The simple, but unpleasant, arithmetic of a simple UBI

In discussions about Universal Basic Income, lots of people are attracted by the idea of making things as simple as possible. Sadly, that doesn’t work well once you take a closer look.

The simplest UBI would pay every Australian an amount equal to the single age pension, which is just above the poverty line. That’s $20000/yr per person or $500 billion for a population of 25 million, about equal to total Federal government expenditure. That would replace about $180 billion in existing social welfare spending. That leaves $320 billion, approximately equal to total revenue from personal and income taxes.

To fill the gap, we would need either to double income tax revenue, scrap all other public spending, or some mixture of the two. Assuming that’s not feasible, we need to start complicating things. The most obvious step is to treat children differently, for example by giving them half the benefits of adults. But a fixed payment per child isn’t going to be work well, bearing in mind that it would replace existing forms of support which are based on assessments of need.

The key problem is that while tax is mostly calculated on an individual basis, welfare payments are made to households. To get things right, we need to accept that a complex world doesn’t allow for simple solutions.

13 thoughts on “The simple, but unpleasant, arithmetic of a simple UBI

  1. I have come around to Bill Mitchell’s thinking on this matter. A Job Guarantee, properly implemented, would be better.

    “The proposals for a UBI represent a rather wan surrender to the neoliberal lie that the government cannot do that (create full employment). It is not a progressive position but continues the unemployment regime that suits capital – they get wage suppression from the slack and maintain sales via the UBI.” – Bill Mitchell.

  2. The “problems” that UBI creates, I see as problems with the current system. I want to change all that stuff anyway.

    People who like the current system think differently than me about whether we need a 50% marginal tax rate, and poverty incomes for our lowest income people.

    A well designed UBI should result in the same final incomes as a well designed welfare system, just with different labels and administrative procedures.

    The JobSeeker income test reduces payments at 50% of your income from $150 a fortnight. To preserve that income structure with a UBI you need a 50% tax rate, with a tax free threshold of $3,900.

    I want lower effective marginal tax rates for people on low incomes, especially in combination with welfare. and higher incomes for people who are out of work, the disabled, aged etc.

    That means government expenditure is higher. Lower income people may have a higher marginal propensity to spend, so you may need to higher taxes on someone else **larger** than the expenditure.

    I want the tax system and welfare system to reflect financial reality. If a couple and children are pooling their money, I think it makes sense tax them and assess them for welfare or UBI as a unit.

  3. The simplest UBI would pay every Australian an amount equal to the single age pension…

    No, it wouldn’t; at its simplest It would only pay them enough that, with low paid work as well, they could then attain that standard. However, it is not necessary that either the UBI or the work could deliver that on its own, merely that the UBI would allow them to price themselves into the sort of work that could provide enough of a top up. (That would then need other measures to remain, to top up the incomes of the unemployed and the retired, but the principle still holds.)

    Of course, that is ignoring the transitional issues and only considering workability rather than whether it would be humane, but it does address the brute numbers question. Those transitional issues, the humanitarian concerns, the brute numbers, and other issues are a large part of why I personally would prefer a Negative Payroll Tax approach to a UBI (which I have outlined hereabouts before).

  4. I agree with P.M.Lawrence. A Negative Income Tax approach would be preferable. Tied to a tax credit allowance it could overcome one major problem for the working poor in Australia. They tend to work at a number of casual jobs. This puts them at odds with an income tax system set up in the mid 1970s during an economic period of near full employment. This system discriminates against casual employees. Only full time workers benefit from the tax free threshold under the PAYE system. Once a poor person has to go and get a second and third job they are penalized.

    ““Say you’re already claiming this tax-free threshold from your first employer and you get a second job. Your first employer won’t withhold tax from the first $18,200 you earn each year. However, your second employer will withhold tax from the first dollar you earn. This is why it can feel like you’re paying more tax on your second job..”
    If you are a member of the working poor, having tax “withheld” from “the first dollar you earn.” is going to hurt your weekly budget. Waiting to have it sent to you as a tax rebate is not always viable.

    So a tax credit would be the best way to free the working poor from this income tax trap. It could be awarded on the previous year’s taxable income level, in the first instances, then kept going every year. This could be topped up with a UBI to bring the working poor to an acceptable income support level WITHOUT the need for them to be humiliated under the Morrison governments JobDobber system.

  5. A UBI in advanced countries is inevitable and it is only a matter of time before it is implemented. However, UBI will never take off until people get away from the idea that it should be paid for via the tax system. Most countries already tax everyone to death ( high income earners already pay the vast majority of taxes collected in most countries ) and people are sick of it. To suggest higher taxes is envy, plain and simple. We need to devise a system to reduce taxes and kill off the welfare state before it sucks us all dry.

    I suggest that advanced economies start giving every adult citizen a permanent stipend of beginning at around $2000 – $3000 per annum as a UBI. This stipend should be paid for by just ‘printing’ the money, no debt. It won’t create any inflation because it is becoming pretty obvious that increasing automation is causing a technological deflation that requires a sort of permanent ‘QE for the people’.

    Technological progress – automation – is inherently deflationary and is accelerating. We are now at a point where advanced countries need to offset this deflation by providing a stipend. Governments have been spending money like crazy and all they are doing is creating pointless debt and causing asset inflation in the stock market and elsewhere. This money should be given directly to the people and it should grow at a rate sufficient to prevent deflation. It needs to start low so that people can get on board with it, and it needs to slowly replace the welfare state because the welfare state should rightfully be called the ‘illfare state’ – no one is happy with it.

