Universal Basic Income and Labour Policy

By   /   November 21, 2014  /   34 Comments

TDB recommends Voyager - Unlimited internet @home as fast as you can get

On Radio New Zealand’s None-to-Noon on Wednesday (19 November), new Labour leader Andrew Little intimated that he would like to put Universal Basic Income (UBI) on his policy agenda. Predictably Kathryn Ryan, despite being one of our most considered and reflective media journalists, immediately asked how that could be paid for. Little kicked for touch on that issue; indeed that was the correct thing to do on a first (and very general) interview such as this one.

roK8Qke

On Radio New Zealand’s None-to-Noon on Wednesday (19 November), new Labour leader Andrew Little intimated that he would like to put Universal Basic Income (UBI) on his policy agenda (What policy changes will Andrew Little usher in?) Predictably Kathryn Ryan, despite being one of our most considered and reflective media journalists, immediately asked how that could be paid for. Little kicked for touch on that issue; indeed that was the correct thing to do on a first (and very general) interview such as this one.

How will he handle this issue in future interviews when he will be required to be more specific? Certainly I believe that Little has the opportunity and ability to push this idea into the mainstream in a way that most other politicians could not. I think he’s capable of understanding the concept. Certainly he understands the issue that the labour market cannot solve the problems of inequality and poverty in the twenty-first century. Further, I am convinced that his principal message – “nobody left behind” (stated on The Nation on 9 November) – reflects a genuine commitment to socially progressive politics.

 

Excerpt from and early 2015 Interview of Andrew Small by Media Personality

Media Personality: Mr Small, we understand that you are sympathetic to the introduction to New Zealand of a Universal Basic Income. Where will you get the money from to pay a new benefit to everyone, whether they need it or not?

Andrew Small: Universal Basic Income mainly represents a new way of integrating and accounting for our present system of income taxes and benefits. The first and most important part of this reform would cost nothing and would make no changes to the distribution of income. Rather it would help us to see the inequalities that we face, and would open up new options that would allow productivity growth to be accompanied by reduced inequality.

Media Personality: What is the point, if it’s just an accounting exercise?

Andrew Small: Change is an ongoing process, not a one-off event. The process begins with the understanding that, at present, every New Zealander earning over $70,000 per year already receives a universal basic income of just over $9,000 each year. If you calculate tax on $100,000 a year at the trust rate of 33 cents in the dollar you get $33,000. The actual tax paid by such a person is $24,000. The difference between $33,000 and $24,000 is $9,000. We can call that $9,000 a Universal Basic Income. It can be understood as a public equity dividend, a return on our collective stake in New Zealand Inc.

Media Personality: So it still doesn’t change anything. And what about people not earning $70,000.

Andrew Small: It changes the way we think about our income. Thus this person grossing $100,000 can think of $67,000 of her income as privately sourced, through her contribution to her employer’s business. And she can understand that the remaining $9,000 of her income is publicly-sourced income, resulting from her equity in New Zealand Inc.

Media Personality: I see. So the reasoning is that everyone with equity in New Zealand should receive this $9,000 payment, not just the people on high incomes who already receive it?

Andrew Small: Yes. And indeed all persons presently in work in New Zealand already receive most of this $9,000 basic income. We just calculate the difference between their present after-tax income and what their income would be if subject to the 33% trust rate. Before I talk more about these people, we should note that almost everyone we today call a beneficiary receives annual benefit payments in excess of $9,000. Once we adopt the proposed basic income system of public accounting, the first $9,000 of their benefit would be called a Universal Basic Income. Their ‘benefit’ – in the conventional sense of that word – would now be the excess; anything they now receive over and above their basic income.

Media Personality: How would this affect children?

Andrew Small: At present we pay benefits that we call ‘family tax credits’ to parents of many children. We don’t pay benefits to children under 18, except in exceptional circumstances. Payments of this type (upto $9,000) to fulltime parents would be accounted for as basic income.

Media Personality: Who would benefit most from your proposal?

Andrew Small: The first people to benefit will be those who discover that they presently receive basic incomes less than the full amount. These are mainly the working poor. They would benefit because they would become first in line to receive what in the past we would have called a tax cut. After a few years of economic growth, every tax-payer would pay tax at the trust rate of 33% (or slightly more) and would receive an annual basic income of $9,000 (or slightly more). Every beneficiary would receive at least that basic income amount; an amount that could be topped up in accordance with their circumstances.

Media Personality: What do you mean by “slightly more”?

