Financing Basic Income: A Dual Income Proposal (Exploring the Basic Income Guarantee) [2 ed.] 3031290119, 9783031290114

Citation preview

Financing Basic Income A Dual Income Proposal Second Edition

Edited by Richard Pereira

Exploring the Basic Income Guarantee

Series Editor Karl Widerquist, Georgetown University in Qatar, Doha, Qatar

Basic income is one of the most innovative, powerful, straightforward, and controversial proposals for addressing poverty and growing inequalities. A Basic Income Guarantee (BIG) is designed to be an unconditional, government-insured guarantee that all citizens will have enough income to meet their basic needs. The concept of basic, or guaranteed, income is a form of social provision and this series examines the arguments for and against it from an interdisciplinary perspective with special focus on the economic and social factors. By systematically connecting abstract philosophical debates over competing principles of BIG to the empirical analysis of concrete policy proposals, this series contributes to the fields of economics, politics, social policy, and philosophy and establishes a theoretical framework for interdisciplinary research. It will bring together international and national scholars and activists to provide a comparative look at the main efforts to date to pass unconditional BIG legislation across regions of the globe and will identify commonalities and differences across countries drawing lessons for advancing social policies in general and BIG policies in particular.

Richard Pereira Editor

Financing Basic Income A Dual Income Proposal

Second Edition

Editor Richard Pereira Global Labour Research Centre York University Toronto, ON, Canada

ISSN 2662-3803 ISSN 2662-3811 (electronic) Exploring the Basic Income Guarantee ISBN 978-3-031-29011-4 ISBN 978-3-031-29012-1 (eBook) https://doi.org/10.1007/978-3-031-29012-1 1st edition: © The Editor(s) (if applicable) and The Author(s) 2017 2nd edition: © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustation: © Melisa Hasan This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

For Marcus & Simon

Preface

Work on this book began in late 2014, when the series editor for Palgrave Macmillan’s Exploring the Basic Income Guarantee invited me to write a book on the question of financing a basic income. The book would fill a significant gap in the literature he suggested and would be an important contribution to scholarship on this issue. So began the journey of finding authors to help tackle this complex issue. There was substantial enthusiasm for the subject, however it was viewed as a daunting task by many or their academic and professional lives were just too occupied to take on this subject they deemed very worthy. What is presented within these pages is the effort and analyses of international authors and scholars with experience on the subject of public finance and public program assessment on three different continents. Case studies from North America, Europe and Australasia are included in these chapters with applicable insights for various countries within these regions. In the two year period during which this book was being written and edited, we have seen the pursuit of policies of austerity deepen worldwide, while simultaneously the issue of tax evasion and avoidance through offshore tax-havens has continually gained more exposure in the popular press. In the United States the growing gap between rich and poor was a central feature of a very long presidential campaign, particularly before the Democratic Party finalized its choice of candidate for the White House. In some countries sovereign wealth funds (SWFs) have continued to amass

vii

viii

PREFACE

wealth for public goods, while other countries have allowed the value of public and natural resources to be squandered. It is clear that there is vast wealth in societies throughout the world, but that it increasingly is consolidated in fewer hands, fewer large multinational corporations and in offshore tax havens that are an affront to the proper functioning of society and management of its public finances. This is the broader international context in which this book has been written. The specific details concern financing basic income, and more precisely a decent basic income. Costly bureaucracies in modern societies do not deliver income security in the way they were originally intended to, and often overlap and contradict each other. Can we not find a way to re-orient this wasteful system so that resources are better channelled to ensure universal income security? For a long time the proposed solution has been a basic income, or guaranteed annual income. Mississauga, Canada November 2016

Richard Pereira

Acknowledgements

So long as there is one man who seeks employment and cannot obtain it the hours of labour are too long. —Samuel Gompers Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality. —Stephen Hawking The right to free speech and free expression… is hedged around with a variety of subtly inhibiting factors, many of them economic. A very large proportion of Canadians are afraid of being outspoken because of the fear—a real one-of losing their jobs... The truth is that an army of people are working in jobs which are not really of their own choosing and which can only be described as degrading. None of these people can be said to be free in the proper sense of that overworked and mangled word. …Until there is a basic economic floor beneath them, these people cannot begin to participate in the whole range of what we mean when we talk glibly about a free society. —Pierre Berton

ix

x

ACKNOWLEDGEMENTS

In 483/2 BC, the ancient Athenians struck an unusually rich silver vein in Southern Attica. One proposal for the disposal of the revenue from the windfall was to distribute it equally among the thirty thousand citizens, thought to be a common practice at the time. —George Tridimas

Prologue to the Second Edition

Between 2018 and February 2020, an intensive campaign for a national guaranteed income was carried out in the United States. The Freedom Dividend advocated by Andrew Yang in his bid for the presidency of the United States called for a $1,000 monthly payment to each American citizen 18 years of age and older. A specific financing proposal was put forth, of which the focal point was a new VAT (value added, or sales tax). A new chapter in this second edition of the book proposes an alternative source of financing to the VAT for the Freedom Dividend model. Instead of an often labelled “regressive” sales tax or broadly applied VAT, a more progressively structured land value assessment and levy is considered for both the Canadian and American cases as one option to finance a national universal payment to citizens. The LVT (land value tax) is an American idea with a long heritage dating back to economist and politician Henry George, and in some senses further back to Thomas Paine, which has not been given very much attention in recent decades. The remainder of Yang’s Freedom Dividend proposal contains financing elements very similar to those proposed in this book’s first edition: selective programme redundancy (“Welfare Overlap” in Yang’s proposal), the economic multiplier effect of the basic income (“Economic Growth”), reduced poverty expenses and public costs, a carbon fee and dividend, and financial transaction tax round out the six financing components of the Freedom Dividend. It is submitted here in this second edition

xi

xii

PROLOGUE TO THE SECOND EDITION

of the book that a serious consideration of the economic rents available from land (land rent) and other resource rents (natural and social resource rent) offers a far more politically feasible path to a universal citizens’ dividend, which better meets the objectives of distributive justice than implementation of a new VAT or sales tax. An additional new chapter in this book focuses on financing an unconditional basic income in Portugal. This new case study provides a useful template and exercise in considering the myriad financing sources available to guarantee an income for all in a resource-constrained economy. Compared to the economic power and resource wealth (natural,1 mineral, land, financial, technological-scientific) of Canada, the United States, Australia or Switzerland, a nation such as Portugal can achieve a guaranteed income for all its citizens sufficient to eliminate poverty and live in dignity. The foregone economic rent of land, natural resources and social common wealth represent a potent source of untapped finance and future savings available for a) basic income/citizens’ dividend and b) sovereign wealth funds (SWFs) which can share the wealth intergenerationally, while investing sustainably in the country currently without incurring debt. Norway, Alaska, Singapore and other nations and jurisdictions offer leading examples of SWFs that invest locally and internationally and provide public goods for current and future generations. These wealth accumulation and distribution instruments are underutilized or nonexistent in the countries that make up the focus of this book, particularly at the national or federal level of government. These new comparative case studies build upon the first edition of this book. Additional supporting material on international SWFs and other models to capture economic rent (or windfall profits) for the benefit of citizens is presented. This deepens support for my thesis in the first edition that two forms of guaranteed or basic income can be financed and provided to citizens. The first is a guaranteed livable income (GLI) sufficient to eliminate poverty and its exorbitant financial and social costs, eliminating the need for food banks and charity, replacing many wasteful and bureaucratic programmes that are not fit for purpose. The second is a universal dividend that derives from our common wealth, natural and

1 oil and gas, forestry, fresh water and hydro-electric, etc.

PROLOGUE TO THE SECOND EDITION

xiii

social common assets, which we inherited from nature, from our ancestors or from public investments meant to benefit all people and not private corporations and rent-seeking individuals disproportionately. This dual basic income or guaranteed income model can become an exercise in reclaiming citizenship. It can bring citizens together to assess the value of our common wealth and our common heritage (successive technological and scientific advances, cultural and architectural legacies of enduring value, infrastructure like rail networks and public utilities) while committing to distribute the benefits of these common inheritances in a just manner, leaving as good or better for future generations.

COVID-19: Crisis as (Lost) Opportunity The Coronavirus COVID-19 (SARS-CoV-2) pandemic emanating from Wuhan, China, in early 2020 has been the other catalyst for basic income discussion and advocacy internationally, following the campaign for the Freedom Dividend. The slow response by the WHO (World Health Organization) and lack of transparency about the virus from the Chinese government has caused severe economic and social damage that could have been mitigated by a basic income, had it been in place prior to 2020. Governments at all levels scrambled to cobble together new income security programmes to address the required lockdowns resulting from the spread of COVID-19, leading to massive overspending of public funds, which could have been much better targeted to a universal minimum income guarantee. As economist Miles Corak has indicated, large-scale wage subsidy programmes in response to COVID-19 were a “huge failure”, while direct income (cash) supports were “terribly successful”. He and political scientist Jennifer Robson show that wage subsidies “dramatically over-insured” businesses, and that a business “subsidy nominally directed to worker payroll can be shifted to other purposes”.2 A long-term universal guaranteed income could have been had for a fraction of the cost of other COVID-19 programme spending, while eliminating the staggering annual cost of poverty that represents an 2 The Canadian Press, “Pandemic benefits were too generous with businesses, stringent

with workers: experts.” Ottawa Business Journal. Aug 8, 2022; Miles Corak, “The Canada Emergency Wage Subsidy as an employer-based response to the pandemic: First steps, missteps, and next steps.” Department of Economics, City University of New York, Oct 2021, p. 14, 18:

xiv

PROLOGUE TO THE SECOND EDITION

unnecessary drain on public finances. Compare the $2,000 per month in direct cash transfers given to Canadians as part of CERB (Canada Emergency Response Benefit), with the cost of business payroll subsidies in the form of CEWS (Canada Emergency Wage Subsidy) at “a fiscal cost of $25,000 or more for each person-month” of employment support.3 These have been labelled deadweight losses and a waste of public monies in the literature (Corak 2021), and there are many other COVID-19 programmes that could be considered as such. This excess business support and subsidies were often diverted to other purposes by businesses that did not need these funds, including paying out dividends to shareholders and other benefits for investors. The rent-seeking by big business groups is reminiscent of the supports and bailouts financed by taxpayers to banks, financial companies and the big automakers during the Global Financial Crisis (GFC) that unofficially began with the bankruptcy of Lehman Brothers on 15 September 2008.

Building upon a foundation “We have a Basic Income for children, the Canada Child Benefit, and we have a Basic Income for the elderly, the Guaranteed Income Supplement.”4 The Guaranteed Income Supplement (GIS) is a federal programme built onto the Old Age Security (OAS) universal pension. Further, at the provincial level of government, one encounters the Guaranteed Annual Income System (GAINS), providing payments on top of the OAS pension and the Guaranteed Income Supplement payments you may receive from the federal government. “Together, the total maximum benefits from OAS, GIS and GAINS is the guaranteed income level” as

3 Corak, “The Canada Emergency Wage Subsidy as an employer-based response to the pandemic: First steps, missteps, and next steps.”, p. 14-18; Michael Smart, “Boos for CEWS.” Finances of the Nation, Sept 20, 2020. Also see “Large Corporate Groups that Received CEWS Payments” by Michael Smart and Nick Mahoney, Dec 29, 2020: https://financesofthenation.ca/2020/12/29/large-corporate-groups-that-receivedcews-payments-in-2020/ (Accessed Nov 11, 2022). 4 Corak, “What will COVID Mean for the Future of Fiscal and Social Policy?” Economics for public policy, milescorak.com. June 6, 2022

PROLOGUE TO THE SECOND EDITION

xv

stated on the Government of Ontario website—“The Province guarantees that eligible Ontario seniors will have at least this minimum level of income.”5 The concept of basic income using the language of guaranteed income, guaranteed annual income and similar terms has a long history in Canada (and the United States), particularly regarding the implementation of public policy and programmes for seniors. More recently, this has become true for children also with the Canada Child Benefit. Many countries have similar programmes. What is lacking is a sufficient, decent basic income for the remainder of the population. A strong foundation exists, as well as the institutional knowledge to distribute guaranteed annual incomes to citizens. And in the case of GAINS the guaranteed income level is updated every three months to reflect inflation.6 The need for a guaranteed income for adults 18-65 years of age increases with each passing day and decade, each pandemic and global financial crisis, each supply-chain breakdown and offshoring, downsizing and displacement of jobs. The invasion of Ukraine by Russia, following— and simultaneous with—the COVID-19 pandemic, compounds these mounting crises and has introduced inflation as an aggressive new force eroding the quality of life globally. Those 18-65 have had to take on additional care duties for elders and as homeschool teachers, because of COVID-19 and the atrocious conditions in seniors’ homes even in the wealthiest countries. The essential work of reclaiming and rebuilding citizenship, and creating new public goods such as the dual basic income proposed in this book, can ensure a resilient society that is able to provide the highest level of care, respect and dignity for our elders, as well as the lacking attention for children in an age dominated by corrosive screen time and (anti-)social media platforms controlled by big tech firms. We can also better absorb the next shock, whatever it may be. As some nations, jurisdictions and sovereign wealth funds daily accumulate vast wealth for their citizens, most others forego these economic rents and windfall profits. Finally, two additional appendixes are included in this edition, each speaking to innovative yet almost lost to history models for capturing 5 “Ontario Guaranteed Annual Income System payments for seniors” Government of Ontario: https://www.ontario.ca/page/guaranteed-annual-income-system-paymentsseniors (Accessed Nov 15, 2022) 6 Ibid.

xvi

PROLOGUE TO THE SECOND EDITION

public wealth for citizens. An overview of NAPO’s (National Anti-Poverty Organization) original plan for a GAI (Guaranteed Annual Income) in 1972 and the case of Petro-Canada as an analogue to Norway’s Statoil (now Equinor ASA) and its world-leading SWF are each considered in a new dedicated appendix. The new content included in this edition provides more empirical evidence, historical precedents and current working examples of public finance in action internationally. Both a guaranteed livable income and a universal citizens’ dividend are available to us, and future generations, by applying the best practices available to this public policy work. November 2022

Richard Pereira

Contents

1

Introduction: Financing Approaches to Basic Income Richard Pereira

1

Part I Foundations for a Basic Income Guarantee (BIG) 2

3

The Cost of Universal Basic Income: Public Savings and Programme Redundancy Exceed Cost Richard Pereira Unconditional Basic Income in Portugal: How Can We Afford It? Richard Pereira

9

47

Part II Cost Feasibility of Basic Income in Europe 4

Financing Basic Income in Switzerland, and an Overview of the 2016 Referendum Debates Albert Jörimann

67

Part III Building Up BIG 5

Total Economic Rents in Australia as a Source for Basic Income Gary Flomenhoft

95

xvii

xviii

6

7

CONTENTS

Universal Basic Income and Land Value: A Canadian Assessment, with Implications for America Richard Pereira Conclusion Richard Pereira

119 139

Appendix 1

147

Appendix 2

149

Appendix 3

153

Appendix 4

157

Index

161

Abbreviations and Acronyms

ABS ANZ APF APFC APFD

Australian Bureau of Statistics Australia and New Zealand Banking Group Alaska Permanent Fund Alaska Permanent Fund Corporation (state-owned) Alaska Permanent Fund Dividend (also PFD – Permanent Fund Dividend)

Variations of Basic Income and Guaranteed Income BI BIG CI GI GAI GAINS GLI GMI Mincome NIT UBI UBI

Basic Income Basic Income Guarantee Citizens’ Income Guaranteed Income Guaranteed Annual Income Guaranteed Annual Income System (Ontario) Guaranteed Livable Income Guaranteed Minimum Income (Original Canadian basic income experiments) Negative Income Tax Unconditional Basic Income Universal Basic Income

BIEN BIEN Suisse BP

Basic Income European Network BIEN Switzerland Banco de Portugal

xix

xx

ABBREVIATIONS AND ACRONYMS

CAI CAW CBA CERB CERN CEWS CIT CMHC CO2/CO2 CPJ CPP/QPP CRA CRB CWB DAFF DARPA EBITDAX EI / UI EITC FTQ GFC GIS GST GST/HSTC IA ICJI INE IRS ITU LICO LVC LVT NAB

Climate Action Incentive Payments1 Canadian Auto Workers Commonwealth Bank of Australia Canada Emergency Response Benefit Conseil Européen pour la Recherche Nucléaire (Geneva) Canada Emergency Wage Subsidy Corporate Income Tax Canada Mortgage and Housing Corporation Carbon dioxide Citizens for Public Justice Canada Pension Plan/Quebec Pension Plan Canada Revenue Agency (also see IRS) Canada Recovery Benefit Canada Workers Benefit (formerly WITB, see WITB) Department of Agriculture, Fisheries and Forestry (Australia) Defense Advanced Research Projects Agency Earnings Before Interest, Tax, Depreciation, Amortization and Exploration Employment Insurance (formerly Unemployment Insurance) Earned Income Tax Credit Fédération des travailleurs et travailleuses du Québec Global Financial Crisis Guaranteed Income Supplement Goods and Services Tax Goods and Services Tax/Harmonized Sales Tax Credit Infrastructure Australia International Consortium of Investigative Journalists (Panama Papers) Instituto Nacional de Estatística Internal Revenue Service International Telecommunication Union Low income cut-off Land Value Capture Land Value Tax National Australia Bank

1 https://www.canada.ca/en/department-finance/news/2021/12/delivering-climate-

action-incentive-payments-quarterly.html (Accessed Dec. 7, 2022) “To ensure that carbon pollution pricing remains affordable… direct proceeds from the federal pollution pricing system are returned to the jurisdictions where they were collected and the majority of proceeds are returned directly to Canadians through Climate Action Incentive (CAI) payments. These payments mean some 8 out of 10 families receive more money back than they pay in direct costs under this system”.

ABBREVIATIONS AND ACRONYMS

NAPO NBN OAS OBIP ODSP OECD OPEC OSAP PBO PFD PPE RBI RESP RRSP SEC SWF TCHC TFSA VAT WBC WITB

xxi

National Anti-Poverty Organization (Canada) National Broadband Network Old Age Security Ontario Basic Income Pilot Ontario Disability Support Program Organisation for Economic Co-operation and Development Organization of Petroleum Exporting Countries Ontario School Assistance Program Parliamentary Budget Office Permanent Fund Dividend Personal Protective Equipment Rendimento Básico Incondicional (Portugal) Registered Education Savings Plan (tax shelter) Registered Retirement Savings Plan (tax shelter) Securities and Exchange Commission Sovereign Wealth Fund Toronto Community Housing Corporation Tax-Free Savings Accounts (tax shelter) Value-Added Tax Westpac Banking Corporation Working Income Tax Benefit (now CWB - Canada Workers Benefit)

List of Figures

Fig. 3.1

Fig. 3.2

Fig. 5.1

Fig. 5.2

Fig. 6.1

Fig. 6.2

Fig. 6.3

Cost versus financing options for UBI (Canada) (Source UBI Works, How to Pay for Basic Income https://www. ubiworks.ca/howtopay) Yang’s cost-neutral universal BI proposal for the United States (Source Image from Andrew Yang’s presidential campaign website, November 2019) Economic Rent from Oil extraction (Adapted from Cambridge Energy Research Associates (CERA-defunct) “Ratcheting Down: Oil and the Global Credit Crisis”, 2008) Total Australian land prices 1989–2014 (Australian Bureau of Statistics (ABS) 5204.0—Australian System of National Accounts, 2013–2014, Table 61, http://www.abs.gov. au/AUSSTATS/[email protected]/DetailsPage/5204.02013-14? OpenDocument) Yang’s cost-neutral universal BI proposal for the US (Source Image from Andrew Yang’s presidential campaign website, November 2019) Percentage of fees paid by three major producers per ounce of gold extracted (Source Extractive Sector Transparency Measures Act Report 2017. Graphic by The Narwhal) Fair share of oil and gas wealth: comparative economic rent distribution (Source The Narwhal)

58

60

97

104

126

132 132

xxiii

List of Tables

Table 3.1 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 5.1 Table 5.2 Table 6.1

Some additional UBI financing options for Portugal Gross cost of basic income in Switzerland (2012) Earned income/month with BI at CHF 2,500/month and clearing payment scale Income classes in Switzerland (2010) Clearing payment Social insurances, total expenses and part of expenses creditable to the B.I. account (2012) Hypothetical model for additional income tax for incomes above CHF 30,000 per year Total resource rents of Australia Economic rent minus existing revenue Select social resources and valuation (Australia)

51 69 73 74 74 75 82 102 115 134

xxv

CHAPTER 1

Introduction: Financing Approaches to Basic Income Richard Pereira

Abstract The different ways in which basic income can be financed are set out in this chapter as a guide to reading the book. A decent basic income is presented as the goal of this work, as opposed to some basic income proposals that may be viewed as potentially worse than status quo income security programmes in various countries. Protecting vital public programmes such as universal health care or public education is essential to implementation of a decent basic income, as is setting it at a sufficient level to ensure a dignified existence and a measure of social inclusion. Proposals that set out to cut public programmes in wholesale fashion and set a low level of basic income are rejected. Income security programme redundancies are discussed in this light along with differing models and methods of financing basic income. Keywords Basic income · Finance · Financing basic income · Programme redundancy · Demogrant · Public programmes

R. Pereira (B) Global Labour Research Centre, York University, Toronto, ON, Canada © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1_1

1

2

R. PEREIRA

This book addresses the cost objection to basic income and whether a decent basic income is affordable. What are the public costs—and savings—of implementing basic income? It is important to emphasize that a basic income that is set too low, or below the official poverty line of a society, is not meeting the goal of a basic income as presented in the academic literature and in more common political and popular presentations of the concept. The objective of this public policy is to provide members of a society with the ability to meet basic needs and achieve a measure of social inclusion, even if they cannot find a job in the labour market to provide adequate income to satisfy these basic needs. This book sets out to meet the definitional goals of basic income and it addresses the cost objection by focusing on a decent basic income and its financial feasibility. Also related to providing an adequate basic income is presenting a proposal which does not cut all or most other public programmes in a wholesale fashion, thereby potentially leaving members of a society in a worse financial state than under the current system. Universal public healthcare programmes currently in place in many countries, and the provision of free and subsidized public education, are two examples of programmes which if eliminated in order to finance a basic income would create catastrophic costs for many people that could not be covered by the often very modest and low levels of basic income found in most proposals. The prominent work of Charles Murray provides one such approach, which is not supported by this book. Our goal is to provide a much higher level of basic income than found in proposals such as Murray’s, while also preserving vital public programmes such as universal health care. We recognize that many public programmes become redundant with the implementation of basic income, and these savings can be directed to financing basic income. What differentiates this book from others is that public programme redundancies are accounted for and treated in a far more selective fashion than in other prominent proposals, and the level of basic income is set much higher than normally found in the academic literature. Three countries (five in this second edition of the book) on three different continents are also analysed in proposing a progressive basic income in this study. The combination of ensuring a decent level of basic income and preserving vital public programmes, such as universal health care and others detailed in the following chapters, ensures an analysis of the financial feasibility of basic income which does not undermine

1

INTRODUCTION: FINANCING APPROACHES TO BASIC …

3

or contradict the objectives of this policy initiative. We want to avoid a regressive basic income proposal, which could leave individuals worse off than under the status quo.

Basic Income Models The two most common approaches to providing a universal basic income are a negative income tax (NIT) and demogrant. The NIT tops up the income of individuals who fall below a certain threshold (this could be the official poverty line, or something higher, for instance). The demogrant refers to a basic income provided to everyone regardless of income. This latter version will usually be paid back in part or in full through existing income tax regimes by individuals whose incomes are above a threshold. The demogrant is paid to all adults and can include provision for a basic income demogrant for children—often set at one-half or one-third of the adult amount for children in many proposals. A third approach is to pay a universal dividend to members of a society, such as is paid annually in Alaska. This is a type of demogrant, although a variable one which fluctuates significantly from year to year and is usually based on the natural resources of a society. The universal dividend is not a basic income as per the common definition of the term; however, if provided at a sufficient level, it can meet (and exceed) the goals of a basic income. In this book, a universal dividend model is explored as a way to buttress and add to basic income proposals, and possibly provide a superior universal payment as compared with many basic income proposals previously on offer. A universal dividend is based on common wealth in society such as land, natural resources such as oil, forests and minerals, and social resources. A portion of the profits from these common, natural and social assets is shared equally among members of society in a universal fashion. Combining a basic income with a universal dividend can present a robust new approach to income security in the twenty-first century. A basic income can eliminate (or significantly reduce) some of the most oppressive and inefficient bureaucracies by transferring this public money directly to those most in need, creating a higher degree of empowerment and freedom for those unable to access stable or lucrative employment. It can eliminate a lot of waste of public resources and provide significant public savings. A universal dividend can distribute the excess profits (or

4

R. PEREIRA

economic rent) found in many sectors, particularly where natural resource wealth is concerned, to augment the basic income.

Financing Approaches Most commonly, basic income proposals re-arrange existing income transfers and combine them into a single basic income programme. Welfare payments and their associated bureaucracies are eliminated, and numerous other related programmes are similarly streamlined into one more efficient, de-bureaucratized basic income. Publicly provided pensions, various child benefit programmes the state may have in place, food allowances or food stamps, special tax deductions for low-income households (and tax deductions for high-income households), social housing programmes and payments, charities to address national poverty issues, all can be viewed as partially or fully redundant with a basic income in place. Eliminating much of this complexity and cost can allow for a higher basic income payment than what individuals currently receive from various income support programmes. In addition to these savings which go towards financing basic income, it is common to discuss a re-arranging of the tax system to help finance basic income, particularly a basic income at a decent level. Some proposals exclusively focus on increasing the progressive income tax rate structure already in place, that is, the more income one has the higher the marginal tax rate one pays (see, e.g., Appendix 2 for historical marginal tax rates in the United States). In his first chapter, Pereira contends that if we first address tax leakages, such as tax evasion and avoidance through tax havens and numerous tax shelters, personal income taxes do not have to be raised to provide a universal basic income. A personal tax cut could be implemented along with introduction of basic income Pereira claims, as savings from programme redundancies are so significant, combined with addressing tax leakage. Other proposals may focus on increasing corporate income taxation rates, which have been reduced in many countries by substantial amounts in recent decades, as a financing measure. Large-scale government subsidies and tax exemptions for corporate enterprises (corporate welfare) are also often targeted as being better redirected to a universal basic income. Some proposals focus on value added taxes (VAT) or consumption taxes to raise most or all of the additional revenue that may be needed to finance a basic income. Carbon levies (or a carbon tax) are also promoted

1

INTRODUCTION: FINANCING APPROACHES TO BASIC …

5

to raise and distribute revenues universally, simultaneously addressing environmental policy objectives and income insecurity. James Hansen— former Director of the NASA Goddard Institute for Space Studies—is among the most prominent proponents of the Carbon Fee and Dividend model (often referred to as fee and dividend). Different approaches can be employed or mixed to achieve a desired level of basic income. It is incorrect to assume that personal income taxes must be raised to finance a decent level of basic income. Critics of basic income often assume very large increases in personal income tax rates are required. Jörimann models a basic income for Switzerland along the lines of a universal demogrant, as opposed to a negative income tax model. While Pereira describes and contrasts both universal demogrant and NIT models of basic income, with no personal income tax increases required, Jörimann does factor in personal income tax rises to achieve the desired level of basic income for Switzerland. The Swiss case study in Chapter 4 proposes a generous basic income of 2,500 Swiss francs per month, or CHF30,000 annually for adults 18 years of age and above. A lesser amount is provided for children.1 Flomenhoft analyses the Australian case in Chapter 5 by focusing on economic rents. What would a universal dividend paid to all members of society, based on economic rent, look like? While Alaska and Norway currently collect large amounts of economic rent primarily from oil resources, and distribute these proceeds for the benefit of society (with only Alaska paying out a universal dividend), they do not capture many other forms of rent that could be used to pay out a much larger dividend. Capturing economic rent from a variety of natural and social resources could result in a universal dividend approximating a basic income, or it could supplement a basic income. The universal dividend based on such rents is also interesting in that it is paid out equally to adults and children—there is not a differentiating amount based on age. In two new chapters, Pereira explores the potential of land values comparatively as a financing instrument in the United States and Canada 1 Charles Murray’s plan provides no basic income for children, and for adults, it would start at 21 years of age instead of 18, see: In Our Hands: A Plan to Replace the Welfare State (2016), and “A Guaranteed Income for Every American”, The Wall Street Journal, June 3, 2016. This presents a significant problem for the those aged 18–21 who currently undertake large-scale debt loads at this crucial time in their lives when attending university or college, particularly in the United States, Canada or England for instance where tuition fees are very high and have been rising aggressively in recent decades.

6

R. PEREIRA

for a universal dividend, as well as making a detailed review of financing options for an unconditional basic income in Portugal. Even in a resourceconstrained economy, it is demonstrated that a universal income floor at a decent level is feasible by selecting a few among a wide array of public financing options.

PART I

Foundations for a Basic Income Guarantee (BIG)

CHAPTER 2

The Cost of Universal Basic Income: Public Savings and Programme Redundancy Exceed Cost Richard Pereira

Abstract This chapter addresses the cost objection to basic income, which rests upon the claims that (a) it is too expensive to implement, and (b) that personal income taxes will have to be raised to such a high level as to make it politically infeasible. A Canadian case study is used to demonstrate that the cost savings of implementing basic income are often greatly underestimated or neglected, and that personal income taxes do not need to be raised. Personal income taxes could be reduced while implementing a decent basic income. Keywords Universal basic income · Cost · Savings · Public finance · Demogrant · Negative income tax (NIT)

R. Pereira (B) Global Labour Research Centre, York University, Toronto, ON, Canada © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1_2

9

10

R. PEREIRA

Introduction This study demonstrates that a universal basic income (UBI) or guaranteed income at a level sufficient to cover essential needs (at the official poverty line or higher) is affordable. It provides a response to a popular objection by many writers who claim otherwise. Their objection is based on inadequate and/or misleading information. This will be demonstrated by analysis of influential publications in the Canadian context, as well as investigating the basis of the objection in more general, nongeographically specific terms. No cuts to vital public programmes such as health, education and legal aid are sought in this study. Only programme redundancies (sometimes full programmes and partial redundancies in other cases) resulting from implementation of UBI are identified, along with other public revenue losses that can be better directed to UBI. The result is to improve the resiliency of health service delivery and access to education, while ensuring universal income security at reduced public cost. I will outline the cost objection to UBI in the first section “The Argument: “It Is too Expensive to Give the Entire Population Basic Income” and I will then give several responses to this objection in the next section “Four Responses: Savings and Other Income Sources”. In the first response to the cost objection (“First Response: Savings from Replacement of Existing Income Security Programmes”), I will highlight the savings possibilities of a UBI model in contrast to existing welfare models. The second response (“Second Response: Inefficiencies and Leakages in the Existing Tax System—No New Taxes!”) will address the claim that personal income taxes have to be raised to an unacceptable level to finance UBI by focusing on tax leakages in the existing system. Bureaucratic costs will then be considered separately as a wasteful element in the current welfare system (“Third Response: Freedom from Bureaucracy”). This will offer additional financing to UBI. The final response “Fourth Response: Externalities and Current Free-Riding” considers other sources of financing, which could be relied on if required. These sources would not require us to raise personal income taxes (or taxes on labour income). This fourth response concentrates on existing economic externalities and free-riding, which if addressed can simultaneously improve the economy, social and health outcomes, and ecological sustainability while raising additional revenue for basic income. An appendix summarizing the

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

11

findings on programme redundancies and other savings commonly overlooked in the cost objection to UBI is included and can serve as a guide to the reader throughout the chapter. In proceeding through the study, incomplete calculations of UBI net costs by prominent authors will be evaluated critically. This allows me to conclude that a UBI at a decent level (at the poverty line or slightly higher, distributed to individuals) is feasible, does not require personal income tax increases and can even lead to personal income tax reductions.

The Argument: “It Is too Expensive to Give the Entire Population Basic Income” The cost objection to UBI is one of the most persistent arguments against basic income encountered in the literature. It is often reinforced by advocates of UBI in different and unsubstantiated ways. Subsection “A Common Theme in the Literature” will briefly present the scale of this problem and objection more generally. A specific presentation of the objection will follow in subsection “A Country-Specific Illustration of the Cost Objection” based on a case study of one country. This will allow for illustration of major omissions in the objection to begin to surface. Recent Canadian studies that strongly put forth the cost objection will be featured with their most important arguments highlighted. A Common Theme in the Literature Critics of UBI, and surprisingly many advocates of the proposal (both strong and weak advocates), claim the financial cost for a UBI at a decent level is out of reach. Critics ignore many savings and other aspects available with UBI implementation. Advocates often fall in to the trap of the critics’ incomplete arguments by accepting deficient cost assessments as valid. As a result, many UBI advocates claim that although they support the idea and see its many justifications, the cost issue makes it a distant reality or a barrier that necessitates UBI being introduced at such a low level that renders it almost meaningless. In the case of Van Parijs (1995)—a strong advocate—he makes a novel and useful argument to surmount this artificial barrier, but it is needlessly complex. Readily available, non-controversial and numerous savings and funding sources exist as I shall demonstrate, and Van Parijs fails to properly consider these. He claims UBI will be insufficient unless society

12

R. PEREIRA

reconsiders jobs as collective “assets”—a potentially large new political project that may put off implementation of UBI for an unacceptable amount of time. White (1997)—a moderate/tentative advocate—agrees with Van Parijs that UBI will not be substantial without jobs being considered as collective assets (although White rejects this proposal). Numerical justification is sorely lacking in these types of prominent cost assertions (Van Parijs, 1995: 90, 103–106; White, 1997: 315, 321– 322, 326). This study rejects the critics’ cost objection as well as the weak positions of UBI advocates on the cost issue. Savings arising from implementation of UBI present a much greater amount of financing than both critics and most advocates seem to realize. Van Parijs offers the following perplexing assertion for instance, which is not supported by any evidence, in his prologue to Chapter 5, which this chapter and book demonstrate to be unsubstantiated. “Even a very brief look at the relevant figures should tell you that the basic income you have justified in this way is pathetically low” claims Demos, to which the response comes “I know, and this puzzled me for a while. …Moreover, no attempt to spot… more subtle forms of wealth transfer seems to yield anything substantial”. A Country-Specific Illustration of the Cost Objection In a major study produced for the Canadian Centre for Policy Alternatives (CCPA), a think tank supported by the Canadian Labour Congress, unions and other “national progressive organizations”,1 Margot Young (Associate Professor of Law, University of British Columbia) and James Mulvale (Associate Dean of the Faculty of Social Work, University of Regina) (2009: 24) provide such examples as to the cost of UBI, or GI (Guaranteed Income), for Canada: Grants paid to Individuals (population data 2006) Program Grant of $15,000 per year paid to all individuals age 18 and over

Cost (billions) $392 (continued)

1 BC Teachers’ Federation, “Historical Perspectives: The Canadian Centre for Policy Alternatives”, January/February 2007, https://www.bctf.ca/publications/NewsmagAr ticle.aspx?id=10456.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

13

(continued) Grants paid to Individuals (population data 2006) Program Grant of $15,000 per year to individuals age 18 and over, plus a demogrant of $4,000 per year for each child under 18 Payments only to individuals and families below the poverty line to bring them up to the LICO (i.e. reduction of poverty to zero) (2003 data)

Cost (billions) $418 $21.5

With the exception of the third option, these are large numbers relative to the scale of the Canadian economy ($1.45 trillion GDP in 2006; over $44,000 for every man, woman and child in the country [Statistics Canada, 2007a], and over $1.8 trillion GDP in 2013 [Statistics Canada, 2013]2 ). In a separate section of their Table 1, below these intimidating numbers, Young and Mulvale (2009: 24) outline the “Cost of existing income security programs (2005)”. These include Old Age Supplement, Child Tax Benefit, Provincial payments to individuals (e.g. income assistance) and four other items totalling $135 billion per year. The net cost of the “relatively generous guaranteed income option” above ($15,000 per adult, $4,000 per child) according to them is $286 billion, and they state that “It thus appears that a full-fledged version of guaranteed income is out of our immediate financial reach” (Young & Mulvale, 2009: 25). In a footnote at the end of the study linked to the $286 billion figure above (n 55), Young and Mulvale write that “This figure does not take account of the additional income tax that would be paid with a guaranteed income system in place. This additional revenue could lower the net cost of the benefit by 20 to 30 per cent” (Young & Mulvale, 2009: 34). They do not specify where this additional income tax generation will come from; whether it is from the obvious fact that people’s incomes will be higher by the UBI amount, thus corresponding with a higher-income tax bracket, or other possibilities in addition to this. And they do not provide the dollar figure of this lower net cost item,

2 Also, Canada’s underground economy is valued at over $40 billion annually, not including illegal activities such as drug trafficking and prostitution, with construction, finance, real estate, rental and leasing and holding companies making up the largest components of this unrecorded trade according to Statistics Canada (2014).