    The amount of $2000 should also increase at a steady rate of about 20% per year for the foreseeable future and as it grows it should gradually replace all other welfare payments. In this way the welfare state can be slowly dismantled leading to huge increases in all spheres of productivity.

    As long as the stipend growth doesn’t outpace technological deflation we will be fine. Eventually income tax can also be reduced and finally eliminated as well, causing further increases in productivity.

  6. Gregory J. McKenzie, you have read past what I wrote too fast. I did not assert that “A Negative Income Tax approach would be preferable” (though it would, for much the reasons you give). I was actually pointing out that the best starting point under our circumstances would be a Negative Payroll Tax approach. The distinction lies in the point of impact: it should fall on actual and potential employers rather than on employees/benefit recipients, say with a tax break on employers’ GST for each person employed. When that is set up, this same arithmetic issue means that notional tax rates have to be increased, just to maintain revenue – but the tax actually paid, after the tax breaks, would not change in the short term. That means that the large numbers only occur in intermediate calculations, not as actual funds flows between taxpayers and the government. Over time, this approach would not be revenue neutral, as tax revenue would drop as employment increased – but it would remain budget neutral if the tax breaks were set to match unemployment benefits, since the outgoings on those would drop in step (there is a mathematical invariant at work here). There are other, consequential problems that arise when using a GST as the carrying tax, but on the one hand there are better alternatives and on the other hand a GST serves well enough for these purposes of illustration.

    Interestingly, a thought experiment shows that, in the long run, a Negative Income Tax, a Negative Payroll Tax and a UBI work out as equivalent; consider the effects of implementing either of the first two using issues of anonymous, transferrable vouchers. Over time, the vouchers would become money and everything would behave like a UBI set at the same levels. That shows that a steady state makes all of them work alike.

    I came at this myself through game theory and similar. Then I looked around and found that others had done work in the area, following different paths to get there but often ending up at the same or comparable policy prescriptions. In particular, I found the approach of Professor Kim Swales of the University of Strathclyde and his colleagues (in the U.K. – see, which makes essentially the same recommendations as I came up with, and of Nobel winner Professor Edmund S. Phelps, McVickar Professor of Political Economy at Columbia University (in the U.S.A. – see, or his book “Rewarding Work”).

  7. What is wrong with a Guaranteed Minimum Income instead of UBI? If 50% of the people work that would only cost half (as a first approximation). It also seems fairer to me.

    Or does that work out the same as negative income tax?

  8. Dick Veldkamp, the details of a Guaranteed Minimum Income and a UBI are different, even though the intended result is broadly similar (see and the introduction to that whole page, which contains “… In circumstances when citizenship is the sole qualification, the program becomes a universal basic income system.”).

    But the details of the differences are relevant, at least to the theme of this post of John Quiggin’s. There are lots of ways to improve a simple UBI – not least the NIT and NPT mentioned earlier in comments – but the plain vanilla UBI is still worth presenting for discussion as it provides a standard or reference for comparison. A UBI has few complications at the point of implementation though, as this article shows, that means issues arise elsewhere (e.g. in funding). Even though the other proposals – including yours – have fewer issues elsewhere, they do have more implementation issues within the schemes themselves (though I think an NPT implemented with anonymous, transferrable vouchers wouldn’t have much more difficulty that way than a plain UBI, and it would greatly reduce trouble elsewhere and transitional issues that matter while still far from a steady state).

  9. Well, they’re already introducing deposit bottles, so that’s something for people who currently fall through the cracks. Unfortunately for them, given the current cost of robotics, I am currently developing a deposit bottle robot to take advantage of the 0.005 $20 lying on the footpath. Current models rely on speed to avoiding humans, but I am working on a larger model than can physically weather abuse from Luddites that may wish to prevent an armored robot from efficiently gathering deposit bottles for the benefit of Rob-Corp’s shareholders.

  10. Ronald, I met a local ex? ice addict. He was ransacking my glsss recycling bin. And asked nicely. He is a sngle parent looking after 9yo. Kicked off dole for not reporting. No rehab.

    He is now a feature on streeets. Has kitted himself out w trike pushbike and wobbly trailer.

    Still gets all bottles from my recycling. Dives past milk & cans. It is really a dangerous full time job.

    A ubi would see him relapse I’d say. With dignity. If we legalised ala Portugal, he would relapse 3x and then be stable.

    And the drug money the state would receive (from black market) would cover his return to conventional self medication. Just like most pot/ alcohol(ics).

  11. I’ve to explain to people at the Norwood coffee shops that if you supply some no questions asked financial assistance to the poor then you can even more self righteous and despise the homeless even more, but they just don’t seem to get it. They are satisfied with normal feelings of smugness and superiority. They are simply too complacent to strive for a feeling of godlike superiority of their non-fellow man. The whole lot of them are bloody useless. Thank god I’m not like that.

  12. “Universal Basic Income, Racial Justice, Climate Justice
    UBI can help create a broad-based collaborative security for present and future crises.

    …” His version is “identical to most UBI proposals”, save for the inclusion of “a pro-rated, additional amount for black Americans over a specified period of time.” This would safeguard universal economic security through a strategy of “targeted universalism” that both responds to the history of racial slavery and injustice in and by the United States and anticipates the effect of future, persisting racial injustice on African-Americans’ life chances. ”

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