By Geoff Simmons*
Recently both academic economist Susan St John and researcher Max Rashbrooke have offered reasonable critiques of the Universal Basic Income (UBI). However, they glossed over the big problem of targeted welfare and all the issues they raised can be overcome.
First, a quick refresh on the benefits of a UBI. Everyone receives it, eliminating stigma, reducing bureaucracy and making sure nobody falls through the cracks. It honours unpaid work, for example parents and carers. It is also future proofed for an increasingly dynamic “gig” economy. With the impending problems of automation and artificial intelligence, people will need to move in and out of work, retrain, and start businesses. Our existing welfare system won’t be able to cope, which is why I believe that a UBI is inevitable.
The key critique St John and Rashbrooke offer is that a UBI will either be unaffordable or insufficient to live on. The critique is fair, but ignores the bigger picture. Any welfare system faces tradeoffs between sufficient income, affordability, and incentives to work. There is no perfect system. By focusing on sufficiency and affordability, St John and Rashbrooke are brushing aside incentives to work.
Incentives to work are probably the biggest problem with our current welfare system - including benefits and Working for Families (WFF). As people increase earnings, their payments abate (get reduced). This acts like a tax, providing a dis-incentive to work. Some people call this a poverty trap.
Abatements may not attract the same political heat as a tax rate, but they hit people’s pocket all the same. Including abatements, people on benefits or WFF face the highest effective tax rates in the country - usually at least 60% and sometimes over 100%. Ask any employer how hard it is to get people on benefits or WFF to pick up more hours when it is busy.
A UBI is clearly better for incentives to work, as everyone gets it, and keeps it if they earn income. There is no abatement, no poverty trap. With that advantage in mind let’s move on to the critique of affordability and sufficiency of the UBI.
Affordability isn’t a consideration for an emergency UBI. We are funding the entire country off debt at the moment, so surely it would be fair to offer assistance to everyone. Casual workers and students have missed out from the Government’s stimulus packages so far, and that isn’t fair. Australia offered a universal stimulus of $1000 during the Global Financial Crisis, and Hong Kong has done something similar recently.
Longer term, the viability of a UBI comes down to your definition of “sufficient”.
A UBI at the same level as the current Jobseeker Allowance - $250 per week - is affordable. A modest Child UBI is also possible. The Opportunities Party (TOP) will release a plan in coming weeks to show how those can be paid for. This will require some wealthy people to pay more tax, but with no abatement, the effective tax rates people pay will be much lower than with our current targeted benefit system. The tax and benefit system as a whole will be simpler, and the overall incentive to work will improve.
Is $250 per week sufficient? Society deems it is sufficient for Jobseekers at the moment. And if you think benefit rates should be higher, under the current system that will make the poverty trap worse.
Most people wouldn’t want to live off $250 a week. With a UBI they are welcome to seek work and they are not penalised for it. The real winners from a UBI are the working class. For example those on the minimum wage would be instantly boosted above the living wage.
Anyone that is content to live on $250 a week - I have no problem with that.
There may be a few cases where we want to offer more support to people that can’t work. We pay sole parents more than $250 per week at the moment. A child UBI would supplement this, but some might continue to require a top-up. Some sole parents may choose to just rely on the UBI and reduce their costs by cohabitating.
This means that a UBI won’t completely eliminate all welfare bureaucracy, but it will remove the need for most of it. The remaining welfare system would be for those that truly cannot work.
No welfare system is perfect. Being able to effectively target welfare is a nice story, but that is all it is. The current system is so complex to navigate that many people don’t get the support they need (and are entitled to). That is why so many beneficiaries turn to welfare advocacy groups to help them.
Some of the worst problems with the benefit system can be fixed with relatively simple, though expensive, reforms. Benefits can be individualised, so people aren’t punished for cohabitating or being in a couple. Abatement rates can be reduced. All these are steps towards a UBI that Rashbrooke and St John suggest, and should be welcomed. But why not go the whole way if we can?
A UBI isn’t a panacea. But it does provide a basic platform of dignity upon which people can stand and reach for their goals. Fundamentally I believe in the resourcefulness of people to forge their own path more than I trust in the ability of politicians and bureaucrats to decide who deserves support and who doesn’t.
Note: Susan St John is my former lecturer and I completely respect her views. In fact, she was the one that taught me about the poverty trap!
