Home > Economic policy, Tax and public expenditure > Why we should put ‘basic’ before ‘universal’ in the pursuit of income equality

Why we should put ‘basic’ before ‘universal’ in the pursuit of income equality

February 8th, 2017

That’s the title of my latest piece in The Guardian. There are two key points

First, in terms of effective tax rates and tax paid, any means-tested Guaranteed Minimum Income can be replicated by a non-tested Universal Basic Income, and vice versa

Second, for a number of reasons, it would be better to begin by expanding access to an adequate Basic income (in Australia, the Age Pension is an obvious benchmark) rather than starting with a small universal payment and then increasing it to a level sufficient to live on.

  1. Jim Rose
    February 8th, 2017 at 15:13 | #1

    What is the point of a bigger government, higher taxing government if the larger amount of income redistribution is not targeted at the poor and the social safety net?

    Every universal basic income I have seen from the left perhaps allows the existing beneficiaries of the social safety net to break even. Many of them make them worse off such as Gareth Morgan’s in New Zealand.

  2. Andrew
    February 8th, 2017 at 15:23 | #2

    John – I think you’re jumping the gun here. We are miles away from mainstream Australia thinking a UBI is a good idea. Income equality is not an ideal that most people aspire to – we want high performers and entrepreneurs to be rewarded for effort don’t we?

    There is definitely a groundswell of support for the idea that income inequality has gone too far – and you only have to look at the revelation today of how much Aussie Post CEO Ahmed Fahour is being paid to realise something is broken. But that is a far cry from pushing for total income equality.

    When criticizing the incremental approach you highlight the failure of the Alaskan oil fund by saying ‘the number of Alaskans who have been freed from the need to work, or meet the demanding conditions for unemployment benefits, is approximately zero.’ – but really, do we want everyone to be ‘freed from the need to work’? Surely there needs to be some incentive to work? Lifters v Leaners?

    What we need to address is the extremes in income inequality – we want our bankers and corporate executives to be paid less and our nurses and teachers to be paid more. Let’s tackle that problem. What can we do to rein in the excess salaries?

  3. Troy Prideaux
    February 8th, 2017 at 15:59 | #3

    @Andrew
    To me the worst part about the Oz-Post revelations is the execs are rewarding themselves very excessively whilst clearly exploiting the drivers (some working for less than $10/hr).

  4. suburbanite
    February 8th, 2017 at 16:02 | #4

    @Andrew
    I think we should drop the relativist notion that all work is good and socially beneficial. That is demonstrably false. It’s also easily provable that a lot of useful activity/work is unpaid. And lastly that high incomes always equate to innovation, effort or social benefit.

  5. Matthew
    February 8th, 2017 at 16:36 | #5

    @Andrew, UBI is not about income equality. It is about providing a better safety net than is available now, one that provides at least a basic standard of living. The benefit of UBI is that it gets rid of the myriad programs of social security currently available and replaces it with a single payment available to all.

    Anyone who has relied on some sort of government support will know that it currently distorts your decisions. As a student I was actually accepting less hours of work to ensure that my Centrelink payment wouldn’t be too much affected. UBI would have meant that any hours I worked would have added to my income without any other worries. You could argue that in this case a UBI would have enticed me to work more.

    In short your argument doesn’t make sense, a UBI would increase tax rates on high earners, but no one is suggesting that people shouldn’t be rewarded for their efforts.

  6. Greg Alexander
    February 8th, 2017 at 23:09 | #6

    (Copied my post from Facebook. Seems better to discuss here)

    Speaking roughly:

    Those on the dole and pension can be moved to a UBI. $230 a week – and pensioners receive an extra $100 (so UBI + low pension). Tax free.

    Same net total amount. (Speaking roughly).

    Every employed person gets the UBI (tax free), but pays 32.5c income tax starting from $0.

    That’s also the identical net total for anyone earning more than $37k.

    All that doesn’t cost anything – since it’s calculated to be the same. But the attitude changes.

