Some Thoughts About a Basic Income in Australia

I only heard about the concept of a basic income for the first time in the last year but immediately loved the idea. I especially loved the overwhelming successes which each trial of it seemed to return. Nonetheless I hadn’t taken the time to consider exactly how such a thing would be funded until today.

First of all – what is a Basic income? It is the idea of replacing a welfare system (which only helps people who are in dire need of it) with a guaranteed basic income for all people regardless of whether they need it or not. This overcomes a number of the problems of welfare (the fact that welfare disincentivizes getting low paying jobs for example). But I won’y waste your time explaining the intricacies of the concept or arguing for it here – it has already been well done elsewhere:

And one final point which sticks in my mind whenever I think of Basic income, is the results of a recent study which found the best way to help people in poverty is actually to just give them cash and let them do with it whatever they want: What Happens When You Just Give Money to Poor People?

Australian Budget, Welfare and Basic Income Cost

There is a lot of attention on the Australian budget atm in Australia and it has motivated me to look into our numbers recently. I found this fantastic breakdown of last years budget: Budget 2013. It tells us that last year we spent just under $400 billion dollars. And roughly $138 billion of that went to Welfare.

A fortnightly payment on Newstart (our jobseeker payment system) is worth about $510. If we take the idea that someone is meant to be able to live on Newstart (and that is debatable), then we’re looking at roughly $255 per week.

If we then pay that amount of money to every single person in the country (22.68m) each week, that will cost the government about $5.8 billion per week, or $300 billion per annum. Nearly the entire yearly budget of Australia, and more than twice as much as the current spending on welfare.

It is a bit more complicated than that of course, because usual basic income systems don’t give the full amount to children, so not everyone would get the entire amount. And there would be some level of overhead – but it would be insignificantly small since there would be very little work involved to ensure the payments are made.

Is It Possible for Australia to Have a Basic Income?

Looking at the numbers as they currently stand, clearly we can’t afford it. I mean, there simply isn’t any way we could cut other expenses nearly enough to be able to afford the $300 billion (minimum) of a basic income. BUT, economics is of course more complicated than that. There are of course ways of increasing government revenue. And there are other ways of keeping the overall cost of the basic income down. As I said above, children would receive less for instance.

One idea which came to mind for cutting the cost is to not actually make it universal, but make it universal for lower income earners. As soon as your income (total including the basic income) reaches a certain threshhold ($60,000 pa? $100,000 pa?) your basic income starts to be incrementally decreased. This in effect acts as a steep tax for higher income earners at a specific level, but the real negative of this system would be that it would probably create more overhead and the need to administer the system. A more reasonable approach would be to leave the basic income as a universal system, but simply increase the tax rate of higher income earners overall. So this no longer makes an ‘effective tax’ out of losing the payment, but just increases the amount taxed in our existing taxation system. This method would also be applied more fairly and universally across all higher income earners than just people at a specific threshhold income.

However, it can be said that income tax has a negative affect on the economy (I would argue that the benefits of removing poverty and the lower class and replacing it with a strong guaranteed middle class) would more than compensate for the cost of a higher taxation – but nonetheless, let us accept that higher income tax may have negative affects. So one suggestion is to implement/increase land tax.

And Finally, it is possible for Australia to over spend and go into debt to fund this. Australia currently has the second lowest debt of all of the OECD countries. Our debt is about 60% of our yearly budget, compared to the UK debt which is almost twice their yearly budget, and the US debt which is roughly 4x their annual budget. Of course debt for debts sake isn’t great – but debt to fund an investment can be the most powerful debt possible. Especially when your debt is charged the sort of interest rate that government debt is charged. (To make this point more sound, if you could borrow or at 5% and lend at 10% – would you rather borrow nothing, $100 or $1 billion? If you answered anything other than $1 billion, then you don’t understand maths.)

Why Do it?

If we’re going to have to increase taxes to be able to do this, it better be worth it right? Well, I think the destruction of poverty in a country is a pretty powerful reason alone to do this. This not only affects the lives of those in poverty, but of everyone in society as there would be less crime (less theft out of desperation) and a general improvement of society as more people have the luxury of attending school/college/university or pursuing their dreams rather than feeling trapped by their circumstances.

The benefits of a basic income are numerous, and the long term returns would be immense. I expect most of the article linked to above have already covered that though. So I might just leave it here. It is late. I might proof read this tomorrow or something…. 🙂 Goodnight.

