Universal income would cost the earth

One of my favourite aphorisms is ‘if something looks too good to be true, it probably is’. A government provided universal basic income (UBI) — a regular, non-means tested, cash payment for everyone — is like the Nigerian prince offering you a fortune: the government isn’t giving you money, they want you to take it from you.

Simple arithmetic proves just how unworkable a UBI is. Let’s look at two possibilities.

First, since there is no realistic chance of significantly cutting payments to those on welfare now, assume everyone gets an UBI equal to the current pension. The 2011 census counted 16.5 million Australians 18 and over. At an annual payment of $22,500, the UBI would cost $370 billion ($215 billion more than the current welfare bill).

Those on Newstart, Youth Allowance and Parenting Payments would get a $12 billion increase in welfare due to the difference in those payments rates with the pension, as would most receiving Family Tax Benefits. Everyone else would get a bigger tax bill.

Bigger government, more inefficient taxes, and $200 billion in churn is worse than the status quo.

Alternatively, assume all current funding for social security and welfare is converted to a UBI. The 2015/16 budget allocates $154 billion to social security, which — when divided among 16.5 million Australians — gives a universal income of just under $9,500 a year.

This represents a 30% income cut for those on Newstart, while pensioners would lose nearly 60% of their income. Politically this would be impossible, so supplements would have to be introduced to top these people up to their previous income.

Either you are back to scenario 1 or these supplements are means tested, in which case all you have achieved is to basically replicate our current welfare system (with its administrative costs) PLUS a $9,500 a year payment to millions of people who don’t qualify for (or need) welfare.

That a UBI is a bad idea in practice shouldn’t be a surprise: as a general rule, universal payments and services cost more, grow faster and are much harder to cut (eg health and education). That’s why the Greens love them and that’s why anyone who believes in smaller government has to limit them wherever possible.