Free Press: ACT’s regular bulletin
Do you Want $200 or Not?
Labour won the 1957 election with the promise of a hand out. The newspaper headlines asked “Do you want £100 or not?”
Now the promise is adjusted for inflation at $200 every week.
Money for Nothing
As the respected welfare commentator Lindsay Mitchell points out, the Government is trying to replace cash benefits with
income management and manage people on benefits into work. Labour’s idea is to put every adult New Zealander on an
unconditional cash unemployment benefit.
The Easy Part is Giving it Away
Free Press asked Sir Roger Douglas about Labour’s new idea. “The easy part is giving it away,” he said, “The hard part is paying
for it.” Sir Roger was handy with back of envelope calculations, here are a few from Free Press.
A Stupendous Giveaway
$200 per week is $10,400 per year. There are 3.5 million New Zealanders over 18 so that’s $36 billion. Total spending on
Superannuation and Benefits is about $18 billion, so even if Labour promised to get rid of all current entitlements it
would double welfare spending.
But it Won’t
Labour couldn’t eliminate entitlements because many are more than $200. Super annuitants wouldn’t lie down for a one
third reduction. Families with multiple children would expect to keep their entitlements over $200, as would most of
those receiving accommodation supplements.
How Would Labour Pay for It?
The total tax take from the Income, Company and Goods and Services Taxes is about $67 billion. Labour would have to
raise tax rates by a third. That’s a 20 per cent GST, a 44 per cent income tax rate, and a 37 per cent company rate. It
would be higher for the reasons above.
Incentives
Treasury modelled (and panned) a universal basic income five years ago. The main problem is the incentive you get from
receiving $10,000 for nothing but paying higher taxes on work, saving and investment.
Skills and Education
Education is an investment in oneself, the Treasury said “it appears likely that the net effect would be to weaken
education and training incentives.” The scheme rewards education with more tax.
Saving and Investment
Under a UBI, savings and investment would be taxed harder. As the Treasury put it “tax rates at these levels… would
reduce savings incentives.” New Zealand has always been short of capital, which holds back our productivity.
Employment
The Treasury again: “overall labour supply is likely to fall due to an increase in effective marginal tax rates for the
vast majority of workers; leading to decreased incentives to enter into the labour market or to increase labour market
participation.” In other words, giving everybody free money then taxing workers hard reduces employment.
Brain Drain
Western countries battle for skilled people, who respond to tax rates. As the Treasury said, a UBI would mean “increased
incentives for skilled workers to emigrate.”
Economic Growth
“Growth in GDP could be reduced by around 2.8 percentage points per year. Given New Zealand has had few periods in
recent history of sustained growth of that magnitude this is significant.”
Tax ‘Integrity’
The higher the tax rate, the more appealing it is to avoid or evade. Higher tax rates under the scheme would lead to
more avoidance, requiring higher tax rates, leading to...
The Kicker
Such a scheme “would not necessarily achieve its main goal of reducing poverty,” because it “could distribute money away
from those most in need of government assistance and toward those who have choices and opportunities but choose not to
work.” Need we say more?
Worst Idea Ever
We apologise for this rather lengthy Free Press, Labour’s idea has so many problems. But would a National-led Government introduce it in the right (wrong) political
circumstances?
Key Says No... but.
"They've got no idea when it comes to policy," says Prime Minister John Key. "You'd be giving it to people that don't
need it… You'd be giving my wife $11,000. With the greatest respect I think we would prefer that $11,000 went to
children in need." And "it's unaffordable, and barking mad," says Mr Key.
Communism by Stealth
John Key once said of Working for Families: "They've got the vast majority of people now trapped in a one-size-fits-all.
We all pay one rate - it's communism by stealth." "It didn't work very well for Eastern Europe and it won't work very
well for New Zealand."
Bracket Creep
“This Government …loves taking extra dollars off those people at every opportunity it can… Yes, $2,600 per household
extra, but $500 million more from the impact of fiscal drag or bracket creep—$500 million!”
Student Loans
“Interest-free loans are cheese in the mousetrap… this is Social Credit recharged with 21st century atomic energy.”
(Bill English)
Capital Gains Tax
John Key once said that a Capital Gains Tax would "plunge a dagger through the heart of growth". As Free Press has reported over the past year, the so-called ‘Bright Line Test’ is a capital gains tax in drag.
A Long History
The first National Government opposed then adopted Labour’s cradle-to-grave welfare state. The second one bedded in
Walter Nash’s import licensing regime. The third actually helped with Norman Kirk’s expansion of the benefit scheme to a
no-strings-attached entitlement. The fourth adopted Sir Roger’s free-market reforms. Who is surprised that the fifth
National Government happily accepts Helen Clark’s policies?
Coming to a National Government Near You
After backing down on Interest Free Loans, Working for Families, and the Capital Gains Tax, who doubts that a
National-led Government would live with some form of Universal Basic Income if the political circumstances arose?
ends