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Basic income: Is it possible to introduce it in Ukraine?

Author : Yuriy Hryhorenko

In many countries of the world, discussions on the introduction of universal basic income (UBI) are underway. This involves the payment of a certain amount of money to each resident of a country or territorial community, regardless of their income level and without the need to work.
22:17, 16 April 2019

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The goal of the UBI is to reduce unemployment, poverty and economic inequality, as well as the cost of administering social programs. However, there are several problems - will the recipients of assistance look for work more actively because they don't get enough; how the society will react to this; and, most importantly, how it will affect the economy?

Populists keep promise

In 2018, the new government in Italy introduced the UBI - 500 euros paid to the poor and unemployed, but a family without income and with three children will be able to receive 1,050 euros. Payments apply only to Italian citizens or legally residing in the country for more than 10 years, limited to 18 months with the possibility of extension, with the requirement to seek work, but have a number of criteria. Basic income does not apply to those who receive more than 9,360 euros per year or whose family income is more than 6,000 euros.

The introduction of basic income will cost the state budget of Italy 7-22 billion euros for various estimates. And Italian populists "promised" to give 100 billion euros. This will be a significant blow to the country's state budget, and even now many economists consider Italy to be the “weakest link” in the EU economy. Italy's national debt is 132% of GDP, which is the second highest figure in Europe after Greece (181%).

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However, experts doubt that this experience will take root. “I’m sure that basic income will not remain in Italy. There are many reasons for this. Many innovations that they introduce do not take root in Italy. Italy is one of the few EU countries where there is no concept of minimum wage, but suddenly introduces UBI – this doesn’t link with each other. At the same time, Italy’s state budget is deeply deficient, and the country's national debt is the highest in Europe after Greece. The country simply can’t survive with basic income, especially if numerous migrants claim their rights, and their position can be supported by the ECHR”, says Olexiy Doroshenko, head of the National Economic Development Council.

Finnish experiment

The most significant experiment on the UBI introduction was conducted in Finland in 2017-2018. The first probe was 2 000 poor and unemployed, who were paid 560 euros per month. As the first results showed, the recipients felt happier and more confident, but the basic income did not push them to look for work, although they were more often ready to work full time instead of short-term earnings and part-time work. In addition, the size of the UBI is comparable to unemployment benefits, but below the subsistence minimum in Finland, that is, people did not get richer. According to Olexiy Doroshenko, a two-year experiment in Finland is a short enough period for long-term conclusions about the advantages or disadvantages of basic income.

“The main reason for the ambiguous results of implementation is: instead of an incentive for further development and improvement, it leads to dependency and consumerism. Some working people fear that they will be paid for by social workers. And the budget deficit will increase,” adds Grygory Pererva, CEO of the Euro-Rating agency.

Rich are against

It should be noted that the population of Western countries with a high standard of living and incomes is not thrilled to pay for nothing. In 2016, the question of introducing the UBI in the amount of about 2,250 euros was submitted to a national referendum in Switzerland, and about 80% of Swiss people voted against. Approximately the same situation takes place in the Scandinavian countries. According to surveys, 34-38% of respondents support this idea in Norway and in Sweden.

"Initially, basic income can be entered at an official level only in the EU or in Scandinavian countries, where there are high social standards, and states have budgetary opportunities to make such payments. But I think this is a prospect for 10-15 years. Now the global economy is slowing down its development. So to make such crucial steps as the introduction of basic income, you need to understand that in the future the world economy will grow at least 3-5 years. What country will actually introduce the UBI first is difficult to say, but even Switzerland and Norway do not consider such problems. It is is a very important step regarding the burdens on the state budget, and the EU countries are very wary of measures that lead to an increase in budget expenditures ", emphasizes Doroshenko.

Ukrainian perspectives

So far, the introduction of UBI is not an actual question for Ukraine, but we hear talks on this issue in the West, and Italy has already taken the idea. In Ukraine, UBI can theoretically replace various social benefits, including unemployment ones, and reduce bureaucracy in this matter. But much will depend on whether it is replacing some payments or is it potentially a new payment on a regular basis. It can be assumed that in the case of Ukraine only a name change can occur.

According to the IBI-Rating agency market research department director, Viktor Shulyk, to some extent there is a similarity to the UBI in our country - unemployment benefit. There are also various types of subsidies as an element of support for the least protected segments of the population. Such payments needs a decent amount from the state budget. Only for the housing subsidy program in the state budget-2019 is provided 55,1 billion UAH (2 billion USD), whereas in 2018, 71 billion UAH (2,5 billion USD) was allocated for this purpose.

“From my point of view, the only option when it is desirable to apply additional“ guaranteed financial security ”is during the period of retraining / study for citizens, until they find a new job,” says Viktor Shulyk.

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There is another difficulty regarding such initiatives in Ukraine that we need to take into account - the potential exacerbation of social tensions. It's one thing when citizens get temporary unemployment benefits (from the money they previously paid out of wages), and everyone understands that this is temporary, and the other thing is when someone can pay money "for nothing." According to Viktor Shulyk, there is no certainty that this will be positively appreciated by society.

From a financial point of view, experts are categorical - Ukraine will not introduce the basic income in the Western sense (for all people) in the foreseeable future. According to Grygory Pererva, UBI in Ukraine is not yet possible: there are no economic grounds and the corresponding level of mentality of the population does not suit it.

“There are no prospects for the introduction of UBI in Ukraine in the near future. After the recent indexation of pensions, there are no means to pay even what we have to. Now even hospital payments have been stopped,” adds Olexiy Doroshenko.

On the other hand, the basic income in Italy is the minimum required amount by the standards of the local cost of living. With this logic, the potential UBI in Ukraine will not be at the level of an average salary of 8-10 000 UAH (357 USD). And if we replace the entire list of social payments with one comparable amount, then the budget will not be particularly affected by this. According to Viktor Shulyk, the amount of basic income in Ukraine may be minimal enough to provide real basic needs (the subsistence minimum with some multiplying factor). Recall that the living wage in Ukraine from January 1 increased by 76 UAH - up to 1853 UAH (66 USD), from July 1 it will be 1936 UAH (69 USD), and from December 1 - 2027 UAH (72 USD).

New reality

It is noteworthy that the presidential candidate Volodymyr Zelensky promises to introduce an innovation when all Ukrainian children will have a bank account, which will receive a percentage of the state’s realization of natural benefits. This is somehow similar to UBI. Prospects for this can be considered just theoretically, because there are few natural resources other than land in Ukraine and “you will not save enough.”

Something similar works in Alaska rich in oil, where the population receives from the local fund, where are 25% of the state’s profits from the sale of black gold - approximately $ 1,500– $ 2,000 per year. For the northern conditions of Alaska, where life is expensive, it is very little ampunt, maybe like 2-4 000 UAH for a Ukrainian. But Ukraine has almost no oil and too many people. On the other hand, we have enough political populists who promise a star from the sky, and the next parliamentary elections will took place in the autumn ...

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