    Whether you stay at home or work full time, your UBI stays the same. We’re all entitled to it. No need to prove anything to Centrelink.

    If you work a few days a week you get taxed 1/3… which does cost us more (because we reduce dole and pension significantly for these people). If you get sick or take maternity leave you have ongoing UBI. If you used to earn $30k your income goes up. So things WOULD change.

    The question is how to pay for it. Taxing the higher earning doesn’t work – they’ll be a limited resource. As available jobs decrease isn’t it natural that we need to tax elsewhere?

    Somehow we need to tax companies the equivalent of what their employees were once costing them – so that as they automate (or move employees offshore) they replace their HR costs with a new tax towards our society.

    Employee costs can be broken down into net pay, income tax, and company overheads. We need to redistribute that in a net-equivalent way don’t we?

  7. Felix FitzRoy
    February 9th, 2017 at 00:02 | #7

    A modest BI costing only slightly more than current welfare spending has been developed in detail by Painter and Theong in an RSA paper. Such a BI of around £70 per week would not be enough to support households of one or two workless but not disabled adults, so following American economist Robert Frank’s suggestion, a job guarantee would be an essential complement to BI – a simple idea which has received surprisingly little attention. Jobs would be provided by local authorities at below minimum wage rates, full time and part time, to supply much needed public services, so not competing directly with regular work. In contrast to workfare schemes, JG work would be strictly voluntary. Clearly those with disabilities would require extra support from the health care system, as currently (though inadequately) under the NHS in the UK.

    This answers the main critique of BI sufficient to support a single adult living alone – it would be too expensive to gain wide acceptance, and provide an excessive incentive for larger households to withdraw from the labour market.

  8. I am and will always be Not Trampis
    February 9th, 2017 at 07:23 | #8

    @Jim Rose
    Jim,
    That obviously doesn’t count Friedman’s contribution then

  9. Ernestine Gross
    February 9th, 2017 at 07:29 | #9

    JQ, you assert that the Old Age Pension is now at a level which has almost completely eliminated proverty in old age in Australia.

    Well, no. According to a 2016 OECD report, Pensions at a Glance 2015, about 30% of pensioners do live in poverty in Australia.

    You may wish to argue with the level of income used by the OECD in their comparative study of 33 countries to determine a poverty line. However, once location specific prices of consumables, including rent are used to assess the ‘basic income’ required, instead of macro-economic averages that can be linked to the federal budget via macro-economic models, then I am confident in saying that:

    In the Sydney basin (about 4million people) the pension for a couple is an adequate ‘basic income’, if the couple owns a small well maintained free standing house with no residual mortgage and not close to a major infrastructure development entailing forced acquisition, no personal loans, no chronic health problems, no grandchildren from an unemployed son or daughter and no close relative in serious financial distress asking for help, owning either a small car or living in walking distance to good public transport. In this case, ‘basic income’ corresponds to ‘basic standard of living’ (no luxuries, no financial distress) – IMHO.

    For everybody else in Sydney, including unit owners – high rise or older blocks – the assumption that basic income corresponds to basic standard of living is doubtful, although for different reasons.

    Measures of dispersion of prices of goods and services, income and wealth have already become much more important than averages and, I expect, in the future (first home buyer problem, stagnant wages, employment insecurity…..) the mean and the median of each of these distributions will become close to irrelevant.

    I can’t see how unifying so-called welfare payments via a universal basic income or basic universal income or some other version will prevent the splitting of the society into ‘have and have-nots’.

  10. Ikonoclast
    February 9th, 2017 at 07:38 | #10

    “Pre-distribution (also written as Predistribution is a neologism coined by Yale University Professor Jacob Hacker in a paper called “The Institutional Foundations of Middle Class Democracy” published by the think tank Policy Network. Pre-distribution is the idea that the state should try to prevent inequalities occurring in the first place rather than ameliorating inequalities through the tax and benefits system once they have occurred as occurs under redistribution.” – Wikipedia

    Marx of course was also concerned with predistribution issues, in the above sense. David F. Ruccio (below) appears to define predistribution as social and public services, pro-labor laws etc., distribution as essentially the slices of the pie that labor and capital get and redistribution as the tax / welfare mix.

