Forget Universal Basic Income, just raise Newstart

By Leith van Onselen

Greens leader, Richard DiNatale, has been rubbished by economists for proposing a socialistic “universal basic income” (UBI) scheme in his Press Club Address yesterday. From The Australian:

Greens leader Richard Di ­Natale’s policy to abolish all existing welfare and introduce a “universal basic income” — a non-means-tested payment to all citizens — would require federal public spending to rise by $254 billion a year, or by almost 55 per cent…

Social researcher Ben Phillips — who modelled for The Australian the cost of paying all residents aged 15 and over $23,000 a year (the Age Pension) and children $5500 a year (the maximum rate of Family Tax Benefit A) — said the plan was “utopian”. On his analysis, all marginal income tax rates, including the current zero-rate on incomes up to $18,200, would need to rise by 33 percentage points to pay for the proposal, bringing the top rate on incomes above $180,000 to 78 per cent.

“One of the claims of UBI ­advocates is that they remove the high effective marginal tax rate,” Mr Phillips said. “To some extent that’s true but the majority of taxpayers move to even higher effective rates”…

Independent economist Saul Eslake said Senator Di Natale’s policy, announced at the National Press Club yesterday, was an “extraordinarily expensive way of seeking to address what may well be a few cracks through which a limited number of people fall”.

Peter Whiteford, social security expert at the ANU, said Australia already had the most targeted ­social security system in the OECD…

Privately, senior Greens conceded an effective UBI payment would need to be between $20,000 and $40,000 a year…

I think Saul Eslake’s comment that UBI is an “extraordinarily expensive way of seeking to address what may well be a few cracks through which a limited number of people fall” sums up the Greens policy perfectly.

The main shortfalls of Australia’s social security system are as follows:

  1. the Newstart (‘Dole’) allowance for the unemployed is highly inadequate and should be significantly increased; and
  2. the Aged Pension is too generous to those with significant wealth, but not generous enough to those with few means, thus warranting a shift in payments.

As shown in the next chart, the Newstart Allowance has not increased in real terms (i.e. above the Consumer Price Index) since 1994. This means that people who are unemployed have not shared in increases in living standards received by the rest of the community for more than 20 years.

ScreenHunter_15519 Oct. 17 07.58

OECD comparisons also shows that Australia’s dole allowance is amongst the lowest in the world for singles:

Whereas it’s only a little more generous for couples:

It’s also worth highlighting that the Business Council of Australia (BCA) has recently called for “increasing the inadequate Newstart allowance, arguably the most tightly controlled corner of the welfare budget”, as has KPMG, which has also described Newstart as “inadequate”  and called for it to be raised by $50 a week.

When even the BCA is calling for Newstart to be raised, you know there’s a problem.

The problems around the Aged Pension relate more to its distribution. That is, while older Australians generally have captured an increasing share of Australia’s wealth:

Largely because they have increased their home ownership rates over the past 55 years at the same time as home values have skyrocketed:

The situation is nowhere near as rosy for Australia’s renting pensioners, who are doing it increasingly tough, according to a recent reports from Mission Australia, The ABC. and the Swinburne Institute for Social Research.

Therefore, there is a clear case for broad reforms to both the housing and the Aged Pension systems.

On the housing side of the equation, there is a clear need for greater public investment in social and community housing, as well as reforms to taxation arrangements to boost affordable housing via targeting negative gearing at new builds (similar to Labor’s policy). We also need rules that give greater security of tenure to renters, like those that exist across much of Europe.

Regarding the Aged Pension, it should be reformed to provide less taxpayer assistance to wealthy home owners and more assistance to renters, via:

  1. Including one’s principal place of residence in the assets test for the Aged Pension at some point in the future (e.g. 1 July 2020), thus allowing current retirees and prospective retirees adequate time to make arrangements.
  2. Once implemented, raising the overall assets test for the Aged Pension, and the base rate as well.
  3. Extending the existing state sponsored reverse mortgage scheme, the Pension Loans Scheme, to all people of retirement age so that asset (house) rich retirees can continue to receive a regular income stream in exchange for a HELP-style liability that is recoverable from the person’s estate upon death, or upon sale of the person’s home (whichever comes first).

Under this plan, house-rich pensioners could continue to receive a regular income stream as they do now under the Aged Pension, but with less longer-term drain on the Budget and on younger taxpayers. At the same time, the circa 20% of renting pensioners would receive greater financial assistance – both via and expansion of the assets test and an increase in the base rate (see here for a detailed examination of this issue).

