, publications were numerous and media response, especially among newspapers, was noteworthy, it disappeared in the late 1980s to early 1990s, lingering on only in rather small circles. It is difficult to be confident about the reasons for the decline, but several influences can be suggested. The debate did not enter the public sphere in an enduring manner. Advocates did not address fellow citizens directly in public to try to gain followers. In addition, aspects of BI were discussed in more theoretical than in practical terms. Those who intended to gain people’s attention had it in mind to organize a “different” or “alternative” public (in fact a public besides the public) and consequently only reached certain milieux (Opielka, 2000) By contrast, activists these days use simple means like posters, postcards, sticker campaigns, public talks and panel discussions to spread the idea; they act as a grassroots-movement – a striking difference between then and now. Little or no attention was paid previously to what is now one of the most prominent arguments: BI as means to reinforce citizenship as being fundamental to democracy. Rather, the state was considered as an adversary that, first and foremost, one has to be protected from by recourse to rights. Demanding the “right to income” stressed the freedom from obligation without taking into consideration that BI would not last without citizens’ willingness to contribute whatever they can or wish. Certainly, this anti-state argument has survived. In western parts of Germany, due to democratization after World War II, people were much more ambivalent towards the state. On one hand, the state is asked to solve any problem and provide everything people need while, on the other, it is blamed for ignoring the people’s will. This pattern still exists.20 In the East, belief in authorities, corporate understanding of society, mistrust in plurality, and common-sense thinking were preserved much longer. But it has become clear that rights and duties are not mutually exclusive, that rights are only as strong as a people who support them, and there are problems a political community has to solve.

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German reunification in 1990 dominated political debates and entailed many challenges. Meanwhile, due to transformations of gender identity in successive generations, the growing labour participation of women was seen as running counter to BI arguments and amplified the idea that paid work was an ultimate goal – which is now reinterpreted as gender equality. In East Germany, following the self-conception of the GDR, the meaning and ideology of labour were even stronger than in western parts (Opielka, 2000; Fischer, Großer and Liebermann, 2002). By the end of the 1990s, BI seemed to have dissipated even though articles in magazines like Brandeins in 2001, “Paths to the Future – Basic Income” (Spielkamp, 2001), or in Die Zeit, a leading weekly newspaper, indicated that the idea was still known. But BI needed a few more years to return and find a public response.

8.3 Manifold possibilities and peculiar obstacles – arguments and debates I now want to give a general idea of the main arguments for and objections to BI in the current debate. I hope to clarify obstacles that BI faces due to prevailing ideas of autonomy, individual capacities, social justice, democracy and equality. Unconditionality In current debates in Germany, the adjective unconditional has a prominent position. Why is “unconditionality” so important and what does it comprise? In the German welfare state, as noted at the beginning of this chapter, provides an array of conditional insurance benefits; they either require willingness to work (unemployment benefit, wage-related), acquired entitlements or claims to benefits through contributions (unemployment and pension), a certain age (child benefits21) or means testing (social assistance). Some argue that child benefits are pretty close to a BI and may pave the way to one for adults and children alike. To my mind, this is unlikely, because there is a solid, deep-seated consensus that children should not work and, hence, child benefits are not linked to work requirements. For adults wage-labour is the pivot, so that benefits are conditional as a way of guiding one back into the labour market; to get off the benefit roll is the ubiquitous goal. Stressing unconditionality,22 however, as expressed in the argument that BI should be provided from the cradle to the grave, counters an even stronger regime of workfare policies that arose with the Schröder Government.

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The term unconditional in the German debate clearly refers to the achievement-conditions a beneficiary must meet to receive benefits today. So, that a beneficiary of BI must meet status-conditions, either citizenship or permanent residency, does not – as some pundits mock – contradict the idea of unconditionality. Education: prerequisite to BI or a goal in itself? The more the debate has broadened, the easier it becomes to advocate conditions, while still calling it BI. Sneaking in the back door, you find conditionality in terms of educational obligations BI beneficiaries must meet. Wolfgang Engler (Engler, 2007), for example, regards education as a prerequisite for leading a self-determined life, and his fellow citizens largely agree. Education is necessary in a world of alienated individuals not capable of coping with freedom and so accustomed to the lifeguidelines of the “employment society” or “consumer society.” Thomas Poreski and Manuel Emmler (Poreski and Emmler, 2006) restrict conditions to children, who must go to kindergarten or school for parents to be eligible for BI. Of course, education does not hinder democratization, but it is not a guarantee either. Democracy and democratization depend on a vital sense of individual dignity and autonomy. Instead of necessitating education as a condition for receiving BI, a guaranteed income from the cradle to the grave could help to transform the educational misery we are facing following labour-centred policies in past years. Education today serves as a means to successful employment, the “master” way to prepare people for the labour market. Starting with early childhood education, the groundwork for occupational skills is laid, improved at school, and optimized at university. Educational success equals employability. BI would foster a debate as to whether education should be a goal in itself, taking the individual’s interests and inclinations into consideration. Consequently, idleness, that is doing something for its own sake, would be recognized more positively as the basis of exploring the unknown. BI would support inquisitiveness, a capacity fundamental to innovation in all aspects of community life. Citizenship? Political community, internationalism and human rights Unconditionality would turn the German welfare system upside down. The higher a BI, the more means-tested allowances it eliminates and the further it gets in recognizing wage-labour as only one among other important activities within a political community of citizens. The status of wage-labour would decrease; that of childcare, volunteering

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and other activities would increase. BI would not have this equalizing effect immediately; it is, rather, a result of recognizing people as citizens and not as contributors through wage-labour. Civil rights do not derive from work ability. By being provided without obligation, BI tells “beneficiaries” that they receive it for their own sake. As citizen rights are bestowed without obligation, so is BI.23 Does such a status, as some argue, pervert the idea of unconditionality? It might sound paradoxical, but that the status is contested illustrates some characteristics of the German debate about BI. Indeed, it is sometimes argued that BI should be provided worldwide to everybody. Various proposals advocate BI as global necessity. The Attac subdivision “Genug für alle,” or “Enough for All,” (Attac AG “Genug für alle” 2010) argues that BI is not a national goal; it is universal and global; it is a right for all people to have a decent life. Members of the Die Linke party (BAG Grundeinkommen, 2010) also advocate a human rights approach. From this point of view, citizenship is not necessary for eligibility; instead, the criterion is permanent or principal residency. The fundamental question is: Who decides and provides BI for whom and why? One argument is that, if there is no international government, the only path to BI is through human rights. The United Nations Universal Declaration of Human Rights contains principles such as freedom, equality, and solidarity as guidelines for everyday life. Consequently, some derive BI from human rights – rights supposed to be valid everywhere. However, article 23 of the Universal Declaration refers to a right to work 24 (i.e., consequently the right to a workplace). By agreeing on the right to work instead of a right to income, plurality of life-conduct is constrained and paid work as normative ideal is upheld. An objection to the human rights approach is that as long as there is no international democratic government and no corresponding body politic, the nation state is the only institution to provide a BI. A counter argument is: contrary to notions of the nation state being an obstacle to universalism, it has been the main driving force in bringing universalism about. It took particular communities and their political organizations to survive and prosper and so reinforce universalistic ideals and guidelines. For all practical purposes, universalism would not exist without national political communities, nor would human rights. Moreover, rights as such do not create a community; rights are only as strong as the citizens who are willing to abide by them. In fact, rights need to be rooted in everyday life – in a given community’s perception that it exists, that it has a particular culture and that its members “belong,” are at home in it.

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In this line of argument, universal rights depend on citizenship. The crucial difference between citizens and permanent residents becomes apparent in their relationship to the political community. Citizens have to support the political order; it is a citizen’s obligation, though not litigable, to become involved in activities against political decisions he or she regards as wrong, or to work for the betterment of the community. Fellow citizens can appeal to each other, as we have seen quite often in past years. Permanent residents, however, do not have to uphold the political order; they merely have to accept it.25 While citizens have rights and responsibilities, permanent residents have rights, but not necessarily responsibilities. Does this imply that BI should not be provided to permanent residents? Not at all, but to provide it to permanent residents derives from the constitutive meaning of citizenship for political communities. Redistribution of working hours, a minimum wage and automation technology – advancement or regression? The more detail we go into, the more it becomes apparent how contested some aspects of BI’s impact are. Therefore, different proposals highlight different aspects and combine different means to attain the kind of freedom they seek. There is a strong consensus that through a BI that is high enough to secure a livelihood, employees would gain bargaining power. Being independent of wage-labour implies the ability to say “No” (Offe, 2008; Neuendorff, Peter and Wolf, 2009). On the one hand, companies could rely on motivated employees who work voluntarily and, on the other hand, companies would have to offer attractive working conditions and an attractive working environment. Both would help to create an innovative atmosphere in companies and organizations. A controversial argument is that the community could get rid of legal restrictions necessary today to protect the employee’s status; for example, restrictions on laying off and hiring employees. To hire individuals for only a short time in order to work on a project would become common (if employees agree) and not a threat to the individual. Some argue (e.g., Opielka and Vobruba, 1986; Neuendorff, Peter and Wolf, 2009;26 Blaschke,Otto and Schepers, 2010) that BI must be combined with a reduction of working hours to redistribute work. Additionally, they contend, a minimum wage is indispensable to protect employees against a race to the bottom where wages are concerned. Why reduce working hours in general? One objection is that the normative status of wage-labour would be upheld; general distribution of working hours declares labour to be a scarce and desirable good that people

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should have the opportunity to share. Another is that if a BI were at a level sufficient to say “No,” neither working hours nor wages could be imposed on employees. Because of bargaining power, it would be up to individuals to define acceptable working hours. Each individual would be in a much better position to find an appropriate answer in accordance with his or her life, inclinations, capacities and so forth. The amount of time someone is willing to spend in an occupation depends on what he or she regards as reasonable. Reducing working hours would ignore individuals’ decisions and desires. According to this argument, to reduce working hours ignores the idea that creative and innovative work cannot be measured in hours – such work is too closely connected to the individual’s dedication to a set of problems or questions. Applying a formal scheme – not measured by the content of work – instead of leaving it up to employees to bargain, deprives those employees of a responsibility that BI would enable them to carry out. The same holds true for minimum wages. Why protect people – the aim of a minimum wage – when they are able to refuse unattractive working conditions? Both measures, reduction of working hours and minimum wage, stick to the idea that wage labour is more desirable and meaningful than other occupations or activities. A relatively low wage under circumstances of BI does not necessarily mean low income. While today wages fulfil two functions – (a) to secure a minimum and (b) to provide a share in the company’s success – with BI the situation is altered. BI would secure a steadily available minimum income; a wage would be additional and separate. Consequently, if BI were relatively high, a lower wage than today would not imply a lower income (BI plus wage). BI provides the floor; every wage would be additional. Another argument against further reducing working hours and introducing minimum wages is that the minimum wages could severely restrain the process of rationalization. Labour would still be treated as a desirable and scarce good. There is evidence that the present insistence on paid labour is an obstacle to the active implementation of technology, which allows for the substitution of human labour. Managers feel loyalty to their political community (against all prejudices to the contrary) and try to avoid laying off staff for as long as they can.27 Thus, companies do not make use of the full potential for efficient production. Once the technology is available, a job loses its economic raison d’être to technological progress, and this inevitably alters its meaning. Because it is dispensable, an employee cannot be proud of such a job. He is not contributing to innovation, or even to a meaningful activity, but competing with machines that could easily do his job. For example,

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checkout staff operate cash registers and ring up items, usually with a bar code scanner. Why not leave the checkout operation to the customers, as some supermarket chains have begun to do? By using automation technology where reasonable, people with a BI would regain leisure time. Any limitation on such rationalization should be taken away since the community as a whole would stand to gain. To live at the expense of others and plurality One objection often made against BI – from more conservative to left wing parties – is that such a grant allows some “to live at the expense of others without any contribution” (Busch, 2005; SPD, 2009; for FDP see Altmiks, 2009). At first sight, it appears to be a plausible objection. Those who engage in wage-labour contribute to the production of goods and services, and their income is taxed and, thus, public infrastructure is made available. But proponents of BI reply that taxed income is not the only contributor to the general tax revenue. Consumers in general contribute where a value added (sales) tax is levied. Moreover, volunteers also provide services and produce goods without being paid, as do all people serving in unpaid work – for example in churches, charity organizations and even in political parties. In Germany the amount of unpaid work is huge. Data from the Federal Bureau of Statistics (Statistisches Bundesamt, 2003) states that 96 billion hours per year are unpaid work, while only 56 billion hours are paid work. Are these activities unimportant to a community because they are unpaid?28 Supporters of BI also ask what the phrase “to live at the expense of others” really refers to. Their response is that in a community every individual lives “at the expense of others,” because each and every person depends on the contribution of others. Each and every person relies on his or her fellow citizens to lead a self-determined life following his or her capacities and loyalty towards the community. Living at the cost of others is a reality today that a BI would not change at all. Rather, BI would make this transparent. From such a point of view, the term “contribution” underlying this objection implies the same normative assumptions as the term “unemployment.” It is all about the contested definition of what society regards as a “contribution.” As long as we insist on defining it, we constrain autonomy by defining what is accepted as an autonomous life. Advocates largely agree that activities “outside” the labour market would, under a BI, gain an independent status. They would lose the stigma of being “second choices” because there would no longer be an obligation to earn an income by doing paid work. Activities and occupations

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would have equal moral worth. Citizens would gain the freedom to choose between paid work and activities, such as volunteering. On the one hand, BI would give citizens the possibility to make choices and, on the other hand, would give them more responsibilities. Plurality would be encouraged. Neither growth nor labour is a goal in itself. With a BI different ways of living a self-determined life are respected. Instead of financing employment programmes and educational training to “bring” people back into the labour market – both of which programmes are more or less compulsory for the unemployed – education could be a goal in itself, following the individual’s interests and inclinations. By providing a BI, the community signals that it trusts the citizens’ will to contribute to the well-being of the polity and, thus, fosters solidarity.29

8.4

Families, childcare and emancipation

Mothers and fathers who stay at home for their children: are they not contributing to the common welfare? Are they “unemployed?” In the common use of the term, stay-at-home parents are unemployed because they do not work in the paid labour market. Of course, they contribute to the common welfare – without families the political community has no future. Nevertheless, their contribution neither helps to acquire entitlements to benefits, nor is it recognized as central in the same way as having a full-time occupation.30 Instead, public debates centre around activation policies and the ideal of wage-labour as the most important contribution to the common welfare, and so devalue non-wage activities such as family care. A debate about extending childcare institutions to support working parents accompanies current activation policies. Some proponents of BI argue that what seems to be progressive and emancipatory turns out to be the opposite. Parents are put under increasing pressure by public debates and political decisions. They have to decide whether they should take care of their children, or whether they should pursue their professional career to fulfil the community’s normative expectations. By enhancing childcare institutions without providing means, such as BI, to opt out of the labour market, the normative ideal of doing paid work is reinforced. Therefore, what is considered to be a step into the future by praising, for example, Scandinavian childcare policies, is a step backward. BI, however, would open up the opportunity for staying at home, without stigmatizing it. BI would leave the decision up to parents, without directing them toward any normative goal.

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Some pundits in Germany argue that a BI is regressive for women; it would send them back to the kitchen (Nida-Rümelin, 2008) and, furthermore, would “shut those persons down” without any chance to earn more than BI provides (Schlecht, 2006; SPD, 2009). To me, this is a very pessimistic view of women, as if they were not strong enough to defend and follow their interests (Fischer, 2006). If they decide to go back to their households, why not? It is up to them. Those incapable of attaining more than a BI are at least able to live a dignified life. What seems to be a thoughtful objection shows the same mistrust in people’s capabilities as do those objections against BI in general.

8.5

A note on taxation and social justice

To sum up, let me add a brief note concerning taxation and social justice – another contested issue in the German debate.31 Most proposals to finance BI combine taxes on income and consumption. Götz W. Werner (Werner, 2007) and Benediktus Hardorp (Hardorp, 2008), however, argue for totally rebuilding the taxation system by eliminating income taxation and taxing consumption.32 The objection is often made that this proposal is unjust because it burdens the poor. Werner and Hardorp’s response is to point out that all costs a company has – wages, social insurance, taxes, infrastructure – are more or less contained in prices for goods and services, so it is the consumer who pays everything. To contain costs in prices is indispensable because selling goods and services is the only way to meet the costs and make profits. Accordingly, to tax consumption is the only way out of the dilemma. But what about the rich, one might say? Werner’s and Hardorp’s proposal challenges prevailing ideas of social justice by simply hinting at the fact that things are not as they seem, and by raising the question whether it is appropriate to build a taxation system which concentrates on income – that is, on having money, instead of spending it, whether on consumption or investment. They are also discussing ways of how the use of resources could be taxed to support sustainable production (for example by applying carbon footprint calculations).

