Will a universal basic income reduce inequality?

In April 2020 a YouGov poll in the UK found that 51 per cent of the public supported the introduction of a UBI, whereby all adults would receive a guaranteed monthly wage, regardless of their employment status.

The idea of a universal basic income has divided economists for years. Some argue that the payment offers a solution to poverty, while others say it would do little to address inequality.

At a glance

  • The concept of a universal basic income (UBI) has been a divisive one among economists for many years, but has recently attracted renewed interest amid the economic fallout from COVID-19.
  • The interest in a UBI stems from an overall sentiment that current economic policies have not delivered adequately and that more radical measures are needed.
  • Economists are concerned that a UBI can compromise the public funding of vital services such as health and education, and believe reforms of the welfare system are a better approach.

By Johanna Leggatt

It should come as little surprise that the once-radical concept of a universal basic income (UBI) is now openly discussed among some mainstream economists as a possible means of reducing social inequality.

After all, the widespread economic fall-out of the COVID-19 pandemic has shaken many people’s faith in the free market, with mass job losses on a scale not seen since the Great Depression.

In April 2020 – a mere month into the pandemic – a YouGov poll in the UK found that 51 per cent of the public supported the introduction of a UBI, whereby all adults would receive a guaranteed monthly wage, regardless of their employment status.

According to Professor John Quiggin, vice-chancellor senior research fellow with the School of Economics at the University of Queensland, the renewed interest in a UBI is partly explained by a feeling that the economic path we are on “hasn’t really delivered on its promises”.

“There is more of a willingness now to look at some fairly radical alternatives,” he says. “And it’s good to think big, but then you have to bridge that gap between radical alternatives and what can actually be done.”

Doubts and driving forces

Emma Dawson, executive director of Per Capita think tank, says that, in Australia, increasing interest in a UBI highlights concerns over the low level of unemployment benefits and the bureaucratic and punitive manner in which these payments can be monitored.

Rather than introducing a universal wage, however, she thinks the best way to address this problem is to overhaul Australia’s rigid welfare system and raise the unemployment benefit.

“We make people jump through extraordinary hoops to receive unemployment benefits, with programs that punish people for not having a job that isn’t there,” she says.

Dawson also worries that a UBI in Australia would threaten the public funding of vital services such as health and education, by channelling money to people rather than services.

She refers to the conservative American political scientist Charles Murray, who in his book In Our Hands: A Plan to Replace the Welfare State argues for a UBI that replaces the welfare state.

“There is the fear that, by giving people the money to spend, the government will no longer feel the need to provide healthcare or education,” she says.

Quiggin, like Dawson, is also keen to address the problems of welfare poverty, but instead of a UBI he favours a “liveable income guarantee”.

This guarantee would set unemployment and similar benefits permanently equal to the Age Pension and end harsh compliance procedures such as high job-search targets and government debt collection programs, such as Australia’s controversial “Robodebt” scheme.

“The costs would be A$20 billion to A$30 billion a year, which is significant money, but comparable to the planned tax cuts that the government has slated for 2024,” Quiggin says.

CPA Library resource: Unbound: how inequality constricts our economy and what we can do about it. Read now.

To be or not to UBI

In 2017, the Finnish Government ran a two-year trial in which a group of unemployed people was given a basic income each month, even after they found work, and compared the outcomes with a control group, which received welfare payments.

There was no difference between the two groups in terms of the number of days in employment – dispelling the notion that a UBI encourages idleness – while the group receiving the no-strings-attached UBI reported better health and lower stress than the control group.

A recent study by three academics at Macquarie University found an Australian Basic Income of A$18,500 per year, given to adults earning less than A$180,000 per year, would lift half a million people above the poverty line.

This initiative would cost A$126 billion annually and require lifting Australia’s level of taxation from about 28 per cent of gross domestic product to 34 per cent.

The study, titled Between Universalism and Targeting: Exploring Policy Pathways for an Australian Basic Income, also found that this model would reduce the Gini coefficient, a measure of a nation’s wealth inequality, by almost 20 per cent.

“I think we had an inkling that the UBI was going to be more egalitarian than people thought, but I think we were surprised by the scale of the results,” says Ben Spies-Butcher, lead author and associate professor at Macquarie University’s School of Social Sciences.

While UBI opponents argue that governments would be better off reforming welfare systems, Spies-Butcher says UBI reduces the problem of welfare stigmatisation, which is directly linked to the way the welfare system operates.

“The universalism of basic income makes it harder for governments to subject welfare recipients to punitive welfare systems,” he says.

“The politics of it is, essentially, that governments cannot or won’t target large chunks of the population with measures that make them feel really bad.”

Nor is Spies-Butcher concerned about a UBI leading to mass privatisation of public services, such as health.

“This would be more of a worry in the US than here, as once you have publically funded services, they’re very hard to wind back, and it wouldn’t be electorally viable,” he says.
Spies-Butcher also argues there is a structural incentive to retain Medicare, Australia’s public healthcare system.

“If we privatised the health system and then compensated everyone with enough money to buy private health insurance, that would cost more money for the government than just providing Medicare,” he notes.

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