Capitalism is in crisis, and our species’ imagination to save ourselves is sorely lacking. There are of course understandings out there, and solutions; but they are so heavily gate-kept that conversations about saving ourselves are well-nigh impossible. It remains a puzzle why those political and intellectual leaders who would most benefit from a regime of socially inclusive capitalism have been so avid in their anti-reform gatekeeping.

The missing ingredient from the capitalism that most of us know, or know of, is ‘public equity’. Capitalism is presented to us all as a system of markets, individualism, laws, and private property rights. The crisis of capitalism can be addressed through the development of a set of public property rights, which we may call ‘public equity’. It is the establishment of public property rights that is necessary to democratise capitalism.

New Zealand’s surprising history of universal income

At the end of my Zero-Sum Fiscal Narratives (22 May 2025), I suggested that we need to promote a narrative of “public equity over pay equity as an efficient means to correct destabilising inequality”.

In global capitalism, the first real narrative of public equity – even though it wasn’t called that – belongs to the New Zealand social security reforms of 1938. And the particular policy announced in those reforms, and implemented in the 1940 financial year, was known as Universal Superannuation. This was the activation of a human right; the right of a country’s citizens, once they reached a certain age, to receive a private income in the form of a public dividend. Irrespective of race, sex, or creed.

At its initial conception, the ‘Super’ was modest; but was projected to grow, in accordance with affordability constraints and fiscal prioritisation. Most good big things start with small beginnings. An annual payment of $20 was set to commence in 1940. And it commenced in 1940. And the 1938 universal welfare state came in under budget (refer Elizabeth Hanson, The Politics of Social Security, 1980).

The concept of Universal Superannuation proved to be extremely popular; a policy from the radical centre that pleased most of the public, though – until its popularity was demonstrated in 1938 – few of the politicians and other ‘opinion leaders’. The policy came to be because Michael Joseph Savage felt that his Labour Government had to come good on its most important 1935 promise, and because the ‘left’ and ‘right’ proposals favoured by each of the two main factions of the Labour Government (fortunately) cancelled out in the political numbers game.

The universal proposal came through the middle, between left-wing attempts to radically extend redistributive measures favouring working-class families and Labour right-wing attempts to bring in an actuarial pension system based on the supposed ‘miracle’ of compound interest. The latter idea, pushed by the finance industry, was to create a contributory ‘money mountain’ from which pensions from some future date would be paid to retired working men. (This idea disclaimed the obvious reality that all spending of pension income – not just public pensions – represents a slice of present [not past] economic output.)

(On the miracle of compound interest, it is useful to imagine persons born around 1920 saving regular percentages of their salaries from early adulthood until age 65. Such persons became rich from home-ownership, not from compound interest.)

This retirement-income policy based on public equity was not successfully exported to the wider world. The war got in the way, and unconditional non-means-tested payments to citizens of a certain age never caught on internationally. The post-depression environment – a relatively sexually-egalitarian time – was displaced by a post-war environment, which favoured men. The more common post-war welfare model was, in its various guises, ‘social insurance’. And even Universal Superannuation in New Zealand came to be seen, increasingly, through a ‘social insurance lens’; recipients widely believed it was a contributory scheme.

The aim of initially Labour, and subsequently National, was to gradually raise the amount of Super paid until it would render redundant (and henceforth displace) the alternative means-tested Age Benefit. National became increasingly committed to the concept of universal income support, favouring taxable universal benefits which would in practice confer more to each low-income recipient than to each high-income recipient. In the 1950s and 1960s, income tax rates were much more heavily graduated than they have been since the 1980s. (‘Graduation’ of income tax rates means higher ‘marginal tax rates’ faced by people with higher incomes.)

By 1970, the full convergence between Universal Superannuation and the Age Benefit had still not been achieved. Retired persons would still choose either US or AB. The convergence eventually took place, in 1976.

The universality of Super was lost twice, by the same man, who came from ‘working class aristocracy’: Roger Douglas.

Douglas replaced Super with an actuarial (‘money mountain’ for men) system in 1974; a system which became ‘the election issue’ in 1975. This plan was conceived in the days before Equal Pay for women; ie conceived when ‘labour’ was still a highly male-gendered word in certain Labour circles. (Equal pay for women was legislated for in 1972, when Robert Muldoon was Finance Minister.)

Robert Muldoon won a resounding victory – like Savage in 1938 – by committing to Universal Superannuation (albeit under the name National Superannuation). Muldoon, when recreating Super, did so by retiring the Age Benefit, leaving Super as the only publicly-sourced retirement income.

About Douglas’s 1974 scheme, Margaret McLure (A Civilised Community, 1998) wrote (pp.190/91): “Douglas’ plan was rooted in early and mid-twentieth century English labour history… It drew on the 1904 ideas of Joseph Rowntree which had helped shape English social insurance, and on the English Fabian Society’s promotion of a union’s industrial pension plan of 1954… It rewarded the contribution of the fulltime long-serving male worker and provided him [and his dependent wife] with comfort and security in old age.” The full earnings-related benefit would only be payable on turning 60 to life-long workers born after 1957. It was less generous to others, and represented a backward-looking “narrow vision for the late twentieth century”. While more like the current bureaucratic Australian scheme (with its many hidden costs) than today’s New Zealand Superannuation, the Douglas scheme had inbuilt disincentives for people of ‘retirement age’ to continue in some form of paid work after becoming eligible for a pension. An older population – as in the 2030s – requires older workers with work-life flexibility.

Douglas, in the later-1980s, again removed the universality of Super by introducing a ‘tax surcharge’ on superannuitants’ privately-sourced income, an indirect way of converting Super into a means-tested Age Benefit. Douglas renamed National Superannuation ‘Guaranteed Retirement Income’. (Douglas liked the word ‘guaranteed’, using it as a label for other benefits too. ‘Guaranteed’ implies a ‘safety net – ie an income top-up – rather than an unconditional private income payable to all citizens of a certain age. Income top-ups come with poverty traps; very high [sometimes 100%] ‘effective marginal tax rates’, when increased income from one source displaces [rather than adding to] income from another source.)

Super was restored in 1997 as a universal income when Winston Peters was Treasurer in a coalition government; Peters, the heir to the universalist tradition within the National Party as it once was, has enabled Savage’s enlightened ‘public equity’ reform to survive to the present day, albeit as an international outlier.

A Right. Or a Benefit?

The presumption against universalist principles has come from Generation X, the generation born either side of 1970 who have never known any form of capitalism other than 1980s’ and post-1980s’ neoliberalism. (And noting that Roger Douglas was the poster-‘child’ in New Zealand of the neoliberal revolution which acted to restore capitalism to its neoclassical basics; markets, individualism, laws, private property, and public sector minimalism).

This week I read this from Liam Dann, journalist on all matters relating to capitalism, and very much a ‘Gen Xer’, who wrote: Inside Economics: Should you take New Zealand Superannuation if you don’t need it? 4 June 2025. Dann is trying to resolve the clear view of his parents’ generation that Super is a ‘right’, against his own view that Super is an age ‘benefit’; a benefit that should be bureaucratically ‘targeted’. (A benefit in this sense is a redistributive ‘transfer’. By contrast, an income ‘right’ is a shareholder’s equity dividend; in a public context, the word ‘shareholder’ equates to the word ‘citizen’.)

Liam Dann asks an excellent question though – “Should rich people opt out of NZ Super?” – albeit by misconstruing the opting process. New Zealand Super is in fact an ‘opt-in’ benefit, as Dann comes to realise. Much of the present opposition to Super comes from people who would rather that the money paid to the rich was instead paid to bureaucrats to stop the rich from getting it. In reality, there is probably a significant number of rich older people who don’t get Super because they never bothered applying to MSD to get it. As Dann notes, the government is remiss in not collecting data on the numbers of eligible people who do not opt in to NZS. (And journalists, before Dann, have been remiss in not asking for that data.)

We should also note that, in spite of indications that ‘first-world’ life expectancies are levelling out, and indeed falling in some countries, Denmark is looking to raise its age of eligibility for a public pension to 70. In my view, this is moving in the wrong direction. Nevertheless, it is possible to both move in the direction that I am suggesting below, while raising what might be called the age of ‘privileged retirement’, meaning the age at which older people are entitled, as of right, to a higher pension or pension-like income than other citizens.

The Denmark policy is discussed in Denmark to raise retirement age to highest in Europe, BBC, 23 May 2025.

UBI

A Universal Basic-Income has come to mean an unconditional publicly-sourced private income, available to all ‘citizens’ above a certain age, which satisfies some kind of sufficiency test. Thus, a UBI is meant to be sufficient, on its own; a ‘stand-alone income’. New Zealand Super (NZS) – the present name for Universal Superannuation (from 1940) and National Superannuation (from 1976) – is such an income, designed to meet a sufficiency test. In particular, the ‘married-rate’ Super – $24,776 for a year before tax – is a UBI in Aotearoa New Zealand, payable to people aged over 65 who meet a certain definition of ‘citizenship’; a definition that neither discriminates on the basis of sex, race, nor creed.

However, a UBI is considered, by many of its advocates, to be a sufficient adult income, not just a retirement income. Just as NZS is in practice, a UBI needs to be a complement to wages, not a substitute for wages.

Technically, it is very simple to convert the ‘married-rate’ NZS into a UBI for all adults. Just two things would need to be done: lower the age of entitlement to 18, and pay for it by removing the concessionary income tax brackets (10.5%, 17.5%, 30%). (The higher ‘non-married’ rates would continue to apply to people over 65.) Under this proposal, there would no longer be MSD benefits nor student allowances, though there would still be some benefit supplements for MSD to process, such as Accommodation Supplements and NZS ‘single-rate’ supplements.

This UBI proposal would not be fiscally neutral; though it would be less unaffordable than many people would guess. (In practice, a fiscal stimulus at present could pay for itself in increased growth-revenue in just a few years; it might even ‘return New Zealand to surplus’ sooner than realistic current projections.) For present superannuitants working part-time, it would represent a small reduction in after-tax income, given that they would be paying income tax on their wages at what is commonly known today as the “secondary tax rate”.

Other than fiscal non-neutrality, two objections to such a UBI would be these: New Zealand has too many workers who would not meet the present NZS definition of ‘citizen’; and the UBI would be too generous to young people not working and living with their parents.

So, while it might be less unworkable than many people would expect, this instant-UBI policy is not one I would favour.

SUI

SUI stands for Simple Universal-Income. Self. We note that the prefix ‘sui-‘ means ‘self’; equity rights are a development of liberal individualism, not of ‘socialism’ or ‘communism’. Some people equate public property rights with Marxian collectivism, with the ‘nationalisation of the means of production’. They couldn’t be more wrong. Collectivist schemes involve full government retention of citizens’ incomes; they are schemes of government control; completely the opposite of universal income.

A universal private income drawn as a dividend from public wealth is individualism, not collectivism. Indeed, the natural political home of reformed capitalism is the political centre-right, not the left; albeit the new centre-right, not the privileged and stale centre-right politics which New Zealand Prime Minister Christopher Luxon has so far represented. A ‘universal private income drawn from public wealth’ is different from a ‘privileged private income drawn from public wealth’.

It would be very simple to create an SUI in Aotearoa New Zealand. New Zealand’s income-tax scale has five rates: 10.5%, 17.5%, 30%, 33% and 39%. The 33% rate has formed the backbone of the New Zealand tax scale since 1988. As with the UBI example above, the SUI proposal simply eliminates the 10.5%, 17.5% and 30% rates. In return every adult economic citizen – effectively every ‘tax resident’ – would receive an annual SUI (ie dividend) of $10,122.50; that’s $195.66 per week. For all people receiving Benefits – including Superannuation, Student Allowances, Family Tax Credits – the first $195.66 per week of their benefit payments would be recategorised as their SUI dividend.

That’s it. (The dividend of $10,122.50 is simply a grossing-up of the maximum benefit accrued through those lower tax rates.) Unlike the UBI option, all existing benefits and bureaucratic infrastructure would be retained; at least until they can be reconfigured in an advantageous way. From an accounting viewpoint, existing Benefits would be split into unconditional and conditional components.

It means no change for all persons earning over $78,100 per year ($1,502 per week) before tax. And it means no change for all persons receiving total Benefit income (after tax) more than $195.66 per week. (These people could continue to be called ‘Beneficiaries’, but without stigma. Without stigma, Superannuitants can be happy to be classed as Beneficiaries.) People whose present total weekly Benefit income is currently less than $195.66 would cease to be called Beneficiaries; they would cease to be clients of the MSD, the Ministry of Social Development.

What this means is that most New Zealanders, on Day One, would see no change in their bank accounts. Nobody would receive a lower income. And for most who receive a higher income, it would be only higher by small amount.

This begs the question, if most people’s disposable incomes do not increase, or only increase by a trivial amount, then why bother? The important societal benefits would be dynamic; would be around incentives.

First, individuals (of all adult ages, male and female, regardless of their position in their households) would be incentivised to take employment risks – including self-employment risks – if they receive a core unconditional income that they do not stand to lose when risk doesn’t pay off. Labour supply is boosted; as is the economy’s ‘surge capacity’ (technically, the elasticity of labour supply increases).

Second, lower-paid individuals – many of whom are women – would have increased bargaining power (through unions and as individuals) and would not have to resort to contestable narratives such as ‘pay equity’ in order to achieve a fair wage.

Third, individuals would be better able to negotiate weekly hours of work to optimise their work-life balance. The SUI would minimise the present ‘twin evils’ of overwork and underwork.

Fourth, and especially for today’s high-income workers, the SUI represents an unconditional form of income insurance to facilitate the acquisition of basic needs during a period of what economists call ‘frictional unemployment’; being ‘between jobs’. Or a period of ‘voluntary unemployment’, such as attending to the health needs of another family member.

Fifth, the SUI would count as a democratic dividend, an acknowledgement that each society’s wealth arises from both (present and past) private and public enterprise, and that – for that reason – both private and public dividends should be part of societies’ income mix. All citizens would have both private ‘skin in the game’ and a sense of ‘public inclusion’, motivating all citizens to have an ‘us’ mentality, rather than a divisive and exclusionary ‘them and us’ mentality.

The SUI is my preferred option for New Zealand for the year 2026.

BUI

BUI stands for ‘Basic Universal-Income’. In the New Zealand context, it could be easily created by removing the 10.5%, 17.5%, and 33% income brackets. Thus, except for high-income-earners (say the five-percenters), there would be an effective flat tax set at 30% of production income. It would work much as the SUI.

I have calculated that, for New Zealand, the BUI would be $7,779.50 per year, effectively $150 per week.

To partially offset the tax cut that would be payable to people earning more than $78,100 per year, the income threshold for the 39% tax rate should come down (to $146,000, from $180,000). Tax cuts would be received by all persons earning between $78,100 and $180,000, with the maximum tax cut of just over $2,000 (just over $39 per week) being payable to someone earning $146,000.

With this BUI, compared to the SUI, there would be more day-one beneficiaries (ie more better-off people) on higher incomes, and fewer day-one beneficiaries on lower incomes. Nobody would be worse off. The dynamic benefits discussed in relation to the SUI would still apply.

This is a policy that the Act Party should embrace, given its stated commitments to liberal-democracy, individualism, enterprise, and the future of capitalism.