8.6 Basic income – just a pipe-dream or an emerging reality? As we have seen, support for BI comes from all sides, but this support is for a variety of concepts that differ a good deal. From those suggesting a BI below or at the poverty line to abolish the Sozialstaat to others

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arguing for a high and sustainable BI to allow for a self-determined life, to those combining BI with an educational obligation, a minimum wage and a distribution of working hours – a wide range of conceptions has been put forward under the notion of BI. For some, to foster democratization by linking BI to citizenship is crucial, because by doing so political communities as such would be strengthened; others regard BI as a human right and fear citizenship as supporting exclusionary and nationalist eligibility. BI support is found within all political parties, within Catholic and Protestant churches, trade unions and welfare organizations. Even though support rarely comes from top-level representatives, discussions within political parties might accelerate, depending on the pressure coming from public opinion. While in the beginning of the BI debate political parties rather avoided contact with BI activists, it now has become common for activists to receive invitations to talks or panel discussions. Although the current financial crisis could have put BI more prominently on the agenda, it has not advanced the debate. Germany – as with other European countries – predominantly tries to solve economic problems by cutting “costs.” As a member of the European Union, fellow citizens wonder whether BI could be implemented in Germany only, or whether an EU-wide implementation is inevitable. Of course, EU legislation is complex, and a BI implementation on a national level has to tackle certain challenges. According to Jürgen Erdmenger from the European Forum for Freedom and Education who gave a talk about BI and the European Union in Berlin in 2008 (Erdmenger, 2008, 11; see also Brenner, 2011, 224), a national implementation must be coordinated with EU legislation, even more so since the Lisbon treaty came into effect in 2009; national implementation, thus, is possible. Nor is EU legislation the main obstacle to the introduction of a BI in Germany. The obstacle is rather found in a contradictory phenomenon: on the one hand, there is a discrepancy between the fundamental meaning of citizenship and political community already incorporated in democratic institutions; on the other hand is the issue of how these ideas are interpreted in the self-conception of the people. The ongoing public debate about BI in Germany, in particular, has helped to make this contradiction apparent and, thus, triggered interpretive patterns. To my mind, any likelihood that a party might support BI depends on how the public debate develops and how much support BI gains. It was public debate that put BI on the agenda in 2005; it will be public

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debate that decides whether BI moves forward and whether it will become more than a pipe-dream. When an issue gains more and more attention, political parties will deal with it: that is what the debate has taught us.

Notes I very much appreciate the editors’ comments and advice. I am also grateful to Richard Caputo, Ian Copestake and Thomas Loer for their support in writing this paper. 1. When I talk about basic income I follow more or less the criteria proposed by the Basic Income Earth Network: (1) it is paid to individuals rather than households; (2) it is paid irrespective of any income from other sources; (3) it is paid without requiring the performance of any work or the willingness to accept a job if offered. I point out in section 3 that these three points alone are insufficient. 2. Named after the chair, Peter Hartz, former member of the board of Volkswagen AG. 3. “Sun” means renewable energy, too. 4. In August 2003 we published our website (see, http://www.freiheitstattvollbeschaeftigung.de) with information and explanation of BI was explained and its various effects were outlined. Poster campaigns were carried out in Berlin (2004, 2005), again in Frankfurt (2004), Dortmund, Cologne and Hamburg (2005). See also our blog “Mitteilungen,” and “Archiv Grundeinkommen.” 5. All translations of titles or publications from German into English displayed in brackets are mine. 6. For detailed information, see the menu item “Presse” on our website (see, http://www.freiheitstattvollbeschaeftigung.de, accessed on 7 September 2011) 7. For the map see http://www.grundeinkommen.de/karte 8. These numbers do not say much, because membership does not involve any obligation (for example, fees) except adhering to the idea defined by the network. Only 43 members attended the general meeting in October 2010. 9. A large amount of information can be found at http://www.archiv-grundeinkommen.de, the most comprehensive privately run German BI archive. Brandeins returned on BI again in its August 2005 (brandeins, 2005) issue with the title “Work”, subtitled “Never Full employment again – We’ve got better things to do.” 10. He has published three books since 2006. The first two (Werner, 2006, 2007) each sold more than fifty thousand copies (by August 2010), the third one together with Adrienne Goehler was released in August 2010 (Werner and Goehler, 2010). 11. “Hartz IV” is an abbreviation referring to the fourth law of the legislation by which the German welfare state was rebuilt. 12. A CDU commission’s report on the impact of Althaus’s proposal, expected in November 2010, was not delivered. In a hearing, instead, experts involved

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22.

23.

in the commission presented findings, which Althaus and colleagues took up to revise the concept (Althaus and Binkert, 2010). Austrian and Swiss activists got involved as well. For Austria see B.I.E.N Austria (Netzwerk Grundeinkommen und sozialer Zusammenhalt, http: //www.ksoe.at/ksoe/index.php, accessed on 7 September 2011) and attac Austria (http://www.attac.at/bge.html, accessed on 7 September 2011); for Switzerland see Initiative Grundeinkommen Basel (http://www.initiative-grundeinkommen.ch/, accessed on 7 September 2011) and B.I.E.N Switzerland (http://bien-ch.ch/, accessed on 7 September 2011). The hearing was broadcast by Parlamentsfernsehen, the tv-channel of the German parliament via internet and still available as a videocast; see http:// www.bundestag.de/bundestag/parlamentsfernsehen/index.jsp, accessed on 7 September 2011. For further information see Grünes Netzwerk Grundeinkommen, 2011 and Poreski and Emmler, 2006) A national assembly was held in November 2007 and the majority of delegates voted against BI. Since then BI in the Green Party is off the national agenda, though there still are advocates in federated states. A small group called BAG Grundeinkommen (2010) within the party advocates BI as well. Katja Kipping (Die Linke) and member of the German parliament, is the most outstanding advocate. She was a founding member and one of the spokespersons of the German Network BI in 2004. She has been very active in spreading the idea since then. It seems that this is not only a German phenomenon. Carole Pateman (2004, 2008) pointed out how little attention academic work on BI pays to its meaning for democracy, democratization and citizenship. To translate the German word “Arbeit ” is difficult. In common use “Arbeit ” only refers to employment or paid work, in a much broader sense it includes all “work” as well. Sozialhilfe is one of the existing means-tested social assistances serving to provide a minimum income and support. It consists of several different forms of payment some directed to the beneficiary some to the institution which provides aid to men and women. Legislation was comprehensively reformed in 2003. See, Federal Ministry of Labour and Social Affairs (2010). Germans struggle with the idea of citizenship and nation. Some politicians and social scientists in Germany argue for European citizenship and the end of the nation state, even though there is no European state in a full sense and the European Union is totally dependant on the nation state. Generally, children are entitled to child benefit from birth until the age of 18. Under certain circumstances child benefit can be paid for a longer period. The German BI Network is quite unclear on that point, because it regards NIT as BI as well. See frequently asked questions, paragraph 22 (http:// www.grundeinkommen.de/die-idee/fragen-und-antworten, accessed on 7 September 2011). It must be said that some countries do have obligations, such as the one to vote. But, as far as I know, people who do not vote do not lose their rights.

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24.

25. 26.

27.

28.

29.

30.

31.

32.

Basic Income Worldwide We can call this a constitutive asymmetry between citizen rights and obligation, which is fundamental to political communities. See the Universal Declaration of Human Rights, article (23), section (1): “Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.” Permanent residency seems to be a transitional status that evokes the question of becoming naturalized some day. This book gathers papers by trade unionists, traditional and critical, and BI advocates presented at a workshop. It provides an insight into trade union arguments against BI. Considering Germany, I have found that this is indeed the case. See my book, in which I am reconstructing normative patterns by CEOs (Liebermann, 2002). Following the argument of Duncan Ironmonger (Ironmonger, 1996), what is measured as Gross Domestic Product actually is Non-GDP and, consequently, should be called Gross Market Product, because it does not account for unpaid work. Ulrich Beck, in his earlier work arguing for “Bürgerarbeit”, has joined the BI debate by using the slogan “Freiheit statt Vollbeschäftigung” in an interview with Neue Zürcher Zeitung (Beck, 2006). While Bürgerarbeit still aims to control the life-content of the unemployed by installing a system of monetary incentives for state-operated “voluntary” “engagement”, BI is the opposite. For that reason, some blamed Beck for not making clear which concept he is favouring. In a revised version of an earlier book (2002), he added an introduction dealing with BI, while Chapter 8 deals with Bürgerarbeit. See for example Ulrich Beck (Beck, 2007). The German statutory pension insurance scheme, which defines minimum conditions for to being entitled to benefits, takes periods of childcare (up to three years per child) into account. Certainly, this contribution is not enough to receive a decent pension. In 2007 the government introduced “Elterngeld” (federal parental benefit; see Federal Ministry of Labor and Social Affairs (2010)) for the first 14 months of a child’s life. Parents are divided into two categories. Those, who worked can claim an earningsrelated benefit, whereas others who did not work can claim a lump sum. Several attempts were made to calculate prospected costs of different Guaranteed Income proposals in Germany not all of which are a real BI (see for example Poreski and Emmler, 2006; Opielka and Strengmann-Kuhn, 2007; Pelzer and Fischer, 2009). This includes the idea to measure the carbon footprint of goods and services and include it in the tax rate.

Websites Archiv Grundeinkommen (Basic Income Archive), http://www.archiv-grundeinkommen.de/, 7 September 2011. Die Glücklichen Arbeitslosen (The Happy Unemployed), http://www.diegluecklichenarbeitslosen.de/dieseite/seite/glueck.htm, September 7 2011. Existenzgeld (Subsistence Allowance), http://www.bag-shi.de, 7 September 2011.

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Germany 195 Freiheit statt Vollbeschäftigung (Freedom, not Full Employment), http://www. freiheitstattvollbeschaeftigung.de, 7 September 2011. Netzwerk Grundeinkommen (German Network BI, affiliated to BIEN), here you find a comprehensive list of weblinks including local groups, http://www. grundeinkommen.de, 7 September 2011. Werner, Götz W., Unternimm die Zukunft, http://www.unternimm-die-zukunft. de/, 7 September 2011. Wiest, Susanne, Grundeinkommen im Bundestag (BI in the German Parliament), http://grundeinkommenimbundestag.blogspot.com/, 7 September 2011.

Movies and Videos Häni, Daniel and Schmidt, Enno (2008), Kulturimpuls Grundeinkommen, Ein Filmessay, watch online: http://www.kultkino.ch/kultkino/besonderes/grundeinkommen. Available in english at dotsub: http://dotsub.com/ view/26520150–1acc-4fd0–9acd-169d95c9abe1, 7 September 2011. Heizmann, Jördis and Zgraja Andreas (2007), Designing Society, http://www. designing-society.de/index.swf, 7 September 2011. Schlee Christoph (2007a), Grundeinkommen für alle (Basic Income for all), watch online: http://www.youtube.com/user/allmende, 7 September 2011. Schlee, Christoph (2007b), Sechs Positionen zum Grundeinkommen (Six Positions toward Basic Income), http://www.youtube.com/user/allmende, 7 September 2011. YouTube, keyword “grundeinkommen”.

TV-Documentaries 3SAT (2004), “Jobs, Würde, Werte. Eine Hartz-Reise in fünf Teilen” (Jobs, Dignity, Values. A Hartz-Journey in five parts; part 5 dealing with BI), http://www.3sat. de/page/?source=/kulturzeit/themen/63528/index.html, 7 September 2011. 3SAT (2011), “Bedingungslos glücklich. Freiheit und Grundeinkommen” (Unconditionally Happy. Freedom and Basic Income), http://www.3sat.de/ page/?source=/dokumentationen/152534/index.html, 7 September 2011.

Bibliography The following is a very selective collection of available information. You will find more details on the website of the German BI Network (http://www.grundeinkommen.de/die-idee/literatur, 7 September 2011) Althaus, Dieter and Binkert, Hermann (2010), Solidarisches Bürgergeld. Den Menschen trauen – Freiheit nachhaltig und ganzheitlich sichern (Institut für neue soziale Antworten, November). Altmiks, Peter (2009), “Liberales Bürgergeld kontra bedingungsloses Grundeinkommen,” (Friedrich-Naumann-Stiftung für die Freiheit), http: //www.freiheit.org/webcom/show_article_bb.php/_c-618/_nr-12918/i.html, 7 September 2011.

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Attac AG (2010), “Genug für alle,” http://www.grundeinkommen-attac.de/, 7 September 2011. Arbeitsloseninitiativen der BRD und Westberlin (Hg.) (1983), 1. Bundeskongress der Arbeitslosen, (Frankfurt). M. S. 142/143 BAG Grundeinkommen (2010), “Konzept der BAG Grundeinkommen in und bei der Partei DIE LINKE für ein Bedingungsloses Grundeinkommen (BGE) in Existenz und Teilhabe sichernder Höhe,” http://www.die-linke-grundeinkommen.de/WordPress/wp-content/uploads/2010/04/10_-_04_-_08_ BGE-Konzept2010_Endfassung.pdf, 7 September 2011. BAG-SHI (Bundesarbeitsgemeinschaft der Erwerbslosen- und SozialhilfeInitiativen, eds) (2008), Existenzgeld Reloaded, AG SPAK. Beck, Ulrich (2006), “Abschied von der Utopie der Vollbeschäftigung,” Neue Zürcher Zeitung online, November 4, http://www.nzz.ch/2006/11/04/fe/articleEM5N6.html, 7 September 2011. Beck, Ulrich (2007[2002]), Schöne neue Arbeitswelt (Frankfurt: Suhrkamp). Buechele, Herwig and Wohlgenannt, Lieselotte (1985), Grundeinkommen ohne Arbeit. Auf dem Weg zu einer kommunikativen Gesellschaft (Wien – München – Zürich: Europaverlag). Blaschke, Ronald, Otto, Adeline and Schepers, Norbert (eds) (2010), Grundeinkommen. Geschichte –Modelle–Debatten, Rosa-Luxemburg-Stiftung Texte 67 (Berlin: Karl Dietz Verlag). Blüm, Norbert (2007), “Wahnsinn mit Methode. Ein Grundeinkommen für alle ist ungerecht und bläht den Staat auf,” Die Zeit (17), April 19. http://www.zeit. de/2007/17/Grundeinkommen, 7 September 2011. Borchard, Michael (ed.) (2007), Das Solidarische Bürgergeld. Analysen einer Reformidee (Stuttgart: Lucius and Lucius). brandeins (2005), Nie wieder Vollbeschäftigung. Wir haben Besseres zu tun, 7, http: //www.brandeins.de/archiv/magazin/nie-wieder-vollbeschaeftigung.html, 7 September 2011. Brenner, Michael (2011), Solidarisches Bürgergeld und Grundgesetz (Baden-Baden: Nomos-Verlag). Bundesregierung (2003), Agenda 2010. Deutschland bewegt sich (Germany is moving), http://archiv.bundesregierung.de/artikel/81/557981/attachment /557980_0.pdf, 7 September 2011. Busch, Ulrich (2005), “Falscher Traum vom Schlaraffenland Ist das bedingungslose Grundeinkommen wirklich ein linkes Konzept? Ein Ökonom sagt nein,” Neues Deutschland, 15 October 2005. Butterwegge, Christoph (2007), “Grundeinkommen und soziale Gerechtigkeit,” Aus Politik und Zeitgeschichte, 51, 17 December, 25–30. Dahrendorf, Ralf (1980), “Im Entschwinden der Arbeitsgesellschaft,” Merkur, 34, 749–60. Dahrendorf, Ralf (1986), “Ein garantiertes Mindesteinkommen als konstitutionelles Anrecht,” in Befreiung von falscher Arbeit, edited by Thomas Schmid, see Schmid 1986, 131–36. Die Grünen (1986), Umbau der Industriegesellschaft. Schritte zur Überwindung von Erwerbslosigkeit, Armut und Umweltzerstörung (Bonn: Selbstverlag), http://www. boell.de/downloads/stiftung/1986_Umbauprogramm(1).pdf, 7 September 2011. Engler, Wolfgang (2007), Unerhörte Freiheit. Arbeit und Bildung in Zukunft (Berlin: Aufbau-Verlag).

