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By Bernard Hickey
It may be little too early to be fighting an election over it, or preparing a tax return for it, but the idea of a Guaranteed Minimum Income deserves a lot more thought and debate than the dismissal it got from the Prime Minister this week.
Mr Key described the idea suggested as one of many at Labour's Future of Work Commission as "barking mad" and "utterly unaffordable."
He also described Working For Families as "communism by stealth" in 2004, but has since pledged to keep it during his almost eight years as Prime Minister and it's been a long time since anyone suggested he might want to get rid of it. He is also a staunch defender, some would say too staunch, of several other limited versions of Guaranteed Minimum Income that New Zealand already has.
The biggest is the minimum income guaranteed to anyone over the age of 65. New Zealand Superannuation is actually the best advertisement for the idea in New Zealand. It's simple, it doesn't make anyone feel guilty or resentful and it keeps vulnerable people out of poverty. Some argue it is utterly unaffordable in the long run as the population ages, but Mr Key is not one of those.
Working For Families is the next nearest we have to a Guaranteed Minimum Income. It effectively guarantees a minimum income for families with children, albeit through a tax credit system that supplements earned income, rather than an untaxed benefit independent of income.
Then there are the benefits we pay to people who are chronically sick, disabled, unemployed or are single parents with young children. Many argue these benefits are not enough and the way they are indexed to CPI inflation rather than average wages is certainly not fair, particularly when New Zealand Superannuation is indexed to average wages. But it was Mr Key himself who last year increased these benefits faster than inflation to reduce poverty and improve the security of the most vulnerable.
The Government is also not shy of intervening to ensure a minimum pay level for work through the minimum wage system, which Mr Key has rightly trumpeted as one of the highest in the world relative to median wage. New Zealand is a laggard on many things in the OECD, but the new minimum wage of NZ$15.25/hour from April 1 is worth 66.8% of median wage. That would have put us at the top of the OECD hit parade in 2014, which is the most recent year for comparing such data.
So New Zealand has good form when it comes to trying to guarantee vulnerable people have a reasonable level of income, as does the Prime Minister. Many would argue that New Zealand's much better social safety net than, for example, the United States, is one of the reasons our economy coped much better through the Global Financial Crisis and why our levels of income inequality have not worsened nearly as much as some others in the developed world.
So why not take the final step and simply extend the entitlement of New Zealand Superannuation to everyone? Or at the least, extend Working For Families to all workers and ensure tax credits top everyone up to a reasonable level?
Mr Key is right that a true Guaranteed Minimum Income where the Government essentially paid everyone a version of New Zealand Superannuation could not be afforded with our current tax system. Gareth Morgan's 'Big Kahuna' proposal for a Universal Basic Income of NZ$11,000 per year per adult would cost NZ$18 billion, which he proposed would be paid for with major new tax on capital.
This is where the debate gets interesting, and where it starts to marry up with the very reason why so many other countries are seriously debating a Universal or Guaranteed Minimum Income. Finland and the Netherlands have launched trials and Switzerland will vote in a referendum on one later this year.
The appification and globalisation of the services economy is transforming the way we obtain and pay for all sorts of services from accommodation, taxis, accounting, telecommunications, media, education and healthcare. Middle class, white collar jobs that had seemed immune from the the job losses that hit blue collar, manufacturing jobs in the developed world over the last 30 years are now in the firing line. A new 'gig economy' is developing where work is insecure, subject to competition from much lower wage countries and unfettered by the usual rules about working hours, tea breaks, minimum wages or PAYE tax collection.
Many are rightly asking: who will buy all these goods and services if the apps and robots and algorithms do the work and fewer people are in secure and normal jobs that pay a salary with benefits such as holiday pay and a 40 hour work week? If a growing share of the wealth and income generated in a winner-takes-all economy is stuck in the bank account of a plutocrat who can't spend it all, how will the money go around to keep an economy going? If the bulk of incomes are generated by capital owned by a few rather than wages going to many, maybe capital or intellectual property taxes are a better way to support the machinery of Government and a civil society than just taxing consumption and wage incomes.
Henry Ford captured the idea best in 1914 when he doubled his wages to US$5 a day, partly so his workers could afford to buy his cars. He solved two problems by lifting wages -- he lowered his staff turnover and created buyers for his products.
New Zealand's issues with under/unemployment and extremely low and falling wages are less extreme than America or parts of Europe, but we are subject to exactly the same trends.
