What is a Universal Basic Income?

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The Universal Basic Income (UBI), also known as Basic Income, Citizen’s Income, or Guaranteed Minimum Income, is a government-guaranteed payment that citizens receive through cheque.

Recipients of the UBI differ depending on the government’s program. Some governments pay every citizen, regardless of how much their income is, while there are governments that only pay those who are below the poverty line regardless of whether they’re employed or not.

Sources of the funds for the UBI also differ. Some governments choose to increase the tax on the wealthy, while others opt to increase the tax on corporations and big businesses.

For governments that issue their citizens a UBI, their primary goals include reducing the poverty rate, reducing income inequality, or both. 

The Advantages of the Unconditional Basic Income

The Unconditional Basic Income provides citizens time to wait for better job offers or to negotiate for better wages. This can also give them time for their education, which can improve their marketability for better jobs. 

For countries with low birth rates, this government-guaranteed payment will also provide young couples with the confidence and the additional financial support to start their own families.

Another advantage of the UBI is also to help remove the “poverty trap” from traditional welfare programs that keep people below the poverty line. Because most welfare programs are too complicated and involve costly income verification work, governments spend more money in order to administer the program instead of spending the allotted budget on just the citizens’ cash payments.

The Disadvantages of the Unconditional Basic Income

While there are advantages to the Unconditional Basic Income, there are also disadvantages if everyone suddenly receives this government-guaranteed payment.

One obvious effect would be inflation, since most of the recipients will immediately spend them, driving up demand in the market. If suppliers of goods with high demand fail to increase their production, this will drive up the goods’ prices. Higher prices mean that even basic goods would now become unaffordable for those living below the poverty line. In the long run, the UBI will not raise their standard of living and will only increase their day-to-day living expenses.

Another disadvantage is the possibility that many of the UBI’s recipients would see jobs as optional, instead of necessary. They may choose to live on the free income instead of looking for better jobs or even educating themselves to increase their potential. In this case, the UBI will reduce the labour force participation rate in the long run.

Summary

The Universal Basic Income is a government-guaranteed payment issued to citizens to provide for their minimum living wage, whether they are employed or not. Many governments came up with this program to assist those who are living below the poverty line and giving them options to look for better jobs, get an education, or even stay at home to take care of their relatives.

While the UBI may look good in theory, there are also seen disadvantages to it as with other programs, such as its potential of increasing inflation and reducing labour force participation. Join us as we unpack the UBI during our Uncover Wealth Radio Episode 152.

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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