Short Form Policy

Basic Income Australia Limited

Basic Income Australia Limited (BIA) is a newly formed registered charity.

We have members from across the political spectrum and all walks of life. Senior executives, as well as those who have been working on the front lines for major charities, and also people who have had to navigate the welfare system for themselves.

The Need for a Universal Basic Income (UBI)

Several years ago, the team at BIA began researching the reasons why poverty seems intractable. The answer is surprisingly simple. We've created a system of money, property rights, and paid work that has benefited the great majority, but left a substantial minority (12-14% of the population) in poverty. That’s 3.2 million Australians: our young, sick and injured, disabled, aged, their unpaid carers and those between jobs; all of whom lack savings and family support. This is not a static group. The young grow up, the sick and injured recover, the disabled age and the aged die, while their carers and those between jobs find new paid work, only to be replaced by a new group. This demonstrates that it is a system problem.

Welfare was supposed to solve the problem. Unfortunately, it too is flawed. As welfare is conditional, if the benefit is too high, it is rational to take the benefit in lieu of a low-paid job. It is also rational to not accept marginal paid work, as it costs money to go to work and, if for any reason the job does not work out, you must start all over again to get back your benefit. In the meantime, what do you do? This can lock some people into welfare.

Worse, because benefits must be kept low to force those who can work to take the available jobs, welfare consigns millions of people into poverty: those who cannot do paid work for a time, who have no savings or family support.

If you doubt the suffering that poverty entails,we strongly encourage you to listen to this chapter excerpt from the book Tyranny of Kindness :

https://open.spotify.com/episode/6krQS7epAlkZKnsFmfAw3q?si=lT6Y4jEOTUy-XxDjRajV1w

While the book reflects the US system, our members tell us that it still rings true for many in Australia today.

A UBI Offers a System Solution

A Universal Basic Income provides an unconditional weekly cash payment to all adults. It allows every person to take on paid work (when they can) to better themselves and their family, without fearing they will lose access to the benefit if things go wrong again. Hundreds of pilots from around the world have repeatedly shown that when people are given unconditional cash, they spend both the money and their time wisely. Significantly, in October 2024 the United States Agency for International Development (USAID) released its position paper in support of direct monetary transfers for development outcomes. If it’s good enough for the developing world, it should be good enough for our poor too. In fact, just recently, the Canadian food banks have suggested they they need to be disbanded in favour of a UBI: https://www.cbc.ca/player/play/video/9.6590670

Concerns

There are four primary objections to a UBI:

1. It will cause people not to work.

2. People will waste the money (eg smoking, drinking, and gambling)

3. It will cause inflation and/or taxes would have to rise

4. Targeting is cheaper and is better because the money only goes to those who need it

Countermeasures

The pilots have debunked no. 1 and 2.

As for nos. 3 and 4, we've designed a UBI that requires no increase in tax and can be implemented without creating undue inflation.

Targeted Tax

Firstly, while the benefit would be paid universally, a new tax would be legislated along with the benefit. This tax would recover some (or all) of the UBI as it is paid each week, based on your earnings for the week. In effect, you'd get two pay slips. One showing your normal earnings and tax, and the other showing your UBI, less the UBI tax.

Net Benefit Goes to Those Who Need it

It would mean that on any week that you don't earn (say you lose shifts, or your car breaks down and you can't get to work, or you get sick or injured and have no leave, or for any other of the many reasons people lose income for a period), the UBI would keep coming in. No delay, no need to apply or justify entitlement. Then, when you start earning again, the UBI would be taxed back based on your earnings. Above $80,600 pa it would be fully recovered. Below that, you'd get to keep progressively more, the less you earn.

As well, the UBI would be set off against any welfare dollar for dollar (except for child welfare and some disability payments). In effect, you'd exchange a 'conditional dollar' for an 'unconditional dollar', freeing people from the oppression of dealing with 'the system'.

The combination of the tax recoveries and welfare offsets means that, though payment is Universal, the NET benefit goes to those who need it, when they need it, without the need to apply or justify entitlement.

