Forget wage subsidies, implement a universal basic income

Former Treasury official Steven Hamilton has urged the federal government to increase the wage subsidies for small and medium enterprises in response to the pandemic. He warns that the SME sector will be “completely wiped out” if the government does not act, while the nation will face a long and deep recession. Andrew Boak of Goldman Sachs agrees that the government’s existing wage subsidy measures will not be sufficient to avert large-scale job losses:

“The Australian government needs to move or the small and medium business sector is going to be completely wiped out and we will be in a deep and long recession,” [Hamilton said]…

“Other countries are subsidising wages to a way bigger degree because cutting business taxes won’t keep them afloat.

“We need to throw ideology out the window and the government needs to insure this huge hole in income”…

Goldman Sachs economist Andrew Boak said the government’s injecting up to $100,000 into SMEs, via refunding monthly and quarterly PAYG withholding tax paid on behalf of employees, wouldn’t be enough to prevent mass job losses.

“By linking this payment to income tax withheld, we are wary that this wage subsidy may not sufficiently incentivise ‘labour hoarding’, as many businesses will be operating with negative cashflow”…

Treasurer Josh Frydenberg said the Morrison government looked at the British model but “that would be creating a whole new system”.

He said it was much faster to use the existing tax and transfer system.

Furthermore, the British system did not help sole traders, he said.

All of these schemes are too slow and too complicated. They require businesses to apply, accessibility criteria to be met, and bureaucrats to make decisions. They will overload both MyGov and Centrelink, and lead to adverse situations like we witnessed on Monday when thousands lined up outside Centrelink to gain benefits. This was the opposite of “social distancing” and likely helped spread the virus.

What we need is a simple rescue package that can be implemented almost immediately with minimal fuss, leaves nobody behind, and that does not require any applications or decision making by bureaucrats.

A temporary universal basic income (UBI) fits this mold perfectly, relieving financial pressures and effectively paying everyone to stay home – exactly what the country requires to slow the pandemic.

This UBI could work as follows:

  • Every taxpayer and welfare recipient receives a $1,500 taxable income payment each fortnight for three months, with an option to extend the scheme for another three months if necessary.
  • Business owners that have been forced to close, and have stood down staff, are not required to pay sick leave or entitlements while the UBI is in effect.
  • The amount of tax owing will be worked out during the subsequent annual tax returns process.

The benefits of this UBI are as follows:

  1. Speed and simplicity: the UBI can be implemented within a fortnight during the usual welfare payments cycle. Every taxpayer and welfare recipient receives the payments, so there are no eligibility hoops to jump through.
  2. UBI would ensure that everybody can meet their basic living expenses over this difficult time.
  3. Small businesses would be able to close their doors and pause their operations without having to pay their staff, which is usually their biggest expense.
  4. Because it is universal, it avoids ‘picking winners’ and leaving losers.

The only negative from a UBI is that those that retain their jobs and maintain their salaries will unnecessarily receive additional welfare support. However, this concern is mitigated by the fact that a significant proportion of this income would be paid back via the tax system when they lodge their annual tax returns.

In summary, a temporary UBI provides an economic and social safety net that would avoid a household and business liquidity shock. It would ensure that the Australian economy does not descend into another Great depression with widespread business collapses, mass unemployment, and poverty.

It would also pay non-essential people to stay home so that they don’t spread the virus.

It is the simplest and speedy option that beats small business wage subsidies hands down.

Leith van Onselen
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Comments

  1. Calling Centrelink this morning to get my Centrelink/JobSeeker CRN. It took me 10 mins to navigate the labyrinth of IVR options only to get “We are sorry but all our operators are busy, please call back later”.

  2. UBI – permanently. Halve migration – permanently. Double Newstart – permanently. Stop worrying about fake “GDP growth” and the “economic miracle” – permanently.

      • +1

        I don’t mind helping out ordinary aussies that are in trouble but I’m don’t want my tax dollars going towards
        1) Temporary visa holders
        2) Any PR coming from “Skilled migration”
        3) Any property specufestor
        4) Any business owner who pays staff in cash
        5) …

        • You don’t? Well, I’d either shoot myself right now, if I were you — or hit the bottle, hard — because your tax dollars will be helping all the above. But the specufestors in particular, given that Canberra is crawling with the chunts, and self-interest trumps all else!