*Geoff Simmons is leader of The Opportunities Party.
69 Comments
It will be your pension, or unemployment grant or student loan accommodation allowance etc etc etc
So to avoid alienating those who have structured their lives on receiving it, make the UBI the same as the single person pension rate of today (about $325 per week, I think) instead of $250.
And ALL other welfare support mechanisms should be axed - all of them.
To have a policy that says 'We have a UBI, but we can tinker with than at the margins' completely defeats the objective of the policy.
UBI is paid for by a combination of the savings from axing the welfare agencies and their current workforce ( now there's a task and a half!) and adjusting the PAYE tax rates so that those that don't need it, pay it back via their taxes ( that should be Capital Taxes, not Productivity Taxes - but that's another topic!)
Super Annuation income of $325/week is only a sufficient income to live a dignified life if the recipient is mortgage free.
My biggest concern about a UBI is it would result in higher rents with no net improvement for low income workers as the payment over the medium to long term is capitalised into higher property and land values (that's what has happened to other benefits like the accomadation supplement).
So for me I could support a universal basic income if there was universal access to affordable housing.
If this condition is not met then to my mind a UBI is an expensive distraction.
The $585 per employee subsidy is effectively UBI now.
For it to be affordable, the government of the day will have to bring it closer to the current pension of $325 per retiree. In fact, $325 per week might be a great starting point; effectively no tax for the first $16,900 earned.
I take your point landlords (including the banks that fund them) may see this as an opportunity it increase rents and lending. If the government were smart enough, and rather than working for the banks (like alot of ex national politicians), they could regulate rents at the same time to be not more than say 40% of the occupants net income. That would put a stop to the housing ponzi scheme, including the outrageous profit banks make. $5 billion profit per annum to that industry, when the dairy contributes far more yet only makes $500 million profit in a good year.
Past governments have ignored the social consequences of high house prices; largely driven by their own personal gain, and now the whole country (except these banksters and their overseas shareholders) are paying the price. Its high time politicians paid the price of their crony capitalist actions, rather than being promoted by their elk to the royal table of greed
The whole simplicity and abatement argument of the UBI falls apart if the Accomadation Supplement remains the main form of housing assistance for low income earners.
Yet $325/week or even worse $250/week is less than the rent for a 2-bedroom flat in most urban centres, so a UBI doesn't seem viable without income supplements for those in need.
A solo parent might be in that situation. But even if there is two recipients of UBIs the numbers do not work out. The median rent for a two bedroom flat in Auckland or Wellington is nearly $500/week (the data is in Interest.co.nz charts section). So even with access to two UBIs it would be impossible to afford the rent in these cities if you lost your job, had an illness, needed to escape an abusive relationship, reached retirement....
There would continue to be a need for a social welfare system to help in these situations.
Why should someone on a MINIMUM income expect to live in MEDIAN accommodation? Surely the aim is to ensue that nobody needs to starve, or needs to be homeless. Why would you not set UBI at SURVIVAL level, therefore incentivising people to work in order to improve their circumstances?
I agree that the answer is a massive expansion of social housing that guarantees universal access to affordable housing is a better answer than the accomadation supplement which costs $1.5bn/year or a UBI (massively costly).
A stimulus package involving the mass building of housing affordable to low income earners would make much more sense than a UBI.
The house building is a strong short term stimulus and once the houses are built the low rent means that more income is available to spent on the real economy (and less on the rentier economy) which gives a long term benefit.
And low income workers deserve it. A lot of workers are on the minimum wage but as we have found out in lockdown many of them are essential workers.
Agreed...Increased housing supply will bring down the cost of rentals; as it did in Christchurch which was overbuilt after the earthquake.
Nothing wrong with implementing a UBI however, as it is the perfect time. At the same time, the government could remove all the living subsidies from the system and regulate the rentals to be no greater than 40% of the net income of the tenant.
So 4 adults (2 couples) living in a median 2-bedroom rental unit in Auckland and Wellington share of the rent would be about $120/week each (total rent is about $480/week). So almost 50% of the $250/week UBI. That isn't doable. What about those not in a couple relationship? What about space for children? What about the recommendation in all the housing literature that rent should be less than 30% of income?
If all social support payments are going to be replaced by one universal basic income payment then the UBI needs to be able to cover every possible financial support eventuality. Which means it will need to be set much, much higher than $250/week or even $325/week.
