Its Economy Battered by COVID-19, Spain Tries a Guaranteed Minimum Income

by | Jul 6, 2020 | Covid-19, General | 0 comments

Alana Moceri Wednesday, July 1, 2020

MADRID—Tens of thousands of households in Spain began receiving checks last Friday under a new guaranteed minimum income program that was passed by parliament in early June. Plans to provide a guaranteed income had been part of the coalition agreement reached in January between the ruling Socialists and their junior coalition partner, the far-left Podemos party, but they were fast-tracked due to the economic impact of the coronavirus pandemic.

Spain is one of the hardest-hit countries from COVID-19, with nearly 300,000 confirmed infections and more than 28,000 deaths. Its GDP is expected to contract by more than 9 percent this year, with unemployment slated to rise from 14.4 percent to 19 percent. Long lines are forming at food banks across the country, as charities struggle to meet the spike in demand for their services. All of this has raised the stakes for Spain’s new policy, which, if implemented effectively, could provide a necessary layer of protection for the most disadvantaged Spaniards.

While some foreign journalists have confused the new policy with a kind of universal basic income, popularized in the United States by the entrepreneur and former Democratic presidential candidate Andrew Yang, Spain’s program is neither basic nor universal. Its scope is limited to the most economically vulnerable citizens. Eligibility is determined by reviewing a household’s total assets and previous year’s tax return, and recipient families are divided into 14 different types; adults living alone qualify for the lowest monthly rate of 462 euros ($519), while larger families can qualify for up to 1,015 euros ($1,140).

And rather than paying out a fixed amount each month, as Yang had proposed, Spain’s program tops up any income that is below the minimum threshold. If an adult living alone has an income of 200 euros, then they will receive 262 euros to reach their guaranteed minimum income. The idea is to encourage people back into the workforce, even if they are unable to find a full-time job. About 850,000 families, or 2.3 million people, are expected to benefit from the program, at a total price tag of 3 billion euros per year.

A welfare program of this type is “long overdue” in Spain, which is “30 years behind” other European countries on social protection issues, says Miguel Otero-Iglesias, a professor at IE University in Madrid and a senior analyst at the Elcano Royal Institute, a Spanish think tank. Most other countries on the continent developed national social safety nets for their poorest citizens in the 1980s and 1990s, but in Spain, right-leaning governments have preferred to leave welfare policy in the hands of regional governments, resulting in an uneven patchwork of programs.

Spain’s lack of a national welfare program for its poorest citizens is evident in the numbers: 21 percent of the population live below the poverty line, compared to the European average of less than 17 percent. And 26 percent of Spaniards fall into the European Union’s multidimensional measure of those who are at risk of poverty or social exclusion; the bloc as whole averages just under 22 percent. Natalia Peiro, secretary-general of the Catholic relief organization Caritas Spain, noted in a recent op-ed that the patchwork of welfare programs operated by regional governments only covers one-third of the people that Caritas Spain classifies as in “severe poverty.”

A welfare program of this type is “long overdue” in Spain, which is “30 years behind” other European countries on social protection issues.

Spain’s new guaranteed minimum income comes on the heels of similar initiatives in other southern European countries. Italy’s new “citizens’ income” program, launched in 2019, also tops up income to a monthly minimum. And Greece created its own nationwide program, called Social Solidarity Income, in 2017.

While the program will likely provide a boost to Spain’s neediest families, it is not entirely clear that it will have the desired impact on employment. Evidence from other countries is mixed. Iran’s nationwide cash transfer program, introduced in 2011, has since been scaled back due complaints that it disincentivized people from working. But one study, published in 2017, found no such evidence; in fact, it found that the program may have prompted some workers in Iran to increase their hours. In 2017, Finland experimented with a guaranteed income when it randomly chose 2,000 unemployed people and gave them monthly checks of 560 euros, with the promise that it would continue until 2018 regardless of whether they got jobs or not. The recipients felt happier and gained trust in other people and institutions as a result, but it did not seem to help them get jobs.

Until recently, Spain’s three right-of-center political parties had written off the idea of a guaranteed minimum income as nothing more than a joke, a “communist” idea, or even a “Nescafe income for life,” a play on the 2,000-euro monthly income prize that the coffee brand gives away as a promotional gimmick in Spain each year. But these parties changed their tune with the onset of COVID-19. A poll taken in mid-May found that 83 percent of Spaniards supported the minimum income measure. It passed easily in the lower house of Spain’s parliament on June 10, with 297 out 350 votes in favor, including every lawmaker from the conservative People’s Party and the center-right Ciudadanos, or Citizens, party. Fifty-two abstentions came from the far-right Vox party.

Vox first changed its position on a guaranteed minimum income at the end of May, saying that its members “weren’t against it.” Yet it also complained that the measure would fuel irregular immigration, and even released a video of people speaking Arabic about the program. That video concluded that a guaranteed income would encourage “human trafficking mafias” to bring more immigrants to Spain. The people featured in this video, however, turned out to be Spanish citizens and legal residents of Moroccan origin who were simply explaining to other legal residents in Spain how the program will work.

The popularity of a minimum income aside, some experts are skeptical that it will work. Miguel Angel Povedano, a professor of finance at ESIC Business School in Madrid, says that Spain’s high rates of tax avoidance and large informal economy will allow many people who don’t qualify to take advantage of the program. “In order to get the full payment, people will just work under the table.”

Otero-Iglesias also acknowledges some common arguments in Spain against such programs. In addition to cheating, there is a widespread belief that the Catholic church and other charities should take care of the poor. Some Spaniards also fear a return to a big state reminiscent of former dictator Francisco Franco’s regime.

For many of the beneficiaries of a guaranteed minimum income, however, the payments should still provide much-needed relief amid the coronavirus crisis. And while Spain’s safety net may just be catching up to the rest of Europe’s, countries in other parts of the world will be looking at how best to cushion their populations from the virus’s ongoing economic fallout. Many of them will be paying close attention to how Spain’s new program turns out.

Alana Moceri is an international relations analyst, writer and professor at the European University of Madrid and the IE School of Global and Public Affairs.

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