14

R. PEREIRA

which is valued as high as $85.8 billion.3 Other possibilities for additional income tax generation are numerous with introduction of UBI and Young and Mulvale may therefore be underestimating this aspect. For example, Krozer (2010) explains the economic multiplier effect UBI will have through broadening and deepening endogenous consumption. The removal of labour market work disincentives linked with existing welfare programmes offers greater labour force participation and resulting increases in taxable income, as a second example. Emery et al. (2013: 11–14) provide additional reasons for why productivity and labour force participation are currently depressed, which UBI/GAI is uniquely suited to address based on their results obtained from analysing other universal income security programmes. Young and Mulvale’s total net cost for UBI could thus be reduced by up to $86 billion, and possibly more, on this point alone.4 The LICO level Young and Mulvale use above is one measure of the poverty line (low-income cut-off), with its after tax level for a family of 1 person being approximately $15,000 for the comparable years of 2005 and 2006 (but as high as $17,570 in urban areas with populations of 500,000 and over). Families of 2 persons are deemed by Statistics Canada to have a poverty line income level (after tax) of approximately $18,000 per year under this measurement (but as high as $21,384 in urban areas with the largest populations). Families of 3 and 4 persons have poverty line income levels of approximately $22,000 and $27,000, respectively, for 2005–2006 (Statistics Canada, 2007b: 18). In his presentation to the North American Basic Income Guarantee Conference in Toronto in 2012, Jonathan Rhys Kesselman (Professor, School of Public Policy, Simon Fraser University and Canada Research Chair in Public Finance) made similar and stronger claims that a UBI is

3 Thirty percent of $286 billion. 4 Clawback or supplemental tax back rates applied to UBI are not included here and

provide much higher net cost savings than 30 percent. Increasing amounts and forms of unpaid labour internationally (Pereira, 2009; Perlin, 2012) are also a problem UBI can mitigate, helping make currently unpaid (or underpaid) labour paid (or fairly paid) and thereby increasing personal income and income tax revenue. Other forms of taxes beyond income taxes are not taken into consideration by Young and Mulvale’s footnote comment, which includes increased consumption and other taxes when people have a UBI as opposed to much smaller—or no—income currently. VAT rates in Europe are regularly well above 20% (European Commission, 2014: 3). Combined federal and provincial sales taxes in Canada are usually between 12 and 15% (Munroe, 2013).

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

15

not feasible in Canada. In a subsequent essay, Kesselman (2013) repeatedly claims the cost of implementing a UBI is “gargantuan” and leads off with an example of a benefit of $10,000 per capita. “With Canada’s population of 35 million” Kesselman writes, “the gross budgetary cost of this basic income clocks in at a massive $350 billion”. He states further: Even offsetting this figure by eliminating seniors’ cash benefits and provincial welfare, the implied additional cost to taxpayers would be enormous… Income taxes on individuals and businesses as well as other taxes would need to be sharply increased. The general public would not tolerate such tax hikes… (Kesselman, 2013: Sect. 4)

Kesselman’s numbers are repeated by others in the popular press. In a media article reporting on the 2012 Basic Income Congress in Toronto, a $380 billion figure is given as the cost for a universal GAI (Guaranteed Annual Income) in Canada based on Kesselman’s presentation (Ternette, 2012). The article goes on to summarize Kesselman as stating that the cost “would require a 25 per cent increase in income tax on the highest earners. He said that would not be acceptable to Canadian taxpayers, recommended we forget about a GAI and instead improve our welfare state” (Ternette, 2012). Similarly, CCPA Senior Economist and prominent Canadian anti-poverty activist Armine Yalnizyan repeatedly points to Kesselman’s work as a deterrent to GAI/basic income, citing the same $380 billion figure as a main reason.5 It is important to note how other strong claims are linked to the cost objection; that is, UBI is too expensive, and the increased taxation required is not politically feasible. Raising “all households above the

5 Yalnizyan is referenced at the end of a CCPA article citing the $380 billion annual cost amount by a member of the CCPA (her own organization) by way of an update to the article in the ‘responses’ section on March 3, 2014, and Yalnizyan points to Kesselman’s work for justification. See Shaun Loney, “A Province with No Poverty”, Policy Fix, CCPA-MB, February 28, 2014, http://policyfix.ca/2014/02/28/a-province-withno-poverty/; Also, Reddit Canadian Politics, “I Am Armine Yalnizyan, Ask Me Anything”, reddit.com, March 1, 2014: “I’m not a big fan of the minimum income a) huge cost… $380B for a liberating level of guaranteed annual income according to SFU economist Rhys Kesselman… I strongly recommend Rhys Kessleman’s [sic] work on the guaranteed income”. Yalnizyan provides a link to the same Kesselman Inroads Journal article cited in this chapter. In discussions with Glen Hodgson and Andrew Coyne, Yalnizyan reaffirms her support of Kesselman’s work as the main objection to GAI/basic income (available online, Febuary 1, 2014, “I’m in Kesselman’s camp on GAI”).

16

R. PEREIRA

poverty line carries severe hurdles of… public finance and political feasibility that proponents typically neglect” (Kesselman, 2013: Introduction). Kesselman (2013: Sect. 4) writes that “the personal tax system would be applied to finance the system”. This is a common argument among objectors to UBI based on cost; that the amount of new personal income tax that would have to be applied makes it a prohibitive policy.

Four Responses: Savings and Other Income Sources This section will explore items that the cost objection to UBI fails to consider or develop in reducing the net cost of UBI implementation. Four categories of items will be explored, providing four responses to the objection. The first category and response “First Response: Savings from Replacement of Existing Income Security Programmes” will respond to the savings issue by considering additional available savings from the replacement of existing income security programmes missed by the cost objection. These programmes are often inefficient, wasteful or disproportionately benefit the highest income recipients in contradiction of the original intent of such programmes to provide income security to all. They can be considered to be redundant with introduction of UBI; redirecting these programme funds to UBI can be considered a much fairer universal benefit that comes much closer to the original intent of these various programmes to increase income security. Subection “Second Response: Inefficiencies and Leakages in the Existing Tax System—No New Taxes!” responds to the claim that personal income tax would have to be raised to an unacceptable level to fund UBI. This is not true as there are significant leakages in the existing tax system, which can provide a large amount of funding without raising taxes. The next subsection “Third Response: Freedom from Bureaucracy” will consider the cost of bureaucracy. This response demonstrates that bureaucratic costs associated with existing programme spending have not been factored into the net costing for UBI. The final category and response “Fourth Response: Externalities and Current Free-Riding” will consider new sources of income through pricing of current externalities and free-riding as an additional source of financing for UBI (if required). This includes prevention of environmental and social dumping, and curbing harmful activities such as excessive financial speculation.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

17

First Response: Savings from Replacement of Existing Income Security Programmes In this sub-section, two leading cost objections to UBI in Canada will be briefly critiqued for their narrow savings considerations. The programme redundancies available by implementing UBI are greater than presented in these studies. A parallel will be drawn with other nations that have similarly elaborate bureaucratic welfare states as Canada. These states should also consider a far greater number of savings items when drawing up cost assessments for UBI at the national level. I will then explain various programmes and existing costs that can be considered as savings if a UBI is implemented—both in Canada and in countries with equivalent programmes and costs. Starting with the RRSP tax shelter, I will demonstrate the redundancies that are missed by the cost objectors in arriving at the mistaken conclusion that UBI is financially out of reach for governments. This is a conclusion only reached by neglecting numerous existing costs that are redundant with, and better addressed by, UBI. While Young and Mulvale (2009) do identify some of the savings to be realized from a basic income programme, Kesselman (2013) emphasizes the $350 billion cost figure without identifying any total programme costs that become redundant or unnecessary with introduction of basic income. The replacement of some existing income security systems made possible by UBI will provide a significant amount of savings for funding UBI. Young and Mulvale identify seven programmes that are, or could be seen as, redundant with a basic income in place, but do not go further. There are many more programmes and savings to be considered. The seven programmes they list are: Old Age Supplement ($29 bn), Child Tax Benefit ($9 bn), Provincial payments to individuals/welfare payments ($32 bn), GST and other tax credits ($15 bn), Employment Insurance ($14 bn), Local payments to individuals ($3 bn) and a seventh item treated in a confusing manner because it is first included then excluded in a subset of their Table 1 (with the subset including two other items equivalent in cost), namely Canada Pension Plan/Quebec Pension Plan (CPP/QPP) ($32 bn). The CPP/QPP is properly excluded ultimately by Young and Mulvale because it is a contributory scheme, and I would argue the same for Employment Insurance (EI) which is curiously treated differently by Young and Mulvale and included in the list of programmes to be eliminated with introduction of UBI.

18

R. PEREIRA

In Canada, as in many other countries, seven such items (or six if EI is maintained) that reduce the net cost of UBI would be considered a very short list. There are many more forms of income security and related programmes that can be considered as redundancies with introduction of UBI, specifically a UBI at the level Young and Mulvale identify which meets the goal of ensuring no individual’s income is below the poverty line.6 The RRSP program (Registered Retirement Savings Plan) is one of dozens such programmes that is not mentioned by any of the authors above. It is a retirement income supplement programme and tax shelter that disproportionately benefits high-income earners, contributing to the regressive tax system currently in place (nominally progressive, but regressive once such skewed programmes, benefits, deductions and other advantages are factored in).7 There was $775 billion of assets in Canadian RRSPs in 2011 (CBC, 2013) accumulating tax-free growth from stock markets and other investments. Annual tax deductions alone from the RRSP program (and similar registered pension plan—RPP) cost the federal government $20 billion per year with two-thirds of this benefit going to the richest 10% of Canadians (CAW, n.d.; Department of Finance, 2014: 18; Lee & Ivanova, 2013: 23–26). This is exclusive of foregone tax revenue on unearned income within this tax shelter. These figures also do not include the provincial portion of income tax deducted and refunded to RRSP (and RPP) contributors. Only 24% of eligible tax filers contributed to the program in 2011 (down from 26% in 2010) (CBC, 2013), as many are too indebted, underemployed, precariously employed, unemployed or working full-time and earning too little to have the necessary disposable income to take advantage of such schemes.

6 And as we have seen with poverty line income statistics (i.e. LICO) many multipleperson households will be far ahead of household poverty lines if recipients have an at poverty line UBI distributed per individual, because combined income households can extend incomes further. For example, a doubling of rent, mortgage or living space is not required if adding a second person to a household. 7 “Governments rely on a regressive tax structure as a source of public revenue. (Regres-

sive taxes are those that take away a higher proportion of income from the low-income groups than from the high-income groups.)” Quote from Canada, Croll Report (1971: 46, or p. 74 of 241 in available online versions of the Report). Numerous examples are given in the Croll Report of regressive taxation, many of which have been exacerbated since its publication decades ago.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

19

“Many low-income Canadians can actually be worse-off if they contribute to an RRSP” (CAW, n.d.). Other similar programmes that are not considered by the cost objectors as unnecessary with the income security provided by basic income include the TFSA tax shelter (Tax-Free Savings Accounts),8 RESPs (Registered Education Savings Plans) and numerous other tax shelters with even far less potential to help anyone in need than these three mentioned above (Taylor, 2007).9 Charitable programmes and the associated donation and tax deduction system, with highly favourable tax deduction rates, could also be vastly reduced or eliminated with a basic income in place. Whereas almost 30% of Canadians claimed charitable donations in the early 1990s, the figure was 23% in 2011. “Fewer and fewer people are donating larger amounts… And spouses with higher incomes can also claim contributions made by their partners” (Simms, 2013). Almost six million Canadian tax filers claimed charitable contributions in 2011. In addition to billions of dollars in donations annually to the “poverty industry” as some have called the growing charitable sector, and the favourable tax deductions associated with them, charities also often receive additional funds and grants from various levels of government, and in too many cases, scandalously high salaries and perks are given to executives and managers of these often otherwise well-meaning endeavours—directing these various costs towards funding a UBI could prove far more efficient and be yet another savings element neglected by the studies. Summarizing up to this point some of the more obvious additional savings not included in the cost objections, one finds up to $86 billion or more in the Young and Mulvale study which they have indirectly alluded to but not calculated, nor have they used this item (additional income tax generation with a guaranteed income in place) to reduce the net cost of UBI implementation as they indicate should be done. Perhaps it is an overly cautious move. If so, their conclusion based on an unjustifiably higher number that “a full-fledged version of guaranteed income is out of our immediate financial reach” needs to be pre-empted. Perhaps it was an oversight of the study, despite the general point being made in a footnote. This item, and its many dimensions, is likely worth more than $86

8 www.tfsa.gc.ca. 9 As explained in the Financial Post (Heath, 2011) “Rental real estate has been

described by some as the equivalent of a super-charged RRSP”.

20

R. PEREIRA

billion as I have detailed in section “The Argument: “It Is too Expensive to Give the Entire Population Basic Income””, thus reducing Young and Mulvale’s “full-fledged” UBI cost from $286 billion down to under $200 billion. The RRSP program—and RPP—offers $20 billion in federal tax deduction savings alone (not including supplemental provincial tax rates and associated deductions, and not including tax-sheltered growth or dividend income from corporate shares on $775 billion in RRSP-held assets). This brings the cost of a decent UBI down to well under $180 billion. These two items reduce Young and Mulvale’s costing of UBI by well over $100 billion and bring down Kesselman’s costing far more. Eliminating the RRSP programme will also remove the tax-sheltering component of this programme containing assets of $775 billion (as of 2011). Growth of 6% on these assets represents $46.5 billion. For comparison, the Toronto stock market gained almost 10% in 2013 while American stock markets gained between 26.5 and 38% in the same year (Morrison, 2013). Lee and Ivanova (2013: 24) show that 0.89% of all tax filers in 2010 claimed 50% of all capital gains (those with incomes over $250,000 per year). If capital gains were not tax sheltered in RRSPs, the highest income brackets that claim a disproportionate majority of this benefit would pay over 40% (CRA, 2014a) in tax (combined federal and provincial rates) on this unearned income.10 Applying a more conservative 35% tax rate to $46.5 billion for the sake of estimation produces an additional $16.3 billion in annual savings better directed to UBI (not including dividend income received in RRSPs). This brings Young and Mulvale’s $286 billion cost now to below $164

10 There is no justification for unearned income to be taxed at a lower rate than earned income, and capital gains (outside of RRSPs) achieve this through a legislated 50% ‘inclusion’ rate. This means only 50% of capital gains are subject to tax. This legislated limit has changed several times and was set at a 75% inclusion rate in Canada for a period in the 1990s (CBC, 2012). All capital gains/unearned income should be treated as earned income is, i.e. without special exclusions, and that is how I have treated capital gains with the removal of the RRSP program. Sale of a principal residence is one exception where all capital gains taxation is excluded. There are certain lifetime capital gains exemptions whose existence and/or threshold amounts can be questioned, with additional revenues from such reduced exemptions being better directed universally to UBI. Overheated, volatile and sometimes corrupt stock markets and the companies in them should not be receiving such additional government promotion and incentives to encourage investment in them.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

21

billion—an additional $122.3 billion in savings from two easily identifiable11 and non-controversial sources ($86 bn in additional income tax generation at prevailing rates plus $36.3 bn in RRSP program savings). Their costing, upon which they base their negative conclusion, is 43% lower at this early stage of analysing the proposal. Tax-Free Savings Accounts introduced in 2008, and mentioned briefly above, represent another inefficient new savings and income security programme. Milligan (2012: 3) writes that “the bulk of the total contributions come from high-wealth families who still make large TFSA contributions on top of any ‘float’ held outside the TFSA”. This programme is similar to the Individual Savings Account program in the UK, introduced in that country in 1997 (Milligan, 2012: 7). Adding new programmes and financial and accounting complexity in this manner (Department of Finance, 2009), to benefit the highest income earners makes no sense if the goal is to improve economic or income security for all. Specialized tax advice to co-ordinate these various programmes and numerous details within them for maximum benefit is also only available at significant cost to high-wealth individuals (Department of Finance, 2009; Milligan, 2012: 7). Using a conservative estimation from Milligan’s study of TFSAs, I will include a $3 billion annual savings from cancellation of this programme/tax shelter that could be better used towards implementation of UBI. Numerous other non-RRSP and non-TFSA tax-shelter programmes referenced earlier in this section, which are not practical to individually cost here, will be estimated at an additional conservative $3 billion combined.12 This represents an additional $6 billion of savings not factored into the net cost figures, or $128.3 billion in missed savings thus far.

11 Eliminating the RRSP program provides additional forms of government savings not

explored here, representing additional revenue for UBI. For example, special RRSP tax credits for labour-sponsored investment funds mean that each level of government provides an additional 15% in tax deductions (30% extra deductions from federal and provincial governments combined [FTQ, 2014]). For each $1,000 invested your “investment only costs you $320!” as per the FTQ promotion. Labour-sponsored funds and associated organizations have been involved in major corruption probes in more than one province (Canadian Press, 2014; Hopper, 2012). 12 Writing about one category of tax-shelters (not including RRSPs, TFSAs, RESPs, real estate etc.), a tax lawyer specializing in non-profit and charity law states that philanthropic schemes “costs the Canadian governments billions of dollars per year” in tax incentives and tax receipts (Blumberg, 2007).

22

R. PEREIRA

Several programmes and other public costs are implicated in the annual cost of poverty to society. The savings available in this respect from providing a decent UBI at, or slightly above, the poverty line income level totals $72 to $86 billion annually in Canada (Canada Without Poverty, n.d.; Laurie, 2008; Rainer, 2012; Rainer & Ernst, 2014). “Poverty’s demand on health care alone may now approach $40 billion per year” in Canada (Rainer & Ernst, 2014). Reduced public costs for health, crime and other factors make up this large total savings item. If one-third of this cost is stripped out due to some overlapping items with those already presented above, we have $53 billion in average savings per year (2007 dollars), bringing the UBI net cost in Young and Mulvale’s study down from $286 billion to $105 billion ($181 billion in missed savings). This is 63% lower than the net cost for UBI presented by Young and Mulvale for their generous version of basic income, and 70% lower than the $350 billion cost presented by Kesselman.13 Responding to a leading national newspaper columnist’s article critiquing the $32 billion cost of raising all Canadians out of poverty with cash transfers, Rainer and Ernst (2014) reply that the cost of poverty alone is between $72 billion and $86 billion annually. This leads them to ask the opposite question the cost objectors ask, namely “how can we not afford a basic annual income?” The $32 billion “cost” figure, which disappears into a surplus of savings with introduction of basic income, is based on the NIT (negative income tax) version of basic income. We will treat this issue of two versions of UBI (NIT as a “top-up” version of UBI versus upfront payment to all citizens [demogrant version]) at the end of the study, but for now it is useful to continue directly addressing the large figures put forth by cost objection claims as found in Young and Mulvale, and Kesselman. A couple of quotes on this difference are worth introducing at this point though. Young and Mulvale (2009: 15) state that one major Canadian government report in the 1980s “recommended a universal demogrant-based delivery system, rather than a strictly tax-based system [NIT], although [it] argued that either would be effective”. Also, Young and Mulvale (2009: 21) indicate that all of their models “assume that a guaranteed income program could be delivered either through a universal demogrant or through a negative income tax”. 13 If $132 bn in savings identified in Young and Mulvale’s proposal is added to the $181 bn in missed savings identified in this chapter, then Kesselman’s less generous model of UBI is reduced in cost by $313 bn, or 89%.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

23

To conclude this section on savings from programme replacement/ redundancy and reduction directly linked to implementation of UBI, I will limit myself to addressing three more programmes and forms of savings. Daycare costs, in its publicly-subsidized form and in its extremely expensive private form, can be greatly reduced with a UBI in place. The same will be demonstrated for social housing in various forms. And thirdly, since UBI cost objections are often coupled with advocacy of improvements to the status quo patchwork of welfare programmes, it is not accurate to simply calculate the cost of existing welfare payments to individuals in reducing the net cost of UBI. One must reduce the net cost of UBI by not only existing welfare costs, but also what the cost objectors are proposing in terms of increased funds towards welfare—this is additional funding they would put towards the (admittedly failed) existing system, which would be better directed to UBI. Subsidized institutional daycare, which advocates internationally recommend should be funded at the rate of 1% of GDP (Canadian Labour Congress, 2013), totals over $18 billion per year in the Canadian context. Constantly increasing labour market pressures, arbitrary bureaucratic rules (excluding people from maternity and paternity leave benefits for example) and a perverse approach to economic development sees new forms of extended daycare being offered. In Canada, 24-hour a day daycare (an oxymoron), seven days a week, was introduced in Quebec, with one of the main reasons cited being the accommodation of night-shift casino workers in Montreal (CBC, 2000; Peritz & Gagnon, 2000). “One pilot project at the Montreal Casino operates 24 hours daily, 365 days a year” and the Family Minister in the Quebec government, Nicole Léger, affirms she thinks it “a good idea” (Dougherty & Jelowicki, 2000).14 It is deeply discriminatory that some parents get extended maternity and paternity benefits (public and private benefits in some cases) to care for a new child, while others feel forced to put their children as young as six weeks of age, or even earlier (Québec, 2014), in institutions.

14 Putting children on a lower priority than that of servicing 24-hour/overnight gamblers represents an ethical new low, with government as facilitator of this anti-social conduct on both counts—providing the casinos (which many jurisdictions reject as antisocial) and then further enabling addictive gambling behaviour by removing/treating children as obstacles and placing them in government run “care” institutions. This is about as far from “care” (day, night or otherwise) as I have seen the term used. It is an abusive use of language and the comprehensive concept of care.

24

R. PEREIRA

A UBI can allow for provision of a decent level of care for all children by parents or those they trust most (family members, close neighbours) when the need may arise. While public expenditure on childcare in Canada is less than 1% of GDP currently, the OECD (2013: 1, 3) indicates that many statistics relating to daycare expenses are underestimated because of the reporting methods, or lack of reporting, by various levels of government on these expenditures to national governments (Canada is specifically identified as having this underreporting/underestimation problem). If the advocated 1% solution (costing over $18 billion per year and supported by many UBI cost objectors) is reduced by about half, because of UBI implementation and the far greater number of options it would introduce to provide both parental and non-parental childcare outside of publicly-subsidized institutions, we could add another $9 billion in savings or funding better directed to UBI. We could also help stem the tide of increasingly destructive new forms of employment that are creating the growing artificial need for unconventional daycare and nightcare. Among those who claim to need childcare overnight because of a lack of care alternatives, income insecurity or job inflexibility, only one in ten say they are prepared to leave their children in centres overnight (Peritz & Gagnon, 2000). Clearly, it is a trend15 the overwhelming majority want to avoid. UBI can provide better options. Some other aggressive trends that limit care options for children include: the rise in numbers of multiple job workers16 ; the rise in unpaid overtime work (Pereira, 2009); dismissals of pregnant women by increasingly brazen employers resulting in loss of maternity leave benefits (Pigg, 2009)17 ; and workplace cultures that discourage and penalize employees

15 Mario Régis, head of the association of non-profit daycare centres in Montreal, asks “How far do we want to go? We have to avoid a situation of abuse… children need their parents above all.” He also points out the potential for employer abuse using these programs to “take advantage of staff” (Peritz & Gagnon, 2000). 16 The number of Canadians working “at two or more jobs or businesses almost quadrupled (from 208,000 to 787,000), compared with overall employment growth of 61%” from 1976 to 2003 (Statistics Canada, 2004). 17 This is compounded by an extremely weak enforcement regime when it comes to

workplace standards violations in Canada (Federal Labour, 2006: 192–193, 220–221; Pereira, 2009: 55–59). Pigg writes that the “stunning” increase in firings of pregnant women across Ontario is happening in all sectors and human rights advocates claim they have not seen this level of discrimination in two previous recessions and 30 years in the human rights field.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

25

who take vacation time to which they are entitled (Hermann, 2011; Pereira, 2009; Wadsworth, 2013), despite paid vacation entitlement being inferior in Canada and the United States to most OECD nations. This is not an exhaustive list, as the weakening of labour unions and other developments in the past two decades have created intense time poverty in North America, which a UBI can help rebalance to significant degree. $9 billion in additional programme savings annually from childcare (not to mention private childcare costs which are extremely high) added to $181 billion in missed programme savings tallied earlier, totals $190 billion and brings the net cost of UBI down to $96 billion (from the original $286 bn [net cost], $350 bn or $380 bn depending on which cost objection argument referred to). If people had sufficient and secure minimum income that they could rely on through difficult circumstances (without complicated bureaucratic entanglements, stigma or exclusions), they also would not need to resort to social housing and affiliated programmes in most cases. These programmes also limit freedom in terms of where one can live, as most social housing is in select locations with a limited variety of home types, and most importantly, long waiting lists in many instances. Many Canadians do not have any special needs when it comes to housing, but are in social housing simply because of a lack of sufficient and stable income (Swanton, 2009: 20) in an increasingly precarious work environment. And if they have special needs those should certainly be accommodated and provided for while supporting the desire of many with milder special needs for independent living with a decent universal basic income (and not reducing any of the supporting services they currently receive, a basic principle of the Croll Commission in advocating for guaranteed annual income). The Toronto Community Housing Corporation is one of North America’s largest landlords, housing about 164,000 tenants, with an additional waiting list of over 72,000 (Maloney, 2014; Monsebraaten, 2013). Canada’s 600,000 social housing units receive $3.5 billion annually, cost-shared between federal and provincial governments (Federation of Canadian Municipalities, 201318 ). Under the Direct Rent Supplement Program, tenants in Alberta receive money directly from CRCH (Capital Region Housing Corporation, 2011: 1) to assist with their 18 This reference [online] is not officially dated; however, it cites “Results of a national survey on housing conducted October 18–22, 2013.” Accessed 22 May 2014.

26

R. PEREIRA

housing costs, up to a maximum of $500 per month. Rental subsidies in British Columbia can be up to $683 per month ($8,196 per year) (BC Housing, 2010). Different programmes involving forgivable loans that CMHC (Canada Mortgage and Housing Corporation) lists as available to real estate developers are valued up to $150,000 per unit (CMHC, 2014).19 Global figures for all this housing complexity, including subsidization programmes at the local level of government, are difficult or impossible to encounter. Assuming $5 billion in annual costs and that the majority of people housed in this way or receiving rent supplements are simply lacking stable, sufficient income, UBI could potentially reduce this cost by $4 billion. The final programme savings item I will deal with (and there are many more) here as indicated is the discrepancy between current welfare expenditures and improvements to the welfare system that UBI cost objectors advocate. While Young and Mulvale point out the $32 billion in annual provincial income assistance/welfare payments to individuals that become redundant with UBI and include this as savings against the net cost of UBI implementation, they also call for easier access to welfare and increased payments for those in it (Young & Mulvale, 2009: 31) in lieu of UBI, as is common with many of the cost objections.20 They do so because they know the existing system is a failure.21 But they are not willing to commit to UBI. Therefore, the additional funding advocated for the existing welfare system should be added to actual existing welfare payments, as this would be the total amount of spending (savings for

19 Also see Investment in Affordable Housing for Ontario: Program Guidelines, August 2011, 20 (available in the CMHC source above). This money could be directly provided to Canadians as additional funding to UBI so that they could build their own homes and find their own existing homes for purchase or rental options without the restrictions of local and provincial housing authorities and their sometimes corrupt, expensive bureaucracies (subsection “Third Response: Freedom from Bureaucracy” on bureaucracy will detail some of this corruption). 20 “Welfare programs don’t have to remain as they are: they can be made less parsimonious…” (Kesselman, 2013: Sect. 2.1). “For employable people on welfare, particularly singles, benefits are miserly to the point of almost requiring beggary and thievery for bare sustenance. These welfare benefits need to be increased…” (Kesselman, 2013: Sect. 7). 21 For an explicit real-life example of how the existing welfare patchwork constantly creates new hardships for those caught in its numerous programs (welfare, social housing and rent supplements, OSAP student loans, etc.), see Laurie (2008: 29–30).

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

27

UBI advocates) that would be directed to the current system, but available to UBI financing instead. The UBI cost objection studies are not clear on how much they would increase provincial income assistance/ welfare payments by resisting UBI implementation. But if we assume a 50% increase is reasonable (and possibly very conservative given both easier access to the system and increased payments for recipients are advocated), that would add $16 billion in payments. These are pure savings for the UBI advocate and thus reduce the net cost of UBI to $76 billion (factoring in this $16 billion annual savings with the above $4 billion in annual social housing costs not deducted from net cost yet). Conclusion: Programme Savings and Redundancy Are Vastly Underestimated The programme savings in this section add up to $210 billion annually. The savings have been conservatively calculated in many respects and could therefore be significantly greater. And there are numerous other programmes that could be included to lower UBI net cost from program savings alone. Universal public health care has not been affected. There is no intention to cut funding from, or reduce the quality of, publicly delivered health care. Instead, the public healthcare burden is reduced generating a significant savings in the system with introduction of UBI at a decent level. A major goal of this thesis is to improve health outcomes and to resist any attempts towards privatization or downloading of health costs onto citizens. This additional net cost reduction of $210 billion annually (and proportional equivalents from similar programme redundancies in many other countries) has been missed by the UBI cost objection studies and thus influences negative conclusions on UBI implementation. Net cost has been reduced by almost 75% of Young and Mulvale’s $286 billion net cost annual figure. Programme savings/redundancies reduce Kesselman’s $350 billion annual cost figure by $342 billion ($132 billion in savings identified by Young and Mulvale, plus $210 billion in additional savings identified in this work), or 98%. A few other significant programmes (not a full list) that could be seen as redundant with UBI in place and thereby provide additional savings to finance it include: the WITB (Working Income Tax Benefit, or equivalent EITC in the United States) which Kesselman (2013: Sect. 7) calls for increased cash support to individuals through various “special public employment projects” which Kesselman (2013: Sect. 7) also calls for

28

R. PEREIRA

increased funding for, and boutique tax benefit programmes such as the Senior Homeowners’ Property Tax Grant.22 I invite others to add to the list savings items that they would see as redundant with introduction of a sufficient UBI to ensure coverage of basic needs and to cost these items. This study has gone much farther in this direction than previous available studies encountered and has space and resource constraints. The NIT versus demogrant distinction between UBI proposals (two methods of delivery) introduced earlier in this section should also be briefly noted as a reminder when considering the vast cost differential between the two versions. Keeping this distinction in mind as this study proceeds will allow one to see amplified savings that are more visible with NIT, but masked in the UBI cost objections’ general approach and focus on the demogrant model. Recall that two key sources—Young and Mulvale’s study, and a major Canadian government report on UBI (McDonald Commission report) from the 1980s—clearly state that both delivery methods are effective with the latter source recommending the universal demogrant version. The importance of this distinction is that the starting cost point identified for NIT is $21.5 billion (Young & Mulvale, 2009: 24) whereas the starting cost for the demogrant is $418 billion (Young & Mulvale, 2009: 24). Both systems can be “calibrated” to achieve the same results (Young & Mulvale, 2009: 21). Taking the $132 billion in savings from existing income security programmes identified by Young and Mulvale (2009: 25) to reduce UBI cost from $418 billion to a net cost of $286 billion, plus the additional savings identified in this section valued at $210 billion, totals $342 billion in savings. Applying this against the insignificant NIT cost for universal basic income results in a large-scale surplus of over $300 billion. The demogrant version cost is not as far off the NIT cost as implied.23

22 Worth up to $500 each year for seniors 64 years of age or older who own a home in Ontario (see www.fin.gov.on.ca/en/credit/shptg/). This particular programme is an example of one that may justify partial redundancy with a UBI in place, whereas many other programmes justify full redundancy/elimination with all savings directed to UBI instead. 23 Adding a ‘clawback’ to UBI can make the demogrant version even more similar in cost to the NIT version, depending on what rate the clawback is set at. Since there is such a large surplus to work with, the clawback could be set at a relatively low rate and still achieve a large surplus of public funds by implementing a UBI demogrant.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

29

Second Response: Inefficiencies and Leakages in the Existing Tax System—No New Taxes! This response will be brief in identifying major areas of tax revenue losses at prevailing rates that could help finance a decent UBI. No new taxation is involved in the analysis. The evasion and avoidance of taxes by those best positioned to take advantage of tax complexity and lax enforcement in specific areas are the concern, and UBI cost objections do not give this sufficient attention. Instead, cost objectors by default resort to the “need” to tax personal/labour incomes at higher rates in order to deal with the unacceptable high cost of UBI and the financing gap it purportedly generates. The exclusive reliance on the personal income tax system as the only vehicle for addressing the costs of UBI by cost objectors such as Kesselman, Young and Mulvale—although in other places Kesselman, for example, mentions business taxes as well before reverting to this more exclusive argument and emphasis on the personal system—is misplaced, in several ways. Van Parijs, White and many other international writers on UBI also emphasize the need to tax labour much more aggressively in order to successfully finance basic income, although supportive of the basic income idea. “The personal income tax system would be applied to finance the [basic income] system” Kesselman (2013: Sect. 4) writes in a section entitled “Basic income: Gargantuan costs, unacceptable tax hikes”. Young and Mulvale also state that: Any version of guaranteed income – whether universal or targeted,… demogrant or through a negative income tax [NIT] – obviously involves substantial government spending. Raising taxes is politically unpopular. So committing substantial public revenue to ensure basic economic security for all is seen by many as beyond the realm of the ‘reasonably discussable’. (Young & Mulvale, 2009: 23)

This study has thus far disproved the above strong claim that negative income tax “obviously involves substantial government spending” because in fact there are large-scale savings to be gained (a surplus) by introducing UBI in the NIT form (and in the demogrant form as will be made clearer later). It has already been established (subsection “First Response: Savings from Replacement of Existing Income Security Programmes”) that NIT and demogrant versions can achieve the same results through calibration and that both can be equally effective, with one major government report

30

R. PEREIRA

favouring demogrant delivery over NIT in assessing both versions for optimal cost and effectiveness. Therefore, if Young and Mulvale (2009: 24) produce a $21.5 billion cost figure for a negative income tax version of UBI that achieves “reduction of poverty to zero”, and they produce a limited savings list of redundant programmes valued at $132 billion as a result of UBI implementation, there is no need to talk of massive spending involved. What we have is large-scale savings—even if we remove several items from Young and Mulvale’s list of savings.24 It is confounding when this information is presented and conclusions are reached that a decent UBI appears to be “out of our immediate financial reach” (Young & Mulvale, 2009: 25). If taxation is to be discussed, it must start with the existing system and where it is failing to collect legal revenues at prevailing rates. Canada Revenue Agency (CRA) states “When an individual or business does not fully comply with tax legislation, an unfair burden is placed on law-abiding taxpayers… and the integrity of Canada’s tax system is jeopardized” (CRA, 2014b). The most significant item in this regard is offshore tax havens and the tax evasion and avoidance that occurs through them. Vast wealth is channelled away from public goods through these shady and secretive offshore jurisdictions, placing additional burdens on those in lower-income brackets. Addressing this as a priority, before referring to any personal income tax increases, is a necessity as the existing system is not being honoured or enforced. Related issues of transfer pricing used as a mechanism to artificially lower profit figures, and therefore taxable income, by major corporations also needs to be addressed on the tax side before objecting to programme costs, even if the costs for UBI are overestimated. Such issues deal directly with the existing tax system as it stands, and the priority is to ensure fair and progressive rates of taxation are actually collected under current rules before raising the scare of personal income tax increases. During this “golden age for corporate profits”, some of the largest multinational companies are paying zero tax and receiving tax refunds and subsidies simultaneously (Buccheit, 2013).

