Overview to Social Security Reform Proposal of The Union of Centre Students (2008)
Poverty, therefore, is a thing created by that which is called civilized life. It exists not in the natural state. Thomas Paine, 1795, Agrarian Justice.
Introductory: The Union of Centre Students' Social Security Committee
The Union of Centre Students' Social Security Committee was lead by Chairman Mr. Tuomas Vanhanen whom is political science student and board member in National Union of University Students in Finland. His responsible area is community issues. Political science student Mr. Tuomo Järvelä worked as an vice-chairman, whom is former Student Union' chairman and University Council member in 2005-2007 at International University Audentes, Tallinn, Estonia. Currently he is communication manager in Helsinki Centre Youth, board member in Finnish Refugee Council and Vice-Member in Centre Party's Council.
Lead the country to the West
The Centre Party in Finland won the parliament elections in 2007 by 51 seats on the parliament resulting the new right-leaning liberal government coalition. The coalition government was established by the Centre Party, the Swedish People's Party, election runner-up the Conservatives and the Greens. The first two are member organizations of Liberal International while The Greens and The Conservatives are mainly social liberal. The result of elections started the framework for to lead to the social security reform. For this the government set an cross-political committee "SATA" (eng. hundred) that included experts from labor unions, the representatives of governmental parties and researchers. The first results of the committee should be introduced to the parliament on autumn 2008 and the final work should finished until 2017 when Finland will celebrate its 100 years of independence. The Union of Centre Students has now also given its own contribution by writing an reform proposal, 50-page book Alkiolaista perusturvaa etsimässä, 2008 for the use of the SATA-committee and the Centre Party in such. Therefore, I would like to introduce you on the following the key elements of the proposal and take a quick look ofthe history of reforms.
The last right-leaning liberal government, combination of the Centre Party, the Conservatives and the Swedish People's Party stayed in power during the years 1991-1995 lead by the Centre Party's newly (1990) elected party leader Mr. Esko Aho. Soviet Union had just collapsed and young party leader had a great mission to complete: lead the country to the west. That was the period when most of the latest reforms had been initiated. However, the situation was merely different to the present: economics were in open drop due to the end of the Soviet trade and to the mistakes in opening the financial markets during 1987-1991 when the Socialists and the Conservatives were governing. Therefore, the government had reforms to complete: during the 1991-1995 markets were opened rapidly, the public sector was cut and the income tax and capital tax were separated to two. The capital tax was to be set for an flat rate (28%) and income tax keeping progressive variating still 2008 from 0 to 51 at capital area without an church tax included for single house economics. An brand new student income system was established to active youth to educate their selves in 1992. (The present student money is 259,01 euros added with housing benefit of 80% of the rent until 252 euros. There is also an loan possibility of 160-440 euros dependent on where one studies). Finally, to strengthen her economics, Finland joined the European Union in 1995 among Sweden and Austria. The country had taken a new direction: towards Europe and to open market economy.
However, black clouds were to come. Centre Party lost the elections in 1995 massively to the Socialists. Continuing mass unemployment, great changes in economics and the cuts to the public sector were wise but seemingly unpopular politics. The party in charge paid high price for the sake. Socialists returned back to power by massive election victory forming government with the Conservatives and pushing The Centre Party to eight (8) long years to opposition that ended to coalition government with the Socialists and the Swedish People's Party on 2003. When the election results were clear in 2007 and the right-leaning parties had taken massive win over the Socialists the path to right-leaning liberal government was open. The successful cooperation at the Second round of the presidential elections in 2006 had smoothen the air of the problematic relations between the Conservatives and the Centre Party. There was an momentum for reforms. The newly elected government set an historical political program that included tax deductions, liberal immigration policy and the most important: the reform program for the social security.
The New Era
Leftist organizations, the Attac among the others, have called the past twenty years liberalistic development with the term neoliberalistic. This can be interpreted as an critics that the economics have been liberalized due to the effects of the globalization and to strengthen the growth. One can claim that country with 44% general tax rate in 2008, two decades after the collapse of the Soviet Union, is not exactly following Milton Friedman's, Ludwig Von Mises or any of the Austrian Schools of Economics advices that might be called libertarian. Taking a quick look on the existing monopolies, amount of small business regulation, housing subsidies programs, an enormous welfare factor and all the way to the low number of entrepreneurs: one can say even that Adam Smith's classic Wealth of the Nations, 1776 or the great Finnish economics Anders Chydenius similar theory of invisible hand in Den Nationalle Winsten, 1765 has not been the most popular night reading for most of the politicians. However, one might find an answer to the critics by reviewing the form of social security system and taxation. It has not been flexed for the 21st century form. That makes the individuals for to pay the highest price for it. The social security system mainly is still in an form as it has been mainly from the 1970s beside the great reforms in 1991-1995. It is in form as the workforce would be working generally 37,5 hours work weekly based on permanent contracts. Of course, this is not the case.