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Germany 197 Erdmenger, Jürgen (2008), “Das Grundeinkommen und die Europäische Union. Ein Diskussionsbeitrag,” paper presented in Berlin, http://www.geistesschulung.de/bbg/erdmenger.pdf, 7 September 2011. Federal Ministry of Finance (2008), Bericht über die Höhe des Existenzminimums von Erwachsenen und Kindern für das Jahr 2010 (Siebenter Existenzminimumbericht). Federal Ministry of Labor and Social Affairs (Germany) (2010), Social Security at a Glance, http://www.bmas.de/portal/10116/social__security__at__a__glance. html, 7 September 2011 Fischer, Ute L. (2006), “Entkopplung von Arbeit und Einkommen – Emanzipierende Konsequenzen eines bedingungslosen Grundeinkommens,” Beiträge zur feministischen Theorie und Praxis: Frauen, denkt ökonomisch!?, 68, 71–81. Fischer, Ute L., Großer, Caroline and Liebermann, Sascha (2002), “Die Beharrlichkeit der Deutungsmuster – Handlungsprobleme und erwerbsbezogene Deutungsmuster unter Bedingungen der Transformation in Sachsen,” Journal für Psychologie, 10(3), 249–78. Fleckenstein, Timo (2008), “Restructuring Welfare for the Unemployed: The Hartz Legislation in Germany,” Journal of European Social Policy, 18, 177–88. German Council of Economic Exerts (2007), The Gains Must Not Be Squandered, Annual Report 2007–08, http://www.sachverstaendigenrat-wirtschaft.de/50. html, 7 September 2011. Grünes Netzwerk Grundeinkommen (Green Network BI) (2011), http:// www.gruenes-grundeinkommen.de/index.php?title=Das_Gr%C3%BCne_ Netzwerk_Grundeinkommen, 7 September 2011. Hardorp, Benediktus (2008), Arbeit und Kapital als schöpferische Kräfte. Einkommen und Besteuerung als gesellschaftliches Teilungsverfahren (Karlsruhe: Kit Scientific Publishing). Hasenclever, Wolf-Dieter (1986), “Ein Weg ins Schlaraffenland? Das Grundeinkommen für jeden Bürger könnte ein Schritt zur sozialen Freiheit sein,” Die Zeit, 19, 2 May 40. Ironmonger, Duncan (1996), “Counting Outputs, Capital Inputs and Caring Labor: Estimating Gross Household Product,” Feminist Economics, 2(3), 37–64. Lessenich, Stephan (2009), Das Grundeinkommen in der gesellschaftspolitischen Debatte, Expertise im Auftrag der Friedrich Ebert Stiftung, Abteilung Wirtschafts- und Sozialpolitik (WISO Diskurs), http://library.fes.de/pdf-files/ wiso/06193.pdf, 7 September 2011. Liebermann, Sascha (2002), Die Krise der Arbeitsgesellschaft im Bewusstsein deutscher Unternehmensführer. Eine Deutungsmusteranalyse (Frankfurt: Humanities Online). Liebermann, Sascha (2004), Freiheit der Bürger statt Arbeitszwang, Frankfurter Rundschau, 2 September. Liebermann, Sascha (2010), Autonomie, Gemeinschaft, Initiative. Zur Bedingtheit eines bedingungslosen Grundeinkommens. Eine soziologische Rekonstruktion (Karlsruhe: KIT Scientific Publishing). Loer, Thomas (2004), “Freiheit statt Vollbeschäftigung,” Frankfurter Allgemeine Zeitung, 26 May, 9. Mitschke, Joachim (2000), Grundsicherungsmodelle – Ziele, Gestaltung, Wirkungen und Finanzbedarf. Eine Fundamentalanalyse mit besonderem Bezug auf die Steuer-

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und Sozialordnung sowie den Arbeitsmarkt der Republik Österreich (Baden-Baden: Nomos). Netzwerk Grundeinkommen (2004), “Presseerklärung 1”, http://www.grundeinkommen.de/ueber-uns, 7 September 2011. Neuendorff, Hartmut; Peter, Gerd; Wolf, Frieder O. (eds) (2009), Arbeit und Freiheit im Widerspruch? Bedingungsloses Grundeinkommen – ein Modell im Meinungsstreit (Hamburg: VSA). Nida-Rümelin, Julian (2008), Integration statt Ausstieg. Ein bedingungsloses Grundeinkommen würde unsere Gesellschaft noch weiter spalten, Frankfurter Rundschau, Sektion Kultur, http://www.fr-online.de/kultur/integration-stattausstieg/-/1472786/3325866/-/index.html, 7 September 2011. Oevermann, Ulrich (2001), “Die Krise der Arbeitsgesellschaft und das Bewährungsproblem des modernen Subjekts,” in Eigeninteresse und Gemeinwohlbindung. Kulturspezifische Ausformungen in den USA und Deutschland, edited by Roland Becker, Andreas Franzmann, Axel Jansen and Sascha Liebermann (Konstanz: UVK), 19–39. Offe, Claus (2005), “Nachwort” (Afterword), in Ein Grundeinkommen für alle? Geschichte und Zukunft eines radikalen Vorschlags, edited by Philippe Van Parijs and Yannick Vanderborght (Frankfurt: Campus). Offe, Claus (2008), “Basic Income and the Labor Contract,” Basic Income Studies, 3(1), Article 4. Opielka, Michael (2000), “Gespräch mit Opielka. Arbeitet man wirklich für sich selbst?,” in Hans-Peter Krebs, and Harald Rein, eds. 2000. Existenzgeld – Kontroversen und Positionen. 1. (Münster: Westfälisches Dampfboot), 187–205. Opielka, Michael and Strengmann-Kuhn, Wolfgang (2007), “Das Solidarische Bürgergeld – Finanz- und sozialpolitische Analyse eines Reformkonzepts,” in Das Solidarische Bürgergeld. Analysen einer Reformidee, edited by Michael Borchard (Stuttgart: Lucius and Lucius), see Borchard (2007), 13–143. Opielka, Michael and Vobruba Georg (1986), Das Garantierte Grundeinkommen (Frankfurt: Fischer Taschenbuch Verlag). Pateman, Carole (2004), “Democratising Citizenship: Some Advantages of a Basic Income,” Politics and Society, 32(1), 89–105. Pateman, Carole (2008), “Democracy, Human Rights and a Basic Income in a Global Era,” paper presented to the 12th BIEN Congress, Dublin 20–21 June 2008, http://www.cori.ie/, 7 September 2011. Pelzer, Helmut and Fischer, Ute (2009), “Ein bedingungsloses Grundeinkommen ist bezahlbar und wirtschaftspolitisch sinnvoll – Die Finanzierung über das Transfergrenzen-Modell,” in: Arbeit und Freiheit im Widerspruch? Bedingungsloses Grundeinkommen – ein Modell im Meinungsstreit, edited by Hartmut Neuendorff, Gerd Peter, and Frieder O. Wolf, 114–34. Poreski, Thomas and Emmler, Manuel (2006), “‘Die Grüne Grundsicherung’. Ein Diskussionspapier für den Zukunftskongress von Bündnis 90/ Die Grünen Version 1.0, http://www.grundsicherung.org/, 7 September 2011. Rein, Harald (2000), “Von Friedhofsbegrünern, Präventionshelfern und Leichenwäschern. Einwände gegen den Ansatz ‘Arbeit vor Sozialhilfe,’” express 1, http://www.labournet.de/diskussion/arbeit/realpolitik/rein.html, 7 September 2011. Schlecht, Michael (2006), “Solidaritätsprinzip aufrechterhalten. Die Forderung nach einem bedingungslosen Grundeinkommen ergibt sich aus einem

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Germany 199 schiefen Blickauf den realexistierenden Kapitalismus und ist deshalb nicht umsetzbar,” Berlin: Junge Welt (newspaper), 15 September, no. 215, p. 10 Schmid, Thomas (1986 [1984]), Befreiung von falscher Arbeit (Berlin: Verlag Klaus Wagenbach; the second edition in 1986 was completely revised). Siebert, Horst (2007), “Gegen ein bedingungsloses Grundeinkommen.Eine abstruse Idee mit massiven Fehlanreizen,” Frankfurt: FrankfurterAllgemeine Zeitung (newspaper), 27 June, no. 176, p. 12 Sonnenfeld, Christa (1999/2000), “Aktive Arbeitsmarktpolitik heisst Zwang,” Liber 3, 71–83, http://www.uvk-konstanz.de/buchdetail/pdf/9783879407064_l. pdf, 7 September 2011. SPD [Grundwertekommission beim Parteivorstand der SPD] (2009), Bedingungsloses Grundeinkommen? Geld allein genügt nicht! Sozialstaatliche Verantwortung für gesellschaftliche Inklusion, http://alt.spd.de/de/pdf/2008_ GWK_Grundeinkommen.pdf, 7 September 2011. Spielkamp, Matthias (2001), “Wege in die Zukunft – Grundeinkommen,” brandeins 10, 68–9, http://www.brandeins.de/archiv/magazin/mach-was-draus/ artikel/wege-in-die-zukunft-1-grundeinkommen.html, 7 September 2011. Statistisches Bundesamt (2003), Wo bleibt die Zeit? Die Zeitverwendung der Bevölkerung in Deutschland 2001/02, edited by Bundesministerium für Familie, Senioren, Frauen und Jugend (Wiesbaden: Statistisches Bundesamt). Werner, Götz W. (2005), “Wir leben in paradiesischen Zuständen,” brandeins 3, 72–7, http://www.brandeins.de/archiv/magazin/was-bleibt/artikel/wir-lebenin-paradiesischen-zustaenden.html, 7 September 2011. Werner, Götz W. (2006), Ein Grund für die Zukunft: das Grundeinkommen (Stuttgart: Verlag freies Geistesleben). Werner, Götz W. (2007), Einkommen für alle, (Köln: Kiepenheuer and Witsch). Werner, Götz W. (2010), “1000 Euro für jeden machen die Menschen frei,” Frankfurter Allgemeine Sonntagszeitung, August 15. http://www.faz.net/-01r7af, 7 September 2011. Werner, Götz W and Goehler, Adrienne (2010), 1000 Euro für alle. Freiheit, Gleichheit, Grundeinkommen (Berlin: Econ Verlag). Wiest, Susanne (2008) “Petition: Reformvorschläge in der Sozialversicherung – Bedingungsloses Grundeinkommen vom 10.12.2008,” https://epetitionen. bundestag.de/index.php?action=petition%3Bsa=details%3Bpetition=1422, 7 September 2011.

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9 New Zealand: Prospects for Basic Income Reform Keith Rankin

New Zealand is not generally thought of as having a basic income (BI). But seen in the right way, this is the case. There is an implicit equity benefit arising because income tax concessions are equivalent to cash benefits. Basic income needs to be presented as a transparent version of something New Zealand essentially has already. The main challenge is to see income taxes and benefits in a new way. The special conditions in the country require that reforms demonstrate that virtually all adults are already recipients of equity benefits. The result of the benefits introduced between 1898 and 1976, and of the flattening of the income tax scale in the 1980s, was that New Zealand acquired a de facto basic-income system. While the equity benefits, on their own, have not been equivalent to a living wage, they come close to being a citizen’s dividend, an unconditional taxfunded payment. The country is special in terms of basic income because it has a relatively flat income tax along with a tradition of universal welfare. It looks like a basic income flat tax (BIFT) system when social security transfer payments are combined with the implicit benefits that arise from lower statutory tax rates levied on lower incomes. The “basic income flat tax” (Atkinson, 1995; Creedy, 2003) represents a conceptual break from traditional approaches to both income tax and social security. BI represents a contrasting system to the conventional liberal democratic welfare state that can be referred to as the “conditionalbenefit graduated tax” (CBGT).1 The BI component of this structure is a “refundable tax credit” (Atkinson, 1995, 3) allocated equally to all adult tax residents2 of a country. Income tax is set at a proportional or “flat” rate. The essence of the basic income concept is the presence

200

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New Zealand

201

of unconditional monetary benefits within our graduated income tax scales. As we will see, there are specific barriers and contextual issues facing future reforms, and this chapter will conclude by describing these. The chapter will highlight a specific approach to a BIFT system and explain why this approach is the best of the potential ways forward toward a basic-income system in New Zealand.

9.1 Proportional (flat) taxes and the link to basic income The power of the basic-income concept is the presence of unconditional monetary benefits implicit in New Zealand’s graduated income tax scale. Graduated income tax scales work to put money in the hands of individuals by transferring income that, in the event of a flat tax structure, would be government revenue. Basic Income Flat Tax, for individual tax residents of a country, can be defined as: (1) Disposable Income ≥ (1–%Flat Tax).(Gross Income) + Basic Income where there is a single rate of tax, and basic income represents a single amount. Alternatively: (2) Disposable Income = (1–%Flat Tax).(Gross Income) + Basic Income + Transfer where “Transfer” ≥ zero3 The discipline of macroeconomics recognizes cash benefits as equivalent to tax credits or negative taxes. Thus, a tax cut as a fiscal stimulus could be a reduction in statutory rates of income tax, an increase in the income thresholds at which higher tax rates are levied, or an increase in cash benefits. BIFT turns the “benefits are negative taxes” proposition on its head. The key insight is that the income tax concessions that arise from a graduated scale are equivalent to cash benefits. Under a flat rate of income tax, there are no concessionary tax rates. Flat rate taxes are equitable – all tax residents pay tax on all their income at the same rate. Equals are treated equally. Likewise, the basic income component of BIFT – an equal credit to all tax residents – conforms to this same principle of “horizontal equity.”

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9.2 Taxation and basic income in New Zealand – the numbers In the traditional language of graduated tax, New Zealand has a relatively simple “flattish” income tax structure. A flattish income tax structure is one in which the top statutory tax rate is relatively low, the bottom statutory rate is comparatively high, and which has few tax exemptions. In New Zealand this means that the top rate of tax applies to many taxpayers and can be understood as the underlying tax rate. This in turn means that lower rates can be understood as concessionary and that the tax concessions that arise can easily be shown to be equivalent to cash benefits. For adult New Zealanders earning more than $70,000 per year, annual after-tax income is: (3) Disposable Income = (1–35 percent).(Gross Income) + $9,080 Thus New Zealand has an annual basic income of $9,080 for persons earning over $70,000. For all adult New Zealanders earning more than $48,000 per year,4 annual after-tax income is: (4) Disposable Income ≥ (1–35 percent).(Gross Income) + $8,420 Average weekly before-tax earnings for full-time employees in surveyed industries were $965.28 in June 2010 (Statistics New Zealand, Quarterly Employment Survey), equivalent to just over $50,000 per year. From October 2010, all persons earning above the average fulltime wage effectively paid tax at a rate of 35 percent and received a basic income of at least $8,420.5 For more than half of adult New Zealanders – beneficiaries (including students on allowances), most parents, high income earners – annual after-tax income can be expressed as: (5) Disposable Income ≥ (1–35 percent).(Gross Income) + $9,080 For all adult New Zealanders, annual after-tax income can be expressed in this form as: (6) Disposable Income = (1–35 percent).(Gross Income) + $9,080 + Transfer where “Transfer” is significantly greater than zero for many, close to zero for most, and much less than zero for a few.

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New Zealand Table 9.1 earnings $NZ single earner paying rent of $150 per week

Examples of individual tax-payers with different levels of gross Gross Weekly

Gross Annual

BIFT [Eq.3]

Transfer Disposable Transfer Disposable [Eq.6] [Eq.6] [Eq.6] [Eq.6]

0

0

9,080

4,894

13,974

250 500 750 1,000 1,500

13,000 26,000 39,000 52,000 78,000

17,530 25,980 34,430 42,880 59,780

1,380 −2,016 −1,535 −540 0

18,910 23,964 32,895 42,340 59,780

9,080 17,530 25,980 34,430 42,880 59,780 76,680

3,792 3,263 −950 −281 −391 0 0

married earner, 2 children paying mortgage of $400 per week

203

0 250 500 750 1,000 1,500 2,000

0 13,000 26,000 39,000 52,000 78,000 104,000

earner 12,872 20,793 25,030 34,150 42,490 59,780 76,680

partner 11,551 8,457 4,919 3,139 −1,086 −6,435 −9,080

20,631 17,537 13,999 12,219 7,994 2,645 0

Applying Equation 6, Table 9.1 shows the principal groups that face negative transfers (shaded), which are effective “claw-backs” of their $9,080 basic incomes. A claw-back is a mechanism that takes back all or part of a benefit that a person has received. Given that average annual full-time gross earnings in New Zealand are $50,000, we can see that low-to-middle income earners are the group of persons who most often do not, at present, gain an implicit basic income of $9,080. However, their losses (claw-backs) are not large relative to the $9,080 basic income. The other important group of losers are non-earning partners of persons earning higher incomes. The most extreme example here is of a non-earning partner of a person earning $140,000 per year. The couple receives just one basic income of $9,080. If they could split their incomes to $70,000 each, then both would receive their $9,080 basic incomes. It is really only this comparatively small latter group who have all of their basic-income clawed back. Initiatives currently under way from Revenue Minister Peter Dunne (NZ Herald, 2010b) would allow partners caring for children to claim half of the family income as their own (“income splitting”), thereby substantially reducing their present BI claw-backs.6 Table 9.1 tells us that we can understand the total benefit of a typical unemployed single person as being a basic income of $9,080 plus a transfer payment of $4,894. An indicative two-child family without

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any private earnings receives two implicit BIs ($18,180) plus transfer payments totalling $15,343. A single person earning just over the average full-time wage ($52,000 annual) receives a basic income of $9,080 less a negative “transfer” of $540. In a traditional one-earner professional family with two children, the earner receiving double the average wage ($2,000 per week), receives a basic income of $9,080, with the notional basic income of the non-earning partner fully clawed back. The requirement to fully achieve a BI (Equation 2) in New Zealand is to eliminate all instances of negative transfer payments, with “transfer” understood here as the residual element in Equations 2 and 6. If this were to be achieved, the realization of an explicit basic income would then reduce to an exercise in reformed fiscal accounting and public communication. Almost every adult in New Zealand qualifies for a cash allowance if they – and their partner, if they have a partner – have no private source of income. To gain an unemployment benefit, individuals need to demonstrate that they are unemployed, meaning that they should be seen to be seeking employment. Persons who cannot meet this condition usually will be eligible for a similar benefit with a different name. Thus, in practice, anyone without private income who is willing to meet one or another condition has access to an annual allowance in excess of $9,000 if accommodation supplements are included. Genuine reform will see all conditions removed, at least for a benefit amount of $8,000 to $10,000 per year. This would give lower-income recipients unconditional access to implicit benefits already received unconditionally by higher-income earners. Reform is a matter of changing perceptions, and removing conditions to benefit access that serve no fiscal purpose. For proponents of fiscal equity in New Zealand, the challenge is threefold: to reveal the extent that basic income is already present, to preserve the basic-income elements that currently exist and to extend the present structure so that, for all New Zealand tax residents, it conforms with Equation 1 at levels of basic income at or close to the $9,080 shown in Equation 5.

