IN THE wake of Brexit, One Nation, Trump and the general alienation of those who have lost their jobs, wages growth and sense of purpose to globalisation, Australia should join Finland in considering a minimum-payment scheme.
Finland has high unemployment, very high youth unemployment and generous welfare.
Its welfare is so generous that people can be worse off moving from welfare to work. To some extent it is true in Australia. Australia also has barriers for women entering the workforce as they lose means-tested family benefits.
It seems quite mad to suggest the government pay every adult Australian resident citizen $15,000 a year no questions asked. That is until you look at the details when the scheme starts making a lot of sense.
For the purposes of this article I will use very rounded figures for ease of comprehension.
Paying $15,000 to every person between 18 and 65 would cost about $200 billion.
Our total federal welfare bill is about $140 billion. From that all the unemployment benefits, family benefits and welfare services would be scrapped. Only the $40 billion in aged pensions and about $10 billion in disability allowances above $15,000 a year per person would remain.
That would provide almost half of the $200 billion needed.
The rest would be made up by rejigging the income-tax scales, with people on higher taxes paying more. In effect, after the certain level – say, $150,000 – people would be paying back their $15,000.
The $18,000 tax-free threshold would be scrapped. People would pay tax on the first dollar they earned. After all, they are coming off a starting position of $15,000 paid by the government.
The tax scales would be revamped to end the big bracket steps.
Rather, the tax rates would increase gradually, going up half a cent in the dollar every thousand dollars until it topped at 50 cents in the dollar at $100,000.
That is just an example. It could be tweaked to have a higher or lower top rate coming in at a higher or lower income. The important point is for the rate of tax to increase less than a cent each thousand dollars, rather than the three of four sudden jumps that we have now – 0, 19, 32.5, 37 and 45.
The new tax rates would ensure the balance of the cost of the $15,000 payments would be recouped.
The $15,000 would be indexed to national income, so people would get a sense of sharing the increases in national wealth, rather than a sense that it is all going to the big end of town. The income at which the top rate applied would also move this way.
Now let’s look at the advantages of changing the whole income system in this way.
The Australian Resident Citizenship Payment would add a sense of national belonging. It would encourage people to take out citizenship. It would not be paid to citizens working abroad.
It would end the disincentives to work. At present, people on the dole lose their benefits at a rate that going to work is hardly worth it. Under the new scheme, if they earn a few dollars, they would not lose any of their $15,000 benefit. The disincentive to work would disappear. And they do not get hit with an initial 19 per cent income tax. It would only be a few percent for the first few thousand.
It is important for people to get into the workforce so they can gain the work skills which will make them more valuable to employees. But if the disincentive to make the start is too high, they never get out of the unemployment pool.
We are not means-testing welfare; we are means-testing people out of work.
Under the new scheme all the back-packer nonsense would disappear. All of the wasteful means testing would disappear. Bracket creep would disappear and with it all the political nonsense of giving “tax cuts” which are no more than catch-ups.
All of the stress of work tests would go.
With the end of the car industry and other manufacturing, we are going to find more people aged 45 to 65 out of work and no real prospect of finding full-time work and a huge disincentive to picking up a but of part-time work because they would lose their dole.
Australia could look upon the payment as compensation to zero and low-income people for bearing the major burden of globalisation and free trade which has given huge benefits to the rest of the population.
In the words of Bruce Springsteen: “Those jobs are going, boys, and they ain’t coming back.”
It is a delusional false promise to imagine that re-erecting tariff walls will bring them back. And even if they did, the costs to Australian households and businesses in higher prices for imports would not be worth it.
In the future, more jobs will disappear with robotics and telecommunications. It is in the interests of the well-off people to ensure social cohesion and reduce inequality. Inequality stymies economic growth.
Insecurity adds greatly to the nation’s health bill. The minimum $15,000 payment would help remove that.
There are other benefits. If the payment began at age 18 or earlier if someone is enrolled in a full-time tertiary course, it would enable students to concentrate of study. These days, too many students compromise their education with the need to work too many hours.
That would free up a lot of low-skill, part-time jobs for non-students.
Another benefit would be an end to decades of picking on the unemployed. In fact, the dole is only just over five percent of the Federal Government’s welfare bill, but it consumes about 95 per cent of hot air blown over “welfare cheats”.
The minimum-payment system should not be dismissed out of hand. With this week’s news of GDP going backwards and educational achievement falling, Australia needs a radical re-think of income and tax policies and how money is spent on education.
At present, our policies seem to be skewed to benefiting the well off, but the nation as a whole seems to be suffering.
CRISPIN HULL
This article first appeared in The Canberra Times and other Fairfax Media on 10 December 2016.
