The simple arithmetic of an unconditional GMI

Simplifying the system and making it more humane are admirable goals, but I still see major problems with an unconditional guaranteed minimum income.

These numbers are rough, but I think that they are around the right order of magnitude.

There are around 15.65 million people aged 18 and over or close to 17 million aged 16 and over in Australia. The current rate of age pension is $512 per fortnight or $13,312 per year. Paying all adults over 18 this amount would men that an unconditional GMI would have a “gross costâ€? of around $208 billion a year (or $226 billion if you went from 16).

The current outlays administered through Centrelink are close to $63 billion, but around $15 billion of this is family payments and services, so if you abolish the rest of the social security system you save around $48 billion (you will actually have a bit less than this because of rent assistance which would still need to be paid, plus a range of other small payments). Total Centrelink administration is around $2.2 billion a year (of which $1.5 billion is salaries). Employment and Workplace relations manages around $2.2 billion in employment programmes and costs about $1 billion a year to run.

Let’s say all this is abolished but Family and Community Services is left to manage the Family programmes. This means that you can save perhaps $53-$55 billion.
This means that you have to come up with another $153-$180 billion to pay an unconditional GMI.

Current Commonwealth receipts are around $220 billion, so we’re talking a gross increase in government revenues at the Commonwealth level of more than 68%. Income tax is roughly $100 billion, so we would have to at least double it if that was the way of financing the GMI. (This would be the logical way of doing it since the GMI is a direct income transfer, which acts as the effective tax threshold). Alternatively, the GST collects around $35 billion, but I wouldn’t like to think what rate you would have to charge to collect $200 billion. In addition, you would have to increase the gross GMI amount to offset the higher GST if you didn’t want to make current pensioners and beneficiaries worse off.

Fairly old estimates I’ve seen suggest we would need a flat income tax applying from the first dollar of private income of roughly 50% to pay for an unconditional GMI. It may be a little higher now because real benefit levels are more generous. (Perhaps benefits can be paid through the tax system, but I imagine that people would still want to get fortnightly payments, so you probably have to keep a bit of Centrelink to do this.)

Now of course everyone who gets the GMI is actually getting an offset to the higher taxes, so for some their disposable income doesn’t necessarily change, but if you actually pay this in cash up front, you are talking about an incredible amount of churning.

Most importantly, who benefits from a GMI?

Nobody has to jump through any mutual obligation hoops. Clear winners.

Ex-Centrelink and DEWR staff are obviously financial losers, until they get “realâ€? jobs.

Most poor people who are currently on benefits get nothing extra. Single age pensioners, single disability and carer pensioners and lone parents get the same amount of money as now. The single unemployed and sick get more, and couples on pensions and benefits also have an increase if the GMI is individually-based. (In theory, of course, you could save money and have a family-based system, but then you have to be able to decide whether people who are cohabiting are living as partners, so you end up with a system that is intrusive like now.)

So where does most of this money go?

Well retired people whose incomes and assets are too high to qualify for an age pension (about 20% of them) get up to an extra $13,000 a year. (And a sizeable number of them are ex-public servants.)

But I would guess that most of the money goes to people whose partners earn too much for them to get social security benefits, and probably most of these are mothers at home looking after children. So what we have achieved is a really big Family Tax Benefit Part B.
Of course, you could devise a system of special tax surcharges to get the money back off people you didn’t want to get it, but what you would do is recreate in the tax system what Centrelink already currently does.
Alternatively, you could start with a partial basic income, say paying all adults $5,000 a year, for example. But if you leave the current social security system as it is (offset by the smaller basic income) you still have to make people jump through the administrative hoops and the “administrative savingsâ€? don’t eventuate.

Speaking personally, I don’t think that an unconditional GMI is a goer. This doesn’t mean that the current system couldn’t be more efficient and administered more humanely.

‘Not claiming the Tax Free Threshold’ is the box that you tick on your Employment Declaration form – at your second and third employers.

If you are having trouble with multiple employers not withholding enough PAYG, ring your accountant and do some projections of your annual gross income and add up the PAYG currently being withheld, and do a back of envelope estimate, to see if youre in the ball park.

At least it’s not unexpected when it comes – or upgrade your work related stuff….

If you did tick the correct box and your employer didn’t withhold enough then there could be something fishy going on, or a clerical error.

The withholding rates are designed so you generally don’t end up with a tax bill.

From what SL is saying over at Catallaxy, she’s in and out of court today and only intermittently on line.

I’d still like to hear from skepticlawyer about why they made the decision they did re paying off HECS.