Universal Basic Income

Is a Universal Basic Income worth considering? Our tax and welfare systems have become very complex and uneven and at the very least could do with a radical simplification.

(Emmerson at NZ Herald)

There’s been an interesting discussion running at The Standard on a UBI (see Basic Income at Wikipedia). Slow news (especially political news) and spare time for many has contributed to a more in depth and thoughtful discussion than usual.

It started with a repost of Why we should give free money to everyone which detailed a number of examples where people were given money and they improved their lives.

In the 2010 work Just Give Money to the Poor, researchers from the Organization for Economic Cooperation and Development (OECD) give numerous examples of money being scattered successfully. In Namibia, malnourishment, crime and truancy fell 25 percent, 42 percent and nearly 40 percent respectively. In Malawi, school enrollment of girls and women rose 40 percent in conditional and unconditional settings. From Brazil to India and from Mexico to South Africa, free-money programs have flourished in the past decade. While the Millenium Development Goals did not even mention the programs, by now more than 110 million families in at least 45 countries benefit from them.

OECD researchers sum up the programs’ advantages: (1) households make good use of the money, (2) poverty decreases, (3) long-term benefits in income, health, and tax income are remarkable, (4) there is no negative effect on labor supply – recipients do not work less, and (5) the programs save money.  Free money stimulates the entire economy: consumption goes up, resulting in more jobs and higher incomes.

Obviously “free money” has to come from somewhere, and the Standard discussion acknowledges it would require a large amount of money. This means larger amounts of tax for those already paying the bulk of the tax. That is a tough sell.

And while the post claimed that it always worked well there are criticisms and studies have highlighted contradictions. From Wikipedia:

One critical view of Basic Income theorizes that it would have a negative effect on work incentive and labor supply. Even when the benefits are not permanent, the hours worked—by the recipients of the benefit—are observed to decline by 5%, a decrease of 2 hours in a typical 40 hour work week, in one study.

We have already experienced difficulties with welfare dependency and disincentives to work here.

However, in studies of the Mincome experiment in rural Manitoba, the only two groups who worked less in a significant way were new mothers, and teenagers working to support their families. New mothers spent this time with their infant children, and working teenagers put significant additional time into their schooling. Under Mincome, “the reduction of work effort was modest: about one per cent for men, three per cent for wives, and five per cent for unmarried women.

What studies don’t show are the longer term effects. Problems with welfare dependency have increased with time. But it is still worth considering.

The idea has been propagated by some of history’s greatest minds. Thomas More dreamt of it in his famous Utopia (1516). Countless economists and philosophers, many of them Nobel laureates, would follow suit. Proponents cannot be pinned down on the political spectrum: it appeals to both left- and right-wing thinkers. Even the founders of neoliberalism, Friedrich Hayek and Milton Friedman supported the idea. Article 25 of the Universal Declaration of Human Rights (1948) directly refers to it. 

The basic income. 

And not just for a few years, in developing countries only, or merely for the poor – but free money as a basic human right for everyone. The philosopher Philippe van Parijs has called it ‘the capitalist road to communism.’ A monthly allowance, enough to live off, without any outside control on whether you spend it well or whether you even deserve it. No jungle of extra charges, benefits, rebates – all of which cost tons to implement. At most with some extras for the elderly, unemployed and disabled.

A relatively rich country, Switzerland, has had groups actively campaigning for a Basic Income.

The association BIEN-Switzerland (affiliated to the Basic Income Earth Network) promotes basic income in the francophone part of Switzerland. In the German-speaking part of Switzerland a group called “de:Initiative Grundeinkommen” is very active in promoting basic income.

Daniel Häni and Enno Schmidt produced The Basic income, a cultural impulse, a movie that explains and praises the idea of a basic income.

In September 2013, the initiative achieved the collection of about 126,000 signatures and handed them over to the government on October 4thereby triggering a nationwide popular referendum, which would be the first of its kind on this issue, anywhere in the world.