24 From their list of $132 bn in savings, I would start by removing the $14 bn item

for Employment Insurance as discussed earlier (subsection “First Response: Savings from Replacement of Existing Income Security Programmes”), as this programme should be retained as a contributory scheme. This would result in $118 bn in savings from Young and Mulvale’s figures, against a cost of $21.5 bn for UBI (NIT version), totalling $96.5 bn in savings/surplus from implementing UBI.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

31

How many Canadian tax dollars are we losing to tax havens? …There are three independent estimates that put the figure as high as $80 billion a year that federal and provincial governments are losing to various forms of tax evasion. A recent Statistics Canada report showed that a quarter of all Canadian direct investment abroad was going to countries that have been identified as tax havens. Barbados was the destination for $53 billion in 2011. (Canadians for Tax Fairness, n.d.; CPJ, 2012)

As concerns developing countries, tax havens facilitate transfer pricing, capital flight and corruption worth ten times the value of aid received by these countries (CPJ, 2012). In the UK, one of the numerous highprofile stories recently involved the American multinational company Starbucks repeatedly claiming annual financial losses despite making billions of pounds in profits. Transfer pricing allows such corporations to use offshore tax havens and other mechanisms to misprice transactions between companies in a group (Clinch, 2012). The issue affects all countries and their ability to provide public goods, including UBI. If we take the $342 billion in total savings available from UBI implementation identified thus far ($132 billion in savings from Young and Mulvale’s net costing plus additional savings of $210 billion detailed in subsection “First Response: Savings from Replacement of Existing Income Security Programmes”) and add the $80 billion in tax leakage from Canada to offshore tax havens each year, a large surplus is further built up by implementing the NIT version of UBI, as well as surpluses achieved by implementing the demogrant version of UBI as costed by multiple proposals in the cost objection. And recall there is little difference between both NIT and demogrant versions in the final analysis, which has not been clarified sufficiently in the cost objection. To be conservative, let us take half of the amount of the $80 billion in tax leakage identified, instead of the full amount, realizing that severe penalties apply to unpaid, avoided or evaded taxes. This $40 billion annual figure means that we have $382 billion in savings and tax leakage/lost revenue from the existing system to put towards a decent UBI. This overshadows the cost of the NIT version of UBI put forth in the cost objection, and it surpasses the universal demogrant UBI cost Kesselman puts forward by over $30 billion (a $32 billion dollar surplus, without any personal income tax rises).

32

R. PEREIRA

Third Response: Freedom from Bureaucracy This response highlights the waste of bureaucracy entailed with numerous programmes that fail to achieve what a decent UBI can achieve in most cases.25 It is a brief response that largely focuses on the real-life case of an individual experiencing multiple welfare bureaucracies. The complexity of this patchwork is overwhelming to individuals experiencing it directly. Sorting out all the bureaucracies and their costs is not worthwhile or necessary here. What is important is to convey this complexity and demonstrate that the costs of bureaucracy are often overlooked in the cost objection and not included in addition to the various programme costs it is associated with. Monitoring people, co-ordinating hundreds of arbitrary and everchanging rules, ensuring people are destitute first before qualifying for welfare or social housing adds excessive complexity to government. It also wastes a great deal of time and other resources on both sides of this divide. Potential recipients fill out many forms, travel to various offices, make appeals, get rejected and humiliated, and try another process or programme. Bureaucrats—from the lowest ranking staff to the highest paid managers—could be engaged in much more productive and rewarding work. Maintaining numerous offices, tribunals, employees and data control to carry this all out, micromanaging people’s lives, costs a great deal of public money that is not sufficiently acknowledged in the cost objection. For example, we read about the cost of existing income assistance payments to individuals or families in the tens of billions, or the cost of building a social housing unit, or the maximum allowable monthly rent supplement in any jurisdiction. However, the bureaucratic cost is often excluded or ignored. All this complexity is produced because people simply lack sufficient and stable income in most cases. An extended illustration from the Ontario Association of Food Banks is valuable here: Ali lived in subsidized housing as he grew up with his parents and younger sister and brother. The family has been in Canada since 1994. Ali’s family

25 Health care bureaucracy is not affected in this discussion. Again, the commitment in this thesis is to high-quality publicly delivered healthcare, with no intention of moving in the direction of private healthcare delivery as is commonly associated with the U.S.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

33

receives Ontario Disability Support Plan payments as his father is disabled. His mother works part time but makes very little. They came from the Refugee camps in Kenya. Ali… had a part time job since he was 17 and (as a child) none of his earnings reduced the family’s ODSP payments. He was able to help a bit with household expenses from his earnings. When Ali turned 18, the family lost the $105 or so monthly payments from the (exempted) federal Canada Child Tax Benefit. The family needed this money and Ali was able to make it up by getting more hours where he worked. (Laurie, 2008: 29)

It became apparent that Ali was not going to be able to attend postsecondary school full-time, not only because of a lack of savings and the loss of $105 monthly in child benefits, but because he needed a lot more income to pay for tuition and textbooks for college. He also learned that 50% of his net earnings of $600 a month would now be deducted from his father’s disability payments. This because Ali was no longer considered a dependent child and was no longer in high school. The Housing authority then notified his parents that there would be a rent increase as a result of Ali being over age 16 and having graduated from high school, because he was not currently in school full-time, and because he was making over $75 per month. The rent increase was $90 per month, effective immediately. The decision to pursue post-secondary education part-time (instead of full-time) was made as a result of these cumulative income losses and bureaucratic programme features. Ali thought he may work additional hours to make up some of the income losses while studying only parttime. Financial assistance would still be required in the form of student loans by OSAP (Ontario School Assistance Program). OSAP forms do not allow for consideration of Ali’s circumstances, such as 50% of his net pay being deducted from his father’s disability payments. OSAP officers told him to simply submit his application when he raised questions and concerns about these different factors he was encountering and how it would impact the size of his loan—they do not answer such questions. At the end of the summer, Ali came to the reluctant realization that he could not remain at home with almost $300 of his net pay coming off his family’s ODSP payment along with the $90 increase in rent. Like so many others in his situation, Ali moved out and established his legal residence at a friend’s house.

34

R. PEREIRA

He became what is known by many public housing kids as a ‘couch rider’… (Laurie, 2008: 29)

Couch riding while studying and working was not helping Ali’s academic performance so he decided to give up his courses and look for another part-time job to combine with his existing job. At about this time, he received a letter demanding his small OSAP loan be repaid with interest, his mother got a letter from “housing” stating that the family was now “overhoused” without Ali at home and they no longer qualified for their apartment. The family would have to leave (Laurie, 2008: 29). The story gets worse from there. Basic income at a decent level could help millions of people avoid all this arbitrary complexity and bureaucratic overlap. The negative life impacts that come with it are avoidable. Incurring all this bureaucratic overhead to make people’s lives so miserable and difficult represents public funds that would be much better directed to UBI. All these large bureaucracies also make government less transparent and therefore less accountable. It becomes exceedingly difficult to penetrate all their workings, and numerous opportunities for patronage and corruption arise (Alcoba, 201326 ; Montreal Gazette, 2011). Better to have fewer bureaucracies operating at the highest levels of transparency, accountability and ethics than having public money scattered in too many conflicting directions. This complexity has worsened since the early 1970s when guaranteed annual income/UBI was advocated in the Croll Report (Canada, 1971). And from that government report four decades ago we could see the profligate waste of bureaucracy. “The cost of administering all this complexity is staggering… to issue one twenty-five-cent bus ticket, in terms of time and energy, cost the welfare system about four dollars!” (Canada, 1971: 87). Already, in 1971, the Croll Report was critical of “…innumerable welfare administrations and social-service organizations in Canada. The luxuriant growth of government and quasi-government agencies…” (Canada, 1971: 67) which has only increased since then.

26 “…a damning report from the city’s auditor-general that uncovered lavish employee expenses [at TCHC – Toronto Community Housing Corporation]. That probe also found staff repeatedly single-sourced contracts, sometimes without appropriate documentation, or split orders in order to get around procedures that would require board approval for big ticket items.”

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

35

Without adding bureaucratic costs that are missed in the cost objection arguments, our savings figures from implementation of UBI remain at $342 billion (subsection “First Response: Savings from Replacement of Existing Income Security Programmes”) plus $40 billion in tax losses from the existing system annually (subsection “Second Response: Inefficiencies and Leakages in the Existing Tax System—No New Taxes!”). This $382 billion annual total stands against a $30 billion “cost” for a negative income tax version of UBI put forth by Kesselman, resulting in a $352 billion surplus/savings without any tax increases. The demogrant version of UBI is costed at $350 billion by Kesselman, resulting in a $32 billion savings/surplus from UBI implementation. And as stated, the cost of both versions of UBI is similar, with one version (demogrant) paying UBI upfront in monthly instalments and the other paying it as a negative income tax or “top-up” at the end of the year. The demogrant will be paid back in part or in full by the end of the year depending on the income received by those in formal labour market employment (and depending on the amount of unearned income received by those in or out of formal market employment), as well as through consumption taxes and other taxes paid by those who had no income, or insignificant income, prior to UBI. Bureaucratic costs add to these savings to be gained by UBI implementation. These bureaucratic costs are best calculated elsewhere due to constraints (time, resources, data availability and accessibility) and because they are not required to demonstrate the feasibility of UBI. One guiding point in this area of cost and savings worth emphasizing is the 16:1 ratio highlighted in the Croll Report above in terms of bureaucracy costs required to issue benefits in the form of one bus ticket. This is not necessarily the case with most welfare bureaucracy today, but we have all heard of charities that despite relying on large amounts of volunteer labour still often waste a large portion, or even the majority, of their financial contributions on administration and salaries. Public bureaucracy uses often well-paid staff and high-paid managers to execute the oppression detailed above, without volunteers (who would volunteer for such an awful task?). It is therefore not good policy to multiply bureaucracies or increase their size where it is not absolutely necessary and where cash payments/basic income can be far more effective.

36

R. PEREIRA

Fourth Response: Externalities and Current Free-Riding Dumping toxins in the air, land or water at little or no private cost leads to tremendous public costs. This occurs in the form of health costs. It can occur in the form of aesthetic damage, such as the death of diverse natural spaces used for recreation, which often earn public revenue. The loss of fisheries, or the loss of local food security due to polluted land, rivers or groundwater, can destroy local economies and necessitates often lowerquality imports and expensive new infrastructure to make this feasible. These are some examples and implications of ecological dumping. As David Suzuki (2008) and James Hansen (2009) have argued, exacting a proper levy on the use of the commons can mitigate such destructive activity and bring it down to a sustainable level while generating large revenues for a “green dividend” or green component to basic income.27 New forms of free labour being extracted from populations, especially younger demographics entering the workforce, in the form of unpaid overtime work, unpaid internships, excessive hours worked without premium pay previously associated with overtime, deliberate misclassification of employees as self-employed, etc., all represent social dumping (Pereira, 2009; Perlin, 2012; Standing, 2009). Even more extreme versions of it involve the horrible vision of suicide nets placed outside the factory of mobile phone producer Foxconn (Trenholm, 2012) as a twenty-first-century solution to degrading labour. Off-shoring of labour has led to incredible profits for corporations like Apple, which is directly linked to Foxconn, as they carry out social and ecological dumping simultaneously with such moves. These externalities and free-riding have public costs, some of which UBI can help turn into savings. This response to the cost objection will explore some of these possibilities, starting with health costs incurred as a 27 Some anti-ecological activities such as nuclear power and its waste generation need to be banned outright, as several countries and other jurisdictions have already done. Many toxic chemicals are also not needed in food or other products—organic food production could be pursued much more actively. However, destructive mining activities to produce luxury items and many other unnecessary consumer goods for example should have much higher prices attached to them to reflect this ecological harm, if local communities have accepted the mining activity. Excessively large vehicles (SUVs) and sports vehicles (cars, boats, etc.) simply purchased as status items and burning excessive amounts of fuel are additional examples of items that should have a much higher ‘true-price’ for the damage they cause to the commons and greater amount of resources required in their production and daily usage/emissions, if society is to continue to accept their proliferation.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

37

result of deteriorating labour conditions, which UBI can help rebalance. When faced with growing job and income precarity, employees are less likely to speak up or confront such abusive conditions for fear of losing their income and their mortgaged homes, etc. UBI offers some ability to confront this degradation because a minimal, decent income is guaranteed. It may not be as high as your job income and it may not cover the expensive monthly payments on a large home and car, but it would always allow you to live in modest dignity and not miss a rent payment (or modest mortgage payment, or refinanced mortgage payment), and see you through a difficult patch for an extended time. This will allow many more people to voice important concerns that are currently silenced, and if the situation is unbearable, they could eventually choose to leave rather than sacrificing their health (or commit suicide) if the employer fails to improve the situation. No new taxation of labour income or personal income tax increases are required to achieve this generation of revenue, which can help protect the commons, improve the functioning of the economy and dramatically reduce public health costs. Curbing harmful financial speculation through modest levies has long been discussed for its great revenue generating capacity in contrast to the almost negligible size of such levies (beginning with Tobin tax and many possible variations of it). Ecological, social and speculation (financial, real estate and other) costs are often borne by the victims of these activities, with perpetrators externalizing these costs into the public realm—free-riding. Corporate subsidies (“corporate welfare”) is yet another version of this phenomenon. It recently cost global citizens trillions of dollars in the form of bailouts to banking, financial, auto and other corporations. Starting with social-labour dumping that is continually intensifying, in the Canadian context alone we find $33 billion in annual health costs, or savings available (MacQueen, 2007; Pereira, 2009), if this situation were addressed. In the past, this type of abuse was countered through strong labour movements at the national level. The labour movement has not provided a successful response to these recent challenges of deterioration, partly because of the dynamics of globalization. A UBI can mitigate a lot of this harm by empowering people with a minimal amount of control or say, and security, in their working lives, which does not currently exist (the majority of workplaces being non-unionized in Canada). This can provide an opportunity for new forms of collective response and for labour unions to become more relevant to desperate employees seeking

38

R. PEREIRA

an improvement in the labour market. Too many people have no hope or income security in confronting the challenges of rising stress, burnout and workplace disability associated with modern workplaces costing us $33 billion annually. “Stress is part of an explosion in workplace mental health issues” (MacQueen, 2007), which is only intensifying with eroding income security. Taking two-thirds of this $33 billion current cost, which is entirely avoidable, totals an additional $22 billion in indirect savings for UBI. One-third of this large amount is conservatively left in place to account for those who will continue to overwork themselves in pursuit of career objectives. But there is no reason why UBI cannot achieve better than this in restoring a healthy balance between work and life. Adding this amount to the total of $382 billion in available savings/revenue towards UBI implementation identified in subsections “First Response: Savings from Replacement of Existing Income Security Programmes”–“Third Response: Freedom from Bureaucracy” above results in $404 billion in accumulated savings/revenue thus far available, without increasing taxes on labour. Continuing with externalities, dumping and free-riding that impose public costs on society that can be mitigated and recouped through fairpricing, let us consider the ideas of leading environmental thinkers and practitioners David Suzuki and James Hansen (former head of NASA’s Goddard Institute). Hansen (2009) argues a much more efficient and effective environmental proposal to address pollution and climate change than those currently on offer would be “fee and dividend” (carbon fee). His model based on usage of oil, gas and coal in the United States in 2007 would yield $600 billion per year and result in a dividend for each adult American of $3,000 per year. David Suzuki (2008) as Canada’s leading environmental thinker and personality sees even greater yields available in his modelling, while improving economic performance, sustainability and social well-being. Taking one-tenth of the more conservative American figure above (approximate Canadian population relative to the United States) can result in an additional $60 billion in financing for a green dividend or green component of UBI ($3,000 in additional UBI per adult). This has the simultaneous benefit of addressing urgent global, national and local environmental priorities. Adding this figure to the $404 billion in savings/revenue available to UBI totals $464 billion. A large surplus is created by applying this figure to any of the most pessimistic and simplistic

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

39

of cost assessments/objections to UBI, whether considering the NIT or demogrant versions of the idea. We can still consider much-needed speculation levies (on financial and land speculation), as well as corporate welfare giveaways before even needing to discuss personal income tax increases that the cost objection assumes is required from the outset. The surpluses demonstrated so far show that taxes on labour (labour market income) could even be cut.

Conclusion Without raising any personal income taxes, this study has shown that universal basic income is not too expensive to implement as a public policy. Savings from programme replacement and redundancy make up the majority of the rationale for this argument. Public universal health care as a cherished institution and programme has not been cut to achieve any programme savings or financing for UBI. Implementing UBI in fact helps improve the health system by reducing unnecessary burdens upon it. The financial surplus generated by implementing a UBI (in either negative income tax or demogrant versions) can actually lead to a personal income tax reduction if so desired. Savings from bureaucracy have not been costed or calculated, which would only make the case for UBI even stronger. Other revenue generating possibilities that do not include taxing labour, and which are noncontroversial, such as taxing financial or land speculation have not been included in the net costing or financing of UBI here. A surplus is achieved by implementing UBI even without these additional non-controversial financing options. Total savings of $342 billion (subsection “First Response: Savings from Replacement of Existing Income Security Programmes”) from redundant and/or ineffective programmes alone exceeds the Young and Mulvale cost of $21.5 billion for an NIT version of UBI (well over $300 billion in savings/surplus). As discussed, the NIT and demogrant versions of UBI, the latter having much higher costs attached to it in the cost objection

40

R. PEREIRA

argument, are not that dissimilar in terms of final cost.28 The cost objection ignores the manner in which UBI is paid back in the demogrant version to arrive at a similar final cost to the NIT version. Total savings (subsection “First Response: Savings from Replacement of Existing Income Security Programmes”) plus leakages in the existing tax system (subsection “Second Response: Inefficiencies and Leakages in the Existing Tax System—No New Taxes!”) largely from tax havens and practices carried out through them total $382 billion—far exceeding Kesselman’s pessimistic costing of a demogrant version of UBI for Canada. Kesselman in his cost objection does not include any savings figures for UBI, nor does he address tax leakages and inefficiencies in the existing system that could be used to finance UBI. He simply jumps to the “need” to tax labour/personal incomes at “unacceptably” high rates to fund basic income. That has been proven false. In the last two of four responses to the cost objection (subsections “Third Response: Freedom from Bureaucracy” and “Fourth Response: Externalities and Current Free-Riding”), I demonstrate how additional financing can be generated to further increase the surplus available by implementing UBI. These last two responses are only costed in a very limited manner and can generate far greater revenues. Thus, it is the existing welfare system and status quo with inefficient, often counterproductive programmes that are too expensive.

Appendix---Missed Savings and Redundancies in the UBI Cost Objection: A Summary Young and Mulvale (2009) cost a “generous” UBI—enough to raise all Canadians out of income poverty—at $418 billion annually and find savings of $132 billion (leaving the Canada Pension Plan/Quebec Pension Plan untouched). This provides a net cost of $286 billion annually in their study, leading them to conclude UBI is financially out of reach. Kesselman (2013) costs UBI at $350 billion and provides no savings figures. Here are missed savings items that these studies failed 28 For additional support on this point, see Pasma and Mulvale (2009: 2) in which they state: “Although the cost for the government’s budget is greater than with an NIT, the end cost to taxpayers is not necessarily higher, since those with higher incomes pay the benefit back through their taxes. As well, the program may be cheaper to administer than an NIT because of the greater simplicity of its administration.”

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

41

to consider or cost to reduce the net cost (and even provide a surplus) for UBI. This is a summary of what is detailed in this study with a few additional items for consideration marked with an asterisk: Appendix Table—Missed Savings Item or Program

Missed Savings (Billions)

Missed Savings Subtotal

Additional tax revenue generation (at prevailing rates) RRSP TFSAs Other tax shelters Cost of poverty Daycare—partial redundancy Social housing (& related programs)—partial redundancy Additional income assistance/welfare advocated in the cost objection (to status quo programs) WITB (EITC equivalent in the U.S.) Special public employment projects advocated in the cost objection Homeowner’s Property Tax Grant Charitable tax deduction programs and gov’t grants (foodbanks, poverty alleviation) Corporate welfare-subsidy programs Sunshine list of excessive/high salaries in the public service* Total Missed Savings/Redundancies PLUS: Tax leakage—current system Offshore tax havens/related evasion and tax avoidance PLUS: Bureaucracy savings Welfare elimination, social housing reduction, daycare reduction, OSAP etc. PLUS: Externalities/current free-riding Social-labour dumping, health costs Green dividend/carbon fee Tobin tax and/or variations at the national level (financial speculation levies) Land speculation levy Taxing unearned income at the same rate as earned income* Total Missed Savings, tax leakage (in current system) and new revenue from pricing externalities

$86 $36.3 $3 $3 $53 $9 $4 $16

$122.3 $125.3 $128.3 $181.3 $190.3 $194.3 $210.3

not costeda not costed not costed not costed not costed $210.3 $40

$250.3

not costed

$250.3

$22 $60 not costed

$272.3 $332.3

not costed $332.3

a Estimates can be found in the Parliamentary Budget Office (PBO)—Bureau du Directeur

Parlementaire du Budget report of May 27, 2014, “Revenue and Distribution Analysis of Federal Tax Changes: 2005–2013” pp. 18-20 (Fig. 6-2 demonstrates the annual increase in WITB payments to individuals and families since this federal program’s inception in 2007). Approximately 9% of Canadian households received WITB benefits in 2014

42

R. PEREIRA

according to the PBO. The EITC in the U.S. paid out $66.7 billion in tax year 2014 (Internal Revenue Service) with a 20% failure in the take-up rate—four out of five eligible recipients claiming this federal refundable tax credit: https://www.eitc.irs.gov/EITC-Cen tral/abouteitc, Accessed 6 July 2016. “Determining eligibility for EITC is complicated” as indicated on the IRS website; the same being true for the WITB.

Adding this missed savings total (preventing externalities can also be considered savings, as this reduces public costs) to existing savings identified in Young and Mulvale (2009) of $132 billion totals $464 billion in savings to be gained by implementing UBI. Many items above have been costed partially or conservatively as explained throughout the chapter, leading to a greater potential for savings/surplus as a result of implementing a decent universal basic income. Several items have not been costed, leading to even greater savings than what is presented here.

References Alcoba, N. (2013, February 6). Toronto community housing hires firm to investigate kickbacks, double billing for repair work. National Post. Ariely, D. (2012, August 2). Americans want to live in a much more equal country (they just don’t realize it). The Atlantic. Barry, B. (1996). Real freedom and basic income. Journal of Political Philosophy, 4(3), 242–276. BC Housing. (2010). Rental assistance calculator (online). Blumberg, M. (2007, November 23). Abusive Canadian charity tax shelter schemes. Blumberg Segal LLP, globalphilanthropy.ca. Buccheit, P. (2013, March 18). 16 giant corporations that have basically stopped paying taxes—While also cutting jobs! AlterNet. Canada, Croll Report. (1971). The Senate of Canada. The report of the special Senate Committee on poverty: Poverty in Canada. Ottawa. Canada Without Poverty/Canada Sans Pauvreté. (n.d.). The cost of poverty. CWP (online). Canadian Labour Congress/Le Congrès du travail du Canada. (2013, September 12). Child care in Canada: A scarce resource. Canadianlabour.ca. Canadian Press. (2014, January 21). FTQ wanted Pauline Marois to help stop corruption inquiry. Canadians for Tax Fairness. (n.d.). Huge cost of tax evasion revealed as campaign to tackle tax havens launches. Taxfairness.ca. Ottawa. Capital Housing Region Corporation. (2011, June 13). Direct rent supplement program. CRHC. http://crhc.ca/media/66790/brochure_directrentsu pplement_130611.pdf

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

43

CAW—Canadian Autoworkers Union. (n.d.). Strong pensions—Secure future (Fact Sheet #2). CAW/TCA. http://www.caw.ca/assets/pdf/UPCFactSh eet2.pdf CBC News. (2000, August 30). Day-care centres to be opened 24 hours. CBC News. (2012, March 29). Capital gains tax break falling out of favour. CBC News. (2013, January 4). Retirement savings in Canada—By the numbers. CBC News. (2014, February 23). A user’s guide to RRSPs. Clinch, M. (2012, October 16). Backlash as Starbucks UK tax avoidance revealed. CNBC/Reuters. CMHC—Canada Mortgage and Housing Corporation. (2014). Affordable housing programs in Ontario. Government of Canada. CPJ—Citizens for Public Justice. (2012, November 16). Bring our tax dollars home. CPJ.ca. Ottawa. CRA—Canada Revenue Agency. (2014a). Canadian income tax rates for Individuals. http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html CRA—Canada Revenue Agency. (2014b). Offshore tax informant program (online). Department of Finance, Canada. (2009, October 16). Government of Canada proposes technical changes concerning tax-free savings accounts. Government of Canada. http://www.fin.gc.ca/n08/09-099-eng.asp Department of Finance, Canada. (2014). Tax expenditures and evaluations 2013. Government of Canada. Dougherty, K., & Jelowicki, A. (2000, August 31). Night daycare to make debut. Reprinted in Childcare Canada. Emery, J. C., Fleisch, V., & McIntyre, L. (2013, December). How a guaranteed annual income could put food banks out of business (Vol. 6, Issue 37). School of Public Policy, University of Calgary. European Commission. (2014, January 13). VAT rates applied in the member states of the European Union. ec.europa.eu/taxation_customs. Federal Labour Standards Review Commission. (2006). Fairness at work: Federal labour standards for the 21st century. Human Resources and Skills Development Canada. Federation of Canadian Municipalities. (2013). About the housing crunch. https:/ /www.Edmonton.ca/city_government/documents/Housing_Roundtable_ FCM_backgrounder.pdf Forget, E. (2011a). The town with no poverty: The health effects of a Canadian guaranteed annual income field experiment. Canadian Public Policy/Analyse De Politiques, XXXVII (3), 283–305. Forget, E. (2011b, February). The town with no poverty: Using health administration data to revisit outcomes of a Canadian guaranteed annual income field experiment. University of Manitoba.

44

R. PEREIRA

FTQ—Fédération des travailleurs et travailleuses du Québec. (2014). Why choose the Fonds RRSP? Fonds de solidarité FTQ (online). Gindin, S. (2013, September). Beyond the economic crisis: The crisis in trade unionism. Canadian Dimension. Hansen, J. (2009, December 6). Cap and fade. New York Times. Heath, J. (2011, April 6). Real estate: A ‘secret’ tax shelter. Financial Post. Hermann, J. (2011, August 8). Inside the world of London’s 24/7 interns. London Evening Standard. Hopper, T. (2012, December 18). Manitoba whistleblower assigned to ‘non-job’ after warning of government fraud. National Post. Japel, C., Tremblay, R., & Côté, S. (2005, December 13). Quality counts! Assessing the quality of daycare services based on the Quebec longitudinal study of child development. IRPP—Institute for Research on Public Policy. Kesselman, J. R. (2013). A dubious antipoverty strategy: Guaranteeing incomes for the poor is politically unfeasible and financially unsustainable. Inroads Journal. Winter/Spring: 33–43. Krozer, A. (2010). A regional basic income. United Nations—CEPAL. Laurie, N. (2008, November). The cost of poverty: An analysis of the economic cost of poverty in Ontario. Ontario Association of Food Banks. Lee, M., & Ivanova, I. (2013, February). Fairness by design: A framework for tax reform in Canada. CCPA—Canadian Centre for Policy Alternatives, British Columbia. MacQueen, K. (2007, October 15). Dealing with the stressed. Special Report: Workplace stress costs us dearly, and yet nobody knows what it is or how to deal with it. Maclean’s. Maloney, P. (2014, April 22). What is TCHC? Notes on a scandal. Toronto Star. Milligan, K. (2012). The tax free savings account: Introduction to the policy forum and simulations of potential revenue costs. Department of Economics, University of British Columbia (online). Monsebraaten, L. (2013, November 12). Ontario affordable housing waiting lists still climbing. Toronto Star. Montreal Gazette. (2011, December 2). Watchdog to probe Quebec daycare system. Reprinted in Childcare Canada. Morrison, M. (2013, December 31). The close: TSX ends 2013 up nearly 10 per cent. Globe and Mail. Munroe, S. (2013, September 25). Canadian sales tax rates. Canada Online. OECD Family Database. (2013, July 29). Public spending on childcare and early education. Social Policy Division—Directorate of Employment, Labour and Social Affairs. Pasma, C., & Mulvale, J. (2009). Income security for all Canadians: Understanding guaranteed income. BIEN Canada.

2

THE COST OF UNIVERSAL BASIC INCOME: PUBLIC SAVINGS …

45

Pereira, R. (2009). The costs of unpaid overtime work in Canada: Dimensions and comparative analysis (MA thesis). Athabasca University. Peritz, I., & Gagnon, L. (2000, August 31). Tired of the kids? Try 24-hour daycare. Childcare Canada. Perlin, R. (2012). Intern nation: How to earn nothing and learn little in the brave new economy. Verso. Pigg, S. (2009, April 29). Employers fire mothers-to-be. Toronto Star. Québec. (2014, April 14). Registering your child in childcare services (day care). Government of Québec. Rainer, R. (2012, May 31). Mr. Rob Rainer (Executive Director, Canada Without Poverty) at the Finance Committee. OpenParliament.ca. Rainer, R., & Ernst, K. (2014, February 27). How can we not afford a ‘basic annual income’? Toronto Star. Simms, D. (2013, February 21). Charitable giving falling to fewer Canadians. CBC News—Business. Standing, G. (2009). Work after globalization: Building occupational citizenship. Edward Elgar. Statistics Canada. (2004, November 17). Multiple jobholding, by sex and age: Moonlighting is now more common among women than men (Catalogue no. 71-222-XWE). Statistics Canada. (2007a). Economic accounts. http://www41.statcan.gc.ca/ 2007/3764/ceb3764_000-eng.htm Statistics Canada. (2007b). Low income cut-offs for 2006 and low income measures for 2005. Income Research Paper Series, by Income Statistics Division, Minister of Industry. http://www.statcan.gc.ca/pub/75f0002m/75f0002m2 007004-eng.pdf Statistics Canada. (2013). Gross domestic product, 2006–2013 (CANSIM Table 380-0063). http://www5.statcan.gc.ca/cansim/a21 Statistics Canada. (2014, January 30). The underground economy in Canada, 2011. http://www.statcan.gc.ca/daily-quotidien/140130/dq1401 30c-eng.htm Steensland, B. (2008). The failed welfare revolution: America’s struggle over guaranteed income policy. Princeton University Press. Suzuki, D. (2008). Pricing carbon: Saving green. A carbon price to lower emissions, taxes and barriers to green technology. David Suzuki Foundation, prepared by M. K. Jaccard and Associates, EnviroEconomics. Swanton, S. (2009, January). Social housing wait lists and the one-person household in Ontario. CPRN—Canadian Policy Research Networks. Tanguay, B. (2013). The stench of corruption. Inroads Journal. Issue 33. Tapscott, D. (2014, January 28). Davos: Delight over the recovery, fear for the bigger picture. Globe and Mail.

46

R. PEREIRA

Taylor, P. (2007, December/January). Everyone’s guide to tax shelters. Money Sense. Ternette, N. (2012, May 15). Guaranteed-income idea kept alive by many. Winnipeg Free Press. TFSA—Tax-Free Savings Account. (2014). Government of Canada. http://www. tfsa.gc.ca/ Trenholm, R. (2012, February 21). Apple factory’s Wall-E robots and suicide nets revealed. Cnet.com. Trudeau Foundation. (2013, October 31). Responsible citizenship: A national survey of Canadians. The Pierre Elliott Trudeau Foundation. Van Parijs, P. (1995). Real freedom for all: What (if anything) can justify capitalism? Clarendon. Wadsworth, J. (2013, August 21). Interns death puts banking culture under microscope. SFGate. White, S. (1997). Liberal equality, exploitation, and the case for an unconditional basic income. Political Studies, XLV , 312–326. Young, M., & Mulvale, J. (2009). Possibilities and prospects: The debate over a guaranteed income. CCPA—Canadian Centre for Policy Alternatives.

CHAPTER 3

Unconditional Basic Income in Portugal: How Can We Afford It? Richard Pereira

Abstract This chapter demonstrates that an unconditional basic income (UBI) paid at a high level is affordable and feasible in Portugal, without cuts to social services or contributory social insurance programmes. The proposal does not require increases to VAT or personal income taxes. This is an exploratory study; however, it is one based on recent comprehensive cost (and savings) analysis of UBI in several jurisdictions. Many new financing options are introduced and considered for the Portuguese case. The structure is as follows: (1) Definitions, (2) Introduction, (3) How we can afford it. How can we not? (4) Case studies and surplus financing, (5) Further Research: Completing the Portugal UBI project. Keywords Basic income · Unconditional basic income · Universal basic income · Guaranteed minimum income · Finance

R. Pereira (B) Global Labour Research Centre, York University, Toronto, ON, Canada © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1_3

47

48

R. PEREIRA

Definitions In this international call for papers, UBI is referred to as unconditional basic income, as in a basic income that is free from obligations. There is no condition or obligation to participate in the labour market, submit regular activity reports to bureaucrats, provide assets disclosure or meet many other arbitrary rules to receive this minimum income. Outside of this call for papers, sometimes UBI is referred to as universal basic income. “Universal” generally means a basic income paid to all adults, while “unconditional” does not necessarily mean this. The latter form of UBI can be more synonymous with the idea of a guaranteed minimum income (GMI) or a universal income floor. Therefore, the terms basic income (BI) and UBI, as well as GMI, are used carefully and with full awareness of their differences throughout this paper. In Pereira (2017), these distinctions are elaborated upon further, and it is shown how different versions of BI can be “calibrated” to produce the same final net cost. When comparing BI to universal healthcare systems internationally, one can see that these health systems are universal despite many citizens not using this public service for years at a time. It is universal because it is there for all in their time of need, whenever that time may arise. Similarly, a BI, UBI (Unconditional), UBI (Universal) and GMI are all equally universal, in that each guarantees all citizens a universal income floor. No one can fall beneath this income floor. It is thus a mistake to place too much emphasis on the “universal” term in some UBI proposals, because it is not doing any better at guaranteeing a sufficient income floor for all—in fact the universal version (also called a demogrant) often does worse by providing a lower amount as a universal minimum income.

Introduction Both basic income (BI) advocates and critics tend to make the same error in assuming a national BI costs much more than it actually does. The source of this error is generally twofold. In the first instance, one will look at the gross cost and find an astronomical figure by simply calculating the population by the level of BI each individual is to receive. In the second instance, if looking beyond the gross cost, analysts will only consider very limited financing options, such as increasing personal income taxes, VAT and possibly replacement of some redundant welfare programmes.

3

UNCONDITIONAL BASIC INCOME IN PORTUGAL …

49

There are many more public financing options available, as well as many more redundancies (natural redundancies), to bring down the gross cost of BI to a very low net cost. The net cost can even be made to reach a cost-neutral figure or a negative net cost (meaning that personal income taxes could even be reduced while introducing a BI). How can this be done? And how can Portugal afford an unconditional basic income (UBI)? First, let us be clear about natural redundancies. Unlike UBI proposals such as Charles Murray’s (2016a; b), which seek to eliminate most or all public programmes to finance a UBI, what I am referring to is solely those redundancies that occur as a result of introducing UBI. Natural redundancies of public programmes are those programmes that are no longer required because a UBI provides a superior or equal alternative. Therefore, universal public healthcare systems, public education and many other government programmes remain intact. While these remain untouched, others such as bureaucratic and stigmatizing welfare payment expenditures become obsolete. The expensive bureaucracy that goes along with it, which is required to oppress and punish the poor for pursuing education, by monitoring their day-to-day living arrangements, micromanaging their employment situation, etc., also becomes redundant. Some programmes thus become fully redundant, others partially so and many others remain as is. In fact, the elimination of poverty via a UBI actually reduces hospitalizations and negative public health outcomes (Forget, 2011; Hamilton Health Sciences, 2022), leading to much better functioning health systems and increased available capacity. That is just one example of how UBI improves existing public programmes and begins to pay for itself, which we will return to later.

