Issue link: https://maltatoday.uberflip.com/i/1498955
8 OPINION 11.5.2023 The S in ESG - the waning relevance of a basic income George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island I n its most popular form, a universal basic income (UBI) is a guaranteed cash benefit that the government pro- vides to citizens. UBI guarantees income for non-work- ing parents and caregivers, thus em- powering important traditionally un- paid roles, especially for women. is is not a new idea, but one that has histori- cally resurfaced from time to time. English philosopher omas More proposed such an idea in his novel Uto- pia in 1516, although it wasn't until the 1960s and 1970s that economists be- gan to think more seriously about how it could be applied. e US economist Milton Friedman proposed an idea re- lated to UBI called a negative income tax in 1962, in which those earning un- der a certain amount would receive sup- plemental funds from the government rather than paying tax. e COVID virus gave scope to pan- icky wage supplement measures which governments deployed at a vast fiscal cost. ese measures discriminate as they exclude many people, notably the most vulnerable, and are a bureaucrat- ic nightmare. ey also serve to ossi- fy the unsustainable pre-coronavirus economic structure and may (as was rumoured in Malta) in the end prop up zombie companies. By contrast, a universal basic income would go to everybody, without excep- tion, eliminating the huge administra- tive costs of means tests and eligibility checks. Simply put, a UBI true to its name would be unconditional and car- ries no means test for eligibility. It would be given to every individual, regardless of their own or their family income. e move to support universal basic income (UBI) comes at a time of unprecedented sluggish economies brought on in the aftermath of the coronavirus pandemic and the ongoing Ukraine invasion. One of the potential benefits of UBI is the mitigation of stress associated with a means test to qualify for benefits. Re- moval of such stress testing could lead to better mental and physical health. It is easy to see the well-being advantages of a UBI system providing a reliable in- come, uncoupled from complex condi- tions, shorn of the fear of failing. Still a UBI is not popular in Europe ex- cept for its application in Norway. Chi- na becomes one of the first countries to successfully implement provisional Universal Basic Income for "most" of its citizens. e UBI programme is funded primarily via taxation out of the portion of business revenue generated through industrial, commercial or agricultural automation. Spain was one of the hardest-hit coun- tries in the early days of the pandem- ic. e nationwide lockdown in Spain curbed the spread of the virus, but came at a staggering financial cost. Millions of people lost their jobs as the econo- my shrank rapidly, putting many of the most vulnerable citizens at risk. Spain introduced a temporary minimum basic income in May 2020. is was strati- fied, covering only about 2% of the pop- ulation, "to fight a spike in poverty due to the coronavirus pandemic". e ambitious scheme aims to guar- antee an income of €462 per month for an adult living alone, while for families, there would be an additional €139 per person, whether adult or child, up to a monthly maximum of €1,015 per home. It is expected to cost €3 billion a year. A scheme in Malta paid €800 monthly (less tax) to qualifying cases. As a con- dition, employers had to cough up €400 to each furlough worker (in practice few did). It goes without saying, that the high cost of a universal basic income is one of the thorny questions in the pub- lic sphere and the research community. Surely, its cost depends on many things. It is first and foremost dependent on the level of the basic income as such, but it also depends on many technicalities regarding exactly how it is constructed. Critics argue that UBI does not make a distinction between "deserving" and "undeserving" individuals when making payments. Opponents of UBI, observe that this lack of discrimination is unfair. UBIs are also less cost-effective than tar- geted welfare programs because many people lack more than just cash. UBI does not cure addiction, poor health, lack of skills, or other factors that con- tribute to and exacerbate poverty. For example, during a referendum in June 2016, a fifth of the Swiss elec- torate voted in favour of introducing a UBI, although it seems likely that only a minority of these supporters would have been able to provide a discerning answer to how it can be funded. In most countries, the traditional view is that earned income motivates people to work, be successful, work coopera- tively with colleagues, and gain skills. However, "if we pay people, with a UBI unconditionally, to do nothing… they will do nothing" and this attitude leads to a less effective economy. Hence, log- ically the popularity of a UBI is attrac- tive to poorer countries yet in the rich world, only Norway uses it in its welfare net. In times of high interest rates, os- tensibly topped up by central bankers to fight inflation, the economy is misfiring, rigged by a wages spiral. us, few gov- ernments can afford to upscale welfare sustenance. Unions concentrate on solving the chronic problem of scarcity of skilled workers and fighting precariat. So, is a UBI a good idea after all? It is not practiced in many economies nowadays. Really and truly, some ver- sions of UBI could reduce poverty and improve recipients' mental health and well-being. But it would be expensive. To fund it, would require significant increases in tax rates, which people are reluctant to accept. Ideally, those on low- to middle-incomes would be better off living under the safety net of their UBI. Perhaps, Malta found out a better way to fight the spiralling cost of living. A partisan way is to distribute free cheques to voters (ostensibly code- named sustainability help or negative income tax) preferably before elections but now as a pretext to refund over- paid personal taxes in past years. ese unique pennies from heaven may sound attractive (enough for an outing of four ordering pizza, mineral water and des- sert), but it is like using drips of water to kill a raging fire. e temporary taste of its sweetness is quickly forgotten as the plague of infla- tion remonstrates unabatedly.