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 cost� 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 “real� 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 savings� 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.

The weekly repayments are not burdensome I agree and I have no great objection to the concept of HECS. It is however a pain to put in a tax return and find you owe an extra few grand on top of what’s already been witheld from your pay ($30-40 a week) all year. Any tax return otherwise due all immediately taken for HECS and have to scrape every deduction I can find just so I don’t end up owing a lump sum. So, pay the bastard off and get it out of your life if you can is my advice.

Melbourne shopkeepers used to be the best by far, haven’t been back for quite awhile, so things might have changed, I hope not!

Now that’s Melbourne for you!

The whole employment section was a single broadsheet of sometimes not even 4 pages – for the whole of Melbourne and most ads were responses to older job adverts saying: “To the 290 applicants – don’t bother sending in another application and please don’t ring the office or visit the premises etc

I remember being rung by a friend working at a cake/coffee shop on Brunswick St after 4/5 months of looking for ANY work at all, that one of the girls had left, and I ran down straight down to get the job, but was beaten to the shop by another girl, who lived 300 metres closer than me, another worker in the shop had rung her friend….

My ex-partner and I used to walk down Smith St, Collingwood and we’d have to hide from fruit shop owners and other shop owners… as we’d try to do the veg and deli shopping at different shops each fortnight on dole day…. to spread out our tiny spending amongst all the struggling shops. They’d see you coming, and come out of the shop to greet you.

Like a depression baby of the 30’s. I always have lots of double ups of dry groceries and 2 lots of toilet paper etc in the cupboards, I hate running out.

The only saving grace was that the DSS (Dept of Social Scrutiny) was pretty benign and the paperwork was v. minimal.

Your suggested reasoning doesn’t match with the struggle that skepticlawyer and their partner went through, for some unknown reason.

Your reasoning is also illogical. Depriving yourself when you are struggling to make ends meet as a student because you think that you want the ‘discretion over their net income’ (whatever that means??) is muddled thinking.

HECS and the muddled understanding of it is one of the biggest frauds the Left has ever pulled on the Australian Public.

I am a financial advisor and I cannot believe the number of times I have had completely rational, quite well off people sitting in my office wondering if thy should pay off their childrens’ HECS debts. Answer – NO.No.no . . . oh and if you didn’t get it before – NOOOOOOO.

1. Assuming a degree is gained ( and even a part degree sometimes) the earning capacity is significantly increased compard to not having one.

2. The money is lent at a rate of interest equal to inflation – the debt remains the same in real terms.

3. The repayment rate once threshholds are crossed is not a huge burden. They are more likely to spend more on mobile telephones, alcohol, travel and other non-esential expenditure annually than they are on HECS repayments.

4. If they never earn enough to cross the threshhold and they die – the debt is written off.

5. Only pay upfront for the 25% discount if you have a binding written contract with your off-spring for them to repay you.

6. Only make voluntary contributions for the 15% reduction if you have the free cash and it clears your debt. do this in June and see the result in next tax return.

If you want to financially help your kids give them something they will appreciate – buy them a car or an airline ticket.

Those figures are only approximations – not got time to check – but it’s all on the ATO website:

http://www.ato.gov.au

Why?

Why?

Why?

Why?

Why?

Why?