Note -renting superannuitants are a large recipient group receiving the accomadation supplement.
Have you not forgotten most workers earn more than $325 per week.
If one cant find a room to rent for $175 per week , then you're not looking hard enough.
I accept solo parents may have some challenges, however the welfare system could always take part of the $325 per week from the other ex partner, if they didnt want to pay.
The merits around the UBI is it is so simple to administer and doesnt discriminate. A forward looking government would do it.
Yes, it is a good policy response, given these unemployment it is creating and the destruction of our largest export earner - tourism.
You realise people lov6ing together in one house form a bubble, right, and what are mainly concerned with is unchecked and uncontrolled transmission between bubbles?
I don't think TOP's planned UBI is intended to replace the pension: for obvious political reasons the UBI would be supplanted by the existing NZ Superannuation at 65.
But as others point out, a UBI of $250 a week is too low to do away with the MSD police state. If, however, the UBI is set for everyone over the age of 18 at an untaxed $423 a week, the current NZ Superannuation rate for a single person living alone, and child benefit rates for those under 18 are set at the current benefit rates for orphans, then almost the entire machinery of the socalled Ministry of Social Development could wither away: NZ Super would then be a vestige only for those living or travelling overseas, and the various unemployment, invalid, and sickness benefits, and Working for Families, would all vanish.
Such largess would require a flat tax rate of 50 per cent, on wealth as well as income. Everyone earning more than $76,000 a year would be worse off (except, perhaps, those with large families), but everyone earning less than $76,000 would be in clover.
So the cost would be approx $400 x 5 million x 52 weeks, just over 100 billion a year. This is more than the govt entire tax revenue and you still need to pay for health, roads, police, military and a hundred other things. There is no way this is affordable in any way shape or form. Even at $250 pw you’re still looking at over 2/3 of revenue and you woul need to top up pensioners and beneficiaries as you do now.
Think your calculations need some assistance. There's probably closer to 4 million that would get UBI, and on the basis it was $400 each would put the cost at around $80 billion. There's probably 30% of those people not getting $400 now; made up of 20% retirees, 5% benefiaries and 5% part time workers. This would mean an extra $15 billion of spend circulating and with the multiplier effect would likely generate additional GST of $5 billion.
I concede government may have to raise existing taxes, however this should be balanced against the costs they would save and efficiency gains with reduced bureaucracy. This would create additional workforce, that would generate more income and taxes doing other more productive things; than paper shuffling. Who knows, $400 UBI could actually be cost neutral. It would certainly improve alot of peoples standard of living; rather then the trickle down theory which is just an illusion cooked up by the elite and those working for them.
Good points, although I would imagine children would need to receive some level of UBI from day 1 otherwise parental topups would be required and the whole MSD / IRD machinery gears up again. I assume you mean 30% are currently receiving UBI in the form of pensions or welfare, meaning it would be 70% of the $100b required. So factoring this in and some level of consumption multiplier effect (which is by no means guaranteed), you are still looking at $50b per annum extra taxes to be claimed from somewhere, or borrowed. It will be interesting to see if this gets rolled out elsewhere but I suspect it will be at great expense to PAYE taxpayers, as you wouldn’t tax UBI like you currently tax national super.
The back of my envelope is much too small for this. I reckon if you allow $22,000 a year for each adult and half that for under-18s the cost would be about $90 billion. I think the total state spend now is about $90 billion, of which $30 billion is welfare. So you're looking at a $60 billion shortfall. Increase all personal income taxes to a flat 50 per cent and revenue might rise by $50 billion, reducing the shortfall to $10 billion. Then start taxing all land and adding that to rates bills, and Christmas Time!
But does it matter? Can't a sovereign state exist in perpetual deficit? What is important is to maintain a rate of taxation that moderates the money supply and prevents runaway inflation or deflation.
Taxation doesn't fund the government though, that is not its purpose. Taxation deletes the money that the government creates through its spending. Only two things can happen with the money that the government creates, it will be taxed back again and deleted or it will be saved and become bank reserves. Study MMT.
No one will say no to a free $250 a week (although I think the true worry about all our jobs getting replaced by robots is a loss of a reason to exist). The key part is how much it all costs and what new taxes look like. Would have appreciated more info in the article in this regard as it is one of the key points you were trying to rebuff, although I am sure it is on your website somewhere...
