Is a universal basic income feasible?

The federal government's announcement on the delivery and advancement of economic transfers already scheduled for this year 2020 on the occasion of Covid-19 has brought to the discussion table (again) whether the establishment of a Universal Basic Income (UBI) would be a generalized solution that would allow the entire population to be protected, on the one hand, and on the other, what the conditions are for financing it.

How viable is a universal basic income?
How viable is a universal basic income?

This last question is what stops a policy of this type, since recent calculations propose a figure close to ten points of national Gross Domestic Product (GDP) to achieve universal coverage in the country, which is no small matter.

In recent days, a legislator made this initiative available for discussion and analysis of the possibility of implementing it, if possible, in the short term. This measure has been partly implemented in countries such as England, with the Nordic countries at the forefront, for more than a decade now, with great acceptance.

International context

This social policy strategy has several meanings, such as the Minimum Life Income (MLI), the Minimum Assured Income (MAI), the Universal Basic Income (UBI), the Minimum Insertion Income (MII), the Social Wage (SW) and the Universal Citizen's Income (UCI), among which some are already applied in the world, such as the RMA and RMI in Spain, which ranges from 400 to 450 euros and is granted to any citizen who has been left out of the support of Covid-19.

The British political parties, for their part, have used this strategy in the context of the current pandemic, such as the well-known Green Party of England and Wales, as well as those responsible for Labour, Conservative and Liberal Democrat policy, to support the UCI, as it has been called in that country. The above parties signed a proposal asking the government to introduce a basic income for the entire population during the contingency in that country.

The most recent polls have shown that the population of the United Kingdom today mostly supports an UBI-type income, with approval ratings as high as 76%, with only 24% disagreeing.

Other recent examples that already apply in Latin America (LA) are the cases of Brazil and Uruguay, in the UCI scheme; in the first case, its Congress approved it with high acceptance under the concept of UCI in 2005.

The scenario in Mexico

El Colegio de México researcher Julio Boltvinik's proposal for the country is the so-called Universal Sufficient and Unconditional Citizenship Income (ICUSI), which focuses on the person for a "periodic transfer, sufficient for a dignified life, from birth to the end of life". The ICUSI, according to Boltvinik, "makes income independent of work and makes it possible to live with dignity for the hundreds of millions who will not have a paid job in the future [...] In addition, it makes capitalism viable," considering that more and more buyers will be lost to automation as the production will increase.

All these measures in force in today's world tend to be encompassed in what can be called "UCI " and could be applied as UBI in a first stage, as long as it is applied gradually according to the number of resources available and that it is an action, as applied in the above-mentioned countries, that starts from the bottom up, based on a protection scheme that guarantees that no one in society is left without a minimum subsistence income. This measure was already a law initiative in Mexico since 2017 in the Congress of the Union, in the LXIII legislature.

This social policy is so powerful that in the Spanish case it has allowed them to reduce the most severe poverty in a range from 46% to 60%. Thus, the concept of UBI is part of establishing a final economic safety net that offers protection to households whose resources are insufficient. This has been its central concept in social security systems in the European Union since its inception.

Limitations: resources and sources

The countries that have undertaken it in its various facets start from a very clear premise: to have the minimum sufficient resources, to begin with, and that it be sustainable over time. There are two challenges in the Mexican case: first, the number of resources, and second, the acceptance of the measure.

In the first instance, to implement it with minimum revenues that exceed the cost of living would add at the beginning an amount of 2.7 points of GDP, to close in 2030 with 7.3 points, so that only the tax collection in its current state would not reach, to be located today at 13.3% of GDP. These are committed resources, since they finance the two largest components of social spending of the Mexican government: health and education, which exceed just over 10% of GDP. As for the second point, approval depends on the willingness of the general government, but also of the business sector, to implement it, so it is not simple or easily agreed upon task.

In this regard, it is most likely that there will be a return to conditional transfer schemes, although the UBI should not be confused with support of this type, but as a right to which all people have access regardless of their social, ethnic or economic status.

The importance of tax collection

Mexico must enter the UBI, but the initial condition must be that large companies that generate up to one-third of the country's wealth, according to data from the Tax Administration Service (SAT), pay their taxes in full, because that is how Uruguay and Brazil have managed to implement it, since their collection since 2014 was at the level of OECD countries, with percentages of GDP of 27% and 33%, respectively, and in Mexico, in its best year, has been just 14% according to the Economic Commission for Latin America (ECLAC, 2016).

With the above, the federal government could achieve from one year to the next an increase in revenue of at least five points of GDP and continue on a path of growth without new tax burdens and, above all, that this increase comes only from the wealthiest companies in the country, which generate the highest profits, since these firms, even in the midst of the Covid-19 pandemic, are showing positive profits and profit margins, while the SAT has indicated that between 2019 and 2020 they were not fully covering their effective tax burden in direct taxes.

The possibility of implementing UBI is on the table of the legislators since 2017 and it is sought to resume in 2020; however, if the problem of low tax collection is not solved first as an initial condition, its application would be impossible in the short term.

"It is not required to increase taxes, but to comply with the current Income Tax Law (ISR) by eliminating the so-called fiscal holes, which allow deducting, but in an exaggerated way, the payment of taxes. This estimate of unpaid taxes amounts to about one trillion pesos annually. With these resources, we would be in a position to start applying the IBU without any major inconvenience, so that in the near future it would become the UBI and UCI".

In this way, the social economy will be able to count on the vital minimum from below as a right that can be accessed in case it is needed and to offer support without distinction of social and economic condition, which is how it is already applied in countries that currently have a better quality of life and well-being in their inhabitants, allowing them to better face the problem of having lost their jobs or their income due to the Covid-19.

Written by CIAD Press Office and Collaborators