Thought for the Day: Income Distribution, not Redistribution

Monday, 16 February 2015, 10:01 am
Column: Keith Rankin

I have been taking a new look at Gareth Morgan's 2011 book The Big Kahuna: Turning Tax and Welfare in New Zealand on its Head. By and large it's an excellent popular contribution by an economist to the debate about the need for some kind of unconditional publicly-sourced income in New Zealand, and by extension, in other countries too.

One problem I have, more with the interpretation of the book than the book itself, is that it links what seems like a radical new wealth tax to his UBI (unconditional basic income or universal basic income) proposal. Thus the overall scheme advocated is a CCT/UBI. Regardless of the merit or otherwise of CCT (comprehensive capital tax), this becomes a step too far for politicians; too much in one hit to be practical.

The more serious concern that I have is Morgan's persistent use of the words 'redistribution' and 'transfer'. From the conventional assumption that all income-generating property is private or private-like, the first cut of income distribution is to private parties (or private-like state-owned-enterprises) only. This means that the public is a secondary claimant on income, and that taxation by definition represents a secondary redistributive claim on income.

If we make the mental leap to the realisation that productive assets in the public domain are owned by everybody rather than by nobody, then the public 'sovereign' also becomes a significant primaryclaimant on national income. Thus the sovereign collecting its share of income becomes a distributive rather than a redistributive agent.

That means that paying some level of unconditional income to every adult New Zealander represents a distribution rather than a transfer of public income. Just as businesses retain some income and distribute the rest to equity holders, governments on behalf of the sovereign public can do the same. It's not rocket science.

The distribution of a portion of public funds as an unconditional income ('public equity dividend') does not prevent some of the income retained by government from being subsequently redistributed as transfer payments (eg as family tax credits or as unemployment benefits or as accommodation supplements). The key principle is that the sovereign public is a primary claimant on national income, and that principle alone forms the basis of a direct distribution of public funds to the public.

Part of the problem with the word 'redistribution' is that it has two meanings: one 'normative' and one 'positive'. The normative meaning is the Robin Hood meaning, and is tantamount to 'theft'. Even people who stand to gain from 'redistributive theft' may be uncomfortable with the concept. From this point of view, the initial (first cut) distribution of income possesses a sacred quality. So the policy priority should be to get the first cut right; or at least less wrong than it is at present.

The other (positive, academic) meaning of 'redistribution' is simply a 'change in distribution' without any underlying notion that the initial distribution is the correct or sacred. Positive redistribution is undertaken because the initial distribution reflects what economists call 'market failure'.

Economists and politicians need to accept that people do regard the initial (before-tax) market distribution as sacred. Thus the best solutions to the income distribution problem are ones that get it right from the outset. Distribution feels good; redistribution has a dodgy feel about it. Words matter.

A final note. In a 2010 forum on welfare solutions, Louise Humpage from the University of Auckland discussed the big turn-off factor associated with the word 'redistribution'. This month, her book "Policy Change, Public Attitudes and Social Citizenship" was published this month by Policy Press.

Humpage, Louise (2010); "Towards welfare solutions: Public attitudes and how we should 'frame' the debate" in Rethinking welfare for the 21st century: Proceedings available viawww.cpag.org.nz.
Humpage, Louise (2015); Policy Change, Public Attitudes and Social Citizenship: Does Neoliberalism Matter? Policy Press

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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