How to get to a UBI

Last year I published a book chapter arguing that the first step way to get to a Universal Basic Income was to expand the existing benefit system, increasing payments and removing conditionality (relevant extract over the fold).

This is often called a Guaranteed Minimum Income (GMI). I counterposed the GMI approach to the alternative of making a small payment to everyone in the community, and then trying to increase it over time. I suggested three initial steps

Assuming a ‘basic first’ approach is preferred, how might it be implemented? Three initial measures might be considered:

(i) increase unemployment benefits, at least to the poverty line;

(ii) replace the job search test for unemployment benefits with a ‘participation’ test;

(iii) fully integrate the tax and welfare systems

We are already on the way to taking these steps. Having floated the idea of a separate benefit for people who lose their jobs due to the virus crisis, the government has quickly abandoned it in favour of an increase in existing benefits. This is supposed to be temporary, and, in theory, at least, there has been no change in compliance efforts like work testing. But ‘temporary’ will turn out to be a long time, and compliance efforts are going to be impossible until things return to normal.

In a subsequent post, I”ll look at the alternative of a universal payment which might be increased from the levels in the stimulus package to an amount sufficient to live on.

Extract from J. Quiggin, Basic or Universal? Pathways for a Universal Basic Incom, in Implementing a Basic Income in Australia: Pathways forward, Melbourne University Press, Melbourne, 2019.

The alternative is to start with ‘Basic’ rather than ‘Universal’. That is, begin by providing sufficient income to support a decent standard of living to those most in need, then expand it to the entire population. This approach is most naturally associated with a Guaranteed Minimum Income. 

Existing benefit systems potentially fall short of the GMI in three ways. First, each benefit in existing systems, such as that in Australia, is conditional on eligibility requirements such as disability or job search activity. Second, means-tested benefits such as those offered in Australia are subject to clawbacks that imply high effective marginal rates of taxation if people take work along side the support. Finally, with exceptions such as the old age pension the benefits are typically insufficient to lift recipients out of poverty.

Over  recent decades, access to basic incomes has become steadily more difficult in all these respects. The case of unemployment benefits, noted above, is typical . Similar cuts and restrictions have been imposed on disability benefits and supporting parents benefits in Australia and elsewhere in the world. These cuts have been driven by a combination of neoliberal drives to reduce public spending and conservative hostility to welfare recipients, reflected in the use of stigmatizing terms such as Joe Hockey’s distinction between ‘lifters’ and ‘leaners’.

A ‘basic first’ approach would require reversing these trends and would therefore entail immediate and sharp political division between advocates of a basic income and supporters of the push to restrict welfare benefits to the ‘deserving poor’.  Political implications are discussed in more detail in Section 4.

2.3 How to get there

Assuming a ‘basic first’ approach is preferred, how might it be implemented? Three initial measures might be considered:

(i) increase unemployment benefits, at least to the poverty line;

(ii) replace the job search test for unemployment benefits with a ‘participation’ test;

(iii) fully integrate the tax and welfare systems

2.3.1 Increasing unemployment benefits

The basic old age pension in Australia is around 28 per cent of Male Total Average Weekly Earnings (MTAWE) for single pensioners and 42 per cent for couples. This income has proved sufficient to eliminate, almost completely, poverty among the old, who were once the most exposed to privation. The same level applies to Service Pensions and Disability Support Pensions.

By contrast, unemployment benefits (now given the Newspeaky name Newstart) were briefly set equal to old age pensions at 25 per cent of MTAWE under the Whitlam government. However, a long series of cuts and freezes have reduced access to benefits and cut their relative value to around 18 per cent of MTAWE today

2.3.2 Participation income

While social acceptance for a completely unconditional basic income is a long way off, a ‘participation income’ as proposed by Atkinson would have many of the same effects.  The criteria for earning a basic income would no longer be based on market production but on a social assessment of value.  Participation in this context would include full-time study, raising children, and voluntary work.

The creation of a participation income would automatically raise the question ‘what kinds of activities’ are socially valuable. The default assumption, in a market society, is that the social value of any activity is reflected in the market income it generates. This assumption is explicit in neoliberal thinking about public policy, but it is also widely shared in the community in a more or less qualified form. Debate about a participation income would therefore involve fundamental changes to the assumptions underlying the neoliberal economic and social order.

On the one hand, supports of a BI would seek to extend the concept of participation to encompass commitments to artistic, cultural and sporting endeavours, even if these were not at a level sufficient to generate a market income, or to qualify for existing forms of public support, such as arts grants. On the other hand, debate over BI would focus attention on the fact that some activities generate large market incomes but yield little, or even negative, social value. The activities of the financial sector provide an example.

