Keith Rankin: A Universal Basic Income in New Zealand?

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Keith Rankin.

Analysis by Keith Rankin

A Universal Basic Income in New Zealand?

Concept

Keith Rankin.
Keith Rankin.

A Universal Basic Income represents, at its core, two things: an unconditional publicly-sourced income payable to all adult tax-residents of a country; and an integration of income taxes and welfare benefits. It makes little economic sense to talk of separate income tax and welfare benefit systems. There is but one tax-benefit system. A benefit is a negative tax, and a tax exemption is a benefit.

Universal Basic Income (UBI) represents a direct application of the principle of horizontal equity (treating equals equally), which means a single rate of income tax, and a universal publicly-sourced income that amounts to a ‘public equity dividend’.

A universal payment should have no ‘claw-back’. UBI is not a scheme to redistribute income from rich to poor, nor from poor to rich. A benefit for the poor funded by higher marginal tax rates on the rich is not a UBI. Rather, a universal basic income is a central component of an equitable mechanism of ‘distribution’, not ‘redistribution’.

A universal basic income is not a ‘living-wage’; it is a return on capital, not on labour. It may or may not be enough for an individual to survive on without a private source of income. To be a UBI, it does not have to be ‘adequate’ in any sense of that word. It simply must be an unconditional publicly-sourced payment that is more than zero.

The presence of a UBI does not require that there be no needs-based transfer payments. Transfers derive from the principle of vertical equity – treating people facing different circumstances differently – and complement payments based on horizontal public equity.

Public equity follows from our public property right, just as private equity follows from our private property rights. Our equity in our houses is a part of our individual wealth. Our equity in our businesses is a part of our individual wealth. Our equity in our public domain is likewise a part of each individual’s wealth. An entitlement to draw a monetary income from public equity is no different from an entitlement to receive dividends from shares (equities) we own, or to receive rent from houses we own.

At Present

New Zealand presently has a near-UBI called New Zealand Superannuation. Every New Zealander aged over 65 who meets residency requirements receives $218 net of income tax as an entitlement. (This is the ‘married’ rate of ‘superannuation’, reduced by the present top marginal tax rate of 33%. Superannuation’s genesis was in 1940, with, initially, a simple $20 per annum payment to all New Zealand residents aged over 65.) The only essential difference between New Zealand Superannuation and a universal basic income is the higher age qualification. A UBI is a right of all adults.

New Zealand also has a near-UBI, an unconditional annual tax benefit (ie benefit paid through the graduations of the income-tax scale) of $9,080 ($175 per week) payable in full to all individual tax-residents with an annual income in excess of $70,000. (If you gross $70,000 or more, just deduct 33% and add $9,080 to determine your disposable income.) The only thing that stops this benefit from fulfilling the criteria of a UBI is that many individuals earning less than $70,000 (‘before tax’) receive less than $9,080 in publicly-sourced income. (The first instance in New Zealand of such a tax-benefit is 1893, the first year of income-tax receipts and exemptions.)

So New Zealand has two distinct near-UBI benefits, long in place. Indeed persons aged over 65 with at least $70,000 of privately sourced income before tax, receive both UBI-like payments, as of right. Just as universal superannuation was introduced in 1940 as a way of reducing the cost of social security – relative to the alternatives then on offer – so a rationalisation of our two present UBI-like payments can also save public funds, while also addressing the sustainability issues around New Zealand Superannuation. For example, a New Zealander aged over 65 might be eligible for the $175 weekly basic income, plus at least another $125. That $125 per week would become ‘universal superannuation 2.0’.

Prospect

What is the prospect for a more formalised UBI in New Zealand? Universal principles play an important role in New Zealand’s social welfare history, and New Zealand has at present an income tax scale that can easily morph into a basic income flat tax arrangement. So there are no technical difficulties.

Indeed, in the 1973 Budget, another near-UBI was introduced by Bill Rowling, called a ‘personal tax rebate’. It lasted only four years, a victim of inflation and changed priorities. What is most significant about this is that it was barely commented on at the time – eg in the post-Budget debates, and in the media. It was neither opposed by National, nor seen by anyone as radical. Designed by Treasury in response to Rowling’s demanding specification; it was seen more as a technical adjustment to the income tax scale than a radical change. If Bill English was to introduce a change on a similar scale into his 2016 or 2017 Budget, likewise it could easily be presented as a common-sense rationalisation of what we already have.

Having said that, if Labour choose to make Universal Basic Income a flagship policy for 2017, it might fly and capture the public imagination. Or it might flop in the face of poorly-informed media criticism, and from National Party sources claiming to be worried about its cost and the notion that a UBI might underwrite a work-free lifestyle. I sense, however, that the mainstream media has the opened the door on the concept. Further, after eight years of one government, the media in New Zealand tends to reflect (if not lead) a growing sentiment that nine years is enough for any government, and, in that political window, becomes more open to alternative perspectives.

In 1938, the First Labour Government wanted both a comprehensive and a universal social security system. Once they did the arithmetic, they realised they couldn’t have both all at once, as they had (more or less) promised. They squared the circle by delivering a comprehensive means-tested system, but with a small universal superannuation thrown in. The programme – piloted by Michael Joseph Savage – caught the public imagination, and Labour road to subsequent election victory with 56% of the popular vote. If the universal superannuation, with its timetable to grow a little each year from 1940, had not been included, Labour’s flagship political programme might have clunked. More than anything else New Zealand voters hated means-testing, the humiliating conditionality associated with charity-based depression welfare.

Welfare systems in New Zealand have once again become very conditional and bureaucratic. UBI puts the rights of the people ahead of bureaucratic control, and is affordable at a reasonable level so long as the income tax rate is in the mid-thirties.

New Zealanders own their own public equity. They deserve something in return.

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