I really like the idea of a universal basic income. I disagree with the argument put by DThink, above, that it would encourage tax avoidance. This is not an argument for ditching the proposal, it’s an argument for closing loopholes. I also reject the argument that it would turn people into lotus eaters who choose not to work. Virtually all trials of these sorts of payments have proved this to be incorrect. But I think it is Yanis Varoufakis who correctly argues that you can’t expect working taxpayers to agree to lose part of their pay to support people who don’t work. They won’t vote for it. The answer is to not raise the funds from income tax, except perhaps the tax on the top few percent of earners. Such studies as have been done suggest that you can tax the very highest incomes up to at least 50 -65% marginal rate without greatly distorting incentive to work. There are other taxes such as gift taxes, estate taxes, taxes on wealth and financial transaction taxes which might be more acceptable . One option might be to allow employers to include a part of the universal income as salary on a rising scale to offset their salary bill in return for a small tax on production revenue.
It makes a lot of sense, but it may need to be tiered – say $10,000 for students and 18-25 yrs (if they live with parents, say), to help pay $25,000+ for pensioners, disabled, etc.
A well-written article and an absolutely brilliant idea. Works on so many fronts. Cannot understand why any Government wouldn’t leap at the chance to provide a living wage to all Australians. It would make budgeting, taxation and welfare so much simpler for the Government and the public servants who have to administer them. It would make life so much more dignified for the unemployed, the disabled and the unemployable. Imagine students not having to work three jobs just to afford to pay rent while they’re studying. But of course it won’t be taken seriously – brilliant ideas that might actually work rarely are taken seriously; the reasons are political and often unfathomable. I can hear Mathias Cormann and Scott Morrison now, shaking their heads in that patronising way they have, while chortling at our naivete.
This just got voted down in a euro country.
It would make things easier for public and govt.
As you say the govt takes great joy in blaming the unemployed, in the ’80s the newspaper headlines blamed the govt.
Spin doctors.
Govt know many people will never get a job, lets do a trial anyone on dole for 5 years just give them dole with no reporting requirements. It would enable job networks to focus on people with a chance.
The idea of guaranteed income schemes is nothing new and they no doubt have something to recommend them.
However,in the present toxic political and economic climate, in the unlikely event that such a scheme was introduced it would be because the Gangsters In Charge see it as being in their interests.
It is certainly in their interests to keep the proles in a zombie state so they they can continue looting the nation without disturbance.
Hearty congratulations from another long-term critic of Australia’s irrational tax/welfare system on putting forward a significant proposal for reform. Obviously, some detailed analysis is necessary, not least to head off the vested interests – high income earners naturally, but also the tax minimisation industry and the neo-liberalist economists who have a monopoly on policy-making in this country and to whom any form of wealth transfer (downwards) or income equity is anathema. Unfortunately, it is all too easy these days for skilled manipulators of media (traditional and social) to persuade the majority of potential beneficiaries of good policy that it will be “bad for the economy”. [I therefore like Alan Meadows’ ideas]
Many people have come up with that idea, but the problem is that you need to collect far more tax in the first place to hand it out. Already 30 to 40% tax brackets give incentive for tax evasion/avoidance/planning. So increasing tax rates of people on 30 to 40% to hand the money back to those same people, will increase tax planning, and the inefficiencies of encouraging people to not do their real job, but try to find tax concessions like negative gearing, or novated leasing cars, or buying work uniforms for office jobs, when they could make real money by doing their actual job. I have a desk/thinking job, and spend a large amount of my time already wriggling to avoid tax (my employer can’t see what I’m thinking about) – don’t increase the incentive to do that – I would rather do my real job.
If you are going to give incentive to find tax planning measures, then give it at the lower paid jobs end, where the more manual jobs are, where the people simply can’t reallocate what they are thinking about.
Bracket creep will always exist while you have a progressive tax system.
Possibly a game-changing idea likely to appeal to those who are heartily sick of present day politics and a majority of politicians (possibly most of us).
Suggest somebody does the following:
1. Work out the details. Might be able to harness available very cheap or free resources such as ‘bored in retirement’ folks like myself willing to devote time and energy to research and other support simply because it’s something ostensibly worthwhile doing.
2. Simplify the message and emphasize the tangible benefits.
3. Then market the arguments to the people. Win them, and recent experience suggests the politicians will follow.
Sensible. Mega-savings on unnecessary ‘public services’ as well. Keep NDIS, but let most of Comcare go into more productive avenues of work. The complexity of these entitlements is unbelievable. And frankly, it work well. Gina Rhinehart wouldn’t miss $15,000 in her pocket change, whereas unemployed Joe Blow, or barely employed Jill Wantfrieswiththat, would find it of immense value. Watch the rich once again restructure themselves as companies, however.
A good idea — at $15K per person may be possible. I see that you would not give the $15K to aged pensioners but keep them on the current pension at a cost of $45 billion. But I suspect there would be a great pressure to include them which would mean about 19 million adults aged 18+ would receive this $15K : 19 million x $15K = $285 billion