Pension and income tax reform proposal

From the web page at http://apsl.com.au/ ;

APSL calls for immediate increases for all pensioners

By natasha | September 9, 2008

It has been many years since there has been a full review undertaken of the Australian Pension System and as a result of that failure it has become apparent that the Australian Pension System, in terms of its base rate and the marginal tax rate that applies to all pensions has become totally inadequate for pensioners to maintain an adequate community lifestyle.

The Australian Pensioners’ and Superannuants’ League Qld Inc at the Pension Review have called for:



From http://news.smh.com.au/national/two-million-elderly-aussies-on-pension-20080811-3t4j.html ;

“Two million elderly Aussies on pension

Almost 80 per cent of Australians aged 65 and over are on the pension, mostly with very little other source of income, a federal government review has found.

The government's Pension Review background paper, released on Monday, found more than two million older Australians receive a full or part aged pension or related payment.

The paper also found Australian pensioners to be worse off than their counterparts in other western industrialised countries, with a pension rate below the OECD average.

“The single pension rate, at $273 a week, is only 60 per cent of the combined couple rate of $456 a week.

This makes Australia's single pensioners worse off than their counterparts in other OECD countries, where the average single pension is 63 per cent of the couple rate.

National Seniors Australia chief executive Michael O'Neil said single pensioners should be paid two thirds, or 66 per cent, of the combined couples rate.



From http://www.nzherald.co.nz/nz/news/print.cfm?c_id=1&objectid=10512001&pnum=0 ;

“Pensioners will be better off in New Zealand than in Australia from October this year, if you ignore the exchange rate.

The elderly are among the biggest winners from yesterday's Budget, with a package of measures including:

* A $23 a week rise in the after-tax married pension to 51 per cent of the before-tax average wage, compared with 39 per cent in Australia.

* Free public transport at off-peak hours, compared with only discounted fares in Australia.

* A jump in the subsidy for hearing aids, which audiologists describe as the biggest increase in decades.

* A promised rebate on power bills to take effect when electricity enters the proposed emissions trading scheme.

* A long-promised increase in allowances for grandparents raising grandchildren (see separate story).

Grey Power vice-president Bob Buchanan said older New Zealanders would be "very pleased" with the package.

"With petrol and food increases, people on fixed incomes that are relying on New Zealand superannuation are feeling the pinch, and any aid they can get to this group of people Grey Power is right behind."

He said buses were almost empty at off-peak times, and it made sense to let superannuitants ride in them.

The net married pension, paid universally to everyone from age 65, was raised from 65 per cent to 66 per cent of the net average wage after the last election as part of a deal with New Zealand First.

It will go up again, from $439.80 to $462.74 a week, or 51 per cent of the gross average wage, on October 1 to keep pace with the increase in the net average wage resulting from the Budget tax cuts.

In Australia, the pension is means-tested and income-tested, and the maximum married pension is A$456.80 ($560.32), or just 39 per cent of the before-tax average wage.

The new subsidies for off-peak public transport, hearing aids and power bills will be limited to people aged 65 and over with "SuperGold Cards" - a new discount card that was also an NZ First initiative.

The scheme was criticised when it was launched last August because it failed to include significant discounts for either public transport or power, which attract discounted fares and a A$500 ($612) annual utility allowance in Australia.

But NZ First leader Winston Peters has effectively trumped even the Australian scheme by negotiating an $18 million a year payment to public transport providers to fund completely free, off-peak travel for superannuitants.



From http://wotnews.com.au/like/average_weekly_wage_rises_to_1110/1726099/

“The average weekly wage in Australia is now $1,110.20, after growing by a solid 4.7 per cent in the year to November.. Thu Feb 2008 10:02 (9 months ago)”

From http://wotnews.com.au/like/average_weekly_wage_now_1131/2351998/ ;

“The average weekly wage in Australia is now $1,131.. Thu Aug 2008 01:08 (3 months ago)”

From http://wotnews.com.au/like/average_weekly_wage_now_1147/2697531/ ;

“The average weekly wage in Australia is now $1,147.20, after growing by 4.7 per cent in the year to August.. Thu Nov 2008 10:11 (5 days, 14 hours ago)”



From http://www.treasury.govt.nz/publications/research-policy/wp/2004/04-22/05.htm ;

“New Zealand has a two-tier system of retirement income provision. The first tier is provided by NZ Superannuation. This is a universal public pension, funded on a pay-as-you-go basis from general taxation. There has been some form of NZ Superannuation since 1938 (and an age pension dating from 1898) and the electorate is committed to maintaining this form of public pension.[8] The second tier consists of voluntary private provision by individuals to enhance their standard of living in retirement. Some of the wealth observed by the Household Saving Survey is likely to have been accumulated by households to provide this second tier of retirement income, although the role of private provision generally in New Zealand has been rather limited.

The key feature of NZ Superannuation is that it is paid to everyone aged over 65 who meets a residency requirement,[9] at a standard amount that is unrelated to previous earnings. There is no income or asset test to determine eligibility. Recipients are also eligible for other forms of means-tested income support (including accommodation allowances), on the same basis as people of any age. Over 93 percent of people over age 65 receive NZ Superannuation. Because of this (almost) universal eligibility, O’Connell (2004) considers NZ Superannuation to be an example of a “Citizen’s Pension” – a basic amount payable to all citizens.

