My political positions have been known to change like the wind over the years – alas, in the face of new information, I’ll U-turn like a drunk driver.
In fact there are only three positions that I can honestly say I have consistently held for as long as I’ve been aware of politics, without having ever wavered from them:
- The Police should be armed.
- Corporal punishment should be reintroduced to schools.
- The current tax and welfare system should be replaced with a Basic Income/Flat Tax (BIFT) system.
In recent weeks, one of these three positions has become the subject of public interest and debate, thanks to the effort of an ailing, flailing old political party in its death throes struggling to reinvent itself as relevant. (Sorry, fellow child-whackers – it’s the third one, Basic Income.)
The Universal Basic Income (UBI) debate is an issue which is very close to my heart: It is quite literally the reason I went to university (I wanted to research it to see if it was really viable) and is also one of the main reasons I got into politics.
So naturally, I felt a pang of near-physical pain when I saw just how much of a dog’s breakfast the Labour Party were making of this potentially revolutionary concept – and if this blog serves no other purpose, it would be to turn Labour’s dog’s breakfast into, perhaps, a serviceable breakfast for an extremely desperate human with no ability to taste anything.
What is a Basic Income?
There is a lot of misconception flying around at the moment about what exactly a Basic Income is.
It is known by many names – “Citizen’s Wage” was an ominous sounding one which Labour came out with this week, “Social Dividend”, “Universal Demogrant”, “Negative Taxation” and as one person I know understood it, “Free money, bro!”
At its most basic level, that’s what it is: It’s a certain amount of money transferred by the government to every citizen in the country. Rich, poor, man, woman, working or unemployed – you get this payment.
It’s not a new concept by any means – probably the best example is Alaska’s Permanent Fund, although this is only partially a basic income.
That sounds… kinda communist
One of the first objections I heard when Labour announced discussion over a proposed “citizen’s wage” was, before hearing what it is, “That sounds like communism to me!”
I have some good news for people of that persuasion: It’s far from communism.
While a “citizen’s wage” under a communist system presumably refers to the philosophy of “From each according to his ability to each according to his need” – and the fear being that a citizen’s wage would refer to everyone being paid the same regardless of the work they do, that’s absolutely not what a Basic Income is.
On the contrary, a Basic Income is designed to maximise individual freedom under the assumption that they will be partaking in a free market economy. (I’ll try not to cause any sore heads by going into Equitarian Capitalism versus Neoliberal Capitalism, but in terms of the means of production, Basic Income proponents are squarely on the side of capitalism, not socialism.)
In fact one of the most vocal proponents of Basic Income (which he referred to as “Negative Taxation”) was Milton Friedman – the economist whose views underpinned much of Thatcherism and Rogernomics. Even the arch-libertarian Friedrich Hayek made a few comments in support of the concept!
Okay, great, but… we can’t afford it, can we?
At the moment most of the debate around the issue centres around affordability – most people think it’s either too good to be true, or too expensive to be good.
Labour have quoted $11,000 per year (or $211 per week), which let me make clear is an outrageous sum of money, real pie-in-the-sky stuff here. A former Greens MP also suggested a $14,000 per year basic income, which at best confirms that Labour and the Greens have missed the point, and at worst confirms what I’ve been saying for years, which is that the Greens are absolutely stark-raving mad.
However, in spite of the scary numbers being thrown around by the left-wing parties, I would like to take this opportunity to blow your mind a little bit: We can afford it.
Not only can we afford it, but if we were to implement it today, it would be fiscally neutral. There would be no borrowing involved and no massive tax…. oh. Well, actually…
There is a catch.
Sorry, but there’s always a bloody catch – this one is not as bad as you might suspect though. In fact if you’re a right-winger it might even be a dream come true.
The catch is that a basic income system only works if you have a flat tax – but it’s not a low flat tax, like the ACT Party might advocate.
For this to work, we’re all going to be migrating to the top tax bracket of 33%. (Some of the early research suggested a 48% flat tax, so consider yourself lucky that Arthur Laffer’s infamous curve turned out to have some truth to it!)