A wider benefit of BUI is that it could represent a small beginning to something bigger and better. Just as with Universal Superannuation, the ‘establishment fear-factor’ soon dissipated. And universal benefits came to be embraced in the 1950s by both ‘left’ and ‘right’ in Aotearoa New Zealand; a decade in which there were very few persons of working age relative to persons classifiable as ‘dependents’.

HUI

HUI represents Hybrid Universal-Income; a mix of UBI and SUI. What would happen is that the age of entitlement to New Zealand Superannuation would be lowered, but not all the way to age 18. Today the ‘threshold age’ is 65. Under a HUI, all adult tax residents under the new threshold age would receive a SUI, on the same basis as described above.

A variant of HUI would be more flexible; a flexible Hybrid Basic Income. Everyone between say 30 and 70 would be able to have a UBI for say ten years; otherwise they would have an SUI. (This might be a policy that would work well for Denmark.)

Today a large proportion of babies are born to mothers aged 30 to 40. Many of these mothers might prefer to have children while in their early thirties, but, for financial reasons, end up having their children later. If all adults could choose when to have their ten years UBI, I could imagine many women choosing their thirties, and many men choosing their forties. Thus, women would be able to leave paid work to a greater or lesser extent around when they would most like to have children, and their partners could take their UBI after the mothers of their children have returned to fulltime employment. For persons in their forties, parenting non-infant children fits with the life-stage when many people would like to be establishing their own businesses and becoming employers. This would create incentives to both working-class (and bourgeois) human reproduction, more enterprise, and more employment opportunities in the private sector for youngish and oldish workers.

A further variant of this variant could be to extend the SUI to a UBI for individuals over 60 who lose their jobs on account of redundancy. This would help the many women such as those who were caught out by the Labour Government’s barely-noticed 2020 decision to remove NZS entitlements to ‘non-qualifying-spouses’ (ie people who become redundant, mostly women, whose life-partners are already on New Zealand Superannuation). (We might also note that the Sixth Labour Government – 2017 to 2023 – cut the after-tax wages of all women [and men too] by not inflation-adjusting income-tax bracket thresholds. Looked at in full historical context, Labour governments in New Zealand have not been kind to women.)

GUI

We might note that the UBI case, first-mentioned above, would be very close to a Generous Universal-Income. In this case, only the 39% income-tax rate would be retained, and the UI would be an annual GUI dividend of $20,922.50 (ie $402.36 per week). All income would be taxed at 39% and all economic citizens would receive a weekly private (but publicly-sourced) dividend of just over $400.

Conclusion

The UI policies presented above (possibly excepting the GUI, and the UBI) reflect a liberal non-establishment centre or centre-right political perspective. The GUI and UBI, in practice, realistically reflect only future policy directions (given their clear fiscal non-neutrality), whereas the SUI, BUI, and HUI all represent changes that could be easily implemented in the May 2026 Budget.

My preference, for immediate implementation, is the SUI. In inclusive capitalist societies, public equity returns to individuals are a right. Much of societies’ capital resource is not privately owned.

As in 1938 to 1940, New Zealand can set an example for the democratic reformation of global capitalism. Unfortunately, the 1938 to 1940 reform – Universal Superannuation – was not taken up by an otherwise distracted world. (Sadly, New Zealand’s misguided 1989 monetary policy ‘reform’ – the Reserve Bank Act – was taken up by a then-attentive wider world. Unnecessarily high interest rates have caused huge grief on a global scale.)

We can choose to have a 2026 reform – a technically simple reform, that, through being promoted to the wider world as an example of how capitalism can be democratic and inclusive – which can have beneficial global consequences. Do our leaders have the intellect, imagination and courage that Michael Joseph Savage revealed in 1938? Hopefully ‘yes’, but realistically ‘no’.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Last week we heard the Labour Party leader, Prime Minister Chris Hipkins, practically rule out changes to the marginal income tax rates or the associated income thresholds. In particular, he indicated that a Hipkins-led government would not proceed with proposals to introduce a tax-free income bracket. And he ruled out new taxes on capital gains or wealth. (Refer Hipkins rules out capital gains tax, wealth tax if Labour re-elected RNZ 12 July 2023.)

Subsequently there was much criticism from the political left, who want ‘redistribution’. The redistributive proposal that was being investigated by Treasury included a new tax-band of zero percent on the first $10,000 of a person’s gross annual earnings. Such a tax cut would benefit all earners – including millionaires – so there would have needed to be a new wealth tax to provide the ‘redistributive’ and ‘affordable’ elements. (Treasury, apparently, did not consider a compensatory change to at least one of the higher tax rates to offset the new bottom rate.)

Important (though unstated) context behind the prime minister’s call is that the concept of ‘redistribution’ is anathema to the majority of politically active Aotearoans, and creates bigger income traps for those who would be touted as the main beneficiaries of redistribution.

Table 1 below summarises the present simple income tax scale, for various amounts of annual gross earnings. Table 2 adds a $10,000 tax-free income zone. (Note that ‘tax on last dollar’ is also known as the marginal tax rate. For example, each dollar earned above $48,000 and below $70,000 is taxed at 30% which may also be called ’30 cents in the dollar’.)

Tables 3 and 4 includes the zero percent bottom rate for the first $10,000 of annual gross income (as in Table 2), but with compensatory increases in income taxes on higher incomes. They show ‘tax cuts’ as change in ‘tax due’ compared to the 2023 amounts shown in Table 1.

Table 3 removes the 30% marginal tax rate, and raises the 33% rate to 33.5%. We see that, in this case, people grossing over $126,000 per year would pay slightly more tax than in 2023. The maximum tax cut – $1,050, which is just over $20 per week – occurs at annual incomes between $10,000 and $48,000; essentially for parttime and fulltime minimum wage workers.

Table 4 retains the 30% and 33% marginal tax rates, but lowers the threshold for the 39% rate from $180,000 to $100,000. In this case, people grossing over $117,500 per year would pay more tax than in 2023. The maximum tax cut occurs at annual incomes between $10,000 and $100,000.

Table 3 and Table 4 show affordable options which could be introduced without either introducing a wealth tax or raising the top tax rate.

Unconditional Tax Credit (UTC) options

There is another simple common-sense way of addressing the need to ease the burden only on lower income recipients, by creating an annual unconditional tax credit (UTC). This is how it works.

I present three simple versions (Tables 5 to 7), which blend with the present (Table 1) income tax scale, followed (Table 8) by a fourth version which is a universal basic income (UBI).

In these options, nobody is worse-off in terms of income tax, with the ‘tax cuts’ only falling on lower income earners and disproportionately on the lowest income earners. Note, with these tables, that a negative tax amount is fiscally equivalent to an unconditional benefit. (Here, I put ‘tax due’ and ‘tax cuts’ in quotes in the table, because if we regard the UTC as a ‘benefit’, then this becomes a combination of a new benefit outweighing a small increase in income tax. Alternatively, the UTC can be simply categorised as a negative tax.)

Note that where persons are receiving a mainline benefit – job-seeker, assisted-living, superannuation, student allowance – the UTC should be regarded as the first part of that benefit. This means that ‘beneficiaries’ keep the UTC component of their benefits when they come off those benefits. At present, in 2023, all beneficiaries may gain some wages from parttime employment without losing any of their mainline benefit. (This is true to a much greater extent for those whose mainline benefit is ‘superannuation’, which is not clawed back when private earnings are too high. For those with mainline benefits, their parttime wages are presently taxed at 17.5%.)

We should also note that the UTC should be understood as an adult benefit. (I favour defining ‘adult’ for tax purposes as being the same age as the definition used for electoral purposes. Family Tax Credits – aka ‘Working for Families’ – would be payable to parents on behalf of people classed as ‘minors’ for electoral purposes.) A person qualified to receive the UTC may be called an ‘economic citizen’.

The ‘minimal UTC’ option in Table 5 means that an adult with zero income does not pay net income tax until their income reaches $5,600. The unconditional tax credit is ‘clawed back’ when the ‘tax on last dollar’ increases, that is for incomes over $48,000. The UTC is fully clawed back at an annual income of $55,840. For incomes between $5,600 and $55,840, the UTC exactly offsets higher taxes. After the clawback, the ‘tax due’ in the table is calculated in the same way as in Tables 1 to 4. Compared to 2023, people earning less than $14,000 per year are (slightly) better off and people earning $14,000 or more are as well-off (or as poorly-off as in 2023, for ‘glass-half-empty people!).

The maximum UTC benefit would be just under $20 per week, and would raise the incomes of non-earners in non-beneficiary households. While the UTC benefit amount in the Table 5 case is trivial, nevertheless this is better than the 2023 status quo in that it provides a small new benefit to a few otherwise unrecognised people; and it is unquestionably affordable. Most importantly, any level of UTC establishes a principle; that every economic citizen of a society has a right to some form of citizen’s benefit.

The Table 6 option means that a person does not pay net income tax until their income reaches $23,267. This is close to 20 hours employment per week at the 2023 New Zealand minimum wage. Incomes would be the same as in 2023 for people earning over $48,000. (The unconditional tax credit is fully clawed back at an annual income of $220,889.)

The Table 7 option means that a person does not pay net income tax until their income reaches $27,515. This is close to 23.3 hours employment per week at the 2023 New Zealand minimum wage. Incomes would be the same as in 2023 for people earning over $70,000. (Note that $70,000 is close to the average fulltime wage or salary in Aotearoa New Zealand in 2023. The UTC is fully clawed back at an annual income of $331,333.)

The principal beneficiaries of the UTC are people in some kind of employment – or whose households depend on income from employment (including self-employment) –who earn too much to qualify for an unabated mainline benefit. (We should note, however, that the Table 6 and Table 7 options would slightly increase taxes on most people who are receiving wages and unabated mainline benefits. In the event that Table 6 or Table 7 were implemented in 2024, this problem could be ameliorated by adopting the Table 5 rates as a special option for working beneficiaries.)

If we take the dynamic benefits – increased opportunities and incentives for beneficiaries to undertake substantial parttime employment, plus decreased administration arising from fewer people seeking mainline benefits – then Table 7 becomes an affordable option; an option which facilitates a flexible work environment and facilitates contract self-employment (as in the creative sector). This UTC option removes the existing dangerous chasm between underclass beneficiaries (who find themselves trapped close to the poverty-line) and the unionised labour force.

Table 7 gives little extra to persons currently earning over $48,000 – the minimum wage for a 40-hour-a-week worker; or the living wage for a 35-hour-a-week worker. But it cushions them substantially if circumstances – including a recession – reduce their hours per week of paid work. A UTC of $9,080 protects them from the chasm of poverty and homelessness that beckons if or when the present “technical” recession begins to bite.

Universal Basic Income option

If we extend the unconditional tax credit by taxing all income at 39%, then Table 8 applies.

$19,880 represents a generous UBI, equivalent to $382.31 weekly. We note that people already earning $180,000 or more would have no change to their after-tax incomes; the person on $180,000 would pay income tax (net of their UBI) at 28% of their gross earnings, same as under the 2023 tax scale in Table 1. Nobody is worse off. With its associated ‘flat-rate’ income tax, the UBI is not subject to any clawback; there are no tax-threshold incomes.

The UBI would almost replace all mainline benefits; for example, all mainline benefits which amount to less than $382.31 per week. The first $19,880 of all mainline benefits would now become unconditional publicly-sourced income, with only grants over and above this being regarded as income transfers. (These higher grants would apply to single superannuitants, some single-parent households – depending on the dynamics of Child Support payments from absent parents, and the contributions of step-parents – and some persons with disabilities.)

In addition, and again on grounds of affordability, Working for Families tax credits could be discontinued. The central principle here would be, like the oxygen masks on airplanes, that children would be helped through the unconditional support of their parents.

There would be substantial reductions in administrative costs with respect to the micro-management (and policy management) of beneficiaries, tertiary students, and working families. Government departments such as MSD and IRD could substantially reduce their payrolls. Many people directly or indirectly employed by the government, some presently on generous salaries, could pivot to productive self-employment, in many cases using their savings as capital.

In addition to bureaucratic savings, there would be less private-sector work to do in the areas of tax avoidance, investment planning, and corporate law. The re-incentivisation created by the removal of tax brackets would enable some in the highly-paid workforce to redeploy their undoubted talents into activities which create more societal added-value. As David Graeber (author of Bullshit Jobs) might have said, ‘more productivity, less bullshit’.

As mooted Universal Basic Incomes go, the one shown in Table 8 is on the generous side. But it meshes neatly with New Zealand’s existing taxation infrastructure. It enables a substantial reduction in the size and scope of government in New Zealand. And it progresses democracy. A fullscale democracy must confer on all its taxpayer citizens a return on the public equity which has arisen as a result of past economic growth.

Conclusion

A universal basic income as in Table 8 will be a step too far for Aotearoa New Zealand in 2024 or 2025. But a unconditional tax credit as in Table 7 also meshes neatly with New Zealand’s existing taxation infrastructure, and is not a step too far. For most of New Zealand’s labour force and all of New Zealand’s elites, Table 7 would mean no change, ‘business as usual’. Rather, it attends to the underclass rumblings below.

The agitation for a comprehensive wealth tax will not go away. Those who stand to be affected by a wealth tax or a capital gains tax should be eager to embrace Table 7 as a pre-emptive alternative means to address poverty and income traps.

If the UTC option is seen – by progressives and others – as a progressive step too far, there are always Tables 3 and 4 to consider. Table 3 in particular is clearly better than the 2023 status quo. And is unquestionably affordable.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

“Broad growth is only going to come when you put money in the hands of people, and that’s why we talk about a Universal Basic Income”. [Ritu Dewan, Indian Society of Labour Economics]. (From How long before India’s economy recovers, ‘Context India’, Al Jazeera, 31 Oct 2021.)

India may be to the ‘Revolution of the twenty-first century’ that Russia was to the ‘Revolution of the twentieth century’. India may prove to be ‘ground zero’ for the coming struggle for economic rights.

Universal Basic-Income (UBI) versus Basic Universal-Income (BUI)

I sense that the increased groundswell in the west, in favour of adoption of a Universal Basic Income (UBI) has gone cold. Perhaps less so in India, where there are a billion or so people with minimal (if any) economic rights.

In New Zealand, and perhaps other western countries, UBI seems to be much more ‘on the table of options’ when there is a centre-right government than when there is a centre-left government. UBI was widely discussed in the 1990s and the 2010s, even by the New Zealand Labour Party when in opposition.

One problem is that there are at least two distinct schools of thought. One might be called the European ‘basic income’ school; the other might be called the anglo-hispanic ‘universal income’ school. The former is focussed on people’s needs; the latter focusses on people’s rights. I firmly belong in the latter camp. While the name ‘Universal Basic Income’ is the one that has stuck for the wider (if stalled) groundswell, ‘Basic Universal Income’ is the name that better fits the radical centrist emphasis on universal income as a basic economic and democratic right.

In a recent allegory, Who’s the Thief?, I alluded to four different perspectives on economic rights:

• primitive capitalism
• primitive communism
• property-owning democracy
• democratic capitalism

Primitive capitalism represents the abstraction under which humankind lives at present, and has done so in broadly its present form for 500 years.

