New Economy Journal

The Case for a Guaranteed Basic Income (AKA, the Pirate Party’s UBI)

Volume 2, Issue 3

June 9, 2020

By - John August

Piece length: 2,315 words

Cover photo by Pawan Kawan on Unsplash
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Negative Income Tax

The Pirate Party Australia policy package includes a "Negative Income Tax", resulting in a "Guaranteed Basic Income" (GBI) - a close relation of the "Universal Basic Income" (UBI).

Under this proposal, eligible recipients are not given the same parcel of money. Rather, there is “basic rate” of income to be composed of both state and private benefits, depending on individual circumstances.

By way of illustration, let’s say the basic rate is $40,000: if you make $40,000 a year, you pay no tax and receive no assistance from the state. If you make more than $40,000, you pay an incrementally flat rate of tax. If you make less than $40,000, your income is "topped up" by the state, till at zero income, you get the basic rate.

There have been criticisms of UBI. Many are just plain nonsense. Some claim UBIs are inflationary - perhaps a valid point, if you're introducing more money to chase the same number of goods and services. However, our GBI proposal is revenue neutral - we change the tax system, without printing money.

Reducing Churn in the Taxation/Welfare Systems

Our proposal would reduce churn - where one pays tax which they later receive as benefits and refunds. By doing so, the administrative costs of both are reduced. There's a few modifications - top ups for veterans, disabled and carers pensions, together with rent assistance.

Australia's tax and welfare systems have grown so complicated that they are almost impossible to understand. Our tax system includes more than 120 different taxes. Our welfare system has more than 20 separate payments, each with different means tests, sub-payments, administrative arrangements and compliance regimes.

We propose to dramatically simplify the system. What complexity that would remain being a necessary and worthwhile complexity, part of a coherent framework, rather than the result of an ad-hoc process in part the result of special interest lobbying. The overarching aim would be greater social benefits - the removal of poverty traps, and the creation of incentives for everyone to better themselves without obstacles.

Our GBI means people have enough to live a reasonable life without mental health issues wrought by material deprivation - an important issue identified by the Australian Council of Social Service (ACOSS). Nevertheless, you can apply yourself to earn an income and live better, with each hour of effort resulting in a corresponding financial benefit.

It means you can live reasonably comfortably, but there are still opportunities and incentives to earn more. Even for the "Job Guarantee", one approach incorporates a minimum income for those unwilling to work, meaning there's still an incentive to work.[1]

There's the question of just how many jobs and possibilities are "out there" - whether they originate in Government or private industry. If there's a moderate number, and we want people to productively participate in the economy, the GBI can be relatively low. High enough to provide a moderately comfortable life, but low enough that there's an incentive to participate in the economy.

If the jobs available are miniscule, the GBI should be enough to live on comfortably by itself. Nevertheless, people can be encouraged to participate in society as volunteers. Our GBI exists in a broader timeframe. In the short term, the GBI is sufficient, but not overly generous. However, as available jobs dry up, the GBI payment would increase to compensate.

GBI and Wages

Some claim a UBI means there's no incentive for employers to raise wages. In fact, employers must provide a sufficient wage for people to work. Our current wasteful unemployment scheme means people have to make a show of looking for work on the understanding that support is "temporary". The GBI approach means people can continue indefinitely, and employers must offer a sufficient wage for people to work - there's an upwards pressure.

However, the Pirate Party does not believe in relying on either Government or incumbent businesses to provide jobs. We are about enabling an entrepreneur class, so that persons can start their own small businesses.

You might associate this proposal with the increasing “flexibilisation” of the labour market, which has herded people into the “gig economy", but there's more to the picture. Before the industrial revolution, much industry was "cottage industry". "Tradie" work has for most of its existence been "independent". Further, anyone running their business will not be at the mercy of a capricious market, but will rather be buffered by the UBI.

There's a distinction between working for yourself, directly servicing customers, as tradies do, and working for others. These are the stories of the "Hungry Mile" around Miller's Point in Sydney; employers can abuse their power when afforded the opportunity.

We want to enable individual enterprise so people can service their customers directly and independently. Further, our UBI prompts employers to provide incomes above the UBI, reducing the power asymmetry evident on "The Hungry Mile" - and also with current overbearing/exploitative employers.

GBI and a Job Guarantee

Further, we should avoid bureaucratic structures to administer "Created Jobs" within a "Job Guarantee" framework. Even with some local involvement, the necessary bureaucracy would swamp the value generated.

It would be much better to give people the resources they need to perform volunteer work of their own initiative, and perhaps set up social incentives to encourage this, but avoid administrative frameworks which force people to take these tasks on.

We contemplate "job training centres" to help people gain the needed skills when there are jobs available but a mismatch between the capabilities of potential employees and the skills sought by employers. You could have work centres within a mental health support framework.

We would support people who cannot find their own volunteer avenues via a "Volunteer Bureau".

Some claim a UBI/GBI would not improve productivity as would a Job Guarantee. We see multiple effects improving productivity. A first is that by reducing poverty traps, more people are now willing to work. Second, a reduction in bureaucracy for administering tax and welfare would release additional benefits. Third, people are more able to apply themselves to "cottage industry" initiatives, increasing business activity. Fourth, the simplification of the tax and welfare system means that existing businesses are freed up from administrative burdens and become more productive. We expect these effects to be substantial (although they are not costed). Down the track we might be able to increase the UBI/GBI without additional taxation, or reduce the incremental tax rate.

