Susan Guthrie says Andrew Little should not have run away from the UBI idea. He should have embraced it because it will be part of the Future of Work

By Susan Guthrie*

Andrew Little has blamed the recent poor poll numbers for Labour partly on the public debate around the Unconditional Basic Income (UBI).

Although it was never Labour Party policy – it was simply raised as an option to look at during their Future of Work Conference – they weren’t prepared to answer the critics when the idea got floated.

The fact is that all of the questions and criticisms about the policy are easily enough answered. Here are four lessons Labour can learn on how to sell the UBI.

Lesson 1: You don’t need a crisis to innovate

When it comes to economic policy in New Zealand, and it’s possibly true everywhere, it seems to take a crisis to create the appetite for change. We don’t move unless pushed.

It took the Great Depression to bring in universal public health care and the unemployment benefit for example. And it was the prospect of the government defaulting on its debt that ultimately gave us GST, an independent central bank and the other reforms that occurred in the 1980s.

Economic policy unfortunately seems to bring out the coward in our politicians. They wait until a crisis to even think about, let alone implement, new ideas.

Businesses wouldn’t last five minutes if they took a wait-till-a-crisis approach. Successful companies are constantly exploring new ways of doing things, and they adopt great new ideas when they uncover them. They don’t wait for a crisis.

Individuals too seem to be capable of change before hitting crisis point.

There was no ‘crisis in communication’ before the internet – phones, mail, broadcasting by radio and TV worked perfectly well – but we got the internet nevertheless.

Innovation is a good thing. We need to change our view of economic policy and accept that innovation in the absence of a crisis is not only possible but a good thing.

Lesson 2: A basic income is a good idea, there are numerous benefits and no negatives, it’s innovation at its best

A basic income policy would provide everyone aged 18 and over with an unconditional, tax free survival-level of income each and every year.

The idea is a creative one that has been analysed closely for over 30 years. Now more than ever the benefits of the policy are becoming widely understood. The policy is simply smart – it offers a better way of doing things.

You can see this from the fact that it has been supported by parties on both the political left and the right.

What a basic income policy does:

  1. it provides certainty – a lack of certainty about where you’re next meal is coming from is just as damaging to your health as not having a meal at all. We all need some basic level of financial security. Certainty and security matter just as much as the level of resources people have available to them.
  1. knowing that no matter what you have a regular income coming in frees people to innovate and it frees people to invest in acquiring new skills. Innovation and upskilling benefits those individuals of course, but also the wider community – we all win from a more skilled society, even if we personally aren’t innovative or learning anything new at all.
  1. a basic income policy frees people to choose the optimal mix of paid work, creative work and unpaid work such as helping in the community or caring for family and whanau. While being free to optimize how you spend your time is of great benefit individually, there are significant benefits beyond the individual too. Time spent in unpaid work produces benefits for everyone, not just those immediately involved. It leads to more connected communities which brings many other benefits – better health, higher educational achievement, fewer suicides, lower crime rates and higher income per capita.
  1. Under a basic income policy ‘Client of WiNZ’ would disappear as a meaningful social marker. An individual’s source of income could no longer be used as a basis for prejudice. Irrespective of your values, and your views of misanthropy, you should welcome the policy because it strengthens and reconnects communities and that has significant economic and social payoffs across the entire population.
  1. At present, with our income-tested welfare system, people who, due to unemployment, sickness, disability or family responsibilities, cannot take part in the workforce to a significant degree, face effective marginal tax rates in excess of 100% on any casual or part-time work they accept. In other words when they earn, they lose the benefit and are no better off. They are penalized for trying to supplement their income and stand on their own two feet, leaving them trapped in poverty. Under a basic income policy these effective tax rates would disappear. People who rely on the basic income would face the same tax rate on additional income as everyone else. These so-called poverty traps would disappear.
  1. A basic income policy would have few administrative requirements so there would be considerably fewer deadweight costs to be funded out of tax. Currently over $1 billion is spent every year just administering the WiNZ benefit system and Working for Families which is a welfare policy for working families – that’s the cost of approving applications, checking payments, writing off debts and so on.