How We Can Afford It. How Can We Not? The redundancies, or replacement cost of many existing government programmes, go a long way in paying for UBI as a first step. These natural redundancies are also much more numerous than is commonly cited in the literature. Pereira (2017) details many of these overlooked natural redundancies of government programmes and expenditures that would result from UBI being implemented in several countries. Boadway et al. (2019)

50

R. PEREIRA

demonstrate a revenue-neutral basic income guarantee that is accomplished by replacing refundable and non-refundable tax credits, while “all social services and contributory social insurance programs remain intact”. They do so for Canada at a high level of basic income guarantee of $20,000 per adult adjusted for family size, in a manner that is transferable to many liberal democracies with similarly complex tax codes and benefits regimes. Pereira (2017) likewise does not propose any cuts to contributory social insurance programmes like unemployment insurance or contributory public pension schemes, nor any cuts to social services in health provision, education, disability services, legal aid and more. We know that the current system, the status quo, is expensive. It is socially as well as financially unsustainable given all the unnecessary complexity, negative health outcomes and persistently high poverty rates it maintains. It contains many programmes that often work at crosspurposes to each other. Deepening inequality and insecurity in recent decades have been its hallmark. This is what is too expensive. “The cost of administering all this complexity is staggering… to issue one twentyfive-cent bus ticket, in terms of time and energy, cost the welfare system about four dollars!” as stated in early calls for a UBI in the 1970s (Croll, 1971: 87). The complexity has multiplied since then.1 It is better and much less expensive to give this money directly to people in the form of UBI without bureaucracies consuming the majority of these resources. Applying these analyses found in Pereira (2017), Boadway et al. (2019) and cost of poverty studies to the case of Portugal can provide a comprehensive picture of natural redundancies of government expenditures that go a long way towards financing basic income. That is step one. I will provide a partial list (Table 3.1) of additional finance options that Portugal could employ to afford UBI (step two). This is followed by expanding upon each option with a brief rationale and some research details in numerical form: i. Sovereign Wealth Funds (SWFs)—modelled on Norway, Alaska and Singapore’s SWFs, Portugal—could initiate several SWFs to collect the economic rents from natural resource and other sectors of the economy. This can be saved for current and

1 See Steensland (2008) for more and detailed examples of overwhelming complexity in welfare systems.

3

UNCONDITIONAL BASIC INCOME IN PORTUGAL …

51

Table 3.1 Some additional UBI financing options for Portugal Sovereign wealth funds Financial transaction taxes Wage subsidy programme costs Unearned income tax rates Cost of poverty findings Hospitalization reduction rates of 8.5% (Forget 2011) Homelessness and precarious housing associated with high rates of traumatic brain injury—public cost reduction available from housing security provided by UBI Crime reduction Offshore tax haven losses Job creation and retraining programmes, replacement costs (evidence of wasteful spending on these) Luxury taxes Additional direct tax revenue generation with UBI supporting consumer spending

Carbon fee and dividend Hawaii UBI proposal as model Automation/Robot tax Elimination of corporate subsidies Technology and data dividend Electromagnetic (EM) spectrum rents Patent and copyright royalties Pricing externalities (ecological, social) Corporate Income Tax rates Multiplier effect Shorter work time/full employment policies Solar dividends (renewable energy, and public utility dividends)

future generations, as well as pay out a UBI as in the case of Alaska. Singapore’s SWFs are based on land values (Haila, 2016). Australia has one non-commodity SWF and one based on mineral wealth (Cummine, 2016). Wyoming (United States) has one based on minerals. Portugal is about to experience a boom in Lithium mining, which would be better stopped or at least minimized to prevent ecological harm, but if it is to proceed Portuguese citizens ought to be the primary beneficiaries (as Norwegians are with their oil wealth and SWF). Best practices from dozens of SWF models can be combined. ii. Financial Transaction Taxes (FTTs) of various types on high frequency and volume trading of stocks, bonds, derivatives and other financial instruments. This is an exceptionally small tax

52

R. PEREIRA

applied to mostly institutional trading by large firms, generating large-scale revenues due to the volume of trading, particularly in a hyper-financialized modern economic system. Variations of this Tobin Tax can be applied to different financial markets at the national level. iii. Wage subsidy programme costs can be transferred to financing basic income instead. There are commonly multiple such programmes in each OECD country (sometimes called active labour market policies), with many new ones introduced in response to the COVID-19 pandemic. Sometimes they are in the form of tax credits. These also carry more overhead or bureaucracy costs than financing UBI or a guaranteed minimum income. iv. Unearned income tax rates can be raised to equal earned income tax rates. Unearned income could be taxed at higher rates than earned income, especially activity that could be deemed socially harmful, such as speculation that increases living costs (housing, rent, land and other prices). v. Cost of poverty studies indicate a high public cost that can be eliminated in countries such as Portugal or Canada with a sufficient guaranteed income floor. In Canada, a 2008 study calculated $72–86 billion annually as the cost of poverty (Laurie, 2008; Rainer & Ernst, 2014). Transferring this analysis to Portugal will likely yield a similar or higher result proportional to population, given similar poverty rates in both countries (OECD, 2022). Inflation has also driven up this cost since 2008. vi. Hospitalizations reduced by 8.5% (Forget, 2011)—findings from guaranteed annual income experiments studied by Evelyn Forget. Healthcare costs are rising quickly as the largest share of many national and state budgets. vii. Homelessness and precarious housing are associated with very high rates of traumatic brain injury (Hamilton Health Sciences, 2022). Public cost reduction is available from the housing security provided by UBI. viii. Crime reduction: In the Namibia basic income pilot, overall crime went down by 42%, and in Canada’s Manitoba pilot, it went down by 15% (Calnitsky, 2021; Santens, 2022). ix. Carbon fee and dividend: Carbon pricing could be returned 100% to Portuguese citizens as modelled by Hansen (2009) and

3

UNCONDITIONAL BASIC INCOME IN PORTUGAL …

53

Suzuki (2008) for the United States and Canada, respectively. $3,000 per year for each adult American in 2007 was calculated by this model. It could also be modified to be more progressive, with higher payouts to lower-income citizens (and possibly capping payouts to those earning e60,000 or less annually), since lower-income groups also tend to be more exposed to environmental pollution and poor air quality. The Climate Action Incentive Payments ensure 8 out of 10 families receive more money back than they pay in direct costs under this carbon pollution pricing system enacted by the Government of Canada. x. Hawaii has a proposal for UBI based on tourism levies and capturing the full value of fishing licenses for the benefit of its residents, supported by Hawaii State Representative Chris Lee (Wilkins, 2017). The economy is similar to Portugal’s in several respects. xi. Automation/Robot Tax: Hawaii is also considering this in its UBI proposal. William Meisel has detailed proposals on this and Bill Gates is a proponent (Porter, 2019). xii. Elimination of corporate subsidies: Various forms, to be quantified for Portugal. xiii. Technology and data dividend: While the automation/robot tax is aimed at mitigating or capturing the cost of job displacement and redirecting these funds towards UBI, the technology and data dividend were popularized by Andrew Yang as a “tech check” to be paid to all citizens from the profits gained by the tech sector in relation to its usage of personal data, advertising revenues and other profits gained from the Internet as a public resource. This public resource was largely created by public investment decades ago. The technology sector is bigger than the oil industry now and could pay out bigger dividends than could be supported by SWFs like those in Alaska, Norway and elsewhere. There is also a technological inheritance or technology commons feature to this—technology being built by each generation adding to the previous one’s innovations in a cumulative fashion.2 2 Inventive geniuses such as Nikola Tesla and many others have provided technology and platforms globally for infinite future developments, whose benefits (and profits) ought to be shared rather than privatized for exclusive private profit. The role of public education,

54

R. PEREIRA

xiv. Electromagnetic (EM) spectrum rents: Barnes (2001) covers this topic in Who Owns the Sky?: Our Common Assets and the Future of Capitalism. The same analysis can be applied to Portugal by quantifying the economic rents derived from broadcast spectrum licences, auctions and ongoing revenues. Flomenhoft (in Pereira, 2017) has some financing options quantified for Australia on EM spectrum, technology and related rents for UBI. xv. Patent and copyright royalties: These economic rents are mostly foregone revenues by the state, given excessive monopoly patent protection offered in various economic spheres including pharmaceuticals. The research and development of universities and public education, public grants, etc., is undervalued with most of the gains going to private and multinational corporate profits. A rebalancing can occur of this revenue sharing between public and private sectors in Portugal as in other countries. xvi. Pricing externalities (ecological and social): In addition to carbon pricing outlined above in the form of carbon fee and dividend, other levies are available to mitigate social and ecological harm while returning revenue generated to citizens or eliminating these publicly-borne costs. Increased workplace stress and unpaid overtime work cost more than $30 billion per year in Canada (MacQueen, 2007; Pereira, 2009) with these findings transferrable to Portugal upon research of comparable national data and statistics. xvii. Corporate Income Tax (CIT) rates can be increased. They have been reduced excessively3 and can be made progressive in comparison to the personal income tax rate structure. xviii. Offshore tax haven losses to the public treasury must be addressed, with regained losses financing public goods such as health, education and BI. xix. Job creation and retraining programme costs would be better directed to UBI given evidence of wasteful spending on these

universities, public research grants and other infrastructure and government investment requires a large-scale rebalancing of the economic rents in the tech sector due to society in contrast to excessive current private gains. 3 “Since 1990, the pool of global financial capital has tripled and is expected to reach a quadrillion dollars by 2020.” From Toby Sanger, “The World is Awash in Excess Cash”, The Globe and Mail, March 11, 2014.

3

UNCONDITIONAL BASIC INCOME IN PORTUGAL …

55

programmes. Andrew Yang as presidential candidate for the United States in the Democratic Party primaries had a previous career in such job creation initiatives and grants, abandoning it as a wasteful exercise and adopting UBI as a superior public policy to support nationally. He provides data in his book and other sources for this position (Schleifer, 2019). xx. Luxury taxes are another financing option, with useful precedents in other jurisdictions. xxi. Additional direct tax revenue generation with UBI supporting consumer spending, especially on basic needs and in the local economy (see Pereira [2017] for sizable and usually unaccounted figures in BI cost analyses). xxii. Multiplier effect: In addition to the additional direct tax revenue generation item above, UBI will create jobs with this increased direct consumer spending, and those new jobs will support additional economic activity (CANCEA, 2020). The Canadian Centre for Economic Analysis (CANCEA) found basic income could grow Canada’s economy by $80 billion a year and create nearly 600,000 jobs in 5 years.4 This data is highly transferable to Portugal accounting for population differentials. xxiii. Shorter work time policies (see Pereira, 2009) with full employment as a goal will reduce the number of people who require guaranteed minimum income or BI, thereby further reducing the cost of the programme. xxiv. Solar Dividends: How Solar Energy Can Generate a Basic Income for Everyone on Earth is the title of a book by Robert Stayton (2019) who models a UBI in America based solely on solar power revenue generation. His analysis can be extended to other forms of renewable energy and public utilities to increase the UBI according to Pereira. Portugal offers significant solar capacity, as well as other renewables and modern utilities that can be aligned with this model to provide universal dividends to its citizens, forming a key ingredient of a UBI.

4 Full report can be downloaded here: https://www.ubiworks.ca/groweconomy.

56

R. PEREIRA

This is not a complete list of financing options.5 In addition to the programme redundancies previously discussed, this is a long list from which to choose to augment the financing of UBI in Portugal. The state may only need to choose two or three of these options to achieve a UBI, recognizing that items such as savings from the cost of poverty occur automatically with introduction of UBI at a sufficient level. Public expenditures are reduced in this way, allowing those savings to be invested in UBI or GMI. Notice also that in the list of financing options, personal income tax increases have not been included as an option. This is to demonstrate the variety of finance methods that exist for a basic income in Portugal. VAT also has been left out as an option. VAT and personal income taxes are often by default chosen as the only way to finance basic income, particularly in the European context (and even in the United States with Andrew Yang’s campaign for the presidency). A longer-term project will be required to quantify many of these financing items for Portugal. However, comparable work has been done for other countries and jurisdictions in a manner that is very transferable to Portugal if one is allowed the time and resources to locate, delve into and extrapolate the country-specific data.

Case Studies and Surplus Financing Similar costing exercises have been conducted in detail for other jurisdictions that show a surplus in financing as measured against the “cost” of BI, and in other instances a cost-neutral financing model. In Pereira (2017), three countries are studied—Canada, Switzerland, Australia— with detailed proposals submitted for financing a BI in each. Other countries and jurisdictions are discussed comparatively in designing UBI and GMI proposals for these three countries, including Alaska, Vermont, the United States, UK and Norway.

5 One could analyse additional programmes such as tax shelters, tax incentives and

deductions for charitable donations, etc., some of which are listed for Portugal by PWC here: https://taxsummaries.pwc.com/portugal/individual/other-tax-credits-and-inc entives. Banking license fees are another worthy subject of investigation (detailed in Flomenhoft, in Pereira, 2017), as are other treatments of bank and finance profits (and rents) as found in New Zealand with the Kiwi Bank model introduced in 1996.

3

UNCONDITIONAL BASIC INCOME IN PORTUGAL …

57

By analysing four categories of financing for Canada, Pereira arrives at a savings figure of $464 billion by implementing a BI. Deducted from this amount is the cost of $21.5 billion for a BI in the form of a GMI, bringing all individuals and families up to the poverty level (i.e. reduction of poverty to zero). Contrasted with the GMI is the universal or demogrant option of paying all individuals age 18 and over a grant at the poverty level amount plus a demogrant to each child at an approximately 30% of the amount of the adult demogrant. This latter option costs $418 billion. Both options result in a surplus in public finances. Analysing only “Savings from Replacement of Existing Income Security Programmes” from natural redundancies, Pereira (2017: 34–37) arrives at a public savings total of $342 billion, measured against a cost of $21.5 billion for a BI (GMI) which eliminates official poverty. Over $300 billion in public finance surplus is obtained in this manner without employing any additional financing options. It should also be noted that Pereira (2017) lists many financing options for basic income, but does not quantify all of them—some were beyond the scope of the work pursued. Nonetheless, one finds public financing surpluses available when designing different BI options at a high enough level to bring all Canadians up to the poverty line. And many of the financing options were costed in a conservative fashion, suggesting much more revenue is available to furnish UBI. Similar research at UBI Works6 provides this visual representation of the cost of a different BI proposal as measured against the financing available (Fig. 3.1). Over $750 billion worth of tax reform ideas are presented against a cost of $199 billion for a hybrid basic income model (one component is a GMI, and the second component is a universal dividend along the lines of the Alaska dividend, albeit at a higher level than the Alaska payment [and paid monthly instead of annually]). This figure does not include savings from replacement of existing government programmes (natural redundancies) that bring the financing options figure to over $800 billion.7

6 Modelled on the approach in Pereira (2017), providing both a GMI and universal dividend (or UBI) to citizens. 7 UBI Works identifies $73.9 billion in additional savings/financing available from a select list of “Existing Government Program Changes” in an associated spreadsheet on

58

R. PEREIRA

Fig. 3.1 Cost versus financing options for UBI (Canada) (Source UBI Works, How to Pay for Basic Income https://www.ubiworks.ca/howtopay)

Boadway et al. (2019) demonstrate a revenue-neutral basic income guarantee for Canada that is accomplished by replacing refundable and non-refundable tax credits, while “all social services and contributory social insurance programs remain intact”. They do so at a high level of basic income of $20,000 per adult adjusted for family size, in a manner that is transferable to many liberal democracies with similarly complex tax codes and benefits regimes. These are generous models of BI in comparison with most, sufficient to eliminate poverty, while preserving all core public programmes such as universal health care and public education (and many more). And each is committed to the principle stated in the landmark Croll Report that a BI cannot leave any individual worse off. These are dramatic improvements upon the status quo income security model, while realizing many public

their website. There are more such programmes and savings that they did not list or quantify.

3

UNCONDITIONAL BASIC INCOME IN PORTUGAL …

59

cost savings and generating additional revenue from financing options that do not rely on VAT or personal income tax increases. Teixeira (2019) and Widerquist/Arndt (2020) model much smaller BI proposals for Portugal and the UK, respectively. Teixeira considers one UBI of e200 per month and another set at e420 per month. This paper is in agreement with Teixeira in that it rejects proposals such as Charles Murray’s (Teixeira, 2019: 481) that seek reduction of state power at the expense of expanded private market power. The state has already been diminished during the neoliberal period with excessive privatizations, outsourcing and austerity policy. Teixeira (2019: 482, 484, 485) also seeks elimination of redundant subsidies and social benefits, recognizing some of these will be fully replaced by UBI while others will be partial redundancies (partially replaced by UBI). Widerquist and Arndt (2020: 6) choose a UBI for adults of £7,706 per person per year, which equals the poverty line for two adults living together (£15,413), but below the poverty line for one individual living alone (£10,327). They also list a number of programme redundancies and identify others that are retained, the latter including: Carer’s Allowance, Severe Disablement Allowance, Disability Living Allowance, Attendance Allowance, War Pensions, Industrial Injuries Disablement Allowance and others (Table 3: List of UK Social Security Programs). For children under 18, they set the UBI at £3,853. Similar to Pereira (2017), Widerquist and Arndt (2020: 17–18) reject increases to VAT (“because of its regressive aspects”) to make up the financing difference, as well as recommending against a “purely incometax financed UBI”. They propose instead resource and rent taxes, wealth taxes, and financial or technology taxes; however, they provide no additional detail and highlight these as a “promising area for further research”. After programme redundancies, they find a 3.4% of GDP cost remaining to finance UBI (£67 billion net cost). One further and recent cost-neutral universal BI proposal is the Freedom Dividend, advocated by Andrew Yang in his campaign for the US presidency. Figure 3.2 provides a visual illustration of the six financing sources he selects, two of which are cost redundancies (welfare overlap and reduced poverty expenses) and a third being related to these two in the sense of being endogenous to UBI—additional public revenue generated by the universal dividend (economic growth). Thus, only three financing options are employed, drawing in revenue from external sources (financial transaction tax, carbon fee & dividend, VAT).

60

R. PEREIRA

Fig. 3.2 Yang’s cost-neutral universal BI proposal for the United States (Source Image from Andrew Yang’s presidential campaign website, November 2019)

The VAT is a regressive tax that is not recommended in this paper, nor in the analyses of Boadway or Pereira. Granted, Yang has talked about making his VAT proposal progressive in some ways (such as applying it more progressively and at a higher rate on luxury products, with a lower rate or exemption applied to necessities), but he has not shown this in his Freedom Dividend financing proposals explicitly. Perhaps a small

3

UNCONDITIONAL BASIC INCOME IN PORTUGAL …

61

land value tax (LVT)8 would be a more efficient and progressive taxation approach in place of VAT, as claimed in Pereira (2020). The luxury tax element of a VAT could be retained and combined with these other sources as a progressively structured fiscal measure. Therefore, many alternative financing options have been presented and can be employed from this paper to finance both a UBI and GMI, without the need to increase personal income taxes or VAT, and which can generate significant public financing surpluses. This is particularly easy to see with the much lower cost of a GMI. With the UBI or demogrant version, financing surpluses can still be achieved, and it should be noted that calibration can occur between the two models (GMI and UBI-demogrant) to arrive at the same or very similar net final cost (or surplus).

Further Research: Completing the UBI Project for Portugal A clear research map with over twenty-four new financing options has been presented in this paper to create a UBI in Portugal. This is in addition to multiple programme and tax credit redundancies. These finance options do not include VAT or personal income tax increases. Only two or three of these financing methods are required in addition to the cost redundancies that occur with implementation of UBI, particularly a decent UBI at a sufficient level to eliminate or virtually eliminate poverty. The return on investment exceeds the original investment in UBI (in both GMI and demogrant form), as the costs of the status quo system are so expensive, and because the UBI will generate additional direct taxation from the increased consumer spending it supports. The economic multiplier effect is to be considered in addition to these benefits of UBI (CANCEA, 2020; Pereira, 2017). The cost of poverty and associated negative health outcomes are remarkably high and unsustainable, that a UBI is required to replace the dysfunctional and inadequate current income support system. It is more expensive than UBI because it is a wasteful, complex system, requiring appeals, tribunals and processes, monitoring and micro-management of 8 LVC or land value capture is also a potent revenue generation instrument for the public sector where employed and highly complementary to LVT. See Given and Reisman (2019).

62

R. PEREIRA

people’s lives; it keeps people in poverty traps and denies them the freedom to pursue further education and the work they desire, and even penalizes them for taking employment in the labour market with excessive clawback rates in a manner not present with UBI. These factors have been largely unaccounted in most UBI research to date. By pursuing the research avenues demonstrated in this paper, a financially sustainable UBI proposal for Portugal can be crafted. The finance options are numerous and often very large scale in the revenue generated and public sector cost savings available. All that remains is to continue this work, adding detail to several of these finance options and deepening the analysis of available programme cost savings, and then narrowing it down to a few options to combine for the best proposal.

References Alaska Permanent Fund Dividend Division. Summary of dividend applications and payments. https://pfd.alaska.gov/Division-Info/Summary-of-App lications-and-Payments Barnes, P. (2001). Who owns the sky? Our common assets and the future of capitalism. Island Press. Boadway, R., K. Cuff, & Koebel, K. (2016). Designing a basic income guarantee for Canada. Queen’s Economics Department Working Paper, No. 1371, Queen’s University, Department of Economics, Kingston (Ontario). Boadway, R., Cuff, K., & Koebel, K.. (2019). Designing a basic income guarantee for Canada. In E. Goodyear-Grant, J. Myles, W. Kymlicka, & R. Johnston (Eds.), Federalism and the welfare state in a multicultural world. McGill-Queen’s University Press. BPstat. Banco De Portugal Eurosystem. https://bpstat.bportugal.pt/dominios/ 172 Calnitsky, D., & Gonalons-Pons, P. (2021, August). The impact of an experimental guaranteed income on crime and violence. Social Problems, 68(3), 778–798. CANCEA (Canadian Centre for Economic Analysis). (2020, December). Potential economic impacts and reach of basic income programs in Canada. Croll Report. (1971). Canada. The Senate of Canada. The report of the Special Senate Committee on poverty: Poverty in Canada. Cummine, A. (2016). Citizens’ wealth: Why (and how) sovereign funds should be managed by the people for the people. Yale University Press. Finkel, A. (2006). Social policy and practice in Canada: A history. Wilfred Laurier University Press.

3

UNCONDITIONAL BASIC INCOME IN PORTUGAL …

63

Flomenhoft, G. (2017). Total economic rents of Australia as a source for basic income. In R. Pereira (Ed.), Financing basic income, Chapter 4. Palgrave Macmillan. Forget, E. (2011). The town with no poverty: The health effects of a Canadian guaranteed annual income field experiment. Canadian Public Policy—Analyse De Politiques, XXXVII (3): 283–305. Forget, E. (2020). Basic income for Canadians: From the COVID-19 emergency to financial security for All. Lorimer & Company. Given, K., & Reisman, S. (2019). Land value capture: A study of public-led land assembly in Germany and development rights auctioning in Brazil. CCPA. Haila, A. (2016). Urban land rent: Singapore as a property state. Wiley Blackwell. Hammond, J. (1994). Tales of Alaska’s Bush Rat Governor: The extraordinary autobiography of Jay Hammond wilderness guide and reluctant politician. Epicenter Press. Hamilton Health Sciences. (2022, February 9). Homeless and precariouslyhoused Canadians face high rates of brain injury. https://www.hamiltonheal thsciences.ca/share/brain-injury-and-homelessness/ Hansen, J. (2009, December 6). Cap and fade. New York Times. Heath, J. (2011, April 6). Real estate: A ‘secret’ tax shelter. Financial Post. Instituto de Gestão Financeira da Segurança Social. Conta da Segurança Social, Lisboa, Instituto de Gestão Financeira da Segurança Social, I. P. http://www. seg-social.pt/conta-da-seguranca-social Laurie, N. (2008, November). The cost of poverty: An analysis of the economic cost of poverty in Ontario. Ontario Association of Food Banks. MacQueen, K. (2007, October 15). Dealing with the stressed: Workplace stress costs the economy more than $30 billion a year, and yet nobody knows what it is or how to deal with it. MacLean’s. Murray, C. A. (2008). Guaranteed income as a replacement for the welfare state. Basic Income Studies, 3(2). Murray, C. (2016a). In our hands: A plan to replace the welfare state. AEI Press. Murray, C. (2016b, June 3). A guaranteed income for every American. The Wall Street Journal. Norges Bank. About the fund—Norway’s oil fund. https://www.nbim.no/en/ the-fund/about-the-fund/ OECD. (2022). Poverty rate (indicator). https://data.oecd.org/inequality/pov erty-rate.htm Ontario’s Basic Income Pilot (OBIP). (2017, April 24). Government of Ontario, children, community and social services. https://news.ontario.ca/en/backgr ounder/44495/ontarios-basic-income-pilot Pereira, R. (2009). The costs of unpaid overtime work in Canada: Dimensions and comparative analysis. Athabasca University, MA Thesis.

64

R. PEREIRA

Pereira, R. (Ed.). (2017). Financing basic income: Addressing the cost objection. Palgrave. http://www.palgrave.com/us/book/9783319542676 Pereira, R. (2020, July). Land value assessment and Universal Basic Income (UBI): A Canadian assessment with implications for America. RSF Pereira, R. (forthcoming). Universal Basic Income (UBI) and land value. Chapter to be published in Peddle, F. K. (Ed.), Henry George in Canada: Tax Justice. Rowman and Littlefield. Piketty, T. (2014). Capital in the twenty-first century. Harvard University Press. http://piketty.pse.ens.fr/en/capital21c2 Porter, E. (2019, February 23). Don’t fight the robots. Tax them. New York Times. https://www.nytimes.com/2019/02/23/sunday-review/tax-art ificial-intelligence.html PWC. (2021, August 18). Portugal individual—Other tax credits and incentives. https://taxsummaries.pwc.com/portugal/individual/other-tax-creditsand-incentives Rainer, R., & Ernst, K. (2014, February 27). How can we not afford a ‘Basic annual income’?. The Toronto Star. Revenu de base Québec. https://revenudebase.quebec/ Santens, S. (2022, February 2). An introduction to unconditional basic income for all. scottsantens.com Schleifer, T. (2019, June 13). Andrew Yang is promising to revitalize America. His nonprofit tried, too, but couldn’t. Vox. Standing, G. (2021, June 25). Basic income pilots: Uses, limitations and design principles. De Gruyter. https://www.degruyter.com/document/doi/ 10.1515/bis-2021-0021/html Stayton, R. (2019). Solar dividends: How solar energy can generate a basic income for everyone on earth. Sandstone Publishing. Steensland, B. (2008). The failed welfare revolution: America’s struggle over guaranteed income policy. Princeton. Suzuki, D. (2008). Pricing carbon: Saving green. A carbon price to lower emissions, taxes and barriers to green technology. David Suzuki Foundation, prepared by Jaccard, M. K. and Associates, EnviroEconomics. Teixiera, P. (2019). Sobre o financiamento de um RBI em Portugal. Análise Social, 3(232): 478–503. UBI Works. (2022). How to pay for basic income. https://www.ubiworks.ca/ howtopay Widerquist, K., & Arndt, G. (2020). The cost of basic income in the United Kingdom: A microsimulation analysis. Wilkins, A. (2017, November 28). Hawaii might get basic income, but it will take fishing licenses. Inverse. https://www.inverse.com/article/38746-haw aii-basic-income-chris-lee

PART II

Cost Feasibility of Basic Income in Europe

CHAPTER 4

Financing Basic Income in Switzerland, and an Overview of the 2016 Referendum Debates Albert Jörimann

Abstract This chapter attempts to determine the actual static cost of the introduction of a fully-fledged unconditional basic income in Switzerland. The funding resources available for this policy initiative are also scrutinized. A “Clearing model” is presented in this work, and the share of social insurance benefits to be taken into account for the basic income amount is assessed. Options for covering the resulting gap are discussed, and an overview over the recent financing discussion in Switzerland is given. Keywords Basic income · Unconditional basic income · Financing · Financing model · Gross cost · Europe

A. Jörimann (B) Zurich, Switzerland © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1_4

67

68

A. JÖRIMANN

Switzerland has the honour of being the first country where a popular initiative has been submitted for a vote on the introduction of a basic income (BI). This is not difficult to achieve as Switzerland is the only country with an established tradition and practice of popular initiatives within its direct democratic system. Still, it was of the utmost interest to watch the clash of the opposing opinions and of the divergent social and economic interests during the voting campaign, where the financing question played quite an important role, as well as it does in other countries. I will summarize the most important developments within this context and will give some data for Switzerland. Discussions about a BI scheme have come and gone in both political and scientific arenas since the 1980s. In Switzerland, several contributions were made in the middle of the 1990s, and in 2002, the Basic Income European Network (BIEN) Congress was organized in Geneva leading to the creation of BIEN-Switzerland. This did not mean that there was a structured discussion of BI for the whole country, as BIEN-Switzerland in reality meant at that time above all BIEN-Geneva. This lasted until 2006 when a new impetus came from a new generation of anthroposophists based in Basel, which started discussions not only throughout Switzerland, but was active in Germany as well. This was the core of the new BI movement which in 2012 launched the collection of signatures for the popular initiative and handed over more than 126,000 signatures to the Federal Chancellery in the autumn of 2013. In 2010, BIEN-Switzerland published a book about financing an unconditional BI with articles from Germany, France, South Africa and the UK as well as three articles from Switzerland (BIEN Suisse, 2010). Although the latter are relevant for my purpose, the other texts provided interesting insights into the different approaches of financing within Europe, both about the existing systems of social security and the methods themselves. The contribution of Pieter LeRoux of South Africa illustrated in a fascinating way how a BI system could be established in an emerging economy. The attempts of various groups to introduce a similar scheme in neighbouring Namibia, the obstacles and the pilot project in Otjivero give further evidence of the paths of such proposals to introduce the system in a developing society and economy.

4

FINANCING BASIC INCOME IN SWITZERLAND …

69

Part I: The Gross Cost Preparations for the book revealed one thing—the cost of BI is easy to calculate according to the principle of one man/woman, one basic income. Multiply the number of adult residents by the BI, the number of minor residents by 50% of the BI and add together (For Switzerland, in 2012, there were 6.6 million adults and 1.46 million minors aged under 18 years). Obviously, the final total depends on the actual amount defined as the BI, as well as the definition of a minor (under age 21, 18 or 16). Some proposals even subdivide the amount allotted to minors, giving 50% BI to those between 10 and 20 years of age and 25% BI to those younger than 10 years. Usually, we speak of a monthly BI of e1,000 per adult/e500 per minor for the two biggest neighbouring countries of Switzerland; France; and Germany. For Switzerland, we propose an adult BI of CHF 2,500 (which at current foreign exchange rates is more than double the French and German values, but this is another issue). For minors, contrary to the approach in our book published in 2010, we recommend a BI of CHF 625 (25% of the adult level), in line with the latest view of the promoters of the popular initiative. In all three countries, the sum of e1,000/CHF 2,500 is considered to be high enough to allow a single adult to have a decent standard of living without any luxury, but still be above absolute poverty (Table 4.1). One remark as to how we arrived at this figure of CHF 2,500 per month for each adult. The Swiss Conference of Social Assistance (SKOS) calculated that one person needs approximately CHF 1,000 per month for basic needs (defined as food, clothing, energy, communication, transportation, etc.), another CHF 1,000 per month for accommodation rental charges (this can vary depending on the local housing market), plus Table 4.1 Gross cost of basic income in Switzerland (2012)

Residents, adults (18 year + ), 6.61 mn, CHF 30.000 pa Residents, minors (–18 year), 1.43 mn, CHF 7.500 pa Total: population of 8.04 mn

198.3 bn CHF 10.7 bn CHF 209.0 bn CHF

Source Swiss Federal Statistical Office, Permanent resident population, Swiss Francs (CHF)

70

A. JÖRIMANN

money to cover the medical charges that are not assumed by the cantons within their programme of subsidising healthcare insurance.1 All in all, this adds up to something less than our figure of CHF 2,500. However, the BI is not intended as a programme to minimise expenditure for living costs. We believe that CHF 2,500 is an amount that can be argued as representing the “minimum that can be called decent”. The amounts can be related to a country’s economic activity by comparing the BI costs to the GDP (which makes sense because, as well as making a fundamental change to the organization of society today, the BI would also become an important element of the overall national economy). In both Germany and France in 2014, the gross cost of BI would more or less equal one-third of GDP (Germany GDP e2,735.80 bn/BI between e880 and e885 bn; France GDP e2,113.8 bn, BI e709 bn). The figures for Switzerland more or less confirm the ratio, with GDP of about CHF 600 bn and BI about CHF 209 billion. If we further assume that about two-thirds of GDP consist of salaries on the production side and two-thirds of domestic consumption on the spending side (the other third encompassing investments, etc.), we have quite a precise picture of what the BI is supposed to mobilize within developed countries. In emerging and developing countries, the proposal will have a different make-up. It is obvious that the reshuffling of such amounts within the economy and society in general would create a whole range of political debate and action, as it would activate all instruments of the political theatre. The left wing would try to finance the BI by raising the taxes of the rich and introducing levies on capital gains. The neoliberal side would try to abolish the traditional social security and protection system and replace it with a BI that would barely cover the cost of food and housing. Alongside these positions, one would find a universe of proposals to redefine the tax system, e.g. by abolishing all income tax and replacing it with a Value Added Tax of 100% (an idea proposed by the German entrepreneur and anthroposophist Goetz Werner [2007]) or by financing the whole BI by levies on energy. Generally speaking, more or less every interest/pressure group would try to strengthen its position within the distribution process during the introduction of a BI (as is the case with every other attempt

1 SKOS, Guidances, http://skos.ch/skos-richtlinien/.

4

FINANCING BASIC INCOME IN SWITZERLAND …

71

to change any element of modern society and the state—in my view the main reason why modern states tend to be rather inert). These political and ideological controversies are inevitable. Now before they start in earnest, we have to know what they are all about. First, we have to calculate how much the introduction of BI in Switzerland would cost at current value, i.e. by replacing what can be replaced without changing the current system of social insurance/social security— and furthermore by compensating the BI payment with salaries above a certain, decent level which, I hope, would be the case for the majority of salaries, at least in Switzerland.

Part II: The Clearing System As a matter of fact, the following “clearing” model is based on the assumption that every person earning an average income would finance their BI themselves. This assumption by the way is also valid for other models, although they use different, indirect models of compensation, mainly within the taxation system. In my proposal, I am talking about a clearing payment that does not leave space for any misuse of tax income that would have been levied for one purpose and afterwards be employed for another. It is a direct, personal “refunding” of the BI, which is levied on the salary and paid by the employer to the Basic Income Fund. Full clearing/repayment starts at a level somewhat higher than the BI amount which I have proposed for two reasons: (1) the BI is a real basic income and should not be considered as a target value at any socio-economic level. Full reimbursement starting at the level of the BI itself would establish it as such a target value. (2) Practically, all who deal with the situation of low and basic incomes state that it is essential that individuals maintain the potential to develop additional financial activity on top of a basic income. Therefore, a clearing scale should be adjusted accordingly and start with the full clearing on a level beyond the BI. This clearing system is to my knowledge, the simplest and most radical approach to establish a purely static evaluation of what BI would really mean in supplementary costs. In addition, we have to propose a scheme which allows both of these revenue sources (clearing payments and transfer of existing social benefits) to be used to finance the BI. This is what we did during the development of the clearing model. It is obviously tailored for the specific Swiss circumstances, but could easily be adapted to other situations. As said before, the clearing system leaves everything

72

A. JÖRIMANN

unchanged in the first step. The contributions from salaries to the old age pension (AHV), invalidity insurance (IV), accident and unemployment insurances continue to be levied, and the respective budget positions of the federal state, the cantons and municipalities are maintained and redirected to the BI Fund. (In Switzerland, the cantons and municipalities are the main recipients of direct taxes and social aid is the responsibility of the municipalities).

Clearing Payments and Scale In order to make the system work smoothly, a system needed to be developed to allow increases in income for those with lower monthly salaries (in our view less than CHF 4,000 per month). Without this, there would be no incentive to improve performance (and therefore pay) at the lower salary levels and it avoids any income traps for those whose income could increase, for whatever reason. People obviously should not be punished for their efforts, above all in the sensitive area of low, “sub-decent” income. (Some people in this category are part-time working partners of those with a full income, but this is another chapter). The scale we established is shown below (Table 4.2). The approach for implementing this scheme in Switzerland was to follow the most important institution within the social security system— the mandatory public old age pension scheme. This is not only well established with an excellent reputation among the whole population, but also already covers all residents in the country (including children), so that on the administrative/technical level nothing needed to be re-created or changed. The AHV old age pension scheme is often cited as a kind of a BI for the retired, which is largely, but not entirely correct (but this, again, is another chapter). The application of this scheme to the statistical realities of the Swiss economy would produce an amount which is transferred directly from salaries to a basic income account—the former old age pension scheme now obviously becoming the Basic Income Fund (some 38 bn. CHF, see Table 4.4). It should be stated up front that for Switzerland, the calculation appears to be relatively easy because a large majority of the population is employed, producing a relatively concise picture of the income landscape. In other countries where there are large proportions of self-employed or black-market workers, this approach would be difficult.

