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A Basic Income for Australia

There has been a lot of discussion recently about the concept of a Basic Income (Wikipedia), largely due to the efforts to change the Swiss constitution to provide a Basic Income [1]. The concept of a Basic Income is that residents get a fixed payment without having to be sick, disabled, looking for work, or eligible for other forms of social security.

A Basic Income wouldn’t replace all other forms of social security, one of the most obvious examples is that sick people will often need money for medical care in additional to living expenses. Also I believe that it shouldn’t be means tested in any way. I think that one of the problems with current payment schemes is that there are complex eligibility criteria which require effort for the applicant and for government agencies to prevent accidental or fraudulent over-payment. The tax rates could be raised slightly to make it revenue neutral.

Newstart

In Australia the main form of social security for unemployed people at the moment is called “Newstart” [2]. Currently Newstart payments range from a maximum of $501 per fortnight for a single person ($13,026 per annum), to a maximum of $699.90 per fortnight for someone who is a carer.

The Newstart payments start to decrease if the recipient earns more than $62 per fortnight. The minimum wage in Australia is $16.37 per hour for permanent work or $20.30 for casual work [3]. So if someone works for more than 3 hours at a casual rate (and I can’t imagine 4 hours a fortnight being anything other than casual) then their Newstart payments will decrease. The payment decreases are fairly significant, for every dollar that is earned about 50 cents will be deducted from the payments. That’s a great incentive to either avoid opportunities to do part-time work or to do cash-only work that’s outside the tax system.

The most obvious way of implementing a Basic Income would be to replace Newstart. Then anyone who is in that situation would be free to just not get a job – which would be OK IMHO as people who don’t want to work probably wouldn’t do a good job if the government forced them to get a job. People who are unemployed who want to work could work as much as they want and scale up according to what their employer asks and how much money they need.

Currently the full-time minimum wage is $622.20 per week (I’m not sure exactly how they get that from $16.37). That’s almost 2.5* the Newstart allowance for a single person (but less than twice the Newstart allowance for a carer). While Newstart (and the other forms of social security) don’t provide a great income, it seems that the difference between Newstart and the minimum wage isn’t that great – particularly when you consider that working involves some expenses for travel etc. There doesn’t seem to be a great financial incentive for someone to leave Newstart and get a minimum wage job.

People Who Want Social Security

Some people think it’s great to get government payments while others find it embarrassing to need such payments and won’t necessarily apply if they are eligible. I think that the current system of forcing people to apply for social security is a way of discouraging people who find themselves unexpectedly in a difficult situation but doesn’t discourage people who are happy not to work. This seems to effectively reduce the incidence of payments to the people who most tax-payers would regard as the most worthy recipients.

Economics

Charles Stross wrote about some ideas related to this [4]. He suggests that as the workforce participation has been steadily reducing due to technology we should move to a social model that isn’t based around working to live but working to buy luxuries that aren’t covered by the Basic Income.

One of the many economic changes related to a Basic Income is that the minimum wage could be smaller than it might otherwise be. For example if the minimum wage was decreased by the same amount that the Basic Income provided then the minimum income would remain the same while employers would pay less, this would affect the viability of certain types of contract work web sites if they were subject to minimum wage laws (currently they just ignore the minimum wage laws by paying based on job completion instead of hours worked). I don’t think that the minimum wage should decrease that much though, currently employers are able to run viable businesses with the minimum wage laws and I don’t think that a Basic Income should be used as a way of helping corporations avoid paying their employees.

If we had a Basic Income then there’s many ways that it could be used to stabilise the economy. If people could pay their rent even if they lost their job then a down-turn in one area of the economy wouldn’t immediately affect other areas. Also if rent payments were deducted automatically from an account used to receive the Basic Income then landlords would be more likely to rent to poor people as they could be guaranteed to receive rent payments (it would be easy to have a contractual agreement for rent to take priority and have bank computers enforce that).

The Implementation Problem

I don’t think that my idea would have any significant negative effects. It wouldn’t decrease government revenues if tax was adjusted accordingly. It wouldn’t make people stop working as people who don’t want to work already avoid it. It would help people who are out of work to get work by reducing the barriers to entry in terms of paperwork and of unreasonable cuts to Newstart making it bad value to take part time work.