However, 33% is much lower than the 55-60% number I’ve seen suggested by some critics, while the redistributive aspect of the system will mean that most individuals will still be better off in spite of the apparent tax hike.
Unfortunately, I’m not confident Labour understands this – after all, do you remember what happened to the last guy who tried to suggest a flat tax in a Labour government? (Incidentally, Roger Douglas’ 1987 mini-budget was supposed to include a guaranteed minimum income along with a flat tax – a system which is similar to basic income, but flawed for the same reason as targeted welfare.)
Where Labour have gone wrong
… concerning Basic Income. I could be here all day explaining all the other areas where Labour have gone wrong.
I’ve alluded to two of the things that Labour have got wrong above already: The first is that they don’t appear to understand that this system isn’t going to work under a progressive tax system – not only will it become too expensive, the benefits of the system will be lost.
If Labour try to implement their system under a progressive tax regime, you will find yourself in a ridiculous position where someone of John Key’s wealth is being flicked an extra $211 a week from the taxpayers – who, incidentally, will be leaving in droves due to the country being bankrupt.
The other thing they’ve got wrong of course is that a UBI is not supposed to be indexed to inflation, or to living costs – this is a dividend, not a benefit.
Instead it needs to be indexed to Gross National Income (GNI) – the better the economy is doing, the higher your Basic Income. The worse the economy is doing, the lower your UBI.
The $11,000 sum just isn’t going to fly – unless, to be fair, they intend to also implement Gareth Morgan’s proposed Comprehensive Capital Tax (CCT) – and considering that they campaigned on a capital gains tax the last two elections, this is a possibility.
I for one don’t support a CCT or CGT, but that’s simply because I’m of that old-fashioned school of thought where taxes and tax rises should be avoided where at all possible. My own calculations for a BIFT system at my ideal rate would even include cuts to GST and a small budget surplus.
But of course future debate would evolve once the system is implemented into a debate over the level of taxation and the level of Basic Income, and in that regard I err on the side of the more fiscally conservative no CGT, low GST side of the debate (with slightly less generous UBI).
Digression aside, I’m assuming Labour have considered neither a flat tax nor a CCT, in which case the likes of David Farrar are correct to assert that there is a $19 billion shortfall in funding, and you would need to either borrow or tax heavily to fund it.
It’s over 9000!
So what is the ideal rate for a UBI today? Well, based on our current GNI, budget and fiscal situation, I would recommend a UBI of approximately $9000, or $173 per week.
This is the magic number would be fiscally neutral, but still actually beneficial to people.
Not only that, but it’s low enough to stop Bill English fretting about it being a disincentive to work – you’re still going to need at the very least a part time job. (I’ll discuss this issue later if I get time.)
So why $9000 you ask? Well the short, and potentially mind-bending answer is… because that’s what we already pay people.
I know. It sounds crazy. But it’s the truth.
According to my own research we spend $6567.50 per person per year on social welfare (this figure includes National Superannuation, Working for Families Tax Credits and Paid Parental Leave. And that 50 cents at the end of the figure makes all the difference, I tell you!)
We also have a progressive tax system – which amounts to another, more indirect, kind of transfer of wealth (in fact before the 1930s, the ‘welfare’ system consisted almost entirely of lowering tax rates for the poor, as opposed to the direct cash transfers we have today.)
In fact, on the other end of the scale, our progressive tax system means that if you earn over $70,000 per year (i.e. are in the top marginal tax rate), your take-home earnings will be 67% of your income plus $9000 – this $9000 coming courtesy of the fact that you’re not taxed at the 33% rate until your 70,001st dollar.
This combination of welfare expenditure and progressive tax exemptions adds up to approximately $9000 per person, already being spent, today, here and now, while you read this.
Here’s the bad news: While if you’re earning above $70,000 per year, you’re getting your $9000 basic income in the form of a tax exemption, more than half of the people who earn less than $50,000 per year aren’t getting a bean – many of these being the people who need them beans the most.
