2018-07-20
Universal basic income is often shot down by critics as unrealistic and a waste of money – but according to Mark Norrish, it’s anything but.
By Mark Norrish
It’s past time people stopped calling Universal Basic Income (UBI) free money.
There are two problems with that description. The first is that it sounds ridiculous. “I know how to fix the economy; why don’t we just send the money truck around?” It primes listeners to dismiss it out of hand as being unaffordable and a waste of money, and its proponents as naive and fiscally irresponsible. After this, it becomes almost impossible to take it seriously.
The second is that it focuses on the wrong aspects. It creates problems that UBI doesn’t actually have, and draws attention away from the problems it solves. People fixate on the idea that it must be too expensive or that it will stop people from working, and they miss all the reasons to think that it would actually bolster the economy and generally improve people’s quality of life.
Simpler and fairer
UBI does not create a welfare state. We already have welfare; that’s a decision we made as a society long ago. What UBI does is to make the tax-and-transfer system simpler and fairer. If one starts with the premise that the system should be simplified where possible, that it should not discriminate or distort unnecessarily, and follows this to its logical conclusion, the end result is UBI.
Under the current system, welfare payments begin at a certain level, depending on particulars, and taper off with means testing. Meanwhile, the tax-free threshold provides nothing to the unemployed but a fixed benefit of around $4,000 to someone in the first tax bracket, or around $9,000 to someone in the top bracket. The net result is strikingly similar financially to UBI with a flat tax rate and no threshold, but involves vastly more bureaucracy.
When you think of it this way, it’s obvious that UBI is affordable. We’re not proposing a new $400 billion line item; we’re proposing to streamline an existing $400 billion in welfare and tax breaks. Similarly, it won’t stop people from working, because the economic incentives would look almost identical to the status quo.
What does change is that it eliminates a lot of bureaucracy, whose costs extend far past the $3 billion spent annually on administering Centrelink. Every time a caller is put on hold for four hours for a ten-minute conversation, the government pays ten minutes of wages, but it actually costs four hours and twenty minutes of Australian time. The time and stress costs of applying for payments are borne by low-income individuals, in a way that works against them entering the workforce, keeping them un- or under-employed. By contrast, UBI would take almost no effort from private citizens once it's set up.
An even playing field
With taxation administered separately to welfare, there’s no coordination, which can result in poverty traps, where an individual can pay an effective marginal tax rate of close to 100 percent. For example, Newstart tapers by 60 percent at around the same point that a worker reaches the 19 percent tax bracket, meaning that a $100 shift can yield a pay packet of only $21, of which a further $2 is likely to go to GST. This is on top of a low hourly rate, typically giving effective pay of only $4/hour. Together with other payments, it's even possible to have a tax rate of above 100 percent. With a flat tax, this would be impossible.
In a relationship with one partner working, the worker gets all the benefit of reduced tax brackets, and the unemployed partner gets nothing. This leaves them vulnerable to financial abuse, which is tightly correlated with domestic violence. This is a huge impost on quality of life, but it's also bad for the economy as a whole. DV is expensive: caring for victims takes police and medical resources, and it keeps the victims from effectively contributing to the economy. With UBI, every citizen is guaranteed enough money to move out of an abusive home.
Means testing causes issues too, because it gives people an incentive to do what would normally be bad ideas. For example, payments are often more favourable for single parents and for renters, so there's a strong incentive not to move in with family or a partner. This puts extra stress on individuals, but among other things it also puts extra pressure on housing. Similarly, retirees sometimes liquidate their assets to get the full pension. One option for this is to spend it on things they don’t particularly want, such as a very large home due to favourable treatment, which also drives up house prices. UBI cannot create this sort of perverse incentive.
Even this underrates UBI. Under the current system, a job is indispensible. Especially with the rising gig economy, it’s often hard to have the time and money for things like family life, study and up-skilling, recuperating from injury, setting up a business, and volunteer work. Most of these are assets to the economy, to say nothing of quality-of-life considerations. With UBI, all this would be possible for everyone.
Universal basic income isn’t about giving people money for nothing. It’s about getting rid of counterproductive and unnecessary constraints on people’s lives.
Mark Norrish is a Melbourne-based consultant and writer. He's interested in economics and issues of equality.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Greens.
Want to know about the Greens' vision for a UBI? The Green Institute has published “Conversation Starters” To Help Design A UBI, looking at the What and Why, the How and How Much, and the How To of UBI.