I have little to say about the Marxist socialist abstractions, through which economic rights – indeed near-universal economic rights – are granted through an all-powerful state. This, however, has, in the last 150 years, been presented as the one alternative abstraction to primitive capitalism.

Primitive communism represents the largely prehistoric world, before the neolithic agricultural revolution, of hunter-gatherer tribal societies. Today it serves as a useful reference point, especially for anthropology and human evolution, but not a viable option as a modern abstraction for economic rights.

Property-owning democracy is the ‘economic liberalism’ of ‘liberal democracy’, and represents in particular the imagined world economic order following the 1940s’ post-war ‘reboot’. Conditions around the 1950s and 1960s were favourable to a broadening acquisition of private property, following unfavourable periods in the eighteenth century and in the interwar years of the 1920s and 1930s.

However, under conditions of ‘private economic freedom’ where only private (or private-like) property confers economic rights, changes in fate and fortune, trade and debt, mean that private property eventually concentrates into fewer hands, and with the majority of property concentrating into very few hands; property-owning democracy morphs – indeed has morphed – into naked primitive capitalism.

Democratic Capitalism

My allegory Who’s the Thief? exposes primitive capitalism as a ‘false’ ruling abstraction, and also points to ‘democratic capitalism’ as an alternative and viable abstraction which can help humankind emerge from its present intransigent ‘existential’ problems. Democratic capitalism represents a sustainable organising abstraction, and is the natural (albeit radical) territory of the political ‘centre’ in the twenty-first century.

There are echoes of this in the Queen’s Question (and see Can you Explain the Crisis to the Queen?, Guardian, 27 July 2009); and, very recently, a former New Zealand Prime Minister’s recent speech (refer Former prime minister Jim Bolger denounces capitalism, says National Party ‘disappointing’, NZ Herald, 28 November 2021; and noting that Jim Bolger did not denounce capitalism, rather he said the National Party needs to “reimagine capitalism”).

(We may also note that the writings in the 1930s of JM Keynes ‘saved capitalism’ in an era of economic and political crisis in which capitalism itself was subject to existential threat.)

The realisation of a Basic Universal Income is a direct and necessary consequence of the adoption of democratic capitalism as humankind’s ruling abstraction. Democratic capitalism – by definition – confers economic rights which belong alongside political rights.

Democratic capitalism can be understood as a nuanced form of commonism(definitely not ‘communism’!) whereby it is understood that market production depends on a mix of private and inherently public inputs, and that the rightful distribution of economic outputs should reflect this mix of inputs. Democratic capitalism accepts the global system of nation states as reality, so therefore rights-based access of people to economic outputs would need to be organised within nation states. Democratic capitalism also accepts the distinction between minors (essentially children) and adults, and that full democratic rights only apply to adults.

Primitive Capitalism

My allegory Who’s the Thief? points clearly to the unsustainability of primitive capitalism. People without economic rights have no choice but to depend on, in varying proportions, exploitative labour (including various forms of self-deprecating self-employment, and including forced labour), transfers of economic provisions (charity, including begging), direct theft (as in ‘smuggling’ and ‘trafficking’), and through unsustainable practices that destroy our ‘unowned’ commons (such as fossicking for firewood, and disposing smoke into the air and plastics into the water). Under primitive capitalism, economic growth is required to accommodate these unsustainable means to families’ survival. There is no way out, except to reject primitive capitalism in favour of a sustainable organising abstraction.

Liberal Mercantilism

The ideology that continues to underpin primitive capitalism may be called ‘liberal mercantilism’ (refer to my Liberal Mercantilism and Economic Capitalism, Scoop Independent News, 28 September 2018).

For those educated in the history of capitalism, this phrase will be self-explanatory, though also – in a sense – an oxymoron. After all, the only serious critique of early ‘merchant capitalism’ and its political and economic assumptions came from the direction of ‘economic liberalism’ that was forming in Europe in the latter part of the seventeenth century.

The subsequent conflation of mercantilism (essentially the rule of money, and ascribing magic qualities to money; a ruling ideology most associated with early-modern capitalism) with economic liberalism cemented itself very quickly. In the 1970s and 1980s, it became the capitalist world’s predominant ideology. In the 1990s’, its predominance as a ruling abstraction came to be seen as ‘the end of history’. Liberal mercantilism is an ideology that is well-seeded in both the centre-right and centre-left elites of the present ‘millennial’ era. What began as the ‘win-lose’ ideology of international trade in the sixteenth century – the age of sovereign piracy – has become the core ideology of late-modern public finance.

The liberal-mercantilist metaphor for economic activity is that of goldminers extracting wealth (ie of ‘making money’), whereas the democratic capitalist metaphor is that of a human beings seeking food (and ‘song’, another metaphor) as sustenance.

There are two main differences between liberal mercantilism and democratic capitalism: one puts money (treasure) first and the other puts people (demos) first. The second is that, with the liberal mercantilist approach to economics, the ‘supply-side’ comes first (people are first and foremost ‘wealth creators’ making money; miners of money); whereas under the democratic capitalist approach, people are first and foremost creatures with wants and needs, placing the ‘demand-side’ first. Under liberal mercantilism, ‘supply creates demand’; under democratic capitalism, ‘demand’ (reflecting all people’s needs and wants) ‘incentivises supply’. Under liberal mercantilism, the economy is a remorseless growth machine, creating consumerism as a means to dispose of the by-products of money-making. Under democratic capitalism, supply waxes and wanes in response to people’s changing needs and wants. Life under democratic capitalism can be sustainable; under liberal mercantilism, it cannot.

In our culture, ‘economics’ (a social science) is firmly in the camp of democratic capitalism, but most economists are firmly in the camp of liberal mercantilism. As in other fields of enquiry, there is a distinction between ‘what the science says’ and ‘what the scientists say’.

Basic Universal Income and the coming Democratic Capitalist Revolution

I am an optimist. Nevertheless, all revolutions are hard won, and many are misconceived. India, soon to be the world’s most populous nation, may well be foundation ground for this important development of both democracy and capitalism. ‘Broad growth’ can be understood as the growth of human potential, including tribes of humans’ potential to live in sympathy with other tribes, and to live in harmony with their planetary environment. For all practical purposes, as the placards say, there is no Planet B.

——-

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Cartoon Strip 1

Imagine a two-panel cartoon strip. Each panel has an apple tree and two people. In the first panel, the tree has eight apples, all low-hanging. In the second panel, the apples have all been picked. One person (A) has one apple in their basket. The other person (B) has seven apples in theirs.

There are two simple and obvious interpretation scenarios. One scenario is that the tree is the private property of one of the two people; the other scenario is that the tree is in the public domain. The tree is a metaphor for ‘property’ (ie, for ‘capital’).

In scenario one, all eight apples belong to one of the people (B); ie the owner of the tree. In scenario two, the apples should be distributed evenly; four apples each.

The cartoon strip shows an outcome, however, that is neither of these. One person has more apples than they are entitled to. In scenario one, A is the thief. In scenario two, B is the thief.

There is no scientific principle that can lead us to say, factually, who is the thief. The fact we must determine – ie the answer to the question posed in the title – depends on the property rights a society subscribes to. Rights are a legal construct, a matter of principle; not a matter that can be resolved by science.

We can give names to these two scenarios. Scenario one may be called ‘primitive capitalism’. Scenario two may be called ‘primitive communism’.

Cartoon Strip 2

This is identical to strip 1, except that there are two trees of approximately equal size, and each tree has four apples. Once again, in the second panel, A has one apple and B has seven.

There are now four interpretation scenarios. In addition to the two previous scenarios – primitive capitalism and primitive communism – there is scenario three, which has each person owning a tree. This scenario could be called ‘private-property-owning democracy’. Person B would clearly be the thief, because each person should have four apples.

Scenario four follows by conflating the two interpretations from Cartoon Strip 1. One tree would be privately owned, and one would be in the public domain. Person B would be the thief. B should have six apples (not seven), with person A having two (not one).

Democratic Capitalism

Scenario four may be called ‘democratic capitalism’. And, if the legal system – and the accounting system – could be aligned this way, with a simple balance of private and public property rights, then the economic problems of our age (indeed of any age) can be resolved.

From this principled viewpoint, much of what we see in the world around us is indeed theft. We live under a presumption of primitive capitalism.

What is required is democratic capitalism, with due respect for democratic and capitalist property rights. Translated into the ‘real world’, all adults – ie minors excluded – hold, as a matter of legal principle, a democratic franchise. All franchisees (an alternative word to ‘citizens’) draw sustenance and enjoyment, as a right, from the public tree; while most also draw from their own private trees.

————-

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

The day after New Zealand’s first lockdown was announced, I expressed to a senior colleague my concern for those around the country whose livelihoods would suffer as a result.

She agreed, but was confident that the spirit of “we’re all in it together” accompanying these drastic public health interventions would allow the government to lead the country towards a kinder, more equitable society.

“I think we might see a universal basic income,” she said hopefully.

As it turns out, the government had little appetite for progressive welfare or tax reform.

Instead, working with the Reserve Bank, they have propped up the economy through a combination of measures that have drastically inflated the price of houses.

This has most likely protected some jobs, but it has also made work increasingly irrelevant as capital gains completely outstrip wages. The wealthy have been made even wealthier, while many can no longer afford a roof over their heads.

In the past year, the average New Zealander effectively lost $54.59 for every hour they turned up to work if they did not own a home.

According to Stats NZ, the median worker earned $26.44 per hour before tax in 2020. That comes to $21.49 per hour after tax if working a 40 hour week.

Median house prices
Meanwhile, in the year to end of February 2021, the median nationwide house price increased from $640,000 to $780,000: a difference of $140,000. If houses took weekends, public holidays and four weeks’ leave off each year – which of course they do not but it makes the calculation simpler – that makes an hourly rate equivalent to $76.08 per hour. Tax-free.

This is a direct result of the decision to support the economy through a combination of quantitative easing, a reduced Official Cash Rate and wage subsidies, instead of meaningfully increasing spending on things we need such as infrastructure and welfare.

The government handed out money to the banks, effectively at no cost, allowing them to lend more at increasingly attractive rates.

The government also bought bonds at the same time, devaluing deposits and making it pointless to keep money in the bank. This combination of easy credit and disincentivised saving caused a large amount of money to start sloshing around looking for somewhere to go.

The traditional concern with this approach to stimulus is that it will inflate the price of goods and services, increasing the cost of living.

In New Zealand, though, we like to buy houses. A tax system that drastically favours property ownership, combined with a cultural sensibility that houses are a safe bet, has seen much of this newly available money pumped straight into the housing market.

A feature
This is a feature, not a bug.

It represents a new, more interventionist version of trickle-down economics for the 2020s. Decried in 2011 by Labour MP Damien O’Connor as “the rich pissing on the poor”, politicians from the right have long argued that if the wealthy feel wealthier, their increased spending will benefit those less well off.

Generally used to advocate for reduced taxes on the rich, these ‘trickle down’ arguments refuse to die, no matter how comprehensively and repeatedly they are discredited.

This revival of trickle-down economics is a little different, as it is based on direct stimulus rather than a reduction in tax, but the effective mechanism is the same.

House price inflation is desirable, we are told, because homeowners feeling the resulting “wealth effect” will spend more on the goods and services provided by other New Zealanders. The win-win logic of this argument hides the fact that, fundamentally, someone is paying a heavy price.

Another way to think about it is that the government has effectively paid for covid-19 by levying a special tax on anyone who wants to live in New Zealand, but did not happen to own property during the summer of 2020/21, and handing that money to homeowners.

Paying the price
Many will pay this price throughout their lives. Some will be consigned to renting forever, handing over ever-increasing portions of their incomes to landlords seeking increased yield from their value-inflated properties.

Too many won’t even be able to do that, and sleeping on the street or in emergency accommodation. The relatively lucky few who do manage to buy a home will have mortgages hundreds of thousands of dollars larger than they otherwise would, spreading the cost of covid across their entire lifetimes.

Even as the beneficiaries of this covid levy, most homeowners are unable to simply stop working and enjoy this newfound wealth.

They may feel that they cannot realise their capital gain because it is tied up in their family home. What this windfall does provide, however, is choice: the option to release some of their newfound capital by downsizing into somewhere cheaper, or to stay put, taking advantage of the extra equity to fund lifestyle improvements like a new boat, a bach or a remodelled kitchen.

Unprecedented demand for watercraft this summer suggests that many are doing exactly this.

It can be tempting to view this growing inequity as just another “baby boomers vs millennials” issue. Certainly, it does represent a massive transfer of wealth from generally younger New Zealanders who do not currently own homes, to the largely older folk who were able to buy homes cheaply in the past.

This disparity is reflected in Westpac’s latest consumer confidence figures, which show that younger New Zealanders are far more likely to be worried about their financial situation compared with older cohorts.

Patronising advice about avoiding avocados and food delivery services to save for a home entirely misses this point. Nonetheless, it is important to note that many older New Zealanders also live in poverty while subject to similarly individualising narratives of self-control.

Social divide
Perhaps the more important question is how this rapidly accumulating wealth will be deployed to further entrench a growing social divide.

Parents with equity to spare are increasingly using it to help their children “get on the property ladder”. On an individual basis this is an entirely reasonable thing to do.

At a larger scale, though, the competitive advantage conferred by having generous, wealthy parents makes it even harder for those who do not have such privilege to obtain a home. Many are being left behind as a new landed gentry takes shape.

These political-economic arrangements favouring existing wealth over hard work have been a long time in the making, beginning well before most of the current crop of politicians arrived in parliament.

It is notable, though, that a government that promised to address the “housing crisis” has actively and knowingly pursued policies that have produced an unprecedented upward step-change in the market.

Perhaps most concerning is that the Prime Minister has expressed her intent that house price inflation should continue, just at a more “moderate” rate, because that’s what “people expect”.

It is exactly these expectations that are the problem: these issues will not be resolved while houses remain a speculative investment vehicle, rather than a home.

‘Tipping the balance’
Tuesday’s announcement of measures to “tip the balance” towards home buyers, rather than investors, might begin to signal a growing recognition that housing is more than an investment.

A substantial class of investors have certainly been made exceptionally wealthy by the covid-19 response, even as those who work for a living have seen their incomes stagnate.

But while this separation of ‘investors’ or ‘speculators’ from ‘homeowners’ might be politically convenient, it makes something of a false distinction.

Whether a house is owned as a home, or purely a source of income, any non-improvement appreciation in value comes at someone else’s expense.

Until New Zealand acknowledges this, little will change: whoever is in charge, and no matter how many new homes get built.

Covid-19 has shown that when politicians want to act, they certainly can. As many others have pointed out, this government promised “transformational change”. I’m not sure that taking money from those with the least, handing it to those with the most, is quite the kindness my colleague had in mind.

Dr Brendon Blue is a geographer in Te Kura Tātai Aro Whenua, the School of Geography, Environment and Earth Sciences at Te Herenga Waka, Victoria University of Wellington. He mostly studies and teaches the politics of environmental science and restoration, but would have been better off owning a house instead. This article was first published on The Democracy Project and is republished here under a Creative Commons licence.