Andrew Small: Once the Universal Basic Income accounting system (strictly, the Basic Come Flat Tax system) is in place, then political parties such as Labour would advocate changes to the tax rate and the basic income amount. I would imagine that a centre-right party such as National would typically advocate the retention of existing rates and amounts. ACT on the other hand would probably advocate a reduced tax rate, along with a reduced basic income. Labour might seek to raise the tax rate, and return the extra revenue raised as part of that public equity dividend known as Universal Basic Income. In taking these different positions, all three parties could be fiscally neutral. Neither party’s policy would affect the government’s overall Budget balance, except to the extent that one tax-benefit combination might raise the rate of economic growth more than another party’s proposal. Universal systems can only be understood properly as combinations of tax and benefit.

Media Personality: Would not this proposal just become a charter for lazy people?

Andrew Small: It is a proposal that can ensure a certain amount of income surety in a world in which wage income becomes increasingly uncertain and irregular. Some ascetics might be able to subsist on $9,000 per year. Good luck to them; they will be treading lightly on our planet. However for most people the $9,000 (or how ever much) in the future will represent a baseline from which to pay for food. It would, on its own, be insufficient income to meet their needs and wants. So most people will want to participate in the labour market to ensure an appropriate balance between privately-sourced and publicly-sourced income. A universal basic income is an incentive to take on uncertain and irregular work, knowing that they will still have a basic income to fall back on when their job finishes or if their business venture fails. They will never have to reapply for a basic income; it would be a dividend, not a hand-out.

Media Personality: Would this proposal make a lot of public servants unemployed?

Andrew Small: Not immediately, because substantial transition would be required to simplify the benefit system, which would now become a basic-income top-up system which only some present beneficiaries would require. Inland Revenue would administer the simplified tax regime, and the basic income payment. All other needs-based top-up payments would be managed by Work and Income. Over time, with substantially simplified systems in place, there would be substantial labour cost savings. A smaller proportion of the labour force than at present would be required to service the tax and benefit systems.

Media Personality: What would happen to the distribution of income over the coming decades?

Andrew Small: Today, increased labour productivity means more inequality. With a universal basic income in place, what ordinary citizens lose through less employment can be more than made up for through higher public equity dividends. Also, workers’ bargaining power would increase as prospective employees would be better able to say ‘no’ to exploitative provisions in their employment contracts. Those with minimal market power gain by having an alternative source of income, even if that alternative is quite small. A universal basic income gives a young worker an opportunity to refuse a poor job offer; to hold out for a better offer. And workers taking industrial action to improve their wages or terms and conditions will retain their basic incomes while locked out or on strike. Uncertain wage income would be complemented by certain basic income. Productivity growth arising from technological change is a public-private process. A Universal Basic Income ensures that all benefit from that process. Increased inequality of income and wealth can first be arrested and then reversed.

Media Personality: Thankyou Mr Small.

Andrew Small: You’re welcome.

***
Want to support this work? Donate today
***
Follow us on Twitter & Facebook
***

34 Comments

  1. Save NZ says:

    I agree with the concept of universal basic income. People need to know that they get a guarenteed sum. In Canada they implemented this and they found incredible benefits to making sure that everyone no matter what got a set amount. People did that course they wanted to do, health outcomes were better, mental health issues reduced etc etc. In this day and age people should know there is a safety net and you don’t need to go through hoops and paper work to get it.

    One thing that strikes me though from the interview is that this type of policy needs to be made much more accessible. Labour need to get out policy in easily digestible sound bytes . I personally was yawning reading about it and I’m actually interested. Also do not agree with

    Today, increased labour productivity means more inequality

    That is completely untrue. An example is the dairy industry. They could not get enough workers (getting up at 4am everyday is a bitch and not everyone can live in the wops) so they invented automated machinery to milk the cows. Now that industry is a billion dollar industry that NZ actually leads the world in. Wages are actually high in that sector. So productivity can mean jobs can be increased in different ways. Instead of employing truck drivers and milkers now Fonterra might employ additional staff such as researchers to research innovation, IT workers to design and implement technology, marketers to market off shore etc etc. These are much higher paid jobs than just milking cows and driving trucks. (Although obviously as productivity rises they actually need more truck drivers etc to meet demand).

    The problem in NZ is that many companies can not ‘think big’. One way Labour can create a vision is to think that now NZ is not a country of unskilled workers laboring but of a new generation that has the ability to export IP. Productivity is defiantly not the enemy but how it is implemented.

    An example of negative productivity is making people work longer for more hours and the same money. Many employers in NZ think like this but technology and education is the key to productivity not low wages. Low wages actually decreases automation as the employer just uses low wages to keep on going with the same old ways and not innovate. In fact that could be where Labour starts from – high wages in the digital economy. We don’t want to be a low wage economy!

    • Keith Rankin says:

      In a demand-constrained economy (see my last week’s blog ‘Constraining Credibility’) productivity gains accrue to the already rich and not to the waged labour force. Productivity gains go to the scarce factors of production – which may include some relatively privileged segments of the labour force – and completely by-pass the abundant factor of production.