9.3 New Zealand superannuation In addition to its implicit basic income of $9,080, New Zealand in 2011 had a taxable basic income of NZ$15,300 (one-third of GDP per capita7) for all residents aged over 65.8 In 1976, the conservative Robert Muldoon government introduced a substantial universal pension for all persons

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aged over 60.9 This basic income for seniors – known today as New Zealand Superannuation (and only available to those over 65 years of age) – represents a central feature of today’s welfare state. The conservative government was committed to the indefinite retention of “Super” at age 65. However, in 2010 it established the Welfare Working Group (WWG, 2010) which investigated, among other things, the replacement of familiar welfare structures with a social insurance model that is common in other countries but foreign to New Zealanders. Many New Zealanders believe that “Super” may only last for about a decade in its present form. New Zealand Superannuation does not fully conform with the BIFT concept in that it is taxable and coexists with a graduated income tax scale. Nevertheless, it fits the concept well enough to be regarded as a significant real-world example of an explicit basic income. Older New Zealanders receive an unconditional basic income of $15,300 (taxable),10 whereas “richer” New Zealanders receive a $9,080 (non-taxable) unconditional BI. Older richer New Zealanders receive both. One policy challenge is to integrate the two forms of BI – for example, by replacing the $15,300 (taxable) with a smaller non-taxable amount, and taxing all private income at the underlying rate (35 percent).

9.4 The political challenge The intellectual argument for an explicit universal basic income has proved extremely difficult to advance, in part because New Zealanders’ self-image is based on finding practical rather than intellectual solutions. Hence, what is presented by activists as a radical new idea is seen as a possible threat to arrangements already in place; a threat that might involve a substantial amount of income redistribution. Further, “moral hazard” arguments unrelated to economics are never far from the surface. There is always a latent sense that the work ethic may be undermined through public payments of explicit dividend-like benefits. While existing transfer payments are clearly redistributive, limited redistribution is tolerated rather than embraced. A structure that appears to be a comprehensive redistribution scheme is not politically viable in New Zealand. The word “redistribution” is not liked in New Zealand (Humpage, 2011), and is not an accurate representation of what basic income is about. BI is benefit that needs to be clearly presented as an equity payment rather than as a “handout”. Whereas handouts (transfers) are redistributive, BI is distributive. BI is an equity benefit

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that arises from public ownership rights (Rankin, 1997), much as company dividends arise from the private property rights of company shareholders. It is the realization of an economic share of a society affirmed by one’s membership in, support of and association with it. It is a right, not a privilege, to enjoy a share of a society’s collective property rights. There is a step to be made in getting New Zealanders to realize that although transfer payments are a way to reduce poverty or provide resources to the poor, a BI is not motivated by social pragmatism but rather a right to an equitable share to which all tax residents (rich or poor) should have access. A flat tax recompenses the Crown11 for the productive contribution of resources in the public domain, just as profits reward shareholders for their past or present supply of capital. Equity benefits are simply cash distributions of the non-retained part of the Crown’s revenue. There is a clear parallel between public equity and private equity, and between public equity benefits (basic incomes) and private company dividends. Persons who strongly favour small government and laissez-faire capitalism may consistently argue for raised equity benefits and reduced government purchases.

9.5

Universal welfare in New Zealand, 1898–1976

New Zealand has, from 1898 with the old-age pension, progressively replaced charity-based conditional income support with state-based non-fault universal welfare provision. By universal we mean relatively unconditional, non-insurance-based, cash benefits that are the same for everyone regardless of wealth or past contributions. Welfare in New Zealand is, and generally has been, “pay-as-you-go” (tax-funded, non-contributory), rather than “funded” (savings-funded, contributory). Welfare benefits are paid out of current tax revenues, and not from an accumulated social security or pension fund.12 It is widely accepted, if not fully understood, that those of working age and in employment produce goods and services for all, and that, as one generation retires, a new generation of workers takes their turn at becoming providers for all. New Zealand’s first three benefits – Age Pension in 1898, Widow’s Pension in 1911 and Family Benefit in 1926 – were subject to both family income tests and other conditions, such as being of “good character”. Family benefits (for caregivers of children) were initially available only for the third and subsequent children, in the understanding that the state-managed wage-setting system paid fathers and fathers-to-be a

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“family wage” that could support four people. From 1915 until 1973 (Vosslamber, 2010, 120) there were also child tax exemptions available to all family “breadwinners”.13 During and after the Great Depression (1930–35), when the familywage model failed, new forms of benefit became available, and conditions were progressively eased. The “universal welfare state” was formally implemented prior to the 1938 general election (nzhistory. net.nz, McClure, 81). The Labour Government was re-elected with an increased share of the vote, as the voting public warmed to the concept of universal “cradle-to-grave” social security. In 1938, Universal Superannuation became available as a complement to the Age Pension. Pensions were renamed as benefits, and nominal contributory funding was introduced to fund benefits. All persons over 65 not receiving the income-tested Age Benefit were eligible for the smaller universal payment, effectively a social dividend that recognized the collective contributions of previously working generations. Implicitly, the Age Benefit was a combination of a retirement dividend and a means-tested top-up transfer payment. Persons on the Age Benefit might switch their status from “beneficiary” to “superannuitant” if private earnings rendered their benefit entitlement less than they could receive from Universal Superannuation. In 1946 the Family Benefit was fully universalized (McClure, 1998, 121), with all children qualifying their mothers for a Family Benefit, regardless of the income or character of their parents. The system ticked over for two decades of full employment, with its first serious test coming in 1968, with a short bout of stagflation. In the following year the pretence that the universal cash benefit programme was funded in a contributory manner was removed. The 7.5 percent social security contribution was formally merged with general taxation (NZOYB, 1969, 758). Previous to this, the “social security tax” was nominal, and levied as “one combined tax on income” from when “pay as you earn” taxation [PAYE] was introduced in 1958 (NZOYB, 1968, 757). The concept of universal income support was extended by the 1972 Royal Commission, which endorsed the principle that all New Zealanders were entitled to a minimum standard of living that enabled them to “belong to and participate in” civil society (St John and Rankin, 2009, 5, 6). The Domestic Purposes Benefit for sole parents followed. 1972 also saw the introduction of equal pay by gender, effectively casting off the requirement that employers pay male workers a family wage. These reforms were not enough however for the conservative government to be re-elected.

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In 1974, the Labour Government, building on earlier reforms, introduced an annual “non-refundable tax credit” (known then as a “personal tax rebate”) of $125, devised pragmatically by the New Zealand Treasury to fit a demanding specification to hold taxes for the vast majority of taxpayers while targeting substantial cash injections to low-wage recipients (Rankin, 2006). The non-refundable tax credit was a “halfwayhouse” to a “refundable tax credit,” which is a basic income. It worked by flattening the income tax scale – by raising tax rates to those on low incomes – and returning a tax rebate to all taxpayers. The credit was non-refundable in the sense that it could not exceed the amount of tax levied. While it was never perceived as a benefit, it represented a minimum BI for all full-time and most part-time wage and salary earners. Non-earners (if caregivers) would receive a universal Family Benefit and incur a spousal tax rebate. Otherwise non-earners would receive one of the benefits introduced in the 1898–1972 period. New Zealand had acquired a de facto basic income system. While the minimum BI, on its own, was not equivalent to a living wage, it came close to being a citizen’s dividend, an unconditional tax-funded payment. The final two planks of this comprehensive safety net were a system of no-fault accident compensation (ACC; introduced in 1974) that paid both lump-sum and earnings-related compensation,14 and National Superannuation, introduced in 1976 to replace the Age Benefit and Universal Superannuation with a taxable basic income for all persons over 60 years old.

9.6

Winding back universal welfare, 1978–91

At a time of global inflation and recession, it was widely expected that something would soon give. Indeed, in 1978 the 1974 non-refundable tax credit, which had not been inflation-indexed, was scrapped in favour of increased tax concessions to compensate middle and higher earners for the ravages of inflation. This left New Zealand with a tax scale that was flatter than in most other developed countries. New Zealanders paid significant tax on all earnings, without having a lowincome exemption or rebate to offset this (Rankin, 2006). In the 1981 election campaign, Labour leader Bill Rowling promised that his party, if elected, would introduce “a very genuine tax reform ... a basic income completely free from tax” (Rankin, 2006). Despite winning more votes than the governing National Party, Labour gained fewer seats in the new parliament. Rowling never had a chance to develop his proposal further. In 1982, he was replaced as Labour leader.

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From 1978, the previous evolution towards a basic income flat tax structure became evident mainly on the “flat tax” side. In December 1987 the Labour minister of finance planned to implement a “23 cents on the dollar” flat rate of income tax, along with a substantial guaranteed minimum family income (GMFI). Two months later the proposal was vetoed by the prime minister. However the eventual compromise left New Zealand with a very flat income tax scale – only two statutory rates, 21 percent and 33 percent – and a watered-down GMFI. The GMFI had sounded like a family BI, but in reality it was targeted tightly to very low-income working families, with an effective 100 percent tax rate on extra income earned by recipient families. In the 1990s, benefits become more conditional and less adequate (St John and Rankin, 2009; McClure, 1998). McClure (1998, 234) noted that: The new morality marked an explicit break with the social security principles of the 1970s. ... At the heart of the social security changes of the 1990s was the economic and philosophical principle that work must receive a different reward from non-work, and that non-workers should not be entitled to the same experiences and quality of life as workers. Universal Family Benefits were fully replaced in 1992 (NZOYB, 1992, 115) by income-tested “Family Support” tax credits that were introduced in 1986 (McClure, 1998, 217). National Superannuation was subject to claw-back provisions (from 1985 until 2001) and a higher age of entitlement. The steady and pragmatic evolution towards a basic income flat tax structure moved into retrograde following the welfare cuts introduced in the July 1991 “Mother of All Budgets” (McClure, 1998, 235). In that year, official unemployment topped 10 percent, with joblessness rates approaching 20 percent (Rankin, 1993, 225). In comparison, in the 2008–09 recession official unemployment barely reached 7 percent. The record in the 2000s has been mixed. National Superannuation – renamed New Zealand Superannuation – lost its claw-back provisions. While “the core New Zealand welfare model has not evolved in any fundamental way since 1991” (St John and Rankin, 2009, 6), the introduction of In Work Tax Credits payable to parents in full-time or substantial part-time employment started a new pattern of disentitling persons with reduced incomes from receiving some transfer benefits. The most recent development of this nature was the 2009 Independent Earner Tax Credit, to which recipients would lose entitlement if their annual incomes fell below $24,000 (Rankin, 2010b). Coming in the midst of a

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global economic crisis which would see many workers facing reduced hours of paid work, this forfeiture condition seemed needlessly cruel.

9.7

Basic income proposals, 1991–2009

Not surprisingly, proposals for the introduction of an explicit form of unconditional basic income were most prominent in the years 1991–98, when the de facto BI structure came most under threat. BI returned to public debate in 2009, as issues surrounding benefit insecurity and adequacy once again came to the fore, during another period of elevated unemployment. Prior to 1991, in New Zealand basic-income ideas were confined to three largely exclusive groups: Social Credit political activists, the inchoate Green political movement and neoliberal economists who liked Milton Friedman’s (1962) ideas about using a negative income tax to replace welfare as we knew it. Thus, in the consciousness of centrist pragmatic New Zealand, explicit BI proposals were on the political fringe. Social Credit was a significant political movement in twentieth century New Zealand, drawing on the writings of C.H. Douglas in the 1920s and early 1930s. Social Credit advocates participated in government in brief periods in the 1930s (within Labour), the 1980s and (as the New Zealand Democrats within the Alliance Party) the early 2000s. Journalists and academics took pride in being ignorant of Social Credit’s “funny money” message. Central to Social Credit was the idea of a “National Dividend” that would be funded by new, government-issued “debt-free” money to close what was understood as an endemic shortfall in aggregate expenditure. Thus Social Credit’s dividend was linked to monetary policy rather than to the tax-benefit interface. Recent BI advocacy along Social Credit lines can be found in Manning (2005) and Manning (2010). Neo-classical economists, like other academics, took minimal interest in Social Credit proposals. Those economists who were interested in public finance understood simply that benefits are negative taxes and could therefore be administered as such, enabling the welfare arm of government bureaucracy to be disestablished. Further, as long as the resulting basic income was not deemed high enough to create labour supply disincentives, labour markets would be flexible, and government would be small. In 1991, after five years of zero economic growth, and with official unemployment reaching 11 percent, BI ideas were ready to take hold. Momentum gathered when Bill Jordan (of Citizens Income U.K.) and Mike Goldsmith held a symposium on basic income at the University of

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Waikato. My proposal attracted much interest, which led to a peak-time radio interview on Radio New Zealand (in September 1991; see Marshall, 1996) and a University of Auckland Policy Discussion Paper (Rankin 1991). The radio interview in particular generated a huge response for further information, and led to a number of requests for me to speak to different community groups. My proposals even received the endorsement of former prime minister, Sir Robert Muldoon, via his weekly radio programme. One of the most committed advocates of universal welfare provision, but also a divisive politician whom liberal-left and liberalright voters came to intensely dislike, Muldoon died early in 1992. Only the fledgling Green Party took a considerable interest in BI proposals that emphasized the tax-benefit interface. Indeed, in its earlier incarnation – the New Zealand Values Party – the idea was discussed on a number of occasions in the 1970s and 1980s (Marshall, 1996). Basic-income ideas continued to be ignored by mainstream political parties, media and businesses. Part of the problem was that, in short media sound bites, the idea of an unconditional BI sounded like giving people something for nothing, and encouraging laziness. Further, the greater take-up by fringe political groups tended to reinforce the perception that BI proposals are an exercise in wishful thinking that have no chance of becoming mainstream policy.15 For others in New Zealand, the flat tax component of BI structures had come to be associated with the political far right. Roger Douglas’s flat tax proposals were correctly seen as proposals for huge tax cuts for those on higher incomes; flat tax became code for a “new right” agenda of low taxes, privatization, and replacing collective provision of health care and education with private purchase of such services. Indeed Roger Douglas left the Labour Party and formed the right-wing ACT party. The difficulty has always been to get intelligent engagement with the substance of the basic income flat tax alternative to the traditional conditional-benefit graduated tax approach to welfare provision. There is nothing inherently morally decadent (McShane, 1998) or unaffordable in either approach. Unaffordable options are equally possible within both the CBGT and the BIFT approaches. One reason making this issue very hard to publicly debate is the widespread innumeracy within the public in general – especially the left-leaning public – and the journalistic profession in particular. Unwillingness to attend to the arithmetic required can also limit the ability of BI proponents to further their own cause. Serious public debates about taxes are deemed “boring”, presumably because they involve arithmetic. Further, debates about principles rarely reach critical mass. New Zealand is better known for its pragmatism; its reputed

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“number 8 fencing wire” ingenuity. Despite a reluctance to delve into the philosophical and sociological issues that underpin the fiscal state (Bell, 1976), income tax has been the number-one election issue in three recent election campaigns (1996, 2005, 2008). The universal BI movement progressed during the 1990s, with the formation of groups such as UBINZ and the UI Trust. UBINZ held national conferences in 1996 and 1998, but became largely inactive following the emergence of divisions in the 1998 conference. The Nelson-based Universal Income Trust (Danahey, 2003) maintained its activity, producing a book, Universal Income for a Sustainable Future, utilizing information from the 2001 McLeod Review of Taxation. The McLeod Review (2001, 64), noted that universal BI was an option suggested to them by a number of people, but was generally dismissive, claiming that BI was fiscally unsustainable. From 1998 to 2008, basic-income advocacy was quiescent, especially in the middle years of the 2000s, when the New Zealand economy was growing, and unemployment fell below 4 percent. The policy environment changed, however, in the wake of the 2008 recession. Tax changes announced in 2008 by the new National-led government for 2010 and 2011 were declared unsustainable in 2009. A Taxation Working Group (TWG, 2010), made up of academic economists and tax accountants, was formed and prevailed upon to design more comprehensive changes to New Zealand’s tax structure. Subsequently, another working group was set up to investigate making additional conditions to social security benefits, with a mandate to investigate insurance-based options, which represent the antithesis of the BI approach. The opportunity was missed to institute a combined tax and benefit working group with an explicit mandate to explore the tax-benefit interface (Gawith, 2011). Each of the individual groups was restricted by narrow terms of reference, with the tax-benefit interface central to neither inquiry. One independent economist with good media connections, Gareth Morgan – a member of the TWG – disagreed with a number of the group’s findings, published in January 2010. In December 2009, in a Wellington symposium promoted by the TWG, Morgan surprised everyone with a presentation that advocated a relatively generous neoliberal basic income flat tax proposal (Morgan, 2009, 2010; TV3 Campbell Live, 2009). As my proposal had done in 1991, Morgan’s proposal gained media attention. The window for promoting basic income ideas had reopened. Morgan’s attention-grabbing “Big Kahuna” proposal was to replace the present benefit system of cash transfers with an unconditional BI