The level of NZ Superannuation benefits is reviewed each year, but legislation mandates that it has to be kept between 32.5 and 36.25 percent of the net average wage. This is usually described by ‘65 at 65’, that is, at age 65 a married (or cohabiting) couple will receive at least 65 percent (two times 32.5 percent) of the net average wage. The married person rate is the base rate for NZ Superannuation, and the rates for single pensioners living alone and single pensioners sharing accommodation are set higher to reflect the extra costs of maintaining either single-person or shared, non-cohabiting households. In 2003, the rate for a single person sharing accommodation was equivalent to 40 percent of the average weekly wage, while for those living alone it was equivalent to 44 percent (MSD, 2003).

[8]In a 1997 referendum, 92 percent of voters (with a turnout of 80 percent in a postal ballot) voted against replacing NZ Superannuation with a compulsory private savings system.

[9]A person must have lived in New Zealand for ten years since age 20, five of which must be since age 50.



From http://www.ipss.go.jp/publication/e/R_S_P/No.10_P107.pdf , which compares the pension systems in Australia, the Netherlands, and Switzerland, from the part relating to the Netherlands;

This blurring of the tax and contributory system remains an important unresolved question in Dutch social policy, although legislation to change the tax system is high on the political agenda. This especially affected the position of married women. If a woman was working, the tax was based on the higher family income; if she was not doing any outside paid labor, she did not pay any contributions and was covered by her husband’s contributions. Therefore, it was the husband who received the pension, since the wife did not earn a pension in her own right. This later became a political issue, and the rules were changed to recognize wives as individuals rather than spouses. The size of the pension would be equal for everyone but take account of household structure. A single person gets 70% of the base amount, which was eventually set at the net minimum wage level. A couple originally got 100%, to take account of economies of scale in household size, but after the rule change each couple received 50% of the base amount.”

I assume that the last part of the last sentence in that paragraph, should instead read

but after the rule change each member of a couple received 50% of the base amount.



From http://www.acoss.org.au/upload/publications/papers/info 347_taxation.pdf (I note that the document is dated 2003, but it is a useful starting point for the material below);

1. Confusion between marginal and average tax rates

First, some people confuse average and marginal income tax rates, believing that the marginal tax rate applies to all of their income. Others understand the distinction but wrongly focus their attention of marginal tax rates when the average rate is the true measure of the extent of taxation.


The marginal tax rate only tells us how much we paid on the next dollar earned. The average or overall rate of tax is a better indicator of how much tax we pay, and in progressive income tax systems this is always lower than the marginal rate of tax. The table below compares marginal and average tax rates applying to different income levels. It shows, for example, that a person on $60,000 paid a marginal tax rate of 42% on their last dollar earned, but an average tax rate of just 26% on all of his or her income.


Table 1 Marginal vs average tax rates


Annual taxable income

Marginal tax rate

(tax rate on the last dollar earned)

Average tax rate

(tax rate on all income)

$6,000

0

0

$20,000

17%

12%

$50,000

30%

23%

$60,000

42%

26%

$100,000

47%

34%



Note: Does not include Medicare Levy or any deductions or tax offsets”



From http://www.stuff.co.nz/print/4762726a28477.html , a news story about the formation of the new NZ government;

“National has agreed to support a bill through its first reading on income splitting, although not beyond that.

Income splitting is a United Future policy and involves a single income family being able to split its income between spouses so less tax is paid.



Now, from all of the above information;

  1. From the information from the APSL, the single pension weekly rate of $273, is apparently 25% of the average weekly wage, so, the average weekly wage would appear to be $1092.

  2. If the single pension rate is increased to 30% of the average weekly wage, using that amount, that would take the single pension weekly rate to $327.60, an increase of $54.60 per week.

  3. As finance is the primary source of disharmony between married couples, a single pension should be paid to each partner in a marriage, where the partner would qualify in the person's own right, for the pension, with the pension not being means-tested; either on the value of assets, or on the value of income, as it is similarly not means-tested in NZ. That would also give each partner, recognition as a person, in the person's own right.

  4. The single pension rate should apply to all adult social welfare beneficiaries, be the recipient, an unemployed person, an invalid pensioner, an aged pensioner, or whatever else makes the person eligible for full income support.

  5. As is provided in NZ, to aged pensioners, so also, in Australia, should free public transport be provided to social welfare recipients (here included, instead of just pensioners, as in NZ), during off-peak times, to make better use of public transport, and to reduce expenses for social welfare beneficiaries.

  6. Income should be taxed at a single tax rate, with the tax-free threshold being the single pension rate, and the tax rate being 37%, which includes the equivalent of a 2% public health tax component, increased from the current medicare levy rate of 1.25%, to provide for more adequate funding of public health. This would give an annual tax-free threshold (using the average weekly wage rate of 1092) of $17035.20.

  7. The pension rate and thence the tax-free threshold, should be reassessed before and for the start of each new financial year, so as to be implemented from the start of each new financial year.

  8. Income splitting for married couples, should be implemented for assessment of income tax, so that, for a married couple, the total income of the couple, is averaged over the two people, for income tax assessment, and, in the context of the single, flat tax rate, that would mean simply, double the tax-free threshold. Where an employee has a dependent spouse, the employee makes that declaration on the tax declaration on the commencement of employment, and then, at the start of each tax year.