      A supply-constrained economy with labour scarcity and significant productivity gains is most likely to be growing at an unsustainable rate. In the third quarter of the 20th century we sought to maximise economic growth as a means to ensure an equitable distribution of income. In the 21st century we need productivity growth without unsustainable economic growth, which means an abundant labour force. Thus productivity gains need to be passed on to employed and unemployed and underemployed workers by means other than as a direct cost to employers.

      If we look at almost all liberal-capitalist economies since the 1980s, we see that productivity gains have not accrued to workers. Rather than pay the majority of our population wages commensurate with productivity, the winners now lend their unspent unequal incomes to the working poor.

      • Save NZ says:

        I agree productivity gains have not accrued to workers – that is because the the wages are not rising fast enough while expenses have increased a lot (rent/rates/insurance/power etc). That is what I am trying to say, that many NZ employers believe that keeping wages down is how to control costs – they do not need to innovate and grow as to keep profits high/same they just reduce worker costs. However long term this does not work – this is the strategy of the 1980’s and 1990’s. cut costs but it did not grow the economy. – the government by subsidizing wages and rents are also not helping especially in industries they don’t need to i.e. Sky city, fast food, supermarkets etc. But fundamentally you need to push past the ‘ economic idea’ and get it into play with real life examples and then with real life policies and a way to transition out of a path in the 1980’s 1990’s we have gone down.

        The other point is that people are no longer workers but self employed individuals in many cases. Look at Corus there are many companies in between the ‘Corus’ person who comes to look at your telephone and the company. That is so the company does not have to be responsible any more. Now companies have ‘fake’ workers branded as their workers and this is not really productive, more an accounting issue and avoiding accountability. Anyone trying to get action out of Corus would know what a bad job they do but they are a monopoly. Now we are getting zero hours – fake jobs and fake hours it is the extension of contractor. Costs are rising here for the public – e.g. the inefficiency and cost of getting your phone line fixed or on (often taking multiple calls and days and weeks) is a direct result of how it is structured. No one is accountable anymore and why would you give a damn after being treated so poorly by your ‘fake’ employer who doesn’t have to worry if you make a mistake as they are not the employer.

        Now it is the person at the bottom doing the work for the least amount and paying the tax while those at the top are getting huge wages and don’t have any connection with either the work or their workers only the ‘share holder’. The public are paying for the service which is poor and expensive and reducing productivity for the country. If Corus fails the government just bails them out with tax payer money. Somehow the public is both paying for an expensive service often necessary but also their taxes instead of going towards health and education is actually going to prop up companies. I think Solid Energy recently got a hand out.

        And it is not just the government look at Auckland Council wasting millions of ratepayer money on failed IT and their ‘fake’ tender to get the vendor who surprise surprise has not been named. The council workers who selected the ‘vendor’ will not be held accountable for their poor choice of vendor, their speed of implementing a program me of work that was not planned to the required technical level and their poor management of the process. The ratepayer will pay for them. Again it is corporate welfare with no accountability. Home owners are forced to pay rates, forces to amalgamate councils but their is no accountability of how they spend the rates and when things go wrong it is just ‘normal’ and the structure is ‘fine’. Councils are out of control look at Kaipara – another example. Poor homeowners are paying for the mistakes of corrupt, incompentant and lazy government servants.

      • Korakys says:

        The obvious solution is to distribute a companies profits to its workers. Perhaps medium- and long-term workers should own at least 50% of the companies shares where they work.

    • Korakys says:

      As productivity increases maximum working hours should decrease while maintaining the same overall minimum wage.

      The major reason there is unemployment is because of productivity gains. The obvious solution is cap the number of hours that can be worked. Currently it is soft capped at 40 per week, it should be a lot lower than that.

    • Draco T Bastard says:

      Also do not agree with
      Today, increased labour productivity means more inequality
      That is completely untrue.

      Wrong. For the last thirty years the gains from increased productivity have been going almost solely to the rich. This is why inequality has risen and poverty has increased.

      They could not get enough workers (getting up at 4am everyday is a bitch and not everyone can live in the wops) so they invented automated machinery to milk the cows. Now that industry is a billion dollar industry that NZ actually leads the world in. Wages are actually high in that sector. So productivity can mean jobs can be increased in different ways.

      /facepalm

      There’s significantly less people working farms today than there was even 50 years ago exactly as you’d expect from higher productivity. And, no, they’re not paid high wages either else the farmers wouldn’t have been getting in trouble for paying less than the minimum wage.

    • geoff l says:

      Couldn’t agree more with that last line.

  2. The Lone Haranguer says:

    So “Mr Small” has managed to convince his parliamentary colleagues to adopt the ACTs flat tax rate deal? And the NZLP members understood the payoff from this and embraced the deal?

