Would a universal basic income work here in Australia?
The economic devastation wrought by coronavirus has reignited calls for a universal basic income (UBI). But how would it work?
UBI has many interpretations and definitions. In its purest form, it's an unconditional benefit paid out in cash on a regular basis to all members of a population.
Proponents of UBI believe it addresses poverty issues better than means-tested, or "targeted transfer" schemes such as the social support system we currently have in Australia. The advantages, they suggest, include savings on administrative and compliance efficiencies, the elimination of social stigma concerns and encouraged labour market participation. More recently, UBI has been cited as a way to mitigate the threats posed by technological changes such as automation.
On the other hand, opponents of UBI warn of its high cost, negative impact on work incentives and that it wastes financial resources on the rich who, aside from not needing it, have less of a propensity to spend it. As such, opponents recommend some variation of means-tested welfare.
Calls for a universal basic income have gained traction in the wake of the COVID-19 pandemic, and the job losses it's forced. Mark Zuckerberg and Elon Musk are among some of the private sector leaders supporting the concept.
More realistic is the introduction of a basic, but not universal, income. It would provide a basic income to those most in need, rather than provide it for the entire population.
John Quiggin from the University of Queensland, one of the country's foremost advocates for UBI, says this could be achieved by:
- Increased unemployment benefits, at least to the poverty line;
- Replacing the job search test for unemployment benefits with a 'participation' test;
- Fully integrating the tax and welfare systems.
The Australian government has opted instead for a more targeted range of measures including the JobKeeper wage subsidies and, one-off $750 economic support payment, and $550 supplement payment.
Quiggin told the ABC last month that after the coronavirus is contained, the government should substantially boost Newstart payments and stop quarantining welfare payments, which would put the country "well on the way to UBI".
"The government has had a whole range of policies aimed at pushing people off Newstart, which are now essentially impossible to apply and irrelevant where large sections of the labour force will not be able to work," he says.
At the other end of the spectrum, Simon Cowan from The Centre for Independent Studies published a report in 2017 that disputes the claimed benefits of a UBI.
- Those currently receiving income support would not see an increase in their disposable income from a UBI, as there is little likelihood the payment would exceed their welfare payment;
- Those working full-time and earning above the median wage are likely to be worse off as a result of the additional taxation needed to fund a UBI;
- Those working part-time are likely to be better off as they will be eligible for a UBI, are not currently eligible for welfare but not likely to earn enough that the additional taxation outweighs the benefit.
Cowan concludes that all three options would be grossly unaffordable given Australia's current taxation system. For UBI to achieve the outcomes touted by its proponents, Australia's taxation system would have to generate more than $100 billion more in taxation by either broadening the base or raising the rate.
UBI has been, or is currently being, trialled in several places around the world, to varying levels of success. Between 2011 and 2013, UNICEF funded a universal basic income scheme in Madhya Predesh in India. It found that most people directed the money to other income-generating activities, while children's education levels also improved.
It's important to note that all trials of UBI have been small or localised, and generally haven't demonstrated whether they'd be sustainable if scaled up to entire populations.
An alternative short-term measure is to adopt reverse taxation, otherwise known as a reverse income tax. Here, income tax would be temporarily frozen for companies that retain their employees.
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