Using the above table of Marginal vs Average Tax rates, and, incorporating the proposed single flat tax rate, of 37%, with an annual tax-free threshold of $17035.20, gives


Annual taxable income

Bracketed Marginal tax rate

(tax rate on the last dollar earned)

Average tax rate for bracketed tax

(tax rate on all income)

Average tax rate for flat tax rate

(tax rate on all income)

$6,000

0

0

0

$20,000

17%

12%

5%

$50,000

30%

23%

24%

$60,000

42%

26%

26%

$100,000

47%

34%

31%




Now, the Flat Average Tax Rate includes the higher public health levy, so as to provide more public health provision, including, for example, an annual fully publicly funded medical examination, which should result in less personal expenditure on public health, and, also, with the income splitting, as proposed, married couples would be better off, as, apart from having more disposable income, their marriages should be more stable and harmonious, due to less financial problems. And, this should, by way of greater disposable incomes, boost the economy.


And, this proposal should, apart from anything else, strengthen marriages within Australia, due to married couples having more disposable income, and, due to spouses being finally recognised by the federal government, as people in their own right.


It must be noted, that the current average weekly income is now, at November 2008, from the above information, $1147.20, per week, so the above proposed pension rates and income tax figures, need to be adjusted for that.


The above content was last updated on 19 November 2008.

Added 07 January 2018

The Pirate Party of Australia, has published at
https://pirateparty.org.au/wiki/Platform#Merger_of_tax_and_welfare_systems.2C_and_establishment_of_a_basic_income
as viewed at 0500 on 07 January 2018,

"
Merger of tax and welfare systems, and establishment of a basic income

Australia's tax and welfare systems have grown so complicated that they are almost impossible to understand.The tax system now comprises more than 120 different taxes, and includes a range of bad incentives which favour property speculation and penalise work and saving. The complexity nullifies any chance at real government transparency; it also forces more than two thirds of taxpayers to file returns through tax agents.

The welfare system also faces problems with complexity. It has grown in ad-hoc fashion to encompass more than 20 separate payments, each with different means tests, sub-payments, administrative arrangements and compliance regimes. Administrative costs for tax and welfare run to over $5 billion annually, and over $80 billion is "churned" (collected as tax and then returned to the same taxpayers as welfare) each year. Recipients leaving welfare for work often face a combination of large benefit cuts and income tax, which can lead to effective losses of more than 70% of earned income. This punishes the drive to be self-sufficient and creates a risk of inter-generational poverty.

Basic income through reverse taxation

Significant reforms are needed to improve transparency and fairness in the system. This need will only become more urgent as automation advances, potentially changing the face of the labour market and putting the system under more strain than ever before. As the challenges of the 21st century unfold, a comprehensively different model of tax and social support will be needed.

We believe it is time to combine the disparate systems of tax and welfare together, unifying them into a single system underpinned by a basic income guarantee. This basic income guarantee would be paid in the form of a negative income tax.

Negative income tax is tax in reverse—money paid by the government to those with low or no taxable income. It provides social support directly through the tax system rather than through a separate welfare system. Pirate Party Australia proposes a tax threshold of $40,000 should be used in conjunction with a tax rate of 37.5%. Under this plan, the first $40,000 of earnings would become tax-free, with a tax rate of 37.5% applied only on earnings above that. However, people earning less than $40,000 will receive 37.5% of the shortfall transferred to them from the government in the form of negative income tax. Thus, persons earning nothing at all are guaranteed a basic income of $15,000 (representing 37.5% of the $40,000 by which they fall below the threshold). The following examples show how income is modified under a negative income tax:

Income before tax Tax threshold Gap between income & threshold Tax rate Change in income Income after tax Effective tax rate
$0 $40,000 -$40,000 37.5% +$15,000 $15,000 0%
$30,000 $40,000 -$10,000 37.5% +$3,750 $33,750 0%
$40,000 $40,000 $0 37.5% Nil $40,000 0%
$50,000 $40,000 $10,000 37.5% -$3,750 $46,250 7.5%
$100,000 $40,000 $60,000 37.5% -$22,500 $77,500 22.5%


A basic income system protects against poverty by providing a platform beneath which nobody can fall. This removes the financial dependence which traps people in abusive relationships, and overseas trials show that income guarantees are one of the most effective ways to reduce domestic violence. A basic income would improve the bargaining power of workers and stabilise low and volatile wages, smoothing the path for those seeking to shift from welfare into work.

There would also be a material reduction in the size and reach of government. Swaths of bureaucracy and welfare 'churn' would be cut. And a fundamental power imbalance between the individual and the state would be corrected, since government would no longer be able to take income from citizens while refusing counter-obligations to citizens whose income collapses.

Most importantly, a basic income is a platform for 'positive liberty', granting everyone the freedom to seek education and training, volunteer, create art and culture, or raise children without bureaucratic obstacles and complex payment rules. A basic income is a platform on which 21st century entrepreneurship and creativity can be built.

On the tax side, a higher tax-free threshold will improve progressiveness in the income tax system. It also provides a simple means to replace the current mass of thresholds, offsets and tax breaks, which unduly favour wealthy investors and those who can afford tax accountants. Negative income tax is one of only a few tax and welfare proposals which has near-unified support among economists, demonstrating its merit as a serious economic reform.

Balancing revenue

A shift to negative income tax will reduce income tax receipts by around $30 billion per year, with the bulk of benefit flowing to low income earners. Some of this could be made up through a price on carbon emissions (see climate change policy), and a removal of fossil fuel rebates. Revenue could also be supported by abolishing tax breaks on negative gearing and capital gains: these loopholes have created a huge bias towards property speculation and locked a whole generation out of home ownership. The remaining, substantial tax reduction should simply be left intact as a means to support labour and enterprise in Australia.

On the spending front, a negative income tax can replace the bulk of existing welfare and its associated bureaucracy, as well as a range of expensive and underperforming "employment services" whose function can be served in the private market. US cost estimates based on Congressional Budget Office data suggest that a shift to negative income tax requires only a tiny lift in spending, and Pirate Party calculations suggest the same is true in Australia. Any additional cost is likely to vanish over time as incentives for welfare recipients improve.