Article by AsiaPacificReport.nz

To the surprise of most pundits, substantial real estate price inflation has resumed, after a hiatus from 2017 to 2019. As to be expected, most of the usual tropes have been employed: a lack of supply, immigration (in this latest case returning New Zealanders), and low interest rates. The only missing trope this time is that of foreign buyers.

While none of these are wholly untrue, the real story is a ‘flow of money’ story, with the main issue being that money flows into certain places because it does not or cannot flow into other places. The second main issue is that financial bubbles have their own dynamic and momentum; so once started, bubbles can become quite difficult to stop.

We also should note that real estate bubbles – as monetary events – tend to coincide with sharemarket bubbles, and with exchange rate appreciations.

The central problem in 2020 is the inadequate flow of money into (and through) the government sector of the economy. In the absence of adequate lending into the government and real economy sectors, the money flows instead into the ‘bubble’ sector.

The 2003 to 2008 Bubble

From 2005 to 2007, the tradable section of the New Zealand economy was in recession; that’s the core section of the economy relating to businesses, such as primary industries and manufacturing, which compete internationally. Instead, in those years, an incipient bubble economy overtook the core economy. The Reserve Bank responded by tightening monetary policy, raising interest rates progressively towards a peak OCR (Official Cash Rate) of over eight percent early in 2008.

The underlying problem was the tradable-sector recession. It meant that money which would otherwise have been invested in the tradable-sector was diverted into the bubble sectors.

The actions of the Reserve Bank made the problem worse. By progressively raising interest rates, they kept pulling foreign money into New Zealand at a time when the core New Zealand economy was struggling, and no longer attractive to banks. This inflow of foreign money raised the New Zealand dollar exchange rate, further damaging the core tradable sector, and reinforcing the diversion of money into the bubble economy.

Many jobs were created in the growing bubble economy, and much tax was paid from the bubble economy. These were not the conditions which required the government sector to borrow money. So the New Zealand economy was awash with money, but neither the core economy nor the government were borrowing much of that money.

The money flowed into – that is, was lent into – the non-tradable economy of retail and real estate and financial (and related) services, despite high interest rates; indeed, because the high interest rates diminished the flow of money into the core economy, one can argue that, at that time, the house price and other bubbles persevered because of high interest rates. Further, if we go back to 2004 and 2005, it was probably higher interest rates that brought about the recession of the core economy that became New Zealand’s central economic problem of the years leading up to the Global Financial Crisis (GFC).

The 2012 to 2017 Bubble

This bubble came in the wake of the GFC, and was created in the global economy by the premature ending of ‘fiscal stimulus’ measures, given names such as ‘fiscal consolidation’ and ‘austerity’.

To get out of an economic depression, governments need to take the lead by running very large financial deficits. If done properly, much of this money flows indirectly into the core economy; employment and tax revenues increase, and government-sector financial deficits naturally fall to normal levels. This should be done in a way so that a country’s exchange rate does not rise prematurely; thus interest rates need to stay low for quite a long time.

A classic case of this recovery and expansion being done correctly was the 1935 to 1938 first term of the First Labour Government.

In the years 2012 to 2017, most countries’ governments did this incorrectly. While interest rates did stay low, there was a big push worldwide for governments to cut back, substantially, on their borrowing. A result was that many important government-led programmes were stifled, and an opportunity to reverse income inequality was lost. In many countries, money that should have gone into government social spending and universal benefits went instead into the bubble economy. In countries like New Zealand, this was reinforced by large inflows of foreign money relative to the size of their economies.

Bubble dynamics reasserted themselves this post-GFC time, with much lower global interest rates than in previous times. While interest rates are significant to the core economy, they are largely irrelevant to the bubble sectors. If an ‘investor’ with $200,000 can borrow $800,000 to buy a million dollar property, and then sell the property for $1,100,000 one year later, that’s a 50 percent return on their money; a substantial personal gain whether the mortgage interest rate was four percent or ten percent.

Bubbles do come to a natural hiatus after about five years. From 2017 to 2019, the capital gains from property speculation diminished, less money was flowing out of China and other saver economies, and conditions in the core economic sectors in the world became more favourable for bank lending. Economies grew, with 2019 becoming a very successful year in the global economy; though with the proviso that substantial environmental problems, inequality issues and identity issues came to the fore of our concerns. (And Brexit completely dominated United Kingdom politics.) In New Zealand in 2017, a new Labour-led government created sufficient uncertainty to quieten a bubble economy that was already running out of puff; and legislation prohibiting foreign purchases of New Zealand houses had some direct impact on dwelling purchases as well as indirect impact through perceptions that capital gains would diminish.

In New Zealand, neither immigration nor housing supply were the main causes of real estate inflation. In an economy with a growing population and a housing shortage, the first symptom should be an increase in market rents. Rising house prices should then follow, as landlords’ yields increase. That’s not what happened. Rather house prices increased first; rents eventually followed, though many property ‘investors’ did not care so much about their rental income because increasingly their ‘wealth’ came from capital gains rather than from collecting rents.

The actual housing crisis in New Zealand had little to do with house prices; and much to do with inequality, a lack of social housing, and a broken private rental market. In the 2017 to 2020 period, social housing and the private rental markets have improved in many cities; in Auckland there are many newly constructed apartments, recently completed or still under construction, sited close to public transport nodes.

The 2020 Bubble

At a time of Covid-19 pandemic emergency, there were few expectations that a property bubble could happen. But the conditions for such a bubble soon emerged.

The first thing to note is that the Reserve Bank is not the problem. Not only is it following its mandate by expanding its balance sheet, it is seeing that the bigger picture requires such an expanded balance sheet in order to play its part in preventing a pandemic from becoming a great economic depression. Under current conditions, monetary policy will not be able to induce the inflation that it is mandated to achieve – indeed that mandate is a case of bad social science (a story to be addressed elsewhere). If substantial inflation does recur in the world – and it might sooner than most of us expect – it will be due to covid-induced supply-chain breakdowns in the coming few years; nothing to do with monetary policy.

We need to picture a (monetary) basin with three plugholes; yes we can use water flows as a good analogue for monetary flows (its called liquidity). When more money is required for the economy, the Reserve Bank supplies the basin with money by expanding its balance sheet. The first plughole leads to the ‘real economy’, which is households buying goods and services and businesses making and selling them. The second plughole leads to governments – the government sector including local governments – the ‘fiscal’ economy. The third plughole leads to financial markets; to an inherently speculative ‘bubble economy’ that includes the market for urban land. The draining of the (monetary) basin represents the injection of necessary money into the economy.

The three plugholes are:

1.  real economy plughole (private sector)
2. fiscal plughole (public sector)
3. bubble economy plughole (speculative sector)

The Reserve Bank’s effective mandate is to ensure a sufficient flow of money into the real economy. But the commercial banks are the gatekeepers (plughole keepers!) which facilitate or inhibit the draining process.

The economy we inhabit can be likened to a human ecosystem below the plugholes, and the economy needs to be lubricated by sufficient quantities of money. Economic contraction (eg recession) occurs when the real economy is under-lubricated; inflation, on the other hand, may occur when the economy is over-lubricated. The bubble-economy is the part of the human ecosystem that is most susceptible to inflation; the real economy is usually able to slow down the circulation of money when it is over-lubricated, thus averting inflation.

The commercial banks manage these three plugholes, though unevenly. The extent of their gatekeeping relates to the different grades of ‘security’ that accompany different types of bank lending. Bank gatekeeping constrains the ‘real economy’ plughole, because ordinary business finance is the least secure form of lending. The fiscal plughole is subject to minimal bank gatekeeping, because governments’ legal powers to tax constitute a very high level of financial security. Bank gatekeeping is reflected in interest rates; ordinary businesses and consumers (eg via credit cards) pay the highest interest rates. Governments generally pay the lowest interest rates.

Typically, economic recessions follow financial crises. During financial crises, the ‘bubble economy’ plughole closes, precipitating the recession. This induces a loss of spending confidence, as people and businesses exposed to the bubble economy sharply retrench their spending. So the real economy plughole also closes; not fully, but substantially. This diminished monetary flow into the real economy is partly a result of less business and household desire to borrow, and partly a result of more stringent gatekeeping by the lending banks.

In such a recession, the ongoing success of the economy depends on the fiscal plughole. In 2009 we saw all governments open the fiscal plughole to save their economies – it was called ‘fiscal stimulus’. The New Zealand government response was comparatively muted; the New Zealand economy largely recovered as a result of new spending enabled by other countries’ governments’ stimuluses.

In 2020, the economic contraction had an unpredictable ‘exogenous’ cause rather than a predictable financial cause; namely, the Covid19 pandemic. In this case the bubble plughole never closed; that is the key point of difference this time. The private economy plughole, however, in 2020 closed to a similar extent to which it closed in late 2008 during the GFC. In response, the fiscal plughole briefly opened wide in New Zealand early in 2020, but then it closed again.

The result, by mid-2020, was a national economy with a basinful of new money, and only one substantially open plughole – the bubble plughole. So, guess what? The money drained through that plughole into the bubble economy. There was nowhere else for that money to go.

Who is to blame? Well, maybe the banks could gatekeep less re the real (private) economy plughole. But much of the private economy is in a balance sheet recession, so is not presently confident to borrow much, even if subject to reduced gatekeeping. Unsecured distress lending imposes high financial risks to the commercial banks.

The problem is the Government; in particular, the Minister of Finance. The fiscal plughole needs to be wide open, at least until the private economy plughole opens sufficiently as a result of increased governments’ contributions to the real economy. To discourage money from draining through the bubble plughole, and while awaiting the real economy plughole to reopen, the solution is one of fiscal policy. Opening the fiscal plughole is the solution.

The irony is that – by setting historically record low interest rates – the Reserve Bank is imploring both businesses and governments to borrow. The trouble is that businesses cannot borrow more (due to gatekeeping, and to their own balance sheets) and the government will not borrow more. The New Zealand government chooses to resist the strong price signals from a Reserve Bank which is implicitly begging the government sector to take the lead to defuse the now out-of-control bubble economy.

What the Government could do, this year

The newly-elected government is committed to passing legislation this year to reintroduce a 39 percent tax rate on high marginal incomes. While this tax increase may be an unnecessary expedient that complicates matters, we have to accept that this will happen.

So, as part of the same fiscal package, the government could and should also do the following, to be implemented on the same date as the new income tax bracket:

1.  Replace the lower income tax brackets with a Basic Universal Income of $9,080 ($175 per week) per year to all economic citizens (resident citizens, resident permanent residents, and other people presently resident in New Zealand with working or student visas. For present beneficiaries, the first $175 per week of their benefit would become unconditional. (This provision would have no immediate financial impact on either beneficiaries or on persons earning more than $70,000 per week. By ‘lower tax brackets’, I mean the 10.5%, 17.5% and 30.0% brackets.)
2.  Increase jobseeker and assisted living benefits by $25 per week, and accommodation supplements across the board by 10%. (This provision would mean that all such beneficiaries would be at least $25 per week better off.
3.  Place a substantial ‘stamp duty’ tax on all second homes, all rented homes, and all homes owned by trusts.
4.  Introduce a ‘good landlord’ voluntary warrant of fitness for rented houses, and exempt complying landlords and trusts from the new stamp duty.

The Basic Universal Income (BUI) and benefit increases, in an economy such at that in New Zealand at present, would soak up much of the money otherwise flowing into the bubble economy. The BUI would also free up labour supply – especially for young people presently constrained by the requirements of conditional benefits. And it will free up government agencies to help those people and families with more complex needs. The BUI will ensure that all adults in a household – including recently unemployed women with employed partners – will have unconditional access to a basic income.

The stamp duty will create a disincentive for speculative ‘investor’ money to flow into the real estate market. This money is pushing up prices in such a way that only people who already own houses – or whose parents already own houses – are themselves able to buy houses; and this money is treating houses as a form of financial wealth rather than as a place to call home.

The landlord warrant of fitness exemption becomes a ‘good landlord subsidy’, a way of using a monetary incentive to address the emerging problem of slum housing in New Zealand’s cities.

Summary

The present real estate price bubble is easily explained as the result of a lack of ‘rational’ fiscal policy. In economics, it is rational to respond to price signals; in this case the governments of New Zealand are not responding rationally to the lower interest rates made available to them, and are instead watching as much of the money they could and should be borrowing flows into the secondary housing market.

While there are many things the government could be spending money on – including higher wages in female intensive industries such as health and education – the Basic Universal Income and benefit increase cited above represent the best immediate uses of increased government borrowing.

The improved fiscal policy suggested is a case of win-win, immediately easing the stresses of daily life in today’s uncertain times, while also defusing the out-of-control real estate market.

I am not confident that the government will choose this or any other win-win option. Rather I believe they will choose a lose-lose option; continuance of unnecessary economic insecurity and escalating house prices.

Help with living costs while studying and extra support for mental health are two areas Pacific tertiary students want given more attention with the New Zealand general election.

Universities NZ figures show there were 10,000 full-time Pasifika students enrolled in May, an increase of 35 percent since 2010.

The last two national budgets have committed $107.6 million to help Pacific communities over the next 30 years, but tertiary students say there are urgent needs that must be addressed.

“The first one is mental health and well-being,” according to Leilani Vae’au, while for Ali Leota “one thing for sure is introducing a universal education income”.

Vae’au is at Wellington’s Victoria University working towards a bachelor degree in political science, international relations and religious studies.

She is also on the university’s Pasifika student council.

The 20-year-old is not eligible for student allowance to help with living expenses because her parents earn over the threshold. Student allowance begins to drop once parents earn beyond $56,888.52 a year before tax. If parents jointly earn $98,653.52 or more the student is ineligible.

‘Three younger siblings’
“But I have three younger siblings under me who depend on that and other family members who depend on my parents,” Vae’au explained.

“And I can’t get that aid so that I don’t have to work all the shifts I work to be able to study and focus on that because of the fact my parents make money to support my family.”

Instead, she meets her living costs working multiple office shifts, which she balances with full-time study, student council commitments and a busy home life.

During the Level 4 lockdown she was relieved to keep her job, but from home when her bedroom became her office, living room and study. The lines blurred between study, work and family life.

“Over covid, I didn’t have the opportunity to compartmentalise my house which has six people living in it and a hundred different Zoom calls going on at the same time.”

Vae’au found the inability to separate these aspects of life particularly challenging.

“As a child of the Pacific or as a child in a multi-generational home, as the eldest child as well, there are lot of factors that were still impacting mental health-wise and just stability-wise in the home environment.”

University difficult to navigate
Fellow Vic student Rosina Buchanan is a self-described “queer non-binary person of colour with a disability”.

The Bachelor of Health student has found university difficult to navigate without adequate mental health support and would like to see greater equity when meeting the challenges campus life presents.

“Because I would encounter quite a bit of ableism, elitism, classism, homophobia, being misgendered, racism, and that is definitely a lot of barriers to being able to thrive.”

For Ali Leota, the national president of the Pacific student body Tauira Pasifika, financial support is key.

“One thing for sure is introducing a universal education income” he said, challenging the government to help provide a hand up to provide Pasifika students with a level playing field.

“The public health major would like to see student allowance eligibility reconfigured in a way that’s fairer to Pacific families, as the parental income threshold doesn’t adequately take into account the number of dependants.

“And coming from a big family, we’re kind of victims of that,” Leota says.