2.3.3 A fully integrated tax-welfare system

As discussed above, a fully implemented basic income would imply an integrated tax-welfare system, in which the distinction between means-testing and taxation would disappear. A step towards this goal would be the inclusion of benefit payments in taxable income, with a corresponding, or larger, reduction in clawback rates.

Completely integrating clawbacks into the tax system would clarify the high effective marginal tax rates currently faced by benefit recipients (commonly above 60 per cent). This would provide a counter-argument to the spurious claims that the marginal rate faced by high-income earners (less than 50 per cent) constitutes an unreasonable disincentive to work effort.


 

 

8 thoughts on “How to get to a UBI

  1. “By contrast, unemployment benefits (now given the Newspeaky name Newstart)”

    I’ve noticed Smoko repeating several new phrases lately. Yep, Smoko hasn’t only lately been copying Bozo’s newspeak concerning rapid covid19 herd immunity. He’s also taken up the name JobSeeker Payment from the UK tories for his changes replacing Newstart.

    https://www.servicesaustralia.gov.au/individuals/services/centrelink/jobseeker-payment

    I’m somewhat surprised to see there that Smoko has thus far allowed Youth Allowance to remain.

    Has Bozo picked up Smoko’s newspeaky robodebt?

  2. Absolutely agree with J.Q.’s original post here. I would go slightly further. The single UBI should be lifted to 33% MTAWE. The simplest way to implement it would be to grant it to every person 18 and over in the nation who wished to apply. It would thus replace pension, unemployment, sickness and invalidity benefits at a stroke.

    A phased implementation would occur: phased in two senses. First, all persons on pension, unemployment, sickness and invalidity benefits would be transferred to MTAWE. That is their rates would be lifted and all qualifications except being a citizen of Australia, resident in Australia, would also be lifted. It would be permissible to spend 4 weeks out of the country a year and still receive it. For persons over 65 this allowance would be 6 weeks a year.

    Next, the UBI would be extended to all other adult Australians upon application. If they do not apply they do not receive it. To apply, they must declare all income and assets in an ongoing fashion every 13 weeks. A combined tax-welfare assessment would be made for these people and for existing pensioners and beneficiaries. The UBI for the new people would begin 13 weeks after the first submission of 13 income and asset week data. It would be set at the rate determined by that previous 13 weeks income and assets so that it is effectively paid 13 weeks in arrears but in weekly installments. If underpaid, the next 13 weeks can be used to correct the under-payment. If over-paid the next 13 weeks (or longer as required) could be used to correct the over-payment. UBI debts would only be recoverable from future UBI at the time of that UBI payment is to be made. Hardship provisions would exist where ongoing UBI cannot be alienated if that leaves a person with less total income per week than 33% MTAWE.

  3. It really is way overdue for the penny to drop about Federal Government financing. First, that it a constitutional monopoly ,and thus not subject to statutary limits in its ability to spend on whatever it wants. Resources will decide the limit.

    Second, Federal taxes do not fund any spending.They certainly have to precede spending, bit they are not an essential issue. Basically they destroy currency thereby making space for more spending without triggering a recession.

    MMT supporters ,starting with Bill Mitchell, think the more important option is that there should be a jobs guarantee . he lists many reasons. I think it would not render a UBI or equivalent scheme unnecessary. There will always be people who fall through the cracks and can never hold down a job. They need a UBI.

    Most importantly is needs to be generally accepted that the Federal Government is unlike any household and has access to a “bottomless pit” [Phil lawn’s phrase] of currency. In truth it is a scandal that we have any homeless at all. The government has to step up. Housing is quite a deal cheaper than being on the street. See Rutger Bregman’s book”Utopia for Realists” [Bloomsbury] for many examples of ministering to the homeless.

  4. Yes, the sudden increase in numbers of people who the likes of Hockey regard as ‘leaners’, and Morrison implies are not ‘having a go to get a go’ may cause more of us to contemplate the various societal and individual factors that influence people’s ability to effectively participate in society. Hopefully this leads to less stigma being associated with welfare recipients. It may even prompt some leaders to consider how to ‘fix problems rather than fixing blame’.

  5. Are they still doing robodebt at this emergency time?
    The article jogged a memory from earlier in the day but can’t quite trace it.

  6. They have admitted in court that it was illegal, have not provided their original legal advice for it, and vowed to continue with it. The ATO volunteered in senate hearings that their complicity in stealing victims tax return funds was probably illegal, but afaik they have not said that would stop. The ATO have never been properly pressed on the legality of their supplying data matching files for an illegal purpose, and a purpose they knew was illegal in most instances from the beginning. On the up side though, protecting oneself from a crime does give reasonable excuse for not complying with certain provisions of tax law… and from a beginning now so far back records need not be produced. The further witting involvements of loads of officials, and other key gov agencies also have thus far dodged being pressed on the matter.

  7. I like John’s suggestions because they are good ideas even if you do not want to go further to a GMI or UBI.

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