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Italy starts handing out Free Money: What could go wrong?

January 30, 2019

Five Star’s “citizens’ income” has noble aims, but it risks getting bogged down by its own complexity and the country’s famously inefficient bureaucracy …

 

Italy’s Five Star Movement founder, the comedian Beppe Grillo

Italy’s Five Star Movement has risen to global prominence more for the colorful oddness of its founder, the comedian Beppe Grillo, than for the seriousness of its populist policies.

But one of its proposals has attracted genuine interest from across the world: The idea of a “citizens’ income.” This concept (a less radical version of the “universal basic income” scheme tried out by Finland) could in theory appeal to both the left and the right; the former because it might reduce inequality, and the latter because it could simplify social security.

After a long gestation, Five Star is rolling out its plan in Italy. Unfortunately, the plan has little of the revolutionary spirit of Milton Friedman’s idea for a simple guaranteed basic income for all citizens, jobless or not, and is more like a classic welfare-to-work program. After a deep recession and weak recovery, there’s a strong case for helping Italy’s left-behind. The worrying thing is that this experiment becomes an administrative nightmare, making it harder to target those most in need.

Italy’s new citizens’ income is for households earning less than 9,360 euros ($10,612) a year. It’s made up of an income support scheme and a housing allowance, which can add up to 780 euros a month for a single person with no income. It is aimed at pensioners and people of working age. The latter must be willing to accept a suitable job, or else lose the benefit – hence its difference to more radical basic income schemes. Companies will get a discount on their social security contributions when they hire a citizens’ income recipient.

The country clearly needs to help its poor. About one-fifth of its citizens are at risk of poverty, according to the country’s statistics agency, and one in ten lives with serious deprivation. This is worse than in 2008, when the figures stood at 18.9 percent and 7.5 percent respectively. Previous center-left governments passed a different support scheme, but it was far smaller than Five Star’s program.

Yet the new plan risks targeting the wrong people. The two most vulnerable groups in Italy are foreigners and families with lots of children. A household with at least one foreign-born member is almost twice as likely to be at risk of poverty or social exclusion than one where everyone was born in Italy. Similarly, families with five or more members are at far greater risk than smaller households.

Only people resident in Italy for at least 10 years can receive the citizens’ income, though. And while the support for a household of one is very generous, the additional money paid out for each child is proportionately less than before. A family with five children will get essentially the same amount as one with three. This keeps down the cost of the Five Star plan, but it risks penalizing the most needy.

Administration is another serious obstacle. Italy’s job centers are famously inefficient, particularly those in the poorer south. The government wants to recruit thousands of new workers for them, but it will take years to get the new structure running properly. The citizens’ income is expected to kick off from the spring, when many new hires won’t have been recruited or trained properly.

Finally, there’s a real problem with compliance. The scheme is most generous for those who claim they earn nothing. This includes the poorest – but also tax avoiders. And since Italy has a real problem with revenue cheats, the state needs to toughen up its enforcement hugely to make sure they don’t prosper. The new checks appear burdensome, especially for money held in current accounts – where controls will clash with privacy. And there’s a danger of tens of thousands of work relationships slipping into the black economy, so workers can get the benefit while earning an undeclared wage.

Five Star certainly deserves credit for trying to address poverty in Italy in a way other parties haven’t done. But the urgent timetable and state of Italy’s bureaucracy risk making it a waste of funds. Not a great thing in a country that has to be extremely careful about how it spends taxpayers’ money.

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