Universal Basic Income (or Basic Universal Income) And Covid19

Tuesday, 7 April 2020, 11:15 am
Article: Keith Rankin

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 (Universal Basic Income and Covid19) 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. And the panellist Janet Wilson made an overthetop 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 at least $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 workingage New Zealanders was an inefficient way to use all that extra money (which I calculate to be about $40 billion). But nobody has 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

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. He further benefits 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, as a low-wage worker, would be $3,450 better off than he would be today. The BUI is a very real cushion to the blow of having to work shorttime and take a wage cut. And he would not have to apply to MSD to receive that cushion; he would have 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 could 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 studylife 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 standdown. He still gets his BUI. He 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 futurelooking policy that benefits every workingage 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 Covid19 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 cannot afford 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 informed public discussion.

My sense is that, despite the simplicity and applicability 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. Also, I sense that some people believe that I must be arguing for a removal of existing benefit entitlements. I am arguing no such thing.

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

© Scoop Media

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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