These are the types of social reforms that The Greens should be pursuing, not daft socialist plans like UBI.

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Comments

  1. HadronCollision

    When you get your tax invoice each year (assuming you aren’t a leech getting dividend refund cheques LOLz) you can clearly see how much the aged pension is.
    The bar chart is significantly larger than the dole

    You can point to that when anyone cries “dole bludgers”
    it’s simply an imagined problem

    • I never quite understood why working Aussies always treat pensioners like special flowers. In other countries their policy is strictly to support the working population.

    • Philly SlimMEMBER

      Full employment will be a pipe dream with robots.

      I support a UBI. Also think of the massive efficiency from abolishing all the govt departments that currently monitor and enforce the means testing.

      • You support the government taking money from you, and then paying less back to you with admin costs and fraud costs stripped out?! Wow!

      • Philly SlimMEMBER

        There are far less admin costs in a UBI than in the current set up (centrelink, etc). The ATO collects the money and then every Australian gets a regular check. There literally isn’t anything else to do. The “U” stands for universal, everyone gets it, so unless you mean not telling the Feds granny has died I fail to see the avenues for much fraud here. Again, unlike the current system.

      • UBI experiments show that recipients visit doctors less often. Their stress levels go down knowing that they have a guaranteed income and Centrelink stops asking them for medical certificates.

        UBI recipient in Finland is much happier now that he no longer has to jump through hoops at Sarina Russo: https://www.youtube.com/watch?v=vwjNrxVd-1E

    • Stuff that. Halt immigration and run a saudi style economy where the locals reap all the benefits of the national wealth.

  2. SauropodMEMBER

    A UBI makes sense when funded by a broad-based land tax. The UBI covers the land tax on a modest home, so the average home owner is no worse off. There is an incentive to live in a smaller home, encouraging people to downsize and make larger homes available to people who need them.
    It is not necessarily a socialist idea. Coupled with a land-tax it is a stepping stone to reclaiming our commonwealth. Rather that the increased value from economic growth and infrastructure development being captured by existing land holders over time, it is captured by the land lax and distributed on a per-capita basis, without penalising people who do the right thing and only use the space they actually need.

    • Great idea well made Ms/Mr Lizard Foot. Why not a comprehensive wealth tax rather than just land?

      • SauropodMEMBER

        No, I am not suggesting a general wealth tax. A tax on the unimproved value of land specifically does not tax the value of any improvements to the land, such as a buildings, which is the actual wealth added by the effort of the land owner. We want to encourage people to improve land, and discourage people from hoarding vacant blocks and empty houses.

  3. Newstart kills voters:

    Father Of A Teenager Who Died Doing Work For The Dole Says His Son Was Made To Work With A Back Injury

    https://www.buzzfeed.com/aliceworkman/work-for-the-dole-death?utm_term=.lcmrKn6rGW#.adn0QBg0AD

    Therese Rein and Sarina Russo got rich by making the unemployed jump through hoops. Both sides of politics are busy giving the jobs to foreigners anyway. Atlassian’s own video shows they do not even hire an Aussie for the HR position while PM Bill English said he wants foreigners to driver trucks instead of Kiwis. And Gillard gave 457 visas to KFC!

    The ALP took EITC to the 1998 federal election – I think that is a wage top up scheme. So if a guy has an income of $6k/year, he would get topped up to $10k/year. If a guy already has an income of $40k/year, he would get no top up.

    Ross Garnaut wanted EITC in 1999.

    In Britain, people who have a terminal illness were declared “fit to work”. The same happened in AUS. That is why UBI or EITC is so attractive and income tax cuts are very bad.

    Foreign “students” enjoy income tax cuts while homeless Aussies get nothing.

    Put in a wage top up scheme so that homeless dudes get at least $10k/year and those with an income over $60k get no top up.

  4. Can i suggest that “landlords” only be entitled to NG claims if they rent to a pensioner or unemployed person/family in combination with checks that rent is controled to an acceptable amount.

    • That isn’t a million miles from the NRAS scheme where you would get an tax offset if you rented the new premises out at a 20% discount to market value do a low income earner.

