European Interest

OECD calls on Finns to scrap basic income system

Flickr/FinnishGovernment/CC BY-NC-ND 2.0
“I think the gist of the report is that reforms are needed,” Finance Minister Petteri Orpo said.

The Organisation for Economic Co-operation and Development (OECD) has called on Finland to overhaul its social security system because it “reduces work incentives”.

Its new economic survey, which was presented by the OECD in Helsinki on February 28, warned Finland that “the combination of different working-age benefits, childcare costs and income taxation creates complexity, reduces work incentives and holds back employment”.

It said the direction of the reform should not be towards basic income, but universal credit, a system that replaced six benefits in the United Kingdom in 2013.

As reported by The Helsinki Times, 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 instead of their previous benefits.

The participants will receive the basic income in full regardless of whether or not they have reported any earnings.

According to the OECD, even though 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% of the median income, or 26% 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% of their benefits for every pound they earn over their work allowance.

“Good times are the moment to lay the foundation of future success, so this is no time for complacency,” said Mari Kiviniemi, a deputy secretary general at the OECD. “Unemployment remains too high, ageing-related costs are weighing on public finances, and globalisation and technology continue creating challenges as well as opportunities.”

Finland’s Finance Minister Petteri Orpo responded positively to the OECD’s recommendations.

“I think the gist of the report is that reforms are needed,” he said. “We know what our structural problems are. They’re our low employment rate and the factors contributing to it: rigid labour markets, labour matching, work incentives, business environment, innovation and internationalisation. We need new answers to all of these.”

According to public opinion polls, Orpo is currently the frontrunner to succeed Juha Sipilä (Centre) as the Prime Minister of Finland in 2019.

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