Some points- first the UBI is a fundamental piece of Friedman's 'free market' model, which has essentially proven to be flawed if not unworkable. Government regulation to reign in human greed, manipulation and excesses is required.
In the meantime though a UBI may be a temporary solution that may work to a degree, but for those who fall into the trap of 'comfort' at $250 a week - the evidence of a building equity gap and peoples reaction to it is full prisons. So this "increasingly dynamic 'gig' economy" should not be a desirable outcome for anyone as it is a way for capitalists to employ at or below minimum wages without the cost of holidays, allowances for going sick and so on. People who are forced to work 'gigs' are generally deprived of employment and lifestyle options that fully employed have.
And finally how will it be paid for? Higher PAYE, GST? The wage earner voters won't take that for long.
It's nothing to do with hate.
Capitalism just ignores the limits of a finite planet.
As such, it was always doomed to hit the wall, just a matter of working out when. Actually, all growth-attempts (what you would call communism but I would call authoritarianism without voter recall) are doomed to hit the same wall.
And for the record, what you just did was to shoot the message in your own mind, by shooting the messenger. Common but flawed approach.
No I am a centrist. Socialism and Capitalism are both failed ideologies. But they need to be merged and balanced into the centre,. People ought to be able to be wealthy, but not at others expense, and everyone should have opportunity. People should not be made or asked to work for a wage that is less than what can be lived on. People should not expect sit on their date and expect society to pay them a wage. Fundamentals like housing and healthcare should be affordable for all, not just the wealthy. And above all we need to be able to recognise the constraints in our environment. When resources get short, people get worse and competition starts to breakdown society, so a balanced economic and world view that includes our environment can be the only path to a successful and beneficial society for all, instead of some theoretical model which fails to identify constraints and human psychology.
Murray you never answer my question. Your solution is: " Government regulation to reign in human greed, manipulation and excesses is required". It seems you believe that government is a group of Angles gathered together for the good of humanity. Friedman be damned. free market be damned. How are you going to ensure that government regulation is any better? subsidizing things results in them being wasted. limiting their consumption results in favoritism (those in power will decide who will get it and how many of it) and political corruption. Big corporation of today will be replaced by big syndicates who influence the regulation. Hitler was a politician, Mao was a politician, Stalin was a politician. They all regulated everything. And just look at the soviets, Chernobyl, the desiccation of the Aral Sea, Mao's induced famine, these are just few examples of "regulation". You will need proper balances. Good regulation does not just pop out out of nothing. It requires engaged communities, knowledgeable and honest (by and large) individuals, representatives that are selected for their competence and merit, deep understanding of what is being regulated etc. Just like the "Free Market" "MODEL" that assumes so many impossibles, your regulated paradise is probably assuming too many impossibles.
Believer I agree that they are all politicians, and everyone guilty of no seeing their own faults and limitations. I happily admit I am an idealist, but I also know that we are appallingly bad at not recognising and understanding our failures of the past. To many, too often argue that "that is the system we have to work in" without standing up and saying that that is just not good enough. Human politics, competition for wealth power and privilege over others all gets in the way. We all know in our careers that if you're not singing the company/organisational anthem then you'll get squashed by the political machine. People who scrap their way to the top, appoint sycophants to surround them. Those who would tell them what they need to know, in blunt uncompromising language, are instead viewed as a threat. In my life I have seen this in the military, Health and other Government Departments, and in the commercial world. I have watched as blame gets shovelled off on to people who are not in a position to be able to defend themselves, but who were trying to survive in over politicised systems, and do their job as their masters asked of them.
No I believe we should always be chasing an ideal, a Utopia if you will. not buying into any one ideology or model, but restraining peoples excesses, promoting their abilities and talents and perpetually seeking a fair and balanced society. This requires some hard decisions, for example limits on social welfare and on perhaps pricing, but as it builds everyone benefits. We need to teach discipline and generosity. (Don't mistake generosity for charity). It is a bigger philosophical debate, but it is about seeing us for who we are, restraining our flaws and building our strengths. This is a way to build a world which will be our gift to our children and grandchildren.
