The establishment of a Universal Basic Income (UBI) could be extremely costly and "would likely involve significant changes to the tax and benefit system", but could also reduce the stigma surrounding welfare, among other benefits, according to research by the Economic and Social Research Institute (ESRI).
The institute's latest report, commissioned by the Low Pay Commission, details the potential advantages and disadvantages of the establishment of a UBI, while also attempting to estimate its cost.
The ESRI explained a UBI seeks to give "a sufficiently large payment to each individual to allow them to live on", and is paid to each person regardless of whether they are employed or how much they earn.
The researchers noted that UBI is often confused with Guaranteed Minimum Income (GMI), but the latter often target specific groups (such as lower-income households) and may be means-tested, and as such does not provide a 'true UBI'.
Using data from previous studies on the topic carried out here in the 1990s, in addition to more recent schemes attempted in countries such as Spain, Finland and Germany, the ESRI found that introducing a UBI would cost in the region of €50 billion per year.
This estimate was based on figures from 2019 to determine the number of people aged over 18 who would be eligible for the payment. It also used 2019's 'at risk of poverty' threshold, which is 60 per cent of the median annual equivalised income, as the ESRI determined this was a "reasonable estimate of the minimum income required to ensure a person is not in poverty".
"The cost of implementing a UBI would be very high, with the ESRI estimating that in 2019 it could have involved a gross cost of close to €50 billion per year."
Read the report on the ESRI website: https://t.co/5iHq1t4qsh pic.twitter.com/GpLL920zaX— ESRI Dublin (@ESRIDublin) December 20, 2022
Those metrics produced an annual UBI of €14,387 for each adult over 18 (€1,200 per month), which would have cost €50 billion - almost €30 billion more than 2019's total social welfare bill of €20.9 billion.
However, the ESRI said the calculations using the 'at risk of poverty' threshold were only for illustrative purposes as this marker could not be used in reality since the introduction of a UBI would push up the median annual equivalised income, thereby increasing the 'at risk of poverty threshold', and both rates would continue to force each other upwards.
The ESRI also examined what impact dropping the UBI to 50 per cent of the median annual equivalised income would have, finding that the annual payment per adult would fall to €12,000 (€1,000 per month), reducing the overall annual cost to €41 billion.
The institute also calculated UBI based on social welfare rates (€208 per week), giving a €10,816 annual payment at a cost of €37 billion for the State, however, the researchers noted the Green Party's Universal Basic Income policy from 2019, which said: "As the aim of a UBI is to lift the greatest proportion of the populace out of poverty, it is assumed that current levels of welfare payments are not sufficient to do so or do not represent a fair redistribution of national income to achieve lower levels of poverty within the State."
In terms of where this money will come from, the previous Irish data estimated that the income tax rate would have to increase to 50 or 60 per cent to fund a UBI "equivalent to the prevailing social welfare rates at that time", with the ESRI adding: "This is in line with the international evidence, indicating that a meaningful rate of UBI would require a tax rate that is not likely to be politically feasible."
However, the researchers again referred to the Green Party's proposals, which suggested the system could also be funded by measures like a tax on pensions, increased stamp duty, and a site-value tax.
Regardless of the level at which the UBI would be set or from where the money comes, the ESRI stressed that any policy "would likely involve significant changes to the tax and benefit system", adding: "When weighing up the costs of a UBI, it is important to factor in the savings on any benefits that it may replace."
Pros v Cons
Among the central arguments in favour of a UBI, according to the ESRI, is its potential to reduce poverty, remove the stigmatisation associated with being in receipt of welfare payments, and avoid situations where there is a disincentive for people to work out of fear they would lose means-tested benefits.
In addition, researchers said a UBI system could also improve health a wellbeing, provide payment for those currently carrying out unpaid work, such as caring for children or older people, and enable workers to leave insecure or exploitative work, while also simplifying the welfare system.
However, the ESRI added: "As a UBI involves a universal payment to every person irrespective of income, it does not proportionately target income to those that are most in need," while the impact it could have on labour supply is unclear and "could lead to some individuals withdrawing from the labour market".
In addition, the cost of such a system would likely be very high, even when the reallocation of funds from the current welfare system is considered.
The researchers added that policymakers would need to address a number of questions prior to the establishment of any such system, including: whether the payment would be universal for all adults or targetted at specific groups; how much the UBI would be; and to what extent the UBI would replace existing welfare payments.
"The answers to these questions will have major implications both for the cost of and impacts arising from any UBI policy," the ESRI concluded.