Meanwhile there are others who are receiving considerably more than $9000 per year from the government.
Do we really need it?
The most important discussion to have around UBI is therefore not one of cost or plausibility but one of whether or not it’s necessary or desirable.
What’s wrong with our current system, what could a BIFT system do better and – most importantly of all – what are the pitfalls of a BIFT system and how do we avoid them?
I lean towards saying, yes, we should adopt this system if not now then certainly within the next decade. My reasoning for that is because technology, automation and even globalisation are changing the nature of productivity and making full employment an unattainable and unrealistic goal.
Increased productivity should benefit all of mankind – yet what’s the point of having machines which produce large quantities of, let’s say, food when the only people able to buy that food are the people who own those machines?
Labour is becoming irrelevant (pun not intended, although now that you mention it both meanings are true…), and yet our current welfare system and economic system assumes not only that full employment can be attained, but that full employment already exists – that there are jobs out there for everyone. This is demonstrably false, demoniacally false and monstrously false.
It’s easy to point the finger at John Key and blame him for the part-time economy (although it’s right and proper that he be blamed for the dishonest statistics about employment levels), the thing is the part-time economy would have happened whoever had been Prime Minister or in government. It’s probably here to stay, so we’re going to have to adapt to it.
Another argument is that targeted welfare systems (what we have currently) create a poverty trap by disincentivising people from finding work through 100% effective marginal tax rates (i.e. if you’re on a benefit and get a part time job, at a certain point 100% of your income from that job disappears in the form of a benefit deduction).
This is why I balk a little when Bill English talks about the UBI being a disincentive to enter employment – he himself advocates a system which is far more of a disincentive than the UBI is. And actually, based on experiments carried out in Canada in the 1970s, it was proven that a UBI was not a disincentive to work at all.
Some more of Labour’s cock-ups, now that I think about it
Don’t get me wrong – if it’s a choice between full employment and a BIFT system in a part-time economy, I’ll take full employment hands down. Not just for economic reasons – employment has psychological benefits too.
All hope is not lost when it comes to full employment – there are investments that can be made, projects that can be begun, retraining and educating that can be done – and if I may be a little controversial, immigration laws that can be tightened due to an already oversaturated labour market.
And therein lies another dimension of the debate which Labour haven’t addressed: productivity. You need a dollar to make a dollar.
Labour and the Greens have lost the last three elections because they have failed to talk about, or understand the importance of, creating a productive economy. National on the other hand have won just by talking about it (even though their record on per capita economic growth is actually dismal.)
If you want a more generous basic income, like any public service, you’ll need a productive economy – not a consumptive economy, or smoke-and-mirrors economic growth based on high migration.
You should never, ever borrow money to fund core services (and under this system the UBI becomes a core service) – whatever you take in as tax should be enough to fund your public services, and if it isn’t enough, then you’re taxing below the optimum level. It scares me that Labour could borrow money to attempt to implement a larger-than-affordable UBI.
Borrowing should be reserved only for projects such as infrastructure or energy, which will generate a return on the money borrowed which can be paid back. Sir Keith Holyoake was the first to understand this, and Sir Robert Muldoon sadly was the last to practice it.
And if I may suggest something really radical, there are ways of creating government revenue other than taxes – imagine if we nationalised something like a large profitable company which exports a third of the world’s supplies of a particular product and used those profits to fund better public services? Obviously I can’t think of any such entity or industry at the present time so I’ll just have to Moove on…
Ironing out the kinks
While a BIFT system has the potential to solve a lot of problems, reduce bureaucracy by incredible amounts and create a society that is simultaneously more equitable and more free – there are flaws, and drawbacks, and problems that even I can’t solve.
On top of the basic income, you would still need additional funding to help the disabled, or infirm, or elderly. The system also appears to be harsh to unemployed solo mothers, particularly with newborn babies.
