Using social policy to reduce inequality is almost precisely the opposite of the suggestion that Australia adopt a “universal basic income”. Here’s an illustration of how that might work out. Suppose we got rid of all our current cash transfers and replaced them with a flat-rate universal basic income. Current spending would support a payment of around $6000 per person.
Every millionaire and billionaire would be thousands of dollars better off. But every pensioner would be in abject poverty — barely able to buy food, let alone pay their bills. Australia’s social safety net reduces inequality by 10 Gini points, while a universal basic income — by design — has zero impact on inequality. So scrapping the social safety net in favour of a universal basic income would increase the Gini by 10 points — making Australia as unequal as Latin America.
Some argue that a universal basic income should be paid for by increasing taxes, rather than by destroying our targeted welfare system. But I’m not sure they’ve considered how big the increase would need to be. Suppose we wanted the universal basic income to be the same amount as the single age pension (currently $23,000, including supplements). That would require an increase in taxes of $17,000 per person, or around 23 percent of GDP. This would make Australia’s tax to GDP ratio among the highest in the world.
So next time someone advocates a universal basic income, ask them how they’d like to pay for it: by making Australia the most unequal country in the world, or by making Australia the most highly-taxed country in the world.
Andrew Leigh is the Shadow Assistant Treasurer. This is an extract of a speech delivered at the Australian National University on 20 April 2017, titled “How Can We Reduce Inequality?“
Closing existing tax loopholes could go a fair way towards it. I’m surprised that the Shadow Assistant Treasurer didn’t mention that (but why bother looking at possible solutions when the decision has apparently already been made).
What’s more surprising is apparently the “Shadow Assistant Treasurer” thinks taxes fund Federal expenditure.
What amazing crap from someone who is an economist with a social doctorate. there are many ways to offset the costs eg cut super tax concessions and offer a universal aged pension, which improves gender equity and even may produce a surplus. This is an emotive response from someone who is over-reacting to the idea that maybe recognising non paid work contributions may undermine the workers ‘ party
Eva – I don’t find it all amazing, given that economics is the most useless of all disciplines.
All sorts of pretty models & beautiful numbers which bear no relation whatsoever to the real world.
In medicine it would be described as the treatment was a success but the patient died. Horribly & painfully.
What amazing crap from someone who is an economist with a social doctorate. There are many ways to offset the costs eg cut super tax concessions and offer a universal aged pension, which improves gender equity and even may produce a surplus. This is an emotive response from someone who is over-reacting to the idea that maybe recognising non paid work contributions may undermine the workers ‘ party
NB crikey this is not a duplicate
I’m not necessarily sold yet on the idea of a basic income. But this opposing argument was a weak one. It seems to essentially boil down to this fact: a basic income would need to be paid for by high taxes.
But so what? If everyone had enough money to live, and worked for passion, fun, or to earn extra money on top of a living wage, who cares if we are taxed 50-60% for that wage? the tax wouldn’t impact anyone’s health because we already have enough money to live.
There are two real questions that old mate Leigh doesn’t even consider:
(1) what proportion of the current working population would still work, even if they didn’t need to in order to live? The proportion would have to be large enough to sustain the population.
(2) how do we work out what a “basic wage” is. I wouldn’t go by the aged pension. 23k a year barely covers living expenses if you rent.
Point 1 is moot because there are not enough jobs. What the currently employed do when given their meager stipend is irrelevant, there is a mass of unemployed people who would otherwise be working before UBI, and there would still be so after UBI.
Which begs the question, who are you going to tax? The problem is only going to get worse, regardless of if workers decide they’d rather be on the dole than get paid a decent wage (btw no one does this)
I suppose my phrasing was unclear. Under a UBI system, the proposition is that not everyone needs to have a job, because they’d have enough money to live anyway. So the need for there to be “jobs for everyone” doesn’t apply in such a system. The high taxes would only be applied to those lucky enough to have a job, and then only their “extra” income would be taxed at a high rate.
I agree most people on unemployment benefits are not there by choice. Especially when you consider the abs stats, that show an estimated 75k jobs available in feb but more than double that of people looking for work within the same measurement period. But I imagine you are saying that, since job availability is shrinking, it’ll continue to shrink to the point that even a UBI system would be unable to cope with the number of work opportunities available?
Yeah that is pretty much what I am saying. It doesn’t seem like a permanent solution, and personally I find it lacking as a temporary solution. The center-left ideal version has to pass in full for it to not be a loss for the unemployed. If that passes workers end up being taxed much more to have it passed back to them. who benefits from this other than the employer, who now has a principle of a wage being Extra Income and not the means of subsistence?
We could be asking for welfare reform to cut red tape for recipients and refocus the bureaucracy on more important things like finding cash in hand workers and their law breaking employers.
We could be asking for a lower work week. 32 hours would be 1 day less work, raising wages and creating jobs. A more radical cut to 15 hours or less could restructure peoples work lives into something that makes sense. Imagine 3 shifts of 5 hours and yet you’re paid like you worked 5 shifts of 8? A lot of unproductive businesses would have to close down with wages like that, but really, why keep them? Let’s extend the good work to as many as possible.
We could even be ambitious and ask for the end of paid work, of wages, salaries, and cash transfers. Where a community of free producers can share the necessary work and do whatever they want with the rest of the time. Giving their surplus to a global association of free producers, giving within their abilities and receiving to their needs. This has about as much chance of getting up as welfare that ends the need for wage labour, so why not go big?
Yes, but there are jobs nobody would do unless it was financially worth their while, aren’t there?
There are two real questions that old mate Leigh doesn’t even consider:
Even more importantly:
Within two generations – three at the outside – something like half the population will be literally unemployable. Not because they lack skill or motivation, but because there is nothing they can do that a compute or robot can’t do faster, better and cheaper.
Sorry didn’t realise it had gone, but reading it twice is not disastrous. The idea of a UBI is worth discussing, not dismissing, given the mess of the welfare system. Andrew should focus on rejecting the useless Cashless Welfare Card that is being promoted by Twiggy but fails to address issues like the Income Management programs in the NT it closely resembles. And getting rid of both would save money or replace them with a UBI at less cost and damage to self esteem.