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Taxes for a UBI in Australia

(Skip to the widget.)

I've been wondering about the details of funding a universal basic income for a while, and I was prodded into making the (simplistic!) widget below by this speech by Andrew Leigh:

So next time someone advocates a universal basic income, ask them how they’d like to pay for it: by making Australia the most unequal country in the world, or by making Australia the most highly-taxed country in the world.

If we are to have a UBI, then clearly the answer will be to go with vastly higher taxes. Trying to make the numbers balance below will give an idea; the "sample balance" link funds a UBI at $21k per adult and $5k per minor with a 20% GST, and a marginal income tax rate that hits 50 cents in the dollar at an income of $30,000 and continues to rise. (I haven't put in an option for changing company taxes.)

But it's important to remember that for many income earners, these substantially higher taxes will be offset by the UBI itself; at the bottom of the page I have an updating graph showing the current average income tax rate (blue) and the effective average income tax rate under a UBI (red). The "sample balance" option makes the tax system much more steeply progressive, with everyone under about $80k better off under the UBI, and everyone under about $50k will effectively have a negative income tax rate (this is ignoring the GST – this is a several-hour project to get a feel for ballpark numbers, not a detailed modelling exercise).

I haven't made any attempt to account for changes in behaviour under changed taxes. The widget just takes the existing taxable income distribution and applies the tax rates in the boxes to come up with revenue amounts – in reality, many people might work less (because they don't need to with a UBI, or because they don't like the higher marginal tax rates), and many high-income earners would put more effort into tax avoidance. You can't put an extremely high price on CO2 emissions and expect that the same amount of CO2 will be emitted. The widget takes none of this into account.

Even allowing those caveats, I still wouldn't trust my numbers in the details; my estimates of the income tax collected are short by about $10bn to the exact numbers in the ATO's statistics, which are themselves short by about $20bn from my reading of the numbers in the federal budget papers. (Update, 2017-04-23: I've also now realised that the ATO's statistics on taxable income ignore almost everyone who earns less than the tax-free threshold, so I'm underestimating the revenue that would come from lowering it below the current $18.2k. This error would be in the opposite direction to the behavioural changes that I've ignored.) It's a ballpark exercise.

The goal is to make the "Taxes below fund increase" equal to the "Increase required".

Sample balance | Reset


UBI (age 18+, $):
UBI (age 0-17, $):
Total cost ($bn):
Current welfare budget ($bn):
Increase required ($bn):
Taxes below fund increase ($bn):


GST: %
Carbon tax: $/t-CO2e

Income tax brackets

(Any tax bracket above $690139 will generate zero revenue because of the discretisation of the income distribution that I'm using.)

Income Tax rate
$ k %
$ k %
$ k %
$ k %
$ k %

Effective average income tax rates

Current      UBI

Send corrections to dw.barry@gmail.com or @pappubahry.

Posted 2017-04-21, updated 2017-04-23.

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