It’s been suggested that an additional pension exist to aid such people – with some sort of compulsory savings scheme probably the best way to solve the retirement dilemma.
Temporary unemployment insurance (possibly private) might be a good way to aid those who find themselves unable to work even part time for a period longer than their existing savings can supplement their UBI.
I would also have difficulty to in all good conscience suddenly end national superannuation and expect our elderly to somehow support themselves on a reduced UBI, without an additional pension – and for their benefit it may be that this system might need to be phased in over time.
But for all Labour’s screw-ups, I take my hat off to them for attempting to start a serious nationwide discussion on the UBI. It’s a very serious issue with very serious implications for life in the 21st century – and it’s a hell of lot more important than debating which coloured cloth we want to stick on a pole.
Alex Eastwood-Williams is a failed artist turned to politics (…because when in history has that ever turned out badly?)
A disillusioned former National Party Party member, he is currently affiliated with NZ First. His views are his alone and do not represent the views of either party.
No time for fools who beat up on children and advocate others do so too.
+1
and for those who want to make the world more dangerous by filling it with more guns.
+ 1 more on both issues.
Hey how about a more inclusive society with parent education built in.
The gun in hand brutalism and systematic whacking of kids go together along with many other narrow views. Lack of nurture does leave an indelible mark.
It’s pretty clear that Labour started talking about the idea only to generate some interest amongst their ex-voters. Then they went ahead and supported more attacks on the poor with the next lot of welfare reforms introduced by The Natzi Party. So as great an idea the UBI is, it will never happen here. We need a New Labour Party! Then the current Labour tossers can cuddle up to donKEY all they want.
The Canadian trial which proved it works
http://public.econ.duke.edu/~erw/197/forget-cea%20%282%29.pdf
Have you ever even seen a Laffer curve, I will link one now: http://i.investopedia.com/inv/dictionary/terms/laffercurve.gif
Any child could tell you that by looking at the curve that the optimum tax rate is clearly 50%.
Korakys:
Any child might say that having seen the idealised chart in Wikipedia, but:
1/ The actual curve for each society and nation is likely different and not symmetrical as shown.
2/ Your false assumption is that the objective is to maximise government revenue. This is the point where taxation has so stifled the economy that tax revenue is about to fall off. A better plan would be to operate well to the left of the maximum, thereby growing the economy whilst retaining people and skills.
(Don’t worry, you have plenty of company – most on the Left don’t understand the Laffer Curve)
Anyone who takes the Laffer curve at face value doesn’t understand the Laffer curve. It’s much better viewed as a continuum between complete libertarianism (0% tax rate) and full communism (100% tax rate).
A face value Laffer curve argument seems to assume that the government doesn’t spend any of the money it gets from taxation.
Libertarianism has never advocated a zero tax rate, they have always accepted there is a need for a small compulsory tax to fund the country’s international defence, law and order and anti corruption systems
Well Andrew, lack of understanding may depend how relevant the topic is.
Economy is not belief system in spite of many taking in parroted beliefs associated with the word. Employment is not a product of Economy but of organisation of effort to meet needs of living both now and long term. Long term means all other parts of the biosphere and Non Renewable Resources, social cohesion and governance are included in a stable state sustainability.
Growth of the Economy is a false God.
Those restricted by capitalist dogma show inflexibility in understanding the wider issues. Rampant market forces and narrow capitalist fundamentals are costing us big time and limiting future prospects. Wake up to a finite world if you can stand the shock.
We are hampered by BAU because of narrow thinkers clinging to a now archaic system of massive profit for a few and hangers on hoping they will be included.
We will all be included in the consequences.
One can’t deduce that from the curve for which you have provided a link. The maximum point may be at 5% of income while the finishing point may lie at 10%.
A Laffer curve always starts at 0% and ends at 100%, it is defining feature without which it couldn’t be a Laffer curve and thus doesn’t need to be labelled.
Thanks for a very interesting and thought provoking article: I think I more or less get the idea of UBI now.
