Actuaries’ perspective of UBI apropos Australia

Charlie Pollack deconstructs Universal Basic Income (UBI) in Australia and what kind of implications it may have for the population and governments.

The financial world loves acronyms.  From time to time, an acronym can have two quite different meanings yet both have frequent use in their particular domain.  Many GI actuaries are familiar with “UBI” relating to Usage Based Insurance.  In other circles UBI is taken to mean Universal Basic Income.  This article is about the latter and what, if any, place it may have in Australia.

Much has been written and said in the last few years about the potential employment landscape in year 2050.  Futurists foresee a bleak world where automation, application of artificial intelligence algorithms and redesign of processes has caused many roles to disappear altogether, other roles to significantly reduce in number and the nature of the work for some roles to change.  Some employment sectors might grow, however overall it is expected that the aggregate number of hours worked will reduce.

In such a scenario, there are serious implications for the population and governments – with fewer hours worked income tax revenues reduce.  Whereas current ‘unemployment benefits’ might be intended to be a stop-gap until work is found (and a motivator to seek work), jobs may simply not exist for millions of people.  The existing structure and intent of social security payments thus becomes unsustainable and inappropriate.  Some people[i]  have proposed ‘taxes on robots’ and other solutions to the depletion of the income tax base.  This however, doesn’t address the issue that existing social security qualification processes and benefit structures simply lose relevance with such a large ‘unemployed’ population.

The design and funding of financial support required for the population to survive is thus paramount to society continuing.  The discussion around UBI as a solution, in its simplest incarnation, sees every member of society (Universal) receive a reasonable (Basic) stipend (Income), irrespective of other sources of income and without qualification processes (other than being an appropriately defined ‘resident’).

Some models see the stipend as high as AUD$32,000 per annum with progressively reduced rates for people aged under 21[ii].  In its purest form, there is no differentiation between ‘couples’ and ‘singles’ nor is there differentiation by gender or other aspects (with younger ages the general exception). 

A number of UBI experiments have been or are currently being performed or are proposed for the near future.  Unfortunately, many of these experiments are not truly universal in the locations where they are undertaken.  They also seldom run for long enough to be useful experiments.

Unusually, UBI has appeal amongst both right- and left-leaning people.  Some famous examples of right-leaning proponents include Milton Freedman[iii], on the basis that it truly promotes free markets.  Arguably, it has a natural home with left-leaning people[iv]  Unfortunately, politicians of both persuasions have grasped certain ‘features’ to discredit UBI as a potential solution, without proper debate about the merits of their arguments[v][vi].  Furthermore, discussion usually focuses on one aspect only – either the funding or the benefit design, rather than taking a holistic view.

The potential problems for the economy and society associated with the future of work requires considered thought and fair discussion to prepare Australia for 2050.  Actuaries are well placed to offer input to this conversation on many levels.  Would you be interested in joining a working group on UBI or perhaps more generally on the potential responses to the economic and social impacts of changing (reducing) work?  If so, send an email to the Public Policy Team

If you would like to read more about UBI, experiments past, present and proposed, some useful resources are included below and at The papers presented at the annual UBI conference are particularly interesting with a wide range of perspectives and focus areas covered.



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23 November 2018

It is interesting that the two citations of politicians discrediting UBI are of those on the 'left' - check out some of the 'right wing' proponents of UBI (see citation (iii)).

Many on the 'left' prefer a 'safety net' for things like the unemployment benefit. Or the age pension. And yet I recall many years ago a proposal that the age pension be paid to everybody. This could allow you to do away with the means test and the assets test (saving a lot in complicated bureaucracy), and avoiding the high effective marginal tax rates around the point where those tests cut in. Superannuation would then provide extra, rather than (for many) being an alternative. The age pension would truly be 'a pillar'.

A common criticism of UBI is that it would be a disincentive to work - people would rather bludge and receive something for doing nothing. But the studies have shown that such is NOT the case. There might be a few individuals who do that. But the clue is in the name - the UBI is basic. While it is enough to live on, the vast majority of people want more, and will work to get it.

This is an example of 'behavioural economics'. Many of the economic theories that we've lived by in the past could do with a dose of behavioural economic realism.

Finally, in response to the criticisms that UBI is 'a payment to millionaires', or will 'worsen inequality', surely that could be addressed by raising the top marginal tax rate. We need to look at the tax scale - or even the interaction of all benefits and taxes - as a whole, rather than just focussing on one little bit.

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