Charity and fairness

A few other tweaks would improve the function of our tax and welfare system. All charities should be classified as 'deductible gift recipients' in the future: this will make every charitable donation and activity tax-deductible. At the same time, tax exemptions linked to 'advancement of religion' should be removed, since a modern secular society has no grounds to discriminate between taxpayers on the basis of their beliefs.

Pirate Party Australia advocates the following reforms:

Combine tax and welfare into a single, fair system through a negative income tax

Set tax rate to 37.5% with a threshold of $40,000 (generating a basic income of $15,000 p/a).
Adjust tax thresholds (and basic income) in line with inflation.
Time negative income tax payments to supplement regular wage payments, or transfer fortnightly to those with no income.
Ensure basic income is available to all persons aged 18 and over, following graduation from school.
Ensure 'neutral' and equivalent tax treatment for all forms of income including fringe benefits, share transfers and dividends, earnings through interest, rental or private company income, and inflation-adjusted capital gains.
Phase out negative gearing over five years; allow investors to carry forward losses and deduct them from capital gains to reduce tax liability on property and asset sales.
Ensure superannuation contributions are tax-free, with withdrawals taxed as normal income (subject to credit where contribution tax was previously paid).
Limit tax exemption to charitable donations and items purchased for the purpose of disability support.
'Top up' the basic income in special cases:
An additional $6,000 in child support to primary caregivers, with additional per-child payments reduced by 25% for each subsequent child.
A top-up to match existing pension levels for aged and disabled persons, veterans, and carers.
A top-up to match existing rent assistance for low income earners lacking public housing.
Taper out all ‘top-ups’ as income rises, with top-ups removed once income reaches $100,000.
Use the basic income to replace existing welfare programs including Newstart, Age Pension, Austudy, Family Tax Benefits parts A and B, School Kids Bonus, Income Support Bonus, Low Income Super Contribution, the Disability Support Pension, and Carer Payments.
Use the higher tax threshold to replace existing tax offsets for senior Australians, mature age workers, overseas civilians, entrepreneurs, low income earners, holders of private health insurance, termination payments, zone offsets, notional tax offsets, and tax exemptions for foreign employment income.



The Basic Income Earth Network (BIEN), on their web site, has an article published at
http://basicincome.org/news/2017/09/medical-doctor-basic-income-health-issue/
which included, as viewed at 0520 on 07 January 2018,

"
In 1970, conservative Republican US President Richard Nixon introduced a health bill into the American Congress. It passed but was defeated in the Senate. He did not realize it was a health bill, nor did many of his fellow politicians. It was called the Family Assistance Plan, a guaranteed income for families with children, not adequate to bring the income up to the poverty line, but substantially more than was previously on offer.

It required the breadwinner to accept work if available. Thus it was targeted, conditional, and inadequate by itself to eliminate poverty, but it was a huge change in thinking from a conservative leader in the United States. It came with this impressive rhetoric

"Initially this new system will cost more than welfare, but unlike welfare this is designed to correct the condition it deals with and thus lessen the long range burden and cost."

The health-income gradient and the failure of 'welfare'

We know that health and poverty are inextricably linked, that health outcomes follow the income gradient, and that the basis for this association in wealthy countries with good health systems is not simply access to care, but poverty and its own associations. Thus the Nixon proposal was a health bill.

The famous Whitehall study of British public servants who all had similar access to the National Health Service demonstrated a clear association of income with health outcomes. Those most in control of their own lives lived longer and suffered less.

Because of concern about wasting taxes on welfare and about the so called 'welfare trap', we have developed a highly targeted welfare system in Australia, with a strong emphasis on mutual responsibility. Our efforts to identify any welfare 'fraud', accidental or intentional, have become increasingly intense.

We continue to force people to chase jobs which do not exist or which they could not do. We hound them with letters generated by computers and then make it difficult for them to question any charges against them. We demean them. We dis-empower them even further than their poverty, unemployment, mental illness, or physical illness already does.

A BIG idea

An alternative is needed. The concept of a Basic Income Guarantee (BIG) is not new. Thomas More wrote about it 400 years ago in his book Utopia. Variations of it have been advocated for centuries. Bismark’s social insurance in Germany has some elements of the concept. Nobel Laureate economist and free marketeer Milton Friedman advocated it in the form of a negative income tax (NIT).

Four trials in the 1960-70s in the United States used Friedman’s model (p 107-109). If an individual’s tax return indicated a low or no income, a tax rebate was paid as a monthly deposit to a bank. The size of the rebate declined slowly as income was earned, ensuring earned income led to an increase in total income. The largest of these four trials involved 4,800 families, and the amount given varied from 50 to 100 percent of the poverty level. There were no work requirements.

The alternative model to NIT is a cash payment. This was trialed in Canada in 1974, where 60 percent of the Low Income Cutoff (poverty level) was paid. For every dollar earned the payment was reduced by fifty cents. Analysis of results showed that even though only one third of the population ever qualified over the 4 years of the trial, high school completion results increased and hospital admissions decreased during the trial compared to the control group.

An even more simple model is one in which the cash payment goes to every individual adult and is not means tested. This eliminates any negative perception of being needy, because everyone receives it. For those who do not need it, the money can easily be recouped by changes in taxation.

Counting costs, reaping benefits

The Basic Income Earth Network established in 1986, defines a basic income guarantee (BIG) as "a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement". This does not specify the level of the cash payment but the simplest and likely the most effective method would be to make the level at or slightly above the poverty line.