Universal education income
“So therefore, implementing a universal education income is a way to pave the way forward to making tertiary education accessible and fit for purpose for our Pacific learners.”

Post-graduate students should also be included in the ‘universal education income’ according to Leota, who pointed out the incumbent government had failed to reinstate their financial backing which he said was a barrier to Pasifika achieving masters and doctoral success.

It is also a barrier to Pasifika moving into academia.

“Do they go to work or do they continue to study?” Leota says.

“Of course nine times out of 10 our Pasifika students will opt to work to go and help support families but a universal education income will enable our students to climb up the ladder and make our tertiary spaces a space where we feel like we’re welcomed.”

Leota says Pasifika people are underrepresented in academia, even in Pacific studies, and pointed to studies by Dr Sereana Naepi and Dr Tara McAllister who asked Why isn’t my professor Pasifika?

The incumbent government has committed to “confronting systematic racism and discrimination in education” as part of its five point action plan to support Pacific learners.

More student body support
University of Auckland law student Shaneel Lal says they can help address it immediately by offering more support to Pacific student bodies which in turn provide support to students.

Lal’s family moved from Fiji when he was 14 and he attended Auckland’s Ōtāhuhu College where his hard work was recognised, being named school Dux. The Youth Parliament 2019 MP who represented Jenny Salesa said he had difficulty transitioning from the strong Pasifika and Māori-dominated culture of high school to the University of Auckland.

“I went from a very collectivist community to a very individualist community where I went from being a person to a number, and nothing really prepares a young Pacific person for that transition.”

The 20-year-old said he was overwhelmed with the culture shock at the time and dropped out. Although he is back at university, he would like more attention paid by tertiary institutions to learning priorities and styles from this part of the world.

“For example, Māori communities are underpinned by the fundamental principles of whanaungatanga and we have similar concepts in our Pacific communities that we exist as a community,” said Lal.

“That is missing at university. University is about competing rather than collaborating and working together.”

While Labour has released a five-point action plan to improve things for Pacific students, including “to respond to unmet needs, with an initial focus on needs arising from the covid-19 pandemic”, other parties lack university specific education policy for Pasifika.

This article is republished by the Pacific Media Centre under a partnership agreement with RNZ.

Article by AsiaPacificReport.nz

In practice, democratic political reforms are usually incremental, though typically seen as part of a process leading to wider and more embedded improvement. Reforms are ‘evolutionary’ – indeed, in a technical sense – in that they improve the ‘fitness’ of democratic society.

Unlike biological evolution, which is a fully blind process, the process of democratic evolution is only partially blind. There is an inchoate sense of ‘destination’ about political reform – or at least the idea that reforms take societies to better places, if not the best place.

The Problem of the Local Optimum

Important concepts in evolutionary theory are those of fitness landscape and local optimum. We can think of a contour map, with better places (eg with respect to democracy) being those at higher altitude, and the best place being the highest attainable altitude. Whereas a local optimum may be a hill, the actual optimum is somewhere else, a mountain.

In a blind process, a local optimum can be thought of as the endpoint of a sub-optimal trail randomly followed. In a process with vision, however, it is possible to ‘know’ that you – or your society – are at or approaching a local optimum, and therefore to know that you could have taken a better path. A part of that knowledge is that, to get on the best path – or even simply a better path than the one you are on – you first have to retrace at least some of your steps.

The more vision you have when you make a choice that takes you on an improvement pathway, the less likely you are to make a suboptimal choice. If you can see that the path you are contemplating takes you up a hill – or even a mere hillock – while another path takes you up the mountain that best represents the optimal policy outcome, then that sightedness minimises the chance that you will make the wrong choice.

Sometimes the difference between a hill and a mountain is subjective. A sighted person with one set of beliefs may consider ‘Object A’ to be the mountain, and another sighted person with a different set of beliefs may consider ‘Object B’ to be the mountain. Object A upholds the benefits of one belief-system; Object B the benefits of another belief system. There is conflict.

In other situations, the mountain fully incorporates all the benefits of the hill, while having some benefits that the hill does not have. In this case, all rational sighted persons – regardless of their differing values –  would choose the path to the mountain (‘Object M’) over the path to the hill (‘Object H’).

There may however be sequencing issues. The mountain M may offer benefits X, Y , and Z. (These three should be understood as uncontested benefits; as agreed benefits, though the relative importance of each benefit may be subject to disagreement.) The hill H may offer benefits X or Y; or both. A person whose narrow or impatient vision is particularly focussed on benefit X or Y may choose the hill over the mountain, despite the fact that both choices give both benefits.

(In posing this set of binary choices – Option M versus Option H – each choice involves comparable cost; the choice is based on the ‘seeing’ of the benefits. However, choosing H and then reversing that choice involves additional cost; it’s cheaper to make the better choice first up. Having noted that, it is also costly to delay making a choice; an inferior choice might be better than making no choice. The opportunity cost of choosing H over M – and then settling on H  – is Z. The opportunity to have Z in addition to X and Y is lost.)

Democratic Benefits X, Y, and Z

In what follows, X is reducing the voting age to 16, Y is making the income tax scale more progressive, and Z is the simple adoption of the Universal Income Flat Tax mechanism (UIFT). Before looking at these benefits together, it is necessary to comment on them individually. In doing so, I make the claim that all three represent objective enhancements to democracy. I also understand that – in today’s querulous social environment – there will be initial objections to all three of these suggested benefits. Nevertheless, I am sure that a substantial majority of people believe that democracy is a desirable system of social organisation, and that more democracy is better than less democracy. I believe that the arguments in favour of these benefits are persuasive, at least through a democratic lens.

Last month, the matter of the voting age was in the news: eg Teenagers ask court to lower the voting age, and note this 2018 petition. As I see it, there are three major democratic benefits associated with this reform. First there is a simple extension to the franchise. While this is a valid argument, it is the least persuasive reason because this argument becomes problematic if extended to even younger ages.

The second benefit (Y) is that it makes sense to have a single age that defines adult responsibility; and I am inclined to believe that the arguments in favour of 16 are stronger than 18 or 20 or 21. (Having a single age defining legal adulthood does not refute the fact that there is a life stage from around 16 to under 25 in which older people – especially parents – continue to have duty of care towards their young people. Nor does it suggest that organisations – such as the police force – cannot set their own age limits for recruitment.)

The third benefit is that, at age 16, people for the most part are still at school and living with their parents; and are still relatively open to civic guidance from their elders (including grandparents). So, 16 or 17 is a good age for young people to enter the world of democratic participation, facilitating a cultural bias towards participation over abstention.

On the matter of progressive taxation, the central issue is conceptually simple. It is that, for higher incomes, a person’s disposable income (ie income after taxes and public benefits) should be lower as a percentage of their gross market income (ie income before taxes and public benefits). Essentially, it means that taxes should rise as a percentage of market income as market income increases. This commitment to ‘progressivity’ is one of the core principles of the ‘liberal democratic’ tradition that was forged in the nineteenth and twentieth centuries.

The particular measure which is widely advocated on the political left in New Zealand is that New Zealand’s income tax scale should be extended with the inclusion of an additional tax bracket; something like a tax rate of 40 percent that would kick in at an annual income threshold of about $150,000. Australia has such a tax bracket, as do many other countries. It would in principle increase the progressivity of New Zealand’s income tax scale; and New Zealand has one of the least progressive income tax scales among developed liberal democracies. As in case X (the voting age), there are limits. While a new income tax like this may enhance democracy, further extensions of the ‘taxing the rich more’ concept become democratically (and otherwise) problematic.

On the matter of the simple adoption of the Universal Income Flat Tax mechanism (UIFT), there is no contest to the argument that this is an extension of democracy. By reimagining the existing progressive tax  scale, and filling in the few ‘cracks’ so that no adult is economically disadvantaged, this is a wholly desirable democratic reform that enables every economic citizen to receive a weekly public equity dividend (of $175) in exchange for an income tax rate of 33 percent. (All people earning over $70,000 per year already gain the full $175 weekly benefit; they can calculate their disposable incomes by reducing their gross weekly incomes by 33%, and then adding $175.)

(Note that existing critiques of proposals for a Universal Basic Income are critiques of policies that have substantial differences or add-ons compared to the simple UIFT proposal. Right-wing critiques of ‘big-bang’ UBI proposals mainly focus on financial costs, financial priorities, and labour supply disincentives. Left-wing critiques of these UBI proposals mainly focus on financial priorities, income inadequacy for the most disadvantaged, and the lack of help for people with special needs that exists in some UBI proposals.)

This simple reimagination proposal (UIFT; Benefit Z) has a small financial cost – the cost of filling the few cracks that inevitably exist in present bureaucratised income support regimes – and many financial and non-financial benefits.

The problem I am concerned about here is that, if either of the other proposals (Benefits X or Y) is implemented first then, then the subsequent costs of Benefit Z are raised. Both Benefits X and Y – on their own – reflect sup-optimal pathways towards the greater goal of democratic reform.

The Young Person Problem

Most of the ‘cracks’ in the present ‘bureaucratic regime’ are people aged 18 to 24. While a few are in secondary school, most are either in tertiary education or low-wage (often casual) employment. Of those in tertiary education, most do not qualify for a student allowance on account of their parents’ incomes. (Instead they have the option of a nine-month student loan ‘living allowance’.) Of those in low-waged employment, they get nothing like the unconditional $175 per week that many of their parents receive.

This means that the financial cost of the simple UIFT proposal relates mostly to people under 25 years old.

The natural age to treat as the age of adulthood at present is 18, given that it is the age of enfranchisement, and that 18 is the age for which income-tested ‘Working for Families’ ‘tax credits’ are no longer payable, on children’s behalf, to their parents.

By decreasing the age of enfranchisement from 18 to 16, that would require the UIFT mechanism to displace Working for Families at age 16 instead of at age 18. All 16 and 17 year-olds would qualify for the larger benefit. Thus, the financial cost of a subsequent UIFT would be raised by the cost of paying public equity dividends to 16 and 17 year-olds. This in turn increases the chance of the UIFT – Benefit Z – being rejected on the grounds of financial cost.

It means that it would be better to introduce the UIFT before reducing the age of adulthood to 16. Once a UIFT (Benefit Z) is in place and seen to be neither too expensive nor employment-discouraging, then the later argument for reducing the age of democratic entitlement to 16 should be unproblematic.

To get onto the optimum pathway – the trail to mountain M rather than the trail to hill H – Benefit Z should come into force before Benefit X.

The Progressive Tax Problem

In 2020, it would be simpler and less costly to implement simple UIFT – Benefit Z – than in Australia. In Australia, the tax rate would have to be 37 percent (rather than 33 percent), but that’s not the problem. Australian economic citizens would get a public equity dividend of $240 per week, and pay 37 percent tax on all their income. The bigger problem is Australia’s top tax rate of 45 percent levied on annual income in excessive of $180,000. Australia already has Benefit Y.

If the 45% tax was to be retained upon introducing UIFT, then Australia would have a two-rate rather than a single-rate tax scale. It would mean that people with declared earnings of more than $180,000 per year would experience a clawback on their public equity dividend. That would be undemocratic – to deny a rich person a public equity dividend would be as undemocratic as to deny them the vote. Yes, rich people too have rights.

The more sensible thing to do in Australia would be to simply wipe the 45% tax rate, as redundant and inefficient. That could be politically unpopular though, especially with voters on the left whose principal policy ethos is to transfer (redistribute) money in a targeted way from the rich to the poor.

So, if New Zealand introduces, in 2021, an Australian-style top tax rate, then the pathway to a simple UIFT would be impeded by the practical requirement to abolish that new top rate. It means that, if the second-mentioned of the democratic reforms – Benefit Y – was introduced first then we would be on Pathway H, climbing the sub-optimal hill rather than the more-optimal mountain.

Pathway M – to the mountain – is reached with least cost by implementing Benefit Z first; and X soon after, once any fear of Z has been dispelled. What of Benefit Y? Well, a natural part of the UIFT mechanism is to raise the tax rate and to raise the public equity dividend, under circumstances that economic productivity is increasing or that the income distribution is too unequal. If we properly understand the definition of progressivity, then it turns out that UIFT gives us an efficient way to achieve Benefit Y. The requirement is that simple UIFT is implemented first, and that its underlying capability to counter inequality is employed.

Summary

In our eagerness to make small changes that enhance our democracy, we may be encouraged to make small ad hoc reforms that subsequently make the more important reforms more politically difficult and more financially expensive to implement. So long as we choose to not be blind – so long as we reject wilful blindness – we can see both the mountain and the hill which represent socio-economic improvements. If we start climbing the hill rather than the mountain, then the mountain becomes further away and more difficult to reach. That’s why vision is an important decision-making tool, and why we should understand ‘vision’ to be ‘seeing’ rather than ‘believing’.

1. Representative Democracy

On 26 June, I attended a zoom webinar called ‘Modern politics – 20thC to MMP’, run by Auckland Libraries and Ancestry.com. The speakers were politics’ academics Grant Duncan and Toby Boraman, from Massey University. Duncan is a well-known political scientist, and Boraman is a specialist in Labour History. (An edited recording of the webinar will become available via Auckland Libraries, at some time.)

My first main ‘takeaway’ from the webinar was Grant Duncan’s observation that – since the advent of multiparty proportional representation in New Zealand – while there has been much more gender, religious and ethnic diversity among MPs, the parliament as a whole is increasingly ‘middle class’. Re gender, faith and ethnicity, this change has clearly been accelerated by the 1990s’ advent of proportional representation. Re ‘class’, the change clearly began in the 1980s with the bourgeoisisation of the Labour Party and its voter base. (Today the ‘salariat’ substantially votes Labour, and the ‘precariat’ is fertile political territory for National. Possibly the average income of Labour voters now exceeds the average income of National voters.)

The major implication of this is that Parliament in general – and Labour in particular – is overwhelmingly ‘socially liberal’ but ‘economically conservative’. Further, the journalism profession tends to follow the same socio-economic profile as parliament. It means that whatever new economic problems arise, thinking that may address those problems suffers constant and intellectually lazy pushback. And, within the catchphrase ‘economically conservative’, we may read ‘financially ultra-conservative’.

My second takeaway arose from a question asked of Toby Boraman, who presented a standard left-wing account of the rise of poverty and inequality in New Zealand. A question from the floor was: “What do you think of Universal Basic Income?”. The answer given was that UBI covers a whole spectrum of proposals. On the extreme right, Boraman said, are the minimalist proposals which offer a relatively small amount to all adults in place of all other welfare benefits. This would aggravate inequality. On the extreme left, he said, were proposals to pay a universal benefit equivalent to a living weekly wage; this would be very expensive and would be far from the best way to spend that amount of money.

Boraman, having dismissed the extremes, then dismissed the whole UBI concept without any mention of the practical centrist versions. He went on to argue for an anti-poverty program along the lines of that recently announced by the Green Party. He argued for benefit levels to be substantially raised, and for marginal rates of income tax on high earners to be raised likewise. Thus, he wished to create a left-wing version of the redistributive welfare state. I note here that the redistributive welfare state supplanted the universal welfare state in New Zealand after 1985, under the auspices of ‘Rogernomics’. Welfare targeting in New Zealand took on its present distinctly right-wing form in 1988 (the movement to low marginal tax rates) and in 1991 with the cuts to welfare benefits and the Employment Contracts Act.