  5. pyjamasbeforechristMEMBER

    If we are talking utopia;

    0% Income tax
    0% Company tax
    0% Capital gains tax
    Assets tax owned by each person to replace then all

    Promote Jobs
    Promote Company expansion
    Promote Investment
    Discourage idle asset hording
    Prepare for an AI world
    Close the equality gap

    • “0% Income tax, 0% Company tax, 0% Capital gains tax, Assets tax owned by each person to replace then all”

      Ah, my sense has been that the taxation system of future needs to progressively shift to more “stock-based” from the current overwhelmingly “flow-based” version as the population ages.

      https://www.macrobusiness.com.au/2012/11/85473/#comment-190527

      I cannot see other viable ways.

    • Even StevenMEMBER

      Is a holiday house an asset? Ok… too easy.

      How about a car?
      A fridge?
      A coin/stamp collection?
      Paintings?

      I’m just seeking to give a sense of how difficult it would be. I suppose we could marshall tens of thousands of home inspectors to catalogue and value your possessions (on a monthly/annual basis) but probably not the most elegant solution. And this is probably why we have an income-based tax system rather than asset-based tax system.

      Any durable and portable asset that is not taxed becomes a de facto store of value (a currency).

      The only occasions an asset-based tax work are at particular junctures where it is hard to avoid (or a valuation-type process already occurs) e.g. the distribution of an estate upon death.

      • pyjamasbeforechristMEMBER

        Indeed the ‘valuation’ accounting is the difficult part. But not impossible in these modern times.

        And you could build in some leeway to the system to enable estimations rather than hard ‘valuations’ for some assets. Eg you get to lodge an estimate for X asset. But if you’re audited, and found to have under estimated by more than Y% then the missed tax applies at twice the normal rate.

        And all assets btw. Exclude none. Just maybe have a tax free threshold up to some value.

      • drsmithyMEMBER

        Indeed the ‘valuation’ accounting is the difficult part. But not impossible in these modern times.

        Well, maybe not “impossible”, but certainly having to keep track of acquiring and disposing everything that could be considered an “asset” would be an absurd burden.

  6. Ask the BCA if the minimum wage should be increased as that is also totally inadequate. Ask all large companies if there should be wage increases and they’ll say yes, for all OTHER employers.

    Happy for increases except when their members will have to pay for it.

    • The shops that pay legal-wages (Coles Express) should be demanding jail for wage theft given that rival petrol stations (7-11) pay illegal-wages.

      It is like playing a cricket match in which one team is allowed to have 50 batsmen.

  7. “When even the BCA is calling for Newstart to be raised, you know there’s a problem.”

    Not for the reasons you think.

    The BCA represents businesses that would benefit mightily from more money finding its way into the hands of the spenders (at the expense of savers). Big Business supports socialism more than you think.

    • Indeed. It’s a variation on “other peoples money”.

      Now, if they would argue for an increase in Newstart in preference to lowering the Corporate Tax rate, that would be something.

  8. DiNatale and the Greens hold the unique talent of making uni student politics look sophisticated and nuanced.

  9. How about putting a blanket ban on any Newstart recipient from being on the premises of a TAB, Pokies Venue, Race track (horses/greyhounds)?

      • I have no doubt and agree. Ban anyone that receives a government pension; at least from the Pokies.
        The damn things are evil.

    • Good idea. Even better, I would support ration coupons for essential items (or cashless debit cards) but not cash.

      I also suspect that Jacob’s idea of $900/month UBI will be followed by a headline from Domain:

      “House prices rise by $900 across the board”

      • Foreigners should be excluded from getting UBI – so it would give an upper hand to Aussies – unlike income tax cuts which foreign “students” enjoy.

        And if UBI will make house prices go up, why has Turnbull not implemented UBI yet? He had an epic rant against Bowen’s policy of making house prices go down.

  10. Tassie TomMEMBER

    I completely agree with what Di Natale appears to have said (although I’m at work and haven’t read it in detail – I’ll do it tonight). It’s what I’ve been saying for years.

    How do you fill this $250 billion pa gap?

    1) Begin the 30% tax bracket at about $2000 pa. I’ve done the sums before – I think this would raise about an extra $120 billion of that $250 billion foregone.

    2) 1%pa wealth tax. There is $9 trillion of Australian wealth and about $3 trillion of foreign investment, so here’s another $120 billion pa.

    3) Get rid of NG, tax CGT at marginal tax rate (possibly with cost base adjusted for CPI). On paper this would raise $10 billion per year, but if the combination of items 2 and 3 successfully reduce asset prices as they are designed to, then there would be no capital gains for a while, so this would effectively cost $10 billion per year for a few years. In fact, what would be better would be putting CGT on property up to 60%. Then the public would capture a large bulk of the gains of developers’ dodgy re-zoning deals.