I think that the big problem with implementing it is people who want to prevent poor people from having opportunities. They want to reduce social security and minimum wages even though such changes will in the long run only give less tax revenue and greater expense in law enforcement. It seems rather ironic that such hostility often comes from people at the low end of the middle class whos jobs are most likely to be at risk from new technology.

As on-going technological development reduces the number of workers that are required to keep things running we need to have some form of payment to the people who aren’t doing enough work to survive. A decent Basic Income is a much better option than giving Newstart payments and forcing a significant portion of the population into a degrading search for jobs that don’t exist. As that’s the inevitable future I think we should make political changes to deal with it sooner rather than later. However a Basic Income might be implemented now it’s surely going to be a lot better than what might happen if we wait until the majority of the population are unemployed before doing something about it.

9 comments to A Basic Income for Australia

  • sky

    Hey!

    It’s great to see people starting to consider the basic minimum income for Australia, and this contains some thoughtful reflections. However, I’d like to see this part explored a bit more: “I think that the big problem with implementing it is people who want to prevent poor people from having opportunities. They want to reduce social security and minimum wages even though such changes will in the long run only give less tax revenue and greater expense in law enforcement. It seems rather ironic that such hostility often comes from people at the low end of the middle class whos jobs are most likely to be at risk from new technology.” While this may not have been your intention, this seems to imply that the major stumbling-point for implementing a policy like this is less well-off people. It would be great to see more in-depth discussion of political opposition to policies like the basic minimum wage (or even decent minimum wages and social security).

    - sky.

  • etbe

    sky: I think that selfish opposition to such ideas comes from people of all income levels. One item on my todo list is to write a post about the economic distribution of political views, it’s widely regarded that there’s a strong correlation between wealth and voting Liberal which seems obviously wrong (any politician who only gets votes from rich people loses the election).

    http://www.ted.com/talks/richard_wilkinson.html

    I’m sure you’ve already seen Richard Wilkinson’s TED talk and the data to support it’s conclusions that inequality is bad for everyone (even the rich). Most rich people aren’t going to be able to accept this and it’s understandable that they mistakenly try to vote themselves more money. But people who aren’t so well off voting to reduce social security is extremely illogical.

  • It’s worth noting too, that there’s an ongoing European Citizen Initiative that needs 1 million signatures until January 14th 2014 to be successful. Anyone in the EU should really sign it now:

    http://sign.basicincome2013.eu

  • Anonymous Coward

    If you’re interested in criticism of the concept of basic income (in the general sense; not your proposal) and can read German, take a look at http://www.flassbeck-economics.de/das-bedingungslose-grundeinkommen-teil-i-tischlein-deck-dich-fuer-jedermann/ and http://www.flassbeck-economics.de/das-bedingungslose-grundeinkommen-teil-ii-logik-ist-nicht-durch-guten-willen-ersetzbar/ .

    In these articles, the economist (“Volkswirtin” in German) Friederike Spiecker argues that a basic income can’t work for economic reasons. She argues that the amount of wealth redistribution that’s necessary for a basic income will require much higher taxes on work income which will make it less profitable to work (or at least to work as long as one did before basic income). This makes the system unstable: if the population as a whole works less, taxes need to be increased and people will work even less and so on. In her mind, the right solution would be to make sure that (minimum) wages are high enough for people to live on.

  • etbe

    Anon: Thanks for the links, unfortunately Google Translation doesn’t seem to do a good job on them.

    In regard to your description, I’m not suggesting any significant redistribution, I’m suggesting that we keep doing same thing as before but make it more general. My idea doesn’t require any significant new taxes.

    But in regard to the issue of high taxes stopping people from working, that one has been debunked repeatedly. It’s only people with some sort of religious belief in the “trickle down effect” who keep repeating it. Lowering taxes doesn’t make anyone start a business, an opportunity to make a profit is what makes someone start a business – and that depends on customers having money. Lowering taxes doesn’t make anyone get a job when they would otherwise be unemployed (except in the case of someone who’s on unemployment benefits and is considering part-time work – which is one problem my ideas would solve). Lowering taxes doesn’t make anyone work longer hours, doing more than a basic 40 hour week is mostly based on morale and other social factors.