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of NZ$10,000 per year, and to levy a flat income tax of 25 percent. He then introduced the idea of a comprehensive property tax – not unlike the predominant tax of New Zealand in the 1880s (Goldsmith, 2008) – to make up the revenue shortfall. There had been much discussion in 2009 about property investors indulging in substantial tax avoidance, so this was seen as a way of addressing that. Morgan (2011a, 2011b) sees the adoption of an unconditional BI as a process of “turning the tax and benefit system on its head,” much as I had done in 2010 (Rankin, 2010c) when I identified as a “key insight” the turning of the “proposition [that benefits are negative taxes] on its head.” There are significant practical and conceptual problems in introducing a comprehensive property tax to fund a generous BI, such as the situation that would be faced by persons rich in non-cash assets but with low disposable incomes. This problem is compounded in times of low interest rates. More importantly, I believe that BIFT proposals that ignore vertical equity issues (the need to treat unequally those with unequal needs) are no sounder than current CBGT systems which ignore horizontal equity. My proposals have always applied both equity principles in order to provide an underlying structure of equity with sufficient flexibility to address the many different income issues that New Zealanders experience. Since 2007, I have presented some of my ideas (e.g., Rankin 2007, St John and Rankin, 2009; Rankin, 2011), and have endeavoured to answer questions from journalists as a result of benefit systems that are inadequate “band aid” or ad-hoc approaches. The universal principles that have underpinned New Zealand’s welfare history are still present. But being a beneficiary has become a disreputable occupation. The body blow was dealt by the Helen Clark Labour-led government in 2005 when Prime Minister Clark emphasized participation in paid work as the basis of effective citizenship, overturning the view of the 1972 Royal Commission and the concept that all New Zealanders had the same right to “belong and participate.”16

9.8

Criticism of basic income proposals, 1991–2009

Those who explicitly propose BI solutions in New Zealand tend to see basic income as a radically different redistributive option. The most common perception of universal BI is that it is a “single-benefit” solution unrelated to the structure of the tax system, requiring markedly increased taxes and paying substantial additional benefits to persons

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who have no need for them. It is hard to explain to the general public that BI is a concept that is embedded within the tax structure. Basic income needs to be presented as a transparent version of a structure New Zealand has already. The main challenge is to show New Zealand’s existing income taxes and benefits in a new way. That all earners are beneficiaries is an observation, not an aspiration. Another problem is that a flat tax was almost introduced in New Zealand in 1988 as the central component of a neoliberal platform – dubbed “Rogernomics” after the finance minister responsible (Roger Douglas). Since that time, flat tax as a concept is commonly misinterpreted to mean low taxes for high earners, anathema to the centre-left. The most virulent criticism of basic income in New Zealand appeared in the pages of the business weekly National Business Review (e.g., McShane, 1998a, 1998b, 1998c). Owen McShane even draws a contorted analogy between universal BI and fascism! The line of criticism arises in large part out of an assumption that BI is an expropriation of wealth from those who toil for a living in favour of those who choose a life of idleness – an argument that purports to draw on George Orwell’s Animal Farm (1946). Critics who see basic income as a passport to parasitic idleness rarely express similarly strong feelings against those whose private dividends and rents – commonly deriving from inherited property – are sufficient to enable them to choose to not be employed. Once we appreciate that social dividends are neither more nor less moral than company dividends, the debate will advance about the interface between income taxes and benefits. Basic income is taken to be redistributive, when in reality it is simply distributive. The redistributive argument depends on the clearly false assumption that “all property rights are private so therefore all income must initially be private.”17 Such critics, who implicitly refute that public capital makes at least as important a contribution to the production of goods and services as does privately held capital, choose not to address the concept of public property rights. Simon (2000) has argued that public property is easily the most important contributor to economic growth. A more reasoned critique came from David Preston (1998). Nevertheless, Preston characterizes basic income as “unconditional income transfers from the state to people potentially capable of being self-supporting,” missing the whole point. BI payments are not transfers; they are dividends. The tax concessions that Preston will have received as an employee were benefits, but not transfers. He received

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them as a right, not as an act of charity or redistribution. Preston incorrectly understands BI as an additional benefit to the benefits he has already received. If he presently earns $70,000 or more per year, he is already receiving an annual BI of $9,080. While Preston writes much about workers and the labour market, “basic income flat tax” conceptually has nothing to do with the labour market. Similarly, the receipt of interest income has no conceptual link to the labour market, and the receipt of interest is not commonly denounced as a ticket to a life of idleness. I have never heard the argument from critics of BI that the receipt of property income is problematic because it reduces people’s willingness to work.

9.9

A new proposal for basic income

Since the early 1990s, inquiries into welfare reform have generally begun with the premise that welfare states create a form of moral hazard called “dependency”; an incentive to rely on the providence of others without contributing much in return. The solution to such a misaligned incentive must therefore be a rearrangement of incentives, it is commonly argued, with the introduction of punitive counterincentives to deal with this impropriety. Despite increasingly stringent conditions governing entitlement to welfare benefits, the perception of dependency as a lifestyle seems not to wane. So, by this reasoning, additional counter-incentives are always required. The whole exercise of welfare reform, as it has been conducted in New Zealand since 1991, was normative from the outset. An overlay to the moral hazard assumption has been the assumption that the purpose of a country’s economy is to maximize GDP (gross domestic product), and that this should be achieved through high growth rates – with a special emphasis on higher growth rates than other countries – and that a reduction in labour force non-participation should be a central part of this growth contest. An alternative approach is to deny the place of immorality in macroeconomics and, instead, to premise our income claims on the basic principles of equity and property rights. Some basic principles are these: ●

●

People are born free, with private and public property rights and obligations. People have a right to draw income (claims on present output) from private and public sources.

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Horizontal equity means all persons within a country have identical public rights. Vertical equity means that persons with greater private incomes have some public obligation to provide some support for those whose incomes are insufficient to allow social belonging and participation.

A system of welfare benefits is widely understood to mean a set of transfer payments – public-to-private gifts – made by a government agency other than the tax collecting agency. In New Zealand that agency is called Work and Income (WINZ); the tax collecting agency is called the Inland Revenue Department (IRD). In reality, monetary benefits to individuals are a combination of rights-based and needs-based payments paid to private individuals or households from public funds.18 Here, rights-based (horizontal equity) payments are understood as dividends, and needs-based (vertical equity) payments are transfers. An explicit example of a dividend-type benefit is New Zealand Superannuation. Identifying all benefits is made difficult because in New Zealand, many of them are paid not by WINZ but by the IRD, and because many of those are implicit, generally perceived as tax concessions rather than as benefits. Thus, depending on individual politicians’ or writers’ normative stances, some or all benefits paid by the IRD may be deducted from taxes, making it look as if taxes are lower than they really are, and making it look as though tax liabilities are skewed to the disadvantage of high earners (for example, TWG, 2010). An extreme example is the denial that “Working for Families” Tax Credits are welfare benefits, and the resulting claim that many low-income workers pay no tax. This was the interpretation in the New Zealand media (NZH, 2110a; NBR, 2010) of the OECD Report “Taxing Wages” (OECD, 2010) which treats transfers paid to the partners of workers with children in the same way as it treats personal tax concessions. Benefits to individuals and households paid by the IRD come in several categories: (1) General tax avoidance (that is, benefits able to be claimed through rearrangement of one’s affairs). (2) Working for Families family of tax credits (includes in-work tax credits). (3) Independent Earner Tax Credit. (4) Concessions on a person’s first $70,000 of annual income.

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Only category 2 is an explicit payment. The others are deducted from taxes otherwise liable. The fourth kind of benefit paid by the IRD is the most important, and is least understood as a benefit. Benefits paid by IRD as tax concessions or exemptions are better understood as dividends than as transfers. As already noted, New Zealand’s underlying rate of income tax is 35 percent. For most other countries, with more complex tax regimes and federal government structures, an underlying rate of income tax is harder to assess. This 35 percent of GDP can be accounted for as a public property right; a direct public claim on distributable output. In practice it means that employees have their gross income taxed (at source) at 35 percent. Figure 9.1 shows this conceptual division of direct claims on GDP.19 Thus workers who receive 80 percent of their gross income as net income are in fact receiving an income from public funds equal to 15 percent of their before-tax income. Such workers’ true private incomes are 65 percent of gross earnings. All income recipients in reality receive such a mix of privately and publicly sourced income. We are all beneficiaries, as an application of the principle of horizontal equity suggests we should be. Once we account for our public income share using the underlying tax rate, it is easy to see that taxes payable at a 35 percent flat rate conform with the principle of horizontal equity. Further, the concept of a dividend, implies that all benefits of dividend form should also conform with this principle (as private company dividends do). Currently, however, income tax concessions do not conform with this most basic

Public Share, 35%

Private Share, 65%

Economic Cake Figure 9.1

Public–private shares of New Zealand’s income

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218 Basic Income Worldwide Table 9.2 Examples of individual tax-payers with different levels of gross earnings Gross Wage or Salary

Public-Sourced Income

Private-Sourced Income (35% tax rate)

$ pw

$ annual

$ pw

$ annual

%

$ pw

$ annual

100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400 1,500

5,200 10,400 15,600 20,800 26,000 31,200 36,400 41,600 46,800 52,000 57,200 62,400 67,600 72,800 78,000

22.50 45.00 65.35 80.85 106.35 121.85 137.35 152.85 161.35 164.23 167.23 170.23 173.23 174.62 174.62

1,170 2,340 3,398 4,204 5,530 6,336 7,142 7,948 8,390 8,540 8,696 8,852 9,008 9,080 9,080

22.5% 22.5% 21.8% 20.2% 21.3% 20.3% 19.6% 19.1% 17.9% 16.4% 15.2% 14.2% 13.3% 12.5% 11.6%

65.00 130.00 195.00 260.00 325.00 390.00 455.00 520.00 585.00 650.00 715.00 780.00 845.00 910.00 975.00

3,380 6,760 10,140 13,520 16,900 20,280 23,660 27,040 30,420 33,800 37,180 40,560 43,940 47,320 50,700

%

Net Income $ pw

$ annual

%

65.0% 87.50 4,550 87.5% 65.0% 175.00 9,100 87.5% 65.0% 260.35 13,538 86.8% 65.0% 340.85 17,724 85.2% 65.0% 431.35 22,430 86.3% 65.0% 511.85 26,616 85.3% 65.0% 592.35 30,802 84.6% 65.0% 672.85 34,988 84.1% 65.0% 746.35 38,810 82.9% 65.0% 814.23 42,340 81.4% 65.0% 882.23 45,876 80.2% 65.0% 950.23 49,412 79.2% 65.0% 1,018.23 52,948 78.3% 65.0% 1,084.62 56,400 77.5% 65.0% 1,149.62 59,780 76.6%

of principles. They never have, because income taxation from its inception was based on income exemptions; persons could only gain the full benefit of an exemption if their incomes reached the exemption threshold. In New Zealand, only persons earning $70,000 or more receive their full basic-income dividend ($9,080 per year) from the public share of national income. Table 9.2 shows the public-sourced income currently paid as tax concessions to persons earning $78,000 or less (that is, $1,500 per week or less). Shaded table cells indicate those individual income components that conform with horizontal equity principles. (In Table 9.2, social security and other transfer benefits are not considered.) Most persons receiving very low wages currently receive more than $9,080 in total benefits, as shown in Table 9.1 for persons earning zero to $250 per week. Explicit benefits come as transfers (such as unemployment benefit), accommodation supplements, or family and other tax credits. The essence of the fiscal accounting reform proposed is that publicly sourced income shown in Table 9.2 becomes known as, say, a public equity benefit (PEB). In addition, adults receiving transfer benefits would

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have a significant portion of their transfers redefined as public equity payments. Adults currently receiving more than $9,080 from the public revenue pool would have their first $9,080 accounted for as an equity benefit, with only the excess regarded as a transfer benefit (reflecting vertical equity).20 Once such accounting reform is in place, universal basic income could be achieved through a programme, over time, of raising all public equity benefits to the same amount, as shown in Table 9.3. Thus, in the transition period, such equity benefit increases would be implemented in lieu of conventional tax cuts. To implement an immediate, yet fiscally neutral, basic-income reform, a universal public equity benefit of about $8,500 could replace the present $9,080 implicit equity benefit, making all persons earning over $50,000 slightly worse off than at present. It makes no sense to pay large transfer benefits to those on low incomes as compensation for deficient public equity benefits. Company shareholders would not accept lower dividends in the event of their wages being reduced. Likewise citizens should receive the same publicly sourced incomes (with provision for additional transfers to needy households) regardless of the size of their private incomes. Sound, sustainable and equitable benefit reform is achieved by no longer withholding from

Table 9.3 Examples once reform is completed Gross Wage or Salary $ pw

$ annual

0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400 1,500

0 5,200 10,400 15,600 20,800 26,000 31,200 36,400 41,600 46,800 52,000 57,200 62,400 67,600 72,800 78,000

Public-Sourced Income $ pw 174.62 174.62 174.62 174.62 174.62 174.62 174.62 174.62 174.62 174.62 174.62 174.62 174.62 174.62 174.62 174.62

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$ annual

%

Private-Sourced Income (35% tax rate) $ pw

$ annual

%

Net Income $ pw

$ annual

%

9,080 0.00 0 65.0% 174.62 9,080 9,080 174.6% 65.00 3,380 65.0% 239.62 12,460 239.6% 9,080 87.3% 130.00 6,760 65.0% 304.62 15,840 152.3% 9,080 58.2% 195.00 10,140 65.0% 369.62 19,220 123.2% 9,080 43.7% 260.00 13,520 65.0% 434.62 22,600 108.7% 9,080 34.9% 325.00 16,900 65.0% 499.62 25,980 99.9% 9,080 29.1% 390.00 20,280 65.0% 564.62 29,360 94.1% 9,080 24.9% 455.00 23,660 65.0% 629.62 32,740 89.9% 9,080 21.8% 520.00 27,040 65.0% 694.62 36,120 86.8% 9,080 19.4% 585.00 30,420 65.0% 759.62 39,500 84.4% 9,080 17.5% 650.00 33,800 65.0% 824.62 42,880 82.5% 9,080 15.9% 715.00 37,180 65.0% 889.62 46,260 80.9% 9,080 14.6% 780.00 40,560 65.0% 954.62 49,640 79.6% 9,080 13.4% 845.00 43,940 65.0% 1,019.62 53,020 78.4% 9,080 12.5% 910.00 47,320 65.0% 1,084.62 56,400 77.5% 9,080 11.6% 975.00 50,700 65.0% 1,149.62 59,780 76.6%

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220 Basic Income Worldwide

low-income recipients benefits presently paid unconditionally, albeit implicitly, to those receiving high incomes.

9.10 Summary and conclusion New Zealand has a tradition of both universal benefit provision and, more recently, of relatively flat income taxes. These existing structures fit easily with the BIFT approach to taxation and welfare. It would not be a difficult exercise for a New Zealand government to change the way it presents the present tax-benefit interface to make it conform to the equity principles that underpin basic income. In all likelihood, such a representation of the system would be popular, would be seen as fair and would lead to an acceptance of the principle of flat taxes, so long as the flat tax rate adopted is around 35 percent. It could be politically risky for a government to adopt an accounting method that reveals lower-income workers receiving lower equity benefits than do higher-income workers. All that would be required for such a government to alleviate that risk, however, would be to show a commitment to redress (as the economy grows) any inequities revealed by such a new accounting approach. It is this new approach to fiscal accounting that distinguishes basic income flat tax from those BI models that do not treat tax concessions as benefits. New Zealand is well-suited to lead the world in such a reform, because it has a history of universal welfare provision and has comparatively simple income tax scales. New Zealand’s history easily allows for such reform. Change towards an explicit BIFT structure needs to be a pragmatic process. After the neoliberal more-market, more-private reform period of the late 1980s and early 1990s, New Zealanders became deeply suspicious of ideological solutions to over-hyped problems. New Zealand’s tax and welfare systems are not broken, as the 2010 Tax Working Group claimed. Basic income flat tax, in New Zealand, would represent evolutionary rather than revolutionary change.

Notes 1. Atkinson specifies the contrast as “social insurance graduated tax” (SIGT). CBGT is preferred because social insurance represents only a subset of non–BI benefits. 2. “Tax resident” means person who normally resides in a country, and would pay income tax in that country. 3. For Basic Income Flat Tax purists, “Transfer” equals zero. No allowance is made for unequal needs.

