The $3.5 billion investment in the NBN is not an upgrade

John Quiggin is an Australian economist, a Professor and an Australian Research Council Federation Fellow and a Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government.

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With the financial welfare of Australians uncertain, the concept of a Universal Basic Income must again be discussed. What’s more, we’re already on the right track.

Last year I published a book chapter arguing that the way to a Universal Basic Income was to expand the existing benefit system, increasing payments and removing conditionality.

This is often called a Guaranteed Minimum Income (GMI). I counterposed the GMI approach to the alternative of making a small payment to everyone in the community, and then trying to increase it over time. I suggested three initial steps

Assuming a ‘basic first’ approach is preferred, how might it be implemented? Three initial measures might be considered:

(i) increase unemployment benefits, at least to the poverty line;

(ii) replace the job search test for unemployment benefits with a ‘participation’ test;

(iii) fully integrate the tax and welfare systems.

We are already on the way to taking these steps. Having floated the idea of a separate benefit for people who lose their jobs due to the virus crisis, the government has quickly abandoned it in favour of an increase in existing benefits. This is supposed to be temporary, and, in theory, at least, there has been no change in compliance efforts like work testing. But ‘temporary’ will turn out to be a long time, and compliance efforts are going to be impossible until things return to normal.

The following is an extract from J. Quiggin, Basic or Universal? Pathways for a Universal Basic Income, in Implementing a Basic Income in Australia: Pathways forward, Melbourne University Press, Melbourne, 2019.

The alternative is to start with ‘Basic’ rather than ‘Universal’. That is, begin by providing sufficient income to support a decent standard of living to those most in need, then expand it to the entire population. This approach is most naturally associated with a Guaranteed Minimum Income.

Existing benefit systems potentially fall short of the GMI in three ways. First, each benefit in existing systems, such as that in Australia, is conditional on eligibility requirements such as disability or job search activity. Second, means-tested benefits such as those offered in Australia are subject to clawbacks that imply high effective marginal rates of taxation if people take work alongside the support. Finally, with exceptions such as the old-age pension the benefits are typically insufficient to lift recipients out of poverty.

Over recent decades, access to basic incomes has become steadily more difficult in all these respects. The case of unemployment benefits, noted above, is typical. Similar cuts and restrictions have been imposed on disability benefits and supporting parents’ benefits in Australia and elsewhere in the world.

These cuts have been driven by a combination of neoliberal drives to reduce public spending and conservative hostility to welfare recipients, reflected in the use of stigmatising terms such as Joe Hockey’s distinction between ‘lifters’ and ‘leaners’.

A ‘basic first’ approach would require reversing these trends and would, therefore, entail immediate and sharp political division between advocates of a basic income and supporters of the push to restrict welfare benefits to the ‘deserving poor’.

How to get there

Assuming a ‘basic first’ approach is preferred, how might it be implemented? Three initial measures might be considered:

(i) increase unemployment benefits, at least to the poverty line;

(ii) replace the job search test for unemployment benefits with a ‘participation’ test;

(iii) fully integrate the tax and welfare systems

Increasing unemployment benefits

The basic old-age pension in Australia is around 28% of Male Total Average Weekly Earnings (MTAWE) for single pensioners and 42% for couples. This income has proved sufficient to eliminate, almost completely, poverty among the old, who were once the most exposed to privation. The same level applies to Service Pensions and Disability Support Pensions.

By contrast, unemployment benefits (now given the Newspeaky name Newstart) were briefly set equal to old-age pensions at 25% of MTAWE under the Whitlam government. However, a long series of cuts and freezes have reduced access to benefits and cut their relative value to around 18% of MTAWE today

Participation income

While social acceptance for a completely unconditional basic income is a long way off, a ‘participation income’ as proposed by Atkinson would have many of the same effects. The criteria for earning a basic income would no longer be based on market production but on a social assessment of value. Participation in this context would include full-time study, raising children, and voluntary work.

The creation of a participation income would automatically raise the question ‘what kinds of activities’ are socially valuable. The default assumption, in a market society, is that the social value of any activity is reflected in the market income it generates. This assumption is explicit in neoliberal thinking about public policy, but it is also widely shared in the community in a more or less qualified form. The debate about a participation income would therefore involve fundamental changes to the assumptions underlying the neoliberal economic and social order.

On the one hand, supports of a BI would seek to extend the concept of participation to encompass commitments to artistic, cultural and sporting endeavours, even if these were not at a level sufficient to generate a market income, or to qualify for existing forms of public support, such as arts grants. On the other hand, debate over BI would focus attention on the fact that some activities generate large market incomes but yield little, or even negative, social value. The activities of the financial sector provide an example.

A fully integrated tax-welfare system

As discussed above, a fully implemented basic income would imply an integrated tax-welfare system, in which the distinction between means-testing and taxation would disappear. A step towards this goal would be the inclusion of benefit payments in taxable income, with a corresponding, or larger, reduction in clawback rates.

Completely integrating clawbacks into the tax system would clarify the high effective marginal tax rates currently faced by benefit recipients (commonly above 60%). This would provide a counter-argument to the spurious claims that the marginal rate faced by high-income earners (less than 50%) constitutes an unreasonable disincentive to work effort.