    I think there’s a big problem of economists who don’t understand anything about people. One thing that needs to be considered is that income is to some extent an issue of bragging rights, allowing you to buy a faster car than your neighbors etc. For that aspect people will work harder to the extent needed to beat others regardless of tax. Another thing is that people will do enough work to be able to afford the things that they want. So if the tax rate goes up some people will do more work because of it.

    Is that an “Austrian” economist?

  • Anonymous Coward

    etbe: It’s not an “Austrian” economist. The economists that run Flassbeck Economics don’t subscribe to the “neoliberal” (for a lack of a better work) view that’s so present in German economic discussion.

    The articles that I linked must be seen in the context of the discussion in Germany at the time. The proposal that was discussed was to give everyone in the country – whether they work, don’t work or can’t work – a monthly payment of about 1000€.

    I’ll try to give a short summary of the main arguments from memory and hope that it’s helpful.
    a) The articles mention that many supporters of the basic income assume that we’re running out of work any time soon. In the article, it is mentioned that while the amount of work is dropping, it won’t be a problem. Unfortunately, this issue is not treated further.
    b) The money for the basic income must come from somewhere. I agree with what you said about the “trickle-down economy” and taxes stopping people from work but that’s not what’s meant in the article.
    Nobody can just get money for free. Even rich people can only be rich because they have people working for them (even if it’s only indirectly, e.g. via stocks or other financial products). Somebody, somewhere must do the work (i.e. provide the services or produce the goods) so that the capitalist can get his money from the added value. The same applies to the money that’s provided via the basic income.
    So where will the money come for the basic income come from? The articles assume that the money will come from taxes on work.
    My personal opinion is the following: taxes for the well-off and the companies have been reduced by governments for years (certainly in Europe and from what I’ve read also in other countries), no matter whether the governments were “left” or “right”. Why should governments start taxing companies and well-off people more now? If we could make them do that, we could also get better social security which might (or might not, depending on your point of view) reduce the need for a basic income. The Swiss may be able to make their government “do the right thing” but everyone else must deal with their elected governments, who can just forget all their pre-election promises the day they’re elected and then mostly do what they want.
    So the money will have to come from other kinds of taxes. The governments will have to raise taxes or cut other benefits, because it’s an additional expense. Raising taxes on consumption hits the poorest people the hardest unless you take measures to make sure that essential services and products (food, energy, …) are still affordable.
    So it’s likely that work will be taxed more. But this makes working less attractive. At the very least, it is more attractive to work less and try to live on a slightly reduced income. But if too many people do that, the amount of money that comes in through the taxes will be reduced, which might lead to higher taxes. If that happens, working will be even less attractive and so on. I’m not an economist, so I can’t say if that will happen but I think it’s a very real danger.
    c) The article also mentions that some people argue that they will work even if they get a basic income, they just won’t do it via an employer. According to the article, the problem with that is that it undermines the free market. As soon as people on basic income do something comparable that people who work for more money do, you’ll have problems with fostering a fair competition. The article uses a psychologist as an example: If you can choose between a psychologist that provides the service for free and someone that charges for it, who would you choose? And how are you going to judge whether any of them is any good? In a free market, at least you know have some basic assurance that somebody who’s been around for a few years can’t be totally incompetent (because he’d been gone into bankruptancy if he were).

  • etbe

    E1000 per month is about $AU18,700 per annum at current exchange rates. I am proposing making the social security payments for job seekers be the Basic Income, that is $AU13,026 per annum. As the cost of living seems to be higher in Europe (based on my experience living in the Netherlands and holidaying in Germany) the amounts are probably comparable.

    a) You are also assuming that the number of jobs that we currently have is a good thing. There are many ways that the number of employed people can be reduced without removing any benefit from society other than their ability to spend wages. I’ll write a blog post about this in future.

    b) For the people who are currently on “Newstart” there would be no change other than the reduction in paperwork – which contributes to my above idea of reducing the number of employed people without removing any benefit from society. For the people who are earning money their tax rate would be increased to match the Basic Income payments, it would be revenue neutral for them. For people who are in between those situations my proposed changes would encourage them to seek part-time work by being better than the current situation (which effectively imposes a 50% tax on such work).

    http://en.wikipedia.org/wiki/Rent_seeking

    You can get money for free, the Wikipedia page about Rent Seeking explains it. Incidentally if the government would stop handing out hundreds of millions of dollars to corporations then it would help fund a Basic Income or whatever else they would want to do. They give $300,000,000 to a foreign car company so they can keep making cars no-one really wants to buy and $100,000,000 to an energy company so they can keep using brown coal which isn’t efficient and lots of other similar things, it adds up to serious amounts of money.