    As David F. Ruccio writes;

    “Liberal economic and political thinkers have a problem. They’re stuck between a rock and hard place—between redistribution and predistribution. What they don’t want to do is move beyond that dilemma and look at the real problem: distribution.

    Clearly, liberals are concerned about the unequal distribution of income.* How could they not be? The current distribution of income is obscenely unequal, and that inequality (starting in the 1970s) probably played on important role in creating the conditions for the crash of 2007-07 and the Second Great Depression.

    The question is, where should they look for a solution? For some (like Paul Krugman), the answer can’t be education. Instead, we need “a strong social safety net, one that guarantees not just health care but a minimum income, too,” which would be financed out of higher taxes on wealthy individuals and corporate profits. In other words, a redistribution of income through government programs.

    For others (like Jacob Hacker), “mopping up after markets” is not the solution. He proposes a predistribution formula consisting of liberal macroeconomic policies, quality public services, and countervailing (effectively, pro-labor) powers in markets.

    For all their specific difference, basically, today, liberal predistribution looks an awful lot like liberal redistribution.

    But something has in fact changed: both the redistribution and predistribution agendas are predicated on a theory of income inequality different from what it was only a few years ago. Then, the focus was on technology, skills, and inequality between different groups of workers. Now, the concern is between capital and labor. In other words, class.

    And you can’t fix the problem of class, of the growing gap between profits and wages, through either redistribution or predistribution. You have to focus on distribution itself: on the fact that one class (capital) is in the position to appropriate the surplus produced by the other class (labor), which in turn serves to reproduce the structure according to which a tiny minority at the top is able to appropriate the surplus produced by the large majority at the bottom.

    Marxists call that exploitation. And the only way to deal with the problems caused by the grotesquely unequal distribution of income is to eliminate exploitation itself.”

    All these small “l” liberal, welfare policies advocated by orthodox, social-democratic economists treat the symptoms of the pathology in the system not the causes of the pathology. What is needed is etiological treatment not symptomatic treatment.

  11. Jim Rose
    February 9th, 2017 at 09:59 | #11

    The negative income tax is not a universal basic income
    @I am and will always be Not Trampis

  12. Bruce Bradbury
    February 9th, 2017 at 15:35 | #12

    We could re-phrase JQ’s choice between ‘basic’ and ‘universal’ in the following way. Consider someone receiving Newstart Allowance. Would they prefer a higher rate of payment (addressing the ‘basic’ question), or would they prefer less onerous job search and administrative reporting arrangements (making the payment more ‘universal’).

    For alternative changes that cost the same amount, I’m not sure what the average Newstart recipient would prefer – especially if we include potential Newstart recipients who do not receive it because they can’t jump through all the hoops.

  13. John Quiggin
    February 10th, 2017 at 09:29 | #13

    @Ernestine Gross

    Thanks for pointing to this. I’m surprised by the OECD number, given that the basic pension is well above the Henderson poverty line. From this source, the proportion of over-65’s who are tenants is still quite small, though probably growing http://seniorau.com.au/6682-housing-is-an-increasing-worry-for-age-pensioners As you say, there are all sorts of problems that could make a generally adequate basic income inadequate for people with special needs. I’ll look a this

    @Bruce Bradbury These choices are variants on “Basic”. That is, focusing on making a basic income more generally available, should we look first at raising inadequate benefits to a genuinely basic level, or expand access to a slightly larger group. Either of these is a long way from any kind of Universal benefit.

  14. Jim Rose
    February 10th, 2017 at 12:39 | #14

    @John Quiggin
    According to that number from the OECD, Australia has one of the most inadequate age pensions about. That is why I do not believe it

    Means testing can show that the average pension paid can be small and furthermore more and more people are means tested because they have superannuation entitlements.

