Sayonara Basic Income — Finland Plans A Negative Income Tax Trial
Despite various reports, the Finnish Basic Income experiment was not a failure. Nonetheless, the government should learn from it to improve its future Negative Income Tax experiment.
In 2018, when the previous Finnish government decided not to extend its Basic Income (BI) trial, journalists were quick to out the experiment as a failure, omitting that it had always been programmed as a two-year pilot. A year later, when preliminary results of the first year of the trial were published, analysts and journalists jumped because unemployment did not decrease among the experiment group. The majority of them wrongfully interpreted this as a negative result. The following graph from the Finnish Social Insurance Institution (KELA) shows the preliminary results for the first year of the experiment:
In this experiment, the experiment group consisted of 2000 young unemployed and long-term unemployed Finns. The control group consisted of the rest of the unemployed in Finland during the same period. The fact that the people receiving BI during the trial worked half a day more in 2017 than the control group that they were being compared shows BI does not make people inactive, which is one common misconception about BI. People would work as much with BI than without it is good news for BI advocates. In addition to this, the Finnish experiment showed lower levels of perceived stress, better self-perceived assessment of their state of health, and improved perception of bureaucracy among BI beneficiaries. According to a survey conducted and published by the Finnish Social Insurance Institution (KELA), 55% of the recipients of a BI and 46% of the control group perceived their state of health as good or very good. 17% of the recipients of a BI and 25% of the control group experienced quite a high degree or a very high degree of stress. 59% of BI recipients believed that there was too much bureaucracy involved in claiming social security benefits, which was almost ten percent higher among the control group.
The trial was not a pure success, but it would be inaccurate to call it a failure. The results were mixed, and the whole experiment was flawed by design. It was not a universal BI, as it only included young unemployed and long-term unemployed Finns as BI recipients. It did not take into account the fact that it might take years before people’s behavior changes. Two years are too short for this type of experiment. As stated in the New York Times by Antti Jauhiainen and Joona-Hermanni Mäkinen, “Finland’s conservative government was, of course, an implausible champion for progressive experimentation. Soon enough, it became clear that the Center Party, which leads the ruling coalition, had no intention of properly experimenting with BI, which would have required conducting a much larger and longer study, as many academics recommended. Researchers overseeing the program were instructed to test whether the unemployed could be encouraged to take up low-paid work if they didn’t lose benefits. Even before the BI trial began, the government announced that it would concurrently reform unemployment benefits. What it calls the “activation model” kicked in at the beginning of this year: The measure withholds benefits from unemployed people who, for instance, are thought not to be searching for jobs actively enough — the opposite of a BI program, which comes with no strings attached. The measure has been (rightly) criticized for creating more bureaucracy to exercise stricter control over the jobless. Nearly half of the people affected by it have lost benefits as a result.” However, it gave the Finnish government some exciting data, and it was a good publicity stunt for the country, which is seen as one of the most forward-thinking nations there is.
Finland’s new centre-left government, led by Prime Minister Antti Rinne, is already planning the next trial, with BI being replaced by a Negative Income Tax (NIT). It is not the first NIT trial, but the five major previous trials were done between 1968 and 1979 in North America, making them somewhat obsolete. A NIT is appealing because it might be easier to sell than BI politically. First of all, more Finnish political parties support it. The Green League is the only major political party in Finland to endorse BI, while both the Social Democratic Party of Finland and the Centre Party support a NIT. The ambitions of a NIT do not differ much from the ones from BI. Still, the fact that a NIT does not provide everyone with the same monthly allowance in the way that BI does might make it seem fairer to those who do not understand that progressive taxation would take BI back to the state from part of the population that earns the most.
Twenty million euros have been secured for the NIT trial, being the same modest sum as the one used for the BI experiment. Finland is now more ready than in 2017, as 2019 was marked by the introduction of a new national database called the incomes register. It contains real-time information on people’s wages, pensions, and benefits. This incomes register will help a potential trial or implementation of a NIT in Finland. A NIT experiment is a natural follow-up to the BI trial. The Finnish government could learn from previous missteps. The announced budget being low, both the experiment’s length and the experiment group’s size will sadly remain similar to those of the previous BI pilot program. Despite the budget constraint, the government could expand the experiment to a few other target groups than the young unemployed and long-term unemployed Finns only.
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