Funding the UBI

After the tax recoveries and welfare offsets the net cost may be around $150-165 billion. With other offsets, recoveries, and savings (we can detail), the net amount of money required to fund the UBI would likely be less than $100 billion pa.

This money does not have to be funded by tax (Note 1). It can become a direct injection of new money to fund growth in the economy - without causing inflation.

It represents less than a 3% increase in the broad money supply (currently $3,400 billion). History shows that a 3% increase in the money supply would likely result in a 1.26% lift in inflation... assuming no countermeasures.

As of December 2024, the Reserve Bank's inflation target is 2-3%. With the rate now sitting on 2.8%, a 1.26% lift would take it a bit above target to 4.06%, where it was a year ago. Clearly, this is well within the capability of the Reserve Bank to manage, simply by keeping interest rates where they are for a bit longer. This will continue to slow the influx of new money from bank lending.

Right now, the Reserve Bank is in a quandary. If consumer demand continues to fall, unemployment could lift, requiring the bank to drop rates, fuelling housing prices and worsening the housing crisis.

A UBI can boost incomes at the bottom without the need to drop interest rates. It can also boost consumer demand, without boosting home prices. In effect, a bit more new money will go into the economy to meet basic needs via the UBI, accompanied by a slight reduction on discretionary spending via bank lending. To encourage investment in new production to meet the higher demand, it would be ideal to have interest rates held/increased (as necessary) only on consumer finance and to borrow for existing homes. This could be done via a Reserve Bank levy on those loans.

In fact, the impact on inflation may be much less than the 1.26% that history suggests. First, many basic goods are imported, and a slight lift in demand from Australia is not going to boost import prices. Also, our farmers and food processors can increase capacity... if given enough time, by increasing automation if necessary.

Mitigating Risk

We are proposing that the UBI start small (just $10/week/adult), and be increased slowly to the poverty line (now around $500/week for a single unemployed person), perhaps over 5-6 years. This will give the local supply chain time to adapt to the new pattern of demand, without causing shortages that drive inflation. This also enables us to test the systems to ensure everyone is covered, and there is no 'double dipping', etc, before the amounts become too significant. It also lets us observe actual changes, so we don't have to theorise about its impact on individual behaviour, the labour market, or inflation. If any adverse impacts appear, we can simply halt the rise in the UBI until they are counter-measured, or the UBI can be allowed to deflate (through ongoing inflation) to a level before the adverse impacts appear, if they appear.

It’s important that once introduced, the rate is never dropped, to ensure people know they can rely on it, and adapt their behaviour accordingly.

Based on global pilots, we expect to see many benefits that cause us to speed up the pace of the roll out, not slow it down.

Spreading the Productivity Gains

As well, we must contend with the impending changes in the job market due to automation, virtualisation, AI, and the electrification of everything. These changes are heading towards us with unparalleled speed, evidenced by the impending collapse of the German car industry. Besides its EVs, Tesla has just showcased a new robot that can catch a ball in flight, heralding human level dexterity, reflexes and visual acuity. What will these robots be doing in five years time?

Once, many people worked 80 hour weeks. Today, the standard is around 40 hours. With the new technology coming on stream, there is no reason why we cannot drop these hours to 20, while maintaining, and even growing, real wages.

At the same time, we need to deal with the transition.

Balancing the Labour Market

As workers lose their traditional jobs the UBI can be raised. As it rises, some people will choose to cut back their hours or drop out of paid work altogether. At some point, the market will come back into balance, where most vacancies will be filled in a reasonable time, people who want paid work will have it, and those not in paid work will be doing other things with their lives as they choose. These choices will likely change over time, with people moving in and out of the labour market over their life, as their circumstances, the economy, and the UBI changes.