    The number just does not add up

  15. February 10th, 2017 at 20:08 | #15

    @Andrew

    I think what I would like most about a basic income, particularly one set reasonably high, is the sudden need to pay people doing shitty jobs a lot more money. Since they would now have an option to just not work, some effort would need to be made to attract people – basically by paying them more.

    In addition, the knowledge that being sacked was not the end of the world might give some workers a bit more backbone. I’m constantly surprised at the failure of ordinary workers to question the decisions made by management. They can’t sack everyone, so why doesn’t everyone stand up?

    Anyway, I’ve been a long time advocate of UBI, because of subversive things like that, but also because I hate people getting enmeshed in the welfare bureaucracy. Rather than bash people to get them to find work, I’d like to see bored people come to the realisation that they only live once and if they are to enjoy it, it might be an idea to get out there and get going!

  16. February 10th, 2017 at 21:29 | #16

    (Repeating a comment at Crooked Timber).

    That article has the subheading, “Providing a basic income to all that’s not enough to live on makes no sense”.

    I appreciate that it is the work of an editor, but would you concur with it? I ask because it actually makes perfect sense, for certain goals. You may not share these goals, but they are perfectly coherent and – ultimately – achievable: to provide a mere top up sufficient to allow effectively everybody to bid themselves into work at wage levels that would be inadequate on their own. With goals like that, it is the combination of two separately inadequate things that provides adequacy, that makes “a basic income to all that’s not enough to live on” make sense, and inter alia avoids any long term risk of funding needs overwhelming the system and/or too many people opting out of work (unless Malthusian constraints develop, and of course there are transitional issues getting there from here too).

    That transition is the problem with “Logically, this leads to the idea that we should begin with a small universal payment, which would gradually increase in value to the point where it becomes sufficient to meet basic needs”. I would say it doesn’t necessarily lead to that idea, because doing it that way practically guarantees problems: just as you outline as happening with the Alaska Permanent Fund, unless and until it becomes almost sufficient to meet basic needs, it neither provides adequacy itself nor allows recipients to bid themselves into top up work well enough, while all the while it presents a funds outflow. That falls between two stools.

    A rapid jump towards estimated levels could fail from stickiness issues, which is one reason I prefer the Kim Swales approach I have mentioned elsewhere that gives employers tax breaks per employee. The existence of that alternative is why it is not the case that “the” alternative, i.e. the only other option, is to “begin by providing sufficient income to support a decent standard of living to those most in need, then expand it to the entire population”. The Kim Swales approach, too, works out largely equivalent to the two largely equivalent variants you have canvassed here. Personally, I would prefer to go on to a further transition to a modernised Distributism, achieving not so much the euthanasia of the rentier as his dilution, on the principle that the problem with rentiers is that there are not enough rentiers.

  17. Ernestine Gross
    February 10th, 2017 at 22:54 | #17

    @John Quiggin

    Thanks for the linked reference on housing costs for older Australians.

    The article contains the information that housing costs of pensioners as estimated by the ABS:
    owners: $38 p.w.
    social housing: $103 p.w
    private renters: $232 p.w.

    These numbers pertain to 2013/14

    I am no longer surprised about the public pressure to include the family residence for means testing the pension on the one hand and the strong resistance by the pensioners in question because the estimated average weekly cost for owners (seen by the Treasury) is a calculated number that may apply to exactly nobody but underestimates the actual cost for everybody who would be affected . I am still talking about the owner of a small house or a 2 bedroom unit in Sydney.

    The following are average weekly body corporate fees (strata fees) for a 2 bedroom 1 car space unit in Sydney calculated by a strata management organisation in mid 2014. These numbers are particularly relevant because there is also pressure on older people to ‘downsize’ – ie provide customers for developers of high rise unit blocks in Sydney.

    CBD $157.69 p.w.
    5km from CBD $88.46
    10km $69.23
    20km $65.38
    30km $65.38 (no error)
    40km $50
    50km $42.31

    These industry estimates do not include extraordinary and unexpected strata fees, which may be large ($2000, …, $20,000, …, luxury range)

    The Council rates for small free standing houses are more than $38*52 = $1976 in many areas in Sydney. Adding maintenance costs results in something close to the social housing costs – in my back of the envelope calculation.

