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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