It is less than academically honest to dismiss a concept by dismissing the most extreme examples of that concept; it is even less honest when the extreme examples cited do not properly reflect the concept that is supposedly being dismissed. Likewise, it is less than honest to advocate a strengthening of the existing redistributive mechanism and call the result ‘reform’. The redistributive welfare state attempts to transfer income from the people at top of the income spectrum to people who are not employed. Increasing the scale of existing transfers is not ‘reform’. And the retention of means-testing systems which dehumanise those in need of income support is not reform either.

2. Universal Basic Income – Public Equity Dividend

The universal basic income moves income tax and benefit policy in the opposite direction from that of redistributive proposals. It’s a distributive mechanism, not redistribution. And, as with the right to vote, it directly applies to adults only. It’s a democratic mechanism.

When I first used the name ‘universal basic income’ in 1991, I wrote about a mechanism, not an unfunded benefit. Since that time – especially in the twenty-first century – the name ‘universal basic income’ has come to mean, in the public mind, an unconditional universal benefit divorced from any specific funding mechanism. So, I tend not to use the name ‘universal basic income’ so much these days, except in a very general sense. I prefer universal income flat tax (UIFT) when referring to the mechanism and public equity dividend when referring to the specific benefit proposed.

The mechanism is, firstly, to take the top marginal income tax rate (33% in New Zealand) – or for countries with a top marginal rate above 40%, take the highest rate that is not above 40% (eg 37% in Australia) – and tax all market income at that rate. In New Zealand, this would mean that taxpayers earning $70,000 or more per year would incur $9,080 more in income tax ($175 more each week) than they do now. Then, secondly, every economic citizen (of New Zealand, for example) would receive an annual public equity dividend of $9,080 (payable weekly at $175 per week or fortnightly at $350).

This means that all persons presently earning $70,000 or more per year would experience no change to their disposable incomes (ie incomes after deduction of taxes and addition of benefits). These people – persons earning $70,000 or morewhom for present purposes we call ‘high income’ people – benefit, however, by knowing that they would retain their $9,080 dividend if their annual income falls below $70,000.

At the low end of the income spectrum we have people who can be called ‘beneficiaries’: public beneficiaries, private beneficiaries, and hybrid beneficiaries. Public beneficiaries in New Zealand receive cash ‘transfers’ from the Ministry of Social Development (MSD), and/or ‘family tax credits’ tax credits from the Inland Revenue Department (IRD). Private beneficiaries are fully supported by other family members, child support payments, and/or student loan living allowances. Hybrid beneficiaries receive a mix of public and private support, with (in the New Zealand example) their public income support being less than $175 per week.

For current public beneficiaries in New Zealand, under the universal income flat taxmechanism the first $175 per week becomes their public equity dividend. (The remainder of their present benefit becomes a means-tested supplement.) Thus, public beneficiaries neither gain nor lose. However, when their circumstances change, they retain their public equity dividends. These people – public beneficiaries – may be categorised as ‘low income’. Persons who by these definitions are neither ‘high income’ nor ‘low income’ can be called ‘medium income’. Thus, for our purposes, economic citizens fall into one of three categories.

The universal income flat tax mechanism has been fully described for New Zealand in the short third paragraph of this section. Anything else tagged onto a specific universal basic income proposal is exactly that, something else. Thus, the removal of existing public benefits is not a part of the universal income flat tax concept. Nor is any proposal to raise other taxes or introduce new taxes a part of the core concept. Such conjoint proposals, if advocated by some writers, remain secondary proposals and should be critiqued separately. (While some additions tagged onto a universal basic income proposal may be worthy policies, they need to be part of a separate discussion, and should not deflect attention from the core concept.)

(Two points to note. First, as defined, some New Zealand Superannuitants may find themselves, as public beneficiaries, defined as both ‘low income’ and ‘high income’ earners. There is an argument that high-earning public superannuitants should be worse off than they are at present. That argument is addressed in my Universal Dividends and Universal Superannuation. Second, given the housing crisis and the paltry state of housing subsidies in New Zealand, payments made by MSD under the rubric ‘Accommodation Supplement’ should probably not be classed as public benefits.)

3. Equity and the Three Income Categories

In the above section, I have defined ‘high income’, ‘low income’ and ‘medium income’ economic citizens. Under the UIFT mechanism, ‘high income’ and ‘low income’ people neither lose nor gain disposable income. However, both groups stand to gain if changing circumstances take them into the ‘medium income’ group. In effect, both high and low income recipients already receive public equity dividends.

The targeted redistributive welfare state largely ignores the ‘medium income’ group, making this a financially insecure group. The most insecure of these people represent the ‘cracks’ in targeted welfare, the most mistreated people at present. It is the poverty trap created by conditional and means-tested welfare that strongly discourages people from moving out of ‘low income’ status. In the case of the Green Party version of redistributive welfare, the poverty trap becomes a ‘ghetto trap’; less poverty, more trap.

Rights-based public equity dividends practically target the insecure ‘middle income’ group. By definition, all people in this group gain; although for many the gains will be small. The bigger gain for many will be the security of the equity dividend. This represents a second income stream, a component of personal income that is not diminished when a worker’s weekly wages fall.

Under the pure UIFT proposal, how can we afford benefits that stop financially insecure people falling through the ‘welfare cracks’? Under normal circumstances – for example, a growing economy as in January 2020 – many adults in New Zealand are in or close to the ‘high income’ category. There are minimal additional financial costs associated with their public equity dividends. Further, most people in the ‘low income’ category are there for reasons other than unemployment, so there will be many of these people, even in a strong economy. Their incomes are unaffected.

The remaining ‘middle income’ group can gain higher government-sourced payments in lieu of a traditional pre-election round of tax cuts or benefit increases. In other words, this would be tantamount to a ‘tax cut benefit increase’ policy that targets the ‘medium income’ group rather than the ‘high income’ or ‘low income’ groups who are normally targeted.

Other economies arise. The administration deadweight costs for a universal dividend are substantially lower than for a redistributive process. And there are few opportunities for economically inefficient ‘moral hazard’ behaviours such as tax avoidance. Further, many people – especially young single people – once receiving a public equity dividend may still qualify for a small additional benefit. But they may choose to get on with their private lives rather than incurring time-costs engaging with the Ministry of Social Development. The Ministry would both downsize and focus on the people whose needs cannot be met through a combination of wages and equity dividends.

In situations of public health emergency – such as the present Covid19 crisis – there will be many more people falling into in the ‘middle income’ category, and falling within that income category. The total contribution of public equity dividends to household budgets would be higher at such a time; a time when total taxable income is lower than usual. During such times, economies cannot function without substantial deficit funding – the creation of new money which we owe to ourselves. The funding requirements of a public equity dividend during such a crisis are neither higher nor lower than the requirements of any alternative support mechanism. Universal income flat tax represents the most efficient automatic stabilisation mechanism available; a mechanism that minimises job losses in a recession and inflation in an overheated economy.

4. Children

The universal income flat tax mechanism itself says nothing about children. We may note, however, that financially secure parents are best placed to care for their children. (The key idea is that of the aeroplane oxygen mask; parents must be supported first, in order that they may best care for their children.)

The UIFT concept – as applied to New Zealand – would ensure that all caregivers would receive at least $175 per week of publicly sourced income. Those caregivers already receiving more than that – for example, caregivers of large families – would continue to receive what they already receive.

It may well be desirable to return New Zealand to a system of universal family benefits – that is, as existed in New Zealand from 1946 to 1986, universal benefits paid to caregivers on behalf of all children. This is what some people call a universal basic income for children. With an adult universal basic income (aka public equity dividend) paid to all caregivers, the need to additionally pay child universal benefits to caregivers is not so clear. It may be that the additional cost of universal chid benefits is not worth the additional benefit.

5. The Opportunities Party (TOP)

Last week I spoke at a public meeting organised by The Opportunities Party. TOP’s principal policy is a universal basic income; further, TOP’s proposal is pitched to the political centre rather than to left-wing or right-wing voters.

The other invited speakers were Sue Bradford (former Green Party MP) for a left-wing version of UBI, and Don Brash (former leader of National and Act) for a right-wing version. Unfortunately, Bradford had to send her apologies at the last minute. Don Brash, in his short presentation, gave the classic right-wing version. He was looking at a UBI of $9,000 per year and an income tax rate of 30%. (Compare the $9,080 and 33% in the above discussion.) What made Brash’s version distinctly right-wing was his assertion that “logically”, once a UBI was in place there would be no need for other benefits.

I could see no logic in Don Brash’s ‘logic’. While all UBI proposals emphasise rights-based ‘horizontal equity’ over needs-based ‘vertical equity’, redistributive welfare is underpinned by vertical equity principles. The Brash UBI is based solely on horizontal equity principles. I can see no logical reason why all forms of needs-based income support should be abandoned once a rights-based mechanism is introduced. This desire by Don Brash to remove needs-based benefits is the reason why his proposal is not politically viable, easily able to be picked off by sceptics.

Extreme left-wing proposals also deemphasise needs-based supports. Instead they tend to advocate a universal benefit that is high enough for people with divergent needs to live something like a normal life without any market-sourced income (eg without needing wages); it’s a one large size fits all approach. These left-wing versions usually advocate large wealth taxes to pay for the high level of universal benefit.

Such left-wing versions are not politically viable because of the spectre of high taxes (with ‘big government’ connotations), and, especially, because they lack an ‘incentive to work’. Enough people believe that many other people will only contribute economically to their society if coerced to via an implicit threat of poverty; enough people think like this to render an overly generous UBI politically non-viable.

In general, if a policy concept is good, it should not be presented with politically non-viable add-ons. Further, too much change in one single policy sweep – the big-bang policy approach – should be understood as politically non-viable. It means that any UBI policy on offer should stick to the core concepts, and should pay an initial public equity dividend that is seen to be inadequate as a sole income; seen as complementary to market income rather than as an alternative to market income. Set initially at modest levels, public equity dividends free people to seek employment – including precarious employment and risky self-employment – rather than encourage people to become employment-averse.

What of the TOP proposal? It is a good policy, based on the core concepts, and very much pitched at the political centre. A particularly important theme of TOP’s universal basic income policy is that people should not have their economic rights curtailed on account of personal relationships formed. Any liberal policy should emphasise individual rights, while also facilitating shared initiatives.

There are three main points of difference to note between TOP’s policy, and the core concept outlined here:

• The TOP dividend is $13,000 ($250 per week). Thus, it requires additional funding. A form of wealth tax on real estate is proposed. The policy can be understood as a core dividend of $175 per week funded by income tax, plus an extra $75 per week funded by other means. Thus, any critique of the ‘other means’ of funding – the proposed wealth tax – should apply only to the extra $75 of the proposed weekly dividend.

• The TOP proposal pays, additionally to adult dividends, a $40 child dividend, 16% of the adult dividend. This may be an unnecessary complication, which muddies the concept of economic citizenship. Is a child 16% of an economic citizen? It means that a non-employed caregiver in a two-parent family – a traditional homemaker/caregiver – would receive at least $250 per week plus $40 per child. While some additional funding may be required for this, in practice many recipients of these payments would already be getting as much through Family Tax Credits.
• While TOP plans to keep paying traditional benefits (as ‘top-ups’) to people whose benefit entitlement would exceed the dividend, they also talk of closing the Work and Income section of the Ministry of Social Development, the agency that presently pays most benefits. TOP could be more clear about who instead would pay such benefits. It seems to me that one agency – maybe a new agency – could manage and pay all supplementary benefits, including ‘top-up’ family tax credits. This agency should not be Inland Revenue (IRD); the IRD should not hold any information about clients’ personal relationships.

6. Finally

Once a public equity dividend – based on core universal income flat tax principles – is in place, then any other mechanism would seem to be ridiculously inefficient. Once such a mechanism is in place, then right-wing political parties would tend to favour lower public equity dividends coupled with a lower income tax rate. And left-wing political parties would tend to favour higher equity dividends with a higher income tax rate. More precariously employed people would tend to vote left; and people with more established and reliable incomes would tend to vote for right-wing parties. (Politics of course would be much wider than this! Politics would still be politics.)

This would see a reversal of the trends to political representation shown by Grant Duncan. The political left would once again become the side of politics that represents the financially insecure.

Further, if labour becomes increasingly automated – done more by mechanical slaves than by people – then the ensuing problem of income maldistribution would be practically resolved by regular incremental increases to both public equity dividends and the income tax rate.

Likewise, a need for growth to slow down to save the planet from environmental distress could also be addressed by incrementally higher public equity dividends. Employed and self-employed people would be encouraged to gradually reduce their labour supply, raising productivity, and maybe producing a bit less and buying a bit less.

Fact Checking

On Mondays – or Tuesdays after public holidays – National Radio’s Kathryn Ryan runs a session called ‘Political Commentators’. On 28 April, from the right was regular commentator Matthew Hooton. From the left was Neal Jones who is listed as: “Chief of Staff to Labour Leader Jacinda Ardern, and prior to that was Chief of Staff to Andrew Little”.

It was good to hear Hooton now becoming something of an advocate for a Universal Basic Income (UBI), though (given past comments) I am not clear yet that he understands it fully.

It was concerning, however, to hear Jones – a man close to Prime Minister Jacinda Ardern – repeating falsehoods about Universal Basic Income. Jones said that a key problem with UBI is that it would be paid to New Zealand’s richest man, Graeme Hart. That comment reflects an attitude that is dismissive of universalism. Universalism is the basic principle that underpins democracy; and, more generally, underpins ‘horizontal equity’, the idea that we are all equal in our economic and other civil rights.

Perhaps even more importunately, Jones’ comment on Tuesday was false.

It was me who in 1991 first coined the term ‘Universal Basic Income’; my aim was to connect the established concept of ‘Basic Income’ (‘Citizens Income’ in the United Kingdom) with insights gleaned from New Zealand’s tradition of universal income support, as established in the 1938 Social Security reforms and as reaffirmed in the 1972 Royal Commission on Social Security.

The mechanism I envisaged in 1991 is: “a universal tax credit available to every adult – the universal basic income (UBI) – and a moderately high flat tax rate”.

(Refer to my ‘Briefing Paper’ From Universal Basic Income to Public Equity Dividends (2018) which in turn links to a report that links to, among other papers, my original 1991 University of Auckland Policy Discussion Paper. To the best of my knowledge, this was the first ever published use of the name ‘Universal Basic Income’. The name started to be used internationally after I presented a paper at the Basic Income European Network conference in Vienna in 1996.)

Since the 1990s, the concept of Universal Basic Income has become poorly defined, and tends to be seen, simplistically, as an unfunded handout, a kind of regularly paid ‘helicopter money’. In that sense, it is true that some proposals that use the name ‘Universal Basic Income’ would raise Graeme Hart’s income. But not all versions of UBI. In those versions that are truest to the underlying concept – Graeme Hart’s income would be unaffected.

