Finnish social security is in need of a thorough overhaul, according to the Organisation for Economic Co-operation and Development (OECD).
The OECD estimates in its newly published economic survey that “the combination of different working-age benefits, childcare costs and income taxation creates complexity, reduces work incentives and holds back employment” in Finland.
The direction of the reform, it says, should not be steered towards basic income but rather towards universal credit, a system that replaced six benefits in the United Kingdom in 2013.
The Finnish government launched its much-discussed, two-year basic income experiment at the beginning of last year. A total of 2,000 participants were selected randomly from among basic allowance, social assistance and labour market subsidy recipients to receive a monthly basic income of 560 euros instead of their previous benefits.
The participants will receive the basic income in full regardless of whether or not they have reported any earnings.
The OECD points out that while the implementation of the basic income nationwide is not outright unfeasible, it would necessitate significant increases in income taxation.
“This would be too costly to implement on a national scale,” it states. “If existing spending on all working-age benefits was distributed with an equal amount to all, the benefit level would only constitute 13 per cent of the median income, or 26 per cent of the relative poverty threshold.”
“Financing a basic income at a meaningful level thus would require considerable additional tax revenue, and heavier taxation of income would at least partially undo any improvement in work incentives.”
The universal credit, similarly, is a monthly social security benefit for the unemployed and low-income people. Its recipients are allowed to work but will lose 63 per cent of their benefits for every pound they earn over their work allowance.
Finland, the OECD says, could dramatically increase work incentives and transparency by co-ordinating the tapering of various working-age benefits against earnings, all the while preserving – or even strengthening – the current level of social security.
“[This] is hence a more promising route for future reform than a basic income,” it views.
The OECD presented its latest economic survey of Finland in Helsinki on Wednesday, 28 February.
Mari Kiviniemi, a deputy secretary general at the OECD, stated that the national economy has regained its growth momentum as a result of sacrifices made by both employees and employers and the support of the government, but warned against complacency.
“Good times are the moment to lay the foundation of future success, so this is no time for complacency,” she said. “Unemployment remains too high, ageing-related costs are weighing on public finances, and globalisation and technology continue creating challenges as well as opportunities.”
Aleksi Teivainen – HT
Photo: Antti Aimo-Koivisto – Lehtikuva