Pensions Will Negate Negative Income Tax

For years, the Finance Ministry has been discussing proposals for mandatory pensions. The issue always comes up, but is always ruled out for the same reason: How is it possible to force someone who barely makes a living to save for a pension? How can someone be forced to reduce his meager earnings now for a pension 30 years away?

Such a proposal makes little economic sense - and it is doubtful whether it makes moral sense either. For this reason, the idea has been vetoed time after time - until it was recently joined to another idea: the negative income tax.

It is no secret that treasury officials dislike the negative income tax proposal: It is like an allowance for poor families, but with no guarantees that the money will be used properly. Instead of reducing poverty, the money could be misused. In order to prevent this, the treasury tried to link the negative income tax to vouchers limited to specific purposes, such as education and child care.

But then, along came a magic double formula: both a mandatory pension and a negative income tax. In practice, the families that will receive the tax grants are also those who lack pension plans - so one will pay for the other. There will still be some money left over, but to a large degree, combining the two proposals will destroy the ability of the negative income tax to improve the lot of the working poor, because so little will remain in their hands.

It is not clear whether they will be comforted by the fact that their future will improve, and it is not clear which side won the fight between Hirchson and his underlings - even if it seems that he forced them to bend to his will.