The Dutch Dilemma: doing the math
The splendid welfare net provided in the Netherlands is the envy of many a country around the world, even many in Europe. Besides normal unemployment insurance, there’s a basic welfare system with benefits equal to 70 percent of the minimum wage and special income-maintenance schemes for the disabled and for those with health problems that make them permanently unemployable. There are rent subsidies and a subsidized healthcare system for those below specific income levels. On top of all this, there is child-maintenance scheme that pays families with children up to a certain age a monthly cash supplement. This not only sounds good, it is. The Netherlands currently ranks fifth on the United Nation’s Human Development Index, ahead of Belgium 6), Iceland (7) and the United States (8). Compared to many countries, relative poverty has been virtually eradicated in Holland.
Unfortunately, all that proverbial welfare glitter is not necessarily gold. According to a report in a recent issue of the Dutch monthly, Elsevier, government agencies are increasingly discovering huge amounts of fraud within the system at every level. If the reports are accurate, the sums involved could run into hundreds of millions of Euro a year. Some government officials are estimating that lack of controls on the actual fraud being committed at all levels could double the current estimates (to say nothing of accumulated past amounts). For a small country like Holland (1024 sq. kilometers, 16 million residents and a GDP of 480 billion dollars), these are formidable losses that put additional pressures on the tax structure. Besides run-of-the-mill tax fraud, illicit activities apparently range from such things as registering for welfare benefits under different names in different Dutch cities, getting rent subsidies and then renting out the low-rent houses to students and illegal aliens for huge amounts each month – to fraudulent claims filed for social security and survivors’ pensions, reporting false pregnancies in order to get child-maintenance benefits or simply lying about the number of children in the family (which is not that difficult, since Dutch child-maintenance benefits are also paid to immigrant families whose (real or imaginary) children live in the parents’ country of origin, checking which often entails serious impediments such as language and bureaucracy or simply lack of cooperation on the part of some foreign governments. This is the Dutch dilemma. It looks very much like the system is in a melt down.
There is also a “catch 22” in trying to fix the system. Once such the welfare boat reaches the proportions it has in the Netherlands and starts to sink, it becomes extremely expensive to repair – and sometimes even find -- the leaks. Tracking down and holding those accountable for fraud sometimes costs more than the amounts involved in the first place. There is little accountability among government agencies, since the various unemployment and welfare schemes are separately managed. Once a data error gets into the system, intentionally or otherwise, mistakes get compounded and illegal welfare payments could go on for a lifetime, if not discovered.
The question arises as to whether wisdom dictates a return to the pre-Second-World-War callousness of “every man for himself” – the winner-society concept prevalent in the USA, for example – or whether there is a more creative solution to helping those who, for whatever reason, are not in a position to earn decent incomes (temporarily or permanently).
As if on cue, a Dutch economics professor, Arjan van Witteloostuijn, is offering just such a creative solution: give everyone in the Netherlands a “basic income” and do away with all other welfare benefits – and most benefit fraud – altogether.
As radical as such an idea may seem, it is not that strikingly different from the negative income tax idea that conservative economist, Milton Friedman, proposed in 1962 (as a refinement of an earlier proposal by Juliet Rhys-Williams). Besides doing away with welfare fraud and the huge public cost of administering various benefit programs, for many families without any capital base or savings, it could serve as an incentive to seek paid work or to start small businesses to supplement their incomes.
Perhaps this idea will catch on in the Netherlands, a country that has pioneered many social innovations, including decriminalizing drugs and legalizing prostitution. The Dutch are innovative, always open to new ideas. Now somebody has to do the math.