So, once again, for the remainder of this essay, I am going to avoid the term ‘Universal Basic Income’. The term I will use here is ‘Universal Income Flat Tax’ (UIFT, if you will). This is a mechanism made up from a universal income and a single (flat) rate of income tax. Thus, the universal income is funded by the removal of the lower marginal tax rates. In the New Zealand case, that means the universal income replaces the 10.5%, 17.5% and 30% marginal tax concessions. With a single tax rate of 33% and a universal income of $175 per week, Graeme Hart would be completely unaffected, at least in the implementation phase. This represents a reconceptualisation of income tax rather than a redistribution of income.

The Mechanism at Work

Rather than labour the point about how we introduce the UIFT mechanism, it’s good to get the vision of the mechanism in action. It is a mechanism that addresses the issues of stability, precarity, equity, and sustainability. UIFT is not a sufficient panacea to cure all our economic ailments, just as the introduction of MMP did not remove the politics from politics. UIFT is, however, a mechanism that makes the necessary possible. It is an enabling mechanism for the evolution of liberal democracy. The Covid19 global emergency has shown more clearly than ever that our present ways of thinking about public finance are disabling, and as such threaten to bring about an end to liberal democracy in some parts of the world.

(Much of the disabling is due to the fact that many welfare benefits continue to be delivered to us in the form of tax exemptions, allowances, concessions and graduations. These are attractive to recipients because they are unconditional – they do not have to be applied for – and to policymakers because they barely contributes to public debates about social welfare. The big problem with this kind of benefit is that, when a person’s income declines, these tax-related benefits also decline. We tend to think of benefits as a cushion, or a safety net. These tax-related benefits represent the cushion being removed when we fall. The best benefits are cushions that are there for us when we fall, rather than cushions given to us when convalescing from an uncushioned fall.)

So, imagine that we already have in place a 33 percent income tax and a weekly basic universal income of $175. (For present beneficiaries, this $175 per week would represent the first $175 of their present benefit. This situation does not represent any substantial change from the income distribution we have become accustomed to. It is a conceptual change.)

How could we use this tax-benefit mechanism to address the four issues: stability; precarity; equity; sustainability?

Stability.

Stabilisation is the familiar issue of how societies use fiscal and monetary policies to manage normal economic downturns and upturns in the economy. Governments expect to pay more welfare benefits in an economic contraction (eg a recession), fewer benefits in an expansion. And governments expect to collect fewer taxes in a contraction, more taxes in an expansion.  Thus, we expect the government to run budget deficits during contractions and budget surpluses during expansions.

When we have welfare benefits that are easy to access, this process is known as automatic stabilisation. While such automatic benefits are good for the recipients, they are especially good for the stability of the economy as a whole. (Countries that already had a system of benefits in place before the Great Depression of the 1930s – notably Sweden and the United Kingdom – emerged from that emergency comparatively quickly, in 1932. Other countries – for example France and the United States – were still in economic depression at the onset of World War 2.)

The more bureaucratic the process of accessing benefits – and the more conditional those benefits are – the less efficient is the stabilisation process. (Reliance on benefits delivered as tax concessions is especially destabilising, because these benefits are lost when they are most needed. A particularly egregious example of a destabilising benefit in New Zealand at present is the In-Work Tax Credit, which, as its name suggests, is lost when recipients lose their employment. Another such benefit is the KiwiSaver annual tax credit of $521, which is progressively lost as a person’s gross weekly income falls below $1,043.)

Under the UIFT mechanism, the full universal income is retained when a person loses their job, or suffers a reduction in wages. And it’s instant, a genuine cushion; not a subsequent palliative. Further, this cushion benefit cushions people with partners still in work; many people (especially married women) do not qualify at all for present targeted bureaucratic Work and Income benefits.

When there is an economic expansion, under this UIFT regime, government income tax revenue increases by 33 cents in the dollar for every extra dollar of gross income; thus, during a normal economic upturn, the government moves into surplus more quickly and more automatically.

Precarity.

Precarity is the situation where many people are employed on short-term contracts; some may be expected to be ‘on call’ without being compensated for that restricted time. It also refers to many the self-employed people – free-lancers and small business operatives – whose labour incomes fluctuate with little predictability.

For these people, a basic universal income works as a personal economic stabiliser – a cushion allowing some income tide-over during down times – with a higher marginal tax rate which offsets this cushion in the good times. With the UIFT mechanism in place, these people can remain self-reliant, and will have minimal need to engage the welfare bureaucracy which needs to prioritise those people with structural income incapacity.

Further, the unconditional benefit component of the UIFT creates some incentive for self-employed workers to retain work-life balance, by not overworking at certain times, and by not penalising them when they need some downtime, such as family time.

Equity.

Equity is a central component of democracy. And equity represents the equal ownership of productive resources. Private equity represents the equal ownership rights of the principals of private businesses. Public equity represents the equal ownership rights of all economic citizens over those many productive resources which are not privately owned. Equity-holders expect to receive an economic return on their equity. There is no law of economics that restricts this capitalist expectation to private shareholders.

The consequence of this liberal democratic reasoning is that the universal income component of UIFT can be properly understood as an economic dividend; interest on the public equity represented by the public commons. And it also means that a universal income that is basic (ie low) need not remain low under all possible future circumstances.

Just as political citizenship reflects the universal suffrage, one person one vote, so, in a mature democracy, economic citizenship requires a universal publicly-sourced private income. One person, one equity dividend. A reflection on equity principles suggests that the universal income part of the UIFT mechanism should be understood as a public equity dividend.

A universal publicly-sourced private income is capital income, not labour income. It is a social dividend, not a wage. It is a yield on public capital. It is social capitalism at work, not socialism.

The word ‘equitable’ must be associated with an equalising mechanism. Here we may consider both financial inequality and time inequality.

A liberal democratic dividend means that one substantial part of the economic pie is distributed equally, and that the remainder of the economic pie is distributed unequally in line with market forces. It means that people experiencing substantial declines in their market incomes retain a personal stake in their liberal democracy, through their rights to an income from the public share. And it means that people experiencing increases in their market incomes do not simultaneously draw increases from the public share. Financial inequality is mitigated.

Time inequality is addressed, because the inclusion of an unconditional universal income gives encouragement to the overworked to work less, and for the underworked to work more. Without such an equalising mechanism, workers, who also lose public benefits when they lose private incomes, are disincentivised from reducing their work overloads. Likewise, people with little or no work know that, with UIFT, they will retain their publicly-sourced private income when they take on increased market workloads. The overworked work less and the underworked work more. For the unemployed and the underemployed, a basic universal income is work enabling; it facilitates rather than restricts labour supply.

Sustainability.

This issue relates to both the issue of robots and the issue of climate change. It relates more generally to the possibilities of being able to enjoy high living standards in a more relaxed form, and having a supply-elastic economy. At present we try to have a full-capacity (ie, ‘maxed out’) growing economy where we have little choice but to overproduce and overconsume. At present, our overconsumption is someone else’s livelihood.

The robot concern is that our economies will become too productive. The only thing scary about that scenario is that, at present, we have no social mechanism to distribute the proceeds of that productivity. In the absence of such a mechanism, the endgame is extreme inequality, which means (among other things) extreme poverty. An advanced society with extreme poverty has high unemployment of bothpeople and robots.

How does a mature UIFT mechanism address this issue? It addresses the issue by both raising the amount of universal income and by raising the income tax rate. If done in a neutral manner, then the overall extent of economic inequality (measured by the Gini Coefficient) would be unchanged.

In order to avoid increased inequality, both the universal benefit amount and the tax rate would need to increase. This would be a simple reflection of increasing capital income relative to labour income; more gross income accruing to ownership relative to income accruing to effort.

(At this point we might note, Graeme Hart, as a likely robot investor, would be even richer than he is now, before tax. While the UIFT mechanism would give him an increased public equity dividend, he would also pay more income tax. The net effect of these three influences on Hart’s income should be that his ‘disposable income’ would increase at about the national average.)

As this process of rising incomes and rising income taxes unfolds, it means that the public share of the economic pie increases relative to the market share. This increases the willingness of the overworked to work less. And it increases the understanding that paid work is a cost rather than a benefit. Rising public equity dividends relative to total income gives the necessary signal to the entire workforce to work less for money, and to embark on more projects that may not deliver financial returns. More voluntary unemployment, less involuntary unemployment. More ‘slack’, in the sense that slack represents market supply elasticity. An economy with more slack has the capacity to increase production when it needs to. In normal times, liberal capitalist economies should not be ‘maxed-out’; only in certain types of emergency.

We can now imagine a democratic capitalist world order, in which people choose to both earn less and spend less, while being assured that basic economic needs are covered, as well as many higher-order needs. Ironically, in our Covid19 lockdowns many of us gained a sense of that, though missing the coffee and ambience of the local café. But not missing the wider rat-race.

It is this slower living – which we have seen briefly – that has the potential to bring about environmental sustainability. We have heard more birdsong. We have smelled the flowers. We have heard that the people in China have lately seen the stars in the firmament.

We can have a high productivity economy without maxing-out our countries’ GDPs. We just need a mechanism to make the necessary possible.

What is the First Step?

In New Zealand, the first step is to reconceptualise our tax-benefit system, and in the process to apply a little relief to those who work hard without receiving high wages. This step would have easily been funded through tax revenue in 2019, pre-Covid19. Today this first step should be funded – and immediately, eg through the 14 May 2020 Budget – by Reserve Bank credit, just as the emergency wage subsidies have been funded.

See my Five Examples for any further clarification about how the transition to UIFT would affect different people.

In many other countries, the process will be more difficult. They have more complexities to unravel (compared to New Zealand) in their present income-tax scales. Australia could make the transition quite easily, with a 37% tax rate and a basic universal income of $240 per week.

We need political commentators with open minds.

————————————–

References:

Universal Basic Income (or Basic Universal Income) and Covid19. Scoop or Evening Report, 7 April 2020.

From Universal Basic Income to Public Equity Dividends (2018); Policy Observatory Briefing Papers, AUT, Auckland

Public Equity and Tax-Benefit Reform (2017); Policy Observatory, AUT, Auckland

The Universal Welfare State incorporating proposals for a Universal Basic Income, Keith Rankin, University of Auckland Policy Discussion Paper No.12, 1991

Constructing a Social Wage and a Social Dividend from New Zealand’s tax-benefit system, paper presented to the Basic Income European Network (BIEN) international conference; Vienna, Austria, 12-14 September 1996.
(Note that in this paper, I used the terms ‘full universal basic income’ and ‘adequate universal basic income’. My use here of words such as ‘full’ and ‘adequate’ are suggestive of the aspiration that a basic income could be more than a basic dividend; rather a substitute for a wage, and therefore a possible disincentive to engage with the labour market. However my emphasis in this paper – and subsequent papers – was the ‘social dividend’, a basic universal income that might eventually evolve into a non-basic payment.)

A Plea for Political Commentary with a Semblance of Accuracy

Once again it was very disappointing to hear a radio programme poo-pooing the idea of a Universal Basic Income by misrepresenting it.

Refer: (The Panel, National Radio, 6 April 2020)
https://www.rnz.co.nz/national/programmes/thepanel/audio/2018741718/a-universal-basic-income-to-all-its-citizens

And my previous attempt (Keith Rankin on Universal Basic Income and Covid‑19) to rebuff the incorrect information.

This example was disappointing because the invited guest – Max Rashbrooke – is familiar with my work, and made no attempt to discuss anything like what I have been advocating for many years. And the panellist Janet Wilson made a very over‑the‑top and totally ignorant dismissal of the proposal.

My proposal for a Basic Universal Income (BUI) is very straightforward. (I will use this name to distinguish my proposal from the various ‘straw man’ versions of UBI that are in circulation.)

New Zealand should (and can easily) adopt a flat income tax rate of 33% and an annual Basic Universal‑Income of $9,080, which amounts to $175 per week.

Max Rashbrooke was considering a UBI of $13,000 without any changes to income taxes. (I dismissed this idea on 25 March by saying: “It is not possible to offer any kind of Universal Basic Income … at the level of New Zealand Superannuation”.) He also said that a UBI of anything less would be of minimal benefit, so therefore unworthy of consideration.

Max Rashbrooke’s suggestion was that a new unfunded universal benefit payable to working‑age New Zealanders was a very inefficient way to use all that extra money (which I calculate to be about $40 billion). But nobody has ever advocated what Max Rashbrooke was suggesting.

Then Janet Wilson said that it was completely ridiculous to pay a highly paid person such as herself an annual UBI of $11,000. Rather she favoured an extremely targeted (and necessarily bureaucratic) form of helping people affected by the present emergency. She did not realise that a properly-structured UBI would only affect her if her circumstances changed.

Five Examples

So let’s consider five imaginary people:

• Janet, who grosses $100,000 a year before tax
• Max, who grosses $70,000 a year before tax
• Bob, who grosses $40,000 a year before tax
• Jill, a student with a student loan; she lives with her parents
• Fred, a beneficiary

Janet.
At present she pays $23,920 in income tax, leaving her with $76,080.
Under my proposal she receives $67,000 after tax and receives a Basic Universal Income of $9,080, leaving her with $76,080. If she is content with $76,080 under the old formula, she should be content with $76,080 under the new formula.

Max.
At present he pays $14,020 in income tax, leaving him with $55,980.
Under my proposal he receives $46,900 after tax and receives a Basic Universal Income of $9,080, leaving him with $55,980. If he is content with $55,980 under the old formula, he should be content with $55,980 under the new formula.

Bob.
At present he pays $6,020 in income tax, leaving him with $33,980.
Under my proposal he receives $26,800 after tax and receives a Basic Universal Income of $9,080, leaving him with $35,880. He is better off by $1,900.

Jill.
At present she receives an annual student loan living allowance of about $8,000. This has to be repaid when she is in subsequent employment.
Under my proposal she receives a Basic Universal Income instead. And she pays tax on any parttime work at a rate of 33 percent. If she has no parttime employment, she is better off by $1,000 today, and does not have to repay the money in the future.

Fred.
Fred is a beneficiary, receiving a jobseeker (unemployment) benefit (after tax) of about $13,080 per year.
Under my proposal he receives a BUI of $9,080 plus a Jobseeker Benefit of $4,000.
So his disposable income does not change.

Of these five people, only Bob and Jill would see an immediate rise in the income available for them to spend. However, all five benefit from the Basic Universal Income.

Janet and Max benefit because, if either loses their job (or their business), they would have an immediate tideover weekly income of $175 to call upon, and they may decide not to bother applying for an unemployment benefit (leaving the benefit queue to the needy).

Bob benefits directly, and substantially more if, for example, he is asked to take a 25 percent pay cut. In that event he would be grossing $30,000 a year, instead of $40,000.
Under the present income tax scale, with a $30,000 wage Fred would receive $25,730 after tax.
Under my BUI proposal he would receive $20,100 in after tax wages, plus a BUI $9,080, totalling $29,180. Bob would be $3,450 better off. The BUI is a very real cushion to the blow of having to work shorttime and take a wage cut. And he does not have to apply to MSD to receive that cushion; he has it already.

Jill gains what is effectively a Universal Student Living Allowance. She is no longer treated as if she is a child until she is aged 25. She can of course take out a student loan to pay her course fees, and to pay for other course-related costs. And, by paying tax at 33 percent, she is discouraged from taking on too much paid work at the expense of her studies. She has a better study‑life balance.

