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The simple, but unpleasant, arithmetic of a simple UBI

Summary:
In discussions about Universal Basic Income, lots of people are attracted by the idea of making things as simple as possible. Sadly, that doesn’t work well once you take a closer look. The simplest UBI would pay every Australian an amount equal to the single age pension, which is just above the poverty line. That’s 000/yr per person or 0 billion for a population of 25 million, about equal to total Federal government expenditure. That would replace about 0 billion in existing social welfare spending. That leaves 0 billion, approximately equal to total revenue from personal and income taxes. To fill the gap, we would need either to double income tax revenue, scrap all other public spending, or some mixture of the two. Assuming that’s not feasible, we need to start

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In discussions about Universal Basic Income, lots of people are attracted by the idea of making things as simple as possible. Sadly, that doesn’t work well once you take a closer look.

The simplest UBI would pay every Australian an amount equal to the single age pension, which is just above the poverty line. That’s $20000/yr per person or $500 billion for a population of 25 million, about equal to total Federal government expenditure. That would replace about $180 billion in existing social welfare spending. That leaves $320 billion, approximately equal to total revenue from personal and income taxes.

To fill the gap, we would need either to double income tax revenue, scrap all other public spending, or some mixture of the two. Assuming that’s not feasible, we need to start complicating things. The most obvious step is to treat children differently, for example by giving them half the benefits of adults. But a fixed payment per child isn’t going to be work well, bearing in mind that it would replace existing forms of support which are based on assessments of need.

The key problem is that while tax is mostly calculated on an individual basis, welfare payments are made to households. To get things right, we need to accept that a complex world doesn’t allow for simple solutions.

John Quiggin
He is an Australian economist, a Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a former member of the Board of the Climate Change Authority of the Australian Government.

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