    The relationship between TMAWE and pensions may well be o.k., on average, but the TMAWE (employees only) is out of kilter (serious disequilibirium) just about everywhere in relation to asset prices and rates of returns on assets (ie Piketty).

    Considering linking a basic universal income (or some variation thereof) to pensions would seem to me to lead to a society consisting of haves and have-nots with those included in the TMAWE calculation being on the way to transiting to the have-nots who will be worse of than the current have-nots unless the asset prices deflate to such that even the most committed supporter of negative gearing will throw in the towel.

  18. February 11th, 2017 at 16:54 | #18

    In New Zealand we have a UBI through our non means tested universal NZ Super for all those over age 65 already.

    Its sustainability costs due to the increasing proportion of our longer living descendants –

    we hope to overcome by partially pre-funding it through amending our NZ Super Fund – started to carry us over the “baby boomer bulge” – into a permanent institution, with an adequate rate of contributions into the NZ Super fund to be built into our taxation system.

    In other words, its sustainability will be maintained and can be even improved through a systematic universal capital wealth creative savings rate, similar to what the compulsory “Providential Fund” retirement savings rate has and is achieving in Singapore.

    Whether this can be enough to achieve the sustainability of a universal UBI for the whole population may be questionable – but would not a minimally meaningful level of (retirement) wealth ownership by all citizens (eventually) eliminate at least “have nothing” hand-to-mouth poverty for ever, or at least as long as the savings rate is kept going ?

  19. Nicholas
    February 11th, 2017 at 19:09 | #19

    A Job Guarantee would be far better macroeconomically, and for promoting people’s experiences of belonging, contribution, connection, mastery, and capacity development. The age pension and the DSP and the minimum wage should be increased to where they would be had they kept pace with per capita personal income growth and national productivity growth during the past forty years, and they should be indexed so that they automatically change each year in line with per capita personal income and national productivity.

  20. John Quiggin
    February 11th, 2017 at 19:37 | #20

    Discussion of Job Guarantee is coming.

  21. Jim Rose
    February 11th, 2017 at 21:12 | #21

    @Jens Meder
    New Zealand superannuation fund is a temporary fix based on gathering more revenue at the time when there are more young people about then investing it and then paying it out between a roundabout not 2025 and the year 2040.

    The deadweight cost of taxation makes these type of ideas pointless.

  22. February 12th, 2017 at 11:39 | #22

    Jim Rose – some of us are working hard to amend the NZ Super Fund from a temporary fix to keep our universal NZ Super rate sustainable from age 65 for our baby boomers – into a permanent institution for the benefit of the increasing proportion of our longer living descendants.

    Are you not aware that the proportion of taxation going into the NZ Super Fund is 100% capital WEALTH CREATIVE, whereas freely consumable tax reductions are wealth creative only for those wealthy who instead of consuming it (possibly even overseas and reducing our foreign exchange earnings rate) – invest it, and become even more wealthy, with the lower income earners who consume it all, remain just as poor as before ?

    Don’t you know, that there is no other way of (retirement or whatever) wealth creation than through saving for reserves and profitable investment ?

    Before saying that is nonsense, please come up with a practical or imaginary example of wealth creation without someone’s enforced or voluntary savings at the expense of hand-to-mouth consumption (potential).

  23. February 12th, 2017 at 11:47 | #23

    Jim Rose – some of us are working hard to amend the NZ Super Fund from a temporary fix to keep our universal NZ Super rate sustainable from age 65 for our baby boomers – into a permanent institution for the benefit of the increasing proportion of our longer living descendants.

    Are you not aware that the proportion of taxation going into the NZ Super Fund is 100% capital WEALTH CREATIVE, whereas freely consumable tax reductions are wealth creative only for those wealthy who instead of consuming it (possibly even overseas and reducing our foreign exchange earnings rate) – invest it, and become even more wealthy, with the lower income earners who consume it all, remaining just as poor as before ?

