vested interests

Using social policy to reduce inequality is almost precisely the opposite of the suggestion that Australia adopt a “universal basic income”. Here’s an illustration of how that might work out. Suppose we got rid of all our current cash transfers and replaced them with a flat-rate universal basic income. Current spending would support a payment of around $6000 per person.

Every millionaire and billionaire would be thousands of dollars better off. But every pensioner would be in abject poverty — barely able to buy food, let alone pay their bills. Australia’s social safety net reduces inequality by 10 Gini points, while a universal basic income — by design — has zero impact on inequality. So scrapping the social safety net in favour of a universal basic income would increase the Gini by 10 points — making Australia as unequal as Latin America.

Some argue that a universal basic income should be paid for by increasing taxes, rather than by destroying our targeted welfare system. But I’m not sure they’ve considered how big the increase would need to be. Suppose we wanted the universal basic income to be the same amount as the single age pension (currently $23,000, including supplements). That would require an increase in taxes of $17,000 per person, or around 23 percent of GDP. This would make Australia’s tax to GDP ratio among the highest in the world.

So next time someone advocates a universal basic income, ask them how they’d like to pay for it: by making Australia the most unequal country in the world, or by making Australia the most highly-taxed country in the world.

Andrew Leigh is the Shadow Assistant Treasurer. This is an extract of a speech delivered at the Australian National University on 20 April 2017, titled “How Can We Reduce Inequality?“