    Maybe Douglas and co really were old time socialists but with some ideas that were ahead of their time.

    • Keith Rankin says:

      The Basic Income Flat Tax system is nothing like Roger Douglas’ proposals. The basic income is an acknowledgement of public equity and the flat tax in the BIFT must be set at a medium-high level. Douglas wanted a low tax and denied public property rights. He wanted a guaranteed minimum income that was a hand-out that would be fully recovered through a 100% effective marginal tax rate.

      • The Lone Haranguer says:

        Hey I support the UBI.

        But the proposal including a flat tax smells like Roger Douglas and ACT. Perception only maybe, but I just see any mention of a flat tax rate (of 33% even) as being hard to sell to Labour voters.

        I personally would like to see Labour forget the CGT and introduce along with the UBI, a capital tax of say 0.5% on all assets (including the family house) and a financial transaction tax. The latter tax being the one that should have arrived with GST.

        A capital tax would force the owners of capital to embrace “efficiency” like they want labour to embrace efficiency.

        I prefer to see tax collected on money spent rather than on money earned, – with a wide definition of what “spent” means, but I recognise that Im in a minority there.

  3. Andy K says:

    If Labour pursues this they can expect a vote from me.

  4. dave brown says:

    This is weird.

    You undermine the benefits of the UBI with a flat income tax at 33% and no mention of a CGT which would doom the UBI to be a poverty income.

    A UBI should be a living wage, in fact a social wage, that represents the wealth generated by the productive working class redistributed to create a decent standard of living for all.

    The advantage that Little has over most is that he understands what labour productivity is, and that the national income is a consequence of that.

    His rejection of the CGT is an aberration because it would target the unproductive income that works against increasing labour productivity.

    The best way of looking at a UBI is to combine it with a healthy GIT, CGT, and end of GST.

    That would be a tasty and nutritious alphabet soup to for the poor and the rich could well afford to spit in it.

    A Graduate Income Tax reflects the redistributive principle that those who can afford to pay more income tax.

    A Capital Gains Tax/Capital Assets Tax would take out the unearned income of unproductive speculation in assets that detracts from increasing labour productivity.

    No GST would eliminate the iniquitous tax on public health.

    We would have a good debate about about the principles and mechanics of the UBI as a means of ensuring equality of opportunity and outcome as part of the total tax package, and as a fair reward for wider social productivity.

    A winner for Labour to find is way back to its roots – the working class.

    • Keith Rankin says:

      A UBI that makes a revolutionary change in one big hit is quite untenable politically and is unsound economically if it is not properly integrated into the income tax system. People earning over $70,000 already get a UBI, through the existing graduation of the income tax scale. It makes no sense to give them a second UBI while increasing the graduation of the present 20th century tax scale. That simply misses the point.

      The popular view of UBI is that it is some gratuitous benefit to be paid over top of what we already have, rather than a reassessment of what we already have. We need to dispose of that view, not reinforce it.

      The point of Basic Income Flat Tax is to create a platform that allows us to move forward, enabling increased productivity, increased sustainability and decreased inequality over time. Thus the present 33% tax rate represents a baseline for the flat tax that integrates with the basic income. As productivity rises that 33% and the basic income both rise, giving everyone a share of the productivity gains.

      Also, we can never dispense with the need to pay ‘top-up’ transfer payments to people with special needs. While the basic income flat tax system is inherently built on the principle of ‘horizontal equity’, that does not rule out the need to apply the alternative (not opposing) principle of ‘vertical equity’ (which means treating unequals unequally).

      UBI should be presented as common sense, not Utopia.

      • dave brown says:

        “A UBI that makes a revolutionary change in one big hit is quite untenable politically and is unsound economically if it is not properly integrated into the income tax system.”

        Well I differ. A UBI to be effective would be revolutionary because it would act as a ‘negative income tax’. As Gareth Morgan argues, his Unconditional Basic Income creates a social dividend without the requirement of work. This separates paid work from the principle of equity and includes unpaid labour, training, furloughs etc without stigma. It thus challenges the work for the dole stigma and encourages individuals to do the work the want to. It would mean that everyone would qualify for the UBI on the principle of universality.

        To write off the GIT as a 20th century tax is just to cover up a shift to a flat tax as a trade off to win the rich to the idea of a UBI of the poor. That is actually a concession to the rich that is going backwards to the regressive 19th century not forward to the 21st. It was the shift to regressive taxes by neo-liberalism in the late 20th century that exacerbated our current rampant inequality.

        In the 21st century we need a tax system that taxes all income equitably. That includes taxing those who can afford to pay, more. Not rewarding the rich with a tax cut. The GIT already exists and adding a UBI as a social dividend that is not taxable, and removing the regressive GST, will reverse the historic regression and cement in the progressive principle.

