June 19, 2017    5 minute read

Italy Takes Another Step Towards A Universal Basic Income

Money for All    June 19, 2017    5 minute read

Italy Takes Another Step Towards A Universal Basic Income

Since its founding in 2009, the Italian 5 Star Movement has always supported the introduction of a “universal basic income”. According to Genoese comedian Beppe Grillo’s blog, it will financially support individuals who have lost their job or are struggling to find one. It consists of a monthly income that will be provided to anyone who fulfils certain requirements.

The Basics

The amount of the minimum income depends on two key elements: the number of family members and whether they already receive an income. The upper limit for an individual is €780 per month (€9360 per annum). If the recipient already has an income, he is entitled to obtain the difference between €780 and the salary which he already receives. Furthermore, if a family is composed of more than one person, the minimum income will depend on the number of family members and the presence of minors.

To be entitled to obtain this income, one must be an Italian or European citizen, be over 18 years old and be unemployed or receiving a salary under the poverty line. In some cases, non-European citizens may also be entitled, if their home countries have signed a reciprocal agreement with Italy that guarantees social rights.

The requirements that need to be fulfilled in order to obtain this income are: being available for work, enrolling at public centres for employment and proving to be actively looking for a job. If necessary, recipients are asked to complete specific training courses. The minimum income will be withdrawn if recipients manage to obtain a salary higher than the poverty line, if they do not fulfil their obligations, refuse three job offers or quit their jobs without a valid reason twice in a single year.

This income will be provided as soon as recipients fulfil their obligations and citizens have the right to claim the income indefinitely. Furthermore, 5 Star Movement MPs claim that this project will require approximately €17bn in the first year, with the amount decreasing in the following years.

Critical Issues

Even though the minimum income is one of the 5 Star Movement’s most significant proposals, the intentions behind this ambitious program are not clear. In one of his meetings, Beppe Grillo claimed that everyone should have the right to an income from cradle to grave, irrespective of the desire to work or not. Moreover, according to his blog, the minimum income is not just designed to tackle poverty, but also to increase domestic demand (from approximately 4% to 22%), increase small and medium businesses’ revenues, and as a consequence, increase the employment rate.

So, where do we start? Ignoring the madness of the “right to an income”, the idea that the minimum income will somehow stimulate the Italian economy presents several weaknesses. Firstly, this claim is not supported by any empirical research that shows a positive correlation between the introduction of a minimum income and employment rate. Secondly, the impact of an economic decision depends almost entirely on how it is perceived by the people. If small and medium enterprises in Italy perceive the greater demand for their products and services as temporary, they will be disincentivised from hiring new people, because the greater demand won’t last for long.

Furthermore, the minimum income proposition is based on a completely wrong assumption, which is that it is possible to solve a demand crisis by introducing economic measures to increase supply. In Italy, the unemployment rate is just under 12%, while amongst young people that figure reaches almost 40%. The key point is: are there enough job opportunities on offer to all the recipients of the minimum income? The answer to this question is absolutely not. Therefore, we would have a situation where hundreds of thousands of people would receive an income without a job and no opportunity to find one. This is a mad degeneration of welfarism.

At this point, the supporters of the 5 Star Movement might object that the introduction of such a measure would tackle poverty and guarantee a decent lifestyle to everyone. But the important question is: at what price? The answer to that is going to remain a mystery. Firstly, it is impossible to determine how many individuals will benefit from the minimum income, taking into consideration the significant migration flows over the past few years. Secondly, it is completely unclear how much this measure will cost and how the 5 Star Movement is going to pay for it. The 5 Star Movement has always answered those questions vaguely, coming up with proposals such as the taxation of oil companies, gambling business and financial speculation, completely ignoring the consequences. More realistically, the only viable routes to finance this proposal are either an increase in taxation, which would hit small and medium enterprises hard, or the privatisation of public services.

Conclusion

Even though Italy desperately needs support measures to reduce unemployment and stimulate growth, the 5 Star Movement’s proposal does not tackle the essence of the problem and is not supported by any scientific analysis. The alleged increases in consumption and the employment rate, if not demonstrated by econometric studies, are just pure slogans, which serve no purpose but increasing the political consensus. So, here we are again, facing new political propaganda, which, on paper, is going to solve all Italy’s woes, but, in the end, it will more than likely be the same old gift to millions of voters.

 

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