    Don’t you know, that there is no other way of (retirement or whatever) wealth creation than through saving for reserves and profitable investment, regardless of ideology or human legislation ?

    Before saying that is nonsense, please come up with a practical or imaginary example of wealth creation without someone’s voluntary or enforced savings at the expense of hand-to-mouth consumption (potential).

  24. Smith
    February 12th, 2017 at 21:19 | #24

    Martin Schulz, the SDP’s chancellor candidate in this year’s German elections, is against a UBI because it undermines the idea of dignified labour income. He is fast rising in the polls, and if he wins will be the de facto leader of Europe, so his opinion is important. Partly his stance reflects his party’s close rrelationship with German unions but, still, not everyone on the Left privileges income through the welfare system.

  25. February 13th, 2017 at 00:51 | #25

    @Smith

    Yes, but what is a “dignified labour income”? Is it a job created by not being as efficient as you could be? Is it a job that there is actually no demand for?

    No, go for the universal basic income, and then let people create their own meaningful work. If your basic needs are covered, you can make music, pottery, software, whatever, in the hope that someone will pay you for it. Surely that is better than doing some “makework” job somewhere?

    The one thing I would say is that I’d like to see the government fund a lot more research jobs. Most of it will turn out to be useless, but if one of 100 researchers makes a worthwhile discovery, then the benefit to the whole world will be enormous.

  26. Ikonoclast
    February 13th, 2017 at 05:03 | #26

    I think there is plenty of work that needs doing. We need a lot more technology and service jobs. We need more researchers, more educators, more health and welfare workers. We need more environmental remediation workers . We need more inspection and compliance government workers for environmental and other concerns. We need, in general, to expand the public service again.

    There is plenty of work, that adds value to our lives, that needs doing. I would also prefer to see a fully employed person doing half a real job than an unemployed person doing no job at all. I think the economic benefits are better in the first case and the sense of futility less (but still not zero) in the first case.

  27. Ikonoclast
    February 13th, 2017 at 05:13 | #27

    Sorry, I should have said above “a full time employee doing half a real job”. And yes, I know private enterprise can’t carry that but public services can until the real value adding work is found and there is plenty to be found. Why are ABS and Centrelink in such a mess now, to give two examples? The answer is simple. Staff cuts have been way too excessive. They need more staff, perhaps 20% more.

  28. February 13th, 2017 at 06:15 | #28

    More service jobs require more capital to be invested in plain physical productivity, such as e.g. profits from the mechanization of agriculture have released a lot of labour power for services and money to pay for the services.

    And would it not be most fair and democratic to have all citizens participating in the capital creation and ownership (saving and investment) needed to crank up physical productivity for jobs and incomes for all, which is administratively easy through the taxation system ?

  29. Ernestine Gross
    February 13th, 2017 at 08:07 | #29

    @John Brookes

    ‘… what is a “dignified labour income”?’ Good question, so is: what is “being as efficient as you could be”?

    Assuming you agree in principle that the notion of ‘efficiency’ or being ‘efficient’ is related to the notion of ‘optimum’ or ‘optimisation’. On your web-site you give a good example of the difficulties in identifying an optimum when pursuing an economic policy. Your example relates to a series of tax cuts, which exceed the implied optimum.

    I suggest a similar argument can be made for ‘work’ sold by individuals for monetary income. People working less – in terms of hours (and having more time to pursue whatever they like to do, including inventing something in their uncommitted time or doing outreach work) but with high enough wages per unit of time to result in a ‘living wage’ is perhaps a better alternative (‘more efficient in some other sense) to some people, possibly the majority, having no paid ‘work’ but a UBI.

  30. Bruce Bradbury
    February 20th, 2017 at 12:18 | #30

    RE: The level of the Age Pension and the OECD estimates of high poverty rates among the Australian elderly.

    If you take account of housing costs, our relative poverty rates among the elderly are not that different from other rich nations. See http://clubtroppo.com.au/2016/01/07/old-age-poverty-in-australia/

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