Concerns about the basic income guarantee relate both to the benefits and the costs. The Canadian trial mentioned above, demonstrated both health and education benefits. Analysis of the effect of increased household income in the Cherokee Indian community as a result of distribution of profits of a Cherokee owned casino showed less criminality and improved education down the track. None of this is surprising.

But does this mean people will not work as hard? The US trials referred to previously showed a decrease in hours worked particularly among women and young adults. Is that bad? It is not clear from the data what they did instead of working so much. Were women spending more time looking after their families? Were young adults looking more carefully at work options and training?

Men reduced their work hours by about six percent but it did not appear that they were permanently unemployed. Rather, it appears they were spending more time between jobs. The sky did not fall in. Most people who can earn a little more than a poverty level income will do just that.

Is it affordable?

A basic tax free income guarantee of $22,000 (the poverty line at 50% of the median income for a single person) for every adult Australian (18 million people) would cost $400 billion a year. But the idea is not to increase the net income of millionaires by $22,000. It keeps administration simple to give the basic income to everyone and recoup in taxes from the wealthy. So the real cost is much less.

Only about six million Australians currently receive income support. Another one million or so have some funding from the Federal Government. Being generous, for eight million to receive the BIG would cost $176 billion, almost completely offset by replacing the welfare budget of $150 billion. That could be abolished.

Removing the tax free threshold of $18,200 for the 12 million earning more than that would generate $41 billion. But anyone on a low income would still have a total income of more than $22,000.

Tweaking the tax rates on higher incomes would effectively remove the BIG from higher income earners. Provision for children would add to the cost. Reducing BIG for dual income households to a level which would reflect economies of scale, in the same way as pensions do currently, would reduce the cost.

Most Australians would not lose a cent. All Australians would be guaranteed a basic income, whether sacked, disabled, unable to find work, or simply unemployable. The NDIS and Medicare would continue unchanged. This is all possible. Even the Productivity Commission thinks it’s worth investigating (p69):

"While Australia’s tax and transfer system will continue to play a role in redistributing income, in the longer term, governments may need to evaluate the merits of more radical policies, including policies such as a universal basic income."

A bold move for health

If Australia introduced BIG we would have a system that almost eliminates poverty, thus appealing to those deeply concerned about the plight of the disadvantaged. We would also have a system which gives such people the genuine capacity to make their own decisions about what they do with their lives, which should appeal to those committed to individual responsibility.

Implementing this idea would do away with the current cruel, dis-empowering, wasteful welfare system. It would improve health outcomes. It could improve productivity. It would improve the life prospects of the 13% of Australians who currently live in poverty, the 17.4 percent of kids who are being raised in poverty, and the 40 percent of children in single parent families who live in poverty.

This is a health issue. Medical groups of all types should think about how we might use our knowledge and concern about health to bring this issue to the minds and actions of our politicians.

About the author:

Dr. Tim Woodruff is president of the Doctors Reform Society, an organisation of doctors and medical students promoting measures to improve health for all, in a socially just and equitable way.
"



Wikipedia, on their web site, has an article published at
https://en.wikipedia.org/wiki/Basic_income
which included, as viewed at 0100 on 08 January 2018,

"
A basic income (also called basic income guarantee, citizen's income, unconditional basic income, universal basic income (UBI), basic living stipend (BLS) or universal demogrant) is typically a form of social security or welfare regime, in which all citizens (or permanent residents) of a country receive a regular, liveable and unconditional sum of money, from the government. Payments does not require the recipient to work or look for work, and is independent of any other income.

The idea is being debated around the world and dates back at least to the late 18th century when Thomas Spence and Thomas Paine both declared their support for a welfare system in which all citizens were guaranteed a certain income, by the state. In the 19th century and until the 1960s the debate on basic income was limited, but in the 1960s and 1970s United States and Canada conducted several experiments with negative income tax, a related welfare system. From the 1980s and onwards the debate in Europe took off more broadly and since then it has expanded to many countries around the world. A few countries have implemented large scale welfare systems that are related to basic income, such as the Permanent Fund in Alaska and Bolsa Familia in Brasil. From 2008 and onwards there has also been several experiments with basic income and related systems. Especially in countries with an existing welfare state a part of the funding assumably comes from replacing the current welfare arrangements, or a part of it, such as different grants for unemployed people. Apart from that there are several ideas and proposals regarding the rest of the financing, as well as different ideas about the level and other aspects.

Prominent advocates of basic income include Elon Musk, Mark Zuckerberg, Andre Gorz, Ailsa McKay, Guy Standing, Karl Widerquist, Hillel Steiner, Peter Vallentyne and Philippe Van Parijs.

An unconditional income that is sufficient to meet a person's basic needs (at or above the poverty line), is called full basic income, while if it is less than that amount, it is called partial.

Basic income can be implemented nationally, regionally or locally.

Some welfare systems are related to basic income but have conditions. For example, Bolsa Familia in Brasil is restricted to poor people.

A related welfare system is negative income tax. Like basic income, it guarantees everyone (where everyone can mean, for example, all adult citizens of a country) a certain amount of regular income; but with negative income tax, the amount a citizen receives depends on his or her income from labour. That is not the case with a pure and flat basic income, where everyone (for example every adult citizen) gets the same amount.

History

The idea of an unconditional basic income, given to all citizens in a state (or all adult citizens), was first presented near the middle of the 19th century. But long before that there were ideas of a so-called minimum income, the idea of a one-off grant and the idea of a social insurance (which still is a key feature of all modern welfare states, with insurances for and against unemployment, sickness, parenthood, accidents, old age and so forth).

