An $18.5K Basic Income Would Pull Thousands Of Aussies From Poverty, But How Would It Work?

Australia could lift hundreds of thousands of people above the poverty line and smash rising inequality by providing citizens with a basic income of $18,500 a year, according to a fascinating new study.

No, really.

As reported by the Sydney Morning Herald this week, a team of Aussie economists say that replacing most welfare payments, like Newstart/JobSeeker and the Youth Allowance, with a government-backed income for the vast majority of Australians would “reduce inequality to levels between Scandinavia and Germany”.

It’s a spicy proposition, for sure, and at face value, it seems extremely unlikely. The Australian Government? Handing thousands of dollars to nearly everyone in the country, just for existing? Right-o.

But Macquarie University’s Ben Spies-Butcher, Australian National University’s Ben Phillips and University of Sydney’s Troy Henderson argue a basic income system which tapers off payments for high earners could fit with Australia’s existing approach to social welfare.

What the hell are you talking about?

Universal basic income does what it says on the tin: it’s an idea that governments shouldn’t muck around with tailor-made welfare payments for low-income earners or the unemployed, but should simply give bloody everyone the same slab of cash.

In addition to simplifying things a whole lot, proponents say universal basic income systems would slash the gap between the poorest folks in society and everyone else, while preparing for a world where many jobs are going to be automated out of existence.

Some models would allow folks to just, you know, live on that income, while anyone who wants to work a job and earn more on top would be free to do so.

The main trade-off: a bigger hit to the national budget, which advocates might see as 1) worth it, and 2) easily recouped by rejigging taxes on society’s wealthiest individuals and businesses.

Some critics also argue that without an incentive to work – like the looming fear of starving to death – many people straight-up wouldn’t. That’d suck for some sectors of our society, which do actually need people at the wheel.

Anyway, there’s a decent chance you heard about all of this last year. As pointed out by the SMH, former US presidential election hopeful Andrew Yang built his campaign on slinging US$1000 to every America, every month.

Believe it or not, between all of our Kardashian reporting, we’ve actually covered discussions about universal basic income before.

But that was 2017, and the economic landscape has changed dramatically since then (so too has our reporting on the Kardashians, which also tackles the prickly problem of wealth inequality).

So, what’s the go with the new report?

One model presented by the report suggests a basic income of $18,523 would reduce the Australian poverty rate from 11% to 9.1%.

Let’s do some quick and dirty maths: assuming Australia has a population of 25.7 million people, an 11% poverty rate puts 2,827,000 below the poverty line (some groups, like the Australian Council of Social Service, put the true figure even higher.)

Reducing the poverty rate to 9.1% would shave about 488,000 people off that figure, drastically changing lives in the process. Not bad.

The report also toys with the idea of a ‘universal’ basic income to hit those numbers. Basically, the authors ask what’d happen if that basic income was tiered depending on how much recipients earn from their employment.

Under one model, someone who is unemployed would earn the full sum of $18,523 – that’s equivalent to the current rate of JobSeeker, boosted by $75 a week in keeping with the Raise The Rate campaign – over a given year.

Folks in each successive tax bracket would earn less and less of the base-level basic income. At the top end, individuals who earn $180,001+ would get zip.

The authors posit this kind of “affluence” testing would allow a workable middle ground.

At the bottom end of the wage spectrum, the level of Australians living below the poverty line would drop by 2%, instantly making life bearable for many Australians doing it (extremely) tough.

Spitballing here, but that kind of system could also come in handy during a recession caused by a devastating pandemic. Just a thought.

At the top end: if you’re earning over $180,000, missing an extra $18,500 a year probably won’t change your life that much. One less Grange Hermitage jacuzzi session, I guess.

But that would jack up taxes to the roof, right?

This is where it gets interesting (if you’re interested in tax [which I kind of am!]). Their calculations state Australia would need to jack taxes to cover 34.5% of the nation’s gross domestic output.

That’s a lot of cash – but the authors reckon the new tax rate would mirror what some comparable nations already have in place.

“Results from both payment models would reduce inequality to levels between Scandinavia and Germany, yet involve an overall tax take well below the levels of taxation in these countries, and closer to the OECD average,” the report states.

Uhhh didn’t the Coalition Government just slam through a bunch of tax breaks in the latest Federal Budget?

Yes! They did. They did indeed. That’s to say nothing of prevailing Coalition ideologies towards welfare itself.

Even then, the authors are somewhat optimistic that their models kind of fit with Australia’s commitment to affluence testing its existing welfare payments.

While acknowledging “radical policy change is politically unlikely,” the authors argue their Australian basic income model reflects some “political and policy legacies of the Australian welfare state.”

Funnily enough, the authors also note that “the optimal tax mix is not our concern here,” insinuating that things kind of need to change regardless.

Where does that leave us?

With a head full of ideas about the future, basically. Despite the idea of a universal basic income gaining some currency in recent years (sorry), and the Greens toying with the idea of an Australian trial in 2018, it’s still a relatively fringe concept.

The paper admits “full implementation of these principles remains beyond short-term political possibilities,” but states that continual chatter about a modified basic income system “can inform debate over future efforts to reduce inequality and insecurity.”

So, consider this your primer on the latest developments in the local debate – and remember me if you’re ever paid $18,500 a year just to be alive.