How should the Finnish welfare state version 1.0, created in the 1960’s, be upgraded? Many institutions of the welfare state, such as social security and healthcare, education and taxation, were built in the time of Old Normal. Based on the assumption of continuous economic growth, it made sense to create cost machines and to reason that social problems could be solved through heaping money and public services on them. During a time of New Normal these old systems are facing a crisis.
Libera’s Life Account is a concrete model for transforming the current welfare state to a new version, 2.0. The life account is a form of a personal welfare account, which improves the incentives to work, employ and save. In comparison to a conventional tax-transfer system, it reduces social insurance expenditure. The model allows for combining work income and social benefits, leaving the initial needs testing to the individual. It reduces the tax wedge and allows for more flexible employment by households and individuals. The life account also encourages individual saving, financial planning and the accumulation of private wealth.
The Life Account report, originally published in Finnish, has been translated by courtesy of Stockholm’s Reform Institute.