In addition to giving the less well off opportunities to become entrepreneurial, the UBI/GBI encourages the moderately well off, because they know that there would be a soft landing if things go wrong. Entrepreneurship is a key driver in productivity and innovation, and we posit that it will increase under our proposed initiative.

Realising cost savings in Government is no trivial issue. There's plenty of idiocy in Government bureaucracy, with supposed cost cutting measures often costing the Government more. "Government Waste" is a thing. Nevertheless, political parties have proven to be intellectually lazy at times and ideologically blinded -- using this rhetoric to help win elections without having a deeper understanding of the issues with bureaucracy.

Further, when Governments try to save money, the voting public are conditioned to seeing this exercise as "cost cutting" rather than an attempt to improve the overall efficiency of the Government and its place in the economy. There is a regrettable deficit in trust - you need to bring the electorate along with you, not divide and berate.

The Tension between Inflation and Unemployment

We in the Pirate Party are blinded neither by the idea that Government is the panacea for all ills nor that it is a festering sore. We see its possibilities without losing the plot, and believe that the productivity benefits of a more nuanced and efficient Government would benefit us all.

There may not always be jobs available. It is clear hypocrisy on the part of government - if the number of people seeking work suddenly increases (and it is soaring in the current climate), they claim it is laziness rather than shifts in the economy. You have a needless rhetoric of "blame" that is politically convenient, shoring up the privileged and placing the burden on the less well off.

There's a tension between inflation and unemployment, with some claims we need a "pool" of unemployed to keep inflation down, and we have the so called "NAIRU" - the non-accelerating rate of unemployment.

Our approach is to support the unemployed, with more freedom and options - meaning this concern is no longer an issue, because being "unemployed" would no longer be conceptualised as a cost on the individual, the economy, or society.

However, it is possible that this characterisation of NAIRU is excessively negative. In times past, Governments have tried to stave off unemployment by printing money as the result of political pressure. However, over time this was found to be ineffective. Theoretically, economists identified problems with the "dynamic nature" of the Phillips curve. It was found that a good way to keep unemployment down was to attack inflation first. You can debate whether this was a genuine aspiration or was in fact pandering to the ruling class.

Maybe a pool of unemployed is necessary in order that inflation be controlled and the possibility of much greater unemployment be avoided in the longer term. On the balance, however, the rhetoric at play and overall perspective suggests the present policy approach panders to asset holders at the expense of others.

Needless to say, these concerns are made irrelevant by the Pirate GBI. Further, if changes in the economy changes employment, we need no longer have a Government blaming the unemployed.

The GBI as a Holistic Policy Package

The possibility of a number of ongoing unemployed means we endorse a "Volunteer Bureau" to help place people in voluntary work so they might have an outlet to spend some of their time in a productive way. At present, many volunteers are involved in organisations such as the Rural Fire Service and St. John’s Ambulance. We see sort of thing continuing, and greatly expanded. Here, voluntary efforts would be just that - voluntary - with no financial compulsion or remuneration.

Still, the Bureau is only there for people who might need some assistance. If people know enough to talk to people and make their own arrangements, that's all well and good.

There's also the possibility that people are not trained for what jobs are available. Our policies includes a strong commitment to education, and our UBI does not sit in isolation. As part of the overall package of the "Volunteer Bureau" and education / training, support can be given to people going into business themselves. There's also the "training work centres" mentioned earlier.

We have a commitment to supporting mental health. For those who cannot find work in the regular market or the volunteers bureau because of mental health issues, there can be additional support under that umbrella.

In times past "work as therapy" was a *thing* at some mental health facilities. Our emphasis is having an "outlet" or "calling", not necessarily as work, but certainly something we endorse.

More recently, as a result of regulations around "Occupational Health and Safety" and now "Workplace Health and Safety", such initiatives have become impossible. On a tour of Gladesville Mental Hospital near where I live, I heard about how while employees were not very well paid, they had the compensation of free boots, haircuts and bread – provided by facilities on the grounds. As time went on, rather than being ad-hoc there were requirements to set up something more like a TAFE style training facility with specialised teachers, facilities and additional OH&S requirements. For a moderately resourced facility, however, this was a bridge too far, and these programs were cut back. There was never any lack of willingness to pursue these initiatives within the facilities themselves. It was unfortunately the indifferent bureaucratic and regulatory march that did them in. The Pirate Party recognises the unfortunate effects of petty bureaucracy throughout our society all over - and would want to remove at least the impact of this obstacle to allow such initiatives to prosper again.

We recognise that Governments tend be selective, cherry picking recommendations out of a report when in fact the various recommendations formed a cohesive and mutually reinforcing set. Our policy package is indeed just that - a package. We don't want people to just look at our UBI in isolation - though indeed, some criticisms of UBI don't make sense regardless - but keep in mind some possibly valid criticisms are addressed by our overall policy. Nothing is going to be perfect - but our UBI policy is cohesive, considered, costed and will make a worthwhile contribution to Australia.

For further information, see the Pirate Party’s platform (Merger of tax and welfare systems, and establishment of a basic income) and the Pirate Party’s blog post: Pirate Party’s Universal Basic Income – Costed, considered and good for Australia.

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