The minimum income, the idea to eradicate poverty by targeting the poor, is in contradiction with basic income given "to all", but nevertheless share some underlying ideas about the state's or the city's welfare responsibilities towards its citizens. Johannes Ludovicus Vives (1492–1540), for example, proposed that the municipal government should be responsible for securing a subsistence minimum to all its residents, "not on grounds of justice but for the sake of a more effective exercise of morally required charity". However, to be entitled poor relief the person’s poverty must not, he argued, be undeserved, but he or she must "deserve the help he gets by proving his willingness to work."

The first to develop the idea of a social insurance was Marquis de Condorcet (1743–1794). After playing a prominent role in the French Revolution, he was imprisoned and sentenced to death. While in prison, he wrote the Esquisse d'un tableau historique des progrès de l’esprit humain (published posthumously by his widow in 1795), whose last chapter described his vision of a social insurance and how it could reduce inequality, insecurity and poverty. Condorcet mentioned, very briefly, the idea of a benefit to all children old enough to start working by themselves and to start up a family of their own. He is not known to have said or written anything else on this proposal, but his close friend and fellow member of the Convention Thomas Paine (1737–1809) developed the idea much further, a couple of years after Condorcet’s death.

The first social movement for basic income developed around 1920 in the United Kingdom. Its proponents included Bertrand Russell, Dennis Milner (with wife) and Clifford H. Douglas.

Bertrand Russell (1872–1970) argued for a new social model that combined the advantages of socialism and anarchism, and that basic income should be a vital component in that new society.

Dennis Milner, a Quaker and a Labour Party member, published jointly with his wife Mabel, a short pamphlet entitled “Scheme for a State Bonus” (1918). There they argued for the "introduction of an income paid unconditionally on a weekly basis to all citizens of the United Kingdom". They considered it a moral right for everyone to have the means to subsistence, and thus it should not be conditional on work or willingness to work.

Clifford H. Douglas was an engineer who became concerned that most British citizens could not afford to buy the goods that were produced, despite the rising productivity in British industry. His solution to this paradox was a new social system called "social credit", a combination of monetary reform and basic income.

In 1944 and 1945, the Beveridge Committee, led by the British economist William Beveridge, developed a proposal for a comprehensive new welfare system of social insurance and selective grants. Committee member Lady Rhys-Williams argued for basic income. She was also the first to develop the negative income tax model.

In the 1960s and 1970s, there were a welfare debates in United States and Canada which included basic income. Six pilot projects were also conducted with negative income tax. Then US president Richard Nixon once even proposed a negative income tax in a bill to the US Congress. But the Congress eventually only approved a guaranteed income for the elderly and the disabled, not for all citizens.

In the late 1970s and the 1980s, the idea of basic income was forgotten in the United States, but gained attraction in Europe. Basic Income European Network, later renamed to Basic Income Earth Network, was founded in 1986 and started to arrange international conferences every two years. From the 1980s, some people outside party politics and universities took interest. In West Germany, groups of unemployed people took a stance for the reform.

From 2005–2010 and onwards, basic income again became a hot topic in many countries. Several countries have tried or plan to try local experiments with basic income, or related welfare systems. In 2016 in Switzerland, basic income was rejected by 73% of voters in a national referendum.

In the 2010's, basic income has been discussed in the context of ongoing automation of production, often with the argument that automation will mean less paid work in the future, which would create a need for a new welfare model.

Arguments for, against and around basic income

Transparency and administrative efficiency

Basic income is potentially a much simpler and more transparent welfare system than existing in the welfare states today. Instead of numerous welfare programs, it would be one income. This would require less paperwork and bureaucracy to check eligibility. The lack of means test or similar bureaucracy would allow for saving on social welfare, which could be put towards the grant. The Basic Income Earth Network (BIEN) claims that basic income costs less than current means-tested social welfare benefits, and has proposed an implementation that it claims to be financially viable.

However, other proponents argue for adding basic income to existing welfare grants, rather than replacing them.

Poverty reduction

Advocates of basic income often argue that it has a potential to reduce or even eradicate poverty.

Freedom

Several advocates of basic income have argued that basic income promotes freedom.

Right-leaning supporters have argued that policies like basic income free welfare recipients from the paternalistic oversight of conditional welfare-state policies.

Philippe Van Parijs has argued that basic income at the highest sustainable level is needed to support real freedom, or the freedom to do whatever one "might want to do". By this, Van Parijs means that all people should be free to use the resources of the Earth and the "external assets" people make out of them to do whatever they want. Money is like an access ticket to use those resources, and so to make people equally free to do what they want with world assets, the government should give each individual as many such access tickets as possible—that is, the highest sustainable basic income.

Karl Widerquist and others have proposed a theory of freedom in which basic income is needed to protect the power to refuse work. The theory goes like this:

If some other group of people controls resources necessary to an individual's survival, that individual has no reasonable choice other than to do whatever the resource-controlling group demands. Before the establishment of governments and landlords, individuals had direct access to the resources they needed to survive. But today, resources necessary to the production of food, shelter, and clothing have been privatized in such a way that some have gotten a share and others have not. Therefore, this argument goes, the owners of those resources owe compensation back to non-owners, sufficient at least for them to purchase the resources or goods necessary to sustain their basic needs. This redistribution must be unconditional because people can consider themselves free only if they are not forced to spend all their time doing the bidding of others simply to provide basic necessities to themselves and their families. Under this argument, personal, political, and religious freedom are worth little without the power to say no. In this view, basic income provides an economic freedom, which—combined with political freedom, freedom of belief, and personal freedom—establish each individual's status as a free person.