    4) Now that income splitting and CGT/NG have been resolved, super is the best game in town. Put up tax on super contributions and earnings to 20% and get rid of the tax-free pension. $50 billion per year – bonza! Would people still sacrifice into super? I would – my money is still earning 14% in a day ($80 instead of $70 per $100 earned = $14% increase).

    5) Tax religious institutions like any other company. How much would this earn? It’s not listed in the federal government’s list of tax concessions. Some reports say they earn $100 billion pa between them, and if this is the case taxing them would earn $30 billion pa.

    I think I’ve just paid for UBI and put the budged $70 billion pa into surplus. And this is just the low-hanging fruit. Closing multinational loopholes could earn another $50 billion or so, and the economic growth that would stem from these above reform would increase GDP by many %, earning tens of billions pa more each year over the previous year.

    • Actually, the recommendations contained in the Henry tax review are good. This is a bit old but still remains valid (good posts stand the test of time, you know!!)

      https://www.macrobusiness.com.au/2012/11/85473/#comment-190527

      In the long run, the taxation system will need to progressively shift to more “stock-based” from the current overwhelmingly “flow-based” version as the population ages.

  11. drsmithyMEMBER

    “Greens leader Richard Di ­Natale’s policy to abolish all existing welfare and introduce a “universal basic income” — a non-means-tested payment to all citizens — would require federal public spending to rise by $254 billion a year, or by almost 55 per cent…”

    As I read the Greens’ proposal, their UBI would not replace existing welfare, it would be “as well as access to universal social services, health, education and housing”.

    I can’t find any more details, however.

    • drSmithy, the reason to put in UBI is not the fact that inequality is the highest it has been since 1939?

      You cheer on income tax cuts but the threshold is already at $18k/year and inequality is still growing. Tassie Tom above has done the numbers on how to fund UBI – and it includes not having an income tax free threshold. Raising the income tax free threshold to $18k instead of giving out a mild UBI of $5000/year was insane – Abbott won the election anyway.

      You may be aware that the dole is lethal – a teen died while doing work for a dole – after all, right wing pricks online say “work or die”! They literally want the unemployed to die while giving entry level jobs in the government-funded NBN to foreigners.

      An alternative to UBI is a wage top up – so if a guy has an income of $6k/year, he would get topped up to $18k/year and a guy on $40k/year would get no top up. That would be fantastic but I am not sure if it would be politically viable. UBI is very politically viable – it has existed in Alaska since 1982 and politicians dare not remove it.

      • drsmithyMEMBER

        You cheer on income tax cuts but the threshold is already at $18k/year and inequality is still growing.

        Uh huh. When did I “cheer on tax cuts” ?

    • drsmithy, you cheered on income tax cuts a few weeks ago when Ermington Plumbing said the ITF threshold should be raised.

      • drsmithyMEMBER

        I imagine what I _actually_ said is that raising the tax free threshold is a better tax reform than cutting taxes for higher income earners.

        You have a habit of misrepresenting – or outright fabricating – “facts” to fit your opinions.

  12. The idea of a UBI sounds good in theory but raises so many questions it is hard to imagine it being practical. The richer you are the higher you get taxed presumably, but are you taxed on income or wealth (inherited or earned)? Does it mean the rich are forced to sell investment properties or shares? What if they’re in trusts or offshore? I’m sure the uber-wealthy would find ways to evade these taxes.

    We can look at multi-billionaires and say they could give away say 80 – 90% of their wealth and still be able to live a privileged lifestyle. But then, if the govt were able to get their hands on a large portion, what would the incentive be to work hard and build wealth? And what is considered wealthy?

    And why do it anyway? Isn’t it largely because home prices and rents are too high? What about simply bursting the bubble? All that has to be done is cut immigration, cut foreign buyers, stop allowing SMSFs to leverage into property and curtail negative gearing. Most of these policies were relaxed by Kevin Rudd to reinflate a slightly deflating bubble in 2008. But if you burst the bubble now, it would plunge us into recession and probably depression.

    I don’t see it happening.

    • drsmithyMEMBER

      The richer you are the higher you get taxed presumably, but are you taxed on income or wealth (inherited or earned)?

      Yes.

      Does it mean the rich are forced to sell investment properties or shares?

      No ? Why would it ?

      We can look at multi-billionaires and say they could give away say 80 – 90% of their wealth and still be able to live a privileged lifestyle. But then, if the govt were able to get their hands on a large portion, what would the incentive be to work hard and build wealth?

