A commonplace of german politics

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Money for nothing?

6 May, 2010 (14:32) | finance | By: Aerar

(German version published on 28 February, 2010)

The social state made it its task to attend to its citizens at least with the minimum which is necessary for a humane live. And it is right doing so as by this he gains a part of its moral justification, creates trust among its people and improves its respect within the rest of the world. Above that it is vital for its existance as otherwise it would be held up by social problems or even brake on them.

Nevertheless the state and many of its citizens don’t want to give this support undeservingly, which sounds fair at a first look. And so there is a system of social welfare which claims a proof of indigence from all recipients. And so it generates a problem already with the basic concept which humiliates its customers with formalities and controls and the commitment of useless small jobs to a father degree than they already are because of their financial situation.

Another basic problem with this kind of support is that it provides only little perspectives and that it is more like administrating poverty than helping the persons concerned to escape from their situation. Because one necessarity for this support is being poor. This is a state which is easily archived but not desirable. Those who take efforts and within their possibilities get a useful but often low paid job have to learn that with any increasement of their income their social benefits are cut. In the end those have only little more in their pockets than those who really spent their days drinking beer in the parks or sitting at home in front of their TVs, as many believe is what those people do.
With so little incentive it could be understood if many take limited efforts to improve their situation. To many of the effected people could not realistically expect to earn more than live minimun with their work.

In the end the system of social welfare grants that none of the citizens is starving but those who are supported will dwell on a low social level and are reminded by many measures that they are living on the pockets of other people and therefore should not have a life which is too comfortable.
But do the welfare recipients really live on the pockets of the other people? The gross national product is counting the productivity of all citizens but the statistics of unemployment state that there is not enough work to let everyone participate in the production process. In a time where employed people prefer to work overtime rather than accept cuttings in their income it is a logical consequence that some end up standing aside. But is it fair to hinder a part of the people not only from getting a job but to be in addition so self-satisfied to allow them only a small fraction of the earned goods?

This is why the idea of an unconditional basic income has been developed. In this system the government would spread parts of the income of the state among all people in even parts as a free income which is enough to live at the social minimum. It is unconditional and will be payed to everyone. Top earners would gain the same amount as those who have nothing. Only this way it would not make social differences and would make control and bureaucracy superflous. Everyone would be free to decide what he will do based on this basic situation. As it is currently fact people still might decide to deny any further efforts and some who did not dare to claim those social supports before might now be encouraged to do so too.
But all those who have fallen into poverty without their fault, with this money they have a right to get, would gain new self-respect. All those with low wages which were hardly above the social minimum now would get a real additional benefit of their work. And those without a job would be motivated to join up as now each Euro they earned would mean a real increasement of their income. The debates about Hartz IV and minimum wages would be solved.

But how could such a giant project be financed? There are some different models already which also give estimations on the financing of an unconditional basic income. As a trade-off for the immense costs there at least will be the omission of the current social expenses including those for bureaucracy. As well there would be a direct increasement of the income taxes as the income of all people has increased by the amount of the additional income. The increased spending power also would raise the gain of the turnover tax and all in all it could be expected that productivity will be increased as well.

But there are other questions as well and need to be discussed. Employers e.g. might feel encouraged to cut working fees as their employeers gain extra money from the unconditional income, which would in parts reduce the effects of the extra income. But at least in the low jobs sector this might lead to a much better situation for German workers as they would be capable of competing with foreign workers even for lower fees.

So there are many questions and an interesting uniting idea which might have the capability to reduce social tensions to a far degree. This idea is worth beeing discussed unbiasedly without socialistic romantics or bourgeois reluctance of “donating money for doing nothing”.
The unconditional basic income only would be a useful measure if it could manage to increase the social coherence and would improve the economic power of the country.

A proper calculation surely would be a good project of its own. The following rough calculation at least could show the dimension of the expected costs:

Live minimum (grown up): 750 Euro / month
Live minimum (child): 300 Euro / month
Number of grown ups: 60 Mio.
Number of children: 20 Mio.

Fees to be payed (per year): 750 Euro / month * 12 months * 60 Mio + 300 Euro / month * 12 months * 20 Mio. = 612 Bil. Euro

As a trade-off of these costs there are direct savings. First about all current social welfare measures could be dropped. All people who already had income above the live minimum would need to pay income tax for their unconditional extra income. Estimating 10 % of the people getting social welfare today and an average tax rate of 35% would result in these savings:

social welfare today: 10% * 100% = 10 %
no social welfare today: 90% * 35% = 31,5 %

So 41,5% of the money payed would directly be saved at another place or lead to extra tax income. So the rest amount that needs to be financed is roughly about 350 Bil Euro a year. A very large amount still considering that the federal government budget stated expenses of just 283 Bil. Euro in 2008. But this calculation does not account saving by the reduction of bureaucracy and the benefits of the stimulation of the economy. Above that it could be thought of (and maybe it is even necessary to) fit the tax rates to the basically changed income structure that in the end a balanced federal budget is archieved.