Negative Income Tax – An alternative to the welfare system?

I’m currently on holidays and have decided to spend my time productively, watching Milton Friedman’s hit 1980s series Free to Choose. http://www.freetochoose.tv/ About two years ago, I stumbled across a copy of the companion book for this series in an OP shop. I quickly grabbed hold of the book and guarded it in case someone else wanted to buy it. Surprisingly, the book looked like it had been on the shelf for a while and it did not create the kind of excitement used copies of Harry Potter can cause. The bewildered shopkeeper seemed surprised at my excitement. On another another occasion a staff member at an op shop seemed amazed when I was clearly excited buying a TI-84 programmable calculator for only $10.

Anyway, Friedman in an episode about the welfare state raised the prospect of a negative income tax. http://en.wikipedia.org/wiki/Negative_income_tax I have provided a link to information on this idea but basically instead of having welfare payments and a massive welfare bureaucracy to administer it, you would instead get paid the equivalent of your tax free threshold and the low income offset in cash if you weren’t working and this would be phased out the more income one earns. The idea is that this would remove many of the perverse barriers to work that the interaction between the welfare system and the tax system currently produce. It would also be dramatically cheaper, Centrelink and the Employment Services industry would be largely abolished leaving only minimal paperwork to confirm how much income one earned.