        To pay for the UBI we would not need to hugely increase the the GIT rates, rather tax unearned income. People put up all sorts of arguments against that but these usually concede to the rich the power to evade it. Equity, again, remains the overriding argument.

        Gareth Morgan’s CAT is designed to catch untaxed capital income equitably in my opinion. It works by taxing currently untaxed income and directing that into production to increase labour productivity as the only sustainable basis of GDP growth in a climate collapsing world. I think that tax should be at least 50% to encourage individuals to redirect investment into production. Given the current state of the world economy and capital flight it is highly likely that the state would have to use the CAT to boost the Cullen Fund and invest in increasing value productivity in NZ.

        The will create the best conditions for increasing the national income and with it a more equitable share of that income between labour and capital.

        • Keith Rankin says:

          By definition, a Universal Basic Income is a dividend payable “without the requirement of work”. Nobody contests that. The first “accounting” stage of the implementation of Basic Income Flat Tax reform would be the revelation that many people on low and middle incomes are short-changed, and a few people presently receive absolutely nothing. Thus the first priority in any subsequent ‘tax cut’ would be to address the inequity problem revealed. The necessary reform requires two stages; an accounting change and an actual increase in payments to many people. If we try to do both stages simultaneously there may be too many losers whose resistance will make the whole proposal politically untenable. While we could do both stages together if the government is planning on a ‘tax cut’ anyway, it would still be better to get people used to the principles of BIFT first so they can see how the GIT system delivers bigger dividends to high-income people than to low income people.

  5. Save NZ says:

    Sorry don’t agree with the capital gains tax. The reason being is that CGT does not control property at all and like PAYE seeks to tax those that are already good taxpayers, provides very little taxes and is hard to enforce. Ie people who currently pay their taxes honestly will pay CGT and those that don’t pay tax through trusts, accountancy loop holes etc will just not pay it. So you will end up taxing the honest citizens but not the dishonest ones who don’t declare it. There are so many loop holes in the CGT that it would be so easy to avoid it anyway, while that honest citizen who worked all their lives and had that 2nd property as a retirement income so they can supplement their pension are penalized by CGT while the developer who is probably getting tax rebates by having loses over a larger portfolio gains and many investors especially foreign ones operate under the table anyway and don’t declare any tax and are on the benefit to boot! If you are going to tax people do it so there is a minimum of red tape and it is hard to escape it.

    GST works like this. A transaction tax would work like this etc.

    CGT would keep IRD in litigation for years – it does not stop speculation at all. Any changes to taxes in property need to be enforced by lawyers when the title is changed so their is no way to escape it. Stamp duty in the UK works like this. You also need total transparency in the details so it is super clear when to pay it and everyone is caught at source.

    However after the last election I believe property taxes will be a vote killer as this is practically the only way many Kiwis believe they can provide for their retirement and is a ‘safe’ asset. Property is after all a tangible asset and enforced by the owner not like Kiwisaver which is not guaranteed and enforced by banks etc. Property may be wrong as an economic theory but no one wants to solely rely on the state pension these days.

  6. Korakys says:

    Keith Rankin, do you think that the flat tax rate should apply to the first ~$9,000? Another way: should the basic income be taxed?

    • Keith Rankin says:

      The basic income can be regarded as a negative income tax. Thus, using today’s figures of 33% tax and $9,000 basic income, a person grossing $5,000 for the year would receive $12,350 ($9,000 plus 67% of $5,000). I would account for this as $9,000 of publicly-sourced private income, and $3,350 of privately-sourced private income. Another economist might just say that this person pays -$7,350 tax. The BIFT accounting system is superior, I would argue, because it properly acknowledges our public equity; our equal stake in the public aspect of NZ Inc.

      One strength of the BIFT accounting system is that, once embedded, the concept of ‘before-tax wages’ becomes redundant. A person who would today say he earned $5,000 would instead say that he earned $3,350. The $9,000 basic income would be assumed, because everyone gets it. (In reality a person on such a low income would probably be in receipt of some kind of additional benefit. But this might be a typical income profile of fulltime tertiary students living with their parents.)

      If Labour were able to form a government in 2017 and introduce the BIFT accounting system in 2018, they might (cautiously) advocate that Basic Income should be raised in 2021 to $10,000 with a tax rate of 34%. If Labour were re-elected this person would now be earning $3,300, and would have a disposable income of $13,300. This would make a significant difference to low-income recipients, while having minimal impact on those on middle and high incomes.

      • Korakys says:

        Thanks for responding. I agree that it shouldn’t be taxed, but I don’t know too much about tax and benefit accounting systems.

