1. Background
Partnership
2000 for Inclusion, Employment and Competitiveness provided that:
“A further independent appraisal of the concept of, and full
implications of introducing a basic income payment for all citizens will be undertaken,
taking into account the work of the ESRI, CORI and the Expert Steering group on the
Integration of Tax and Social Welfare and the international research. A broadly based
steering group will oversee the study.”
In pursuance of this commitment a Steering Group was established
under the aegis of the Department of the Taoiseach. The
Group was composed of representatives of the Social Partnership Pillars and officials from
the relevant Government Departments. Its
composition is at Appendix I. The Group met
on 10 occasions. The Group agreed Terms of
Reference for a study on Basic Income, and these are attached at Appendix II. The elements of the study were commissioned
following the normal tendering requirements.
It is important to emphasise at the outset that the P2000 commitment did not refer to, and thus the Steering Group was not considering a specific detailed model of Basic Income for implementation, but rather the implications of a Basic Income approach. Basic Income has been put forward as an approach to improve substantially the distribution of income with particular reference to the lowest income deciles of the population. It is intended to remove unemployment and poverty traps and to simplify the tax/social welfare system. Its proponents argue that it can contribute to the common good by providing citizens with greater liberty to achieve self-fulfilment and contribute to the development of society. The approach has been developed and analysed in several papers. The analysis in this study was based on a set of proposals developed by CORI and agreed by the Group, in order to illustrate the implications of a Basic Income approach.
In addition it should be noted that, in line with the mandate of the Steering Group, this overview of the analysis should not be understood to be an endorsement of any particular specification for a basic income, or indeed, for a basic income scheme itself.
2. Consultancy Study
The Steering Group commissioned consultants to undertake analysis in
two distinct but inter-related phases. Phase
1 of the study was designed to examine the first round or static effects of the
introduction of a Basic Income system in Ireland, without allowing for possible changes in
individual behaviour as a result of its introduction.
This part of the study was undertaken by two separate consultants,
Professor Charles Clark, St. John's University, New York and the Economic and Social
Research Institute (ESRI).
(a)
Professor Clark provided an aggregate analysis of the costing of the basic income scheme,
using macro economic statistics, and an analysis of the distributional effects on
illustrative households, along the lines of Clark and Healy, 1997.
(b)
The ESRI conducted a microsimulation-based analysis of the costs and distributional impact
of a basic income on actual families, using the SWITCH tax benefit model based on relevant
survey data.
Phase 2 of the study was designed to take account of the dynamic
effects and the long-term sustainability of a basic income scheme from a broad economic
and social perspective. This phase was
carried out by a consortium led by the Economic and Social Research Institute.
3. Parameters
of the Study
The
Group’s concern was with the broad concept of Basic Income rather than any specific
scheme. For the purposes of this study a
basic income option was developed for the year 2001, based on information which was
available at the time of Budget 1998, i.e. February 1998.
The option was developed so that it would have available precisely the same
level of exchequer resources as three “conventional” options which were also
projected to 2001. The intention behind this
equalisation of resources was that the effects of basic income as a system could be
compared with “conventional” options.
All
of the recent work on basic income that has been carried out under the aegis of CORI has
included a Social Solidarity Fund, which permits targeted payments to be made to certain
low income groups. Within the above exchequer
constraint and in consultation with the ESRI, the Steering Group developed detailed
specifications for the disbursement of this Fund and these disbursements were included in
the comparisons of basic income with “conventional” options. The Group did not
examine the detailed administrative and eligibility conditions which would be necessary to
achieve such targeting, as the analysis was intended to be indicative rather than
comprehensive.[1] Consequently, no judgement is made about the
viability of these provisions. A number of
iterations of a basic income proposal that includes the application of a Social Solidarity
Fund were considered by the Group.
Within this framework the rates of payment to be examined were
harmonised as between the basic income payment levels and the assumed rates of payment
under the social welfare system.
It was assumed, conservatively, that tax cuts of £250 million (on a
full year basis) would be made available in
each of the years 1999, 2000 and 2001.
It was assumed that all farm income supports, which reflect EU
policies, would remain in place. The rate of
DIRT was set at 24%. A Social Responsibility
Tax, which forms part of the proposed basic income structure, was set at 8%.
The
Group agreed these technical assumptions for the purposes of the study. Some variants were examined in the research by way
of sensitivity analysis.
The
benchmark scenarios against which the Basic Income approach was compared, were taken to
represent a reasonable approach to the structure of tax and social welfare policy, without
implying any commitment to the particular set of rates; payments or tax/social welfare
structure.
