UBI - it's not an STD, it's guaranteed income

In the 2014-2015 financial year, the Australian Government spent more than $140 billion on welfare. In the same period, the entire Federal Budget consisted of a touch more than $450 billion in expenditure.

It’s a phenomenal amount of money, and given the vested interest we all hold in how our tax dollars are spent, it shouldn’t come as any great surprise that people are starting to question whether our approach to welfare is the correct one.

Enter universal basic income – from here on in, referred to as UBI.

Conceptually, UBI is simple. Take all existing forms of welfare, and replace them with a guaranteed income for all citizens, regardless of whether you’re working, studying, young, old, wealthy, poor, and so forth.

Where would the money come from? In theory, reductions in tax allowances would see higher income earners paying a little more income tax to help fund the system. That increase in income tax would then be offset by the UBI.

I’m no economist and hence poorly positioned to even attempt to comment on the inflationary impacts of such a scheme, but that’s not the interesting part.

The interesting bit is the impact a UBI could have on the workforce.

The key thing to remember is that a UBI is a basic – very basic – income. It would be enough to live on, but not enough to keep the latest iGadget in ones’ pocket. It would not remove the incentive to work.

In fact, it should do the exact opposite.

Working 40 hours a week for minimum wage doesn’t sound appealing. It’s not. But that same job would look considerably more attractive if it was supplemented by a UBI, which was tax-free and not means-tested or reduced in line with other earnings.

Perhaps more importantly, the introduction of a UBI gives workers considerably more bargaining power – it becomes a lot easier to refuse an unsatisfactory offer when you know you’re banking $1000 a month just for getting out of bed.

The amount an employer must offer potential staff increases.

Remember, a UBI isn’t a comfortable wage. Far from it. But it’s enough to help shift some market power to the low paid and low skilled members of the workforce.

It also serves to streamline and simplify the welfare system, by removing distortions and regulating tax brackets and breaks.

Are we likely to ever see such a change in Australia? Probably not. But the very concept – that paying people for doing nothing would make them more likely to participate in the workforce – is at least an interesting one.