Humans have something no AI has, the ability to experience life. Human creativity also knows no bounds in finding ways to enjoy life’s experiences, as long as people have the time… and the money: https://www.instagram.com/reel/DDFJRg-Mzxs/?igsh=MXFsZDI2Y3E4emRhdA==

It will never be perfect, but paying people to rebalance the labour market directly should work much more quickly and effectively than the current system which requires the Reserve Bank to drop interest rates to boost borrowing and spending, increasing demand, leading to increased production, and only then to increased employment. The more the supply chain becomes automated, the less the current strategy will impact employment.

If we don’t implement a UBI, as people are laid off, they will no longer have the money required to demand what the system can produce. This will cause a downward spiral, as production is cut back to match the falling demand, causing even more people to be made redundant. This is a nonsense scenario, as the whole point of automation is to be able to provide more goods and services at a lower cost for everyone – including those who lose their jobs because of the improvement in productivity!

Children and Disabled

Children get caught up in many different dependencies, including foster care. The problem is who gets how much money for each child (who all have different ages and different living arrangements, and needs). For these reasons, it’s been decided to leave existing child welfare in place... at least to start.

Once the adult system is bedded down, to 'ease young adults into a UBI, we are also suggesting that (perhaps) from age 10, a child could get $10/week, increasing to the full UBI by age 18. The idea would be to have budgeting and household management be included from age 10 in school. We should expect that a child should learn early-on to contribute to the cost of running the household, with an agreed amount left over for them, as determined by the parents. As they get older, they should have a greater say in how their UBi is spent. By age 18, they would have the full amount under their full control, with years of learning how to manage their money, including saving for some future goals. This avoids a kid suddenly getting $500/week and making whoopee. The gradual increase also allows us to monitor impacts as the money grows and the child's independence increases. We can modify the policy to suit, depending on how it pans out across the whole population.

In this case, the Child UBI would be taken into account in setting other child welfare benefits.

Also, we'd need to monitor impacts on the welfare of disabled people due to their higher living expenses. We will likely have to keep some level of extra payment to them for this reason.

Administration

Ideally, a new Authority would be set up with its own charter (like the Reserve Bank). It would have three primary objectives:

1. Pay the UBI to all adult Australians
2. Ensure the UBI remains at or above the Poverty Line
3. Keep the Labour Market in Balance as Automation, Virtualisation and AI disrupt it.

Overall, the system will be much simpler and less costly to administer than current welfare because it will be unconditional. Once you’re registered, you get it for life. The tax recoveries can be handled via the Australian Tax Office as part of their normal procedures at very little extra cost.

Benefits of a UBI

Pilots prove that it will reduce fear, anger and hate in the community, while improving health and education, and reducing crime. It will also provide some small recognition of the value provided by our unpaid carers (mostly women). It can function as a bulwark against domestic violence by relieving financial pressure and by providing women the means to exit the abusive relationship without fear of destitution. It also gives agency to people to manage their own lives.

Importantly, as the UBI is spent it boosts local businesses and facilitates new entrepreneurial ventures. Ultimately, the money ends up in the hands of investors, boosting wealth.

At the same time, it can help to manage the transition to a more automated production system by lessening the trauma of job loss.

And, it can be administered at lower cost than the current system, especially when you include the cost of charitable services needed to fill the gaps in welfare.

What's not to like?

UBI is Not a Panacea

We recognise that a UBI only tackles the demand side of the equation, by giving people the money they require to signal their needs in the market. Without it, they are invisible to the market, so the market can never respond.

We still need the government and the private sector to tackle the supply side, to ensure there are the houses, and health and education and other services that people need.

A UBI is a Revolution

Like all revolutions, some people will get hurt in the transition: those in both the public and private sectors who now make a living out of 'poverty'. As a society, we need to ensure they are given time and generous resources to adapt. If we don’t, they will fight us every step of the way. If we do, they will come on board.

We know this can be done.