While in retrospect the benchmark scenarios and economic assumptions
may seem to have been conservative, these do not invalidate the research. The key point underlying the research is that the
structural comparison between Basic Income and the conventional system should be done on a
consistent basis and this has been achieved.
4. Findings
The results of Phase 1 are set out in two parts - the report by
Professor Clarke whose conclusions are set out at pages 37 to 39, and the ESRI analysis
with conclusions at pages 49 to 51 of the report. In
comparing the results it will be noted that Clarke estimated that the Basic Income option
would require a tax rate of 47.26%, while the ESRI calculated that it would require a rate
of 51.6%. However, when the Social Solidarity
Fund was specified more precisely the required tax rate was closer to 53%.
The different rates reflect differences in the respective approaches
to determining the available tax base, the cost of funding Government services (other than
the elements of a basic income system) and the treatment of a Social Solidarity Fund which
would compensate those losing out in a transition to basic income. In the context of the different
methodologies, the Group considers that both
sets of estimates represent a reasonable indicator of the range of likely tax rates, and that the difference does not invalidate either
study.
The
parameters supplied to the consultants in February 1998 were rapidly overtaken by the
faster than expected economic growth that occurred since then. In 1999 the Steering Group asked the Department of
Finance to provide tax base data to enable the consultants to prepare an updated estimate
of the required tax rate. The result of this
exercise was that a rate of 47.7% would be required in 2001. Further economic growth since 1999 would
enable this estimated tax rate to be reduced further.
Equally, the tax rates applicable in the conventional benchmark scenarios
would also be reduced. Tax reductions
significantly in excess of the benchmark assumptions have, of course, been implemented
over the past three years.
Phase
II examined the potential dynamic impact of a basic income system and the long term
sustainability of such a scheme, not least having regard to and the free movement
of people and capital within the EU. The
information derived from Phase I provided a basis for this study.
The
second phase of the study was carried out by the ESRI et al. As the Phase I analysis was essentially empirical,
it did not allow for behavioural changes in the labour market as a result of a basic
income scheme and the impact on economic growth and competitiveness. The Phase II analysis was necessarily more
speculative in that it was concerned with possible
changes in behaviour of different groups of people consequent on the introduction of basic
income. As basic income has not been
implemented in any country, the Phase II inquiry sought out relevant evidence to give best
judgement on the likely impacts of basic income.
The key issues emerging in the Phase II study are
impact on labour supply
impact on migration and on the informal
economy
impact on the labour market
impact on economic growth and competitiveness.
5. Summary
It is not the role of the Steering Group to reach a conclusion or
make recommendations about Basic Income. As
the studies show, Basic Income would have complex effects, in terms of the initial
redistribution, the consequent behavioural changes, and their economic impact. The studies represent a significant move forward
in our understanding of these complex issues, and the interplay between considerations of
equity and efficiency to which they give rise.
Appendix 1
Membership of Steering Group on
Basic Income*
Department of
the Taoiseach:
Mr Dermot McCarthy, Ms Mary Butler, Ms Grace O’Regan, Ms
Maureen O’Sullivan, Ms Alison Keogh
Department of Finance:
Mr Michael Tutty, Mr Jim McCaffrey, Mr Fergal O’Brolachain, Ms
Marie Mackle
Department of Social, Community & Family Affairs:
Ms
Anne McManus
Department of Enterprise, Trade & Employment:
Mr Frank Doheny, Mr Pat Nolan
Irish Congress of Trade Unions (ICTU):
Ms Rosheen Callender
Mr Blair Horan
Irish Tourist Industry Confederation (ITIC):
Mr John Power
Irish Business and Employers Confederation (IBEC):
Mr Brian Geoghegan, Mr Aebhric McGibney
Small Firms Association:
Mr James Gormley
Irish Farmers Association (IFA):
Mr Con Lucey
Irish Co-operative Society (ICOS):
Mr John Tyrrell
Macra na Feirme:
Mr Damien McDonald, Mr Martin Whelan
Irish Creamery Milk Suppliers Association (ICMSA):
Mr Ciaran Dolan
Conference of Religious in Ireland (CORI):
Fr Sean Healy
Irish National Organisation of the Unemployed (INOU)
Mr Mike Allen, Ms Camille Loftus
St Vincent de Paul (SVP):
Mr Liam O’Dwyer, Ms Mary Murphy
National Womens Council:
Ms Noreen Byrne
*This list indicates the overall representation by the organisations
concerned. During the lifetime of the Group
there were a number of changes in representation.
Appendix
II
Terms
of Reference for Phase
l
Objective