It will be interesting to see how the referendum goes and if it succeeds. And if it succeeds, on how it works out in practice. Back to The Standard where the post quotes:

Milestones of civilization are often first considered impossible utopias. Albert Hirschman, one of the great sociologists of the previous century, wrote that utopian dreams are usually rebutted on three grounds: futility (it is impossible), danger (the risks are too big) and perversity (its realization will result in the opposite: a dystopia). Yet Hirschmann also described how, once implemented, ideas previously considered utopian are quickly accepted as normal.

Those utopian ideas that work. Many utopian attempts have failed – I recall the idealistic communes of the seventies having a wee burst of interest and then winding up.

A number of people at The Standard are very keen on working together and taking the idea further. It’s something that’s certainly worth exploring.

We have a very complicated system of tax and social welfare. Substantially simplifying it and providing a basic level of income for everyone without a mass of confusing rebates, credits, benefits, top-ups, supplements and whatever else is available in our convoluted mish-mash could have some merit.

One exchange at The Standard:

KJT:

i would advocate also for a meaningful UBI. Say about the same level as current super, with a lesser amount for children under 18, and a more progressive taxation.

Say 45% top rate of 250k per year on today’s figures.

Colonial Viper:

Heck, with an 89% rate on incomes over $1M pa to efffectively hard cap what our society will accept as a maximum income: 25x the median working wage.

KJT:

shh..sh. Better keep that part quiet for now.

High tax rates have problems of their own. And they would be very hard to sell, voters have an aversion to raising taxes.

If the universal income idea is to get anywhere here it will have to be well thought through, well constructed and well sold to the electorate.

And it that succeeds then it might become a long term experiment. Big stakes.

I don’t think this year is the right time to make it happen. After a number of years of difficulty there are predictions of a big economic lift in New Zealand.Voters will be looking forward to reaping the benefits of that and will be wary of upsetting it.

If the country booms that is the time to look at radical changes. Initial costs would be high and they have to be able to be afforded.

But the sooner the homework and the groundwork are done the better prepared for the right time.

If you are interested it’s worth having a read through the Standard thread, it’s one of the better ones there – http://thestandard.org.nz/ubi/

I’m not convinced a universal basic income will solve all our problems but it’s certainly worth exploring in conjunction with reforming our tax and welfare systems.

16 Comments

  1. Really interesting concept. While I am not a Rocket Scientist in Economics I am positively thinking this might work.

    I only get $65pw accommodation supplement for my $210pw rent- so this is where tbhe UBI would work well.

  2. OneTrack

     /  January 9, 2014

    “This means larger amounts of tax for those already paying the bulk of the tax. That is a tough sell.”

    Not for the economic invalids at the Standard. They are punishing rich pricks and money gets given to them. Whats not to love?

    Regarding the CV exchange, how many people do they think are on $1 million + that they can tax at such a usurious rate. They (the Standard) might feel good doing it but it isnt going to return much money because there are so few people to pay that rate.

    • Yes, some at TS have some basic comprehension problems. They seem to think that rich people have lots of money, we need lots more tax so we should just get it off them.

      Another example is pay rates – they think that companies make (too much) profits so all that needs to happen is profits are used to pay a deserving/moral wage rate to employees.

  3. Brown

     /  January 9, 2014

    The other point about really rich pricks is that they are mobile as France found out.

    The concept may work in Namibia because its a development in a poor country where the work to survive concept is still alive. I think it may not translate to 1st world where the good will try to improve themselves anyway and the useless won’t because the cushion of welfare makes ongoing poor choices painless.

    • It’s not just a problem with really rich pricks, it also affects the fairly well paid. This can impact on incentives to head overseas and also recruiting international staff which is important in health and tertiary education and research.

  4. Hi
    Coming put of A recession is the time to put extra money into the economy, such as social initiatives. The original welfare State worked for just that reason. In boom times it may simply push inflation leaving everyone in the same position as before.

    In the next part of the discussion I want to explore Gareth Morgan’s ideas of lessening the tax burden on the upper middle class PAYE earners, who pay the bulk of the tax, by sharing it out more equally.
    Poorer people of course pay no net income tax, but do pay a much larger proportion of their income in tax overall due to GST, user pays and abatement rates.
    And many of the richest use legal tax fiddles to pay very little tax.

    • “And many of the richest use legal tax fiddles to pay very little tax.”

      That highlights a problem with raising income tax rates, it makes that even more likely to happen. In some cases lowering tax rates have increased tax take due to less avoidance.