Just to underline a couple of points for you to confirm:
1/ UBI replaces all the rag-tag benefit schemes currently in force?
2/ UBI replaces the state pension? So you’re saying pensioners will lose out?
“I would also have difficulty to in all good conscience suddenly end national superannuation and expect our elderly to somehow support themselves on a reduced UBI, without an additional pension – and for their benefit it may be that this system might need to be phased in over time.”
In reply to: ‘UBI replaces the state pension? So you’re saying pensioners will lose out?’
Tried to read all your bullshit but after a few inches of print I had so many objections that I gave up.
A universal income in any other situation than simply giving some more discretionary dosh to those who have none, is just a a stalking horse for enthusiasts for a flat tax. A flat tax is a technique for building into the system a natural barrier to protect the uber-rich.
The concept is underpinned by exactly the same irrational quasi-religious fervour about the invisible hand of the market that moved Milton Friedman, Ruth Richardson and all the rest of the bumper sticker economists, while allowing prices to rise to the level that makes the goods you claim to wish to distribute as far out of reach as they ever were. It is the same problem that makes the dreamed of paradise at the end of Kiwisaver so unrealistic.
The only way to improve the lives of those who suffer from lack of access to opportunity, is simply to make the necessary parts of opportunity available with little or no gateway charging.
Education, healthcare, electrical power, factual information, affordable shelter. When these necessary “options” are available to all, paid for by sensibly progressive, intelligently broad-based taxation, the discretionary income you aspire to disperse will naturally accrue.
By their company ye shall know them. Beatings in schools, shoot-em-up Law & Order in our streets and… you, man.
It is no surprise that the kinds of people around you start knee-jerk accusations of Communism, even if only you are smart enough to know it is nothing of the sort.
It is also no surprise to read the cascade of sneering references to the Labour Party too ignorant to be allowed to handle your precious.
.”A universal income in any other situation than simply giving some more discretionary dosh to those who have none, is just a a stalking horse for enthusiasts for a flat tax. A flat tax is a technique for building into the system a natural barrier to protect the uber-rich.”
It should be pointed out that a flat tax coupled with a UBI provides us with the equivalent of a progressive tax, but one with a negative tax rate at the bottom end.
No it doesn’t, Mikesh. It gives a negative rate at the bottom paid by those in the middle and leaves the wealthy slightly better off. (By how much depends on the flat tax level, and the UBI level).
All I said was that it gave us the equivalent of a progressive tax. I did not say that those at the top would be better off, or worse off. That would depend on the amount of the UBI and percentage chosen for the flat tax.
The UBI was promoted by Milton Friedman along with a flat tax.
No doubt armed police and corporal punishment are part of that right wing flush.
The UBI is a rightwing move that cannot become left wing unless it creates a living income for all guaranteed to maintain its buying power.
This is an impossibility in the conditions of advanced, rotten, capitalist imperialism in the process of destroying humanity and along with it many other species.
It’s what we real communists call a “reactionary utopia”.
In the time we have left the working majority will have to move to expropriate private property and wealth and put it to use in whatever emergency actions are necessary to stop the rush to human extinction.
I see no mention whatsoever of a Financial transaction tax.
This tax would bring in massive amounts of money on transactions that attract no tax whatsoever at the present time.
For example all these big corporations that currently doctor their books and send most of their money overseas due to doctored costs, ridiculous franchise fees etc would have to pay towards our social costs which they pay minimal money now.
So there is an option that only the Greens are game to put on the plate while everyone else lets the corporates off the hook to salt their money away in trust funds and doctored costs.
hi geoff, well said, all that time at university and no mention of a ftt, tobin or hone tax.
maybe because universities are for the status quo.
i understand we could be rid of gst and paye with a ftt.
Shooting, hitting kids and knows whats best for those living in poverty while you pull in $-six figures plus entitlements derived from taxes gleaned from the lowest paid who, as we’re all beginning to become aware, pay the most taxes huh? You must be the life of any party. Personally, you bore me but I’ll go on because I’m more fun to me than you are to me.
