Jussi Tervola - Examining alternatives to Finnish social security system

  • Presenting author: Jussi Tervola (Finnish Institute for Health and Welfare)

  • Authors: Jussi Tervola

  • Session: B02B - Public Choice [1] - Tuesday 11:00-12:30 - Marietta-Blau Hall

  • Slides: PDF

In 2020 Finnish government introduced a committee to reform Finnish social security system under two government terms until 2027. The committee commissioned a working group to assess whether alternative ways of organizing social security —basic income, social account or a combined basic security benefit— could solve observed problems the Finnish social security system that was deemed complex. The working group created example models for the three alternatives and assessed the impacts of these models on income inequality, at-risk-of-poverty rates, work incentives and average incomes of different population groups. The effects were analyzed by using static tax-benefit microsimulation, and for the social account, the simulation of synthetic life cycles. The studied basic income model would provide an unconditional sum to all people aged 18–64 who are not on pension. It would be made statically budget-neutral by abolishing existing benefit schemes as well as increasing income taxation. The social account model would shift the funding of social security more to individual’s responsibility during one’s life cycle. Contributions would be automatically paid from one’s salary to a personal account. Received benefits would reduce the account balance. The model examined by the working group covered unemployment security and financial aid for students, but in other respects, the current system would remain unchanged. The account surplus would be available for personal use when the account holder retires. The working group also examined the model for one combined basic security benefit, aimed to harmonize and simplify varying rules of multiple social insurance benefits. In the model the basic component of basic security benefit would combine the unemployment, sickness and parental benefits as well as the study grant. People would receive a supplementary participation income on top of the basic component when they meet the participation criterion. In the presentation, I will show the simulation results of the models and discuss the conclusions of the working group. I will also highlight the impact that the results had on the future work of the committee and on the program of the new government starting from 2023.