MY MONEY

Would a universal basic income work here in Australia?

By

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.

coronavirus universal basic income ubi

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.

He found:

  • 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.

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

RELATED STORIES

David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
Comments
Jim Daly
April 22, 2020 9.40pm

I am amazed at how the governments can come up with the cash when needed. We hear, of course, that money doesn't mean anything. But, of course, it does; and some people have it, lots of it, and other people have some, and a few have almost nothing. So, if that thing called 'money' can be found so rapidly and in such quantities, what is going on that it can't be so easily found in other times? I have no training in economics apart from running the household budget and developing some interest in investing. Let me suggest an answer, and I would love to hear a comment on it. Having money or not having money is all about who can get their hands on the levers to make sure they have more or lots more than others. As a result, some have more, or a lot more, than others. This can only be assured by the quickest and smartest writing rules around who can come near the levers and which levers. The quickest and the smartest include politicians and their friends and people who already have lots of money. Some rules will keep others comfortably (or uncomfortably) away from the levers.

Angus Clark
June 4, 2020 11.36am

you don't really understand UBI. all the arguments against UBI you present are completely bogus. anyone that thinks UBI is a partisan policy doesn't understand UBI.

"high cost"

just increase taxes for mid- to high-earners to offset the UBI they get (as they don't actually need the UBI), and suddenly, the cost of UBI ends up simply being the cost of welfare, but in fact, it would cost EVEN LESS than welfare when you consider how administratively efficient UBI is compared to means-tested welfare, thus you'd acually end up saving money by gettng rid of all those public sector welfare administration jobs. 550,000 jobs are currently in welfare adminstation!! that's out of 13 million total people employed!! it's utterly ridiculous how bloated it is; we need UBI !!

"negative impact on work incentives"

literally every single study on UBI has concluded there is no effect whatsoever on employment rates.

"wastes financial resources on the rich who, aside from not needing it, have less of a propensity to spend it"

as i've aleady stated, UBI is about about making welfare more efficient. just raise taxes for mid- to high-earners to offset the UBI they get!!

watch this video by a havard economist if you want it explained better:

https://www.youtube.com/watch?...

Luke Beasley
July 20, 2020 8.33am

Totally agree. The UBI is the way forward for many reasons, not least of which would be the elimination of the costly and inefficient Public Sector Welfare system. I'm hearing very little about UBI as a viable and equitable alternative, and can't undersatnd why it is not getting more traction or at least figure more prominently in the mix as we look at the future for Jobkeeper, Jobseeker, age pension, disability payments, housing supply and affordability, education and training etc . I am 100% sure that we would achieve a fairer and happier society with the security and dignity afforded by a UBI. The Idea that the UBI would have a negative impact on work incentives doesn't wash for me. I just look around and see the energy that is already out there. So many people contributing to their local communities and the wider society as volunteers, or working to develop small business ideas, with little or no support. How would UBI stymie that?

Cheers

Meg Mcilwain
August 6, 2020 12.31pm

Angus, increasing taxes on the middle to high income earners won't work as the high income earners pay very little tax as they write off expenses and exploit loopholes leaving the middle income earners bearing the brunt of the tax burden. A flat tax with no depreciation/expenses/loophole... is fairest. Those who want more income for whatever reason will be treated equally as those who don't want or can't work and the high income individuals. A UBI is attractive to all and I'm sure the middle class won't begrudge a flat FAIR tax on income earners on all levels.

Heather Carman
July 27, 2020 9.06am

I think that everyone over the age of 60 should get $600 a week if they have less than $100,000 year income.

Post a comment
Link to something 1K6QIUk7