Fred gains, because if he accepts a casual, parttime or precarious job, he still gets to keep the first $9,080 of his benefit. And if he loses or otherwise finishes that job, there is no benefit stand‑down. He still gets his BUI, and may decide to wait before applying for the extra $4,000 Jobseeker Benefit; instead he can devote his time and effort into finding further employment.

Looking Ahead

A Basic Universal Income – as outlined – is modest, affordable and technically easy to implement. It is a future‑looking policy that benefits every working‑age adult, and hurts nobody.

It has one other major benefit. Once there is a BUI in place (with the flat tax that underpins it), then, if an emergency (such as the present Covid‑19 emergency) deepens, then it is an easy matter to address the situation by raising the BUI (eg from $175 to $200 per week), allowing everyone to benefit in a very immediate, democratic and straightforward way.

A Basic Universal Income is not a wage. It is much better understood as a basic productivity dividend. High productivity societies cannotafford to not pay productivity dividends. The consequence of failure to pay productivity dividends is unsustainable inequality and social discord.

Criticism?

I have been pushing this proposal for a long time now. And I have yet to hear a single argument against it. With the present public health and economic emergency in place, it is high time that this proposal – not some other straw man proposal – was subject to an informedpublic discussion.

My sense is that, despite the simplicity of the proposal, it is not properly understood. I think that the misunderstanding has something to do with the flat tax rate that is central to the proposal. Possibly many people do not understand the difference between a flat income tax and the prevailing alternative?

Crises should not be wasted. Now is an especially good time to look to the future.

I keep hearing rather unfortunate ‘expert’ comments in response to questions asked about Universal Basic Income (UBI) as a way of responding to the Covid‑19 economic contraction. These comments all relate to a ‘straw man’ concept of UBI that is obviously unaffordable and impractical. It is not possible to offer any kind of Universal Basic Income (as an unconditional payment to all adult tax‑residents) at the level of New Zealand Superannuation.

What is both possible and necessary is to offer a basic universal income – initially set at $175 per week – in conjunction with a flat rate of income tax of 33 percent.

By doing what is possible and necessary, we provide bridging income guarantees to all New Zealanders who risk income losses, in in a way that requires no new bureaucratic input.

By doing this, all people with salaries or other earnings of more than $1,346 per week would receive exactly the same after tax as they do now. They already receive this benefit.

Further, all beneficiaries and superannuitants would continue to receive exactly the same as they already expect to receive after April 1. This $175 per week benefit is, in effect, the first part of their existing benefit.

Working people on incomes lower than $1,346 per week would receive more than they do now. All working people expecting to suffer a loss of income will be assured that they would continue to receive this $175 benefit as the market component their income falls.

If the $175 per week proves to be too low, then it can subsequently be adjusted upwards.

It’s simple. Really simple. And necessary. It is a way to maintain a high productivity economy that experiences a loss of gross domestic product. It is an easy way of ensuring that everybody gets a slice of a shrinking economic pie.

To avoid confusion, let’s call the $175 per week a Basic Universal Income (BUI).

See also: Keith Rankin Analysis – Economic Emergency 2020

Will there be a resumption of normality? For a few weeks now, awareness has been growing that the global economic consequences of the Covid19 epidemic (that WHO today notes has “characteristics of a pandemic”) may be greater than the medical consequences, even if the European death rates fail to level‑off, even if EU death rates repeat in the USA and UK.

Some economic consequences of Covid19 represent trends that were already underway. So normality, as most of us understand it, is probably not going to resume.

One of the more obvious economic consequences is the impact on the global travel industry. On this, my reading is that the travel industry already reached a turning point in 2019. This turning point was driven in part by concerns (especially but not only by young people) about the contribution of the travel industry to climate change through fossil fuel emissions. It was also driven by more general concerns about enforced consumerism; and the consequences of ongoing exponential accumulation of other waste products (such as plastics) and their impacts on the food chain. We may add other environmental concerns – deforestation, and water insecurity – that contribute to a changing pattern of economic demand in the world. Further, the shear scale of mass tourism was making the ‘product’ less attractive.

Indeed, increased inequality and income insecurity had already limited the growth potential of global tourism.

We also note that the global travel industry includes huge amounts of business travel, much of which is not strictly necessary, and is relatively easily cut from the budgets of stressed organisations. Structural change here was already underway, with, for example, academics increasingly able to collaborate and converse without attending formal conferences.

The global travel industry works today through economies of scale, and huge amounts of capital – eg in large aircraft and ships. Massive amounts of capital have already been sunk in fleets of airliners, cruise ships, container ships and oil tankers – and in the capacity to keep building these behemoths. An accelerated depreciation of all this fixed capital may not be easily reversed.

My argument here is that trend‑changes already underway may be substantially misattributed to an economic shock – an unknown unknown from a 2019 perspective, the Covid19 pandemic. This misattribution may encourage ongoing intellectual laziness. Why investigate further when we already have an explanation for the rapid‑onset decline of a major world industry?

Yes, there will be an economic recovery – indeed a substantial recovery. But the travel industry will probably not fully recover. It was already tainted. The decline will be hastened by Covid19, which I suspect will prove to be the world’s first middle‑class health pandemic.

Stagflation?

Covid19 is a virus. Another virus is the fear virus. This is the one that is self‑fulfilling. There nothing else quite like middle‑class fear. The global financial crisis of 2008 was a crisis of fear.

This crisis may be different, because global supply‑chains have been severed in ways that never happened in 2008. The recovery of these supply chains will be critical to a resumption of anything like normality, and should already be well underway. The crucial ingredient to this recovery is China (as it was to the post‑2008 recovery). We in New Zealand (and Australia) should get over our white middle class racism towards China – China is now a net importer of Covid19 – and urgently re-establish supply chains with that country.

Otherwise, the central macroeconomic consequence of Covid19 will be substantial reduction in supply elasticity. (In New Zealand we have already become familiar with this problem in the construction industry, where shortages of building resources proved more important than shortages of money.)

A supply‑elastic economy is one that can easily respond to both increases in aggregate demand and reorientation of economic demand in favour of some products at the expense of demand for others. A supply‑elastic economy is an economy that is not ‘maxed‑out’.

If policymakers address the present crisis as a conventional macroeconomic crisis – as a crisis of insufficient consumer and investment spending – then a contrived increase in aggregate demand may be met by an unresponsive aggregate supply. Result, ‘stagflation’, the bugbear of the late 1970s. In those years, supply was restricted on account of high interest rates (monetarist anti‑inflation policies), corporate rent‑seeking, high oil prices, and labour‑market rigidities.

This time, a simple inability for businesses to acquire necessary materials may underpin inelastic supply. This is likely to be exacerbated by rigidities in transferring human resources from white‑collar service employment (essentially the overpaid ‘bullshit’ sector described by David Graeber in his book ‘Bullshit Jobs’) into employment in sectors that contribute to our supply-chains.) Once again, we have pre‑existing constraints on aggregate supply combining with the new constraints arising from the Covid19 contagion.

This situation requires a more nuanced response than reliance on monetary policy easing, which (along with China) saved financial capitalism from the 2008 financial crisis.

The good news, this time, is that excess global transport capacity – arising from less tourist and business travel – may be converted increasingly into freight capacity. Already cheap airfares were possible to a large extent because passenger aircraft were also carrying freight.

There will be one new ongoing supply constraint to note. Increased absence from work, due to much higher enforcement of virus‑free workplaces, will lead to reduced economic capacity, especially in the winter months.

Nevertheless, my sense is that global supply chains can quickly revive, and that the 2020s will turn out to be a decade in which constrained consumer demand re‑establishes itself as the more intransigent problem.

National policy response? Universal payment.

What should be the New Zealand government’s economic response? It should be a response that facilitates a medium‑term transition to a form of capitalism that can adjust to structural constraints on both aggregate demand (ie a movement away from consumerism) and aggregate supply (ie less‑stressed and less‑vulnerable supply chains), while not necessarily promoting those constraints.

We need simple easily‑implemented economic solutions that do not depend on the restoration of economic growth. New Zealand, with its comparatively simple income tax scale, is able to make changes that fulfil this specification.

The suggested change is this. Every New Zealander over 18 could (say from 1 July 2020) be granted a weekly credit of $175. To offset this, all personal income would be taxed at 33 percent.

This is much less radical than it sounds. Consider six examples:

Persons earning more than $70,000 a year would notice no change in their present circumstances. But, if they lose their job, they will keep their weekly $175 unconditionally. They would only have to apply to Work and Income if they need support over and above this.

Persons earning $48,000 a year would gain $12.70 per week. And, if they lose their job, they will keep their weekly $175 unconditionally. They would only have to apply to Work and Income if they require support over and above this. Persons earning less than $48,000 would gain more than $12.70.

Beneficiaries (including Superannuitants) would notice no immediate change in their present circumstances. $175 of their benefits would be classed as inviolable, so would not be lost if they enter into to some form of employment or new relationship. (A simple variation of the policy could see high‑earning Superannuitants becoming upto $70 per week worse off.)

Working for Families tax credits are payable currently to the lower-earning parent in many families. Parents already receiving weekly Working for Families tax credits in excess of $175 would not gain more immediately. But they would secure their $175; they would still get at least $175 if a change of circumstances reduces their Working for Families entitlement.

Low income self‑employed people would gain as a result of this initiative. They would be assured of $175 every week, regardless of the vicissitudes of the marketplace.

Domestic tertiary students would be assured of $175 per week, regardless of parental income or part‑time jobs. (A public affordability option here would be to discontinue free tertiary fees, thereby using student loans more for fees and less for living costs.)

The universal payment would serve as a very efficient ‘automatic stabiliser’, allowing the domestic economy to keep ticking over during periods of market uncertainty. It also would mean that, in conditions of low discretionary demand (eg due to less‑consumerist spending choices), people will be assured of a basic universal income. They will be more easily able to choose to enjoy the benefits of past productivity gains by opting for less stressful and more sustainable lifestyles. Aggregate incomes necessarily fall when most people choose to work less and spend less. Universal payments make this conservationist option possible, though not necessary.

Universal payments, to work effectively, need to be indexed at least to prices. It would be better to index the universal payment to a measure such as gross domestic product per person, ensuring that the payment would reflect productivity growth. Also, the presence of such universal payments gives an easy stimulus option for future crises; governments may simply raise the universal payment (in addition to regular indexed increases) as an alternative to cutting taxes.

In Closing

Covid19 presents us with a unique set of economic challenges. Are we up for it? The biggest threat to successful policymaking is our own intellectual laziness. Governments will only do the right things if pressured to do so.

See Also: Economics: Keith Rankin on Universal Basic Income and Covid-19

Here I just consider two typical New Zealanders of different generations, and two policy options. And no jargon.

Policy Options:

1. 1. Complex option; the status quo.
   2. Simple option: all New Zealanders over 18 receive a universal dividend of $175 per week; additionally, New Zealanders over 65 get a universal superannuation of $171 per week; all income is taxed at 33 cents in the dollar. (The two universal payments combine to $18,000 per year.)

Example People:

1. 1. ‘Married’ persons aged over 65.
   2. ‘Married’ persons with children, aged 18 to 64, with partners grossing around $35,000 a year. At lower household incomes, they qualify for Working for Families ‘tax credits’ and Accommodation Supplements.

Example People Findings

The chart looks at differences in the available weekly incomes of these example people, as their gross annual incomes vary from $0 to $100,000 per year; that is, the differences that would apply if Policy Option 1 was replaced by Policy Option 2.

(Note on Policy Option 1. Working for Families ‘tax credits’ are generally paid to children’s caregiver parents. Typically, the caregivers would be the lowerearning parents. However, in the scenario here, Example People 2 may be earning more or less than their partners, depending where they are on the chart’s income scale. To deal with this I have attributed these payments equally to each parent.)

(Note on Policy Option 2. This option regards a ‘superannuitant’ as any New Zealander aged over 65, and ‘beneficiary’ as being any New Zealander aged 18-64 who presently receives total public benefits in excess of $175 per week. With Policy Option 2, the first $175 per week of beneficiaries’ benefits becomes an unconditional universal dividend. The remainder continues to be a conditional payment.)

The chart shows that, for Policy Option 2, Example People 1 (‘senior citizens’) would gain about $30 per week if they have zero private earnings. That weekly gain falls to $0 per week if they gross $10,000 in a tax year. Senior citizens earning around $35,000 would be around $60 worse off under Policy Option 2 than under Policy Option 1. Higherearning seniors would be $70 per week worse off. The main losers from Option 2 would be higherearning superannuitants.

The blue part of the chart shows that no workingage people would be worse off than at present, and that some would gain. Their actual gains arising from Policy Option 2, which would vary from person to person, peak in our case at around $28,000. The main gainers from Option 2 would be minimumwage workers, and many part-time workers whose earnings are critical to their household budgets.

It is important to note that people of working age earning over $70,000 per year would experience no change. And persons earning between $50,000 and $70,000 – nearly half of all fulltime workers, would gain up to $10 per week.

Other Benefits of Policy Option 2

An important group of gainers would be young people – for example 2024 yearolds – a number of whom are dependent on their parents; others are beneficiaries trapped in benefit poverty. One of the great misfortunes of our times is the difficulty too many young people face in making the transition to economic independence, and to the personal autonomy that ensues from economic independence.

If we consider beneficiaries in general, this policy will not give them any more money directly. But, by allowing them to keep their universal dividend when they take on more paid work, the policy removes their poverty traps.

Policy Option 2 ticks all the boxes: it is affordable, it is simple, it is democratic, and it effectively redistributes income from comfortablyoff ‘boomers’ to ‘Gen-X’ ‘battlers’ and to millennials struggling in an environment of punitive benefits and precarious work. Option 2 also facilitates fulltime workers (eg 40hourperweek workers) to work fewer hours (eg 30 hours per week) and to live less stressed lives. It is a ‘winwinwinwinwin’ policy option. That’s five wins. Further, there would be a reduction in requirement for bureaucratic services as fewer people would seek help through conditional benefits. Tax collection would be substantially simplified.

There are simple and affordable solutions to our seemingly intransigent income distribution problems. It just requires a willingness to see. Thinking that feels bold to one generation, once absorbed, becomes commonsense to the next generation. Traditional ‘National Party’ tax cut policies are blighted by the fact that higher earners gain more than lower earners. In Policy Option 2, the gains go to where they are needed, the rich gain nothing, and the old rich become worse off.

Less targeting of benefits can mean better targeting. Less can be more.

Select Publications:

2019: http://socialalternatives.com/issues/basic-income-and-new-universalism

2018: https://www.nzae.org.nz/events/nzae-conference-2018/2018-conference-papers

2017: https://thepolicyobservatory.aut.ac.nz/publications/public-equity-and-tax-benefit-reform

2016: https://scholarworks.wmich.edu/jssw/vol43/iss3/5/

2011: https://www.nzae.org.nz/events/nzae-conference-2011/programme

1998: https://www.msd.govt.nz/about-msd-and-our-work/publications-resources/journals-and-magazines/social-policy-journal/spj10/rejoinder-to-david-preston.html

1997: https://www.msd.govt.nz/about-msd-and-our-work/publications-resources/journals-and-magazines/social-policy-journal/spj09/constructing-a-universal-basic-income-and-social-wage.html

1991: http://keithrankin.co.nz/kr_uws1991.pdf