The social security system in its present form is highly old-fashioned as it tends in old European societies: high amount of bureaucracy exists in all root levels; starting an business, taking a part-time work or combining studying and working. In many occasions for an individual it is more profitable to stay passive at home rather than try something out: even to educate their selves. The system wishes an individual to be an student or an house wife. Entrepreneur, artist or an unemployed. Please, nothing in between these – if not wishing to have massive hassle with bureaucracy. These are clearly an roles to be fitted: not flexing by the individuals' needs, wishes or life changes. The effective tax rate that simulates the profitability to take work can reach up to 80-90% individually for people that receive benefits. In the same time the labor market has changed: part-time work, rent work and occasional work are more of an rule than exception for the age groups of 25-40. One could claim that the system has the bad sides of both economical trends: liberalism and socialism. These were the reasons for the reform in all and especially, why we started working with our prososal: taking the iniative. The solutions for the present is to bring a solution that is quickly responding, transparent and flexible for an individual. The question consists: what would be the Generation Freedom's, those of us that born in early 1980s to mid 1980s view of how this reform should be taken through?
For the reform proposal we set three main principles to start with. Firstly, it had to be flexible. Secondly, it had to be transparent. Thirdly, it should improve the lives of the poorest. The group started with examining the citizen income model that has been debated for more than twenty years in Finland but never reaching any real political solution. Some baby steps, however, had been taken towards it. During the last elections citizen income model was once again brought to the table by the Greens who proposed a 440 euro tax free lump sum to all citizens with 39% flat tax rate and 49% for those earning more than 60,000 euros brutto per year. The most problematic side of the proposal was too high marginal tax rate that it developed.
Beside the citizen income model we went through different kind of negative income tax models that are very close to the above mentioned.The main problem with both of the models was to realize that it developed an high marginal tax rates when using progressive taxation. Then again, flat tax rate for income taxation was felt to be politically problematic. It does have support generally with the public but not with the majority of the people for some reason. Separation between community tax and state tax that establish the income tax system in general was also an challenge. How to maintain communities to have the right to tax and in same time to flex it with the quick-changing economical challenges and not hurting the positive dynamics? Although there was very clear indications for the dynamic benefits, it took an lot of debate to get clear picture of it.
After evaluating the models and debating about the indications we came up with an variation of the negative income tax. We call it prepaid negative income tax model. It consists two pillars. The first one is meant to cover all the present minimum payments ; unemployment money, student money, cover for sickness and so on. These were to be kept in similar level as the income minimum benefit is. That is the basic lump sum that will be given if person will have no other incomes for at all. The second pilar is to cover the living for those whom can not earn their income from labor markets: minimum pensions, benefits for people with disabilities or permanently sick for severe illness. This was set to an level where the minimum pension currently is.
The idea was to handled by the Folk Pension Administration that currently handles paying most of the benefits. The model included an back-billing with 15% higher rate if any misuse happens. The system reminded the present system of more than 100 benefits on handling but covering all with two quick and flex pillars and one application form to settle. It also includes an additional parts for housing, activating the employment but vanishing the hassle with the bureaucracy. This was moderated with an efficiency tax cutter to keep the effective tax marginal always down under 60%. These with similar sum to earlier, dynamic estimates and modifications to the tax deductions enabled the proposal to have flat tax rate to 33,5-36,5% and even lower if the income tax and capital tax levels would be united: reaching clearly under 30% in that case. This was calculate to be fairly fiscally feasible. The 3 percent gap in taxation was meant for the communities to choose if they prefer higher taxation for the short times. This would enable the flexibility but in the same time not hurting the dynamics generally.
The proposal was given to the Centre Party Chairman Mr. Matti Vanhanen on the 14th June 2008 at the Centre Party's General Assembly in Joensuu where more than 1700 party electorals were deciding the next two years Party program and electing the lead for the Party. It is not sure when this article is published how it has effected. The main issue for our reform proposal is to launch debate in the Centre Party how the system should be philosophically. The Generation Freedom's proposal was to make it more individual, more liberal and more flexible. For to serve the human being while not forgetting the frames of the realism. Philosophical side started with Immanuel Kant, going through Ayn Rand's and Soren Kirkegaard's philosophy ending to Jean-Paul Sartre. As I can say, the group contributed an great proposal. We left the sleeping to be the second choice for the nights when searching for the ideal model. If not making an direct impact is still to be remembered as Albert Einstein putted it once: it is just as important to make knowledge live and keep it alive as to solve.
--
Mr. Tuomo Järvelä