UBI “entails more bad than good”

Today’s Herald editorial says there is more bad than good with a Universal Basic Income, particularly due to high levels of taxation that would be required to fund more extensive income redistribution.

The Labour Party appears to be considering a radical new system of social welfare. It would provide everybody with a “universal basic income” from taxation regardless of a person’s wealth or ordinary income. People earning more than a moderate income would return their universal payment in tax – probably a great deal of tax.

Universal benefits are only one side of the coin. The other side is high and steeply “progressive” rates of taxation. That is another reason it appeals to the left.

One of the big bads is high taxes.

One of the insidious effects of high taxation and universal benefits is the benefits become very hard to take away from those who are paying for them. They feel they have paid for it and have a stake in the benefit system. This is appealing to the left, who call it “strengthened social cohesion”.

And once people adjust to more handouts it’s very hard to take them away (without causing major hardship) if it proves to be a failed policy.

Universal benefits and high taxation persisted until the economy was opened to international markets in the 1980s. It became necessary then to lower taxation to competitive levels and design welfare for needs. National superannuitants resisted the change, insisting they had paid for their pensions, even though all the years they were paying high tax rates, governments were running budget deficits. That was the politics of universal welfare.

Labour would be most unwise to take us back there. The economy would suffer under punitive levels of taxation, avoidance would be rife, and the benefits would be illusory.

So the Herald editorial writer/board is obviously not a fan of UBIs.

Taxing much more to enable the provision of a universal income would be very risky. If working for an income becomes more optional then it’s likely that a proportion of people would choose not to work productively. Some fans of a UBI suggest it would provide the opportunity to pursue hobbies like arts and music.

Once people establish a life style funded by the Government (other people’s taxes) it would be a problem to reverse.

And if higher personal taxes pushes some of the more productive people to leave New Zealand, as is likely, and if higher business taxes pushes more business off shore and discourages business investment in New Zealand that would also be difficult to reverse.

Regardless of how a UBI might work in other countries it would be a huge social and economic experiment for New Zealand.

Would Labour be prepared to propose that risk in policy form?