  3. Leith have you done a costing on this proposal? It seems to me that the cost would be astronomical. Surely there will be more people employed than unemployed, and paying all the employed people as well would be an enormous and unnecessary expense, even though they would be paying some of it back in income tax.

    • Government has already handed out well over $100 Billion to businesses. Plus a bonus $40 Billion for whatever.

      UBI is $10 Billion for every adult in the country to get $500 / week. For three months it is less than what business has already received. Don’t forget we are already paying roughly $200 BIllion in annual welfare costs.

      To support every adult in the country for an entire year would be an additional $300 Billion.

      • business actually employs you, well not you because you don’t have any useful skills and are nothing but an unnecessary burden that nature is apparently trying to rectify.
        If you give UBI you can never take it away…..ever.

      • Given away $100bn to businesses? Since when. My business stands to receive a modest amount of help – spread over the next 3 quarters, with the first installment not due till middle or late April. Most businesses will be dead by then.

        • What you call ‘business’ and what the government calls a ‘business’ is two completely different species. The one they recognise churns $Billions and hides profit in offshore accounts. This is the one they are interested in, not something one step removed from being a working class person (or middle class for that matter)

    • Why should those working during this time miss out also? I say give everyone the same payments which will boost spending in the economy and is non discriminatory. When central banks are printing more money than the world has ever seen, does it matter how much it costs?

      • Yep. I’m anti all these handouts – under normal circumstances – but frankly, the course has now been set and we are heading directly toward monetary oblivion, so may as well give everyone a piece of the action along the way.

        Pretending to be ‘budget-conscious’ at this point is retarded. It’s just a gigantic print-and-spend fest. The largest in history by all measures. There is literally no coming back from this – no repairing the fiscal damage. Bookies should be giving odds on a reset right now.

    • boomengineeringMEMBER

      shelte ( have you got dogs )
      Excellent request. Still think the saving in bureaucratic costs etc will balance it out a bit, especially if the numbers of unemployed dramatically increase.
      Edit
      itchy thanks for that info

  4. Besides talking to me it seems anything they do is no putting more food on the shelves or getting more people working in the food industry (farm to shop shelves), everyone will have digits in a bank account with less stuff on the shelves.

    All planned as per the Lima Declaration

  5. What I really hate about UBI is that it is stimulus that will flow straight through to the Rent market and therefore indirectly boost the amount that RE investors are prepared to pay to own someones home.
    This makes UBI so morally wrong that the correct words escape me.
    What Australia desperately needs is a way to boost the value of our least capable workers, we collectively need to find a way to make their labour globally valuable and because UBI boosts rent it moves us away from the solution space. Frankly I’d much rather see Tenancy rules strengthened in such a manner as to make it possible for Rent holidays for the recently unemployed (say 3 to 6 months). Notice the way that this action decreases the value of a house to a potential RE investor and hopefully puts people at the fringe back into their own affordable homes.

      • factory worker

        Simple answer NO.
        Instead take whatever money you have put aside for such silliness and invest it in paying skilled workers to train apprentices. Allow us to develop 1000 different specialties and be global leaders in each of these areas
        Create value in even our least skilled labour and furthermore decrease the value “investors” derive from depriving honest people of stable homes in which they can raise a family.

        • Except that the Aus govt only recognises around 2 or 3 business models, Holes for minining in, houses to speculate in, pretend education for foreigners and farming for NP mates. They have little interest in a diversified economy or workforce.

  6. Make it a permanent UBI. Every one gets a $1000 a fortnight.. You pay it back when you lodge your tax return.
    You pay back 50 cents for ever dollar you make if you are working . Which means any one earning more then $52,000 a year would fully pay back their UBI. Any one earning under $52K a year would pay back part of their UBI.

    This can also replace Aged pension, new start, youth allowance etc, which means saving of administration costs.

    • It sounds too effective! We need something, umm, defective for it to get any traction in this country. And how can the elites get something out of this – ludicrous!

      How would you deal with those that work cash in hand work, that don’t claim the income when it comes to tax time? UBI plus undeclared income (where they would be working less than minimal rates to secure job – i.e. migrants).

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