Arguments from different ideologies

Georgist views: Geolibertarians seek to synthesize propertarian libertarianism and a geoist (or Georgist) philosophy of land as unowned commons or equally owned by all people, citing the classical economic distinction between unimproved land and private property. The rental value of land is produced by the labors of the community and, as such, rightly belongs to the community at large and not solely to the landholder. A land value tax (LVT) is levied as an annual fee for exclusive access to a section of earth, which is collected and redistributed to the community either through public goods, such as public security or a court system, or in the form of a basic guaranteed income called a citizen's dividend. Geolibertarians view the LVT as a single tax to replace all other methods of taxation, which are deemed unjust violations of the non-aggression principle.

Right-wing views: Support for basic income has been expressed by several people associated with right-wing political views. While adherents of such views generally favor minimization or abolition of the public provision of welfare services, some have cited basic income as a viable strategy to reduce the amount of bureaucratic administration that is prevalent in many contemporary welfare systems. Others have contended that it could also act as a form of compensation for fiat currency inflation.

Feminist views: Feminists' views on the basic income can be loosely divided into two opposing views: one view which supports basic income, seeing it as a way of guaranteeing a minimum financial independence for women, and recognizing women's unpaid work in the home; and another view which opposes basic income, seeing it as having the potential to discourage women from participating in the workforce, and to reinforce traditional gender roles of women belonging in the private area and men in the public area.

Employment

One argument against basic income is that if people have free and unconditional money, they will "get lazy" and not not work as much as before. Less work means less tax revenue, argues the critics, and hence less money for the state and cities to fund public projects. If there is a disincentive to employment because of basic income, it is however expected that the magnitude of such a disincentive would depend on how generous the basic income were to be.

There have been some studies around the employment levels during the experiments with basic income and negative income tax, and similar systems. In the negative income tax-experiments in United States in the 1970s, for example, there were a five percent decline in the hours worked. The work reduction was largest for second earners in two-earner households and weakest for the main earner. It was also a higher reduction in hours working when the benefit was higher. The participants in these experiments, however, knew that the experiment was limited in time. In the Mincome experiment in rural Dauphin, Manitoba, also in the 1970s, there were also a slight reduction in hours worked during the experiment. However, the only two groups who worked significantly less were new mothers and teenagers working to support their families. New mothers spent this time with their infant children, and working teenagers put significant additional time into their schooling. Under Mincome, "the reduction of work effort was modest: about one per cent for men, three per cent for wives, and five per cent for unmarried women."

Another study that contradicted such decline in work incentive was a pilot project implemented in 2008 and 2009 in the Namibian village of Omitara; the assessment of the project after its conclusion found that economic activity actually increased, particularly through the launch of small businesses, and reinforcement of the local market by increasing households' buying power. However, the residents of Omitara were described as suffering "dehumanising levels of poverty" before the introduction of the pilot, and as such the project's relevance to potential implementations in developed economies is unknown.

James Meade states that a return to full employment can only be achieved if, among other things, workers offer their services at a low enough price that the required wage for unskilled labor would be too low to generate a socially desirable distribution of income. He therefore concludes that a "citizen's income" is necessary to achieve full employment without suffering stagnant or negative growth in wages.

If there is a disincentive to employment because of basic income, it is however expected that the magnitude of such a disincentive would depend on how generous the basic income were to be. Some campaigners in Switzerland have suggested a level that would only just be liveable, arguing that people would want to supplement it.

Tim Worstall, a writer and blogger, has argued that traditional welfare schemes create a disincentive to work, because such schemes typically cause people to lose benefits at around the same rate that their income rises (a form of welfare trap where the marginal tax rate is 100 percent). He has asserted that this particular disincentive is not a property shared by basic income, as the rate of increase is positive at all incomes.

Bad behaviour

There are concerns that some people will spend their basic income on alcohol and drugs. However, studies of the impact of direct cash transfer programs provide evidence to the contrary. A 2014 World Bank review of 30 scientific studies concludes that "concerns about the use of cash transfers for alcohol and tobacco consumption are unfounded".

Wage slavery and alienation

Fox Piven argues that an income guarantee would benefit all workers by liberating them from the anxiety that results from the "tyranny of wage slavery" and provide opportunities for people to pursue different occupations and develop untapped potentials for creativity. Gorz saw basic income as a necessary adaptation to the increasing automation of work, but also a way to overcome the alienation in work and life and to increase the amount of leisure time.

Economic growth

Some proponents have argued that basic income can increase economic growth because it would sustain people while they invest in education to get interesting and well-paid jobs.

However, there is also a discussion of basic income within the degrowth movement, which argues against economic growth.

Automation

The debates about basic income and automation are closely linked. For example, Mark Zuckerberg argues that automation will take away many jobs in coming years, and that basic income is especially needed because of that. Concerns about automation have prompted many in the high-technology industry to argue for basic income as an implication of their business models.

Many technologists believe that automation (among other things) is creating technological unemployment. Journalist Nathan Schneider first highlighted the turn of the "tech elite" to these ideas with an article in Vice magazine, which cited Marc Andreessen, Sam Altman, Peter Diamandis, and others. Some studies about automation and jobs validate these concerns. The US White House, in a report to the US Congress, estimated that a worker earning less than $20 an hour in 2010 will eventually lose their job to a machine with 83% probability. Even workers earning as much as $40 an hour faced a probability of 31%. With a rising unemployment rate, poor communities will become more impoverished worldwide. Proponents of universal basic income argue that it could solve many world problems like high work stress, and provide more opportunities and efficient and effective work. This claim is supported by some studies. In a study in Dauphin, Manitoba, only 13% of labor decreased from a much higher expected number. In a study in several Indian villages, basic income in the region raised the education rate of young people by 25%.