  7. Tuan Nguyen says:

    Another most sensible proposal is from Gareth Morgan : introduce a comprehensive tax on capital income to collect the 9.4 billion dollars of tax revenue that go unclaimed every year in New Zealan.With that amoamount of money we can provide a lot of services for free like medical services and educationfor example. This would go a long way to offset the needs for a universal basic income.

  8. Mike in Auckland says:

    I listened to that interview, and it was all over the place. I did not really pick up much about what Little said on the UBI, so I presume it was a side issue they discussed. The UBI would be revolutionary, and if introduced correctly and smartly, would reform our welfare and tax system substantially, potentially for the better, if done well.

    So if Andrew did indeed support this, good on, and we expect MORE, I’d say, bring the goodies.

    That is where National are weak and backward. But as I have heard that the Nat led government wants to overhaul, or even do away with, the whole present Social Security Act, I fear, they may go there first, and do it THEIR way, which will be a nasty and punitive way.

    Labour have been asleep on the wheel on this, well, I suspect not that, they have intentionally had NO time for people on benefits and in serious need, apart from the “poor mums with kids” kind of clientele. Of course we need better support for sole parents and kids in poverty, but they sidelined ALL others on benefits, and a massive number are now single people, also unable to find social housing.

    If Little is serious and genuine, he will bring this to the fore, and address it with appropriate policy. I fear though, he will tow the line of the more conservative unions, only looking after paying members.

    It was a bit of an insult too, by the unions, to tell service station attendants to join them, after the appalling stories in the media. Why have the unions not worked on recruiting members in that area for years?

    Unions have become too arrogant and still have not learned, that they must go beyond the employed members who can afford paying the standard membership fees. Thousands of marginal workers do not join unions, because they feel the fees are too high, and they already struggle on the minimum wage.

    So the unions, catering for the middle classes and so, better learn that solidarity matters, and must be offered and delivered on, rather than just spread and impose the existing system of membership. Unite did show the way, but they struggle, we need other unions accept unemployed and suppressed on compromised affordable fee basis, to extend their own power base.

    Wake up, CTU and unions, you must spread your wings and influence, unless you want to simply serve a semi elite middle class membership.

  9. Michael says:

    A flat tax with a UBI would basically be a ‘graduted income tax’, but would just be called something different. There’s nothing ACT-like about it.

    Let’s assume the UBI is $250 per week, with a 40% flat tax rate. Here’s a few examples of situations:

    Gross Weekly Income: 0
    – Tax Paid: 0
    + UBI: $250
    = Net Weekly Income: $250

    Gross Weekly Income: $200
    – Tax Paid: $80
    + UBI: $250
    = Net Weekly Income: $370 (Effective tax rate: -85%)

    Gross Weekly Income: $700
    – Tax Paid: $280
    + UBI: $250
    = Net Weekly Income: $670 (Effective Tax rate: 4.3%)

    Gross Weekly Income: $1200
    – Tax Paid: $480
    + UBI: $250
    = Net Weekly Income: $970 (Effective Tax rate: 19.2%)

    Gross Weekly Income: $2000
    – Tax Paid: $800
    + UBI: $250
    = Net Weekly Income: $1450 (Effective Tax rate: 27.5%)

    Gross Weekly Income: $5000
    – Tax Paid: $2000
    + UBI: $250
    = Net Weekly Income: $1450 (Effective Tax rate: 35%)

    So you can see that while that initial number, 40%, is a flat rate – it’s actually very progressive. Far more progressive than most tax regimes in developed countries. You have to think of ‘integration’ when you read about the UBI/flat tax. The ‘market income’ (from employment) and the ‘public equity income’ (the UBI) are both equal elements of the tax/benefit system.

    I imagine it’d also be extremely simple to administer – no tax fraud, no complexity. It could be done on a weekly basis. Since the rate is 40%, as your income goes up and down, your tax easily adjusts. For example, someone might earn $400 one week, and $800 the next. Instead of paying a higher marginal rate on market income, the relative value of your UBI increases and decreases.t If the UBI was combined with a progressive tax, we’d have the same system with poverty traps, high effective marginal tax rates, etc.

    The idea is that everything should be seamlessly combined.

  10. Andrea says:

    At this time such overheads as rates or rent, phone, transport costs, and power, seem to have no connection to incomes for senior administrators particularly.

    These obligatory costs rise with no obvious improvements in service or quality. Nor do the actual costs of doing business seem to be linked to the frequent and ferocious rises. In some cases the rises are linked to recouping the losses caused by very poor governance/management e.g. Auckland.

    How might a basic universal income ameliorate this situation?

    And – is there any way of seriously reducing the role of MSD in administering top-ups? Unless their overall culture improves markedly, there will continue to be people who will go without their entitlement rather than face the bureaucracy. Or never be told what they are eligible for.

