The Case For an Unconditional Basic Income in Australia

The original article was written for my blog

The case set out below is included in a petition to the Minister for Social Services. You can find the petition here if you wish to support it.

Poverty in Australia is growing due to several factors. Namely a reduction in real wages, rising unemployment particularly in older Australians and youth sectors, and the increase in casual employment as opposed to permanent jobs. The solutions that have been proposed in the last few years are band aid solutions. They cover up the problems rather than address their root causes.

All of these things mean one important thing, income insecurity. When people have income insecurity they tend to spend on necessary items rather than discretionary items. This eventually leads to a drop in demand for many of these discretionary items which in turn leads to greater unemployment.

Income uncertainty may eventually lead to people borrowing less, which is a sensible thing for the individual but not for those who rely on the income from fiscal products.Even if employment rates were to rise, without a change to the modes of employment, uncertainty continues. What Australia needs is a change that increases confidence in future income security.

An unconditional basic wage would provide this confidence. Trials in the past have shown that very few people stop working when paid a guaranteed basic income. Mostly they cut down by a few hours if at all. This reduction in work hours leaves jobs open for those who are currently unemployed and want to work. It also means that those who are casual employees know that even on weeks when there is no work, or public holidays where they do not work, they will still have some income. Albeit not a lot, but enough to be able to pay rent and buy food.

It would also give parents the option to choose one to stay at home with small children or work only part time. But most of all, and this is the most important point of all, it will get rid of the stigma attached to not having a job. It will give the unemployed the freedom to seek the right job for them without being harassed, badgered and bullied to take anything and get off welfare. We will forget that charity mind set as a nation and be able to tell ourselves that everyone gets the same basic income so we aren’t supporting those who are lazy, they are just making a choice to live on less.

The calculations I show below indicate that a basic income at the poverty line or just above it is affordable with a change in taxation. Significant savings would be made through not needing people to check up on welfare cheats. The system itself reduces opportunity for cheating. Less money will be spent on processing applications since they will be minimal once the initial eligibility via citizenship or residential status is sorted out. Of course the money that is currently spent on welfare will go into the system instead of into welfare.

The most important thing though is that it can be fully funded by a change to income tax. If we change to a flat rate of 40% for everyone who earns above the basic income, we can not only fund the whole thing but actually have money left in the budget. Let me show you. My figures are just averages and using what I could find on the internet in regards to tax rates and population.

I have simply divided the adult population (over 15 years old) by 5 to make quintiles. Taking the adult population (over 15 years old as 19,121,300 and the child population (under 15 years old) as 5,077,003 for a total population of 24,198,303.I used the University of Melbourne Faculty of Business and Economics data about poverty line as at the last quarter of 2015. I reached the conclusion that a figure for a basic income of just over the poverty line could be set at $21,600 a year for every adult over 15 and $7488 per year for every child under 15 to be paid monthly at the rates of $1800 for each adult per month and $524 for each child under 15. The total cost would be $488,608,996,928.

Now to the funding part and this is where it becomes interesting.

Let’s put a flat tax of 40% on all earned income (note that the amount of the basic income is not taxed at all in this model). The earned income is that which is earned over and above the basic income. Let’s also leave the Medicare levy as it is for now.

The bottom 20% would earn nothing or very little. There would be virtually no tax revenue so it wasn’t included in the final figures. They would get the basic income plus whatever they earned up to $21, 000 with a tax of $8, 400 on their earned income, leaving them with an average of $12,600 from earned income. Plus the $21,600 from a basic income leaves a single worker with $34,200 a year. They would also need to pay the Medicare Levy.An individual earning $21,000 under current tax conditions would pay $532 leaving them with $20, 468

For a family of 2 adults and 2 children under 15 that would mean an annual income of $58,176 a year before any income from working. That is a livable, albeit tight, income for such a family. They could potentially earn another $25, 200 if they both worked for wages of less than $21,000 a year

For the next 20% who earn an average of $29,000 they would pay $11,600 in tax. Which would leave them with a total earned income of $17,400 plus the basic income of $21,000 which totals $39,000 a year. This cohort currently brings home after tax an average of $26,245.

For the central 20% who earn an average of $58, 500 the tax they would pay would be $23, 400 a year plus Medicare levy. Add to that the basic income of 21,000 and they now have an income of $56,100. This cohort under current taxation rates brings home an average of $45,189.

For the next 20% who earn an average of $130,000 they would pay a tax of $52,000 plus Medicare levy. Add to that the basic income and they have an income of $99,000. This cohort currently have an average after tax income of $90,700.

For the top 20% who earn an average of $240,000 they would pay an average of $96,000 in tax plus Medicare plus the basic income which would leave them with an average of $165,000. Currently this cohort has an average after tax income of $132,000. Given the fact that the top taxation rate is currently 45% no income bracket would end up with less than they currently do.

Now for the big figures. Total cost of paying a basic income to everyone, without administration costs is $488,608,996,928. Total revenue from taxation if you ignore the bottom 20% completely and use a flat 40% tax for all earned income for everyone else is $699,839,580,000 which leaves an excess of $ 211,230,583,072. In addition there is the potential to save $ 190,000,000,000 from current welfare payments. Although I would advocate spending some of that on top up payments for those with disabilities who have extra costs (such as medication, transport and equipment). So this leaves a theoretical total of $ 401,230,583,072 to cover the cost of health, education defense, infrastructure, public service provision and administration, arts, border security and all of the other numerous other costs involved in running a country.