One fascinating movement that has sprung up of late is the push to implement a Universal Basic Income guarantee. There are trials occurring or being considered all around the world including Scotland and Finland, and there was also a failed referendum of the subject in Switzerland.

The premise of Universal basic income is to pay every resident and citizen a minimum unconditional wage regardless of their financial situation. This provides a financial security safety net that will allow a person to pursue whatever interests them without fear of falling too far. This goes beyond welfare schemes, which are often heavily means tested and pay a wage that is sometimes below the poverty line or even simply below the minimum wage guarantee that a country may impose on employers.

There are a number of concerns that naturally arise when considering a UBI and they are not often dealt with simply. The key concerns are:

Concern: It may remove the incentive to work

Response: Those who are not able or likely to be good workers will at least be good consumers. We should encourage this. Not all work is valuable, necessary or positive to society. We should not have to work for the sake of it.

Concern: People will not want to do the dirty jobs

Response: One cannot afford to buy a home or a car or other large assets on a UBI so the incentive to work is actually still there. Employers for the dirty jobs, such as cleaning and garbage collection may simply be required to pay a more respectful wage for what is essentially a health care job.

Concern: Budgets are already tight – the country cannot afford it

Response: The scheme needs to be designed correctly! The flaw so often is that the income is not high enough or that the government is left footing all of the bill.

Here is how I see such a scheme working so that it does not destroy a country’s finances:

An entity, the UBI Authority, is established to process payments All residents and citizens of receive a substantial payment well above the poverty line and in line with the minimum wage. In Australia this is $17.70 per hour or 672.70 per week. Over a year this is $34980.40. Tax would be withheld, but people can live on that. When an employer employs a person, person still retains the UBI payment from the UBI Authority as normal. The employer pays the minimum wage, to the UBI Authority. The employer pays any salary above the minimum wage including superannuation to the employee and the super fund. In Australia all employers are required to provide a percentage of the agreed salary into a superannuation fund to provide for the persons retirement. Tax would be withheld as per the usual process. Self-employed individuals will be required to pay the minimum wage to the UBI Authority unless they have earned less than the minimum wage, in which case they would pay the lesser value. In retirement, a minimum wage is still provided and the superannuation funds are used to supplement income. A mechanism needs to be established to determine the minimum wage and ensure it does not become too minimised. The fair work commision in Australia currently performs this role.

This model ensures that unemployed people, those with disabilities and retirees are provided a respectful wage. As there is already money in most countries budget for these parts of the welfare system so there is not such a substantial increase required. Also, as these people will be consumers, the money will be spent into the economy, with a portion returning to the government through taxation of the businesses and wealthier people through which this money passes. The argument can also be made that the government should be paying the minimum wage anyway as they have already agreed is a fair amount for an employer to pay.

For those with jobs, there is no extra burden on the government as the money paid out as part of the guarantee is paid back via the employers. Tax is still payable on all wages.

So the only extra that a government needs to find in its budget is that needed to bring all people up to the minimum wage. This could be offset somewhat by savings in law enforcement (when money is handed out why do we need petty thefts etc), and the general simplification of the welfare system. It is unlikely that there will be a mass exodus of people from the workplace due to the desire to buy personal assets and experiences, and if so, it is unlikely that those leaving their current employer will not seek out additional forms of income.

Children

One question: do we pay children a UBI? Parents would have full access to that money. This opens up a can of worms. I expect that after study, the answer would be no and that the parent instead receives a family supplement until the child is of working age and able to register for the UBI. What mustn’t occur is for the registration age to be unreasonable eg: 25. The age should be either 13, 16, or 18 depending on the cultural needs of the implementing country. A full basic income paid to children that parents have no access to would be unworkable and unaffordable as the money would not be spent into the economy causing a drain on the budget. It could also yield inflation due to a sudden burst of expenditure at the age of access. If a full payment was provided that parents could dip into then we would see inequality issues due to some parents having spent all the money versus those whom have restrained themselves. The family supplement method is the reasonable and fair approach and is already a feature of many of the worlds welfare systems so would not offer additional financial burden to a country.

A discussion on tax

Whether to tax is an interesting question too. If the UBI was reduced to remove the applicable tax, then under this model there would need to be a salary reduction for all employees. The net take home pay would be the same but I expect a backlash over this move. It could be that the employed are provided the amount including tax, to be removed as usual and the unemployed receive the reduced amount that already excludes tax. I expect complications when working with other income streams such as shares (if, say, that is the only income) and areas where tax minimisation strategies are in effect. A more reasonable approach may to to simply set a high tax free threshold (in Australia this is currently $18200) and set the UBI to that value. In this model the tax free threshold in Australia would be almost doubled to reach the minimum wage. This requires further analysis but I expect it is simpler to make tax payable on the generous minimum wage.

Conclusion

A Universal Basic Income is acheivable and, as a side benefit, will eliminate most poverty since everyone is by default receiving a respectful minimum wage. The framework I have presented provides a basis for further study and I encourage all to look into the concept further.

Nathan Rogers, Australia