    PS I loved the typo – ‘None-to-Noon’. Just so.

    • Keith Rankin says:

      Thanks Andrea for pointing out that typo. There are at least two others, probably more!

      In the first issue you raise, we note that these costs are all someone else’s incomes, which would be subject to 33% (or higher) tax.

      By implication your point raises the issue of company tax. The strengths of BIFT accounting are its simplicity, transparency, difficulty to tax-avoid (because there’s only one tax rate) and its basis on principle (the principle of horizontal equity). Thus under BIFT the company tax rate would have to be that same rate (eg 33%). So the present 28% company tax rate would have to be understood for what it is, a corporate subsidy to the tune of 5% of company profits. While there may well be reasons why such subsidies might be appropriate in some situations – eg to companies competing internationally with other subsidised companies – there is no reason why domestic utility companies should receive a subsidy on their profits.

      In addition, a universal basic income always enhances the bargaining position of relatively junior employees. Higher wages in these sectors can help to raise wages generally throughout the economy, making utility charges more affordable.

      (As an aside, I would like Genesis Energy to be fully restored to public ownership, even if it means selling off the public shares in Meridian and Mighty River Power. This would make Genesis like Kiwibank, and Genesis could compete with the wider public interest in mind, forcing the other companies to see themselves as utility companies rather than as cash cows for their shareholders, directors and senior staff.)

      Re the role of MSD Work and Income, if it has an inappropriate culture it can always be replaced by another agency. The point is that, in time, this agency would have far fewer clients than it does now. Further, many people who only stand to qualify for a small top-up may prefer to not bother becoming MSD clients; there is a trade-off between freedom and money. It is of course critically important that people with substantial special needs get the help (over and above a basic income) that they require.

      • Michael says:

        Couldn’t top-ups be administered by the relevant ministries and local government? For example, local councils could administer housing allowances, the Ministry of Health could administer disability and health-related top ups, etc.

        • Keith Rankin says:

          Maybe, if IRD took responsibility for the income abatements, much as IRD manages student loan repayments.

          But the needs of a person or household probably need to be assessed in a holistic way. Indeed, while I see BIFT as being a completely individual matter, special needs are a household matter (bearing in mind that many households comprise just 1 person). [Perhaps ‘family’ is a better word than ‘household’; I would treat a flat-full of students as separate households of 1 rather than as a single household.] Work and Income (or whoever) would need information, to assess needs, that the IRD should never have.

          What is important is that the total top-up is subjected to a single abatement rate.

          An example: Ms and Mr Smith qualify for a $10,000 top-up benefit, for some combination of circumstances which more than likely include childcare. If the abatement rate is 20% then that $10,000 benefit would be fully abated once the family income reached $50,000 (because $10,000 is 20% of $50,000).

          If Ms Smith earns $50,000 (gross) and Mr Smith earns $0, then the household disposable income would be $33,500 (privately-sourced) plus $18,000 (publicly-sourced basic income), a total of $51,500. If Ms Smith and Mr Smith each earn $25,000, then the household disposable income would still be $51,500. Thus the BIFT integrated tax-benefit system takes care of Peter Dunne’s ‘income-splitting for tax-purposes’ proposal.

          One more example. A family (with children) with one income of $100,000 and a stay-at-home parent would receive $67,000 + $18,000 = $85,000; somewhat more than they would get now. The basic income payable to the full-time caregiver redresses certain present anomalies relating to middle income families. It acknowledges the children through the basic income received by the caregiver.

  11. Wendy says:

    I’m so pleased to see the UBI suddenly making it this far. I fully support it, and understand why you deal with it at the most basic level in order to clarify how it totally makes sense, given the accelerating precariousness in employment.
    However, as a Superannuant, I totally freak out every time i see that $9000 figure, and picture myself having to beg from WINZ in my 70’s, 80’s. Also as a woman, I’m determined that unpaid labour not have its contribution to NZInc discounted.
    I’m trying to come to grips with economics, as this must not become a discussion that mostly only men feel equipped to take part in.

    • Keith Rankin says:

      Thanks Wendy for your question.

      While superannuitants are not strictly a beneficiaries, they are accounted for as if they are beneficiaries. My comments about beneficiaries apply equally to superannuitants.

      Almost everyone we today call a beneficiary receives annual benefit payments in excess of $9,000. Once we adopt the proposed basic income system of public accounting, the first $9,000 of their benefit would be called a Universal Basic Income. Their ‘benefit’ – in the conventional sense of that word – would now be the excess; anything they now receive over and above their basic income.

      So for the case of NZ Super, all superannuaitants would get exactly what they would today, with the first $9,000 called ‘UBI’ and the remainder called ‘superannuation’.