 

(looking at my last few blog posts, it is no wonder my blog will never become popular – who else is interested in economics, drug policy, vaccination, non-monogamy, religion…etc.)

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8 thoughts on “Some Thoughts About a Basic Income in Australia

  1. Firstly, I want to say thank you for your thought provoking blog posts. I am interested in all the topics you list, and don’t think popularity is as important as substance.

    My only exposure to the concept of basic income prior to reading your article was from a This American Life podcast discussing how some Native Americans were kicking people out of their ‘tribe’ so the share of the per person income would increase. In that vein, who is eligible for a basic income and who is not? Citizens only? non-criminals? Asylum seekers?

    The primary benefit I see of such a system is the return of dignity for many people living on centrelink payments who constantly need to be assessed for eligibility. Perhaps supplemental payments for veterans, the elderly, carers and people with a disability and others would still be needed, but a general unemployment benefit/youth benefit/study benefit would not.

    I can also see an enormous social advantage for women who are without an income due to their caring responsibilities. Partner based income means testing, with no reference to how that money is available or controlled, leaves many women without the dignity of an independent income to purchase goods and services such as childcare, further education or medical ‘luxuries’ like counseling, health and fitness services.

    So, how do we agitate for such a substantial change to our welfare system?

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  2. Hi, sorry for my delay in responding – I didn’t realise I had comments!

    “who is eligible?”

    This is an important question, but one I have great confidence can be easily resolved when the policy is being produced. Ultimately, the reason for providing the basic income remains the same whether the person in our society is a criminal or a refugee – that is, you don’t want people driven to desperate measures to stay alive. So I think every permanent resident of the country should be able to get it, with some sort of scaling system paid to parents of babies, toddlers and children, then eventually paid teenagers, either at the age of 18, or as soon as they are no longer living with their parents.

    “So, how do we agitate for such a substantial change to our welfare system?”

    In Australia, the way to make these sorts of changes are to lobby the smaller parties (Future party would be a reasonable one to expect to take on this sort of an idea) and then vote for the party which runs on that platform. Astartes’ comment here says that the Australian Pirate Party is considering it too.

    Thanks to our great voting system in Australia, you can strategically vote for parties which represent specific policies you want to see enacted, and give power to those ideas.

    At the same time, of course, like all democratic ideas, you also have to spread and promote the idea. Get more people on board, get more people educated about it, and slowly build an army of supporters who will also vote for the smaller parties who force change.

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  3. As the administration costs are lower because there is no means testing, there is also a lot of saved money on Job Service Providers and Centrelink staff. It is probably better to tie this to the Pension figure of $383 per week rather than Newstart at $255.

    Potentially, this could take the place of not only welfare payments (the DSP, Youth Allowance, NEIS, Jobseeker Payment, Pensions), but also things like the PhD stipend, and the Paid Parental Leave Scheme as well.

    In regards to funding a universal basic income, we could look at raising the GST to 15% as New Zealand has done as well as closing tax loopholes and generous unnecessary rebates.

    As the Institute of Public Affairs is strongly opposed to it, UBI must benefit the majority of society and in the eyes of extremist right-wingers make for a more egalitarian society.

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  4. Yes, we can afford it. Have a look at my brief book on this, Cents and Sensibility, available online, in Australian libraries, and selected bookshops — or direct from editorial@theair.com.au

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  5. Hi Shane, I see you’ve heard of ‘Cents and Sensibility – A Fair Go For all’ by Brian Donaghy.

    It’s a terrific read and explains the whole concept of basic income with great clarity – and it is a very readable work to boot,

    Regards,
    Michelle

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  6. The idea of universal income, is that it is not means tested – all receive it unconditionally. On the surface, this seems unaffordable, but consider then that all current welfare systems for health care etc would not be necessary. This would also likely lower health care costs significantly, as the stresses associated with unstable economic status has been found to be a major contributor to massive health problems, such as cardiac arrest. http://www1.sph.umich.edu/sep/downloads/Adler_Newman_Socioeconomic_Disparities_in_Health.pdf
    Additionally, it opens the door to abolish the minimum wage, as the basic means of life are handled by the government. This would allow business to charge what a position in a venture is actually worth. It would likely encourage innovative business persuetes.
    It also means people who wish to devote their lives to socially positive but non-profitable efforts would be able to do so without fear of financial ruin.

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  7. It would be more affordable if it was unconditional basic income for all legal adult Australian citizens. Just a thought.

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