The OECD recently published a policy brief and a methodological note looking into the cost and benefits of adopting Basic Income (BI) as a policy option. The simplest way of introducing a BI would be to take existing cash benefits paid to those of working age and to spread total expenditure on these benefits equally across all those aged below normal retirement age. The resulting BI amount would be very much lower than the poverty line for a single individual. Therefore, without any additional taxes, a budget-neutral BI will be very far from eradicating poverty.

Image: OECD

A perhaps less ambitious alternative may be to use the levels of guaranteed minimum-income benefits (GMI) in existing social protection system as an initial target value for a BI. However, many individuals receive benefits other than a GMI to pay for additional costs for specific needs that they have and they would lose out even more from a flat-rate BI. So it would be likely desirable to retain some targeted cash transfers, but this would require even greater reductions of BI amounts if expenditures are to be kept at current levels. Thus a BI at socially and politically meaningful levels would likely require additional benefit expenditures, and thus higher tax revenues to finance them.

The OECD simulations for four countries (Finland, France, Italy and the UK) show that although a universal basic income is simple, existing benefits are not, and replacing them with a single flat rate benefit produces complex patterns of gains and losses. Those receiving social insurance benefits would normally lose out from the replacement of those with a universal basic income at GMI levels. Those not qualifying from any social benefit under existing policies would benefit as long as the increase in benefits exceeds the corresponding increase in their taxes. Lower-income households are more likely to receive means-tested income support so they are actually less likely to gain from a BI set at a similar level to GMl.

Image: OECD