Besides technological unemployment, some tech-industry experts worry that automation will destabilize the labor market or increase economic inequality. One is example, Chris Hughes, co-founder of both Facebook and Economic Security Project. Automation has been happening for hundreds of years; it has not permanently reduced the employment rate but has constantly caused employment instability. It displaces workers who spend their lives learning skills that become outmoded and forces them into unskilled labor. Paul Vallée, a Canadian tech-entrepreneur and CEO of Pythian, argues that automation is at least as likely to increase poverty and reduce social mobility than it is to create ever-increasing unemployment rate. At the 2016 North American Basic Income Guarantee Congress in Winnipeg, Vallée examined slavery as a historical example of a period in which capital (African slaves) could do the same things that human labor (poor whites) could do. He found that slavery did not cause massive unemployment among poor whites, but instead increased economic inequality and lowered social mobility.

Economic critique

Daron Acemoglu, has expressed doubts about basic income with the following statement: "Current US status quo is horrible. A more efficient and generous social safety net is needed. But UBI is expensive and not generous enough." Eric Maskin has stated that "a minimum income makes sense, but not at the cost of eliminating Social Security and Medicare".

Basic income as a part of a post-capitalistic economic system

Harry Shutt proposed basic income and other measures to make all or most enterprises collective rather than private. These measures would create a post-capitalist economic system.

Erik Olin Wright characterizes basic income as a project for reforming capitalism into an economic system by empowering labor in relation to capital, granting labor greater bargaining power with employers in labor markets, which can gradually de-commodify labor by decoupling work from income. This would allow for an expansion in scope of the "social economy", by granting citizens greater means to pursue activities (such as the pursuit of art) that do not yield strong financial returns.

James Meade advocated for a social dividend scheme to be funded by publicly owned productive assets. Russell argued for a basic income alongside public ownership as a means to shorten the average working day and achieve full employment.

Economists and sociologists have advocated for a form of basic income as a way to distribute economic profits of publicly owned enterprises to benefit the entire population (also referred to as a social dividend), where the basic income payment represents the return to each citizen on the capital owned by society. These systems would be directly financed from returns on publicly owned assets and are featured as major components of many models of market socialism.

Herman Daly, considered as one of the founders of ecologism, argued primarily for a zero growth economy within the ecological limits of the planet. But to have such a green and sustainable economy, including basic economic welfare and security to all people, he wrote a lot about the need for structural reforms of the capitalistic system, including basic income, monetary reform, land value tax, trade reforms and higher eco-taxes (taxes on pollution and CO2). For him, basic income was thus part of a larger structural change of the economic system, towards a more green and sustainable system.

Funding strategies

The affordability of a basic income proposal relies on many factors, such as the costs of any public services it replaces, required tax increases, and less tangible auxiliary effects on government revenue or spending (for example a successful basic income scheme may reduce crime, thereby reducing required expenditure on policing and justice.)

Reducing or removing of the current welfare systems

Basic income would substitute to a wide range of existing social welfare programmes, tax rebates, state subsidies and work activation spendings. All or a lot of those budgets (including administrative costs) could, at least in theory, be reallocated to finance basic income

Income tax

Although basic income is paid to everyone universally, people whose earnings are above the mean income are net contributors to the basic income scheme, mainly through an income tax. In practice this, means that the net cost of basic income is much lower than the raw cost calculated as a sum of monthly payments to the whole population.

A 2012 affordability study in the Republic of Ireland by Social Justice Ireland found that basic income would be affordable with a 45% income tax rate. This would lead to an improvement in income for the majority of the population.

Charles M. A. Clark estimates that the United States could support a basic income large enough to eliminate poverty and continue to fund all current government spending (except that which would be made redundant by the basic income) with a flat income tax of 39%.
"

Now, what I now propose, in January 2018, is for:
1. a Universal Basic Income (UBI), at the rate of 50% of the national median income, payable fortnightly to all people at or over the age of 18 years who are Australian citizens or have permanent residential status, and, replacing social security income allowances, such as unemployment benefits and pensions, and replacing other government living allowances such as education living allowances, and with
2. a flat tax rate of 45% applicable to all income over that amount, and,
3. income tax for people who do not have permanent resident status, to be set at 40%, with no tax-free threshold, up to an annual income of the point where the tax payable at 40% of total income, equals the percentage of tax payable on total income, of people subject to the tax-free threshold (for example, if the UBI is $20,000, then the crossing point becomes $180,000), thence increasing, from that point, to the 45% level, and,
4. for the tax for all businesses and "trusts", and, income tax for people who do not have permanent resident status, to be set at 40%, with no tax-free threshold.

I note that this proposal also supersedes and makes redundant, the proposal for income splitting for the purpose of income tax liability assessment.

And, of course, this would make redundant, the Australian "Compulsory Superannuation Levy", which is the biggest fraud in the history of Australia, and, is simply an extra (about) 9-12% income tax on the working class.

And, the Australian GST should be distributed amongst the states and territories, proportionally according to the population of each.



I can be contacted by email by clicking on the link at Bret

For issues relating to this web site, send an email to the webmaster by clicking on the link at webmaster

This web page was last updated on 08 January, 2018.