Experimenting Basic Income (BI) in Finland 9 June 2016 Kela Olli Kangas Professor, Research Director Kela, Social Insurance Institution of Finland

The preliminary report delivered thge 30 March 2016 Which models are the most suitable for the experiment What is the level of the monthly payment How to combine BI with income-related benefits and other basic benefits Tax treatment of different models What are the strengths and weaknesses of different models in the context of the EU and the Finnish Constitution Recommendation: what is / what are the model/models to be further explored 2

The working group evaluates the models, research setting and samples to be experimented The task for the working group is to make a plan for the experiment After the first report (due to 30 March 2016) the Government decides which models should be further developed Later in the year 2016 the Government will decide which model/s will be experimented, what is the target population and what is the experimental setting That is under preparation 3

Models explored and developed Full basic income (BI) The level of BI is high enough to replace almost all insurance-based benefits Must be rather a high monthly sum, e.g.1 000€-1 500€. Realistic? Partial basic income Replaces all ’basic’ benefits but almost all insurance-based benefits left intact Minimum level should not be lower than the present day minimum level of basic benefits (€ € 600 a month) Plus income-related benefits and housing & child allowance Negative income tax Income transfers via taxation system Other models Perhaps low BI plus ’participation’ income 4

What next? Writing the law on the experiment (before summer 2016) Hearing of interest organisations Parliamentary discussion −Constitutional committee Specifying the model (before summer 2016) Levels (net) single+2 childrensngl parent+2 chld Basic unenmpl. €589€724€724 Social assistance €486€1069€1190 What is the right level of benefit. Not too costly but eliminates the need for social assistance? How to take into consideration specific needs of single parents? 5

Experimental settings (an example of an optimal research setting, nothing selected yet) 6 To get scientifically reliable results and evidence for policy making the experimental setting must Include a sufficient number of households rather than individuals Be nationally representative A nation level randomization local experiments in order to capture networking, institutional and interaction effects and various externalities e.g. local municipalities with 10%, 30% random sampling. To increase the sample size: Kela benefits will be used as a source of extra funding (sample 7,000)

Experimental setting ModelBI €Tax rate A0590PRESENT A159040% A259045% B169045% B269050% 7 Sample size Significant effect

Effective marginal tax rates in the present system and in the €750 BI world (Flat rate tax = 52%; single mother, 2 children live in Helsinki, rent €750) 8 Effective marginal tax rates remain high also in the BI model The main problems are linked to housing allowances and ’adjusted’ unemployment compensation BI as such is not a solution Taxes in the BI model ’behave’ more logically BI may solve bureaucratic traps and waiting periods when moving from a status to another one

Effective marginal tax rates in the present system and in the €550 BI world (single person, lives outside capital area, rent €570, present taxation). 9 If the BI is financed through the present tax system, effective, marginal tax rates are much lower than in the present social policy system. The main problems are now linked to social assistance and housing allowance Both problems are smaller in the BI model In 0 –income group there still is a need for social assistance Problem: the model is not cost-neutral Extra resources are needed Social assistance Housing allowance Tax Work income

BI may solve other problems and create a number of new ones… The modelFlat rate tax GiniPoverty (60%) Winners (000) Losers (000) Present system BI 500€ , BI 550€ , BI 600€ , BI 650€ , BI 700€ , BI 750€ , BI 800€ ,