      Over time the ‘superannuation’ component might be subject to the same income abatement that top-up benefits would be subject to. I can see merit in raising the superannuation top-up while subjecting it to such abatement. The important thing is that the UBI component of retirement income would be completely universal and individual.

      Absolutely, this should not be a ‘male discussion’. I can reassure you that many participants in this discussion are female.

    • Keith Rankin says:

      Two further comments Wendy.

      Think of the $9,000 as a minimum for the UBI. This is the figure (strictly $9,080) that results from applying BIFT accounting to the present tax scale. While I believe that $9,000 understates the true value of our public equity, I also note that it is $9,000 more than zero! Acknowledging our public equity comes before we can negotiate the dollar amount.

      The only criteria for NZ Superannuation is being over 65 years old. By definition it is not something that anyone can or must beg for. The extent that people have to ‘beg’ for other benefits is linked to the policy stance of the government of the day, and the culture of WINZ or whoever. At least with a UBI fully in place, that $9,000+ applies to all adults and can never be taken away by a WINZ case manager.

      • Wendy says:

        Thanks for the response Keith. I have read quite a lot on UBI, including Gareth, Perce, you even, and others, and i think it was Gareth’s version that produced the possibility of superann. coming down. A friend and i started learning about UBI and spreading the idea about 18 months ago, as circumstances we are living in, make it so right for now.
        I can follow the workings from which you get the $9080, and agree it will go a long way to improving security and stability – there is such a long list of pluses.
        Thanks too for the reassurance re women 🙂

    • Korakys says:

      My own philosophy about a Basic Income is that it should be age-graduated. That is to say that as you pass certain age milestones the Basic Income you receive increases.

      Starting at birth it might be quite small at $1000 p/a and paid to the legal guardian. Increases could occur every few years until you are 25 when the standard full amount is reached, in this case $9,000. It would remain at this level for most of your life, but upon reaching 65 (or maybe 70) it would start to increase again. Every 10 years it could be increased as your capacity to work is decreasing and everyday health expenses are increasing. The maximum amount of $20,000 or more might be reached at age 90.

      This encourages the idea of reducing work hours as you get older rather than going from 40 one week to 0 the next. Obviously most employees already understand this concept, but it’s the employers that need the hint.

      • Keith Rankin says:

        These are interesting ideas, but probably do not count as UBI on ‘equity’ grounds, on ‘integration of income tax and basic benefits’ grounds, and on separation of ‘basic income from paid work’ grounds.

        On the equity side, it would be like Meridian paying higher dividends to older shareholders than to younger ones. This kind of ‘basic income’ is essentially a replacement for a number of benefits, but has no obvious linkage to the benefits that lie hidden withing the GIT structure. And it is tied to paid work, in the sense that less is paid to people who others think ‘ought to be in paid work’.

        • Korakys says:

          I often find it incredibly difficult to figure out what you’re saying and this time is no exception.

          I think you are saying that your BIFT scheme would only apply to people in paid employment and that other benefits would continue as normal?

          I know my system is unequal, but really who doesn’t discriminate based on age. 17 year olds can’t vote and superannuation has to start somewhere. A 5 year old, 40 year old and 90 year old all have different basic needs for money to pay for essentials, why not discriminate?

          Basic income is about increasing the fairness of the tax and benefit system.

          PS: The government/state is nothing like a corporation and can’t be treated as such. It’s not even like a non-profit, non-profits can’t change the law.

          • Keith Rankin says:

            What I have said is that people who already get benefits in excess of the BI amount would have the BI amount designated as a UBI, and the remainder would be classed as a transfer payment. People who receive benefits less than the BI amount would initially be shown to be short-changed, and thus would become top priority to have their situation remedied.

            It is not my BIFT scheme. This proposal to integrate the tax and the bulk of the benefit system has a history. I have simply applied it to the present NZ tax and benefit systems. It is easier to do this for NZ than for other countries with more complex tax scales.

            As I understand it, your proposal does not integrate the tax and benefit systems into a single tax-dividend system, so is not a UBI. It’s more like an extended version of Peter Dunne’s flexi-super, and would be paid in addition to the $9,080 that persons earning over $70,000 already receive as a basic income.

            Universal basic income is about creating a fully equitable tax-dividend system. That’s one integrated system. The confusion comes (I presume) because a dividend-based basic income system cannot cover all our very specific needs. Even with an integrated tax-dividend system in place, a residual benefit system still needs to exist.

            On your final point, the issue is about property rights. I would argue strongly that public property rights are as important as are private property rights to any form of capitalism that is remotely sustainable. Thus public equity – equity relating to all the public inputs into production – is at least as important as private equity. Incomes shares must reflect both forms of equity. Otherwise inequality and/or unsustainability gets worse and worse until the economic system snaps.