UBI May Help Enhance Cash Transfers

Imagine what happens if government gives you Rs. 500 per month as a citizen of this country without any condition attached. You will love your caring and welfare-oriented government. The history of social welfare is very long and it has evolved in different forms; from charity to need-based to targeted to rights-based. Countries around the world have been trying to become more and more welfare-oriented by introducing various social welfare programmes. They are going beyond the conventional targeting approach as episodes of vulnerabilities and crises have increased pulling even the non-poor below the poverty line. During crises, non-poor have also become poor, and targeting is always administratively costly.

Financial grant

The latest concept of social security is Universal Basic Income (UBI). It is all about extending social protection through cash transfers to all. UBI is a socio-political and financial transfer policy proposal in which all citizens regularly receive a legally stipulated and equally set financial grant paid by the government without a means test or requirement to work. Both the rich and poor are entitled to. It provides minimum income guarantee to all whether they work or not, and pay tax or not. It is a capital grant or free money. Some consider this as a state bonus. Green parties in Europe call UBI as citizen’s wage. 

It has been argued that people can always work and earn more to add to their UBI. For many, it helps to avoid poverty trap and encourages people to look for long-term employment. It provides a solid base for better life planning. It directly connects the people with the government; a true social contract is realised. This will leave no one behind. UBI has been an innovation in the world of social security. It is an approach to build an inclusive society and economy. It has been argued that “if governments can afford and offer so many socio-economic and physical infrastructure facilities, such as schools, hospitals and roads, to the people why not some cash transfers to all citizens on a monthly or annual basis?” 

In the last 30 years, both developed and developing countries have introduced various social welfare schemes, especially cash transfers, to some of their targeted populations. Nepal also introduced old age allowance some 27 years ago. Such transfers can be considered as the beginning of basic income support or UBL. Many developed and few developing countries have distributed cash to all their citizens as a measure to overcome the worst effect of COVID-19. In Australia, even the Nepali students got cash transfers.

UBI is getting its roots around the world. Rich countries such as Finland and The Netherlands are trying to implement this idea despite serious opposition from some quarters. Some states in the US, Iran, India and Brazil are also piloting and achieving good results. These countries are also trying to ensure efficiency, by reducing the costs of administering, of their already loaded welfare provisions through a single UBI. Its proponents there also claim that a basic income scheme is one of the simplest benefits models, and will reduce all the bureaucracy surrounding the welfare state, making it less complex and much cheaper to administer. This is because of the simple procedure inherent in this approach. No conditionality, means test and targeting lowers operational cost and all citizen get some cash amount under UBI. Research has shown that in India to provide one rupee as social support to the people, government spends three rupees as operational costs.

Nepal currently provides different cash transfers to about 34 lakh people. Old age allowance is categorial and provided to people above 68 years of age. In the last fiscal year, Rs. 46.42 Arab was spent for these allowances. Social protection coverage was 17 percent of the population three years ago. Prime Minister Employment Program, insurance coverage, and cash transfers to Covid-affected households have increased the number of social protection beneficiaries in the last three years. Old age eligibility is also reduced to 68 years. These all have extended the cash transfer coverage (estimated to reach to 30 per cent of the population).  15th plan’s target is to reach to 60 per cent.

Fiscal sustainability

Cost of social protection in Nepal is about 4 per cent of GDP and 13 per cent of annual budget despite the fact that that amount of various cash transfers are not adequate to ensure minimum cost of living for the recipients. Budget for social protection schemes is increasing every year. This may lead to higher taxes. Therefore, fiscal sustainability of social protection in Nepal is very challenging while increasing shocks, risks and vulnerabilities demand for more cash transfers-based social protection coverage. 

In this context, the idea of UBI is good for Nepal. For the sustainability of this scheme innovative financing must be in place. UBI can consolidate all other cash transfers and reduce the existing bureaucracy and ensure easy state bonus to all citizens above 18 years of age even if the amount of UBI is Rs. 500 per month. This will tighten the state-people relations and boost people’s trust in government. This is not an impossible idea, but it may take some time. Indeed, good ideas take time to flourish.

(Dr. Bhusal is an expert in poverty, employment and social protection.)