Wellington – 4th May 2020: The Opportunities Party (TOP) is calling for an annual $13,000 Universal Basic Income (UBI) for all Kiwis as part of its UBI Policy, launched today, to make New Zealand’s tax and welfare system modern, simple and fair.

In addition, TOP would introduce a flat rate of income tax at 33 percent. Coupled with the UBI, this would leave every working Kiwi with at least $3,920 more in their pocket after tax. Full-time minimum wage earners would be $6,285 better off.

TOP Leader and former Treasury economist, Geoff Simmons, says that immediately implementing a UBI and flat tax would provide a stimulus response to the COVID-19 pandemic. It would also simplify and modernise New Zealand’s complex welfare system, and begin the process of a brave, once-in-a-generation tax reform.

“As the economic fallout of the coronavirus pandemic deepens, many Kiwis are facing unparalleled financial insecurity. The UBI addresses many weaknesses of our current tax and welfare system, laid bare by the pandemic,” Geoff Simmons says.

“Under our most optimistic scenario planning, the UBI and flat tax reform alone may be sufficient to stimulate the economy back to life because of the significant social benefits the UBI generates. Our complete policy package has a neutral impact on the Government’s books under our most conservative scenario planning.”

TOP is proposing a fundamental overhaul of the tax and welfare systems in New Zealand, by introducing three key changes:

• A universal basic income (UBI) for both adults ($13,000 annually) and children ($2,080 per child annually),
• A 33 percent flat tax on all income, and
• Phasing in a risk-free return method (RFRM) tax on assets.

“The coronavirus pandemic is placing unprecedented pressure on government departments as Kiwis seek welfare support. By simplifying our welfare and tax system we estimate we will save $800m per annum in reduced government bureaucracy, money we will hand back to taxpayers through a UBI.”

New Zealand has one of the least affordable housing markets in the world, highlighting the need for a new approach to support a fair society where those on lower incomes aren’t left behind. That is what the RFRM would provide.

“Our tax system for housing is the most distorted in the world, and fuelled by property speculation, which has resulted in progressively higher house prices and rents,” says Simmons. “The lack of a fair tax on housing has seen property become a tax-favoured asset, dramatically increasing poverty and skyrocketing house prices.”

TOP’s UBI Policy in detail:

Universal Basic Income

TOP proposes a universal basic income (UBI) of $13,000 per year be paid to all New Zealand citizens and permanent residents over the age of 18, replacing benefits of lesser value such as the Jobseeker or Supported Living payments. Children would receive $2,080 per year, paid to their caregivers’ bank account.

“The UBI allows for someone to take on additional work without it affecting their entitlement, unlike the Jobseeker allowance,” says Simmons. “Implementing a UBI would result in those receiving this benefit being able to take additional temporary or part-time work where available, as there is no risk of reduction to income. Our current model incentives people not to get a job and keeps them in the welfare poverty trap. This is economically crazy and does not support an individual’s rangatiratanga – their autonomy or dignity.”

Within TOP’s UBI policy it is noted that it should extend to communal living situations. The policy states that hapu would be entitled to pool the UBI of 20 or 30 people ($240,000 to $360,000) to cover costs on communally owned land with subsistence farming if the group decides they would like to do this.

“Let’s give the power back to people on how to best spend in our society,” says Simmons. “UBI is the only fair, indiscriminate approach to encourage spending and empower Kiwis across the board to have financial freedom of choice.”

Flat tax rate

TOP’s UBI policy states that income should be taxed at a flat rate of 33 percent – a significant simplification of the current tax system which has a graduated curve.

Coupled with the UBI, this would leave every Kiwi with $3,920 more in their pocket after tax. Full-time minimum wage earners would be $6,285 better off. The UBI effectively makes the first $39,000 of earned income tax-free.[i]

“The improvement in income after tax will improve the lives of the working poor - Kiwis who are employed but are still in poverty,” says Simmons. “Coupled with the UBI, it boosts the minimum wage to be finally above the living wage, a necessary amount to ensure all kiwis are living above the poverty line.”

Under the current system, the differing tax rates for different entities such as individuals, trusts, and companies, creates an incentive for tax planning.

“New Zealand has well above OECD averages of trusts and companies, and a common tax rate removes the advantages of using these entities to undermine the system,” says Simmons. “It is imperative to fix this, and to create a level playing field for all Kiwis.”

Risk-Free Rate Method (RFRM) Asset Tax

TOP would introduce an RFRM tax to be applied to the equity on each property owned. A long-term, risk-free rate of three percent would be used to determine the deemed income on the equity in the property, and the 33 percent tax rate applies to this income. This effectively works out at a tax of one percent of the value of the equity in all property to be paid quarterly (like rates). Properties already generating a taxable return of more than this would be unaffected. Asset rich but cash poor retirees would be able to defer tax, so it becomes a duty on their estate when they die.

“Though the RFRM tax is likely to have a calming effect on house prices, its main purpose is to spread the tax base wider and to encourage investment in productive assets that will grow the size of the NZ economy,” says Simmons. “Our current tax system encourages investment in housing and diverts capital away from productive businesses that create exports and well-paid jobs. Houses should be for living in. Let’s encourage those with the income to invest to support New Zealand’s many creative, high-tech, fast-growth companies with the promise to deliver great returns.”

Costing out the policies

TOP has conservatively costed these changes[ii] using a publicly available tax and income data, which end up broadly tax neutral overall. In particular, TOP would significantly reduce the bureaucracy within government departments and the paperwork for many Kiwis.

Simmons notes that the conservative costings of these policies don’t factor in the potential surplus generated by the improved social outcomes of a UBI.

“Education, health, incarceration and social outcomes all track to significantly improve under a UBI approach, a key point which we haven’t factored into our costings,” says Simmons. “These outcomes can generate massive surplus when supported by UBI, a surplus which our estimates show to be up to potentially $10 billion.”

“The saying goes that if it ain’t broke, don’t fix it,” continues Simmons. “But clearly our current system is as broken as can be. COVID-19 has shown us the desperate need for change is more apparent now than ever.”

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