WEEKEND READ: Remove welfare and pay everyone
IN the wake of Brexit, One Nation, Trump and the general alienation of those who have lost their jobs, wages growth and sense of purpose to globalisation, Australia should join Finland in considering a minimum-payment scheme.
Finland has high unemployment, very high youth unemployment and generous welfare.
Its welfare is so generous that people can be worse off moving from welfare to work. To some extent it is true in Australia. Australia also has barriers for women entering the workforce as they lose means-tested family benefits.
It seems quite mad to suggest the government pay every adult Australian resident citizen $15,000 a year no questions asked. That is until you look at the details when the scheme starts making a lot of sense.
For the purposes of this article I will use very rounded figures for ease of comprehension.
Paying $15,000 to every person between 18 and 65 would cost about $200 billion.
Our total federal welfare bill is about $140 billion. From that all the unemployment benefits, family benefits and welfare services would be scrapped. Only the $40 billion in aged pensions and about $10 billion in disability allowances above $15,000 a year per person would remain.
That would provide almost half of the $200 billion needed.
The rest would be made up by rejigging the income-tax scales, with people on higher taxes paying more. In effect, after the certain level – say, $150,000 – people would be paying back their $15,000.
The $18,000 tax-free threshold would be scrapped. People would pay tax on the first dollar they earned. After all, they are coming off a starting position of $15,000 paid by the government.
The tax scales would be revamped to end the big bracket steps.
Rather, the tax rates would increase gradually, going up half a cent in the dollar every thousand dollars until it topped at 50 cents in the dollar at $100,000.
That is just an example. It could be tweaked to have a higher or lower top rate coming in at a higher or lower income. The important point is for the rate of tax to increase less than a cent each thousand dollars, rather than the three of four sudden jumps that we have now – 0, 19, 32.5, 37 and 45.
The new tax rates would ensure the balance of the cost of the $15,000 payments would be recouped.
The $15,000 would be indexed to national income, so people would get a sense of sharing the increases in national wealth, rather than a sense that it is all going to the big end of town. The income at which the top rate applied would also move this way.
Now let’s look at the advantages of changing the whole income system in this way.
The Australian Resident Citizenship Payment would add a sense of national belonging. It would encourage people to take out citizenship. It would not be paid to citizens working abroad.
It would end the disincentives to work. At present, people on the dole lose their benefits at a rate that going to work is hardly worth it. Under the new scheme, if they earn a few dollars, they would not lose any of their $15,000 benefit. The disincentive to work would disappear. And they do not get hit with an initial 19 per cent income tax. It would only be a few percent for the first few thousand.
It is important for people to get into the workforce so they can gain the work skills which will make them more valuable to employees. But if the disincentive to make the start is too high, they never get out of the unemployment pool.
We are not means-testing welfare; we are means-testing people out of work.
Under the new scheme all the back-packer nonsense would disappear. All of the wasteful means testing would disappear. Bracket creep would disappear and with it all the political nonsense of giving “tax cuts” which are no more than catch-ups.
All of the stress of work tests would go.
With the end of the car industry and other manufacturing, we are going to find more people aged 45 to 65 out of work and no real prospect of finding full-time work and a huge disincentive to picking up a but of part-time work because they would lose their dole.
Australia could look upon the payment as compensation to zero and low-income people for bearing the major burden of globalisation and free trade which has given huge benefits to the rest of the population.
In the words of Bruce Springsteen: “Those jobs are going, boys, and they ain’t coming back.”
It is a delusional false promise to imagine that re-erecting tariff walls will bring them back. And even if they did, the costs to Australian households and businesses in higher prices for imports would not be worth it.
In the future, more jobs will disappear with robotics and telecommunications. It is in the interests of the well-off people to ensure social cohesion and reduce inequality. Inequality stymies economic growth.
Insecurity adds greatly to the nation’s health bill. The minimum $15,000 payment would help remove that.
There are other benefits. If the payment began at age 18 or earlier if someone is enrolled in a full-time tertiary course, it would enable students to concentrate of study. These days, too many students compromise their education with the need to work too many hours.
That would free up a lot of low-skill, part-time jobs for non-students.
Another benefit would be an end to decades of picking on the unemployed. In fact, the dole is only just over five percent of the Federal Government’s welfare bill, but it consumes about 95 per cent of hot air blown over “welfare cheats”.
The minimum-payment system should not be dismissed out of hand. With this week’s news of GDP going backwards and educational achievement falling, Australia needs a radical re-think of income and tax policies and how money is spent on education.
At present, our policies seem to be skewed to benefiting the well off, but the nation as a whole seems to be suffering.