Over the years, Australia’s taxation and welfare systems have become an absolute shambles. They don’t have to be.
There is an alternative which has been sitting on the shelf in various reports around the world for years.
It is a solution which will be strongly opposed by the Coalition, by the Australian Labor Party and most of all by the Canberra bureaucracy.
Anything with that sort of support deserves serious consideration from the rest of us.
Look at our social security system.
On a rough count at the time of writing, there are no fewer than five different payments for the sick or disabled, two for the unemployed, 10 for families, and eight or more for those in education.
Some of these benefits are overlapping, some are mutually exclusive, all with different amounts, cut-off points, means tests and eligibility rules. And every year the rules change, payment rates change, new allowances are invented and old ones phased out or scrapped.
Some are federally-funded, others are state-funded and vary from state to state around the country.
Then there are the subsidies – for rent, telephone, travel, education, medicines, different age groups, different regions, different income groups … it goes on and on. Not to mention all the tax allowances and concessions.
It amounts to micro-managing individuals on a mind-boggling scale.
Thousands of people are employed full-time purely to make sure people don’t get these rebates, benefits and allowances, or don’t get more of them than they might be entitled to.
Thousands more are employed to explain the systems to the public, or to train the staff who have to administer the systems, and thousands more are employed to process payments and keep the books for all the separate schemes.
It has got to the point where poverty must be one of Australia’s biggest job-creating industries. This is the economics of Looneyville.
So let’s take the existing income tax and welfare systems and scrap the lot.
Instead, pay every citizen and permanent resident an index-linked minimum living wage.
Everyone. Automatically. Whether they are employed or not, rich or poor, young or old.
This is not a new notion. It goes by a number of names but is probably best known in Europe as basic income, where it has serious support and a carefully reasoned website.
It is sometimes called negative income tax, because under this system if your income is below a certain level you do not pay tax, the tax office pays you.
In Switzerland, a petition for a citizens’ referendum on a basic income scheme recently attracted 20 per cent more than the minimum number of valid signatures required to force the government there to hold a referendum. If a majority of the people vote ‘yes’, the government will have to obey.
The knee-jerk reaction by most people is to object strongly to paying people who “do nothing”. But we already do.
Moreover, basic income systems need not preclude social responsibilities or even work-for-the-dole schemes.
Indeed, because the basic income system is so much simpler and transparent than the present mess, basic income is something of a dole bludger’s nightmare –the fewer and simpler the rules, the fewer loopholes there are.
It also eliminates, once and for all, the so-called poverty trap, where the combination of income tax and loss of benefits means there is little or no incentive to take a job.
Yes, there is such a thing as welfare dependency. One of the key elements of this is a lack of self-esteem. Those with jobs, especially those who have jobs they dislike, tend to assume that anyone who is not working is a bludger. That doesn’t worry the tiny proportion of genuine bludgers, but it is demoralising for tens of thousands of people for whom there are no jobs.
If everyone gets a basic income, no one needs to be classified as second-class citizen just because they earn little or nothing.
One of the best ways to break that dependency mindset is to make more jobs available, and especially greater choice of jobs, and that is potentially the greatest benefit a basic income scheme could provide.
For example, employers would have the option, through national or enterprise bargaining, of cutting wages by anything up to the amount of the state-paid wage. For many firms, that would cut production costs by at least 20 per cent and in many cases 50 per cent or more.
What would that do for the nation’s international competitiveness? Labour-intensive industries in particular would become more competitive or more profitable or a combination of both.
Not only would costs drop, but quality would improve. Employees who were frustrated, bored, or under stress because they were barely competent in the job would be much more likely to leave. Quitting would no longer mean waiting periods for the dole or other hassles from Centrelink (you’d get paid the basic income every week whether you were working or not).
Just think what it would that do for morale, and for quality and productivity? It would certainly make life easier for management.
Not only would improvements in quality and cost competitiveness tend to create jobs, the existence of a no-questions-asked guaranteed income would make it less risky for people to create their own jobs by going out on their own. And it would make it easier for people to switch from one job to another for which they might be much more suited.
Businesses would save money because they would no longer have to act as tax and superannuation collectors for the government. Wages could simply be paid gross into employees’ bank accounts – the same bank accounts used by the tax office to pay them the basic income.
For most people, their annual income tax return would consist simply of their bank statements for the year.
Compulsory super would be replaced by the basic income. Individuals who wanted to save additional money for their retirement would still be free to do so.
Could the nation afford it? Yes.
For a start, a huge range of existing handouts would vanish. No aged pension. No dole. No disability pension. No baby bonus. No widow’s allowance. No partner allowance. Etc etc etc.
The savings would be huge.
Personal income tax allowances, deductions and refunds would be replaced by the minimum wage. Another big saving.
Many if not all the tax breaks to business would also disappear. If the government pays part of the wages, it does not also need to subsidise buildings and equipment or research refunds, or give multinational companies million-dollar handouts – more big savings.
The politicians won’t like it. The bureaucrats will hate it. Tax accountants and tax lawyers will hate it. The genuine bludgers and rip-off merchants will hate it.
That leaves at least 21 million people who might think it is a bloody good idea.
Brian Donaghy is an Adelaide freelance journalist.
This is an edited extract from his book, Cents and Sensibility (Adelaide Independent Reporter, 2014), which advocates for a basic income.
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