Basic Income for All
article in City Voice (PO Box 11-647, Wellington)

 John Wilson's response         John Robinson's rejoinder
annotated comments: by (i) Keith Rankin

Two weeks ago I attended a conference on a universal income (UBI).

The idea is to provide an income to every adult (with a smaller sum to every child) as of right. [kr1] These incomes, which would be financed from higher taxation, would simplify the welfare structure and reflect a more compassionate and non-judgmental attitude towards one another.

I was intrigued to learn that the present government has in effect introduced a UBI for all high income earners through its recent tax cuts. [kr2]

For those people, the reduction in tax is extra money in the pocket, just like a universal payment. And they are not required to demonstrate any level of social responsibility.

So the well-off already have a UBI. Many (but not all) non-earners or low earners are receiving a benefit of some sort.

So they too are taken care of under the present system. As Keith Rankin pointed out, all that is required for a full UBI is to simplify the existing set of schemes by extending them to take in the middle group who are left out - those who do not fit the current categories of beneficiaries or who are low income earners.

Additional payments would still be made (as now) to those with special needs.

This would not cost too much and would cut red tape, reducing the ability of government departments to sit in judgement on people in need.

It simply requires that government extend the compassion [kr3] which it has for the wealthy to include those less well off, and for a realisation that money in the pockets of the poor will stimulate the economy even more effectively than extra cash for the wealthy.

UBI is a modest [kr4] change to bring about a small but worthwhile result. Unfortunately the enthusiastic proponents of UBI at the conference tended to overstate their case, which made it difficult for a doubtful outsider to grasp.

I tend to back off any new idea when I realise that some claim is unjustified or exaggerated.

An example here is the belief that UBI is required to reduce the poverty trap, whereby many people on welfare keep very little of any earnings. The clawback can run to 98% [kr5], so that there is only 2c more in the pocket for each additional dollar earned.

This problem is, however, a feature of any welfare system, including UBI. If welfare is provided to a non-earner, and not to a person on the minimum income, then by taking on a job a person would increase take-home income by an amount equal to the minimum income minus the welfare benefit. [kr6]

If the welfare payment is small relative to the wage, the clawback is small; if the welfare payment is large, so is the clawback.

Under any scheme, a choice must be made between providing a level of benefits which moves people out of poverty (high benefits, high clawback) or providing low benefits and requiring a low clawback.

The lower clawback in the UBI schemes which I have seen are a consequence of additional payments [kr7] which increase the take-home pay of those on the minimum wage - there is an increase in the gap between a basic income and the minimum wage.

A danger in extending payments to low income earners (as well as beneficiaries and the wealthy) is that this may become nothing more than a subsidy to employers of cheap labour. [kr8]

If people can be employed at the same take-home pay as now, and if the government is providing a part of that pay, then the employer's wage bill is reduced. I have been distressed to find that some UBI supporters are delighted that there may be an extension of non-paid or poorly paid work. That is hardly in keeping with the intent or philosophy of UBI. [kr9]

This problem was recognised at the conference by Lowell Manning, who argued that minimum wage levels should be reinforced. [kr10]

He did, however, note that even then there is a possibility of a drop in pay in some jobs towards the minimum wage. In order to provide a proper balance and to prevent significant decreases, a strengthening of the powers and responsibilities of unions is thus required. [kr11]

If those steps are included, the concept of a universal basic income is worthy of a serious consideration by all political parties of the centre-left.

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Basic Income
letter to City Voice (Wellington) by John Wilson

John Robinson (April) talks of the introduction of a Universal Basic Income (UBI) payable to all as a "modest change".

But the payment of a basic "living" wage to everyone at a level presumably similar to existing national superannuation or unemployment payments would be a major change, and some idea of the total cost and the level of tax required would be appropriate.

With the practicality of paying national superannuation to all at 65 in question, there must be a bigger question mark over a UBI paid to everyone, even though there would be some saving in the administrative costs of "targeted" benefits.

While the "surtax" required little administration, unemployment and sickness benefits require a bureaucracy to determine both eligibility and the payment of additional allowances.

And the clawback or abatement because benefits may be cut, leaving little net increase from obtaining a job, is a serious disincentive.

Then, although I thought that the UBI would be universal and thus not stopped if the recipient got a job, Mr Robinson goes on to talk about the "clawback" if someone on the UBI took a job. [kr12]

Similarly, why make additional payments to those on the minimum wage? Presumably the UBI will be enough by itself for someone to live on if it is to replace national superannuation, unemployment and sickness benefits; so the UBI plus a wage should be adequate.

