Category Archives: taxation

universal basic income 2: how to finance it





Imagine this highly unlikely scenario. The current conservative Australian government loses the 2022 federal election in a landslide, due to widespread financial corruption, inaction on addressing global warming – brought into relief by another devastating summer in 2020-21- and the rise of a young, charismatic leader of the leftist Labor opposition, who has managed to sell voters on an Aussie version of the Green New Deal, as well an ambitious Basic Income policy.

It’s okay to dream, but we have to get real. How do we make such a policy work?

I will rely on the ideas and calculations of finance journalist and author of A basic income for Australia, Brian Donaghy, for the following. First, based on the Australian Council of Social Services (ACOSS) campaign of March 2020 which advocated a rise in what’s now called Jobseeker to $755.70 per fortnight (of course, the Covid19 pandemic has caused the current government to raise the previous payment, with obvious reluctance, to a figure which is still well below the ACOSS recommendation), together with an increased rent assistance payment of $158 per fortnight, the Basic Income payment should be set at $913.70 per fortnight, for every adult. Children would be given a percentage, depending on age. The total cost of such a package would be about $526 billion per annum. Alternatively, the payment could be set at the aged pension rate, plus supplements – $944 fortnightly – totalling about $544 billion per annum. The OECD takes the poverty line to be about $1000 per fortnight, and Australia’s minimum wage for the 2019-20 year was around $1481 per fortnight.

So, how do we find, let’s say, $544 billion dollars a year to finance this scheme? According to Donaghy’s costings, savings on welfare payments and administration would bring the figure down to about $415 billion. Next, Donaghy looks at ‘individual tax offsets and deductions’, which he claims the government should scrap. I can’t pretend to understand this, but scrapping these perks would, he claims, bring the basic income cost down to $377 billion.

All of this should simplify the tax system, making tax evasion and avoidance more difficult, and increasing revenue to the ATO, though putting a dollar amount on this might be difficult. However, tax avoidance task-forces have been in operation for some years and have collected billions of dollars. Their job would be made easier by a a more simplified system.

Another factor which would increase tax revenue by a hard-to-calculate amount would be the increased spending power created by the basic income. Remember, its universality would provide lower and middle income earners with the opportunity to spend more on dining out, home improvements, internal tourism and the like. Australia’s corporate profits would increase, according to economic modelling, enough to bring the cost of the UBI down to about $282 billion, though Donaghy has chosen to be more conservative, lowering the cost to around $320 billion.

The UBI goes to everyone, so that for many taxpayers it would be additional income at the top marginal rate. Without going into detail, this would bring in further tax revenue, totalling almost $81.7 billion, and bringing the cost of the UBI down to somewhere around $240 billion – with nobody suffering since that extra tax would only be a percentage of the extra income provided to the wealthy.

One could go on tweaking the system and working out theoretical savings, such as a restructuring of the government subsidies paid to particular industries, often described as business or corporate welfare. Australia’s Productivity Commission estimated that government ‘budgetary assistance’ to corporations totalled approximately $12 billion in 2018-19. Arguments as to whether such assistance constitutes sound government investment will run the gamut, and will of course depend on how much potential each corporation has – prediction about the future being particularly tricky. However, as Donaghy points out, modern companies have become increasingly technocratic and international, tending to shed rather than increase workers, and if they need hands-on work, may be able to source it from developing countries with cheap labour rates. Government handouts end up mostly if not entirely at the top end of town. Our federal government apparently subsidises the fossil fuel industry to to the tune of $12 billion annually, always using the ‘jobs jobs jobs’ mantra, but these industries are shedding jobs and are not major employers.

Other ways of tweaking the system include taxing multinational tech companies such as Google, Apple and Facebook – always risky, as they tend to respond with ‘big money muscle’, threatening to limit services. the Goods and Services Tax can also be looked at. Many European nations impose a higher GST on luxury items. Even raising the basic rate by one percent will bring in an extra $7 billion. Since the UBI would lead to greater spending, much of the money raised would be recirculated through the system.

Again I should emphasise that this is a very rough guide, largely based on Brian Donaghy’s rough guide to funding a UBI. However, I’m not optimistic enough to believe that anything like a UBI will operate in Australia in the near future. Meanwhile, with the current jobs crisis and shutdowns caused by the pandemic, the Australian government is operating with an online compliance system for jobseekers which is near-criminal in its stress-inducing incomprehensibility, and touting an increase in jobseeker payments, which, as mentioned, will keep these payments far below any reasonably projected UBI. The current government’s support of those most damaged by the pandemic – for example, those, like myself, who work in the international student sector – has been as minimal as it feels it can get away with. Of course the current government has essentially prided itself on its ‘if it isn’t broken, don’t fix it’ lack of innovation, so we clearly need to look elsewhere. The 2022 election is one source of hope, but there are other options besides a UBI (and of course there also many options within UBI). In her recent (2020) book, Glimpses of Utopia , Jess Scully, arts entrepreneur, curator and Deputy Lord Mayor of Sydney, has promoted the idea of Universal Basic Services as a less ‘libertarian’ and more community-oriented approach to reducing disadvantage and improving inclusivity. I’ll explore this concept further next time.

References

Brian Donaghy, A basic income for Australia, 2020

Jess Scully, Glimpses of utopia, 2020