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27 March 2022

Adam Bandt, federal MP for Melbourne and leader of the Australian Greens party has proposed an $88 per day ‘Liveable Income Guarantee’ in preparation for the federal election campaign in April and May.

However, this proposal would not end poverty, lead to a real increase in wages, and improve living standards; in fact, its consequences might actually make the situation worse.

Adam Bandt’s proposal would set a minimum daily allowance for all Commonwealth welfare programs, as reported by The Age. This minimum allowance would be set at $88, or $1232 per fortnight.

Currently, singles on the old-age pension receive a maximum of $987.6 per fortnight, while the JobSeeker program provides single adults with no children with $642.7 per fortnight, from 20 March 2022.

Estimates from the Independent Parliamentary Budget Office suggest that this proposal would cost another $88.7 billion over the next four financial years, including the 2024-2025 financial year.

To pay for this policy, the Greens have five options: print more money, raise taxes, privatise government assets, cut government spending elsewhere, or borrow money.

Printing more money to solve economic problems has been a common response from governments. The classic example of this is the German Weimar Republic in the early 1920s, where the government printed more money to cover the cost of paying war reparations to the victors of World War 1.

However, printing more money leads to a devaluation of the currency. Although the value of goods stays unchanged, each individual dollar is worth less, so more money is needed to pay for the same amount of goods, meaning that the price goes up. In addition, money saved up in bank accounts would also be worth less than it was before, because the dollar amount stays the same, but each dollar is worth less.

Inflation in the Weimar Republic decreased the value of the German mark so much that workers were often paid twice per day, allowing them to buy goods at lunch, before their pay would be worth nothing by the end of the day, such was the rate of inflation. This ‘hyperinflation’ is unlikely to be seen in Australia, but it shows the dangers of inflation.

Austrian economist Ludwig von Mises recognised that this (process of printing money and deflating the currency) was a more popular alternative to taxation, as taxation is harder to sell to the public. The impact of inflation is also not felt immediately, but the more money that is printed, the more goods cost, and the harder hit the people are. And On top of this, the devaluation of the currency means that the savings and superannuation of pensioners decrease in value, hurting the very people who were meant to be benefited by the change in welfare payments.

If printing more money is counter-intuitive, the next option is increasing taxes, which has a history of being unpopular. An increase in taxes would cover the costs of raising welfare payments. However, the problem with this is that it costs the taxpayer more, and leaves them with less of their own money to spend.

US Economist Murray Rothbard theorised that the smaller the difference between a person’s annual income and welfare, the greater the incentive is to go on welfare. This is because for many people, if they can receive a similar amount, or even a slightly smaller amount of money from the government, but in return don’t have to do any work, they will take advantage of that.1 After all, who doesn’t like free money?

This isn’t to say that everyone would do this, but there is a chance that some would, especially for those who have no incentive to work other than financial reasons.

Rothbard warned that if more people went on welfare, it would place a greater tax burden on a smaller pool of taxpayers, and a cyclical effect develops.2 This would have drastic consequences for economic productivity.

The Greens are unlikely to support either the privatisation of government assets or cutting government spending. The Greens have repeatedly opposed the LNP and Labor when those parties have pursued either of those options, in fact in 2019 the Greens proposed restoring government staffing back to 2013 levels, following multiple cuts by LNP governments. This included stopping the reliance on contractors and outsourcing to third parties.

Borrowing money from other countries doesn’t immediately place a burden on the people, like raising taxes would do. However, when a person takes a loan from a bank, the bank expects them to pay interest on that loan, until the debt is repaid. The same applies to loans taken by governments. This would require interest to be paid annually by the Australian government, and the money used to pay for that interest would have to be raised through one of the other options listed in this article. And adopting any of those options to pay interest on loans comes with the same problems as adopting that option in the first place.

A Liveable Income Guarantee cannot be funded by the Australian government through printing money, taxation, or borrowing. Privatisation and cutting government spending are better options, but these are policies that the Greens are opposed to, so are off the table. Printing more money would lead to inflation and a rise in prices, putting Australia back at square one, or potentially in a worse position than where we started from. Increasing taxes would be unpopular, and may lead to more people accepting welfare payments. And as enticing as borrowing money may be, it has to be paid for some way, which would require printing more money or raising taxation, with the same result as adopting those policies outright. And all three of those policies will have economic consequences that will affect future generations as they enter the workforce, with lasting impacts like higher taxes and more expensive goods for young people without savings and experience to fall back on.

References:

  1. Rothbard, M N 2006, For a new liberty: the libertarian manifesto, 4th edn, Mises Institute, Auburn, p. 178.
  2. Rothbard, M N 2006, For a new liberty: the libertarian manifesto, 4th edn, Mises Institute, Auburn, p. 179.
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Stuart Jeffery, aka LibertyDownUnder, is the founder of the Australian Liberty Network. He is also the host of the Gumtree of Liberty and Gumtree of Liberty Live podcasts, and is editor of the Liberty Review. Stuart is currently studying a Bachelor of Laws and Bachelor of Arts, majoring in international relations, at the University of Southern Queensland.

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