Unconditional basic income in Germany

In Schleswig-Holstein the new state coalition government of Conservatives, Greens and Liberals has agreed to explore new social insurance models, including that of a basic income. In particular the Greens have for some time now been favouring an unconditional basic income, the underlying idea being that every citizen, irrespective of his or her achievements and contribution to the economy, be granted a fixed state allowance on one and the same scale for all. The transfer is intended to replace other social insurance provisions such as unemployment benefits, welfare, pensions or child support, and is not pegged to any conditions or any services to be rendered in exchange. While some tend to emphasize objectives such as cutting red tape and making the social welfare system leaner and more modern, others focus on the financial freedom afforded by the basic insurance which is expected to create scope for vocational self-expression, independence and innovations.
Irrespective of whether it is unconditional basic income that is involved or the Liberals’ proposal of a negative income tax (known as “Bürgergeld”), in coming years the debate looks set to become more intense. For ongoing digitization spells a growing danger that the hitherto classical employment and taxation concept on which modern societies rest will gradually disintegrate. Questions such as “What is a just tax base?” or “What sources of income do people have?” will take the front seat. The tax base will need to be broadened and could in general shift toward a tax on value added deducted at source in the company in question. Topics such as investment incentives and tax competition will then become very important. For many people the concept of unconditional basic income could become a key pillar of life. However, it is still early days as regards all these issues and it is therefore all the more important to garner insights from first attempts on this topic.
In Finland, basic income has been available in a test version for several months now: 2,000 selected unemployed persons aged between 25 and 58 have since the beginning of the year been receiving unconditional basic income of 560 euros a month. The figure is roughly on a par with the minimum unemployment benefit or daily needs extrapolated for the month. Participation in the project is mandatory, meaning that the basic income does not get reduced if someone gets a job. The experiment is scheduled to run for two years and in particular clarify whether basic income does indeed create incentives to take on a job or actually reduces these. However, the concept broaches other questions, such as the scheme’s financial viability or the issue of justice.
For example, financing basic income for everyone (from infants to the very elderly) would quite obviously be a massive task: If one takes the Finnish experiment of 560 euros a month and applies it to all Finns or Germans, the costs in Finland would be about EUR 37 billion and in Germany approx. EUR 550 billion a year. This would amount in both cases to about 18 percent of economic output. As a ratio of government spending it would be no less than around 40 percent of total German government expenditure. Even if one considers that part of the current social welfare budget would become redundant, massive tax increases to finance the basic income would presumably be unavoidable.
The result would be a huge redistribution of wealth, whereby the exact scale would depend on the positive or negative incentives to work that the unconditional basic income causes: The greater the number of citizens who choose not to take a job, the higher the taxes on those in jobs would have to be to finance the non-employed population. This makes it abundantly clear that the unconditional basic income cannot be financed as a new charitable deed of social policy. Yet it may possibly have some justification as an alternative strategy to combatting the impact globalization and digitization have on how wealth is distributed. I therefore believe that it makes a lot of sense to discuss and study such concepts more closely.

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