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4. At $48,000, a person moves from a rate of 19.5 percent to a rate of 32 percent on additional income. 5. For employees, in 2010–11 two percentage points of this 35 percent tax are flat rate Accident Compensation (ACC) levies (IRD 2010a). The ACC rate was raised to 2.04 percent of salary in 2011, but will fall in 2012. All examples here use the 2.0 percent figure. 6. This specific measure is unlikely to come about, in part because Minister Dunne belongs to a coalition partner of the dominant ruling (National) party. Further, media reaction has been tepid, given that those who stand to gain most from Dunne’s measure belong to higher-earning households. 7. Statistics New Zealand, “National Accounts,” year to March 2010. 8. Exactly $294.08 per week in 2011; http://www.workandincome.govt.nz/ manuals-and-procedures/deskfile/main_benefits_rates/new_zealand_ superannuation_tables.htm. (Last Accessed – April 2009) 9. Robert Muldoon was prime minister and minister of finance 1975–84. Additionally, he was minister of finance 1967–72. 10. Because “Super,” is taxed at a recipient’s marginal tax rate, a married person with over $70,000 of other income actually receives about $10,000 of “Super,” whereas a married person without private income receives about $13,500 net of tax. In 1976, when “Super” was introduced, top marginal tax rates were much higher than they are now. 11. “Crown” is a term for “sovereign” that is used comprehensively in New Zealand’s public accounts, and emphasized significantly after the free market reforms of the 1908s. 12. New Zealand does have a fund – known familiarly as the Cullen Fund (after 1999–2008 Finance Minister Michael Cullen) – intended to supplement payments of New Zealand Superannuation to older New Zealanders in the decades 2020s to 2040s. The fund was designed to be funded from fiscal surpluses. Contributions to the fund were suspended in 2009, in the wake of substantial government budget deficits. 13. Family Benefits, available for all children, doubled in monetary value in 1972, with child tax exemptions being removed (Rankin, 2006, 12). 14. While the lump-sum payments continued New Zealand’s tradition of universal welfare, the earnings-related payments from the Accident Compensation scheme represents the first and only occurrence in New Zealand of a insurance benefit paid on insurance principles. 15. Two recent expressions are that New Zealand can afford neither a “goldplated welfare system” nor things that would be “nice to have” (NZ Herald, 2011). 16. Early in 2010, I contributed a comprehensive set of articles for New Zealand’s Scoop (an on-line newspaper) website. Problems arise however, as the numbers used become out of date with, for example, annual inflation increments to existing benefits. Further income tax scales in New Zealand changed in October 2008, April 2009 and October 2010. I first presented my most recent ideas to an Auckland University Welfare Forum on 10 September 2010. All of this 2009 and 2010 material is accessible on http://pol-econ.com/TAX/.

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17. The economics literature on property rights tends to assume that property rights are inherently private. The standard tax literature treats gross income as before tax, meaning that all income, in its initial distribution, is the property of the private individuals or companies, or governmentowned corporations. 18. “Public funds” means public claims on aggregate product. The aggregate product of a single nation is GDP (gross domestic product). 19. Further indirect public claims on GDP arise from indirect taxation, especially expenditure taxes. 20. The question arises that children might have the same public property rights as adults. This issue is tangential to this discussion, but can be resolved through the allocation of children’s dividends into a collective education fund.

Bibliography Atkinson, AB (1995) Public Economics in Action: The Basic Income/Flat Tax Proposal, Oxford: Clarendon Press Bell, Daniel (1976) “The fiscal household,” in The Cultural Contradictions of Capitalism, New York: Basic Books Brash, Don (2009) “Answering the $64,000 question: closing the income gap with Australia by 2025 first report and recommendations – 2025 Taskforce” NZ Treasury (Last Accessed – May 2010)http://www.2025taskforce.govt.nz /firstreport/ Creedy, John (2003) “Labour supply incentives in alternative tax and transfer schemes,” New Zealand Treasury Working Paper 03/08http://www.treasury.govt. nz/publications/research-policy/wp/2003/03–08/twp03–08.pdf (Last Accessed – May 2010) Danahey, Patrick (2003) Universal Income for a Sustainable Future, Nelson: Universal Income Trust (http://uitrustnz.org) (Last Accessed – May 2010) Dominion-Post (2009) “No pixies printing cash, says Key” 21 Julyhttp://www. stuff.co.nz/dominion-post/news/politics/2611230/No-pixies-printing-cashsays-Key (Last Accessed – April 2012) Gawith, Andrew (2011) “Policy on welfare in need of inspiration” NZ Herald 8 Marchhttp://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid =10710744 (Last Accessed – April 2012) Goldsmith, Michael (1997) “Universal basic income and the concept of citizenship,” Social Policy Journal of New Zealand 9: 45–54http://www.msd.govt.nz/ about-msd-and-our-work/publications-resources/journals-and-magazines/ social-policy-journal/spj09/universal-basic-income-and-the-concept-of-citizenship.html (Last Accessed – May 2010) Goldsmith, Michael (1998) “Universal basic income and its critics: a reply to Preston,” Social Policy Journal of New Zealand 10: 33–35http://www.msd.govt. nz/about-msd-and-our-work/publications-resources/journals-and-magazines/ social-policy-journal/spj10/universal-basic-income-and-its-critics-reply.html (Last Accessed – May 2010) Goldsmith, Paul (2008) We Won, You Lost, Eat That, Auckland: David Ling

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Friedman, Milton (1962) Capitalism and Freedom, Chicago: University of Chicago Press. Henry, K (2009) Australia’s Future Tax System: Report to the Treasurer (“The Henry Report”), Commonwealth of Australia (available at www.taxreview.treasury. gov.au) Hickey, Bernard (2009) “Gareth Morgan proposes comprehensive capital tax, 25% flat tax, replacement of all benefits (Update 3)” interest.co.nzhttp://www. interest.co.nz/news/gareth-morgan-proposes-comprehensive-capital-tax-25flat-tax-replacement-all-benefits/ (Last Accessed – May 2010) Humpage, Louise (2011) “Neo-liberal reform and attitudes towards social citizenship: a review of New Zealand public opinion data 1987–2005,” New Zealand Journal of Social Policy 37, Forthcoming; 1–17http://www.msd.govt. nz/about-msd-and-our-work/publications-resources/journals-and-magazines/ social-policy-journal/spj37/37-neo-liberal-reform-and-attitudes-towardssocial-citizenship.html (Last Accessed – May 2010) Manning, Lowell (2005) “A better way,” Scoop 12 September, http://www.scoop. co.nz/stories/PO0509/S00118.htm (Last Accessed – May 2010) Manning, Lowell (2010) “A guaranteed minimum income for New Zealand,” Sustento Institute http://sustento.org.nz/wp-content/uploads/2007/05 /Guaranteed-Minimum-Income-For-NZ.pdf (Last Accessed – April 2012) Marshall, Alison (1996) “History of basic income politics in New Zealand”http: //ammpol.wordpress.com/ubihist/ (Last Accessed – May 2010) McClure, Margaret (1998) A Civilised Community, Auckland: Auckland University Press McLeod, Robert (2001) Tax Review 2001, New Zealand Treasuryhttp://www. treasury.govt.nz/publications/reviews-consultation/taxreview2001/ (Last Accessed – April 2012 McShane, Owen (1998a) “Fable for our times (with moral),” National Business Review, 31 July McShane, Owen (1998b) “Like rust, neo-fascist economists never sleep,” National Business Review, 31 July McShane, Owen (1998c) “With apologies to Sir Robert Muldoon and his wonderland,” National Business Review, 7 August Mirrlees, J (2010b) “Tax by design” The Mirrlees Review; Conclusions and Recommendations for Reform, United Kingdom, Institute for Fiscal Studieshttp://www.ifs.org.uk/mirrleesreview/pamphlet.pdf (Last Accessed – May 2010) Morgan, Gareth (2009) “Gareth calls for comprehensive capital tax” (1 December)http://www.garethmorgan.com/pages/news/archive.aspx?pid=188 (Last Accessed – May 2010) Morgan, Gareth (2010) “What to watch out for in 2010” New Zealand Listener (30 January) Morgan, Gareth (2011a) “The big kahuna; turning the NZ tax and benefit system on its head” Scoophttp://www.scoop.co.nz/stories/HL1107/S00311/dr-garethmorgan-fresh-ideas-for-a-productive-economy.htm (Last Accessed – April 2012) Morgan, Gareth (2011b) The Big Kahuna, Auckland: Phantom House Publishing

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224 Basic Income Worldwide National Business Review (NBR 2010) “Average tax burden low for NZ – OECD” (NZ Press Association) 12 Mayhttp://www.nbr.co.nz/article/average-taxburden-low-nz-oecd-122928 (Last Accessed – July 2010) New Zealand Department of Statistics (NZOYB 1968,1969,1992) New Zealand Official Yearbook, Wellington: Government Printer New Zealand Herald (NZH 2010a) “NZ earners’ tax burden second-lowest in OECD” 12 Mayhttp://www.nzherald.co.nz/section/story.cfm?objectID=10644470 (Last Accessed – April 2012) New Zealand Herald (NZH 2010b) “Bill aims to let couples split income and cut tax” 16 Augusthttp://www.nzherald.co.nz/section/story.cfm?objectID=10666356 (Last Accessed – April 2012) New Zealand Herald (NZH 2011) “Squeeze on public spending signalled” 30 March 2011; http://www.nzherald.co.nz/politics/news/article.cfm?c_ id=280&objectid=10715798 (Last Accessed – April 2012) New Zealand Inland Revenue Department (IRD 2008a) “Income splitting for families with children” Media Statementhttp://taxpolicy.ird.govt.nz /news/2008–04–27-income-splitting-families-children/ (Last Accessed – May 2010) New Zealand Inland Revenue Department (IRD 2008b) “Income splitting for families with children”http://taxpolicy.ird.govt.nz/publications/2008-ddincome-splitting/overview/ (Last Accessed – May 2010) New Zealand Inland Revenue Department (IRD 2010a) “Income tax rates for individuals”http://www.ird.govt.nz/how-to/taxrates-codes/itaxsalaryandwage-incometaxrates.htmlnzhistory.net.nz “Social Security Act passed” 14 September 1938http://www.nzhistory.net.nz/timeline/14/09 (Last Accessed – April 2012) OECD (2010) Taxing Wages, 11 May 2010http://www.oecd.org/document/34/0,3 343,en_2649_34533_44993442_1_1_1_1,00.html (Last Accessed – April 2012). Orwell, George (1946) Animal Farm, New York: Harcourt, Brace Preston, David (1998) “Universal basic income – a cure or a worse disease?,” Social Policy Journal of New Zealand 10: 28–32 (June)http://www.msd.govt.nz /about-msd-and-our-work/publications-resources/journals-and-magazines /social-policy-journal/spj10/universal-basic-income-cure-or-disease.html (Last Accessed – April 2012) Rankin, Keith (1991) “The universal welfare state; incorporating proposals for a universal basic income”; Policy Discussion Paper No.12, Department of Economics, University of Aucklandhttp://keithrankin.co.nz/kr_uws1991.pdf (Last Accessed – April 2012) Rankin, Keith (1993) “The New Zealand workforce 1950–2000,” New Zealand Journal of Industrial Relations 18(2): 214–35. Rankin, Keith (1996a) “Constructing a social wage and a social dividend from New Zealand’s tax-benefit system,” paper presented to the Basic Income European Network (BIEN) international conference Vienna, Austria; 12–14 Septemberhttp://keithrankin.co.nz/krnkn19960913_ViennaBIEN.pdf (Last Accessed – April 2012) Rankin, Keith (1996b) The standard tax credit and the social wage: existing means to a universal basic income, Policy Discussion Paper No. 20, Department of Economics, University of Auckland.http://keithrankin.co.nz/krnkndisc_ pap.html (Last Accessed – April 2012)

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Rankin, Keith (1997) “A new fiscal contract? constructing a universal basic income and a social wage,” Social Policy Journal of New Zealand 9: 55–65 (November) http://www.msd.govt.nz/about-msd-and-our-work/publicationsresources/journals-and-magazines/social-policy-journal/spj09/constructinga-universal-basic-income-and-social-wage.html (Last Accessed – April 2012) Rankin, Keith (1998) “Rejoinder to David Preston,” Social Policy Journal of New Zealand 10: 36–38 (June)http://www.msd.govt.nz/about-msd-and-our-work /publications-resources/journals-and-magazines/social-policy-journal/spj10 /rejoinder-to-david-preston.html (Last Accessed – April 2012) Rankin, Keith (2006) “New Zealand income tax policy 1973–1982 and its legacy,” New Zealand Journal of Taxation Law and Policy 12(1): 10–18 Rankin, Keith (2007) “An income tax proposal for New Zealand,” New Zealand Journal of Taxation Law and Policy 13(1): 10–19 Rankin, Keith (2010a) “Tax reform in pictures,” Scoop 17 Marchhttp://www. scoop.co.nz/stories/HL1003/S00196.htm (Last Accessed – April 2012) Rankin, Keith (2010b) “Taxes and benefits for families,” Scoop 1 Aprilhttp: //www.scoop.co.nz/stories/HL1004/S00007.htm (Last Accessed – April 2012) Rankin, Keith (2010c) “Changing the way we account for benefits,” Presentation to Welfare Forum Rethinking Welfare for the Twenty-First Centuryhttp://www. cpag.org.nz/topics/childrens-social-health/welfare-for-the-21st-century-1 / (Last Accessed – April 2012) Rankin, K (2010d) “A critique of the deliberations and report of the Victoria university tax working group” New Zealand Journal of Taxation Law and Policy 16(2): 145–52 Rankin, K (2011) “Basic income flat tax and public property rights” New Zealand Association of Economists Conferencehttp://www.nzae.org.nz/conferences/2011 /Papers/Session3/34_Rankin.pdf (Last Accessed – April 2012) Statistics New Zealand (2010) “Information release” Quarterly Employment Survey; http://www.stats.govt.nz/browse_for_stats/income-and-work/employment_and_unemployment/quarterly-employment-survey-info-releases.aspx (Last Accessed – April 2012) Simon, Herbert (2000) “UBI and the flat tax” Boston Review October /Novemberhttp://bostonreview.net/BR25.5/simon.html (Last Accessed – April 2012) St John, Susan and Keith Rankin (2009) “Escaping the welfare mess” Working Paper 267, Economics Department, Business School, University of Auckland (revised version, December)http://pol-econ.com/EWM/EscapingWelfareMessWP267. pdf (Last Accessed – April 2012) The Jobs Letter 41 (1996) 3 July, http://www.jobsletter.org.nz/jbl04100.htm (Last Accessed – April 2012) Tax Working Group (TWG 2010) A Tax System for New Zealand’s Futurehttp: //www.victoria.ac.nz/sacl/cagtr/pdf/tax-report-website.pdf (Last Accessed – April 2012) TV3 Campbell Live (2009) “Gareth Morgan’s radical tax overhaul – video” 1 Decemberhttp://www.3news.co.nz/Gareth-Morgans-radical-tax-overhaul /tabid/367/articleID/132177/cat/67/Default.aspx (Last Accessed – April 2012) United Future NZ Party (2010) “Income sharing: how it would work,” Scoop 16 August http://www.scoop.co.nz/stories/PA1008/S00234/income-sharinghow-it-would-work.htm (Last Accessed – April 2012)

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Vosslamber, Robert (2009) “How much? Taxation on New Zealanders’ Employment Income 1893–1984” New Zealand Journal of Taxation Law and Policy 15(4): 315–21 Vosslamber, Robert (2010) Taxing and Pleasing: The Rhetoric and Reality of Vertical Equity in the Development of the New Zealand Income Tax on Employees, 1891 to 1984, University of Canterbury PhD thesis. Welfare Working Group (WWG 2010) http://ips.ac.nz/WelfareWorkingGroup /Index.html (Last Accessed – April 2012)

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10 Australia: Basic Income – A Distant Horizon John Tomlinson

From the first decade following Federation until the late 1980s, Australia seemed to be moving inexorably towards an increasingly comprehensive and generous welfare state. On occasions, it seemed as if a form of basic income was firmly upon the political agenda of the incumbent government. Many sections of society, such as the aged, are guaranteed their income will not fall below the poverty line. Many people with severe impairments are guaranteed an income. As will be discussed, one group of people with a specific disability is guaranteed a basic income whilst others with severe impediments are not. In recent times, the Productivity Commission has recommended introducing a comprehensive income guarantee for all people with severe disabilities. The issue plaguing the introduction of a universal basic income has been a desire by Australian governments to target benefits to specific categories of people. Such a practice creates problems of administrative simplicity at the edges of such categories and, as a consequence, some people miss out. Until the late 1970s, some groups of lone parents were excluded from federal income support. But it is the intersection of disability and unemployment that has consistently created the most angst. Social scientists have long known that there is little relationship between the extent of people’s assessed levels of impairment and their work histories. Governments, despite proclaiming they are introducing evidence-based policies, exhibit attitudes more in tune with fourteenthcentury knowledge (Handler, 2002). In 2011, the prime minister indicated that she wanted everyone (including lone parents and people with disabilities) “earning or learning . . . for the simple dignity that work brings” (Four Corners, 2011). Peter Butterworth from the Centre for Mental Health Research at the Australian National University has been following 7,000 Australians for a period of seven years. He found 227

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that “moving from unemployment to a low quality job was associated with a significant decline in mental health” and that moving into a low quality job did not increase the “likelihood of getting a higher quality job over someone who was unemployed” (PM, 2011). Governmental desire to target income support and other impediments to the introduction of a universal basic income will be discussed below. Since the 1970s, Australian academics, government ministers, social welfare practitioners, welfare lobby groups and political activists have frequently discussed universal income guarantees and alternative income support arrangements. The Basic Income Guarantee Australia website has collected many of these universal income support proposals. It seemed like an idea whose time had come. The government seemed generally supportive. However, the dismissal of the Whitlam Government in 1975 removed the impetus for change. The first Australian Commonwealth social security legislation dealing with age and invalid pensions was passed in 1908. Prior to that, the various state administrations handled welfare related issues. By 1947, when all social security payments were consolidated into one piece of legislation, the Commonwealth was paying unemployment and sickness benefits, age, widow, invalid and blind pensions, child endowment and other allowances. Australian ministers of social welfare since the 1950s have claimed to assist those experiencing “the greatest need.” Often they have also claimed to assist “all in need.” Running in parallel with calculations of need were deliberations about “desert” or reward. People had to be considered to be of “good character” in order to receive government assistance. In 1973, however, the requirement that recipients of social security had to be of “good moral character” was removed from the legislation. In Australia, income support is provided via tax credits or through the social security system. Those who have such support include the old, people with severe health problems, the blind, lone parents who have children in their custody, working families with children, ex-service personnel with disabilities, orphans, unemployed people with prior work experience and the temporarily incapacitated. The level of income support for beneficiaries is below the poverty line. Young people who are students or unemployed are paid as little as 40 percent of the poverty line. Age pensioners receive 25 percent of the average wage, which equates with the current poverty line. In addition, the existence of minimum wage legislation and widespread privatized superannuation leads to an impression that most Australians are assured of some form of income in the event of old

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age, incapacity or misfortune. Many permanent residents, however, are refused any form of income support because of their length of residence, age, locality, race or the financial well-being of their partner. It was not until the 1960s that Aboriginal people living in towns were paid income support. In rural and remote areas, even in the mid-1970s, Aboriginal people were seldom paid social security. Many social security payments require migrants to have lived in Australia for a number of years before they are eligible. Many young unemployed people find they are denied social security based on one ruse or other. The tax credit payments made to families with children are paid in inverse proportion to other family income. Nearly all social security payments are means- and/or asset-tested. There is one exception. The blind pension is, without a means or asset test, paid to all “legally blind” permanent residents who meet the resident requirement (Jordan, 1984; Mays, forthcoming).