      Economically coming out of a recession is good timing, but electorally I think it will be very difficult.

      And it’s probably too late, most parties should be finalising their policies and strategies for election year.

      But it’s not impossible to get it high on the political agenda. First step is to find a way to avoid making it partisan, there’s interest across the political spectrum. Then willing parties need to get on board with a common approach.

  5. Brown

     /  January 10, 2014

    I suspect the very rich pay shit loads of tax in various forms, including income tax via a company or trust even if its at a lower top rate. That Ferrari attracts lots of GST. Being a nett tax payer is what counts.

    No one is talking about the govt spending less. That has to be an issue in the debate about taxes but all we seem to hear is how to extract more money out of people. It seems clear that there is a rate of tax where the best returns for effort reside and its not at high levels.

  6. Tom

     /  January 10, 2014

    A UBI is one of those wonderful sounding propositions, but in reality is quite sinister, and in the long term unsustainable.

    The UBI assumes there will always be a net positive taxpayer to cover the cost for tax recipients. I call this an overly charitable view of humanity – the types of skills/roles that generate high incomes are extremely mobile worldwide so it is unlikely that there would be a dominant net taxpayer class for an extended period of time. Basically, every person being lumped with a 90% tax rate will gap the scene as quickly as possible – they have effectively recieved a ~40%-50% pay reduction so would be mad not to look to find a role that pays what they are proven to be worth.

    I suppose that there is the view that the UBI should garuntee a minimum living standard, but as seen with the recent “living wage” psudoeconomics, a minimum living standard is pretty lush and includes a fair few luxuries e.g. week long family holidays & sky tv. So, with that line in the sand already set, a large proportion of people have no incentive to gain income over the UBI. The whole proposal is a massive disincentive to work, and can only last for so long.

    Perhaps workable in a fishbowl economy (with a ban on saving), but not in a golablised economy

    • “The whole proposal is a massive disincentive to work, and can only last for so long.”

      One of my biggest concerns. Studies have shown some improvements short term but our welfare system has proven inter-generational disincentives can become established.

      • kerryjthomas

         /  January 10, 2014

        What a load of right wing nonsense. The fact that almost everyone chose to work, about 500 unemployed, at a time when there was a much more generous unemployment benefit than now, proves you are talking bullshit.

        • You’re not proving anything. When are you referring to and where’s the proof of what you claim?

        • tom

           /  January 13, 2014

          I’m not sure to what example you are referring, but I assume you are making an example of people choosing an UBI vs unemployment benefit (and using the benefit as a proxy for paid income). If that is the case, then it is a flawed argument as you are comparing essentially free money (UBI) with free money with conditions (Benefit). Under that example (and without any references) I assume the receipt of the benefit has conditions such as seeking work, so why would the recipient opt for higher conditions if the incomes are similar.

          it is not the same as comparing receiving say $500 per week with no conditions attached, to working 40 hours for $500. So the working person presumably receives $1000pw at a cost of 40 hours of free time. As per my previous post, assuming that the $500 covers essential costs, then what actually is the incentive for working? My point here is that people will opt out of the workforce and make use of the 40 hour a week in other, more self-satisfying ways – family/leisure/self improvement. You may see the rise of the 20 hour work week under these conditions… just enough income to afford the luxuries. The big issue here is that this creates a dwindling tax income to fund the UBI.

          There will always be a chunk of the bell curve that choose to work for UBI+wages, but I imagine it would become a minority over time.

  7. kerryjthomas

     /  January 10, 2014

    People are not working because there are no fucking jobs.

    • That’s true to an extent, there’s a shortage of jobs.

      But there is some level of job avoidance and inflexibility. It’s difficult to recruit in some industries and often shortages of labour are having to be filled by foreign workers.

  8. This issue of employment and wages is a prescience to what will be a major debate 2014. NZ governments have focused too much on science and technology (primary) industries and pretty much forgot to support others. It took an earthquake to revive the construction industry. Expectations of Employers are too high, they don’t want to pay or can’t afford real time wages, they usually choose more young dumb easy to handle pliants.

    I need to research this more but I wonder how University Graduates are doing?

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