4

FINANCING BASIC INCOME IN SWITZERLAND …

73

Table 4.2 Earned income/month with BI at CHF 2,500/month and clearing payment scale Income/ month before BI A CHF

Basic income B CHF

50,000 10,000 5,000 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 300 0

2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500

Clearing percentage C

Effective variation E (B − D) CHF

Income/month after clearing payment F (A + E)

%

Clearing amount D (B × C) CHF

100.0 100.0 100.0 100.0 86.5 73.0 59.5 46.0 32.5 19.0 5.5 0 0

2,500.00 2,500.00 2,500.00 2,500.00 2,162.50 1,825.00 1,487.50 1,150.00 812.50 475.00 137.50 0.00 0.00

0 0 0 0 337.50 675.00 1,012.50 1,350.00 1,687.50 2,025.00 2,362.50 2,500.00 2,500.00

50,000.00 10,000.00 5,000.00 4,000.00 3,837.50 3,675.00 3,512.50 3,350.00 3,187.50 3,025.00 2,862.50 2,800.00 2,500.00

CHF

Source Le financement d’un revenue de base inconditionnel. Zurich: Seismo 2010

Nevertheless, we have to work with some assumptions, since the indications differ according to the statistical base used (BESTA, Federal Statistical Office, etc.) and do not give clear indications for some aspects that would be important for a correct evaluation of the situation, for instance like the level of employment, etc. Thus, for Switzerland, the following numbers are for the year 2010 (Table 4.3). To calculate the clearing amounts, we have to make several broad assumptions to bring together the data from the above two tables as follows. Table 4.5 below is based on figures from 2012 so the 2010 sum needs to be adjusted in line with the growth of the workforce from 2010 to 2012. Assuming this is in line with the general population increase of 2%, the 2010 total needs to be increased by 2% resulting in a total sum of the clearing amount for 2012 to be CHF 111 bn. Then, it is generally agreed that the parts of the social security or social insurances that cover the basic needs are to be put into the service of the BI. This means, for example, that for jobless benefits, only the parts

74

A. JÖRIMANN

Table 4.3 Income classes in Switzerland (2010) Gross annual income CHF

Full time %

Workforce (2,836,000)

0 0–26,000 26,001–52,000 52,100–78,000 78,001–104,000 104,001 + No indication

0.3 2.1 11.2 32.0 21.9 22.7 9.9

8,508 59,556 317,632 907,520 621,084 643,772 280,764

Part time %

Workforce (1,474,000)

2.0 34.3 29.7 15.5 6.3 3.1 9.2

29,480 505,582 437,778 228,470 92,862 45,694 135,608

Total

Workforce (4,310,000)

% 0.9 13.5 17.7 26.2 16.4 15.8 9.6

38,900 581,000 762,870 1,129,220 706,840 680,980 413,760

Source Federal Statistical Office, table je-d-03.04.00.01.xls

Table 4.4 Clearing payment Income class and clearing payment (2010) About 620,000 earn less than CHF 26,000/year (2,167/month) Assume a clearing payment percentage of 20% of BI Calculation 620,000 × CHF 2,500/month × 12 × 20% Assume 650,000 earn between CHF 26,000 and CHF 48,000/year (2,167–4,000/month) Assume a clearing payment percentage of 70% of BI Calculation 650,000 × CHF 2,500/month × 12 × 70% The balance of 3,060,000 people earn above CHF 48,000/year Clearing payment percentage is 100% of BI Calculation 3,060,000 × CHF 2,500 × 12 × 100% Total sum of clearing payment, based on 2010 workforce

CHF (bn) 3.70

13.65

91.80

109.15

corresponding to the basic amount can be transferred to the BI financing. (In Switzerland, the aim of the jobless benefit is to guarantee a certain standard of living for a limited time, usually two years, so the income is in practice higher than the BI). In Table 4.5, we have detailed which amounts of the national accounts on social security and the different social insurances we would take into account for the BI budget. There are several other items of state expenses at all levels that can be added to this figure, e.g. part of the agriculture subsidy relevant to the farmer’s salaries, scholarship funds, minor subsidies and aids under various titles and obviously economies at the administrative level. We do not suppose that they will be much higher than 5 bn.

4

FINANCING BASIC INCOME IN SWITZERLAND …

75

Table 4.5 Social insurances, total expenses and part of expenses creditable to the B.I. account (2012) Title of programme

Operative expenses CHF

Part creditable to BI

Amount

Old age pension AHV Invalidity insurance Complementary benefits Accident insurance

38.6 bn 7.4 bn 4.4 bn

100% Pensions (app. 80%) 50%

38.6 bn 6.2 bn 2.2 bn

5.8 bn

2.0 bn

Military service and maternity Jobless insurance Child benefits Social assistance Total

1.6 bn

Pensions, creditable to B.I. 30% (est.) 100%

5.1 bn 5.3 bn 4.1 bn

50% 100% 100%

2.6 bn 5.3 bn 4.1 62.3 bn

CHF

1.6 bn

Source Various statistics and editions of the corresponding offices and insurances, notably Pocket statistics of the Social Insurances in Switzerland 2014, Statistical Data on Switzerland 2015

Health care is usually considered as an important part of the social insurance system. In Switzerland, it is mandatory as in most other countries, but the contributions are paid by the individual and cost between CHF 400 and 500 per month per adult. A good half of the population (e.g. far more than those regarded as poor) receive canton subsidies for these expenses. Because this would somehow exceed the considerations in the context of the substitution for the BI Fund, we have left this aside. Coming to the abolition of a large part of the bureaucratic structures of social assistance and social insurance (a long-term desideratum of the liberals), we confirm for Switzerland that part of the administration would disappear, mainly at the federal and cantonal level. We would expect fewer economies at the municipal level where the practical social work is done, since the introduction of BI would not solve all the problems of the people from one day to another. It might even be that during a certain period, more human resources would be needed to support and guide those who otherwise have been monitored (at least marginally) during their periodic visits to the municipal offices. Thus, the sum that can be transferred from the existing social security system (and several minor other items) to the BI Fund is at current value

76

A. JÖRIMANN

and for the year 2012, about CHF 68 bn. Adding the CHF 111 bn from the clearing payment calculation, we arrive at a global amount of money which can be transferred from existing systems to the Fund to be CHF 179 bn. The gap between this and the calculated gross cost of CHF 209 bn is about CHF 30 bn per year.

Part III: How to Cover the Gap Now, we have reached the frontier of the cost neutrality by maintaining all elements as they actually are. We have calculated that there is a gap of CHF 30 billion between the cost of our proposal giving full coverage to all 8 million residents (BI of CHF 2,500 per month for adults and CHF 625 for those under 18) and the amount of funds which could be raised from the current system. From this point on, controversy starts as it is not obvious how to finance the annual deficit of CHF 30 bn and to direct the additional money to the BI Fund. For each adult person, the deficit amounts to nearly CHF 4,500 per year, which is approximately CHF 400 per month. It is clear that we cannot levy this sum directly from the resident population as this would simply correspond to a reduction in the BI, and we have already defined the amount of CHF 2,500 per month to be the minimum that can be called a “decent” payment. There are mainly three technical possibilities to fill the gap—taking money from earned income, redirecting funds from other sources or printing more money. We excluded printing money at the very start of our investigation, which may come as a surprise since the printing of money is nowadays the macro-economic measure par excellence and, if money is god, it is the real “deus ex machina” of national and international economic policy. For us, printing money is not an option at this stage. Redirecting funds from other sources to the BI Fund could be achieved by taxing capital flows or gains or revenues and, particular only to Switzerland, using private insurance funding as follows: In 2025, the 40-year period of initial funding of the so-called second pillar (mandatory occupational pension plans, as opposed to the first pillar, the mandatory public pension plan respectively the AHV cited above) will expire, which means that the CHF 10 to 20 bn per year foreseen to build up capital during these 40 years (1985–2025) will become obsolete and therefore, in some way, will become freely available. (According to the “Pocket

4

FINANCING BASIC INCOME IN SWITZERLAND …

77

statistic of social insurance 2015”, in 2012 the statutory occupational pension system collected CHF 63.5 bn in contributions and spent in the same period CHF 47.5 bn). From a political/ideological point of view, this money “belongs” equally to the employees and employers. From a macro-economic point of view, the money will become a “useless” surplus that will enhance neither consumption nor investment spending and would just build another barrel of liquidity into the ocean of global capital markets. Redirecting the cash to the BI Fund would be a far more reasonable measure than letting it disappear into the shadow of general accounts. The balance between wages, profits, prices and savings will not be changed basically by either way of proceeding. The third possibility is to consider taking the corresponding amounts from the pot of earned income, and the two main instruments in how to achieve this are direct and indirect taxes. The originators of the popular initiative from Basel favour the indirect tax route in line with the German entrepreneur, billionaire and anthroposophist Goetz Werner, who in 2006 urged the replacement of every direct tax by indirect taxes, raising Value Added Tax from 20% (in Germany) to 100% which would cover not only the needs of the BI but also the rest of the state’s expenses as well. Value Added Tax Werner’s main argument is that all taxes, including direct tax, are ultimately reflected in the price of products anyway, so having just one tax at the end of the production-life cycle of goods, i.e. at the point of sale, would be a logical and efficient form of taxation. (This argumentation is still maintained by the group in Basel with their so-called Latte-Macchiato-These2 ). Such a system has got two other major advantages, at least for entrepreneurs and billionaires. Firstly, it abolishes any taxation of what is always considered to be the raison d’être of every enterprise, i.e. the earnings and the distribution of profits to the shareholders. Secondly, abolishing income tax puts an end to the principle (fixed, for example, in the Swiss Constitution) that every person has to contribute to the cost of the community as a whole (society) according to his/her economic capability. It is obvious that the wealthy would pay more VAT due to their higher level of purchasing, but this would in no 2 For the chaum/.

“Latte-Macchiato-These”

see

http://www.grundeinkommen.ch/milchs

78

A. JÖRIMANN

way be comparable to the actual level of income tax, even if it were levied at a flat rate. (Actually, instead, there is usually a considerable progression of the tax rate for rising revenues; with a sole rate of VAT without direct tax payments, their tax duties would become sharply regressive). In the meantime, Goetz Werner has revised his proposal and now suggests only a partial hike of VAT, as do his followers in Switzerland (see their model below), and indeed, indirect taxation is a valid instrument for consideration. In Switzerland, VAT in its current form (basically 7.8%) brings in about CHF 3 bn per percentage point (with three different rates and numerous exceptions). Thus, to cover the financial gap of the BI with VAT alone, you would have to raise the rate by 10% to about 18%, which at first glance does not seem too ambitious when compared with the neighbouring countries’ rates of about 20%. Still, such a rise would mean a massive intervention into the political speculation potential and thus in the balance of political interests, VAT being the most important source of income for the federal authorities, “ex aequo et bono” with the federal direct income tax from natural and legal persons. But the redirecting of such amounts leads to massive battles around the balances of political interests. VAT itself can probably provide only a part of the financing of the gap we have calculated. The technical advantage of VAT would be that the decided increase would be possible without further difficulties and without other than expected consequences: when VAT rises, some sectors/goods and services manage to pass on these increased costs to the customers and others don’t—but that is quite normal. It might still appear interesting that Goetz Werner says in his last contribution to the German Internet newspaper “Spiegel online” that, at actual rates for Germany, a basic income would be located at the start in the area of the existing Hartz-IV-payments (about 600 e/person/ month), therewith matching the calculations done several years ago by the research team around the former Prime Minister of the German Bundesland Thüringen, Dieter Althaus.3 Other Indirect Taxes—Energy Taxation There are other indirect taxes which can be considered, such as levies on alcohol and tobacco and on energy consumption. Within the context

3 Das Solidarische Bürgergeld, see http://www.dieter-althaus.de.

4

FINANCING BASIC INCOME IN SWITZERLAND …

79

of climate change and ecological issues generally, energy taxation is one of the major subjects in the political debate. This kind of indirect taxation is special insofar as it does not only have an influence on energy consumption (as is intended), but also touches several industrial sectors whose energy consumption is above the average. These will claim tax exemptions because otherwise they risk having to close down factories, as well as eventually the energy producers themselves because of a tendency of falling revenues. In the first place, it will affect the consumer, again sparing those who have relatively high incomes but supporting the goal of reducing energy consumption, of course. Energy taxation is more or less a VAT on specific goods. It depends very much on the political will of parliament and the people if such funds could be considered for the financing of a BI. According to the BFE/Federal Office of Energy 2013, the global energy consumption in Switzerland is around 255 bn kWh. Therefore, financing the entire gap of CHF 30 billion with an energy tax would cost about 12 cents per kWh. Direct Taxes Before starting the proper discussion, it must be stressed that direct taxation is one of the most important elements of “passive exportation” in Switzerland. With its moderate, if not low taxation level, the country attracts both people and investments from all over the world, not any more the “dirty” money that Swiss banks have been accused of laundering for decades, but just the normal wealth that finds these conditions very welcoming and which in turn allows the tax rates to remain low—a logical consequence of the concentration of good tax payers within this small space in the Alps. Thus, Switzerland attracts some of the so-called tax substrate (the tax base) from other countries; on the other hand, it is logical that any larger intervention can have important consequences on the said tax substrate. Both capital funds and the rich are shy and fugitive. Another particularity is that the lion’s share of the income tax goes to the cantons and municipalities, as I have mentioned above. This may be an additional reason for the relatively low tax rates, since at the communal level, democratic decisions about tax rates tend to be strict and severe, and the control close to the establishment of projects which are often subject to popular votes and the budget—and finally the tax payment. Additionally, there is nowadays fierce competition among the cantons to

80

A. JÖRIMANN

attract the wealthy tax payer. As an example, some years ago, the canton of Obwalden tried to introduce degressive tax rates for the rich which was ultimately prohibited by a ruling of the Supreme Court of Switzerland. Still, the race for the rich goes on at full speed leading more and more cantons to cut budgets and expenditure. (In 2010, the Swiss central state, the Confederation spent about CHF 60 bn [of which CHF 18 bn was transferred to the cantons]. CHF 22 bn was financed by direct taxes [CHF 9.879 bn from individuals]; the cantons spent CHF 75 bn, collecting CHF 39 bn in direct taxes [CHF 28 bn from individuals] and paying CHF 5.5 bn to the municipalities.4 The municipalities spent CHF 43 bn, of which CHF 19 bn stemmed from individual direct taxation. This means that on all three levels of government, individual direct tax brought in about CHF 56 bn to the treasury). It would be difficult and above all illogical to try to finance the BI gap by taxes at the cantonal or municipal level; already transferring some of the expenses of cantons and municipalities (e.g. social assistance) to the BI Fund will require some ingenuity. Thus, only income tax at the federal level can be used to levy the necessary amounts, or indeed, one can introduce a separate/special federal tax, a kind of a BI Tax over and above the federal income tax with a contribution sizing of its own. For logical and systematic reasons, this would be a very clean and transparent solution without mixing up all kind of different issues. Here again, financing the entire gap of CHF 30 bn by an additional direct federal tax would require an increase of 50% if the whole tax base of CHF 22 bn was used, or by 200% if only the earned income of individual earners was taken into account (CHF 10 bn). Among the questions that would arise, the first would be whether the BI should be taken into account for the calculation of the tax base. In this case, the BI would become a part of the tax base for those who do not refund their BI within the clearing system. For the others, there would be no imminent change, the BI clearing payments being deductible from the taxable sum. In order to exempt the BI from taxation (which is a logical thing to do), the tax-free threshold would have to be increased to the amount of the BI. Based on figures from the 2011 taxation year, this would cause losses of some CHF 40 million, a sum not relevant for our considerations.

4 Figures are from Financial statistics of Switzerland 2012 (for the year 2010), annual report, Federal Finance Department.

4

FINANCING BASIC INCOME IN SWITZERLAND …

81

Currently, the direct federal tax allows relatively high tax-free amounts. For instance in 2014, the tax-free amount is CHF 14,500 CHF for singles and CHF 29,300 for couples. Then, there are tax-free sums for professional expenses (around CHF 5,000), a special exemption of CHF 13,400 if both in a couple are working, another exemption of CHF 6,740 for private pension plans and obviously an exemption for children of CHF 6,300 per child. Thus, a single person could claim a tax-free amount of up to CHF 20,000 per year and a married couple with 2 children, up to CHF 50,000 per year. Furthermore, the tax rates up to the middleincome levels are quite modest, so that an increase as described would not significantly affect the tax payment and therefore the tax revenue. The following calculations are still approximations, not because of the increase of the tax-free threshold, but because of the current system based on the taxation of couples instead of individuals, whereas individual taxation forms the base of our entire considerations in accordance with the principle of the BI being paid unconditionally to everyone. The payment of an individual and unconditional BI would anyway entail a revision of the tax system at some future time, abolishing the taxation of couples and replacing it with the subsequent levying of taxes of individuals only (thereby satisfying an old request of parts of the liberal wing as well). But for the argumentation in this paper, we try to work with the “distorted” figures of individuals and couples as well as possible. Let us have a look at the picture that would result. According to Table 4.3, out of a workforce of 4.310 million people, approximately 750,000 earned less than CHF 30,000 per year (approx. 620,000 people earning up to CHF 26,000 per year plus a sixth of those in the next band up to CHF 52,000 per year). That means that 3.6 million people, the balance of the workforce, would in this scenario need to cover the CHF 30 bn gap by income tax alone, giving a per capita contribution of some CHF 8,500 per year/CHF 700 per month, which is obviously too high, especially for those with lower incomes. Even when trying to weigh the contribution according to the income level, the results are somewhat shocking. Table 4.6 below shows a hypothetical range of contribution considered for each band, together with an average contribution used to calculate the results. The total of CHF 20.9 bn is still only two-thirds of the gap. We can add some CHF 3.5 billion for those who have not indicated which band they are in, but this is purely speculative. This shows that covering the financing gap of CHF 30 bn exclusively by direct federal taxation is technically possible, but in practice not really

82

A. JÖRIMANN

Table 4.6 Hypothetical model for additional income tax for incomes above CHF 30,000 per year Gross annual income CHF

Total employed

Contribution range per month CHF

Average contribution per month/year CHF

Result

1.5 bn 5.4 bn 6.0 bn 8.0 bn 20.9 bn 3.5 bn

30,000–52,000

650,000

30–300

200/2,400

52,000–78,000

1,130,000

300–600

400/4,800

78,000–104,000

707,000

600–900

700/8,400

104,000 +

681,000

900–5,000

Total No indication

1,000/12,000

3,168,000 413,760

700/8,400

CHF

feasible because the additional income tax would be quite high for the middle-income earners. A steeper progression might help, but we would then be at risk of damaging the whole construction of the direct federal taxes where the wealthy pay substantially more than the middle-income earners, and the lower-income earners pay no tax at all. So, it is clear that only a part of the gap of CHF 30 bn. could be financed by additional income taxes. And not to be ignored is that for the time being, the Swiss Constitution fixes a maximum tax rate for high incomes of 11% which would be exceeded with this proposal—but these aspects are rather secondary in view of the whole change proposed.

Part IV: The Models in Discussion In our book “The financing of a Basic Income” (BIEN-Suisse et al., 2010), we have presented three models for Switzerland of which one is the clearing model at the centre of this article. The other two models are from Bernhard Kündig, Vice President of BIEN-Switzerland in 2010, and Daniel Häni and Enno Schmidt, co-founders of the Initiative Grundeinkommen, the driving force behind the start of the popular initiative.

4

FINANCING BASIC INCOME IN SWITZERLAND …

83

Bernhard Kündig In addition to the substitution of existing social security payments, Bernhard Kündig proposes the replacement of the duties/contributions on the salaries that finance the social security programmes by a so-called social Value Added Tax of about 23%. VAT would be the main financing source of the BI and would be used only for this purpose. All the services of the public administration and public enterprises would be exempt from VAT. In addition, he urges the reform of income tax by replacing it with a flat tax of 22.5% with a high tax-free threshold, abolishing the large majority of possible tax deductions. This would cover the remaining financial needs of the BI Fund as well as the normal expenses of the Confederation. Häni and Schmidt As I have mentioned above, Häni and Schmidt advocate in principle a solution based on VAT, arguing much like their mentor Goetz Werner that the different taxes an enterprise has to pay end up in the price of the goods sold anyway (and ignoring like Goetz Werner profit or wealth taxation, etc.). As I have done in this article, in practice they advocate the transfer of existing social security payments into the BI Fund, as far as it is appropriate to transfer them. Their numbers in this context are very much the same as the numbers in this article. Furthermore, they propose some compensation with salaries as I have presented above. However, they do not foresee any particular mechanism to provide this compensation but leave the development to the forces of the labour market (with some assumptions that do not exactly correspond to the price building mechanisms of an average labour market, but this is not that important). Finally, they achieve similar figures as in this article for the compensation effect, for the replacement of social security payments and for the gap that would have to be covered. They give no concise solution as to how to fill the gap, because in their eyes, it is far more important to understand the principle of the BI than to provide the details of a financing regime that anyway would be overthrown in the political process. Consequently, the Initiative Grundeinkommen in respect of the forces that proposed the popular initiative does not give specific indications about these questions, starting with the amount itself; the text of the popular initiative only states

84

A. JÖRIMANN

“…the financing and the amount of the BI is governed by the law”.5 At this very stage of the public discussion, I think this was a wise thing to do. Müller and Straub During the launch of the initiative, Christian Müller and Daniel Straub published a booklet entitled “Die Befreiung der Schweiz” (The Rescue of Switzerland; Limmat Verlag & Zurich, 2012) with the following estimates: gross cost CHF 200 bn covered by CHF 128 bn transferred from earned income and CHF 70 bn from existing payments of the social insurances/social security, leading to a financing gap of CHF 2 bn. The difference to our estimates concerning transfers from earned incomes stems mainly from the fact that they did not use a scalable “clearing” but instead calculate with full reimbursement/transfer from the very first franc above the BI amount. Otherwise, it seems obvious that they have overestimated the potential transfers of the actual social security into the BI Fund. Müller and Straub II, Analysis of Potential Several authors have dealt with the economic potential of the introduction of a BI; Müller and Straub have published during the voting campaign such an analysis in the form of a pre-study within their “Institut Zukunft” (Institute of the Future), calculating the positive effects as follows: the positive effects on mental and physical health are estimated at 13 bn CHF, the increase of output productivity at 31 bn CHF, additional consumption at 8.7 bn CHF, together with other minor factors a one-off contribution of about 55 bn CHF. The sustainable potential (from the reduction of income inequality and an increase of the creation of enterprises) is estimated at some 4 bn CHF.6 To be frank: I am not convinced of the reliability of these numbers and therefore cannot take them into account for the financing debate.

5 For the full text of the initiative, see https://www.admin.ch/ch/d/pore/vi/vis423t. html. 6 http://zukunft.ch/potentialanalyse-grundeinkommen.pdf.

4

FINANCING BASIC INCOME IN SWITZERLAND …

85

Others In the course of the campaign for the popular initiative, various other attempts and proposals have been given birth, including a micro-taxation of financial transfers or a mix of the systems mentioned above, according to the creative potential of the respective authors. It is not the aim of this article to discuss these valuable contributions, since they have not yet matured into a coherent form, which might very well succeed in the months to come. In Comparison: A Schematic Proposal A simple and illustrative mechanism of how financing BI could work within the taxation of earned income, not specifically in Switzerland, but in every country, is one of the models presented by the German party “Die Linke”. According to this proposal, every single earned Euro would be taxed at a rate of 30%, in linear or flat tax form. (It could also be slightly progressive taxation, or linear, but at a higher rate, or even at a higher rate and progressive). Instead, the BI (financed by these direct and/or other indirect taxes) would be paid tax-free alongside the earned income of everybody. This mechanism has been presented before, for instance in the 1990s by Philippe Van Parijs, and I think this model captures the financial/technical essence of the BI scheme very well in a systemic form.

Part V: The Opponents After the work “Solidarität neu denken” of Martino Rossi and Elena Sartoris in 1996, there were practically no further publications dealing explicitly with the financing of a BI. In 2004 and 2005, Christoph Schaltegger and Michael Gerfin/Robert E. Leu7 discussed the introduction of tax credits resp. of a negative income tax, and Tobias Müller presented a model of a participation income, mainly dealing with the possible effects

7 Gerfin/Leu, Die Volkswirtschaft Nr. 6/2005; Schaltegger, Fed. Tax Administration, 2004.

86

A. JÖRIMANN

on the labour market in Switzerland.8 Otherwise, the book of BIENSwitzerland in 2010 about the financing was the first attempt to visualize the financial side of the BI proposal. Since the launch of the popular initiative, two reactions from opponents of the BI were published, presenting more or less detailed calculations. Economiesuisse Six months after the start of the collection of signatures for the BI popular initiative in 2012, the Swiss entrepreneurs’ PR organization Economiesuisse published an article on the BI.9 The arguments were presented under the sarcastic title: “A Basic Income?––Unfortunately not”, and as an introduction, Economiesuisse stated that an excessive increase of VAT would be inevitable and that the BI would notably weaken the economic performance and the competitive potential of the country. Thus, it is immediately clear that the authors were even not aware of the existence of our book with the three models, published in 2010. However, Economiesuisse had no problem with calculating the gross cost of BI per year. They assigned 25% of BI to minors in accordance with the numbers proposed since 2012 by the promoters of the initiative and arrived at the slightly lower amount of CHF 202 bn (compared with our CHF 209 bn). Like all other authors, they integrate the substitution of the most important parts of the current social insurance (public old age pension AHV, unemployment, child benefits, social aid, etc.), calculating a figure of CHF 62 bn, slightly under the estimates of the promoters of the popular initiative. Up to this point, the differences are minor. From here however, the assumptions start to vary considerably. Economiesuisse works with a modelling of economic parameters, an issue not tackled here, but which is of course of interest to those dealing with the subject as such, and as well the subject of a variety of papers at different levels. The calculations within the model are based on a “simple neoclassical growth model” 8 Tobias Müller, Partizipationseinkommen: ein wirkungsvolles Instrument im Kampf gegen die Armut? Die Volkswirtschaft 7/2004, aktualisiert in Soziale Sicherheit 4/2008, BSV, Bern. 9 http://www.economiesuisse.ch/sites/default/files/downloads/dp21_grundeinko mmen_print.pdf.

4

FINANCING BASIC INCOME IN SWITZERLAND …

87

(Solow, Romer and others) and deliver quite negative results for the advocates of a BI. In order to cover the CHF 140 bn difference between gross cost and substitution effects, Economiesuisse foresees an increase of VAT to more than 50% (which obviously is a consequence of not taking into account any financing model other than the one proposed by Goetz Werner). According to the model, we would have the consequences of a shrinking of the GDP of 17%, and a decrease of capital stock (2011) from CHF 1,378 bn to CHF 985 bn. The latter is due to the formula applied when calculating the value of the capital stock where the tax rate plays the decisive role for the decrease. As shown above, there are other models to be considered for a more accurate analysis of the financing question. Even the authors of the popular initiative do not speak of such a spectacular increase in VAT (or of direct taxations, otherwise), leaving the way of transferring the salary sums that would be substituted by the BI to non-specified market forces. But even within the model of Economiesuisse, there is a grave mistake. It bases the whole model on the cost side with the deficit of CHF 140 bn while the corresponding sums do not appear on the other side of the balance sheet, neither as salary substitution nor even simply as popular income. According to my numbers, CHF 110 bn should show up in the balance sheet as a kind of salary increase. If you take the compensation mechanism as a taxation on one side, you have to compensate the balance of the national economic account by a salary increase on the other, which would be the payment of the BI. Economiesuisse has forgotten to enter the detail of CHF 110 bn into its own models and equations! The “Message” of the Federal Council For every popular initiative that has been successfully submitted, the Federal Council establishes a “message” for the attention of parliament. Within the context of the basic income popular initiative, the message is based on the numbers put forward by the promoters of the popular initiative, i.e. those in the booklet of Müller and Straub, gross cost of CHF 208 bn (again with 25% of BI for minors), whereas the effect of the substitution of social security on the other side is valued at CHF 55 bn (as opposed to the CHF 70 bn of Müller and Straub). The “absorption of earned income” would be CHF 128 bn, as put forward by Müller and Straub. The absorption transfer would be done by direct taxation and would exclude the first CHF 30,000 of all earned income, and the gap

88

A. JÖRIMANN

would be covered by VAT (CHF 25 bn). The message mentions eventually establishing the direct tax in a progressive way, but does not enter into details.10 Now this kind of presentation is all but clear. It contradicts all rules, even in the case of full absorption by income tax, in that according to this mechanism, the taxpayers with the lowest incomes should pay the highest rates. Even if this assumption has only been taken for analytical purposes, it should somehow allow the chance to explore the possible mechanisms which the authors of the initiative had in mind. Obviously, it would have been preferable to see at least a serious attempt of a thorough understanding of the proposition, even if the Federal Council does not agree with it. It looks like the Federal Council does not even know exactly what it does not agree with.

Conclusion Financing is not the core question of the BI concept. Still, certain calculations have to be done to produce some ideas about what would occur, and what would be needed if BI were to be introduced in the future. Independent from any speculation about possible effects on different parameters of the economic and social activity, the aim of this article was to establish a set of numbers that afterwards could be embellished with any desired side or main effect. It is something like the base for more speculative deliberations, like for instance about the inclination to assume, abandon, increase or reduce a salaried activity, as is and has been the subject of various scientific enquiries and papers. Our investigation has shown among other things, how little attention the opponents of the scheme have paid to the fundamental ideas and elements of the financing of a BI in Switzerland, which led to some miscalculations. On the other hand, the errors in the calculations of the advocates of the scheme have rather been forgiven, for they have always insisted that the most important thing is the principle, not the money: if society agrees to introduce the scheme, the specifications of the introduction will follow and will have no devastating consequences on modern life. The campaigners make the effort of doing all these somewhat strange calculations only because they have to furnish some indications, not yet grown to scientific values. 10 Full text of the “message”: https://www.admin.ch/opc/de/federal-gazette/2014/ 6551.pdf.

4

FINANCING BASIC INCOME IN SWITZERLAND …

89

The calculations discussed within this article give the following results: For 2012, the gross cost of introducing BI in Switzerland is approximately CHF 209 bn per year, based on a resident population of 8 million, of whom 1.5 million are classed as minors under 18 years. BI would be CHF 2,500 per month per adult (at a cost of CHF 198 bn per year) and CHF 625 for minors (costing CHF 11 bn per year). Total compensation would be CHF 179 bn per year made up of CHF 111 bn from the earned income from the clearing model (or other mechanisms of transfer/ absorption); CHF 63 bn from the social insurances; and CHF 5 bn from other economies, for instance at the administrative level, with subsidies for the agriculture, scholarship funds, etc., that could be removed or replaced by the BI. So—contrary to the hopes I had for a short time after my initial calculations—there is a gap of some CHF 30 bn per year to fill. This is a considerable number—not as big as some opponents pretend, but far more than Müller and Straub assume. If the CHF 30 bn were borne equally by all 6.5 million adult residents, it would be CHF 4,500 per person per year, about CHF 400 per month. There are several possibilities to deal with this and I have discussed some technical approaches for filling the gap. The smoothest way would appear to be an increase of Value Added Tax, because somehow it hides the shocking reality of the sheer amount to pay and the increase of VAT would not translate in a linear way into price increases. In practice, parliament would probably choose some mixed method of financing. An increase of VAT by 5% would cover half the cost, reducing the average contribution of income tax per year shown in Table 4.6 by 50%. This would be affordable, but still a considerable amount—corresponding to a tax hike of about 5% of the earned income, leading to an increase of the tax rate of 20% and more—and it is more than questionable if this is politically feasible. Voters anyway and above all need to understand what changes they would pay for; otherwise, the proposal would never succeed in a popular vote and in parliament. They have to see that this is not a financial raid by the poor on the purse of the middle class (which is currently the mainstream political discussion in Switzerland), but the introduction of a basic new and fair way of managing society which requires a long overdue adjustment to both legal and actual living conditions. The main beneficiaries would not be the poor and/or the lazy, but primarily couples with children. Just one remark about this last point. According to practice and ideology, the labour market in our modern society is what it is. It has

90

A. JÖRIMANN

never been questioned that the same salary for the same work should, in one case, be enough to satisfy the needs of a family of say two adults and two children and in another case of one single person. (The compensatory factors of tax allowances and child allowances do not really make a significant difference, at least not in Switzerland). This is funny, in a certain way, and shows how the public opinion accepts the most evident inequalities, if not injustices without blinking an eye, just because it is what it is. The introduction of BI puts an end to this obvious and basic injustice without even changing a comma in how the labour market functions. I am convinced that voters are ready to pay something for improvements to modernize our society and the BI is going to become one of the important institutions of this modern society. But I am not sure if they are ready to pay the entire bill as presented here. There are other options to be considered. The most interesting option to me seems to be the evaluation of the financial possibilities arising from the end of the capital-building period of the second pillar of the old age insurance.11 The potential saving of CHF 10 to 20 bn per year could reduce the gap (and thus all the working hypotheses mentioned above) by half, starting from the year 2025. To be fair, I admit that the politicians dealing with pension plans have probably already reserved these funds to cover deficits arising from the demographic evolution with the increasing share of the old age population. But since the BI covers the basic payments of the mandatory state old age pension (AHV) in the first place, this could work out even within this kind of endeavour. The introduction of a BI has got to be conceived as a process. Once the initiative is approved by the people, parliament could consider different options to minimize the cost. For example, by starting with a slightly lower level of BI than we have used above, a BI of around CHF 2,000 per month per adult and CHF 625 per month per minor would be cost neutral, meaning that some parts of the social security system would need to be maintained for longer, or the BI for retired people would need to be

11 Otherwise, up to now none of the BI promoters has considered using any funds of

the second pillar for the financing of the BI in Switzerland, although this semi-private professional old age pension scheme (mandatory for salaries above 20,000 CHF/year) has got some weaknesses, above all at the lower end of the earned income scale. Obviously, this part of the old age insurance does not exist at all for persons who have not been able to exercise any professional activity.

4

FINANCING BASIC INCOME IN SWITZERLAND …

91

higher to equal the level of the former AHV or complementary benefits would need to increase. Another option could be a gradual introduction of a BI, for instance starting with a BI for children (see for instance the contribution of Ingmar Kumpmann and Ingrid Hohenleitner in our book (BIEN-Suisse et al., 2010) apart from the coverage of those who are retired. When it comes to a macro-economic view of the introduction of a fully-fledged BI, we state that the financing of the CHF 30 bn gap would not take funds from national consumer spending (which, rather, is strengthened by BI because it tends to give more to those with less spending power); it would finance the gap from the savings pot. And here we come back to some basic questions in the context of savings and finance. Goetz Werner commented at the Basic Income Congress in Munich 2012 on savings as one of the reasons for the global financial crises. For him, there were indications that from time to time, massive levels of saving appeared to be the enemy of the real economy—the economic apparatus that guaranteed our daily lives—because corporate savings, as well private savings of the wealthy and also of the middle class, for instance within the mandatory professional old age savings plans, were directed less into productive investments and increasingly into capital markets, which at a given point could collapse because of savings overload, among other reasons. This meant that from time to time, our attempts to prepare for the future were damaging (maybe even structurally and inherently) our present lives. There are many discussions about the continuous dislocation from earned income towards capital revenue, etc. In this sense, it is quite superficial to say that the middle classes are always bound to finance the poor—the problem is a different one. Finally, I should like to quote a macro-economic reflection that in a way, illustrates the dimension of the venture. Martino Rossi (1995)12 and others say that the BI ought to be considered as a third, constitutive element of modern national economies. Up to now, its harvest has been divided between capital and wages, and in the future, it should be divided into three parts—capital, wages and BI.

12 Martino Rossi, economist, researcher, former municipal counsellor of Lugano.

92

A. JÖRIMANN

References Althaus, D. et al. Das Solidarische Bürgergeld [German]. http://www.dieter-alt haus.de BIEN Suisse, Jörimann, & Kündig. (Eds). (2010). Le financement d’un revenu de base [French]. Seismo, Zurich. Economiesuisse. (2012, October). Paper on the basic income initiative. http://www.economiesuisse.ch/sites/default/files/downloads/dp21_g rundeinkommen_print.pdf Gerfin, M., & Leu, R. E. Die Volkswirtschaft Nr. 6/2005. Initiative Grundeinkommen; for the “Latte-Macchiato-These”: http://www.gru ndeinkommen.ch/milchschaum/ Initiative Grundeinkommen; full text of the initiative: https://www.admin.ch/ ch/d/pore/vi/vis423t.html Müller, T. Partizipationseinkommen: ein wirkungsvolles Instrument im Kampf gegen die Armut? Die Volkswirtschaft 7/2004, aktualisiert in Soziale Sicherheit 4/2008. BSV. Rossi, M. et al. (1995). Ripensare la Solidarietà [Italian]. Dadò. Schaltegger, C. A. Die negative Einkommenssteuer, Reformoption für die Schweiz? [German], 2004 Swiss Federal Tax Administration. Schweiz. Konferenz für Sozialhilfe (Swiss Conference of Social Assistance) SKOS, Guidances, http://skos.ch/skos-richtlinien/ [German]. Straub, D., & Müller, C. (2012). Die Befreiung der Schweiz (The Rescue of Switzerland) [German]. Limmat Verlag. Swiss Federal Council; full text of the “message” of the Federal Council: https:/ /www.admin.ch/opc/de/federal-gazette/2014/6551.pdf Swiss Federal Finance Department, Financial statistics of Switzerland 2012 (for the year 2010), annual report. Swiss Federal Social Insurance Office: Pocket statistics of the Social Insurances in Switzerland 2014. Swiss Federal Statistical Office, various statistics. Van Parijs, P. (1995). Real Freedom For All. Clerendon Press. Werner, G. W. (2007). Einkommen für alle [German]. Kiepenheuer und Witsch.