Back in 2006, our Chair was Manufacturing Manager for Toyota's Port Melbourne plant when it closed, following the shift of production to a new plant in Altona. By giving four years notice and helping employees to prepare for a new future with generous termination benefits, they had no instances of sabotage and retained all their good people to the end. He tells us that in the year they closed, it was the only plant among Toyota’s global network to achieve all 8 of its KPIs, and there was laughing and cheering on the day the plant closed - despite 600 people losing their jobs that day; and contrary to the dire warnings of other companies that it would be a disaster to provide such a long lead time. The head of the Vehicle Builders Union said it was the best close he’s seen in his 35 years in the Union movement.

Next Steps

We are now in discussion with a couple of major Australian councils to undertake community engagement sessions to raise awareness of what a UBI is, why we need it, and how it can be made to work. We are also actively engaged with representatives of The Teals, Greens and Liberal Parties. Unfortunately, the Labor Party seems to have no interest at this time.

We'd love to talk more and answer any questions.

If you’re already convinced, come and join us at https://basicincomeaustralia.com/membership/ . It costs $10/year to become a full member… or nothing to become an affiliate, or simply a ‘supporter’. Just having your name added to our list helps people to see our growing support!

Note 1.
Money Creation and Allocation

When new money gets created and allocated, the person to whom it is allocated gets to say what it is spent on, which determines which resources are used for what purpose.

Unlike an individual, society does not need to save before it spends. In fact it cannot do that. It has to spend before it saves!

Society first creates the money and allocates it to certain people to ‘spend into the economy’:

1. to politicians and bureaucrats (via deficit spending ), and
2. to borrowers (via loans from commercial banks ).

Other people then get access to the money (to spend and save) as they work to provide the goods and services demanded by the politicians/bureaucrats and borrowers.

While it works well for most, as noted, it leaves a significant proportion of people without the money they need to survive (those who cannot work for a time, who have no savings or family support).

The simple answer is to add a third group of people for whom money is created, and to whom it is allocated: people who require it to meet their basic needs.

Priority

It is contended that money should be created and allocated in the following order:

1. Basic Needs (as the moral imperative)
2. Critical Social Goods (health, education, transport, energy, and housing) upon which all depend
3. Discretionary Private Spending (with the focus on New Productive Investment).

Of course, much of the actual work to construct the social goods will be carried out by private sector firms. But the work they do ought to be decided by the government in furtherance of social ends.

As the money is spent, it circulates through the economy, adding to income and profits that flow up to the rich. It’s a truism that money flows up much faster than it 'trickles down'!

The problem then is how to control this spending to ensure that it does not become inflationary.

Constraints on Money Creation

1. UBI can be constrained first by an empirical measure (what is the poverty level), secondly by determining the income at which the UBI is fully recovered, and then through keeping the labour market in balance, which should also mitigate inflation.
   
   
   
2. Governments should have to pay all current spending out of tax. By requiring governments to balance their budget, the amount of tax determines how much people are prepared to forgo in terms of private spending to acquire public goods and services.
   
   The government can still have new money created for it to spend into the economy to acquire new assets, as long as the cost is amortised over the life of the asset. That is, the whole cost of the asset would not be financed by tax in the year that the money is spent. Only the amortised amount, plus annual maintenance. In this way, future taxpayers share in the cost of the asset that they benefit from.
   
   Governments will still need to be cognizant of the economy's capacity to provide the goods and services they demand. If the government pushes too hard for (say) big infrastructure builds, they may drain the trades needed to build homes (as has been the case recently). This requires the government to actively monitor capacity in the sectors where it is making demands, and actively promote the required capacity increase (e.g. training more trades). This may be done best by having citizen juries work with the government to balance social and private demands where major projects could draw resources away from other needed work (social and private). These juries could also consider the need to increase taxes. The tax question would be easier to settle if all tax was paid as a flat % of all spending (so everyone was impacted proportionally). Though everyone gets the same UBI and pays the same % tax on spending, the combination creates a steeply progressive income tax system - collected as the money is spent
   
   
   
3. Private borrowing can be constrained by 'capacity to pay' which will be determined by the borrower’s assets and income, and the prices set in the market, plus interest set by the Reserve Bank to control total borrowing to control inflation.