I am writing this from an apartment I hired through Airbnb and used Uber cars four times in the last three days. One of my Uber drivers in Auckland happily told me he drove from 4 am to 9 am every morning before going to his other job with an Internet startup that may or may not generate income. I use a host of other apps and devices every day to replace services that would have been vastly more expensive or unaffordable just a few years ago.
Some call this massive transformation a Fourth Industrial Revolution or a Second Machine Age. Whatever it is, New Zealand will not be immune from its stresses.
We would be better having a sensible debate over a decent amount of time than simply playing 'gotcha' politics with cheap slogans that ignore some fundamental changes in the way the global economy is changing the nature of work, wages and society.
There isn't an app for this debate that allows us to give a Guaranteed Minimum Income an easy star rating or thumbs up/thumbs down. We should do some proper work on it instead.
A version of this article was also published in the Herald on Sunday. It is here with permission.
29 Comments
With increasing robotic automation why do we need to flood the country with immigrants? We would be far better off using as much automation as we can instead of importing low skilled workers. Increased efficiency and productivity are a far better response than trying to compete on the basis of having the lowest wages. That is what the smart, successful countries are doing.
I'm not sure if mixing two solutions to two different problems into one solution will help its popularity - there are probably supporters of a universal income and supporters of taxing capitol, but the overlap might not be that big. Why not try one first - taxing capitol is probably the most obvious to start with - and see how it goes.
Rather than tax capital, tax the earnings that are un-taxed. So a CGT, and make sure all foreign corporations pay 30% tax on any income profit the get from NZ.
I am uneasy on the concept of a universal income ie money for no work, though I suppose you have to define "work".
A CGT will only be fair if it can be levied on REALISED gain. This can be through re-mortgaging against capital appreciation or profit on sale. The problem with CGT is that right wing economists seem to resent that someone who owns their own home is beholden to someone else for their accommodation. This is a wildly distorted view that has no basis in reality. The law already exists for people to pay tax on profits from property sales, it just needs to be enforced. Your second point - totally agree.
Agree. Or like Labour suggested pay say 15% and not 30%. I would assume that if we looked at say the rates that the CV will have been historically archived? So all you have to do is take the selling amount - that original amount, allow for inflation over that period and the NET left is the gain and tax that at 30%.
The thing is on not having a CGT is I think it drives speculation and encourages excessive growth awith debt as that is tax deductible?
I dont agree with "right" wing its the left pushing for a CGT, unless you are to the left of the greens which makes you rather hard core commie....
;]
In any event all profit should be taxed, if a depositor only getting 3% has to pay 30% tax then a foreign corporation seeing millions on selling should also pay 30% tax, simple.
Now should the family home be exempt? probably, rentals? no definitely not.
In terms of paying tax on property sales yeah I am sure that is correct, but how much is evaded?
I largely agree with you. I note that I have an error there, it should read "people owning their own homes are not beholden..." However my main concern is that if CGT comes in, then sooner or later some economist with and ego bigger than his brain will convince the pollies that people living in their own homes should be taxed on their savings of not paying rent (in other words, denying someone else the opportunity to profit from their need) which quite frankly is a BS position (Gareth Morgan take note!). Law already exists to ensure that people pay taxes on profit from investments, be that property, shares or what ever. That law just needs to be enforced, it doesn't need to be re written or a time frame added or more specifically defined.
It will all boil down to those that can access the universal income and those that cannot. Countries offering the universal income will be extremely desirable to those citizens who can't get access to something similar in their home country.
Immigration through any means possible will become the normal (if it's not already). Bubbles will develop through any related pathways to citizenship (e.g. Education). The universal income will become harder and harder to fund, slowly sucking up more and more of the tax take and making the living situation worse for all New Zealanders as the Government struggles to pay for roads, libraries, hospitals, etc.
I think this concept could be workable BUT immigration has to be assessed so that we are adding people to our society that give a net increase, rather than a net zero, or negative contribution. We can't have a society that gives so much, yet allows has such a laissez-faire attitude to immigration.
RE: Guaranteed Minimum Income
Mr Key described the idea suggested as one of many at Labour's Future of Work Commission as "barking mad" and "utterly unaffordable."
And the cheap fabricated bank funding underpinning this irredeemable outlier outrage is?