PART III

Building Up BIG

CHAPTER 5

Total Economic Rents in Australia as a Source for Basic Income Gary Flomenhoft

Abstract Interest in basic income has resurged from the realization that Artificial Intelligence (AI) is replacing human beings in the workforce. Therefore, it is urgent to resolve the controversial question of how to finance BI, overcoming objections to presumed violations of property rights. This chapter argues that resources produced by nature or society as a whole are the property of the public. Therefore, the citizenry are entitled to receive rent for use of their property, what economists call economic rent. Figures from the Total Resource Rents of Australia study are used to calculate revenue available for basic income in Australia. Keywords Economic rent · Basic income · Land rent · Dividend · Royalties · Commons and common assets

G. Flomenhoft (B) Gund Institute for Ecological Economics, University of Vermont, Burlington, VT, USA Centre for Social Responsibility in Mining, Sustainable Minerals Institute (SMI), University of Queensland, Brisbane, QLD, Australia © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1_5

95

96

G. FLOMENHOFT

Basic income (BI), or guaranteed annual income as it was referred to in the past, is once again on the policy agenda worldwide. This is partly due to the tireless efforts of advocates who have been researching and promoting it through periods of great interest like the McGovern/Nixon era in the United States, when both major political parties advocated the idea, through periods of low interest during the recent neoliberal era. Stalwarts continued their work such as with the creation of the Basic Income Earth Network (BIEN) organization in Europe and the Basic Income Group (BIG) organization in the United States. One noteworthy person is the late Al Sheahan, who wrote and worked on basic income tirelessly from the late 1960s until his death in 2013, to whom I dedicate this chapter. Recently, interest has revived due to one issue in particular. Policy analysts have suddenly realized that automation and Artificial Intelligence (AI) are putting people out of work, and economic growth is slowing down. A typical news report online states that robots will replace 50% of human jobs in next 10–20 years.1 Some robots in Japan are already serving as hotel desk clerks and receptionists. This has jolted people into serious consideration of how to finance people when they no longer have jobs. The lacklustre recovery from the Global Financial Crisis (GFC) and growing inequality has also motivated renewed consideration of basic income. John Stuart Mill in his conception of the “stationary state” early imagined the leisure society, which was also expected by John Maynard Keynes in his projections of the future, both expecting machinery to replace human labour to a very significant extent. The problem then as now was how would people get paid. One of the most contentious issues has always been the question of how to finance a guaranteed income. The main objection is the common aversion to giving people “something for nothing”, and the redistribution of income that would result from most tax-based schemes that are commonly discussed in Europe. The longest lasting, currently operating basic income scheme is the Alaska Permanent Fund Dividend,2 which 1 Chris Smith, “Bank of England: 95 Million Jobs Going to Robots in the Next 10 to 20 Years”, November 16, 2015, http://bgr.com/2015/11/16/robots-replacing-humanjobs/. 2 Alaska Permanent Fund Corporation website: http://apfc.org/home/Content/ home/index.cfm.

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

97

Fig. 5.1 Economic Rent from Oil extraction (Adapted from Cambridge Energy Research Associates (CERA-defunct) “Ratcheting Down: Oil and the Global Credit Crisis”, 2008)

provides between US$1,000 and $2,000 per year to every resident of Alaska over the age of one. This plan avoids the thorny issue of income redistribution altogether, by basing the dividend checks on royalties from oil on state land, what economists call economic rent. A pair of recent books on the Alaska system explore this model (Widerquist and Howard 2012a, b). Economic rent is defined as the unearned income from production of a good after all expenses are paid, including a normal rate of profit. Sometimes it is called “windfall” profit, but it comes from payment for a production factor that has no production cost. Oil in the ground was produced by nature at no cost. It was created by geological processes over millions of years. Human beings had nothing to do with its creation. Although prospecting, exploration, well drilling, extraction, refining, transporting, etc., all have costs, the price of oil normally far exceeds these costs including a normal rate of profit. This is the source of unearned economic rent. Figure 5.1 shows the cost of extraction of oil from various countries around the world. When oil hit $147 per barrel in 2007, the economic rent (shown in green) ranged from $57 to $125 per barrel depending on the cost of extraction. Oil prices have recently dropped very low, which makes many wells uneconomical, but there is still economic rent from many wells.

98

G. FLOMENHOFT

Economic rent derives from the social and natural commons that are created by nature or by society as a whole.3 If it comes from the commons, then by definition it is public not private property. Therefore, no one’s income is taken when rent is collected, so there is no redistribution, the bogeyman of many conservatives. There are two opposing theories of economic rent, the democratic theory and the liberal theory. John Warnock describes them this way: The democratic theory of rent suggests that governments should maximize their collection of rent to the benefit of their publics, who own the resources. The liberal theory of rent suggests that public resources should be privatized and employed to make profits, and that rents should remain in private hands either entirely, or enough to ensure investment in the industry. (Warnock, 2006: 6)

One approach to basic income is to base it on the democratic theory of rent, with the assumption that the commons belongs to the public. John Locke and Thomas Paine’s theories of property both supported this contention. Locke said that the commons belongs to all and the only justification for private land is if there is “as much and as good left in common for others”. Locke contended that private property arises from the application of labour to the commons (Locke, 1698). Likewise, Paine believed that the earth is the common property of humanity, and it is only the products of labour that are private (Paine, 1797). There is ample justification for the commons belonging to the public. This principle can be expanded to many natural resources besides oil and extended to socially produced resources as well. It is on this basis that Karl Fitzgerald updated the figures of the late Tony O’Brien’s Total Resource Rents of Australia (1999) in 2013. Fitzgerald’s report is based on the following categories of economic rent: Land Rent, Natural Monopolies and Resource Rents, then adds in Sin Taxes and Non-Tax Receipts. The total figure amounts to AU$386.9 billion annually, which compares favourably to total government operating revenue at all levels of $390.1 billion. For economic rent alone, the total is $340.7 billion. With a 2016 Australia population of 24,050,120, this economic rent amounts to $14,166 per person. 3 Tomales Bay Institute, “State of the Commons Report”: 2, 35, 2002–2003, http:// bollier.org/commons-resources/commons-reports.

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

99

For this exercise, we will assume that taxes are retained in order to fund all existing government programs and services, so we must subtract existing revenue from estimated economic rent to see what remains. We do not want to shortchange government of existing revenues, so we will subtract these from our total and only count additional economic rent generated. This does not account for the change in tax revenues that results from the collection of economic rent, or the payment of a basic income. That is beyond the scope of this article, but would be worth pursuing in further research. There are several aspects to these dynamic changes that would need to be accounted for as explained in the following paragraphs. The primary argument of conservatives and libertarians who favour guaranteed income going back to Milton Friedman, and more recently Charles A. Murray, is the huge reduction in bureaucracy and means testing infrastructure that would result, and thus the expected reduction of government expenditures. They also make moral claims on incentives and motivation, which we will leave aside. For the United States, on strictly financial terms, Murray claims, “This statement does not take transition costs into account, a complex issue that I set aside here except to note that a system that costs a trillion dollars less per year than the current system by 2028” (Murray, 2008). Murray also lists many knock-on effects such as reduced crime, reduced unwanted births, less elderly poverty and better health. We are unable to account for these effects here. Tony O’Brien listed the following savings in his 1999 Total Resource Rents of Australia report (Fitzgerald, 2013: 42): Potential savings from the introduction of a Site and Resource Rent system and the removal of all other taxes could be extremely large, approaching one third of total current government outlays.

Many of the following expenses would be greatly reduced or in some cases eliminated: • The cost of assessing, collecting and endeavouring to prevent the evasion of existing taxes. • The cost of relieving involuntary unemployment and poverty which will decline and disappear as employment revives.

100

G. FLOMENHOFT

• The use by governments of tax concession and other privileges as “sweeteners” to solicit or hold large corporations. • The cost of land acquisition for public purposes. Fitzgerald also cites savings in the pharmaceutical and the welfare budgets. The second major financial impact results from the collection of economic rent on residential land. Although it is counter-intuitive to most people, the collection of a 5–6% land rent or land tax per year eliminates much of the unearned income from owning real estate, therefore reduces capital gains and speculation, and thus reduces its demand and should reduce its price. For homeowners, given a fixed average income level, if a larger share of income is spent on land taxes, this reduces the remaining amount of income left to pay for mortgages, providing a further impetus for reduced prices. It essentially substitutes a tax payment for mortgage payment. There is ample mathematical proof of this in the literature, so we won’t delve into it here. The point is that the collection of economic rent on land could reduce the price of housing, which could improve disposable income, and therefore the need for housing subsidies and other transfer payments. There are a total of $71 billion in annual housing subsidies in Australia due to the inflated value of land, the largest being the capital gains tax exemption ($45 billion) and land tax exemption for owner-occupied property ($9.5 billion) (Flomenhoft, 2016). The third financial impact resulting from collection of economic rent is the reduction of so-called deadweight losses in production. This is due to paying for things that have no production cost, and allowing this revenue to accumulate in private hands instead of the public, according to the liberal theory of rent. We will not account for these benefits either. On the progressive side of the spectrum, many moral and ethical arguments have been made based on the prerogative of reducing poverty due to compassion and solidarity with the less fortunate, and also in favour of greater freedom (Van Parijs, 1998). We will leave these arguments aside for now as well. A basic income using economic rent avoids all these practical and ethical arguments completely, especially the thorny issue of income redistribution, which is a major stumbling block to adoption of basic income. The democratic theory of rent simply says that people are entitled to these payments because it is their property. No one disputes that a person

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

101

owning stocks is entitled to dividends, that an apartment owner is entitled to collection of rent from tenants, or an owner of an oil well is entitled to royalties. Conservative Alaskans conceive of oil on state land as their property and therefore support receiving a dividend check from Permanent Fund revenue. We won’t address the question of the possible work disincentive, because wealthy trust-fund beneficiaries and people living from investments still seem to find productive uses of their time, whether for work or philanthropy. It is only the poor who apparently will become lazy if given unearned income. But we won’t debate this. The confusion arises when states assume the right to dispose of common property on behalf of the people. In more capitalistic countries, governments often grant ownership of the commons to the private sector in a process of privatization and sell-off of state assets. In more socialist leaning or even many capitalistic states (such as Alaska), governments may retain ownership of common assets and use revenue for governmental services and infrastructure. Whether the people benefit or not depends on the level of democracy. We could compare use of oil revenue in democratic Norway, which has a nearly $1 trillion dollar oil fund, to a dictatorship like Saudi Arabia, where the commons are simply the property of the ruling family and the country is basically a private oil corporation. The state is not the equivalent of the public, and payment of basic income from economic rent recognizes the commons as public property, not the property of the state, feudal lords or sheiks. Alaska uses oil revenues for both state funding and for the Permanent Fund Dividend, so has elements of state and public ownership of oil rent. The key point of Fitzgerald’s Total Resource Rents of Australia (TRRA) is that there are many other sources of economic rent besides oil and minerals. Flomenhoft has documented 12 different common assets that could generate $10,348 of economic rent per person per year in the resource poor state of Vermont, United States (Flomenhoft in Widerquist and Howard 2012). Natural assets in Vermont tabulated include fisheries and wildlife, public forests, ground and surface water, minerals, wind for wind power, and the atmosphere as a sink for CO2 and other emissions. Socially created common assets included were the Internet and World Wide Web, the electromagnetic broadcast spectrum, the financial and monetary systems, and the value of all land. Fitzgerald has done a more extensive job identifying approximately 20 different sources of economic rent in Australia in Table 5.1 (Fitzgerald, 2013: 5).

102

G. FLOMENHOFT

Table 5.1 Total resource rents of Australia Item

Valuation ($m)

% of valuation

Raised ($m)

Land—residential Land—commercial Land—rural Land—other Subsoil minerals

2,794,800 338,500 263,700 287,700 (67,359 + 14,637)a 20,229 50,000 25,000 1,919 220,000 2,100 1800 18,450 10,560 5,100 64,500 100 43,427 1,382,000 12,980 Estimate Estimate Govt budget Govt budget Govt budget (4,020 + 14,200)d 20,323

5.5% 6.5% 5.5% 5.5% 40%

153,714 22,002 14,504 15,791 32,813

Oil and Gas—PRR Water rights Taxi licenses Airports Utilities Fishing licenses Forestry Gambling license EM spectrum Satellite orbit rights Internet infrastructure Domain name registration Banking license fees Corporate commons fee Patents Parking fees Public transport Liquor licenses Vehicle rego, driver license Sin taxes—tobacco, alcohol Carbon tax Govt non-tax receipts Total

40% 2.60% 14,402b 40% 10% 40% 2.7% 40% 20% 10% 10% 3 millionc 40% 2% 0.005%

50%

a 40% of BHP, RIO, and Xstrata EBITDAX (2011–2012) + shareholder dividends b Number of taxi licenses 14,402 x $25,000 each = $360 million c $100/domain × 3 million domains = $300 million d Increase in petrol and diesel excise taxes during carbon tax regime

Fitzgerald divides the revenue into the following categories: Part II—Calculation of economic rent Part III—Natural monopolies

8,092 1,300 360 765 22,000 840 50 7,380 2,122 510 6,450 300 17,371 27,640 65 250 2,400 4,000 5,294 12,510 18,220 10,162 386,905

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

103

Part IV—The frontiers of monopoly Part V—Existing government revenue We will explore them to understand how these calculations were made.

Land Rent Land is the largest asset in any economy and rent from land constitutes 52.8% of the total rent calculation in this report (Fitzgerald, 2013: 19). Fitzgerald used a figure of 5.5% for residential, rural and other land, and 6.5% for commercial land. Residential land comprises 75% of the total land value in Australia. The land rent percentage was chosen as “just below long term growth trends”. The annual increase in land value that is typical of real estate bubbles worldwide can be seen as land rent capitalized into the price of land. When it is not collected, it accrues to owners. Polanyi pointed out in 1944 that land, along with money and labour, is a fictitious commodity that results in devastating effects on society when it is sold in markets (Polanyi, 1944). The long-term trend of land prices is somewhat higher than 5.5–6.5% in Australia. From June 2014 to June 2015, land value increased from $4197.3 billion to $4722.2 billion for an increase of $524.9 billion, or 12.5%.4 According to the HSBC, Australian home prices have risen 24 per cent in the past three years, with Sydney jumping by 39 per cent.5 The long-term trend is shown in Fig. 5.2. Total Australian land values increased from $665.1 billion in 1989 to $4267.5 billion in 2014 for a total increase of 541.6%. On an annual basis over 25 years, this amounts to a long-term trend of 7.72% increase per year for all land. Fitzgerald calculates potential land rent of $206.01 billion on a total land value of $3.684 trillion using the 5.5–6.5% rate. Existing land taxes are estimated at 2.5% giving existing revenue of $91.1 billion. Subtracting existing revenue from estimated land rent leaves a total of $113.9 billion in annual land rent available for basic income. This comprises the largest

4 Australian Bureau of Statistics (ABS) 5204.0—Australian System of National Accounts, 2014–2015, Table 61, column at: http://www.abs.gov.au/AUSSTATS/[email protected]/Detail sPage/5204.02014-15?OpenDocument. 5 Dan Moss, “Cabinet Colleagues Jump to Hockey’s Defence”, The New Daily, June 10, 2015.

104

G. FLOMENHOFT

Fig. 5.2 Total Australian land prices 1989–2014 (Australian Bureau of Statistics (ABS) 5204.0—Australian System of National Accounts, 2013– 2014, Table 61, http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/ 5204.02013-14?OpenDocument)

portion of total economic rent out of a total of $252.5 billion or 45% of total rent.

Resource Rents The TRRA report proposes a reformed Mineral Resource Rent Tax (MRRT) to base revenues on a 40% charge on Earnings Before Interest, Tax, Depreciation, Amortisation and Exploration (EBITDAX). This is justified by countries such as Norway which have a 60% state ownership of oil production,6 plus an ordinary corporate tax of 25%, 53% special tax rate and 78% marginal tax rate on profits.7 The findings were calculated

6 Alberta Department of Energy, “Let’s Talk Royalties: Let’s Talk About Norway”, 2015, https://letstalkroyalties.ca/did-you-know/lets-talk-about-norway/ 7 Norwegian Ministry of Petroleum and Energy, “The Petroleum Tax System”, (Update) November 2016, http://www.norskpetroleum.no/en/economy/petroleumtax/.

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

105

on the EBITDAX (2011–2012) earnings of the big three miners—BHP, Rio and Xstrata—totalling $67.359 billion. An additional $14.637 billion was added to EBITDAX totals to incorporate shareholder dividends paid. At a 40% rate, this sees a contribution from the entire mining sector of $32.8 billion. By comparison, in 2011–2012, the Australian government expected to earn just $1.5 billion from the mining and petroleum sector. Shareholders received $14.6 billion from the big three mining companies over this same period. In the Petroleum and Gas sector, according to the ABS, the oil and gas extractions industry EBITDAX was calculated at $22.229 billion (2010– 2011). A 40% resource rent was levied to calculate the $8.092 billion contribution to government revenue. Adding minerals and petroleum product revenue together totals $40.9 billion. Subtracting $1.5 billion existing revenue leaves $39.4 billion for basic income.

Electromagnetic (EM) Spectrum Television licenses were given away in the 1950s according to Fitzgerald. Recently, Australia auctioned portions of the 700 MHz electromagnetic spectrum. The sale raised $1.96 billion in one-off revenue for the 15year license. This is equivalent to $133 million per year in payment. More than $1 billion of spectrum remains unsold. The ABS calculates the existing spectrum already allocated at $8.6 billion. If we add the recent $1.96 billion auction, the total is $10.56 billion. A 20% resource rent on the $10.56 billion total will see the multimedia industry (radio, TV, mobile) contribute $2.12 billion per annum. Subtracting $133 million from $2.12 billion per year leaves $1.989 billion for basic income. This may be significantly undervalued as total spectrum value in the United States is estimated at $1 trillion, according to US economist J. H. Snider (2003).

Corporate Commons Peter Barnes relates an experience when he considered taking “Working Assets” the phone company he started public. “Our investment banker informed us that, simply by going public, we’d increase the value of our stock by 30 per cent. He called this magic a liquidity premium. What he meant was that stock that can be sold in a market of millions is worth more than stock that has almost no market at all. This extra value would

106

G. FLOMENHOFT

come not from anything we did, but from the socially created bonus of liquidity. We’d be reaping what others sowed” (Barnes, 2006). The SEC, the stock exchanges and all the other social institutions that allowed the stock market to function created a premium of 30% in public companies. Fitzgerald calculated a 2% corporate commons fee on the 2013 Australia Stock Exchange market capitalization of $1.382 trillion delivering $27.64 billion in annual revenue. If 30% of the value of public companies is due to the existence of the stock market itself, then 2% is rather modest. Barnes calls it liquidity rent.

Water According to Fitzgerald, Water Entitlement holders currently pay no resource rents, and the ABS does not value the licenses in the national accounts. Robert O’Brien, managing director of Percat Water, writes that there are 140,000 license holders, with an estimated value of the water market of $50 billion.8 Additionally, the value of access to underground aquifers has not been included. In Vermont and other US states, groundwater, like surface water, has been declared a public trust resource. If government holds water in trust for the public, then government is also entitled to collect rent on behalf of the public who are its owners. With the value of 2012 Water Entitlements holding up despite regular rainfall, the report includes a 2.6% resource rent on this monopoly right. Applying that rate to O’Brien’s $50 billion valuation results in an estimated $1.3 billion contribution to economic rent.

Public Utility Privatization In the TRRA report, it is stated that in October 2012, Infrastructure Australia (IA) spearheaded a move to privatize $220 billion in public assets via the sale of 82 government entities. Three existing public utilities pay a dividend of $3.2 billion to NSW, QLD and VIC government. 79 others do not. The $220 billion valuation does not include existing private utilities. The utilities are natural monopolies, and privatization often results in higher prices. According to Queensland Energy Minister 8 Robert O’Brien, “The Ultimate Liquid Asset”, The Eureka Report, April 19, 2010, http://www.eurekareport.com.au/article/2010/4/19/commodities/ultimateliquid-asset.

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

107

Stephen Robertson, public utilities in Queensland have lower prices than private utilities in Victoria.9 Privatization of electrical utilities resulted in the collapse of Enron in the United States, after Enron manipulated electric rates in California and bankrupted several private utilities. Public utilities did not suffer the same fate. Enron traders were recorded complaining about having to pay back all the money they stole from price gouging “those poor grandmothers in California”.10 Fitzgerald calculates monopoly rents attributable to utilities in water, power, ports, rail and non-privatized airports at 10% on the $220 billion in assets for a total of $22 billion.

Airports According to Fitzgerald, Australia and the UK are the only two nations in the world to have privatized their airports. To prove that this results in monopoly rent, Clive Domain has written, “Sydney Airport made an operating profit of $773 million on $943 million in revenue. That’s an operating margin of 82 per cent; the airport had to spend only $170 million to make nearly a billion. Through the miracle of accounting, Sydney airport last year lost $131 million after allowances for depreciation, debt servicing and other devices it is able to use”.11 If government grants a monopoly to private business, then it has the right to charge rent for the privilege. The TRRA report set the monopoly charge at 40% of Earnings Before Interest, Depreciation, Taxation and Amortisation (EBITDA), amounting to $765 million in revenue.

9 Stephen Dziedzic, “Government Pushes States to Privatize Power”, ABC News, The World Today, December 15, 2011, http://www.abc.net.au/news/2011-12-13/gov ernment-pushes-states-to-privatise-power/3727966. 10 Richard A. Oppel Jr., “Word for Word/Energy Hogs; Enron Traders on Grandma Millie and Making out Like Bandits”, New York Times, June 13, 2004, http://www.nytimes.com/2004/06/13/weekinreview/word-for-word-energyhogs-enron-traders-grandma-millie-making-like-bandits.html?_r=0. 11 Clive Domain, “The True Cost of Our Airports”, Traveller, August 29, 2011, http://www.theage.com.au/travel/blogs/travellers-check/the-true-cost-of-our-air ports-20110829-1jha7.html.

108

G. FLOMENHOFT

Taxi Licenses Government restricts the supply of taxi licenses, which creates scarcity rent. Although license holders only pay $512 per year for the privilege, 70% of licenses are leased to operators for around $30,000 per year. The average sale price of a license from 2003 to 2011 was over $400,000 in Brisbane and Melbourne. A Victorian Taxi Industry Inquiry suggested raising the annual fee to $25,000 to recapture the monopoly rent from license holders. The TRRA report adopts this recommendation and calculates potential revenue of $360,050,000 from a total of 14,402 licenses in Australia at $25,000 apiece. This formula may have to be changed as the paradigm of paid passenger travel is being severely challenged by Uber, Lyft and other ride services. The monopoly is being broken, which may significantly lower the value of a taxi license. This may just mean transferring the rental fee to a larger number of private vehicle operators.

Fishing Licenses and Quotas Many valuable fishing licenses and quotas were given out for free but are now sold for large amounts of money. Fitzgerald cites bluefin tuna, abalone, jellyfish, and the Northern Prawn Fishery, as fisheries generating large rents for license owners. He points out that “tuna king” Tony Santic sold Bluefin tuna quotas for $214,000 per tonne in the 1990s, to justify collection of rent on this government give-away. Existing revenue from levy fees is given as $13.8 million on an industry valued in 2009–2010 at $2.18 billion. The report uses a 40% resource rent on $2.18 billion to generate $840 million of potential economic rent.

Forestry The “commercial in confidence” nature of Australia’s privatized forests makes data hard to come by. The same problem was encountered in the Vermont study. Information is proprietary. Nevertheless, some information was available. According to the TRRA report, the Department of Agriculture, Fisheries and Forestry (DAFF) collects just five cents per cubic metre of timber and only 3.5 cents per cubic metre for export hardwood woodchip. In 2010–2011, Australia’s production forests had a gross value of around $1.84 billion. DAFF collected $1.325 million for timber harvested equating to a royalty payment of 0.007%. This royalty doesn’t come close to covering road subsidies and direct government

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

109

contributions to the industry. The report estimates $50 million of potential revenue based on the annual production of $1.8 billion at a royalty of 2.7%. Fitzgerald (2013: 36) claims, “In years to come these forests will earn carbon credits and significantly increase in value according to their carbon sequestering capacity. The battle over who earns these carbon credits will be a hot issue”.

Gambling According to the TRRA report, 198,725 poker machines operate nationwide, delivering a net gambling surplus of $18.45 billion (2009–2010). The Victoria government has identified at least $50,000 per poker machine as economic rent, since the rights are auctioned for $5,500 and the machine makes $80,000 per year. $50,000 out of $80,000 is 62.5% economic rent. The TRRA report therefore makes a modest recommendation of 40% rent on the gambling surplus. A 40% resource rent on the $18.45 billion surplus would deliver $7.38 billion per year. (This is a correction on the report figure of $7.6 billion.) Deducting existing gambling revenues of $5.1 billion (2010–2011) from $7.38 billion leaves a balance for BI of $2.28 billion (Fitzgerald, 2013: 36, 37).

Privatized Public Transport Providers When public transit systems are built, land around transit stops increases greatly in value. Some municipalities recapture this value through special assessments in order to finance the transit system through the value they create. This is referred to as “value capture” or “value recapture”. The Melbourne Transit Rail operates the Melbourne train network and is also granted development rights above the train stations. The eight major city public transport systems are calculated to contribute $2.4 billion in revenue. Existing revenue consists of Sydney’s RailCorp $74 million in payroll taxes and fringe benefits in 2010–2011, which must be subtracted.

Cybersquatting of Internet Domain Names The term “cybersquatting” refers to purchasing a domain name, which a related business will one day see value in. For example, domains such as fridges.com.au sold for $20,000, sextoys.com.au for $25,500 and inv estmentproperty.com.au for $125,000. It was reported that Apple paid

110

G. FLOMENHOFT

at least US$1 million to Michael Kovatch for the transfer of the iPh one.com domain name. No economic value is added by the middleman acquiring the domain for a registration price of as little as A$1. Any selling price above this is a pure economic rent. According to Deloitte Access Economics, by August 2012 total domain names registered in Australia reached over 3 million. The TRRA report recommends a fee of $100 to collect this monopoly rent and to discourage holding domain names out of use for future unearned profit. Applied to 3 million domain names, this will result in $300 million revenue.

Patents Patents are a government granted monopoly for a fixed period of time on R&D (research and development) investments. According to the Australian Bureau of Statistics (ABS), the mean life-spans of standard patents filed in Australia between 1980 and 2001 were between 10 and 13 years.12 The example of “patents on life” can be used to explain the logic of collecting a share of patent value. The patenting of genome sequences such as the BRAC1 and BRAC2 cancer genes is very controversial. Prime Minister Turnbull is quoted as stating that, “Companies holding these patents are able to charge very high fees to anyone who wants to test to see if the gene exists within their own bodies”. If a patent is a government granted monopoly, it is reasonable for the government to recover some of this cost from patent holders. The ABS accounted for R&D spending in 2007–2008 with an increase in Gross Capital Formation of AU$320 billion and estimated GDP increase of $12.9 billion. Fitzgerald uses the R&D impact on GDP as a proxy for patents and proposes a minimal 0.005% charge on 2007–2008 ABS R&D value of $12.98 billion, providing revenue of $64.9 million. Further analysis can more accurately determine the value of the monopoly privilege granted to patent holders, while maintaining the incentive to invent.

12 “5310.0.55.002—INFORMATION paper: Implementation of New International Statistical standards in ABS national and International Account”, September 2009, http:/ /www.abs.gov.au/ausstats/[email protected]/Products/5310.0.55.002~September+2009~Main+ Features~Chapter+6%20Research+&+Development?OpenDocument.

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

111

Satellite Orbits The collection of rent on satellite orbits above Australian airspace is a questionable assertion in the light of current space law. Carol Buxton points out that satellite orbital slots are allocated according to the “a priori”, or the “posteriori” system which means “first in time, first in right” (Buxton, 2004: 689). The International Telecommunications Union (ITU) has granted some orbital slots as the need arises, favoured by the countries having space technology. “The a priori system, however, allots a number of slots to each nation, regardless of whether use of the slots will ever occur. Because less-developed nations fear that they will lose access to orbital slots due to their insufficient technology, they prefer the latter [a priori] system” (Buxton, 2004: 703). The drawback of the a priori system was demonstrated by Tonga, which applied for 16 orbital slots, and was eventually granted six. Tonga then auctioned five allotments for $2 million per year for each orbit and leased the remaining allotment. This demonstrates the problem with granting property rights to agents who do not plan to use the resource, but can profit from the labour of others, a form of exploitation. In 1976, several less-developed nations located at the equator claimed territorial sovereignty over the geo-stationary orbit with the Bogota Declaration. The nations contended that the natural resources of each sovereignty necessarily included the geostationary orbit above that territory. Though the Declaration directly conflicted with the Outer Space Treaty, which prohibits national appropriation of space, it became ‘effective as a political device that brought attention to developing countries’ concerns over being prohibited access to the geo-stationary orbit by developed countries that already possessed the technological skills and resources necessary to utilize the resource’. This resulted in the implementation of Article 33 of the ITU’s Radio Regulations, which requires that the ITU consider ‘the special needs of developing countries and the geographical situation of particular countries’. The entire system directly conflicts with the Outer Space Treaty if the ITU grants slots to nations because the Outer Space Treaty expressly prohibits national appropriation. The ITU seems to focus on the idea of “access” rather than ownership. (Buxton, 2004: 705)

The Space Foundation estimated the global satellite industry generated $257 billion in 2008. The TRRA report uses the Australian 2% share of global GDP applied to the satellite industry’s $257 billion to get a

112

G. FLOMENHOFT

figure of $5.1 billion. A 10% resource rent would generate a $510 million contribution. This figure might be considerably higher now due to the growth in data traffic since the calculation of these 2009 figures. Rather than basing rent on usage of airspace over Australia, the allocation of orbital slots by the ITU is bound to generate some rents. Since their slots are scarce, any Australian company which is able to acquire an orbital slot is likely to have access to a partial monopoly, which generates rents. This scarcity rent might be a better source for the orbital rent.

Internet Infrastructure The Internet itself was created by taxpayer funding in the United States through the military research arm DARPA (Defense Advanced Research Projects Agency). Internet service providers (ISPs) charge users for access to the Internet. Therefore, it is not unreasonable for the public to consider charging ISPs for access to the publicly created Internet. If a private company had developed the Internet, but other companies were using it and charging people for access, I’m sure that company would be suing for its property rights. But the public has no such advocate for the right to its property. Government is typically dominated by economic interests who favour the liberal theory of rent, giving them ownership rights to the commons. According to the TRRA report, the cost of installing Australia’s National Broadband Network (NBN) is expected to be $43 billion with existing Internet infrastructure estimated at half that value. Since this is a public investment, surely Internet service providers should not be granted ongoing use of it for free since they charge users for access. Fitzgerald proposes a 10% resource rent on the $64.5 billion existing asset base providing $6.45 billion in revenue annually from the industry, including NBN and Internet service providers such as Bigpond, Optus and iiNet. Sir Tim Berners Lee created the world wide web including URL, http and html protocols in his spare time working at the Conseil Européen pour la Recherche Nucléaire (CERN) in Geneva, but required CERN to provide it as an open source commons to everyone, so it would not be appropriate to charge for access.

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

113

Banking Licenses The publicly granted privilege of banks to create money through bank loans may be the most valuable public asset given away by government. According to the Bank of England, private banks create 97% of the money supply through loans,13 of which 75–80% are mortgage loans. Professor Michael Hudson has stated, “a property is worth whatever a bank will lend, because that is the price that new buyers will be able to pay for it”.14 Reforms to land rent proposed in the report would curtail banks’ ability to profit from capitalized land rents. Since property makes up a major proportion of their balance sheets, a reduction in property prices will affect their capital base. Another approach is to enforce 100% reserve requirements on banks, which would prevent them from creating credit and would restrict them to only loaning out deposits on hand, serving as intermediaries between depositors (savers) and borrowers. If there is any doubt that banks create money, consider that private central banks in the United States, EU and Japan have created trillions of dollars in “quantitative easing” a euphemism for (electronic) money printing. This money was then given to banks in exchange for their non-performing assets. Profits for the big four Australian banks (National Australia Bank [NAB], Commonwealth Bank [CBA], Australia and New Zealand Banking Group [ANZ], Westpac [WBC]) totalled $27 billion (cash basis, 2011–2012), with dividends of $16 billion. A 40% resource rent is proposed on these earnings, which delivers $17.317 billion in rent for the value of a banking license. Revenue would increase with the inclusion of the rest of the banking industry (Fitzgerald, 2013: 41).

Carbon Taxes At the time the TRRA Report was written, the carbon tax was in effect. It has since been repealed. It is listed as existing government revenue, but is really rent for use of the atmosphere as a sink for waste. In the

13 Michael McLeay, Amar Radia and Rayland Thomas, Bank of England, “Money in the Modern Economy: An Introduction”, 2014Q1, http://www.bankofengland.co.uk/ publications/Pages/quarterlybulletin/2014/qb14q1.aspx. 14 Michael Hudson, “America’s Deceptive Fiscal 2012 Fiscal Cliff”, December 28, 2012, http://michael-hudson.com/2012/12/americas-deceptive-2012-fiscal-cliff/.

114

G. FLOMENHOFT

past, the impact of carbon dioxide (CO2 ) on the climate was unknown, but it is now obvious that the climate is changing due to anthropogenic greenhouse gases including carbon dioxide (CO2), nitrous oxide (N2 O) and methane (CH4 ). Charging rent for use of the atmosphere as a dump for waste helps to reduce emissions, due to increasing the price of fossil fuels, and can also provide revenue to mitigate the impacts. 2011–2012 carbon taxes increased from $4 billion to $18.2 billion by moving the petrol and diesel excise taxes to the source, meeting efficiency outcomes according to the report. The recommendation is that carbon tax revenue should be raised by a carbon tax based on the heat content burnt as measured by the BTU—the British Thermal Unit. However, this method favours dirtier fuels because coal, for example, produces far more pollution per unit of CO2 than oil or natural gas. It is better to charge per tonne of carbon, which favours the cleaner fuels. Recommendations for carbon taxes around the world vary from $10 to $100 per tonne. The price of carbon will most likely depend on the severity of the climate crisis. 2015 greenhouse gas emissions in Australia were 549.3 Mt CO2 equivalent according to the department of the environment.15 At a rate of $10/ton, the revenue would total $5.49 billion, and at $100/ton, it would be $54.9 billion. In previous discussions of carbon taxes with policy-makers in Vermont, the figure of $100/ton evokes a somewhat shocked response that this is an inordinately high figure. To put it in perspective, consider that $100 per ton of carbon on a molecular weight basis is equivalent to almost $1 per US gallon of petrol (89c). According to the OECD, the average petrol tax among the 34 advanced economies is $2.62 per gallon and goes as high as $4.32 in Turkey.16 So that is equivalent to a carbon tax of $294 to $485 per ton. From that perspective, $100/ton of carbon is rather modest.

15 Department of the Environment, “Quarterly Update of Australia’s National Greenhouse Gas Inventory”, June 2015, http://environment.gov.au/climate-change/gre enhouse-gas-measurement/publications/quarterly-update-australias-national-greenhousegas-inventory-june-2015. 16 Kyle Pomerleau, “How High Are Other Nations Gas Taxes?”, Tax Foundation, March 3, 2015, http://taxfoundation.org/blog/how-high-are-other-nations-gas-taxes.

