UBI would require tax hike – report

Labour's universal basic income proposal has been supported by many on the right but not the Taxpayers' Union. With special feature audio.

See also: OPINION: A universal basic income must be opposed on social justice grounds

The idea of a universal basic income, recently adopted by Labour, has a degree of support on the right.

The populist former economist Gareth Morgan is a big fan. So are the drier elements, like ACT founder Sir Roger Douglas and The Economist, which calls a UBI "alluring" – as long as the level is set right (Labour wants to give everyone $200 a week, working or not. Mr Morgan advocates $210 or $11,000 per year). 

Mr Morgan summarises, "The right like it because it has low administration costs and it removes any disincentive to work – most welfare systems take benefits from people as they earn income." He says trials so far in Europe indicate a UBI does not stop people working.

Scrapping today's complex welfare systems, and the hugely expensive bureaucracy that administers them, is has strong appeal for some.

Westpac chief economist Dominick Stephens says Labour’s proposal to provide everybody over 18 with a minimum income of at least $200 a week has some merit and could end up costing the government less than the current welfare system. 

But a report released this morning by the Taxpayers' Union says a UBI would cost $10 billion more than the amount saved by axing welfare infrastructure.

"We've provided the public with what Labour wouldn't, and that is the costing and how you might pay for that," TU executive director Jordan Williams says.

The report was compiled by economist Jim Rose (a Treasury and Ministry of Business alumnus), 

Mr Rose also cites Treasury figures that found a flat income tax rate of between 50.6% and 55.7% would be needed to pay for a UBI — although it should be noted that Crown agency was basing its sums on a $15,000 universal basic income.

Mr Morgan has proposed funding a UBI, in part, with a tax on those holding capital. "Such a tax would incentivise all those modern and innovative industries Labour want to encourage, to shift offshore," Mr Rose says.

Labour sees a UBI as an incentive to work, as people won't have to fear losing their benefit if they take on part or fulltime work. Mr Rose sees a reduced Labour supply and fewer taxable hours worked because of the "windfall" of a UBI.

The Taxpayers' Union fellow also says a UBI would leave a number of beneficiaries worse off than today, and not reduce child poverty if its set below $15,000.

And this is a key point. The Taxpayers' Union says a realistic" UBI would be the $15,000. You could say that's a cheat to jack up the numbers but an $11,000 UBI that left single mothers and superannuants worse off would be a political non-starter for Labour.

A Labour Party discussion paper says there would potentially be top-ups for those disadvantaged by a UBI. That addresses the criticism about some ending up with fewer dollars in their pocket – but undermines the broader argument about a universal basic income's simplicity, and opens the door to the Taxpayers' Union argument about blow-out costs.

Follow NBR on Facebook, Twitter, LinkedIn and Instagram for the latest news and free on-demand audio from NBR Radio.

Login in or Register to view & post comments