Basic Income through Reverse Taxation
In Australia, we have over 120 different taxes and over 20 different kinds of welfare payments. This system is so complicated that two-thirds of taxpayers pay an agent to do their tax returns.
The welfare side isn’t great either. Just dealing with Centrelink is a massive time-sink for a lot of people, but there are other problems too.
To explain why, we need to introduce a concept called the Effective Marginal Tax Rate (EMRT ): Suppose you earned one more dollar per year than you do now. The EMRT measures not just how much extra tax (if any) that you’d pay, but how much welfare (if any) that you’d lose.
Let’s take an example. “Fred” is on Newstart. He got a part-time job last week, so he earned $260 last fortnight. Centrelink paid him $457, totalling $717 to live on. This upcoming fortnight, he’ll earn $520. Since he’s earning more, Centrelink pays him less – $301, totalling $821. So Fred will have earned an additional $260, but only ended up with an additional $104.
This means Fred’s Effective Marginal Tax Rate is a punishing 60%. That’s more than the top tax bracket!
But it gets sillier. In the 2017 Budget, a combination of the Medicare levy, reduced HECS threshold and frozen Family Tax Benefit A meant that some women faced an EMTR of 100% or more.
That’s just two examples of how the taxation and welfare systems need to be designed as an integrated whole.
Welcome to The Future
But the rise of automation has one singular consequence: the only jobs left for humans will be those that can’t be done by machines. Work in the future will probably be rather different for most people.
In particular, people will increasingly find work in shorter bursts, continuing the trends of casualisation and the ‘gig economy’. A compassionate future society would recognise the up-and-down nature of employment and provide an appropriate safety net.
As economic productivity continues to increase, the relative cost of supporting people will continue to go down. Ultimately, this means less time will be needed for work, and more time will be available for volunteering, learning, culture, and family. An enlightened future society will provide not just the safety net, but the springboard.
It’s time for a Basic Income
It’s time to build an integrated tax and welfare system that’s reworked from the ground up. A system that’s simpler and with better incentives. A system that provides a safety net for a casualised workforce. A system that will actively foster positive liberty.
The Pirate Party proposes a basic income, created via a negative income tax. It’s easy to understand. There’s a threshold ($40,000) and a tax rate (37.5%). Earn more than the threshold and you pay the difference times the tax rate. Earn less than the threshold and you get paid the difference times the tax rate.
The Basic Income will replace most of the different support payments, but there will also be a few top-ups in special cases: rental assistance, pensions, and child support. These would still be means-tested, but they’d taper out very gradually. As an extra bonus, the amount of tax that households pay will only depend on how much the household earns in total, rather than how much any individual earns. (This is not the case today.)
A basic income via a negative income tax will make welfare and income tax simple, consistent, and fair.
This page is a summary of the full policy.