Unfortunately, all that proverbial welfare glitter is not necessarily gold. According to a report in a recent issue of the Dutch monthly, Elsevier, government agencies are increasingly discovering huge amounts of fraud within the system at every level. If the reports are accurate, the sums involved could run into hundreds of millions of Euro a year. Some government officials are estimating that lack of controls on the actual fraud being committed at all levels could double the current estimates (to say nothing of accumulated past amounts). For a small country like Holland (1024 sq. kilometers, 16 million residents and a GDP of 480 billion dollars), these are formidable losses that put additional pressures on the tax structure. Besides run-of-the-mill tax fraud, illicit activities apparently range from such things as registering for welfare benefits under different names in different Dutch cities, getting rent subsidies and then renting out the low-rent houses to students and illegal aliens for huge amounts each month – to fraudulent claims filed for social security and survivors’ pensions, reporting false pregnancies in order to get child-maintenance benefits or simply lying about the number of children in the family (which is not that difficult, since Dutch child-maintenance benefits are also paid to immigrant families whose (real or imaginary) children live in the parents’ country of origin, checking which often entails serious impediments such as language and bureaucracy or simply lack of cooperation on the part of some foreign governments. This is the Dutch dilemma. It looks very much like the system is in a melt down.
There is also a “catch 22” in trying to fix the system. Once such the welfare boat reaches the proportions it has in the Netherlands and starts to sink, it becomes extremely expensive to repair – and sometimes even find -- the leaks. Tracking down and holding those accountable for fraud sometimes costs more than the amounts involved in the first place. There is little accountability among government agencies, since the various unemployment and welfare schemes are separately managed. Once a data error gets into the system, intentionally or otherwise, mistakes get compounded and illegal welfare payments could go on for a lifetime, if not discovered.
The question arises as to whether wisdom dictates a return to the pre-Second-World-War callousness of “every man for himself” – the winner-society concept prevalent in the USA, for example – or whether there is a more creative solution to helping those who, for whatever reason, are not in a position to earn decent incomes (temporarily or permanently).
As if on cue, a Dutch economics professor, Arjan van Witteloostuijn, is offering just such a creative solution: give everyone in the Netherlands a “basic income” and do away with all other welfare benefits – and most benefit fraud – altogether.
As radical as such an idea may seem, it is not that strikingly different from the negative income tax idea that conservative economist, Milton Friedman, proposed in 1962 (as a refinement of an earlier proposal by Juliet Rhys-Williams). Besides doing away with welfare fraud and the huge public cost of administering various benefit programs, for many families without any capital base or savings, it could serve as an incentive to seek paid work or to start small businesses to supplement their incomes.
Perhaps this idea will catch on in the Netherlands, a country that has pioneered many social innovations, including decriminalizing drugs and legalizing prostitution. The Dutch are innovative, always open to new ideas. Now somebody has to do the math.
posted by J. DeVincent at 4:26 AM
3 Comments:
From an economic perspective we already know what the results will be: the minimum guaranteed income will never be enough and you will insitutionalize a welfare class forever clamoring for more, unless you live in Qatar! Problem solution results in only one thing, another problem! I hope you realize the limits in your search for utopia. Croak...anyway there is always Lichtenstein or Monaco.
Matrix, you know we have a variant of the negative income tax in the U.S. It is the earned income credit (EIC). If a family's income is below a certain level, it is raised by a refundable tax credit. The term "refundable" means the taxpayer does not need to have any tax liability to receive the refund. The difference between the EIC and negative income tax is one must be working, so the perverse incentive of straight welfare is avoided.
To anonymous I would say, if everyone receives a minimum income, including those who don't need it, I'm not sure why this would promote any kind of institutionalized welfare. Such a system would not be a welfare system at all, in any contemporary sense of the word. Rather, it would be a kind of negative income tax which could serve as an incentive to seek work. The current Dutch welfare system, except for unemployment insurance, does not permit recipients to work.
To RealC I would say that, while the EIC seems like a good idea, it does not replace welfare and therefore does not solve the problem of those who for whatever reason cannot work or cannot find work. Barbara Ehrenreich's Nickled and Dimed to Death demonstrated that there are many working people in the US whose incomes are above the EIC limit but who, nevertheless, can barely survive on what they earn at fll-time jobs (due to high rents and other costs).
To SR I would say, don't cry for the Netherlands just yet. Our problem is the current rightwing cabinet and lack of political imagination. Current chickencoop policy is designed to shift protection from the chickens to the foxes. While that may sound like music to YOUR ears, SR, I can assure you that most Dutch people are still more sympathetic to the chickens!
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