Australia has been able to handle the Covid-19 pandemic by keeping people at home and shutting down most of the economy. Now, with the virus cornered but not eliminated, we face the moral hazard of reopening in order to protect the government budget, while knowing full well that it will result in more Covid-19 deaths.
Is there an alternative?
What is a Universal Basic Income?
A Universal Basic Income (UBI) is a periodic cash transfer to all adult citizens regardless of employment status. It is intended to ensure an unconditional basic minimum standard of living, thereby breaking with welfare stigmatization, ‘desacralizing’ paid work, allowing workers to reject demeaning, unfair and unsafe working conditions, recognising formerly unpaid domestic work, and encouraging people to take creative chances with their lives.
The policy is usually associated with the left. However, UBI has also enjoyed the support of celebrity advocates like Mark Zuckerberg and right-wing thought-leaders like Friedrich Hayek. The libertarian economist supported “a certain minimum income for everyone…a sort of floor below which nobody need fall even when he [sic] is unable to provide for himself.”
Could a UBI work in Australia?
A UBI of $1,000 paid fortnightly to the 20.3m adults in Australia would cost $527.8 billion annually. This would a huge stimulus, roughly doubling the FY20 federal government budget spend.
The sum isn’t quite as absurd as it seems. Firstly, some of the UBI would immediately be repaid in income tax. Based on the number of taxpayers in each marginal bracket, $86.2 billion would be immediately recouped.
Secondly, a fortnightly $1,000 UBI would replace the aged, carers’ and disability support pensions and family and unemployment benefits, amounting to a payment increase for beneficiaries. This reduces the cost of a UBI by approximately $110 billion.
This leaves a cost (and effective economic stimulus) of a seemingly irrecoverable $331 billion annually. A certain percentage would pay for itself by stimulating economic activity, but it is still an immense sum.
An Australia Institute publication suggests rolling back all tax concessions that disproportionately benefit the wealthy would net $100 billion. No doubt billions more could be earned by closing loopholes exploited by Australia’s corporate tax dodgers and charging resource royalties at least somewhere close to those charged by Middle East principates.
But these progressive taxation initiatives have an opportunity cost. That money is going to be needed if Australia is ever to have the public infrastructure and social services of an advanced nation while de-carbonising and adapting to climate change.
Does that mean the UBI is a philosophically beautiful but unworkable plan? Not necessarily.
UBI advocates have one more trick at their disposal: modern monetary theory. They argue that by leveraging the value of the currency, UBI doesn’t need to be paid for by taxation. We really can just give people money.
In Part 2, we’ll have a closer look at how this might work.