10.1 The poverty inquiry and its aftermath A reformist Labor Party came to power in 1972 after 23 years of unbroken conservative rule. It was an exciting time for social policy advocates. Many government inquiries were established or expanded and there was a sense of change in the air. Reports of the various inquiries criticized the social welfare approach to income maintenance existing at the time. The earliest detailed blueprint for a guaranteed minimum income in Australia was provided by Professor Ronald Henderson in 1975 (Henderson, 1975, vol. 1, Chapter 6 and vol. 2, appendix 6). He wanted to provide all Australians with an income guarantee in order to reduce the emphasis on categories of assistance, provide an easily understandable retention rate on earned income, treat those with regular and those with fluctuating incomes equitably and lighten the administrative burden on both the taxation and social security departments. The amount of disposable income received by a family or an individual was to be determined by the formula: Disposable income = guaranteed minimum + private income × income retention rate. Henderson proposed dividing the population between those who qualified for a pension or benefit, whom he called the “categorical population,” and those who had not established that they were eligible for

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social security, whom he termed “non-categorical.” He subsequently envisaged extending the categorical population to include all people likely to be “at risk of poverty.” Henderson foreshadowed the possibility of paying unemployment and sickness beneficiaries less than what was paid to age, invalid or widow pensioners and establishing an intermediate rate between the categorical and the non-categorical rate for people who were partially incapacitated. He argued that it might be necessary to pay farmers and self-employed people a lesser rate than the non-categorical rate. Apart from individuals living alone, the family would be the unit of income. However, he did consider that older children might subsequently be paid in their own right. The Henderson income guarantee was designed as a social right – a flat rate, non-contributory demogrant. In political terms, the essential strength of Henderson’s income guarantee proposals is that they grew out of and retained the essence of the existing social welfare system. They were in every sense a reform of that system. His suggestions for a guaranteed minimum income would make the income maintenance system more humane, less categorical and more comprehensive. Apart from the failure to tackle poverty in a systematic manner, the basic weakness in the proposals was that they failed to come to terms with the need to dismantle the existing system and restructure it in a way which would have facilitated the complete integration of the income maintenance and taxation systems. (Tomlinson, 1989, 146) Dividing the population into “categorical” and “non-categorical” groups and paying the “categorical” group at the poverty line, but only paying the latter group between 50 and 71 percent of that line does little to decrease the “non-categorical” groups’ desire to become “categorical”. Nor does it ensure that those who are not classed as “categorical” can avoid poverty. Henderson’s desire to extend the coverage of the “categorical” population stopped far short of including wives or husbands whose spouse (or children whose parents) inadequately support them. Henderson, whilst recognizing that intra-family transfers are often insufficient, offered no alternative. Also in 1975, a group of senior Commonwealth bureaucrats (who called themselves the Priority Review Staff) published a plan to introduce a negative income tax, or tax credit, scheme. They too divided the population between those whom Henderson had termed “categorical” and “non-categorical”. The “categorical” population would be paid at

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100 percent of the poverty line (non-working), the “non-categorical” population would be paid at 55 percent of the poverty line (working). The Priorities Review Staff also adopted the family as the unit of payment. The intention of both the Henderson Poverty Inquiry and the Priority Review Staff proposals was to rationalize the existing categorical social security system while also integrating the tax and social security systems. They also intended to find a way of assisting those less affluent Australians who received little or no help from government because they were unable to fit into the existing social security eligibility categories. Whilst Henderson was intent on retaining and expanding ancillary welfare services, the Priority Review Staff – like Milton Friedman (1982), the best-known proponent of negative income tax – wanted to streamline welfare and abolish many ancillary services. Much the same criticism (made of the Poverty Inquiry’s proposals above) applies to the Priority Review Staff Report. Both Henderson and the Priority Review Staff decided that adopting the individual as the unit of income for their suggested income guarantees would result in a greater drain on the budget. Neither seriously looked at the bureaucratic costs or the resulting inequities which result from adopting the family as the unit of income. In 1974, the Woodhouse Inquiry had recommended a no-fault comprehensive income support system to assist those who were sick, injured or who had severe impairments. A similar scheme currently operates successfully in New Zealand. In February 2011, the Australian Productivity Commission recommended the introduction of a National Disability Insurance Agency to ensure that all permanent residents with significant disabilities would receive appropriate services. In addition they recommended the establishment of a no-fault National Injury Insurance Scheme to cover all who experienced “catastrophic injuries.” The Commission argued it was necessary to create the National Disability Insurance Agency and a no-fault National Injury Insurance Scheme because: The current disability support “system” is inequitable, underfunded, fragmented and inefficient and gives people with a disability little choice. It provides no certainty that people will be able to access appropriate supports. ... Inadequate services can hit certain communities particularly hard – such as people in rural and remote areas, people from a non-English speaking background and Indigenous people. (5) . . . People with similar levels of functionality get access

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to quite different levels of support, depending on their location, timing, or the origin of the disability. (6) In the year following the First Main Report, the Hancock Inquiry recommended comprehensive social insurance superannuation akin to European schemes. The Hancock superannuation recommendation was designed to replace the age pension and other forms of statefunded income support for older citizens. Neither the Woodhouse nor Hancock proposal was implemented. This is unfortunate because had the Woodhouse proposal been adopted many people with disabling conditions and others who had less severe impairments would have secured financial assistance; as it is, many people with incapacities fail to obtain support because they do not fit the eligibility categories. Three decades on, most of inequities identified by the Woodhouse Inquiry and experienced by those who encounter serious illnesses or accidents still remain (Mays, forthcoming; Tomlinson, 2003, Chapter 7). Had Hancock’s proposals been accepted, then many of the inequities caused by Australia’s privatized superannuation schemes could have been avoided (Hughes, 2008).

10.2 The governmental income support policies – late 1970s to mid-1990s Following the dismissal of the Edward Gough Whitlam (Labor) Government in 1975, a conservative coalition government led by Malcolm Fraser, was elected and remained in power until 1983. Unemployed people in particular found life harder under this coalition government. The Whitlam Government had ended the system whereby married women with children, who had separated or whose partner had died, could in many circumstances claim a widow’s pension; but non-married mothers had to depend on state government family assistance. Labor had introduced a supporting mothers benefit for mothers who were not married that was slightly less generous than the widows pension. The Fraser Government extended this benefit to lone fathers. Whereas the Whitlam Government had set up inquiries and given the inquiry heads substantial independence, the Hawke (Labor) Government, 1983–91, maintained a tighter managerial role in the social inquiries it set up. A classic example was the Cass inquiry into social security. Professor Bettina Cass was provided with Department of Social Security staff for her inquiry. She often worked from departmental

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offices and reported not to the parliament but to the minister. It is reasonable to conclude that her published reports did not contain ideas that the minister considered objectionable. The minister at the time, Brian Howe, was preoccupied with what he termed the propensity of welfare recipients to become “dependent” on welfare payments and, consequently, lose interest in finding work. When Cass looked at unemployment (1988) she recommended extending the activities which people were required to undertake in order to receive an unemployment benefit. She termed her system an active employment model. It was not unlike the participation income model suggested, in 1996, by Professor Anthony Atkinson. By 1994, unemployment had become a significant political problem. The then Labor prime minister, Paul Keating, set out his solutions in a monograph entitled Working Nation. It involved guaranteeing work to people who had experienced 18 months of continuing joblessness. In addition, the Commonwealth increased the requirements that people who were unemployed were expected to meet before they would be paid an unemployment benefit. Keating termed such an arrangement a “reciprocal obligation”.

10.3 From “mutual obligation” to the intervention In 2000, a review committee on income support, established by the Howard (Conservative) Government, dutifully reported to the government that there was a need to insist that social security recipients meet their obligations to work, study or engage in other “activation” activities (McClure, 2000). Claus Offe (2008, 10) argues that the enthusiasm for the euphemism of “activation” results in categorizations – caring for, managing, controlling, treatment, supervision and frequent stigmatization of recipients – which in turn “reduces them to the passive status of sheltered, paternalistically regulated objects” who are denied meaningful choice in their lives. Furthermore, a 2003 report entitled Much Obliged, commissioned by the Brotherhood of St Laurence and the St Vincent de Paul Society, asserted that people who became long-term unemployed have so much of their time taken up just meeting the obligations imposed on them by the government that they do not have time to find work. The report further concludes the “mutual obligation” regime was “failing the most disadvantaged job seekers. Overall the system operates ... not as ‘welfare to work’ but ‘welfare as work’” (Ziguras, Dufty and Considine 2003, 43).

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The Howard Government’s assault on welfare provision depended on selecting target populations, which it held up to critical scrutiny. On coming to office, it coerced young unemployed people into “work for the dole” and compulsory literacy programmes. It became common to hear ministers say that welfare efforts should be directed at those who are “genuine”. The government’s social policy sought to define “the genuine” (as in the sense of “the genuinely needy” or those who were “genuinely looking for work” or “those who had a genuine disability”) more narrowly. This process developed a momentum such that “the genuine” appeared to be an endangered species facing imminent extinction. It started with young people excluded from the labour market. It enveloped lone parents and Aborigines and within a decade of coming to office, the Howard Government was targeting people with disabilities. The Howard Government’s Emergency Response, in June 2007, in relation to 73 Aboriginal communities in the Northern Territory, is particularly noteworthy. The government claimed to be acting to protect Aboriginal children from sexual exploitation and neglect. Five hundred pages of legislation were rushed through the House of Representatives with the support of the Labor Party on the afternoon it was tabled (Altman and Hinkson, 2007, 2). The legislation supporting the Northern Territory Intervention allowed the government to quarantine half the social security payment to each Aboriginal person by placing them on a Basics Card, which could only be used to buy food, clothing and to pay for rent and electricity. Widespread alcohol restrictions were imposed. It allowed the suspension of the Racial Discrimination Act. Police were given new powers on Aboriginal communities, even entitling them to enter and search private houses as if they were operating in a public place. It threatened to withhold social security payments from parents whose children did not attend school. Lease conditions were imposed which meant that the government could compulsorily acquire Aboriginal land and even subsequently exclude traditional owners from the land it had acquired (Altman and Hinkson, 2007).

10.4 Economic stimulation, but business as usual on the welfare front The worldwide recession presented the government with a challenge. The Howard Government had left no Federal government debt. China kept buying coal, gas and metals, and Labor, elected to office

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in 2007, was determined to engage in stimulus spending which kept Australia from experiencing a technical recession and maintained employment at reasonable levels. The financial sector was provided with government-backed guarantees, and it weathered the fiscal storm. Bank accounts of up to AUS$1 million were guaranteed by the government. The Labor leader, Kevin Rudd, had promised during the election that he would continue the Northern Territory Intervention for a further 12 months. It was generally assumed by progressive voters that after a year, Labor would get on with implementing decent child welfare, housing, employment, community development and self- determination policies in Indigenous communities. After a year, Indigenous leader Peter Yu was appointed to head a review of the intervention. The review recommended winding back the hardline aspects of the intervention, particularly ending the compulsory income management system and only quarantining welfare payments of those parents who actually neglected their children. It recommended the reinstatement of the Racial Discrimination Act and the payment of compensation to those communities whose land had been compulsorily acquired. The Rudd Government said it intended persevering with the intervention for at least another year. In August 2009, the UN’s Special Rapporteur on Human Rights, James Anaya, found that the measures of the NT Intervention overtly discriminate against Aboriginal peoples, infringe their right of self-determination and stigmatise already stigmatised communities and that the emergency response is incompatible with Australia’s obligations under the Convention on the Elimination of all Forms of Racial Discrimination and the International Covenant of Civil and Political Rights; treaties to which Australia is a party. (Hawley, 2009) Anaya’s report pointed out that all community members, whether or not they had children, or problems managing income in the past, were forced to accept the income management of their social security (2010, 5). In February 2010, Alistair Nicholson, the former chief justice of the Family Court of Australia, condemned the Labor Government’s plan to extend the quarantining of half of welfare payments beyond the Northern Territory to other areas of disadvantage. While the Rudd Government and Howard Coalition Government may well have acted in a racially discriminatory fashion, they were

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not cheapskates. It costs $3,000 per Aboriginal person per year to have government officials “income manage” welfare payments of around $10,000 per annum (cited in Behrendt and McCausland, 2008, 17). If the government had money to spare, then raising the social security payment by 30 percent would have substantially boosted the economy in Indigenous communities and conceivably would have allowed Aboriginal Territorians to take greater control of their lives. It may have gone some way to compensate Aboriginal residents of remote communities for the much higher cost of living there.

10.5 Private superannuation In the 1930s and early 1940s, some conservative politicians attempted to introduce private superannuation schemes subsidized by government. Labor opposed the idea, arguing that such schemes would undermine age and invalid pension schemes. As noted, in 1976 the Hancock Inquiry recommended introducing a comprehensive government-backed social insurance superannuation scheme as a replacement for age pensions. The conservative Fraser Government, strongly supported by the private insurance industry, declined to implement it. It was the Robert Hawke Labor government, with Keating as treasurer, which, with considerable union support, opted to introduce compulsory superannuation. The Australian scheme is a private superannuation model, divided between the trade union based “industry” funds, private insurance company funds and government workers’ retirement funds. The compulsory contributions paid by employers ensure that the occupational funds accumulate considerable money, but they disproportionately reward those on the highest incomes. Some employers and other well-off people voluntarily pay into private insurance or bank-based superannuation funds. The income taxes forgone by governments on superannuation contributions invariably provide the greatest advantage to those who have the largest investment in superannuation. Many rich people obtain more from the government, in foregone tax on their superannuation investment, than age pensioners get from social security. In 1991, the Australian Capital Territory Council of Social Service (ACTCOSS) produced a monograph, The Super Tax Rort (scam), in which it pointed out that whilst those in secure full-time work would generally benefit from privatized superannuation, there were many losers: namely, low-paid employees, casual seasonal and itinerant workers,

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people in poorly unionized sectors of the workforce, those nearing retirement who would not have been able to contribute to superannuation schemes for any length of time, women who leave employment to care for family members or to have children, people with disabilities and older migrants who had not been long in Australia. One group likely to gain little from privatized superannuation are Aboriginal people living in rural and remote Australia. From 1977 until 2010, about half the Aboriginal adults of working age living in these regions were engaged in a scheme called the Community Development Employment Program (CDEP). This involved their working on projects that their communities decided were necessary. It could involve working in the health clinic, collecting garbage, driving the school bus, building houses, working with cattle, making artefacts or being wildlife rangers. Many of the jobs were for a couple of days a week; the positions were seldom full-time. Even if workers were working a five-day week, they were not entitled to superannuation from their employer. Their local CDEP organization received the bulk of its funds from the Commonwealth Government. That is, the Commonwealth Government was ultimately their employer. This same government, which insisted all other employers contribute to their employees’ superannuation funds, failed to ensure that CDEP workers were provided with superannuation contributions. The irony is that even if Aboriginal people living in rural and remote parts of Australia had had superannuation contributions made on their behalf, few of them would have been able to gain much benefit. Aboriginal people in those areas die, on average, 17 to 20 years younger than other Australians. In these regions approximately “three-quarters of Indigenous males and two-thirds of Indigenous females die before the age of 65 years compared with the Australian population as a whole where one-quarter of males and one-sixth of females deaths occur before that age” (Madden and Trewin, 2003, 183). Although these statistics are some years old, there has been little if any improvement in Aboriginal health in rural and remote Australia in the last decade, and some researchers have suggested the situation is worsening. Whilst the Fraser Coalition Government tightened the eligibility for unemployment benefit, it commissioned a report which suggested that Aborigines living on their traditional lands be provided with a sustainable minimum income paid from mining royalties (Turnbull, 1980). Unfortunately, governments persevered with the Community Development Employment Program from 1977 until 2010.