      Er, having hundreds of millions of dollars ?

      And why do it anyway?

      Because within a few generations, half the population or more will be unemployed and unemployable.

      All that said, there’s still so much to be done in the world, I think in the short to medium term a job guarantee is a better idea. But some form of UBI – assuming you’re not just going to cull huge swathes of the population, either through aggression or neglect – is inevitable.

      I don’t see it happening.

      I do. But it’ll be a neoliberal UBI brought in to replace all welfare/social services and accompanied by the privatisation of all publicly owned assets and publicly-run services.

  13. So a 15yo can own a house? Is this some sneaky legislation that got passed through quietly so Chinese high school students in can now buy properties in Australia?

  14. https://en.wikipedia.org/wiki/FairTax

    I’ll just leave this here.

    Flat tax on all consumption. Refunds back to everyone, who is an Australian citizen. Black market? Maybe, but the penalties on tax evasion are fairly steep, or could be strengthened. And best part of all, no refund unless you hold that passport (ok, maybe permanent residents also get the refund).

  15. KeenEyeKenMEMBER

    There’s a long way to go before this UBI debate can be taken seriously.

    Why do we assume that revenue is raised solely from income/wage taxes? Tassie Tom points to plenty of low hanging fruit, with regards to a small/nominal tax on the stock of wealth.

    Also, having a flat 55% tax rate on income is a stretch. If you look at the ABS national accounts, there’s about $1.4 billion in income per year attributable to employees and corporate surplus. To raise the entire $254 billion you only need to have flat tax rate of about 19%. No need to have tax-free thresholds, because everyone gets a UBI. Also, that’s not including the money saved by replacing the existing welfare state (nor the low hanging fruit mentioned by Tassie Tom).

    edit: i’m not sold on the idea of UBI – the second order effects are what bother me – but we should at least ditch the partisan campaigns before understand it.

  16. To be a broken record, Guy Standing is the authority in this subject. He has run large scale trials and the results have been better than expected. These include increases in health and education in children. Which is undoubtedly a good thing. An increase in all labour, except child labour, which decreased. Again, another good thing. It also acknowledges all of the unrecognised work that is done within the community by carers.
    This speech covers a lot of the ground. He goes over the results I’ve mentioned briefly above, looks at justifications and objections, how to fund it (capture the rents and remove corporate welfare) and also voices his concern about the versions of a UBI (libertarian and neoliberal) that cost the other services of government.
    The idea of a UBI seems be taken like the Church hearing that the Earth goes around the Sun. The Church’s notion about the world is made up, it won’t accept any evidence otherwise. The trials have shown that people don’t just pull bongs all day and that not being poor assists people in being able to do stuff like pursue work or look after family. Yet the view that ‘other’ people are lazy and will decay away won’t disappear. Hopefully, as more trials are done the results will continue to show that our worse preconceptions and judgements of others aren’t always true.
    https://youtu.be/UDF8o9e1QVc

    Just a warning, Standing is unashamedly progressive, which is likely to deter some. That doesn’t invalidate the results of the trials. So you may need to find other objections to it if they are solely ” We can’t afford it.” and “No one will work and people will just get trashed.”.

    • footsore, the jobs argument does not hold water – bosses can already import Kiwis/Indians to do the jobs. Heck, that is what bosses have been doing since 2008! While pushing dole recipients to their death: https://www.buzzfeed.com/aliceworkman/work-for-the-dole-death?utm_term=.lsK1xLRWm#.dnWnyeMlz

      A UBI trail was conducted in 1843. We need no more trials – we need a UBI or wage top up. It is a good thing to have an income guarantee. A bloody shame the Greens did not put one in when they had Gillard over a barrel. Instead, they gave income tax cuts to foreign “students”.

  17. If we can get back to UEs article, its a well argued case for system tweaks delivering the most good for the least effort. Note that implementation effort for simplest change is substantial which is why calls for complete redesign of tax or welfare system go nowhere. Henry review high quality but will take a generation to implement it all. And a crisis or two to provide the excuse for change and accept some pain in the national interest.

    • ceteris paribus

      Yes, I think you are most probably right, Curious. Change only occurs incrementally, not all at the one time. People are not going to start paying their proper tax overnight. The UBI may well, probably will, come in time- but it is too expensive and not yet desperately needed in the short term. Our first duty is too see every Australian lives above destitution and therefore the urgent need/priority is to raise the lowest benefit level Newstart, to a realistic level of adequacy. Good article UE.