While there will always be a few people with special needs requiring extra payments, the UBI should not lose its simplicity if adopted! [kr13]

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John Wilson (16 April) has raised a couple of questions concerning the Universal Basic Income (UBI). On a technical point, there is no abatement as such since the UBI is paid in full to everyone. But the calculations by Keith Rankin which I mentioned include a tax of one-third on all income, and this is the "clawback" to which I referred (9 April). My point is that while a UBI reduces the effective clawback (whether or not it is called by some other name), it does so at a cost, since the difference in take-home income between beneficiaries and low income earners is increased significantly.

I do not see the UBI as a cure for all ills and indeed I have been a lively critic until recently. Which brings us to the key point which I hoped to make. The cost of a UBI depends very much on just what tax structure is already in place and what changes are intended.

A few years ago, the cost of UBI would have been too great. [kr14] But not now, since the government has given the UBI, in the form of tax cuts, to all middle and high income earners. [kr15] The cost is now modest, and my earlier reservations have lost their sting.

Government has had the audacity to give a UBI to the wealthy with no call for any degree of responsibility [kr15], while running their scarcely hidden agenda attacking beneficiaries, many of whom are struggling to cope on low incomes with no jobs in sight. The philosophy driving these actions is the very opposite to that of caring and respect which motivates the supporters of UBI.

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1. The payment of an unconditional income either to children or to caregivers on behalf of children is an option rather than a requirement of UBI. [back]
2. In fact any graduated income tax scale contains an implicit UBI for all individuals receiving income within a particular range. The tax cuts of 1996 and 1998 have added significantly (from $2,779 to $3,933 to $5,130) to the implicit UBI payable to all New Zealand tax residents grossing over $38,000 per annum. [back]
3. The "compassion" to those on high incomes is not explicit. In fact, governments tend to see graduated tax scales as a form of compassion for low income workers, despite the fact that high income workers benefit more from the lower tax rates in the graduated tax scale. [back]
4. The change is only modest if the rate of income tax is not increased. Most adherents of a UBI favour an increase in the tax rate as part of the UBI package, because such a rise in the tax rate leads to a redistribution effect from high income recipients to low income earners. Also, the introduction of an unconditional income at any amount is generally seen as radical rather than modest, because it is a concept that challenges the work ethic as we know it; ie that challenges the "market work" ethic. [back]
5. 94% since July 1996; 91% after July 1998. [back]
6. It is misleading to call income tax a "clawback"; this is even more true when income tax is understood as "production tax". In this case, all wages are paid net of tax, and a person's income is simply their wage plus their UBI. Also it is misleading to call a UBI "welfare". It is better thought of as a social dividend; a form of public property income rather than a transfer payment. [back]
7. Additional to what? Additional to low wages, or additional to the unconditional income paid to all adults? [back]
8. A UBI can no more allow employers to cut wages than can any reduction in income tax. After-tax wages are determined by market forces whether a UBI tax-benefit system or any other tax-benefit system is in place. [back]
9. I cannot agree. UBI supporters generally believe that unpleasant or difficult work should be highly paid. But they also recognise that one aspect of well-being is enjoyment of work and that people should be free to accept less pay for more enjoyable work, if they wish to. Furthermore, one of the great strengths of the UBI is that it makes it possible for people to spend much of their time doing unpaid work. [back]
10. Certainly, there is an imbalance of market power between employers and employees, which means that there needs to be legislative protection for employees, regardless of the existence of a UBI. [back]
11. The UBI, on its own, improves the bargaining power of employees. Hence, there is no need for a strengthening of employee protection. [back]
12. For further comments on the "clawback" issue, go here. [back]
13. The amount of supplementary payments required clearly depends on both the tax rate and the level of universal income. Thus the amount of bureaucracy needed would be higher, the more supplementary benefits are required to bridge any gaps between universal entitlement and basic needs. Nevertheless, it is possible to design a simple supplementary benefit system - the second-tier of a UBI system - that requires minimal bureaucratic input. [back]
14. I disagree. With a lower national income per person, the amount of UBI payable would have been less in the past for a given tax rate. UBI systems are more urgent today because changes in the labour market in the last 20 years have pushed more people - and especially more families - onto the margins of underwork and overwork. The absence of an explicit social dividend this thus more apparent today than in the 1970s when wages were high and full employment remained the norm. [back]
15. The government has not actually given a UBI to the rich. As noted [n2] a UBI to the rich is the natural effect of graduated tax scales. Recent tax cuts have increased the extent of the graduation. [back]

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