    We currently have problems of social security not going to people who deserve it and taking a significant amount of government paperwork. I am proposing mostly solving both those problems by applying the basic social security to everyone.

    https://www.psychology.org.au/membership/become_a_member/grades_fees/
    http://www.apa.org/membership/member/index.aspx
    http://www.bdp-verband.de/service/mitgliedwerden.shtml

    c) The fact that the article uses a psychologist as an example shows that it’s either highly specific to unusual market situation in Germany or written by people who don’t know what they are talking about. In most countries there is a great shortage of psychologists. Professional societies of psycholgists are difficult to join, in Australia it requires 6 years of study, in the US it’s a Ph.D in Psychology (more than 6 years). It seems that Germany has lower standards in this area as a basic degree will do (what’s that, 4 years?).

    Not that having been around for a while really proves anything. Every so often you have a popular restaurant shut down for poor sanitation, a successful doctor deregistered for medical malpractice, etc.

    Also another thing to consider is that there’s no restriction on being a “counsellor”. So if you can’t afford a psychologist you can see a priest, teacher, or anyone you want for similar services. Free counselling is available right now if you want it. But people who can afford a member of a psychological association generally prefer that option.

    I think that the articles are written by people who have the same problems as Austrian economists. They think that everything is about money and then just make stuff up based on that assumption while not paying much attention to how things really work.

  • Anonymous Coward

    You’re saying the the people that wrote the article think everything is about money. I don’t agree but I’ll admit that they focus on the economic side. They’re economists after all.

    I remain unconvinced that it is actually possible to get enough political support to introduce a basic income in the near future. The basic income is only being discussed, i.e. we are only in this mess, because the political developments are going in a direction that does not benefit society as a whole. This is the result of political influence that’s exterted on governments by the super-rich and by big companies. The same influence is present in the (mainstream) media (at least in Germany).

    For example, in Germany, people voted the CDU and the SPD into government. These are exactly the two parties that have introduced the “reforms for the job market” (Hartz 4, creating the biggest low-wage sector in Europe) and that have destroyed pensions (people that enter the job market and have an average income today will get a pension at social security level). They have also worsened the euro crisis by forcing austerity on nations like Spain and Greece (which, in constrast to Germany, mainly depend on their domestic market for economic growth). But the CDU/CSU and the SPD still managed to get a two-thirds-majority because “we’re all doing fine” (you’ll read that very often in the German media). The Greens and the Left, which could probably described as sympathetic to the idea of a basic income, have so few seats in the parliament that they can’t even force the creation of an investigation commitee (which is a very important tool for the opposition).

    Some comments on your replies:
    a) I’m looking forward to discussion of issues like
    -How do you plan to judge which jobs are necessary?
    -How can unnecessary jobs be “removed”? There must be someone who’s employing the people right now. How are they going to cope?
    -What are people with an “unnecessary” job to do if they like it?
    -How can you do a transition from the current system to the new system without major disruptions?
    -It has been alleged that requiring people to work is one way to keep them from doing “too much” political activism. If that were true, how would you deal with the political backlash from the people in power?
    c) About being around for a while: I was talking about successful business models, you’re talking about regulatory compliance. I don’t know the situation in Australia but in Germany the states just doesn’t employ enough people to check for these kinds of problems. It can be a few years before a regulated business (e.g. in agriculture) is actually subject to some scrutiny (even if that scrutiny is only superficial).

  • Anonymous Coward

    I probably won’t reply further, but I want to add one thing: I have the feeling that you’re underestimating the amount of work and perseverance that’s needed to make changes on this scale. It took the anti-nuclear movement in Germany (https://en.wikipedia.org/wiki/Anti-nuclear_movement_in_Germany) several decades and the accidents at Tschernobyl and Fukushima to convice all German parties that it would be better to refrain from using nuclear power.

    There are still enough people that believe that parties like the CDU/CSU aim to sabotage the “Energiewende” to be able to re-introduce nuclear power. And the SPD would rather not do anything that’s bad for owners of coal plants.

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