What is Behind The Citizen’s Income?

Federica Stagni, Research Associate with ACLED at the University of Sussex, analyzes the reasons why the Five Star Movement proposal on the citizen’s income may be too ambitious.

After the last March 4 elections, the Five Star Movement has become the first Italian party. Among the reasons of its success, there is certainly one of their key proposals: the citizen’s income. At first, this measure was proposed by a minor leftist party, Sinistra Ecologia e Libertà (Sel), in 2013. The draft law submitted by this dissolved political force included a guaranteed minimum wage of 600 euros per month for those with no stable job, unemployed, or earning less than 8.000 euros per year.

Then, the Five Star Movement brought forward something similar during the last parliamentary term (while being in the Parliament as opposition party), subsequently developing a more structured proposal with clearer aims. Nevertheless, some of these objectives appear to be too ambitious and misleading, overestimating the real amount of financial resources which could actually be saved by those measures.

The proposal in detail

Looking at the proposal in detail, we can easily understand that the measure in question is more similar to an unemployment benefit then to an actual citizen’s income. Indeed, the real definition of basic income involves a regime where all people receive a regular sum of money from the government in so far as they are Italian. Therefore, the only fundamental requirement is being a citizen. In addition, there is no requirement as such to work or to actively look for a job and not even that of a completely independent retribution from any other source of income. Nevertheless, the Five Star proposal seems to develop into something different.

According to ISTAT (National Institute for Statistics), whoever earns less than 780 euros per month is considered to live below the poverty line. Therefore, the Five Star Movement idea would be to contribute with the necessary amount of money to allow those who have an income below this threshold to reach this figure. To provide an example, if in a family of three both the parents are unemployed, they would receive 780 euros each for a total of 1.560 euros. This is not so different from what many other European states have already introduced, but still far from the real citizen’s income. Probably, an appealing name was what this measure needed at the time, when many other unemployment benefits had already been proposed. However, according to the current Italian law, those who lost their job can even reach an unemployment benefit of 1.300 euros calculated on the basis of the previous income.

Same thing for its eligibility criteria, as to be registered at a job center entails starting to look for a job and attending some training courses or re-training to be ready to enter the labour market, looking for a job for at least two hours a day, and promptly communicating any variation of the income. Finally, the last requirement is to accept at least one of the three works that the employment center offers you. These are surely valid criteria, although some of them are not easily verifiable.

Financial cover

Turning to the financial cover needed, this kind of measures would cost the Italian government between 16 to 20 billion euros. There is clearly a funding problem. As the Movement itself recognized, huge cuts to some expenditure areas are indeed needed. First, they would like to increase the level of taxation on banks and insurance companies, and this would theoretically provide the government 2 billion. However, this is actually an extremely risky measure endangering smaller banks that are still recovering from the 2008 crisis. Then, there would be the limitation of tax deductions, aimed at saving 5,3 billion euros from wages exceeding 90.000 euros per year. This is an ambitious maneuver that Letta’s government had already failed to introduce, because of the many parliamentary resistances which might be again difficult to overcome.

Indeed, this series of measures would represent an increase in taxation only for the higher incomes, but that would anyway increase the fiscal pressure from 1 to 3 percent. Equally difficult to apply is the elimination of the ‘pension accumulation’ among non-salaried incomes and self-employed incomes. However, this would be against the current law and, indeed, would also be socially unfair, resulting in unsustainable cuts for certain groups. Why, if I work double during my whole life, always paying taxes on both my employments, should I receive just one pension? Moreover, this measure would mainly hit young workers, whose careers are characterized by discontinuity and constant change.

Subsequently, as regards cuts to the Central Bank, unfortunately there is nothing left to cut. During 2016, the Italian Central Bank distributed 2,5 billions dividends, whose 90 percent was destined to the government funds. Therefore, these cuts would create a gap of the same amount in the state budget. Even an increase in the aliquots for the activities of gas and oil research seems unfeasible in this respect. Actually, to obtain 1,5 billion euros from this measure, the possible 57 percent increase in taxation seems to be extremely high and could produce a drop in this kind of research. Then, the Five Stars pledged increase in taxes on gambling, but this move has been already made by the Gentiloni’s government.

Other symblic proposals

After these significant cuts representing the backbone of the financial cover for the citizen’s income, there are more symbolic proposals such as the cutbacks on the so-called ‘auto blu‘ (blue cars), together with those on public funding to parties and publishing business, and the always suggested elimination of the ‘golden pensions’. According to the Minister of Economy and Finance, Pier Carlo Padoan, these measures cannot save more than 750.000 euros (far below the 900.000 euros claimed by the Movement).

Generally speaking, some of these measures are overall ambitious but not impossible to implement. The main problem is that the calculations proposed by the Five Stars Movement tend to be exaggerate. Moreover, some of them would have relatively unfair results. For instance, the public funding to political parties was introduced to allow everybody to take part to political activities, otherwise only wealthy classes would be able to finance electoral campaigns and other crucial aspects for the survival of a party. The same is true for the publishing sector, as culture should never be taken for granted.

A blow to middle class

Surely, the attempt to reduce social inequalities is a honourable aim and implementing some of those measures could actually bring benefits to lower classes. However, the risk is that, in order to keep this ambitious promise, the new government would cut other public spending areas, disproportionately harming the middle class and with the direct effect of generating even more poverty. Cuts to healthcare, education and social benefits, are a frequent easy resort when governments look for swift money to secure funding. Nonetheless, this is often the wrong strategy. These kinds of measures do not harm those who are actually wealthy, but hit the already endangered middle class, condemning it to become lower class.