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

115

Summary For the final calculation, we start with total economic rent plus government revenue from monopolies of $386.9 billion. From this figure, we subtract existing government revenue in each category so as not to shortchange government. To this, we add new carbon tax revenue of $54.9 billion, leaving a total of $289.3 billion economic rent. Now that we have subtracted existing revenue, we can look at the total economic rent available for basic income in Australia. Dividing the total of $289.3 billion by the current population of 24.05 million results in a per capita basic income of $12,027. This is an amount that others have arrived at from very different premises based on a subsistence level income. Some analysts are concerned that the work incentive will be reduced if the BIG is too high, and this figure would probably reassure them, since it is by no means exorbitant. If several members of a family were able to obtain this income, it might be enough to live on, but only barely enough unless the cost of housing was substantially reduced. It is based entirely on dividends that people are entitled to as their share of common wealth, and these figures demonstrate that it is also practical and feasible (Table 5.2). Table 5.2 Economic rent minus existing revenue Item

Economic rent-land and resources Land—residential Land—Commercial Land—rural Land—other Total land Subsoil minerals Oil and gas—PRRT Total minerals and petroleum Natural monopolies EMS

Valuation ($m)

% of valuation

Raised ($m)

Existing revenue ($m)

Remainder ($m)

~2.5% 2,794,800 338,500 263,700 287,700 3,684,700 67,359 + 14,637 20,229

5.50% 6.5 5.50% 5.50%

153,714 22,002 14,504 15,791 206,011 32,813

69,870 8,463 6,593 7,193 92,118 –

83,844 13,540 7,912 8,599 113,894 –

40%

8,092 40,905

– 1,500

– 39,405

10,560

20%

2,122

1960/15 = 133.1

1,989

40%

(continued)

116

G. FLOMENHOFT

Table 5.2 (continued) Item

Valuation ($m)

% of valuation

Raised ($m)

Existing revenue ($m)

Remainder ($m)

Corporate commons fee Water rights Utilities Airports Taxi licenses Fishing licenses Forestry Gambling license Public transport Frontiers of monopoly Domain name registration Patents Satellite orbit rights Internet infrastructure Banking license fees Existing revenues Parking fees Liquor licenses Vehicle rego, driver license Sin taxes—tobacco, alcohol Carbon tax

1,382,000

2%

27,640

0

27,640

50,000 220,000 1,919 25,000 2,100 1800 18,450 Estimate

2.60% 10% 40% 14,402 40% 2.7% 40%

1,300 22,000 765 360 840 50 7,380 2,400

? 3,200 0 7.4 13.8 1.3 5,100 74

1,300 18,800 765 352.6 826.2 48.7 2,280 2,326

100

3 million

300

0

300

12,980 5,100 64,500 43,427

0.005% 10% 10% 40%

65 510 6,450 17,371

0 0 0 0

65 510 6,450 17,371

Govt non-tax receipts Total ($millions) Population (millions) Basic income per capita

Estimate Govt budget Govt budget

250 4,000 5,294

0 0 0

Govt budget

12,510

0

4,020 + 14,200 20,323

18,220 50%

10,162 $386,905

(18,220 repealed)

54,930 0 $289,252 24.05 $12,027

References Barnes, P. (2006). Capitalism 3.0: A guide to reclaiming the commons. BerrettKoehler.

5

TOTAL ECONOMIC RENTS IN AUSTRALIA AS A SOURCE …

117

Buxton, C. R. (2004). Property in outer space: The common heritage of mankind principle vs. the “first in time, first in right” rule of property law. Journal of Air Law and Commerce, 69. Fitzgerald, K. (2013). Total resource rents of Australia, harnessing the power of monopoly. Prosper Australia. Flomenhoft, G. (2016). GST or land and resource taxes? A question of values (unpublished). Prosper Australia. Locke, J. (1698). Second Treatise of government. Awnsham Churchill. Murray, C. A. (2008). Guaranteed income as a replacement for the welfare state. Basic Income Studies, 3, 2. Paine, T. (1797). Agrarian justice: Opposed to Agrarian law, and to Agrarian monopoly. Printed by W. Adlard. Re-printed for T. Williams. Polanyi, K. (1944). The great transformation. Farrar & Rinehart. Snider, J. H. (2003). The citizen’s guide to the airwaves. New America Foundation. Van Parijs, P. (1998). Real freedom for all, what if anything can justify capitalism? Clarendon. Warnock, J. W. (2006, November). Oil and gas royalties, corporate profits, and the disregarded public. Parkland Institute and Canadian Centre for Policy Alternatives—Saskatchewan Office. Widerquist, K., & Howard, M. (Eds.). (2012a). Alaska’s permanent fund dividend. Palgrave Macmillan. Widerquist, K., and Howard, M. (Eds.). (2012b). Exporting the Alaska model. Palgrave Macmillan.

CHAPTER 6

Universal Basic Income and Land Value: A Canadian Assessment, with Implications for America Richard Pereira

Abstract Recent and prominent basic income proposals in the United States and Canada are introduced and explained in this chapter, with a focus on Andrew Yang’s Freedom Dividend financing proposal. A new financing method is explored for both countries based on land value—one with a rich philosophical and political tradition in America dating back to Thomas Paine and Henry George. The concept of a land value levy or LVT (Land Value Taxation) is quantified and applied to the financing of a basic income for the first time in Canada, and presented as an alternative financing option to Yang’s VAT (Value Added Tax) for the Freedom Dividend in the United States. The LVT’s progressive structure versus the VAT’s regressive impacts are explored and offered as a complementary finance mechanism to the Financial Transaction Tax and other elements of Yang’s proposal, while removing VAT. Other sources of economic rent are discussed in the final section to further increase dividend payments to citizens. R. Pereira (B) Global Labour Research Centre, York University, Toronto, ON, Canada © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1_6

119

120

R. PEREIRA

Keywords Economic rent · Land rent · Resource rent · Freedom dividend · Sovereign wealth funds · LVT

Introduction Basic income, or guaranteed livable income proposals are usually structured as a “top-up” payment for those citizens whose income falls below a certain threshold, or as a universal payment to all citizens or adult citizens. There are no other conditions. Your annual income falls below a certain level and/or you are member of a particular society in order to qualify. Most recently, this proposal was exemplified by the presidential campaign of Andrew Yang and his policy of a Freedom Dividend of $1000 per month for all US adult citizens. This was not a “top-up” payment, but a universal basic income (UBI) paid to all adult American citizens regardless of income—whether they are millionaires or billionaires, or stuck in low paid gig work, unemployed or disabled. In Canada, two recent proposals have come in the form of a topup payment. These guaranteed livable income proposals are set at a higher level of monthly income than Yang’s Freedom Dividend. The two proposals are: (1) Hugh Segal’s (former Conservative Senator) Ontario Basic Income Pilot (OBIP) program implemented by the Ontario Liberal Government1 and (2) Guy Caron’s proposal and primary campaign issue in his leadership bid for the New Democratic Party of Canada. Like Yang, Caron did not succeed in his first leadership attempt to represent his political party in national elections, but he did bring the concept of basic income to the fore of political discussions in conjunction with the OBIP program. The COVID-19 pandemic has elevated public interest in basic income further as income security has become an even more pressing issue for both Americans and Canadians than pre-pandemic, when it was already a 1 Ontario Basic Income Pilot, Government of Ontario, April 24, 2017 (last updated: April 8, 2019): https://www.ontario.ca/page/ontario-basic-income-pilot, accessed July 13, 2020. Quote: “In June 2016, we asked the Honourable Hugh Segal for advice on how we could design, deliver and evaluate a basic income pilot. … The Ontario Basic Income Pilot (OBIP) was announced by Premier Kathleen Wynne in Hamilton in April 2017 and the first phase to enroll participants, was successfully completed in April 2018, with full participation across the three pilot sites.”

6

UNIVERSAL BASIC INCOME AND LAND VALUE …

121

growing problem for many years. The spread of the gig economy, automation and offshoring displacing so many jobs, and the rise of other forms of precarious employment (through temporary employment agencies, parttime employment displacing full-time work with benefits, the decline of union protections for employees, etc.) are some manifestations of this economic insecurity which has been intensifying for decades. The Ontario Government’s OBIP payment levels were set as follows, as a form of top-up payment in contrast to Yang’s UBI: Following a tax credit model, the Ontario Basic Income Pilot will ensure that participants receive up to: • $16,989 per year for a single person, less 50% of any earned income • $24,027 per year for a couple, less 50% of any earned income People with a disability will also receive up to $500 per month on top.2

We see political philosophies across the spectrum represented in these various proposals, particularly when one also includes the universal Alaska dividend as the longest standing example of a universal basic income in practice. The Alaska model is different in that its payment varies in size from year to year, and it is based on one narrow form of collective wealth—oil. The Alaska annual dividend is also paid at a much lower level (but to more people) than Andrew Yang’s Freedom Dividend and all the Canadian proposals for basic income or guaranteed income. This chapter considers land values instead as one of several potential sources of financing basic income. Land value as one form of collective wealth, and the economic rent it generates, can be combined with economic rents from numerous other natural and social resources to provide a universal basic income to Canadians. It can also make proposals for guaranteed livable income more resilient and robust. With a population of approximately 30 million adults in Canada in 2020,3 a modest Land Value Tax (LVT), collecting about half of available economic rent, can generate a monthly UBI of between $300 and $400 as will be explained further in the chapter. This can also be structured progressively to minimize the impact on those with the least resources, 2 Ibid. 3 https://worldpopulationreview.com/countries/canada-population (30,319,368 adults

in Canada in 2020. Citizen versus non-citizen adults figures are not provided).

122

R. PEREIRA

while generating this universal dividend payment. A guaranteed livable income in contrast, as a form of basic income paid at a much higher monthly level than UBI, could be entirely paid for with the same modest LVT as will be illustrated. The findings below are applicable to both Canada and the United States, where land values have often been overlooked in economic research as a source of common wealth. This despite the rich legacy created by Thomas Paine and Henry George for analysing land wealth and the land question in North America, and beyond.

Updating Canadian Land Value and Land Rents in 2020 This is the most recent attempt to quantify and analyse land value in Canada, and the first attempt it appears to consider the application of a small levy on land rent for the purpose of financing a UBI at a national level in Canada. Research on land values has been made somewhat difficult for Georgists in Canada over the past decade due to numerous changes with the collection, compilation, location and archiving status of this data. The last attempt to quantify Canadian land value by Georgists, with the intent of changing the tax system in Canada, was in 2010. A Draft Finance Proposal produced in 2010 concerning the national budget of Canada by Earthsharing Canada—also known as the Henry George Foundation of Canada—states: LAND: As a disincentive to suburban sprawl, farmland loss and…, a Canada-wide land value levy could be applied to the assessed value of parcels of land (ignoring improvements). The 2009 assessed market value of land in Canada was $1.8 trillion http://www40.statcan.gc.ca/ l01/cst01/econ02a-eng.htm, generating approximately $100 billion of economic rent annually. A land value levy collecting 50% of this unearned income would generate about $50 billion per year for the Canadian government.4

Changes in where Statistics Canada archives its data, variations across provinces in how land value data is categorized and collected, problems 4 From: https://earthsharing.ca/sites/earthsharing.ca/files/resource/budget_based_ on_rr_0.pdf, 3–4.

6

UNIVERSAL BASIC INCOME AND LAND VALUE …

123

with accessibility of data (often highlighted by the Parliamentary Budget Office of Canada) and other changes over the past decade have frozen this analysis in time. Real estate and land prices have escalated in the meantime in Canada. The Draft Finance Proposal by Earthsharing Canada referenced above applies a 5.55% Land Value Tax to collect land rent5 and then proposes to collect half of this amount on behalf of Canadians (at the federal level of government) with the goal of “eliminating all taxes on incomes, business and consumption”. This goal would also be achieved by collecting other forms of rent, in lieu of the existing tax structure (natural resource rents, Tobin tax, among others). This chapter is far more focused in its assessment and application of updated land rent collection. I am proposing that a moderate LVT be applied towards financing a universal basic income. In 2017, Flomenhoft proposed a 5.5% LVT for Australian residential, rural and other land, and a 6.5% LVT for commercial land, in alignment with Georgist economics principles.6 Flomenhoft writes: Residential land comprises 75% of the total land value in Australia. …The long-term trend of land prices is somewhat higher than 5.5–6.5% in Australia. From June 2014 to June 2015, land value increased from $4197.3 billion to $4722.2 billion for an increase of $524.9 billion, or 12.5%.4 According to the HSBC, Australian home prices have risen 24% in the past 3 years, with Sydney jumping by 39%.5 The long-term trend is shown in Fig. 4.2. Total Australian land values increased from $665.1 billion in 1989 to $4267.5 billion in 2014 for a total increase of 541.6%. On an annual basis over 25 years this amounts to a long-term trend of 7.72% increase per year for all land. Fitzgerald calculates potential land rent of $206.01 billion on a total land value of $3.684 trillion using the 5.5–6.5% rate. Existing land taxes are estimated at 2.5%... Subtracting existing revenue from estimated land rent leaves a total of $113.9 billion in annual land rent available for BI.7

5 Calculation by Richard Pereira of Earthsharing Canada’s proposal and figures. 6 Gary Flomenhoft, “Total Economic Rents of Australia as a Source for Basic Income”,

Chapter 4; in Richard Pereira (ed.), Financing Basic Income (Palgrave: New York, 2017). 7 Ibid., pp. 84–85.

124

R. PEREIRA

The latest figures available for Canada8 give us a land value figure of $4.472 trillion for Q1 of 2020. An LVT of 5.55% applied to this amount equals $248.2 billion. Taking half of this amount (or taxing at half the rate [2.78%]) in alignment with Flomenhoft’s work above and Earthsharing Canada (Henry George Foundation of Canada) provides $124.1 billion in annual revenue. It is important to note that the differential between residential/ rural and commercial LVT rates (5.5–6.5%) can be further differentiated and made progressive, thereby lowering the impact on owners of modest homes and progressively collecting more of available land rent from owners of multiple and luxury properties for instance, as well as from corporate-commercial holdings of the largest and most profitable businesses. This is a significant amount of revenue available to finance universal basic income in Canada, by collecting a small portion of previously foregone land rent. As noted in The Economist, land value taxes lack the “perverse effects” of many other forms of taxation—“They cannot reduce the supply of land, or distort decision making. Instead they may even stimulate economic activity, by penalising those who hoard land… (a big plus in desolate post-industrial cities where much land is vacant)”. The Economist also writes that collection of LVT “is cheap. Unlike profit, you cannot massage land away or move it to Luxembourg”.9 The implication for America is, given the transformative presidential campaign of Andrew Yang and his signature campaign policy of the Freedom Dividend (UBI), this represents a major and comparatively noncontroversial source of public revenue for such a project, particularly if structured progressively as outlined above. This is also a proposal with deep American roots and a very popular American economist and social philosopher at its source. With the general rule of thumb that the scale of the US economy is ten times the size of Canada’s, this appears to be a large untapped source of revenue for UBI in America. And one likely to prove far less controversial than other funding methods, such as a new 8 Statistics Canada, National Balance Sheet and Financial Flow Accounts, Fourth Quarter 2019 [released 2020-03-13] and National Balance Sheet Accounts (×1,000,000) [Q1 2019 to Q1 2020], accessed June 25, 2020. 9 The Economist, “Why Henry George Had a Point”, April 2, 2015: https://www.eco nomist.com/free-exchange/2015/04/01/why-henry-george-had-a-point, accessed July 6, 2020.

6

UNIVERSAL BASIC INCOME AND LAND VALUE …

125

VAT (Value Added Tax) which is not progressive, but rather regressive in its application. Granted, Yang has talked about making his VAT proposal progressive in some ways (such as applying it more progressively and at a higher rate on luxury products, with a lower rate or exemption applied to necessities), but he has not shown this in his Freedom Dividend financing proposals explicitly. Perhaps the LVT would be a more efficient approach, as Yang claims that $800 billion in VAT can be collected for UBI (in regressive tax form), while Canadian figures and analysis suggest that significantly more than that may be available for UBI from an LVT applied in the United States (in progressive tax form) (Fig. 6.1). In addition, Canada’s leading Georgist policy expert and tax lawyer, Francis Peddle10 indicates that the Canadian land figures listed above are significantly undervalued due to a number of factors, including how land values are assessed and categorized in Canada.11 Mason Gaffney’s work reveals this undervaluation even more methodically.12 More revenue is available from LVT for a UBI than official figures indicate, due to the methodology and information gaps in deriving these numbers. This all suggests a significant lost opportunity for both Canadians and Americans, if a modest LVT is not applied and coupled with a policy of universal income security such as a guaranteed livable income and/or universal basic income.

10 Francis K. Peddle, Dominican University College/Collège universitaire dominicain http://www.dominicanu.ca/academics/professors/francis-k-peddle. 11 Communications with Francis Peddle and Earthsharing Canada, June and July 2020 via email. Communications with Frank de Jong, Francis Peddle and Statistics Canada, June 2020 via email (Statistics Canada Case #978373). Concerning Australia, the most recent figures demonstrate aggressively escalating land prices since Flomenhoft’s publication, with the Australian Financial Review writing in May 2020 that “Rural property showed its resilience as an asset class in 2019 with the median price of a hectare of farmland rising 13.5 per cent, despite drought, floods and bushfires, according to Rural Bank’s latest Australian Farmland Values report. This was higher than the 10.7 per cent recorded in 2018 and the strongest pace of annual growth recorded since the bank began compiling its report in 2015” (Larry Schlesinger, “Farmland prices surged in 2019 and will rise again,” May 5, 2020). 12 Mason Gaffney. “The Hidden Taxable Capacity of Land: Enough and to Spare”. International Journal of Social Economics, 36, 4 (2009).

126

R. PEREIRA

Fig. 6.1 Yang’s cost-neutral universal BI proposal for the US (Source Image from Andrew Yang’s presidential campaign website, November 2019)

Proposals for a top-up form of basic income are robust and numerous in Canada, and demonstrate large-scale public savings available by implementing a guaranteed livable income and thereby eliminating many redundant public programs. The full and partial redundancies of overly complex, bureaucratic and oppressive patchwork programs for social assistance, income security and tax shelters that have failed society for decades

6

UNIVERSAL BASIC INCOME AND LAND VALUE …

127

are better replaced with direct cash transfers in many instances (Cox 2020; Forget 2011; Lee and Briggs 2019; Pereira 2017; Segal 2012).13 These Guaranteed Livable Income proposals are not contingent upon an LVT as a source of financing. An LVT, however, can be one major component of a UBI which supplements a guaranteed livable income. In addition to guaranteeing all citizens the basic necessities of life by ensuring an income floor, we ought to share collective wealth as described by Thomas Paine (Paine 1797; Hitchens 2006), Henry George and subsequent ecological economists who view a significant portion of land values as a common asset. Likewise, other natural and social resources, such as the air we collectively breathe, water, minerals and forests, are common assets, which must carry a fair price to use and ensure their protection for future generations. This fair price and the financial wealth it generates ought to be shared equally among citizens.

The Cost (Gross) of UBI Versus Guaranteed Livable Income Canada has a population of approximately 30 million adults in 2020.14 We can thus assess the cost of UBI, and a guaranteed livable income separately, as follows: – It would cost $36 billion annually to provide a $100 monthly UBI to all adults in Canada. – If we estimate the adult citizen population to be 10% lower (as per Andrew Yang’s Freedom Dividend proposal, paid only to US adult citizens), then it would cost $3.6 billion less—or $32.4 billion annually for a $100/month UBI in Canada.

13 Feed Ontario (formerly the Ontario Association of Food Banks), “Cost of Poverty in Ontario 2019” https://feedontario.ca/cost-of-poverty-2019/ and full report: https://feedontario.ca/wp-content/uploads/2019/09/Feed-Ontario-Cost-of-Pov erty-2019.pdf. Additional cost of poverty data found at: “The Cost of Poverty: An Analysis of the Economic Cost of Poverty in Ontario”, https://ccednet-rcdec.ca/en/toolbox/ cost-poverty-analysis-economic-cost-poverty-ontario. 14 https://worldpopulationreview.com/countries/canada-population (30,319,368 adults in Canada in 2020. Citizen versus non-citizen adults figures are not provided).

128

R. PEREIRA

– LVT applied at a modest level, collecting about half of available economic rent ($124.1 billion in annual revenue), can finance a UBI of between $300 and $400 monthly for adult Canadians, depending on whether it is paid to citizens or a broader group of adults in Canada.15 – Other financing sources derived from economic rents on other Canadian resources can increase the UBI monthly payments, as described later in this chapter. – A basic income or guaranteed livable income has a far lower gross cost than UBI, despite being paid at a much higher level to individuals. This is a result of applying an income threshold (or income floor) below which Canadians will receive a top-up payment to bring them to a level where they can afford all their basic necessities. This applies to fewer people in any given year than a UBI (and many people will receive only a small top-up payment to arrive at the threshold, and not receive the full basic income/guaranteed livable income amount). The Parliamentary Budget Office (PBO) of Canada and Hugh Segal estimate the cost of providing such an income floor at $25 billion nationally.16 – This cost for guaranteed livable income can be further reduced significantly from $25 billion towards zero by considering further redundancies (both partial and full redundancies) and public cost savings not included in the PBO and Hugh Segal assessments, such as numerous tax shelters, student grant and loan programs, a portion

15 $124.1 B/$36 B = 3.45. $36 B represents the cost of providing a $100 monthly UBI to Canadian adults. Therefore, 3.45 × 100 = $345/month UBI. A UBI payment to only adult citizens in Canada, as per the U.S. Freedom Dividend proposal by Andrew Yang, would provide a higher payment based on an estimate of the Canadian adult citizen population being 10% lower than the total adult population, or $383/month ($124.1 B/ 32.4 B = 3.83. Therefore, 3.83 × 100 = $383/month). 16 CBC, “Amidst a Global Pandemic, Hugh Segal’s Call for a Guaranteed Annual Income Is Even More Timely”, March 27, 2020. From: https://www.cbc.ca/radio/ thesundayedition/the-sunday-edition-for-march-29-2020-1.5509908/amidst-a-global-pan demic-hugh-segal-s-call-for-a-guaranteed-annual-income-is-even-more-timely-1.5509938, accessed July 17, 2020. Parliamentary Budget Office (PBO) of Canada, “Costing a National Guaranteed Basic Income Using the Ontario Basic Income Model”, Office of the Parliamentary Budget Office/Bureau du Directeur Parlementaire du Budget, April 17, 2018.

6

UNIVERSAL BASIC INCOME AND LAND VALUE …

129

of social housing costs17 and savings in public healthcare costs (Forget 2011; Lee & Briggs 2019; Pereira 2017). Being paid at a higher monthly level than UBI, poverty can be virtually eliminated with a guaranteed livable income. The economic multiplier effect of this form of basic income can also be considered as a factor reducing program cost, as well as reduction rates that recoup basic income payments on income earned above the threshold level. One can see that an LVT could more than pay for the minimal comparative cost of a guaranteed livable income, while leaving large revenues available for an additional UBI monthly payment to Canadian adults. – Full employment policies (i.e. reduced work hours, eliminating unpaid overtime work (Pereira 2009) and unpaid internships, reducing paid overtime hours and distributing these hours in a manner that creates more jobs, formalizing gig economy work) and higher minimum wages can significantly reduce the number of people requiring basic income/guaranteed livable income, and thereby further reduce the cost of the program. Such policies can be applied first to the largest and most profitable employers. These policies would not change the cost of UBI, as all adults would receive it. UBI does not have an income threshold applied to its payment, and therefore, its cost is far more fixed than that of a guaranteed livable income.

Other Sources of Economic Rent, Royalties and Common Wealth The Lockean proviso, which requires that “enough and as good be left for others” (Locke 1698), applies naturally to land, as well as to other resources. A fair share condition or standard must be satisfied concerning not only the distribution of the value of natural resources to the current generation, but this needs to be carried out in such a way that leaves

17 Having a basic income, many will choose to leave social housing with the newfound

economic security and freedom of mobility, and choice in housing previously not available without basic income. Thereby, a portion of this public program spending is made available for direct cash transfers in the form of basic income. For examples of overly bureaucratic and wasteful, often corrupt, spending of social and public housing funds by housing authorities, see Pereira (2017).

130

R. PEREIRA

enough (or more) for others, for future generations. The quality dimension also deserves serious consideration, as we ought to leave not only as much or more, but as in good (or better) condition than previous generations enjoyed these resources—whether we are contemplating forests and timber, water resources and clean air, healthy soil or public space. Sovereign wealth funds (SWFs) attempt to satisfy at least one part of this proviso. The Alaskan SWF which is the basis of that state’s annual universal dividend paid to all Alaskans is one example, while Norway’s SWF is another potent model of this principle and proviso in action. The problem is that these sovereign wealth funds only apply to one natural resource—oil—and they still leave much room for improvement when it comes the manner in which the current generation is overexploiting oil and other natural resources in a consumerist and wasteful fashion. One response has been to apply a carbon price to address this excess waste, pollution, overproduction and overuse. When the carbon price is applied in the manner of a carbon fee and dividend (Hansen 2009), which compensates the victims (in small part) of this harmful activity, it becomes a superior response. All carbon pricing to date and the even fewer examples of carbon fee and dividend implemented, are radically insufficient to mitigate the harm of overexploitation of our environment and natural resources. More SWFs need to be established, collecting the economic rent from more/all natural resources as these are our common wealth, and the use of these natural resources needs to be managed sustainably. Adding carbon fee and dividend policies at higher levels than currently applied, and in all jurisdictions, can further buttress UBI payments and financing for SWFs. Before considering the additional forms of natural and social common wealth on which we are foregoing economic rents, depriving current and future generations of the use and value of these assets, it should be noted that the two leading examples of SWFs in liberal democracies (Alaska and Norway) can learn a lot from each other. Alaska does not collect a sufficient amount of economic rent from oil, in contrast to Norway’s SWF. Norway, having a vastly larger SWF than Alaska and collecting a higher portion of resource rent, could do well by distributing a portion of this wealth in the form of a UBI to citizens, as Alaska does. And both jurisdictions could apply significant carbon fee and dividend policies to further boost a UBI to its citizens and improve the funding of their SWFs, while respecting the rights of future generations according to the fair share principle.

6

UNIVERSAL BASIC INCOME AND LAND VALUE …

131

Looking at Canada, which does not have a similar national SWF or annual dividend for its citizens, we can find some data on the comparative treatment of resource wealth. According to James Wilt (2018), “whether in taxes, royalties, fees, bonuses, dividends or infrastructure improvement …2017 numbers reveal some astoundingly low payments to municipalities, provinces, territories and federal coffers in exchange for the right to extract gold, especially when compared to payments made in other jurisdictions around the world”.18 More than 60 types of metals and minerals are mined in Canada. The following illustration is an example of the very low level of economic rent collected on behalf of Canadians, which often is so low as to not produce any tangible benefits for the population or local communities when factoring in the environmental consequences and costs of such extractive industries (Fig. 6.2): When one factors in the subsidies and other concessions extractive industries often receive from various levels of government, economic rent is further eroded. Subsidies for the oil and gas sector have been widely reported on in the context of international climate change discussions. Without delving into the figures on direct and indirect government subsidies, international comparisons of Canada with other oil and gas extracting jurisdictions also produce poor results (Fig. 6.3). “In Alberta, the public owns the resources so theoretically we’re entitled to 100 per cent of the resource rent”, said Regan Boychuk, a member of the province’s 2015 Oil Sands Expert Group. “Industry should cover all their costs and make a reasonable profit. But after that, everything that’s left belongs to the public”.19 Further limiting the collection of economic rent on behalf of Albertans and Canadians is the manner in which royalties are assessed. The majority of oil revenue is “unassessed for royalty payments” according to Boychuk, with only 37 of every 100 barrels assessed for royalties.20 Thompson and Newman (2009) provide a useful description of economic rent, and the different methods and optimal approaches for its collection on behalf of citizens. They contrast these approaches in Canada, Norway and Alaska and the comparative results, which have only

18 James Wilt, “Canada’s Mining Giants Pay Billions Less in Taxes in Canada Than Abroad”, The Narwhal, July 16, 2018. 19 Ibid. 20 Ibid.

132

R. PEREIRA

Fig. 6.2 Percentage of fees paid by three major producers per ounce of gold extracted (Source Extractive Sector Transparency Measures Act Report 2017. Graphic by The Narwhal21 )

Fig. 6.3 Fair share of oil and gas wealth: comparative economic rent distribution (Source The Narwhal)22

21 Ibid. 22 James Wilt, “In-Depth: Are Albertans Collecting a Fair Share of Oilsands Wealth?

New Data Shows Owners of One of the World’s Largest oil Deposits Are Getting Cut Out of the Deal”, The Narwhal, August 14, 2018.

6

UNIVERSAL BASIC INCOME AND LAND VALUE …

133

been exacerbated since then as Norway’s SWF has grown well beyond $1 trillion23 in assets by February 2020. Rents, royalties, and public-interest ownership Rents are the financial surplus from selling a resource… rents are the profits above normal levels of profit. Thus they are often termed unearned profits, windfall profits, or supernormal profits. Royalties are a mechanism used by governments to capture rents. They are not the only mechanism. Taxes are also used. But the most effective way to be able to determine what rents are available, and to be able to capture them, is public-interest ownership. Norway, with its $400–500 billion Pension Fund (formerly called the Petroleum Fund) that dwarfs both Alberta’s Heritage Fund and Alaska’s Permanent Fund, collected a large proportion of its rents from its ownership position.24

With over 60 types of metals and minerals mined in Canada, in addition to its oil and gas production, forests and other natural resources, we can see not only a very low level of collection of the economic rents available, but also how those low levels of collection mask even larger numbers that are available due to the undervaluing of these resources in official assessments of value. The work carried out above in analysing land values and land rents available for UBI in Canada can extend into many other forms of natural and social resources. Among the social resources and their economic rents that can help finance UBI, which are beyond the scope of this chapter for a detailed analysis, include a portion of various intellectual property resources such as pharmaceutical and other patents that are supported by public research funding, educational infrastructure and other public investments. Flomenhoft and Pereira (2017) list a number of these social resources, in addition to natural resources that form a logical basis for financing UBI and sovereign wealth funds for the benefit of citizens. These social resources are ever-evolving, and growing, with new forms being added 23 Richard Milne, “Wanted: New Chief Executive for Norway’s $1.2tn Oil Fund”, Financial Times, February 23, 2020. 24 David Thompson and Keith Newman, “Private Gain or Public Interest: Reforming Canada’s Oil and Gas Industry”, Canadian Centre for Policy Alternatives and Parkland Institute, December 2009, 23.

134

R. PEREIRA

as the pace of technology accelerates. And the economic rents are largely foregone by most societies. These common wealth resources and their economic rents meet the criteria in the Lockean proviso for distributional justice. The fair share standard detailed in the political philosophies of Thomas Paine and Henry George in their landmark treatments of the land question can also be applied to such social resources as forms of common wealth, which in many cases did not even exist in their time. A partial list of these common wealth social resources and valuations is as follows (Table 6.1): This is an incomplete list of social commonwealth resources, to which a levy on economic rents can apply. These rents can in turn finance a UBI and sovereign wealth funds to benefit current and future generations. Flomenhoft applies differing levies on these various social resources in the Australian context, in order to capture at least some of the foregone economic rent for Australians in the form of UBI. His work provides one template for other jurisdictions in valuing natural and social common wealth. Table 6.1 Select social resources and valuation (Australia) Item

Valuation $million

Utilities Satellite orbit rights Internet infrastructure Banking license fees Airports Taxi licenses Gambling license Domain name registration Patents Parking fees Corporate commons fee [stock and financial markets social institution infrastructure, “liquidity rent”] Liquor licenses

220,000 5100 64,500 43,427 1919 25,000 18,450 100 12,980 Estimate 1,382,000

Vehicle registration, driver license

Govt budget Govt budget

From: Pereira, ed. (2017: 96–97), in Flomenhoft, Chapter 4 “Total Economic Rents of Australia as a Source for Basic Income”. Adapted to list only social commonwealth resources and to explain “Corporate Commons Fee”

6

UNIVERSAL BASIC INCOME AND LAND VALUE …

135

Andrew Yang has discussed technology and the monetization of personal data extensively in his recent presidential bid as one source of a lucrative financial commons, which ought to be distributed as a “tech check” or technology and data dividend, but which is currently monopolized for private profit. Pereira (2017) frames part of the social common wealth question as current “externalities” and free-riding, practised by large multinational corporations in particular. Rent-seeking by lobbyists that obtain legislative and regulatory advantages for the companies and industries they represent distorts access to natural and social resources while diverting wealth disproportionately towards private goods and away from public goods (such as UBI or SWFs). Rent-seeking is an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Social dumping in the form of degrading labour standards and the negative health and social outcomes— and financial costs for individuals and the public sector—are one form of externality Pereira quantifies. A UBI can convert tens of billions of dollars in public costs from such externalities and free-riding, into public financial savings and monetary resources available to the state for public goods. Rent-seeking by increasingly powerful private corporations is negatively impacting the economic rents available for public goods. This shared common wealth, whether in the form of land (Polanyi 1944), other natural resources or social resources such as increasingly rapid technological development and profits associated with the technology sector, represents a vast source of economic rent for UBI.

Conclusion This chapter has provided an updated analysis of land values and the economic rents available from them in Canada. The land value assessment has been conservative, because of the manner in which land value data is officially collected and categorized. Economic rent from land value is thus likely much larger than the $124.1 billion annual figure produced in this report. The Canadian analysis transfers to the American situation as well. In particular, when considering the Freedom Dividend UBI proposal of presidential candidate Andrew Yang, we can see that this initiative can likely improve its financing for UBI by replacing the VAT tax funding source with land rents instead, or LVT.

136

R. PEREIRA

When considering the guaranteed livable income form of basic income, in contrast to a UBI, it has been demonstrated that this top-up form of basic income has a much lower gross cost than UBI while paying a much higher amount to individuals than UBI. This is because fewer people receive payments, and many—if not most—people only receive a partial payment to bring them up to the income floor threshold. They receive a small top-up, unlike the unemployed or informal care workers who receive a full top-up payment. Further, there are numerous public program redundancies that occur with implementation of guaranteed livable income. This brings the gross cost of guaranteed income proposals far below those of most UBI proposals. The $124.1 billion in annual foregone land rents could pay for the much smaller cost of guaranteed livable income in Canada, while leaving most of this figure still available to pay a substantial portion of UBI. Canadians can have both a guaranteed livable income (a guaranteed income floor, set at a decent level to virtually eliminate poverty) and a UBI . And an LVT can be a major source of financing for both.

References Cox, D. (2020, June 24). Canada’s forgotten universal basic income experiment. BBC. Earthsharing Canada – Henry George Foundation of Canada. (2010). Proposed Government of Canada budget based on rent recovery. Flomenhoft, G. (2017). Total economic rents of Australia as a source for basic income. Chapter 4; In Pereira, R. (Ed.), Financing basic income: Addressing the cost objection. Palgrave. Forget, E. (2011, September). The town with no poverty: The health effects of a Canadian guaranteed annual income field experiment. Canadian Public Policy, 37 (3), 283–305. Gaffney, M. (2009). The hidden taxable capacity of land: Enough and to spare. International Journal of Social Economics, 36, 4. Government of Ontario. (2017, April 24). Ontario basic income pilot. Last updated April 8, 2019: https://www.ontario.ca/page/ontario-basic-incomepilot Hansen, J. (2009, December 6). Cap and Fade. New York Times. Hitchens, C. (2006). Thomas Paine’s rights of man: A biography. Douglas & McIntyre. Lee, C. R., & Briggs, A. (2019, October). The cost of poverty in Ontario: 10 years later. Feed Ontario..

6

UNIVERSAL BASIC INCOME AND LAND VALUE …

137

Locke, J., Ed. P. Laslett (1963, originally published in 1689). Two treatises of government. Cambridge University Press. Locke, J. (1698). Second treatise of government. Awnsham Churchill. Milne, R. (2020, February 23). Wanted: New chief executive for Norway’s $1.2tn oil fund. Financial Times. Paine, T. (1797). Agrarian justice: Opposed to agrarian law, and to agrarian monopoly. London -eBook, Paris: printed by W. Adlard. London: re-printed for T. Williams, No. 8, Little Turnstile, Holborn. Parliamentary Budget Office (PBO) of Canada. (2018, April 17). Costing a national guaranteed basic income using the Ontario basic income model. https://www.pbo-dpb.gc.ca/en/blog/news/Guaranteed_Basic_Income Pereira, R. (2017) Financing basic income: Addressing the cost objection. Palgrave. Pereira, R. (2009). The costs of unpaid overtime work in Canada: Dimensions and comparative analysis. Athabasca University, MA Thesis. Polanyi, K. (1944). The great transformation. Farrar & Rinehart, Inc. Segal, H. (2012, December). Scrapping welfare: The case for gguaranteeing all canadians an income above the poverty line. Literary Review of Canada. Statistics Canada. (2020a). National balance sheet and financial flow accounts, fourth quarter 2019. Released 13 March 2020. Statistics Canada. (2020b). National balance sheet accounts (x1,000,000) (Q1 2019 to Q1 2020). The Economist. (2015, April 2). Why Henry George had a point. Thompson, D., & Newman, K. (2009, December). Private gain or public interest: Reforming Canada’s oil and gas industry. Canadian Centre for Policy Alternatives and Parkland Institute. https://www.policyalternatives.ca/ sites/default/files/uploads/publications/reports/docs/Public%20Interest% 20or%20Private%20Gain.pdf Wilt, J. (2018, July 16). Canada’s mining giants pay billions less in taxes in Canada than Abroad. The Narwhal.

