Let's start with the case of a medium sized European country with a sizable public sector, devoted mainly to a moderately progressive welfare state, which started the 2008 recession as a model of fiscal prudence (deficits well below the 2% of GDP prescribed by the UE), but which saw its credit go fast to hell mainly because of its geographic position (it was in the wrong half of Europe, the South) and had to do a drastic fiscal consolidation (substantially reduce public expenditures in the middle of a recession, which pretty much aggravated it and sent the unemployment rate above 25% of the working age population, and to a whooping 50% of the youth) and even with it, saw its debt interest payments soar. This is how such country (Spain) has allocated its expenses budget for 2015:
| Current ordinary expenses (M€) | 344.200 | ||
| Justice, defense, security, prisons & foreign affairs | 16.500 | ||
| Pensions, unemployment benefits, SS mgmt | 180.500 | ||
| Health care, education & culture | 6.800 | ||
| Economic interventions | |||
| Agriculture, fishing, commerce, tourism, transportation | 17.900 | ||
| Infrastructures, I+D+i | 12.500 | ||
| "General character" interventions | |||
| Transfer to other public administration | 47.000 | ||
| "General character" svcs | 28.000 | ||
| Public debt | 35.000 | ||
| Total expenses (M€) (prev + financial liabilities) | 440.000 | ||
This country has a population of roughly 46 million people, of which 7,2 million are under 14 years old. Lets assume the UBI would consist in a yearly payment of 4.000 € for each citizen below 14 years of age, and 8.000 € for each one above that age, with no strings attached (may be in the case of those under 18 there are some minimal supervision required indeed, to ensure irresponsible parents do not spend it on themselves whilst leaving the kids starve, but the principle here is that parents or legal tutors can dispose of that income as discretionally as possible). That means the state would be distributing roughly 340.000 M€/year equitatively between all its citizens, not leaving much else for the rest of its endeavors. Assuming it leaves the expenditures for health care, most of I+D+i and all of the security apparatus in place, this is how the budget would look like:
| Current ordinary expenses (M€) | 389.983 | ||
| Justice, defense, security, prisons & foreign affairs | 16.500 | ||
| Health care, education & culture | 4.533 | ||
| Economic interventions | |||
| Agriculture, fishing, commerce, tourism, transportation | 0 | ||
| Infrastructures, I+D+i | 6.250 | ||
| "General character" interventions | |||
| Transfer to other public administration | 23.500 | ||
| "General character" svcs | |||
| Public debt | |||
| Total UBI cost (M€/year) | 339.200 | ||
| Total expenses (M€) (prev + financial liabilities) | 485.783 | ||
So essentially the whole 180.000 M€ for pensions, unemployment and and social security management disappear (are replaced by the UBI), as well as the economic interventions that in practice represent transfers to special interest groups. So no more subsidies for agriculture (payments not to cultivate terrains in order to "keep traditional ways of life", which are ethically unacceptable and economically dubious), or to prop up unprofitable industries, or to distort the electric bill so big utilities keep on having stratospheric benefits... Some other chapters are more or less openly shorn under the idea of giving people more choice on how they spend the money, without the government telling them what's best (so for example I would expect subsidies to culture to diminish, as people would directly have the money to decide how they want to spend their leisure time, and to some extent that may also happen with higher education -not with basic and pre-K one). Transfers to other administrations are halved to support at curernt levels the competencies they have now regardng health care and education, but to eliminate their discretionary investments in (spectacularly bad) infrastructure and local power groups.
It may be noticed that there is no need to reduce the security apparatus (although it may be argued that in a more equal society where everybody has enough to live decently crime should be substantially reduced, and specially the need for costly prisons abated), or foreign aid (a moral imperative), and that specially health care, basic education and I+D-i could keep on being paid for by the state at current levels, as most evidence available nowadays seems to show that the market makes an abysmal job trying to provide them.
It may also be noted that this schema is 40.000 million euros more expensive that the current one, with no UBI, so there is still a legitimate question of where those extra 40.000 million may come from. Lets take a quick look at what the Spanish state expects to receive in that same year 2015 (as estimated in the same state budget where the expenses have been taken from):
| Income | 291.700 | ||
| Direct taxes and SS payments (*) | |||
| Personal Income taxes | 73.000 | ||
| Company taxes | 24.000 | ||
| VAT | 60.000 | ||
| Special | 20.000 | ||
| Other | 20.000 | ||
| Financial assets | 19.000 | ||
| Indirect taxes | 44.000 | ||
| Excises | 7.000 | ||
| Other (transfers & income from assets) | 24.700 | ||
| (*) after deducting 40.700 M€ of exemptions | |||
To put things in perspective, Spain's GDP is projected to be in 2015 around 1,1 trillion € (that's an American trillion, or 1.100.000 million €), so those 40.000 M€ of additional expenses would mean and addition of "just" four percentage points to the fiscal deficit currently projected (it is a little legerdemain that the deficit is typically expressed as the amount in which the expenses exceed the receipts as a percentage of the GDP, so we can talk of a few percentage points... if it were expressed as a percentage of the total amount received all countries would have deficits around 50% year after year).
However, even that four percent could be easily offset by a increase in the VAT (that would be an almost 66% overall increase if all the shortfall were to be recovered this way), by the increase in "other taxes" (like inheritance, which I can not avoid thinking it is an unearned wealth) or, my preferred option, by substantially increasing taxes on companies (as they would be the great beneficiaries of putting an additional 160.000 M€ in the hands of the public, most of them going to people with a very high marginal propensity to consume, which would substantially increase the demand for their products and services).
So all things considered, an UBI could be instituted in order to be fiscally neutral with a minor tweak in the tax code, but it would mean a seismic change in the way the state distributes its largess. The more I think about it, the more convinced I am it would be a change for the better, taking discretionary power away from big corporations and special interest groups and devolving it to consumers and, specially, citizens.
it could be argued that such a schema could work in a little economy like Spain's, but not in a big one. In a next post I will do a similar exercise for the biggest economy for which we have reliable data, to analyze how things look like in a very different scenario, where there is not so much welfare state, so it may be assumed that there is not so much to distribute (hint: things do not look that much different)
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