Any guaranteed income would have to be similiar to Universal superannuation. It would have to be indexed to inflation and wages and would have to be sufficient for a person to survive, that is eat, pay their rent/mortgage, electricity etcetera when they no longer have a job. In the next ten or so years that will be a real possibility for many many people. If it meant that employers could exploit the situation by paying very low wages then that could be countered by having a minimum wage indexed to inflation. Then there would be the problem of inflation if suddenly there was an introduction of say Gareth Morgan's suggestion of $200.00pw. Perhaps that universal income would have to be put into say KiwiSaver to be accessed on different terms than now exist. To pay for such an income then as the aim of Government world wide is to have a cashless society it would be very easy to tax every deposit with a tax rate of say initially 1%. If that were implemented with a withdrawal of certain tax deductions which would be gradually increased and ultimately the abolition of income tax and all deductions then there would be plenty of money to pay for a universal income, hospitals, libraries and road etc. To prevent society becoming more unequal, in my view, there should be a progressive income tax on income over $100,000.00 such progressive tax being annually adjusted to prevent tax bracket creep.
Lets face it, $200 per week is no where near enough for someone to live off. Pensioners living alone get $375, almost double, and they often have assets including a house. Can a solo mum with nothing bring up a child on $200 a week without any other supplements - definitively not. Unless it was more like $600 a week we would still need a welfare system - so what is the point in it?
What is the difference between
Paying everyones electric bill Vs Nationalize Electricity and give free electricity
Paying everyones Phone bill Vs Natioalize Phone companies and give free phone services
Paying everyones Rent Vs Nationalize Rental Accomodition and give free rent
Paying everyones Groceries Vs Nationalize Supermarkets and give free groceries
Paying everyones SKY bill Vs Nationalize SKY TV
and so on
Has Capitalism allready failed and we have become a Communist world by default?
If robots replace people and there aren't new jobs created then a UBI becomes natural to think about. However, the big challenge is that the increased wealth (created by more efficient production) goes to corporations, which we aren't very good at getting tax back from. If we tax capital too much then the capital will offshore. So we're back to living off our land, which doesn't sound great. It is possible though that there will still be plenty of service industry jobs. After all, with enough wealth floating around there are lots of services that would be pleasant to see done. Not at all sure about how it will all shake out!
The continued existence capitalism and these corporations depends on the existence of demand from customers. If we continue eliminating jobs through automation and depressing wages, but want to maintain a viable level of customer demand, then the relationship between 'money to spend' and 'paid work' is going to have to be uncoupled. How else to retain customers with buying power while making jobs obsolete? Either the money has to be widely distributed, or the products. If neither is done, then what? Let the starving masses with no jobs and no way of participating in the economy pile up until it's at blood-soaked revolution level? Set the killer drones to 'civilian'? Wouldn't be my choice, and I doubt it's the favoured choice of anyone who relies on mass demand from consumers. But really, I think short-term thinking and greed will win, because this is humans after all, and the transition will be very, very messy.
Help a lot if they lowed the cost of living in NZ, then we could get by on a lot less, I am constantly amazed at the price of things here. Some sort of tribute we pay to someone unseen.
Looked at a book yesterday, $50 in NZ cheaper at $49 on trademe but only $11 in the States.
True. Cosy little grasping cartels everywhere, for retail, energy, food, anything you can think of. There are many, many items and appliances that I would buy and use if there wasn't a ridiculous New Zealand sucker mark-up on them, but refuse to be that sucker, and happily carry on without. And I'm one of the lucky debt-free few with a good income, lots of investments and cash in the bank, so more disposable income than the majority of the population. Local businesses of every kind seem to be under the delusion that they can survive by eliminating the majority of potential customers from the pool, then outrageously gouging the few that remain.
A lot of the ultimately self-defeating greed in NZ business reminds me of that Aesops Fable about the greedy monkeys who try to get as many nuts as possible out of narrow jars, but get nothing, because they can't bring themselves to let go of their fistfuls of nuts to get their paws out of the bottle.
GMI or UBI whatever you call it are no substitute for real, jobs. Both are the last gasp flailing's of right wing economics, and advocates who are desperately trying to avoid having to admit that the economic models and policies of the last 30 odd years have been seriously flawed and are causing a world economic collapse. This is the cry of the worlds rich and powerful trying to preserve the power and privilege and make the general population more dependent on them. For the last 30 years, business has worked on ways to re-invent slavery, making people less secure, work longer and harder for minimum income. This is history repeating itself, think of the collapse of the Roman empire.
What is needed is balanced regulation designed to create jobs for a wage that provides a reasonable living standard. The goal needs to be full employment, not forced employed. Problem is pollies under the advice of the vested interests have sold the kitchen sink and now have neither the ideas nor the balls to fix the current mess.
PinoKeyo again wanting to take an ostrich like position on the thinking of "thinking" about the future with technological change & development, how this will change the way work will affect us all in our daily working lives, family ect .... The Nat's have got third-term-its. Time for them to go.
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