I'd like to add to my earlier response Believer. I said I was and am an idealists, but too often i hear people say that 'Utopia' is an impossible dream. That the ideal state is unachievable, and that is a rationalisation for why we shouldn't try. My view is that is a lazy cop out. When i was learning to fly and with over 600 hours on a PPL I am still learning, an airforce instructor told me once that it doesn't matter if it is not perfect, so long as you're trying to make it perfect. To accept less than perfect is to accept a perpetual fall in standards. I believe our Government should be always chasing the ideal solutions to everything. True, the changing dynamics of our world, and resource constraints may mean they aren't achieved, but by setting that as our goal we should not fall too far short.
Buffet’s ideas to end inequality
https://news.yahoo.com/warren-buffett-ideas-to-end-inequality-134650421…
Of course we already do the earned income tax credit - that's WFF, and as it gets abated with every pay rise, it has its problems. We are now so many years down the track with that policy, that it requires a really extensive policy review. I have my concerns that it has some elements of an employer wage subsidy, and might actually serve to interfere with low/middle market/wage mechanisms. Hence, the need for the coalition to make moves on raising the minimum wage. In other words, WFF has become compensation for a low wage economy, and it should not be that - better we just have higher wages for those unskilled but in high demand workers.
LOL
Warren Muppet preaching on inequality!
He clearly doesn't have the insight to realise his "wealth" is only courtesy of a system which has just created pixel wealth claims by continually amping up leverage over resources … He was born at the right time is all it boils down to.
The system is about to break Warren. That's what 0% interest is. Leverage doesn't do backwards when the resources are already burnt ...
Which makes you as poor as the next man
There you go - inequality solved.
I used to be in favour of a UBI but am sort of on the fence now. I would like to see a properly costed model, including reduction in costs of running MSD if we simply a) automate the eligibility & payment of it and b) restrict to NZ citizens only. I believe permanent residents should only get it on application and only for set term before re-applying, like a year. Citizenship needs to mean something I believe, which it kind of doesn't in NZ. Also, I'd like to see a costing based on phasing out the DPB over time as well - might seem harsh but I don't believe in giving incentives for people to breed.
Separate issue, but citizenship should be required for voting too. I don't hold with calling people Kiwis if they're temporary migrants or "permanent residents" who want to keep a foot in two camps by keeping their other citizenship and never committing to make NZ a better place. They just shove off when things get rough.
Finland had a watered down UBI, only unemployed and was axed after about 2 years. "While employment levels did not improve, participants said they felt happier and less stressed." Finland's equivalent of well-being.
https://www.bbc.com/news/world-europe-47169549.
Not time for UBI yet
Quite keen to see somebody try a full blown UBI,and stick with it for a year or two at least, which I think you'd need for people to fully adjust to the new reality.. just not so keen on it being us that tries it first :) It is an interesting idea, and I can see the logic behind it, and it seems to make sense, but as others point out $400/per person per week is a busload of money, its going to cause some interesting economic effects and the adjustments to taxation to collect enough to pay for that aren't going to go down well with some, because no matter what set of adjustments you make some are going to feel like victims, and others are going to be clear winners from the adjustments.
It is definitely the answer to much of the poverty so many New Zealand are now living in.
It is certainly affordable with the introduction of CGT on residential houses averaged on the gains over the rating periods. bviously people with more than one property would pay more which could also take some of the heat out of the housing market.
Well if government was thinking about this they better hurry up unemployment now higher than at the height of GFC. They forecast another 200k to join the line outside MSD door. I know things take time to implement, but the government is dragging it's feet on the fallout of this. The wage subsidy brought them some time, but clock is about to stop.
Renters face severe hardship
https://www.tvnz.co.nz/one-news/new-zealand/majority-renters-in-financi…
Yes, because no one could use the security provided by a guaranteed income of $500 per week per couple to start their own business, or change careers, or go back to school to get new skills, or cut down to 4 days a week at their job and volunteer for the community instead.
Or, if you'd read and understood the article, realised that the current welfare system, including WFF, with its big abatement rates disincentivises work.
I cannot wait for UBI, as long as it works from the top down.(Or is that TOP down)...never sure ...I do not make the rules...just have to abide by em.
Just imagine all our MPs, Public Servants and Mayors and Councillors and thieving Bankers living on it.....
Plus of course our untaxed property invested right issue Interest unheard of low rate participants.
Please can we have this implemented by close of Play ....and tax free speculation Period.....Period.
Free debt, is becoming a worry. Good for sum, but not for all....unless they bet on the House and Houses of Parliarment.
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