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Could UBI save Australians from the impact of the COVID-19 Pandemic?

March 29, 2020
Editor(s): Nigel Pereira
Writer(s): Ashlee Stojanovski, Thomas Sinclair, Nic Morris, Charlie Francis

Calls in virus crisis for universal basic income (UBI) – a reflection of profound change to come.

Calls for a basic income program have gained prominence in the 21st century as a way to alleviate the woes of poverty and social inequality. Amidst the current COVID-19 pandemic, with mass loss in employment disrupting the lives of Australians in hospitality and retail indiscriminately, the Government has announced a wage subsidy for those affected by the virus-inflicted loss. 

This policy is not basic income but instead a situation-specific solution to this wide-reaching problem. A UBI would not discriminate between employment and unemployment, nor would it pay separate amounts based on wages. A UBI is, however, paid unconditionally on a recurring basis[i]. 

In such trying times we must consider all our options to better the lives of the many. The astronomical complexity and size of this crisis cannot be understated. This issue is fundamentally ideological, economical and takes considered moral thought. How we decide to progress is a reflection of the compromises of compassion and pragmatism that affect every Australian.

COVID-19 can be considered the harbinger for this discussion, as it has illuminated the considerable deficiencies of Australia’s current welfare infrastructure. With phone calls unanswered, MyGov crashing and lines outside Centrelink offices reminiscent of the Great Depression, the call for such a welfare policy has never been greater nor louder. 

Yet, this universal income can be perceived as having as much to do with the economy as political ideology. Coined by Professor Henderson (1972) in his report for the Commission of Inquiry into Poverty [i], “Poverty is not just a personal attribute: it arises out of the organisation of society”. While the current level of poverty should not be ignored nor diminished, is a UBI necessary to combat poverty in our advanced and already debt-constricted economy?

Unions viz the ‘Australia’s United Workers Union’ claim that a UBI would alleviate the negative externalities associated with automation, rising personal debt levels, unemployment and the snowballing inequality of living standards. Furthermore, some advocates for UBI parallel its necessity to that of the MediCare system. Yet, for more than 40 years no real Government intervention into these apparent ‘market failures’ has occurred. Resistance from across the aisle has manifested in arguments of decreased efficiency and motivation of production as well as serious concern for the ambiguity in the policy and economic cost. 

Economists and politicians alike have attempted to quantify the financial impact of the UBI. Misha Ketchel (2020) in his recent article “‘Whatever it takes’ should now include a universal basic income” estimated that a $550 fortnightly payout would cost Australians AUD$55 Billion over 6 months. While Australia’s Workers Union are asking for even more by actively advocating for a $740 indiscriminate weekly payout. With little of this hypothetical UBI able to be recouped in the economy this threatens to plunge the budget further into deficit and debt that we as Australians simply cannot afford.

In this bear market, economically it feels as if this UBI policy is a bill Australians cannot foot, however, morally it is one we may just have to.

UBI may well be a reasonable response to the rising inequality within Australian society, and halt both economic and political unease  – especially in times of crisis. Dr Christopher Sheil, a senior fellow in history at the University of NSW, said inequality has gradually grown since the mid-1970’s: 

 “The top 10 and particularly the top 1 percent, keep increasing their share and diminishing or rolling back the Australian middle class. The share of the 40 per cent below the top 10 is getting smaller and smaller.” Said Dr Sheil. (ii) 

The blow of the COVID-19 has only acted to disproportionately hurt those at the bottom end of the income ladder. Low-income jobs—cooks, retail cashiers, nannies — mostly cannot be done remotely, and the majority are forced to take unpaid leave. See: Myer recent shutdown, taking the job loss tally in the retail sector to more than 40,000. (iii) 

Low-income people are disproportionately more likely to be uninsured with income protection, and for many, even stocking up the pantry can be an impossible financial hurdle. A recent study from ME bank’s 2018 annual Household Financial Comfort Report,  states that around a quarter of Australian households have less than $1,000 in cash savings (iv) and a significant amount of Australians live paycheck to paycheck. The lack of available resources to prepare and protect against COVID-19, inevitably means many will face a higher risk of contracting—and subsequently spreading—the virus. COVID-19 has demonstrated the devastating consequences of inequality within Australian society, and highlighted the damaging implications of the diminishing middle class. 

The UBI may be a means to address the issue of inequality, not only providing security in times of crisis for a significant subsection of Australians, but also acting as a longer term solution to eradicate poverty in one of the wealthiest countries in the world. 

It’s time we guarantee a secure and decent existence for all.

Many pundits of minimum income are misled in the argument that ‘since no new money is being created, inflation will not increase’. As money shifts to the lower income levels (per most UBI models), a change in consumer spending would occur. This means that spending by people from lower socio-economic backgrounds, who tend to have a higher propensity to spend money[v], could create pressure on the level of inflation. 

Simply put, a sudden increase in spending causes pressure on prices of currently available products within the economy, as businesses react by raising prices to adjust for the increased consumer demand.

Level of CPI (or Inflation) in Australia

It’s academic; those wanting to introduce a UBI must consider how quickly it is introduced, because the need to manage higher inflation would be inevitable. Even Public Services International, a federation of unions representing public servants, wrote a paper critiquing the concept as imprudent last year[vi]. 

However, we need to rethink our idea of UBI in our current scenario.

Before the 2020 downturn in Australia there would have been political reluctance to float the idea of a minimum income. However, during our “Covid crisis”, recent expansions in government social security [vii] have prompted organisations like the United Workers Union in Australia to advocate for one, proposing $740 a week[viii]. This plan might be effective for medium term growth, while Australia recoups from the current tough period. 

Source: ABC News

Provided that the bureaucracy of welfare is simplified into one monthly payment, and more money is in the pockets of displaced Australians, the engine of the economy should chug along, and in the best-case scenario, we might just stave off economic depression.

References

(i) Australia. Commission of Inquiry into Poverty. (1972-). (2008). In Trove. Retrieved March 29, 2020, from https://nla.gov.au/nla.party-554637

(ii)https://www.smh.com.au/national/rising-inequality-is-hollowing-out-the-australian-middle-class-20181120-p50h2o.html

(iii)https://www.afr.com/companies/retail/more-carnage-as-myer-closes-stores-stands-down-10-000-staff-20200327-p54er6

(iv)https://www.mebank.com.au/getmedia/2046702b-39c0-457b-8950-80d75e716bcd/ME-s-14th-Household-Financial-Comfort-Report_August-2018.pdf


(v)https://www.theguardian.com/business/commentisfree/2020/mar/12/rudd-mark-ii-what-experts-say-about-australian-governments-176bn-stimulus-package

(vi) https://www.world-psi.org/sites/default/files/documents/research/en_ubi_full_report_2019.pdf

(vii)https://www.servicesaustralia.gov.au/individuals/services/centrelink/jobseeker-payment

(viii) https://theconversation.com/whatever-it-takes-should-now-include-a-universal-basic-income-134405



The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ, our Partners and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Nigel Pereira
Editor
Ashlee Stojanovski
Writer
Thomas Sinclair
Editor
Nic Morris
Writer

I'm a third-year Commerce student studying Economics and Finance. I am interested in the intersection between international politics and macroeconomic policy, and societal ramifications of such intersections. I plan to study a Masters of Engineering next year.

Charlie Francis
Editor

Charlie is a Bachelor of Commerce student majoring in Economics and Finance. He is interested in macroeconomics, politics and current affairs.