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Money for nothing? I’ll take that

Recently there has been much talk in economic and policy circles about rehashing an old idea for a modern problem.

The old theory of a Universal Basic Income (UBI) has re-emerged as a potential solution to the current problem of underemployment across the western world and the rise in inequality between the rich and poor.

So what is the UBI and is it a solution or a potential social problem in the making?

The UBI is an idea that has been put up by many academics over the past 200 years and at its most basic level is simply a fixed payment to all adult citizens in a country without any conditions attached to it that is financed from the government purse.

The idea behind it is that by giving a fixed amount to every adult in a community you provide a basic living income for each person. This basic income thereby guarantees their “economic participation” in society and allows no one to fall through “the cracks” into poverty and all the impacts that entails 

Proponents of the UBI see it as a replacement for all welfare payments.

They argue it would save enormously on the “welfare churn” that many Western economies like Australia participates in whereby we tax income earners and use those same tax dollars to pay the same income earners some form of welfare payment to redistribute and assist the income levels of the lowest earners.

This welfare churn costs an enormous amount for governments to administer and by instigating a UBI a lot of this cost may well be alleviated.

Other benefits of a UBI are that it would alleviate poverty and is more transparent than the current payments methods

The big argument against a UBI from its detractors is that by simply giving money out to people creates a huge disincentive to work. 

Why bother working when the government will be giving you an income to live on? So the argument goes. 

Also detractors argue that simply doling out cash will lead to more demand for goods and services thereby increasing inflation negating the benefit of the cash handout itself.  (Although stimulating demand will no doubt lead to higher economic activity and more tax revenue etc)  

As we progress head long into a technology future where a lot of blue-collar jobs will potentially soon evaporate with the advent of driverless cars and trucks and generally more automation etc there may come a time when the government will have to increase the welfare payments to some of the less fortunate and the unemployed in our society anyway to provide them with sustenance as employment will just not be available

So will a UBI make it from economic theory to practical policy?

Will a country really have the funds available to pay everyone a reasonable monthly stipend that would make a real difference to their economic well-being?

Well it is happening as we speak with Finland just embarking on a two-year trial where 2000 of its residents are to be paid €560 per month (or approximately $800) unconditionally.  

Other countries including France and Canada and some in Africa are likewise considering having trials such as these.  Although the Swiss embarked on a referendum on a form of UBI in 2014 and it was strongly opposed.  

The biggest practical argument against such a move in the Australian context would be the absolute cost to the federal government of such a move

It has been estimated that if every Australian resident over the age of 16 was paid a stipend of $14,000 (equivalent to the current Newstart allowance) the cost would be $260 billion. To putthis amount in context currently the federal government spends on Social Security payments about $160 billion per annum. 

The extra $100 billion would have to come from additional taxes. Some studies have put the flat tax rate that would be required to generate the required revenue at over 50%  

The politics of a UBI are complex, the social impacts seismic and the outcomes uncertain so don’t expect this to occur in Australia anytime soon    

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