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10.6 Division and downward envy The main ideological underpinning of “work for the dole” or other “participation income” schemes is a belief that unemployed people need to be coerced to work. The idea that many people who receive a disability support pension exaggerate their impairments or are straight-out “malingerers” has been around at least since the 1348 Statute of Labourers injunction forbidding assistance to “sturdy beggars” (Handler, 2002, 56, n. 217). The Howard Government was able to convince a substantial proportion of low-waged workers that many welfare recipients were defrauding the system and that the money they received caused the tax rates paid by low-income employees to remain unnecessarily high. The Australian categorical means-tested income maintenance system divides one category of recipients against another. It atomizes social solidarity, and the idea of “a community of recipients” evaporates in its wake. Unemployed people are paid at a different level from age pensioners, young beneficiaries are paid at lower rates than older beneficiaries. If the working class and social welfare recipients are to build social solidarity and renounce downward envy, then they will need to let go of the ideological constraints which Australian governments and vested interest groups have used in the past to weaken social bonds between disparate groups of permanent residents. Indigenous Australians can no longer be consigned to the fringes of white society, nor various ethnic groups to particular suburbs. The population as a whole has to find a place at the table for sole parents and their children, those who are unemployed, homeless or who suffer impairments. The bureaucratically sophisticated easily manoeuvre their way around Commonwealth requirements and are paid their benefits. Those who are poorly educated, people with severe mental health or addiction difficulties and those who are less bureaucratically sophisticated (even though they are often suffering greater financial hardship) are frequently suspended for eight weeks or have their payments indefinitely withheld. Often there are considerable similarities between people who have a combination of a partial physical impairment, a minor mental health or personality problem and a recent poor work history. Yet the type of benefit they are paid can vary widely depending on who they see and how they are assessed. They could be: ●

rejected on the grounds they have not met their participation requirements,

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considered as not capable of working 15 hours a week and provided with a disability support pension, found to have a temporary illness and placed on sickness benefit, paid an unemployment benefit, and if they have just had their 65th birthday, they could be paid an age pension.

The disability lobby often finds itself caught in the cleft stick of need and reward. When governments attack unemployed people and some disability support pensioners for not looking hard enough for work, disability activists, instead of building a united front with welfare activists, tend to argue that those with a disability are in greater need of the income support than are able-bodied unemployed workers. Lone parent organizations often plead their special needs over other groups. In 2010, the Liberal opposition leader, Tony Abbott, announced plans to make it compulsory for all people under 50 years of age who are unemployed for 3 months to “work for the dole”. The Gillard Labor minority government insists that, from 2012, one third of all disability support pensioners will take annual medical check-ups and be interviewed by departmental officers twice a year “to encourage them into employment.” One hundred years of Commonwealth means-tested and targeted social security payments have not resulted in a system capable of paying “all the poor and only the poor”; nor has it been able to ensure that no one is left without the means to survive. Commonwealth participation income and tax credits have not resulted in equitable or even equal treatment of all permanent residents. Even if it were fair to insist that fully fit unemployed people meet certain participation requirements before they are paid an unemployment benefit, there is no equity in insisting that someone who is only considered capable of working 15 hours a week meets identical participation requirements. It is nonsense to suggest that the inordinate complexity, invasion of privacy and stigma-inducing practices of the Australian social welfare system have resulted in a fair distribution of payments in line with need. It is not possible to know if what occurs is equitable or reasonable. Nevertheless, we do know that the Australian social welfare system does not treat all applicants for assistance equally or equitably. Because the Australian social security system uses the family as the unit of income, even if a person meets all the requirements for payment of a benefit or pension but is living with a partner, the partner’s income and assets will determine whether the person actually receives any

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payment. Given such disparity in possible outcomes for applicants, there is no way that Australian governments can claim they are capable of eradicating poverty whilst they persevere with the existing system of income maintenance.

10.7 Basic income as an alternative to the existing income maintenance system Fully elaborated guaranteed minimum income schemes (Henderson, 1975) and negative income tax proposals (Priorities Review Staff, 1975) were suggested 35 years ago. Alan McDonald (1995) proposed a detailed blueprint for an Australian basic income a decade and a half ago. Various reforms to Australia’s income support system continue to be advanced by academics, government agencies and the welfare and disability lobbyists. Paul Spicker (2007) notes that many of the Northern European welfare systems which deal most effectively with poverty are social protection systems rather than poverty alleviation schemes, and he asserted that “If a system is based on support for everyone, poor people will also be helped. If it supports only the poor, some are likely to be excluded (136).” Robert Goodin and Julian Le Grand came to a similar conclusion in 1987, as have many others in the intervening years. A basic income makes an equal payment to all permanent residents without regard to reward. Such schemes, because they are universal and entail no conditionality apart from establishing residency, are unlike participation income schemes and many targeted social welfare programmes in that they avoid the problem of having to define standards of eligibility tightly (De Wispelaere and Stirton, 2008, 5). Is a basic income capable of treating all applicants for assistance equitably? The answer is of course “No”. However, it is capable of treating everybody equally. A basic income, provided it was paid (using the individual as the unit of income) at a rate above the poverty line, would abolish poverty. Governments would be in a position to know how much income support they are paying to each and every permanent resident and would be far better placed than they are now to work out what extra goods and services are required in order to promote equity and social justice throughout the land. In 2006, I wrote that a universal basic income has many advantages when compared with the existing Australian residual, means-tested, categorical system of income support. The main gains which would

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flow from changing to a universal income support system can be grouped into five major themes. A basic income would: ● ● ● ● ●

be economically sustainable, be easy to administer, be ethically sound, be non-discriminatory, and enhance citizenship.

A basic income provides a foundation stone on which to build an advanced civilization precisely because it legitimizes both the gift of giving and the joy of receiving. It embodies a sense of social solidarity through engaging in a form of mutuality that goes beyond tit for tat reciprocity. It provides a minimum income floor beyond which no one can fall, but has no ceiling that prevents people rising (Rhys-Williams, 1943, 163; Milner, 1920, 117). Basic income brings an inclusive citizenship: the duty that each of us owes to all and the equally pressing duty that all of us owe to each. Henning Melber (2009, 18) writes that a basic income seeks to restore human dignity and (self-)respect through a modest but nonetheless enabling financial transfer which allows recipients to become active and to make spending options they otherwise would not have. In that sense, it also fosters ownership over matters and creates an identity of belonging and citizenship as opposed to isolated destitution. ... [It] allows the marginalized to make use of opportunities to actively participate in the society. A basic income would ensure that people have access to money when they are in financial need. It does not interfere with incentives to increase income, and it encourages self-help. It inculcates in the young, and reminds the middle-aged and the old, of the need to ensure that no one goes to bed hungry, and encourages inter-generational transfers by underlining the importance of social solidarity. It stigmatizes no one because it treats all permanent residents equally. It converts the meaningless phrases of “increasing social capital” or “ensuring social insertion /inclusion” into a substantial process by encouraging sharing whilst allowing an equal taking from society’s income pool. It is a universal programme, and because it does all these things, it enhances the quality of community life.

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On the other hand, the existing Australian social security system is categorical, means-tested, and hedged around with contractual obligations (such as the requirement to apply for ten jobs a fortnight and ensure one’s children attend school). The Commonwealth Government has been running one such school-attendance study involving 6,600 parents and 5,000 children in Aboriginal communities in Queensland and the Northern Territory and in some low-income suburban areas. Though it threatened all families that their income support payments would be suspended for poor school attendance, in the first year it only suspended 95 families’ payments, and all of those have been restored (Harrison, 2011, 16). L. Behrendt and R. McCausland (2008) studied the withholding of social welfare payments from parents whose children did not attend school. They noted that Coalition and Labor governments had been attracted to such policies (4), but found no evidence within Australia or overseas to suggest that such a policy on its own increased school attendance (18–26). If a government wished to increase school attendance, it might look at a basic income experiment recently carried out in the Otjivero-Omitara area of Namibia (See Chapter 2 in this volume). A basic income monthly grant of $100 (Namibian) was provided to every person under the age of 60 who had lived in the area for a year. No conditionality was attached to receiving the money. Within one year of receiving the grant: ● ● ●

●

school attendance and visits to the health clinic rose dramatically, crime, poverty and child malnutrition all decreased, the rate of those (above the age of 15 years) engaged in incomegenerating activities increased from 44 to 55 percent of the population, and household debt had dropped significantly while household savings had risen (Haarmann, C., Haarmann, D., Jauch, Shindondola-Mote, Nattrass, van Niekerk and Samson, 2009; Executive Summary, 13–17).

10.8

What would an Australian basic income look like?

Milton Friedman, who wanted to introduce a negative income tax (because he claimed that “it would assist the poor and only the poor,” and that once such a tax was implemented it would allow much of the welfare assistance machinery to be dismantled), was of the view that: Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are

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lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable. (Friedman and Friedman, 1982, ix) So far Australian governments have not perceived there is a crisis. Many poor people who go to sleep in cold houses, on the streets or in cars in back alleyways worrying about their children’s hunger or lack of shelter, understand there is a real crisis in their lives. Aboriginal people whose relatives die too young realize there is a crisis. A million people’s personal crises are a national crisis even if governments refuse to recognize it as such. The most likely form of basic income I envisage being introduced in Australia would be paid to each permanent resident, irrespective of whether they were employed or not, regardless of their ethnic background or marital status. It would be paid to individuals whether they lived alone or with others, there would be identical payments made to city and country dwellers and receipt would not impose any social obligation upon the recipient. The basic income would take no account of a person’s income or assets. It would be a payment that neither governments nor commercial enterprises could garnish. Income tax would be paid on each and every other dollar earned or received from investments. The basic income would be paid to every permanent resident at a rate slightly above the single age pension rate. An amount of AUS$500 per annum above the age pension rate would be needed to cash out the tax deductibility concession currently provided to age pensioners who have additional income, if they are not to be disadvantaged in the transition to a basic income. A basic income at this level would ensure that no current social security pensioner or beneficiary would be disadvantaged by the shift to a basic income whilst most social security recipients and low-income earners up to the average full-time male wage would be financially better off. Two-thirds of Australian workers earn less than the average wage. It is true that people with disabilities often have far greater mobility costs than do able-bodied people, and people who are ill often have to spend a lot on pharmaceuticals. These extra costs need to be supplied by means of disability and health programmes supplementing a basic income. It costs widows, young unemployed people, disability support pensioners and age pensioners much the same to buy food and pay rent. They have similar living costs and so should receive identical basic income payments. In the short term, until subsidies on childcare and

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education are adjusted, the basic income for children under the age of 16 years (living in the family home) might need to be paid at half the adult rate.

10.9 Is a basic income affordable? Australia is an affluent country, which could easily afford to introduce a basic income paid to every permanent resident at a rate slightly above the age pension for single pensioners. Australia exports huge amounts of natural gas, coal, iron ore, alumina, wheat and other farm products, and if it is incapable of providing a basic income at the rate of 25 percent of the average wage to all permanent residents then there is something drastically wrong with the system of income distribution. In 2010, the Reserve Bank estimated that the mining boom was likely to continue for at least 15 to 20 years. In 2010, the Henry Review recommended substantially increasing the tax paid by large mining companies and making superannuation more equitable. The government put the superannuation recommendation in the too-hard basket. Prime Minister Rudd unsuccessfully attempted to impose higher taxes on miners. He was replaced by his deputy, Julia Gillard, who settled for only modest resource tax increases. In the five years leading up to the 2009 worldwide recession, Australia repaid its federal government debt. Even taking into account the recent stimulus spending, it is in a comfortable debt position when compared with other developed nations. Australia could easily afford to provide a universal basic income paid to each permanent resident at slightly above 25 percent of average weekly male earnings (approximately the current age pension level). The extra money needed could be obtained by imposing or increasing resource taxes, carbon taxes, a Tobin tax1 on financial dealings or consumption and excise taxes. It would be a wise equity measure to initiate a wealth tax on all wealth, including any equity in the family home, and on private superannuation. If superannuation were to be excluded from such a wealth tax then all existing tax advantages accruing to superannuation should be abolished. In Australia over AUS$25 billion is provided to business by the federal government annually. Once a universal basic income was in place there would be far less need to bribe industry to create jobs, and several billion dollars could then be retained in the government’s coffers. This could be used to help pay for the basic income (Standing, 2009, 303–05).

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10.10 Conclusion – is a universal basic income likely to be introduced in Australia? From 1908 until the late 1980s, the Australian social security system gradually became more generous and comprehensive. Older permanent residents who had lived here for at least ten years were guaranteed an income, lone parents with children were assured of income support and those who were considered permanently incapacitated were provided with an income guarantee. If the person was “legally blind” they were guaranteed a basic income. Orphans were provided with an income guarantee. Those who were temporarily sick were granted income support for the duration of their illness. Unemployed people who met set obligations were also granted a benefit. There also existed a “special benefit” paid at the rate of the unemployment benefit to those permanent residents who did not meet the residency or other requirements necessary to obtain the standard social security pension or benefit. This special benefit operated much like the minimum income schemes in France and other parts of Europe. In recent years, the use of the special benefit has been drastically curtailed. The main obstacles to the introduction of a universal basic income in 2010 would seem to fall into two categories: self-interest and ideological preconceptions. An initial privileged position does not guarantee long-term privilege, as many lone parents and disability support pensioners have painfully learned in the last decade. Low-paid workers need to discover what they have in common with social security recipients and concentrate on commonalities rather than the things that divide them. Once they accept that inordinate superannuation tax concessions provided to higher paid workers is a more obvious cause of higher income tax rates than the provision of a poverty-line benefit to those without other income, this might help cement working class solidarity. Workers and social security recipients will need to jettison ideological preconceptions about “bludgers”, “malingerers,” the need to compel welfare recipients to meet obligations, racist ideas about the descendents of the original owners of this country and often equally racist ideas about recently arrived migrants and refugees. They will need to re-examine patriarchal ideas about retaining the family as the unit of income as the best way of maintaining the family as a social support system. When one looks at the current social security system in Australia in terms of the potential for generalized income guarantees, there is

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much to be optimistic about. Since the mid-1980s governments of both persuasions have significantly increased the family tax credit system whilst simultaneously tightening the eligibility requirements on the benefit and pension systems. It has not been a one-way street. The 2010 Henry Review into taxation suggested cutting back on the windfall gains which some rich people receive from the foregone tax on superannuation and increasing the benefits derived by lower income earners. In February 2011, the Australian Productivity Commission recommended establishing a no-fault National Injury Insurance Scheme and an agency to ensure that all permanent residents with significant disabilities would receive appropriate services. In mid-2011, the Gillard Government announced support in principle for such a scheme. If these recommendations are implemented, then, when taken together with the blind pension and the disability support pension, this will ensure that all permanent residents, who can establish they have a significant disability, will be guaranteed an income above the poverty line. Older residents and lone parents with children have a similar guarantee now. It would not require much movement in the national accounts to extend the existing system of income support from its present income guarantees for substantial sections of the population to one which provided a universal basic income to every permanent resident. In Brazil, there are moves afoot to extend their family assistance programme from serving the poorest to include most of the population. There, the slogan is “For everybody – the poor first.” The biggest obstacle currently to such a move in Australia is the desire on the part of both the labour and conservative sides of the parliament to retain the right to impose conditionality, obligations and sanctions upon some of the poorest citizens. Some working class organizations also consider that such requirements discipline the unemployed and stop welfare fraud. Essentially, a better-informed “self-interest” would allow workers to see the many advantages they would obtain once a universal basic income was in place. They will come to see that by providing income security for all it is possible to build a better society and move in the direction of even greater equity without the conflict, which such efforts sometimes evoke. The self-interest of the better off and the privatized superannuation industry constitute a formidable but not insurmountable obstacle. It will be the job of up-and-coming basic income advocates to point out the inherent unfairness of the present income support and taxation systems which disproportionately advantage an affluent minority

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while, at the same time, are incapable of assisting all permanent residents who are in severe financial need.

Notes I wish to thank Penny Harrington for her continuing encouragement and editorial advice. 1. The Tobin Tax is a form of international currency transaction tax developed by Nobel Prize winning Economist James Tobin. For a concise overview, please refer to Sandbu, Martin; “The Tobin Tax Explained”, Financial Times, September 28, 2011 http://www.ft.com/cms/s/0/6210e49c-9307-11de-b14600144feabdc0.html#axzz1t47JEIwC.

Bibliography ACTCOSS. (1991) The Super Tax Rort. (Canberra: ACT Council of Social Services). Altman, Jon C. and Melinda Hinkson. (2007) Coercive Reconciliation: Stabilise, Normalise, Exit Aboriginal Australia. North Carlton, Australia: Arena Publications Association. Anaya, J. (2010) “Observations on the Northern Territory Emergency Response in Australia: UN Special Rapporteur.” Indigenous Peoples Issues and Resources. United Nations, February 2010. Web.