I was never hit at home but was so at primary school. My first strapping, three whacks on each hand with a heavy leather strap, was when I was six for taking a liking to another kids pen.
The only lesson I learned from that particular experience was that I’d be best to keep my head down and my mouth shut. A timely learning experience. I was once belted across the back several times with a long black board pointer and when I showed my mum the bruises she nearly had a fit. The reason for that particular learning experience was don’t get shoved from behind by another kid and knock over a Christmas concert stage prop.
Whackers and hitters, fiddlers and bullies. All cut from the same cloth. If I had a kid who’d been hit by a teacher I’d show him/her world war fucking three mate.
Now, you go off and enjoy your armed cop fetish and spend my money while you think of whacking kids.
No one has mentioned it but your “imagine if we nationalised something like a large profitable company which exports a third of the world’s supplies of a particular product and used those profits to fund better public services? Obviously I can’t think of any such entity or industry at the present time so I’ll just have to Moove on…” is so wrong that it makes me question all your other information. NZ milk production is dominant in the export market but as a percent of total world production it is very small which is why the price has collapsed due to increased world wide production & Russian sanctions.
You must have missed the disaster Muldoon caused to NZ if you think he understood only to borrow money for productive assets.
Arming the police is a dumb idea, I can understand the desire for corporal punishment in schools by some people however I see it as admitting we are not smart enough to remedy behavioral problems by other means. In regards to parents with children that is more of a grey area as within a loving family some punishment could be appropriate. The basic income idea is worth considering though.
I like the idea you offered that this is a dividend, and the better the economy does, the better the dividend to everyone.
Now what I’d like to see (shades of Marilyn Waring) is a clincher answer on how we get the unpaid work recognised – for all those lovely people who moan on about the deserving and the undeserving.
And length of ‘national service’ before you can draw that dividend – so new New Zealanders can enjoy the results of their contributions.
Plus what has to happen to the vicious and floundering MSD and its satellites.
This system will need to be administered by the sort of people who can run a successful co-op for many decades. (Think Mondragon in Basque Spain as a possible model – if it doesn’t stay ahead of market need and supply useful forward-directed education and training then it cannot serve its constituents.)
We already have totally inept and inadequate vision for lifting the people as a whole, and the dead hand of ‘the market’ can’t supply. It was never meant to.
Make sure that it is structured so EVERYONE is willingly in to raise the range, depth, scope and present-future ways we serve this nation, and the world, without ripping off the environment. Especially include the people who currently figure on the debit side of the ledger. (Oldies, stay at homes, non-mainstream, ‘unemployable’.)
Can do?
That was a truly terrible, rambling, incoherent article. We are all just a little bit dumber for having read it.
Universal Basic Income is an idea who’s time has truly come. It deserves better treatment than this.
This is the worst UBI article I’ve ever seen, and I’ve read plenty.
“The catch is that a basic income system only works if you have a flat tax – but it’s not a low flat tax, like the ACT Party might advocate.”
That’s nonsense. There are many ways to create and impliment a UBI – it doesn’t ‘only work’ if it also includes far right tax policies. If you want to argue for a far right UBI that will leave many in poverty, then go for it. But don’t try to argue it’s the only way – very Thatcher-ish.
I prefer my UBI to also include additional benefits for some people. My UBI eliminates poverty instead of sustaining it. It would be done alongside a massive redistribution of resources away from the rich. And also a restructuring of the economy so that our trickle up (torrent up?) system no longer exists.
I’m not surprised the author of this piece is involved with NZ First. More cops with guns and more smacking kids. Jeeze.
It may be possible to couple a progressive tax with a UBI but there is no point, because one can obtain whatever degree of progressiveness one wants by combining a UBI with a flat tax, and choosing a suitable rate for the flat tax and a suitable amount of UBI. A flat tax has many benefits by dint of the fact that it simplifies the tax system, but it needs to be applied in conjunction with a UBI to provide the equivalent of a progressive tax.
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