CHAPTER 7

Conclusion Richard Pereira

Abstract A review of the three basic income models and accompanying frameworks for creating a decent basic income are presented in this chapter. A differentiation between positive and counterproductive basic income proposals is made, particularly regarding the manner in which social services are treated in contrasting proposals. A wholesale approach to cutting public programs is rejected as a financing model. Each chapter is then reviewed in this context, demonstrating how each achieves a progressive basic income true to the definition of the concept. Keywords Basic income models · Universal dividend · Demogrant · NIT (negative income tax) · Cost savings · Economic rent and taxation

The introductory chapter to this book presents three different basic income models. The NIT (negative income tax), demogrant and a universal dividend are the three models discussed. The framework for understanding a decent basic income and its financing is also described. A modest basic income that is combined with elimination of most, or

R. Pereira (B) Global Labour Research Centre, York University, Toronto, ON, Canada © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1_7

139

140

R. PEREIRA

all, social programmes is not advocated in this book and is not viewed as a move forward. Universal public programmes such as health care in various countries are just one example of vital institutions that need to be maintained (and improved) to make the introduction of basic income meaningful. Likewise, a low level of basic income that preserves most public programmes can also be viewed as counterproductive. This book advocates a basic income true to its definition, set at a sufficiently high level to cover basic needs and provide a measure of social inclusion, while preserving the most important public programmes. It is recognized here that many bureaucratic programmes will naturally be eliminated, or reduced in size, with introduction of a basic income, and that this is an entirely positive development. However, a wholesale approach to cutting public programmes is rejected as a financing method. Instead, it is argued that the cost savings available from programme redundancies has been greatly underestimated and even neglected in much of the basic income literature—the costs have been overestimated without a comprehensive accounting of what programmes, tax deductions and tax shelters become redundant when people have guaranteed income security at a decent level. The NIT model of basic income demonstrates most clearly the cost savings available to governments by implementing a basic income that can eliminate official poverty. Chapter 2 illustrates the large surplus that governments can achieve ensuring no one falls below the poverty line by way of a NIT basic income. The cost of poverty is staggering and is often left out of basic income costing assessments, as are related healthcare costs which are continually rising due to income insecurity and precarious employment. Chapter 2 also explains how the “cost” (an actual savings of public funds) of the NIT version of basic income is essentially equivalent to the demogrant version. The latter can be calibrated to produce the same results as the former. Demogrant versions of basic income have what appears to be a larger upfront cost, often arrived at by making the very simple calculation of population (or adult population) × demogrant. What is often left out is that all currently employed persons will pay back all or most of their demogrant version of basic income through existing personal income tax rates. These existing progressive personal income tax rates can be modified or left as is. Pereira demonstrates that the existing welfare system and the status quo of unnecessarily complex, bureaucratic income security programmes

7

CONCLUSION

141

is too expensive (and oppressive). It also fails to achieve its purported objectives of universal income security. Basic income will be cheaper and fairer, and better achieve universal income security objectives. Not only does basic income pay for itself given programme redundancies directly related to its implementation, but large-scale tax leakages and loopholes can simultaneously be addressed to make for an even more robust basic income along with improved complementary universal public programmes (health, education, legal aid, disability supports). The use of offshore tax havens is one major source of tax leakage discussed in the chapter.1 In Chapter 4, Jörimann details a basic income plan for Switzerland at a decent level, which has relevance for other European jurisdictions with similar social programme infrastructure. This proposal includes CHF 2500 per month for all adults and CHF 625 for minors. It is structured as a demogrant, and the NIT model of basic income is not explored or compared for Switzerland. A gap of CHF 30 billion is arrived at between the cost of this demogrant proposal and the amount of funds which could be raised from the current system as a result of programme redundancies. Table 4.5 details a list of eight such programmes, which can be viewed as either fully or partially redundant with the implementation of basic income and with these funds directed to its financing. It is a relatively short list of redundancies to consider, and items such as healthcare savings resulting from improved income security are also left aside (Dr. Evelyn Forget’s work on the original basic income experiments in Manitoba, Canada, is relevant and worth consideration on this point). Jörimann suggests as one possibility to complete the financing of his demogrant proposal “Redirecting funds from other sources… by taxing capital flows or gains” for example—sometimes referred to as unearned income. Financing approaches from other European thinkers are also put forth as options such as Goetz Werner’s VAT (value added tax) proposal, other indirect taxes (including sin taxes and energy taxation, the latter intended to simultaneously address ecological imperatives while partially financing basic income) or eliminating excessive tax exemptions for those

1 The work of the International Consortium of Investigative Journalists (ICIJ) and the need for greater whistle-blower protections to further uncover such large-scale tax evasion and fraud can be found at: https://www.icij.org/investigations/panama-papers/ . Tax Justice Network also has additional and continually updating news: https://taxjus tice.net/.

142

R. PEREIRA

who do not need them are all considered as options. Direct federal taxation of incomes is largely rejected as a method of partially financing a Swiss basic income. “When it comes to a macro-economic view of the introduction of a fully-fledged BI, we state that the financing of the CHF 30 bn gap would not take funds from national consumer spending (which rather, is strengthened by BI because it tends to give more to those with less spending power); it would finance the gap from the savings pot”. Chapter 5 does not deal with programme redundancies as a model of financing basic income. The question of economic rent is explained and explored for its potential to finance a universal basic income, in the form of a universal dividend. “Windfall” profits that are gained from public resources, or commonwealth, ought to be distributed to the public that owns them. Successful sovereign wealth funds such as those in Norway and Alaska capture the value of one natural resource very well for the benefit of those societies; however, it is argued that there are many publicly-owned natural resources from which wealth could be similarly captured for public benefit. Social resources also represent an important form of commonwealth as explained by Flomenhoft. If the windfall profits from these commonwealth resources were captured for a universal dividend, the result would be a form of basic income that could rival, or exceed, more traditional basic income proposals at the highest levels—all without eliminating or scaling back any current government programmes or their associated bureaucracies. The universal dividend model provides a large payment to all residents or citizens equally—children receive the exact same amount in annual payments as do adults. There is no age differentiation with this model of demogrant-dividend. Flomenhoft’s proposal also addresses ecological imperatives by addressing carbon pricing by means of the fee and dividend model. Application of economic rent or windfall profit distribution is done conservatively throughout Flomenhoft’s work, meaning that additional windfall profits are likely available to further boost the Basic Income Guarantee (BIG) or universal dividend proposed. Pereira in two new chapters builds out the universal “Freedom Dividend” model for the United States and Canada, as well as an unconditional basic income for Portugal. Similar poverty rates in Canada and Portugal suggest an equally large public cost savings available on a per capita basis to what Pereira details for Canada in Chapter 2, given OECD (2022) data, and introduction of UBI at a sufficient level. Sovereign wealth funds and their application to Portuguese resources, including

7

CONCLUSION

143

adopting best practices from Singapore’s sovereign wealth approach, application of the solar dividends approach developed by Stayton (2019) and other ideas analysed and compiled by Pereira, demonstrate “a financially sustainable UBI proposal for Portugal can be crafted”. A land value capture (LVC) system in lieu of a VAT for the United States— and Canada—provides less political friction and a more financially robust Freedom Dividend model, without the regressive tax effect of a consumption tax such as the VAT. Combining the concept of basic income (in NIT or demogrant form) with a universal dividend based on rent as detailed by Flomenhoft (and Pereira) could be the most transformative public policy proposal to address growing income insecurity. The first part entails largely addressing inefficient programmes, tax policies and bureaucracies to achieve a better system of income security. The second part (the universal dividend) focuses on windfall profits and actual public ownership of resources— or commonwealth—to distribute a dividend to all public owners of these common assets. “The democratic theory of rent simply says that people are entitled to these payments because it is their property. No one disputes that a person owning stocks is entitled to dividends, that an apartment owner is entitled to collection of rent from tenants, or an owner of an oil well is entitled to royalties”, writes Flomenhoft. It is also important to understand the illusion of progressive tax rate structures in many cases. While nominally progressive, once a myriad of tax loopholes, special exemptions and deductions, tax shelters and many other changes in the tax system over recent decades are factored in we often find tax regimes to be regressive as detailed in Pereira’s work, or as early as in the Croll Report of 1971 which Pereira references. One part of this regressive structure is connected to how unearned income is often treated at much more favourable tax rates than earned income. In addition, “During this ‘golden age for corporate profits’ some of the largest multinational companies are paying zero tax, and receiving tax refunds and subsidies simultaneously”, Pereira writes.2

2 Paul Buchheit, “16 Giant Corporations That Have Basically Stopped Paying Taxes – While Also Cutting Jobs!” AlterNet, 18 March, 2013.

144

R. PEREIRA

Five Key Policy Lessons from This Study 1. Personal income tax increases—taxes on labour or earned income— are not required to finance basic income, which challenges a commonly used argument against universal basic income. A personal income tax cut can be implemented along with introduction of a decent basic income if so desired. 2. Public savings have been largely underestimated and many savings elements often neglected altogether in the basic income literature, particularly in the cost objection literature. The list of naturally occurring redundancies of income security programmes, tax shelters and deductions arising from implementation of basic income is much larger than usually discussed in the literature. Vital public and universal programmes such as health, education and others are not targeted for savings in this analysis; they are preserved and strengthened with introduction of a BI. 3. Tax leakage in various forms is significant and if addressed at prevailing taxation rates further strengthens the claim that no income tax increases are required to finance a basic income, and that income tax rates could be cut while implementing a decent BI. 4. Economic rent must be considered in addition to traditional basic income proposals. Whereas traditional proposals advocate the elimination of bureaucratic, oppressive, wasteful and often counterproductive income security programmes to be replaced by a superior payment in the form of an unconditional programme, the universal dividend based on rent can be paid to all individuals in addition to a decent basic income. The dividend is an additional form of basic income following the demogrant model of delivery. It is financed by the capture of economic rent, or “windfall” profits, on various natural and social resources often termed common wealth. Alaska and Norway provide two examples of the capture of economic rent through their sovereign wealth funds, although narrowly based on one natural resource. 5. The cost objection to basic income is based upon inadequate and/ or misleading information. A comprehensive analysis of the costs and bureaucratic waste within the existing income security system will yield a different conclusion than that found in the objection. Financing basic income can produce fairer results for individuals and society while producing significant public cost savings. This can be

7

CONCLUSION

145

seen perhaps most clearly in the costing of NIT models of basic income yielding significant public savings while paying a high level of basic income, which do not vary significantly from demogrant models of basic income that can be calibrated to achieve the same results.

References OECD. (2022). Poverty rate (indicator). https://data.oecd.org/inequality/pov erty-rate.htm Stayton, R. (2019). Solar dividends: How solar energy can generate a basic income for every one on earth. Sandstone Publishing.

Appendix 1

Switzerland’s Basic Income Referendum Results The Swiss voted on five nationwide issues on 5 June 2016. One of these issues was the introduction of an unconditional basic income. 23.1% of votes were in favour (568,905), with 76.9% against (1,896,963). Several cantons voted about 35% in favour of basic income (Geneva 34.7% in favour, Basel 36%, Jura 35.8%).1 As SWI reported, “a few districts in the cities of Geneva and Zurich were in favour” with over 50% support in Geneva’s Pâquis district for instance.2 Although the overall result was clearly against the introduction of basic income at this time in Switzerland, those who organized the initiative which collected over 125,000 signatures within eighteen months view the result as a success given how transformative the proposal is, and given the high level of basic income that was discussed nationally as a central feature of the initiative. A monthly basic income of 2,500 Swiss francs (£1,755; $2,555)3 for adults and CHF 625 for each child had been suggested.

1 SWI swissinfo.ch, “Vote Results: June 5, 2016”, June 5, 2016. 2 SWI swissinfo.ch, “The District that Voted in Favour of a Basic Income”, June 7,

2016. 3 BBC News, “Switzerland’s Voters Reject Basic Income Plan”, June 5, 2015.

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1

147

148

APPENDIX 1

Other measures indicate that this is the beginning of the debate, rather than the end. 69% of all voters believe they will be voting on another basic income referendum in the future.4 Demographics, the rise of precarious labour, continued automation of jobs and other factors influence the changing political landscape and context in which public discussions of basic income will ensue. A refined discussion of the public financing options is necessary to provide the public with a clearer understanding of the cost and savings involved with such a proposal. Two months following the Swiss referendum, a detailed Canadian poll found the majority of Canadians supportive of a basic income, although 59% believed it would be too expensive to implement nationwide.5 The same poll found 34% of Canadians would be willing to pay more in taxes to support a basic income. Therefore, there is strong support for the concept; however, there is a belief about the public cost of basic income that may not be supported by evidence and which may stem from popular perceptions or current political discourse. Interestingly, Canadians supported higher levels of basic income than lower levels, i.e. $10,000 per adult (57% support), $20,000 (65% support) and a $30,000 annual basic income received 67% support.6

4 Scott Santens, “The Results of the Basic Income Referendum in Switzerland”, medium.com, June 5, 2016. 5 Angus Reid Institute (ARI), “Basic Income? Basically Unaffordable, Say Most Canadians”, August 11, 2016. 6 Angus Reid Institute, “Basic Income? Basically Unaffordable, Say Most Canadians”, August 11, 2016. See section “Stronger Support for Higher Basic Income Thresholds”. Also, ARI found “Most Canadians (63%) Believe… that New Technology will Reduce the Availability of Jobs, Rather than Increase It”.

Appendix 2

Marginal Personal Income Tax Rates: American Precedents, Veils of Ignorance The UBI cost objection does not deal sufficiently with tax leakage (tax havens, transfer pricing, etc.) in the existing system at prevailing income tax rates as discussed earlier in this book. The cost objection argument states that income tax increases on labour are required to fund basic income, and that they would be too onerous and politically unacceptable. Yet historical precedent does exist for higher personal (and corporate) income tax rates, including at over 90% for the top income bracket in the United States in the 1950s—under a Republican political administration. People did tolerate much higher marginal income tax rates and a much more progressive tax rate structure than the cost objectors’ claim is required in their analysis. Such high marginal tax rates were synonymous with a prosperous economy. And this is among possibly the most tax-averse public in the world. Employing John Rawls’ concept of a “veil of ignorance” Dan Ariely (Professor of Psychology and Behavioural Economics, Duke University) and Mike Norton surveyed Americans in a unique study and found an overwhelming preference among both Democrat and Republican supporters for the wealth distribution profile in Sweden (93.5% of Democrats and 90.2% of Republicans) with no appreciable difference based on gender and income level of those surveyed. Moreover, the authors state “We found that the ideal distribution described by this © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1

149

150

APPENDIX 2

representative sample of Americans was dramatically more equal than exists anywhere in the world” (Ariely 2012). Basic income cost objectors overstate their claims on not only the costs of UBI, but also in their linking of what is politically “feasible” based on loose assumptions of what the public wants or will accept. Even with all the misrepresentation and often excited claims against the financial cost of universal basic income, a larger percentage of Canadians support the concept of a guaranteed annual income than opposing it (Rainer and Ernst 2014; Trudeau Foundation 2013).7 This book has demonstrated that increased taxes on labour are not required to fund a decent UBI. A personal income tax cut could even be realized while implementing basic income it has been argued, given the large-scale public savings available that have often been neglected in basic income literature. However, the context needs to be further clarified in terms of historical precedent and false claims about political feasibility put forth about what Canadians (or Americans) will accept in this regard. Marginal Income Tax Rate for the Highest Income Bracket—United States Figures represent the rates in place at the beginning and ending year of each presidency. Dwight D. Eisenhower Marginal Tax Rate on Regular Income over $400,000: 92–91% Maximum Tax Rate on Long-Term Capital Gains: 25% John F. Kennedy Marginal Tax Rate on Regular Income over $400,000: 91% Maximum Tax Rate on Long-Term Capital Gains: 25% Lyndon B. Johnson Marginal Tax Rate on Regular Income: Over $400,000: 91%– Over $200,000: 75.25% Maximum Tax Rate on Long-Term Capital Gains: 25–26.9% Richard M. Nixon Marginal Tax Rate on Regular Income over $200,000: 77–70% Maximum Tax Rate on Long-Term Capital Gains: 27.5–36.5% 7

Also see Angus Reid Institute findings, August 2016, which can be found in Appendix 1.

APPENDIX 2

151

Gerald R. Ford Marginal Tax Rate on Regular Income over 200,000: 70% Maximum Tax Rate on Long-Term Capital Gains: 36.5–39.875% Jimmy Carter Marginal Tax Rate on Regular Income over $203,200–$215,400: 70% Maximum Tax Rate on Long-Term Capital Gains: 39.875–28% … Barack Obama Marginal Tax Rate on Regular Income: over $372,950–over 388,350: 35% Maximum Tax Rate on Long-Term Capital Gains: 15% Source: Fowler, M. (2012) “From Eisenhower to Obama: What the Wealthiest Americans Pay in Taxes,” ABC News, 18 January [online].

Reference Ariely, D. (2012, August 2). Americans want to live in a much more equal country (they just don’t realize it). The Atlantic.

Appendix 3

The Original Financing Plan for Guaranteed Annual Income (GAI) or BIG Prior to NAPO’s (National Anti-Poverty Organization) formation in 1971–1972, financing of guaranteed annual income (decades later also referred to as basic income8 or basic income guarantee [BIG]) was not discussed or explored in any comprehensive or detailed fashion. Some broad ideas were put forth as a basis for justifying or financing GAI, such as Thomas Paine’s focus on the land question, Ben Seligman and fellow contributors’ focus on automation9 and technology in the 1960s as direct support for GAI, or the Tobin tax concept introduced at the end of the Bretton Woods monetary system. Most of the guaranteed income/basic income literature prior to NAPO—and much of it since, up until very recently—has been concerned with the moral arguments in favour or against guaranteed income. This includes the work ethic argument, the effects of technological displacement and people’s right to freedom or the equal right to the benefits of modern advanced societies as captured in the 1948 Universal Declaration

8 Ontario Basic Income Pilot (OBIP), April 2017–2018: https://www.ontario.ca/ page/ontario-basic-income-pilot. 9 Ben B. Seligman, “Automation and the Work Force”, in Robert Theobald (ed.), The

Guaranteed Income: Next Step in Economic Evolution? (New York: Doubleday, 1966).

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1

153

154

APPENDIX 3

of Human Rights.10 Little was said about combining financing options and creating an optimized public finance proposal for GAI. National finances and public programme bureaucracies were far less complex and fewer prior to the late 1960s (stronger community and social bonds, less urban-dependent populations, no—or limited—national universal healthcare programmes or income security programmes, less complex tax codes, the absence of globalization as a dominant economic theme and ideology, defined this earlier period). Also, national finances seemed robust and imminently available for large nation-building projects and programmes in a way not known since the beginning of government austerity programmes implemented in the 1990s. It may have been taken for granted that public finance was available for something like basic income. When the top tax rate in the 1950s in the United States was 92% under Republican president Dwight D. Eisenhower, and reduced to 35% in the Barack Obama era, and capital gains (unearned income) tax rates likewise regressed from a peak in the Nixon and Ford administrations (see Appendix 2), this is logical. Plus, offshore tax havens were not a phenomenon in the 1950s or 1970s as they have become in the twenty-first century. Thus, the first clear financing proposal for a GAI, combining multiple elements into a cohesive whole was presented by NAPO in 1972 following the Senate recommendation to the Government of Canada in 1971 for a GAI from the Croll Commission. Here are the core elements of NAPO’s plan aimed at ensuring a “livable income”: – A steeply progressive corporate income tax, higher for non-resident corporations than those domestically controlled. – A resource tax on natural resources that left the country. – Corporations eliminating employment would be subject to a special levy for each lost job. – A wealth tax or annual levy on individuals reflecting the value of all their assets. – Other measures to prevent the offshoring of domestic industry.

10 Article 27(1) UDHR, 1948: “Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.” Also see Articles 25(1) and 23.

APPENDIX 3

155

As Finkel (2006: 264) writes, “It was an elaborate plan that went beyond middle-class solutions to poverty that required people to work at whatever jobs” were available, even when jobs were not available. These points complement Croll’s recommendations for improved legislated minimum hourly wages in the labour market, as well as improved access to economic democratic institutions such as labour unions for workers to protect their health and safety and minimum employment standards. What may be most interesting about the NAPO plan 50 years on is its direct relevance to the COVID-19 and post-COVID-19 era concerning supply chain dependence and failure, and the loss of local economic resilience during the neoliberal period. COVID-19 exposed costly dependence on the import model, including for essential goods, food security, vaccine development and production outsourced decades ago in the rush to globalization of the economy, PPE (Personal Protective Equipment),11 etc. Canada used to have world-leading vaccine producers and R&D not too long ago. Connaught Laboratories and Institut Armand Frappier are two examples, which were sold off to foreign multinationals by Brian Mulroney’s program of privatization.12 Our governments now scramble to try and reclaim this capacity, which cannot be done overnight. NAPO was prescient in seeking to avoid these problems and guarantee national economic resilience, and prosperity, in order to support the longterm sustainable financing of a GAI.

11 Richard Pereira, “Re-shoring as an Ecological and Social Imperative”. Working Paper, November 2021. 12 Jonathan Forani, “’We Took Our Eye Off the Ball’: How Canada Lost its Vaccine Production Capacity”. CTV News (online), November 25, 2020. “’We had great vaccine producers in Canada—world leaders essentially—50 years ago,” he [Earl Brown, infectious disease expert and former member of the H1N1 vaccine task group in Canada] told CTV…”.

156

APPENDIX 3

Reference Finkel, A. (2006). Social policy and practice in Canada:A history. Wilfred Laurier University Press.

Appendix 4

Resource Rents, Supplementing Basic Income with a Universal Dividend: Petro-Canada and Norway’s Statoil Publicly owned natural resources such as oil and gas are managed much differently in Norway and Canada, but it was not always the case. Norway’s world-leading sovereign wealth fund (SWF) is something Canada has failed to establish at the national level (whether for oil and gas windfall profits or for other natural resources such as mineral wealth). And neither country has succeeded in establishing a much-needed SWF for windfall profits derived from social resources based on national-public investments in technology, higher education, research and development, patent production and the required infrastructure that enables vast profits in big tech, pharmaceutical and other sectors. While Statoil (now Equinor ASA) is the public enterprise and main instrument used to capture economic rents from Norway’s primary natural resources, its SWF is used as a savings and investment account for both current and future generations. Public goods are made available to Norwegians through the activities and guardianship of common wealth carried out by their national SWF. Statoil was created as the primary tool to capture this common wealth for the benefit of citizens, as opposed to simply taxing the windfall profits of private domestic and multinational corporations (MNCs) who may be very adept at avoiding or evading taxation. © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1

157

158

APPENDIX 4

The equivalent of Statoil-Equinor ASA existed in Canada in the form of Petro-Canada prior to its dismantling by the Brian Mulroney government in the 1980s (Fossum 1997: 236; Foster 1992). As Norway was starting to build its trillion-dollar sovereign wealth fund, and while Alaska was beginning to pay out dividends to citizens from its sovereign wealth, Canada was in the process of privatizing its main institution that could replicate the best practices in both these models. SWFs and similar institutions to Statoil have developed in different countries since Canada began the process of privatization of Petro-Canada. As they have been capturing windfall profits for citizens, Canada has been foregoing them.13 Alaska’s record Permanent Fund Dividend of $3,284.00 in 202214 is something that Canada could pay out to its own citizens in addition to a guaranteed livable income or basic income with a national sovereign wealth fund, particularly if Norway’s approach of collecting a much higher percentage of economic rent is applied—not only to oil and gas, but other natural resources as well. Not only can this second supplemental form of basic income be pursued by adopting and learning from the best practices in Norway, Alaska and in Canada’s recent past with the Petro-Can model, but many other positive elements of economic resilience and national prosperity are available in doing so: – The Statoil/Petro-Canada model provides not only high levels of employment domestically, but also high-quality employment, which being anchored locally is not subject to arbitrary employment reduction decisions by MNCs headquartered abroad. Further spin-off job creation opportunities and economic multipliers occur with such large-scale domestic employment. Valuable institutional knowledge is developed locally from head office, research and development and other jobs that foreign-based MNCs create or retain in other countries. – SWFs invest savings and create new opportunities for employment. For instance, not only does Norway’s and Alaska’s SWFs invest locally, but they also reap rewards from investment opportunities 13 www.parklandinstitute.ca/billions_forgone. 14 Alaska Government, “2022 Permanent Fund Dividend Hits a Record $3,284.00”.

September 8, 2022. “…this Year’s Dividend [is] the Largest in the Program’s 41-Year History”. From: gov.alaska.gov/newsroom/2022/09/08/2022.

APPENDIX 4

159

abroad. Ironically, Statoil-Equinor boasts “making significant investments in Canada’s” oil industry.15 Foreign public or state enterprises are allowed to invest in Canada for the benefit of their citizens, but Canada does not control its own resources in the same way for the benefit of Canadians. – Acceleration of clean-tech and green investments is lost in the muchneeded shift to a more environmentally sustainable economy. A subsidiary of Petro-Canada, Canertech, was established to develop conservation and renewable energy technology (Fossum 1997: 155, 247), which was lost with the sell-off of Petro-Can. – The loss of sovereignty in decision-making when foreign (corporate or state-owned) actors manage such vital and strategic natural resources impacts local populations negatively by removing agency, accountability and transparency. Statoil and Petro-Can, as well as the SWFs in Norway or Alaska, are/were subject to the democratic control of citizens in Norway, Canada and Alaska. The same cannot be said when these common assets are controlled externally, and local wealth is transferred to foreign SWFs, foreign MNCs and even foreign state-controlled enterprises. The geopolitical implications can be severe, with the recent invasion of Ukraine being just one example, having been financed by liberal trade and investment relations especially in the oil and gas sectors. – Price sovereignty—“Canada was not unique in committing itself to the goal of independence from the world oil market” (Fossum 1997: 134) when it established Petro-Canada. As I write this, the European Union is enacting legislation to cap the price it pays for oil to Russia at $60 USD per barrel16 in order to reduce its role in financing Russia’s war in Ukraine. OPEC as a price-fixing cartel and the dominance of foreign-based MNCs in Canada (Fossum 1997: 156) were two forces that Petro-Can was designed to reduce dependence upon. In Oil, the State, and Federalism, Fossum (1997: 267, 284–85) demonstrates that the passage of free trade deals (FTA and NAFTA) tried to ensure that Ottawa would be blocked from ever exercising such a

15 https://www.equinor.com/where-we-are/canada. 16 https://www.consilium.europa.eu/en/press/press-releases/2022/12/03/russian-

oil-eu-agrees-on-level-of-price-cap/.

160

APPENDIX 4

national vision or plan again. “This provincial reaction [was]… to involve U.S. government actors far more directly in Canadian energy policy. This clearly weakened the capacity of the individual provinces, and, even more, of the federal state to operate as coherent actors in the energy field” (Ibid: 285). Norway by contrast has rejected similar continental economic constraints and hegemony, maintaining sovereignty over its resources by staying out of the EU, with over 73% of Norwegians desiring to remain outside the EU four years after Brexit.17

References Fossum, J. E. (1997). Oil, the State, and Federalism: The Rise and Demise of Petro-Canada as a Statist Impulse (Vol. 2).University of Toronto Press. Foster, P. (1992). Self-Serve: How Petro-Canada Pumped Canadians Dry. Macfarlane, Walter & Ross.

17 https://edition.cnn.com/2020/06/25/uk/uk-supports-eu-four-years-after-brexitintl-gbr/index.html.

Index

A Alaska, 3, 5, 50, 51, 53, 56, 57, 97, 101, 121, 130, 131, 142, 144, 158, 159 Alaska Permanent Fund Corporation, 96 Alaska Permanent Fund Dividend, 96, 101, 158 B Basic income (BI), 2–5, 11, 19, 22, 34, 48, 56–58, 68, 71, 78, 87, 96, 98, 100, 101, 120, 128, 129, 136, 139–145, 147, 148, 150, 153, 158 demogrant, 3, 5, 22, 28, 30, 31, 35, 39, 40, 48, 57, 61, 139–141, 143–145 negative income tax (NIT), 3, 5, 22, 28, 29, 31, 35, 39, 40, 139–141, 143, 145 universal basic income (UBI), 3, 4, 10, 11, 14, 16, 22–25, 27, 28, 30–32, 35, 37, 39, 40, 48, 49,

51, 54–56, 61, 120, 124, 125, 135, 136, 150 Brexit, 160 Bureaucracy, 16, 32, 34, 35, 39, 49, 52, 99

C Canada Revenue Agency (CRA), 30 Care work, 136 CERN (Conseil Européen pour la Recherche Nucléaire), 112 CEWS (Canada Emergency Wage Subsidy), xiv Charitable sector, 19 philanthropic giving and charity law, 21 tax deductions, 4, 18, 19, 83, 140 tax shelter schemes, 4, 126, 128, 140, 143, 144 Connaught Laboratories, 155 Corporate welfare, 4, 37, 39 COVID-19/ Coronavirus/ SARS-CoV-2, 52, 120, 155

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 R. Pereira (ed.), Financing Basic Income, Exploring the Basic Income Guarantee, https://doi.org/10.1007/978-3-031-29012-1

161

162

INDEX

Croll Commission, Report (1971), 154

FTA (Free Trade Agreement [Canada-US]), 159

D DARPA (Defense Advanced Research Projects Agency), 112 Daycare/childcare, 23–25 night daycare, 24 overnight care, 24 Democratic theory of rent, 98, 100, 143 Demogrant, 3, 5, 22, 28, 29, 31, 35, 39, 40, 48, 57, 61, 140, 141, 143–145

G GDP, 13, 23, 70, 87, 110, 111 Germany, 68–70, 78 Global Financial Crisis (GFC), 96

E Earned income, 52, 76, 77, 80, 84, 85, 87, 89, 91, 143, 144. See also Unearned income Economic multiplier effect, 14, 61, 129 Economic rent, 4, 5, 50, 54, 97–100, 110, 115, 121, 128, 130, 131, 133–135, 142, 144, 157, 158 EITC (Earned Income Tax Credit), 27. See also WITB (Canada) Electromagnetic spectrum, 105 European Union (EU), 113, 159, 160 Externalities, 10, 16, 36, 38, 51, 54, 135

F Fee and dividend, 5, 38, 51, 52, 54, 130, 142 Food banks, 32 Forget, Evelyn, 49, 51, 52, 127, 129, 141 France, 68–70 Free-riding, 10, 16, 36–38, 135

H Healthcare, 2, 22, 27, 49, 52, 70, 75, 129, 140, 141, 154 I Individual Savings Account programme (UK), 21 Institut Armand Frappier, 155 Internal Revenue Service (IRS), xx, 42 International Telecommunications Union (ITU), 111, 112 J Japan, 96, 113 K Keynes, Maynard John, 96 L Labour (forms of free labour being extracted), 36 Labour income, 10, 29, 37 Labour market, 2, 14, 23, 35, 38, 39, 62 Labour standards, 135 Land rent, 98, 103, 113, 122–124, 133, 136 Liberal theory of rent, 98, 100, 112 LICO (low income cut-off), 13, 14 Liquidity rent, 106, 134

INDEX

Lithium, 51 Locke, John, 98 Luxury (tax, products), 51, 55, 60, 61, 125 LVC (Land value capture), 61, 143 LVT (Land value tax), 61, 121, 123, 124

M Maternity/paternity leave benefits, 23, 24 Mill, John Stuart, 96 Mincome, 141 Monopoly (rent), 107, 108, 110, 112 Multiple job workers, 24 Murray, Charles, 2, 49, 59, 99

N NAFTA (North American Free Trade Agreement), 159 NAPO (National Anti-Poverty Organization), 153–155 Negative Income Tax (NIT), 3, 5, 22, 28–31, 35, 39, 40, 139–141, 143, 145 Norway, 5, 50, 53, 56, 101, 104, 130, 131, 142, 144, 157–160

O Oil fund, 101 Ontario Basic Income Pilot (OBIP), 120, 153

P Paine, Thomas, 98, 122, 127, 134, 153 Pension(s) AHV - Switzerland, 72, 86, 90, 91

163

Canada Pension Plan (CPP)/ Quebec Pension Plan (QPP), 17 Old Age Supplement (OAS) – Canada, 13, 17 Petro-Canada, 157–159 Philanthropy, 101 Precarious jobs, employment/ precarity, 18, 37, 121, 140, 148 Pregnancy/pregnant women and job dismissals, 24 Privatization, 27, 59, 101, 106, 107, 155, 158 Public trust resource, 106

R Registered Retirement Savings Plan (RRSP), 18. See also Tax shelters Regressive taxation, 18, 60, 125, 143. See also Taxes Robot tax, 51, 53 Royalties, 51, 54, 97, 101, 131, 143

S Scarcity (rent), 108, 112 Singapore, 50, 51, 143 Social housing, 4, 23, 25, 27, 32, 129 Sovereign Wealth Funds (SWFs), 50, 51, 130, 133–135, 142, 144, 158, 159. See also Alaska; Norway Speculation/speculative activity, 16, 37, 39, 52, 78, 81, 88, 100

T Taxes carbon tax (carbon levy, carbon fee, fee and dividend), 4, 113–115 corporate taxes (cuts, reductions, multinational companies), 4, 51, 54, 104, 149, 154

164

INDEX

evasion, 4, 29–31, 99 personal income tax, 4, 5, 10, 11, 16, 29, 30, 37, 39, 47–49, 54, 56, 59, 61, 140, 144, 149, 150 regressive, 18, 60, 78, 125, 143 tax cuts (by implementing basic income, to corporate rates, neo-liberalism), 4, 144 Tobin tax (speculation tax[es]), 37, 52, 123, 153 unearned vs. earned income, 52 VAT, sales taxes, 4, 47, 48, 56, 59–61, 77–79, 83, 87, 89, 125, 141, 143 Tax exemptions, 4, 79, 100, 141 Tax-Free Savings Accounts (TFSA), 19, 21. See also Tax shelters Tax havens/offshore tax havens, 4, 30, 31, 40, 51, 54, 141, 149, 154 Tax shelters, 4, 18, 19, 126, 128, 140, 143, 144 Transfer pricing, 30, 31, 149 U Unconditional Basic Income (UBI), 6, 47–49, 68, 81, 142, 147 Underemployment, 18 Underground economy, 13 Unearned income (vs. earned income), 52 Unemployment, 50, 72, 86, 99 United Kingdom (UK), 21, 31, 59, 68, 107 United States (US), 4, 5, 27, 38, 112, 122, 149, 154 Universal Basic Income (UBI), 3, 4, 10, 11, 14, 16, 22–25, 27, 28,

30–32, 35, 37, 39, 40, 48, 49, 51, 54, 56, 61, 120, 124, 125, 135, 136, 150. See also Basic income (BI) Universal dividend, 3, 5, 6, 57, 122, 139, 142–144 Universal public health care/universal health care, 27, 39, 48, 58 Unjust dismissal (pregnant women and employers), 24 Unpaid internships, 36, 129 Unpaid overtime work/labour, 24, 36, 54, 129

V Van Parijs, P., 11, 12, 29, 85, 100 Vermont (and public trust resources), 56, 101, 106, 114

W Whistle-blower protections/ whistle-blower, 141 White, Stuart, 12, 29 Windfall profits, 142, 143, 157, 158. See also Economic rent WITB (Working Income Tax Benefit), 27. See also EITC (US) Workplace culture(s), 24 Workplace disability (and costs), 38 Workplace mental health, 38 Workplace standards violations, 24. See also Labour standards

Y Yang, Andrew, 53, 55, 56, 59, 60, 120, 121, 124–126, 135