Lluís Torrens: "With political will and a fiscal reform, it is possible to establish universal basic income"

Is it feasible to implement a universal basic income (UBI) in Catalonia? And on a global scale? How should it be financed? What effects would it have on wages? Would it create a pull effect? Lluís Torrens, economist, current Secretary of Social Affairs and Families of the Generalitat, and one of the leading experts on how to finance a UBI, has answers to all these questions.

We spoke with him, who is also a member of the Revo Sustainable Prosperity association and the Red Renta Básica, among others, and advocates that establishing this universal allowance would have very positive effects.

Are we in a position to implement a universal basic income (UBI) immediately?

With some colleagues, we have written books on this issue and believe that with political will and a fiscal reform, it is possible to establish a UBI. Basically, this reform should touch the income tax, establish a proper wealth tax, and likely some other type of environmental tax. With a combination of these taxes, the UBI could be perfectly financed.

What would be the cost of this UBI?

If we talk about net cost, our calculations suggest it would amount to between three and four points of the gross domestic product (GDP). This money, as I said, could be obtained from a combination of various taxes.

What other measures should complement the implementation of the basic income?

The most important would be to move to a model where everyone files an income tax return. Currently, for example, people receiving the minimum vital income (IMV) are already required to do so. This should be generalized to the entire population.

Would it be very difficult to carry out?

We are not talking about an impossibility, since most income tax returns can already be done with the draft provided by the Tax Agency. Today, about 10 million people are exempt from filing a return due to their low level of income, so it would be a matter of collecting this information, which the Treasury already has, and transferring it to the income tax return.

One of the criticisms of the UBI is that it would create a pull effect.

This could be avoided with a second important measure: deciding on a moratorium that establishes how many years one must have lived or been a resident in the country to be entitled to the basic income. The idea would be to set a minimum limit, for example, three years, to be able to access the allowance and start receiving it.

What other measures could be applied to help establish the UBI?

One could be what is already applied in the United States, where to maintain residency or even American nationality, one is required to pay taxes even if the person has moved abroad. This way, fiscal flight is avoided.

The key to all this is taxes.

The most important thing is to design a wealth tax very well that truly captures people's wealth. If not, complaints will always arise that only the middle classes end up paying and the risks escape. Models must be designed to prevent this from happening. In fact, much has been written about this by very important economists like Thomas Piketty, Gabriel Zucman, or Emmanuel Saez, who have proposed solutions to avoid these tax leaks or tax evasions.

Why would the UBI be more effective in ending poverty than other measures like the IMV?

Basically, because it is universal. The IMV, like most conditional benefits, is designed to avoid false positives, meaning people who receive the allowance without being entitled to it. To avoid this, control systems are so powerful that they end up generating hundreds of thousands of false positives, that is, people who have the right to receive the IMV but do not do so for various reasons.

Is it a problem of the design of the allowance?

To avoid false positives, very complicated and difficult-to-understand systems are created, or people do not apply for it for fear that they will later be asked to repay undue income. Now, for example, a report by the Independent Authority for Fiscal Responsibility (AIReF) reveals that about 25% of people who have received the IMV are asked to return the money. This scares people a lot and has created a big problem.

Besides, it is not easy to process.

That's right, it requires everything to be done through very complex telematic procedures that do not make things easier. The result is that only 350,000 families receive the allowance, when the target set four years ago was 850,000. And this figure is only a quarter of the poor families in the country. Therefore, we are talking about very low coverage levels. This can only be solved with a universal system. In fact, in general, all non-universal aids end up having these problems.

Another debate around the UBI is why rich people should receive it.

In this case, the answer is simple. Rich people end up paying more because the financing of the aid is done through taxes. It's like public healthcare or education, that is, why can a rich person go to the public hospital and be treated for free; or why can they send their children to a public school? Because they have already paid their taxes to do so. In the end, it's about clearly separating the source of funding and ensuring it is fair. Simply put: those who have more, pay more.

Some voices also point out that it would negatively affect wages.

This is an old discussion. In Italy, for example, there were unions against setting a minimum wage because they argued that all companies would limit themselves to paying the minimum wage. It has been proven that this is not the case. On the contrary, what it does is raise other wages.

Would the same happen with the UBI?

The UBI would raise the reservation wage of workers, who would no longer be willing to work for any wage thanks to the additional income from the basic income. Additionally, another positive point of the UBI, unlike conditional benefits, is that it allows it to be compatible with work. Therefore, it eliminates the poverty trap, meaning that people are not compensated for working because they lose the allowance.

It is quite the opposite of what its detractors argue.

Indeed, in a situation of universal basic income, wages would rise. Besides, there is no scientific evidence that a universal basic income has lowered wages. On the contrary, it is a very powerful incentive, and an additional tool for unions to improve wage conditions. This is something that, by the way, we find very difficult to explain and make unions understand.

If we broaden the focus, is it feasible to implement a UBI on a global scale?

The central issue is who transfers the money to finance this UBI. At the level of Catalonia or Spain, it is the wealthier population who would transfer this money to finance the basic income. On a global scale, it would basically be the same, that is, the rich countries would have to finance the basic income of the poor countries. I did some calculations based on data from the United Nations and concluded that with a transfer of 3% of the GDP from rich countries to poor countries, it would be possible to finance a UBI.

And in terms of Europe?

Precisely, with Jordi Arcarons and Daniel Raventós, we did a report for the Irla Foundation and the Coppieters Foundation on how to finance a basic income in Europe. But I want to focus on the Europe-Africa relationship, where we now have major discussions on issues such as immigration. The numbers indicate that with a transfer of 1% of Europe's GDP to Africa, it would be possible to finance a UBI for the African population.

The benefits would be extraordinary.

Just consider that the primary problem of Africa is that its population growth is above the growth of its GDP. This means that, in terms of per capita income, it is getting poorer. With a UBI, it would be possible to reduce the birth rate and align it with European and more advanced country values.

It's a figure similar to the famous 0.7%.

Exactly, the difference is that it is not being paid in the form of basic income, but through aid programs that can be for anything, including buying weapons. If we reconsidered how these funds are paid, or even remittances from immigrants, we would reach that 1% and could finance a UBI at a minimal cost. I think it would be very positive and would help avoid problems we have now, such as the issue of refugees or uncontrolled immigration in the sense that we are not capable of implementing proper reception policies.