Because retirees are not widely considered ‘clients of WiNZ’ it is often overlooked that NZ Super is in fact a basic income policy. A fixed payment is paid unconditionally to everyone aged 65 and over. Retirees are free to add to this with paid work, spend their time with family or volunteering or in hobbies. The policy is highly regarded overseas for its efficiency and its effectiveness. NZ retirees are among the most healthy in the world and make a significant economic contribution through both paid and unpaid work.

Lesson 3: basic income is a lubricant with healing properties, not simply an ointment

It’s not just the fixed association between economic policy and crisis that is making it hard for the basic income idea to get traction. Critics object that money is given to people who ‘don’t need it’.

For three generations now – since the 1930s – tax-funded income payments have been closely associated with the idea of ‘being in need’. Tax-funded income is synonymous with ‘welfare’ policy. Look up any definition of ‘welfare’ you like and ‘in need’ will be there.

This is one from the Merriam Webster Dictionary:

welfare. 1 : the state of doing well especially in respect to good fortune, happiness, well-being, or prosperity <must look out for your own welfare> 2 a : aid in the form of money or necessities for those in need b : an agency or program through which such aid is distributed.

The common view, built up over three generations, is that the only time you make a tax-funded income payment is when someone is in dire immediate need. And the implicit assumption is that you don’t make income payments otherwise – but this view ignores all the other benefits a universal basic income policy delivers.

Of course a basic income is of vital importance to those who cannot provide for themselves at the moment – but it is more than that too. A basic income policy, if funded and implemented carefully, can capture the many benefits I listed earlier while preserving the essential support provided to the most vulnerable in our society.

Basic income should be thought of simply as the oil that lubricates everything of value that we do, in all our variety: our innovation, our up-skilling, our care-giving and community work, our creative work. And it also provides for those who cannot support themselves while allowing them to retain their dignity and freedom (something the current system does not).

It is a lubricant with healing properties, not an ointment to address sores as they appear (that’s current welfare policy).

We will always need complementary policies that support or assist the most vulnerable. The challenges they can face will not be eliminated by the basic income policy, but restoring dignity and choice to vulnerable people is a great start.

Lesson 4: a basic income policy is affordable

The other objection to the idea of a basic income is that it is simply unaffordable, we don’t have enough tax revenue to pay for it. This objection can be easily dismissed.

A strong case can be made for broadening the tax base – too many assets residing in NZ produce economic benefits to their owners that go untaxed. Interest earned from a bank deposit is taxed but the benefits of owning property are not. Broadening the tax base is capable of generating significant new tax revenues. Tax reform should be done irrespective of your views on the basic income policy but, of course, the new revenues raised by tax base broadening provide the means to fund the basic income policy.

Broadening the tax base is capable of funding the UBI both now and in the future. This point has been raised by many commentators in light of the Panama Papers, which have shown the lengths the rich go to in using tax loopholes to legally minimise their tax bill. Close the loopholes, and we would have more funding to play with.

There is an important fiscal issue to be solved however and that is how to fund the transition to a basic income policy. For many years we would need to run some aspects of the existing welfare system and the basic income in tandem. Only in this way could those currently dependent on relatively high WiNZ payments (for example, sole parents) maintain their current standard of living. We think even this transition is affordable, depending on how it is done.

However on this issue, international perspectives on deficits are changing, which creates another option for a government looking to fund the transition. There are fears around the world that the global economy is slowing too fast and the world may tip into a prolonged and deep recession. Interest rate stimulation hasn’t worked. Even the Economist magazine is now supportive of governments deliberately running high fiscal deficits – borrowing in other words – to stimulate growth.

So running higher than normal fiscal deficits over the next decade has become acceptable on the global scene, a country that runs deficits will not lose the confidence of investors and be punished by capital flight.

We now have the perfect opportunity to begin implementing the innovative economic policy known as the basic income.


Susan Guthrie is an economist at the Morgan Foundation. This opinion piece was first published on the Morgan Foundation blog and is here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

20 Comments

Oh dear me,
Why does this remind me of the great social experiments of the Lange era.
Perhaps instead we could learn and just put our toe in the water to test the temperature.
Break the proposal up into small bits with no underlying theory and make sure each bit is acceptable.
This would be a great forum to debate the small bits.

The tax bit will be interesting to get more details on.

As long as those currently producing economic benefit aren't penalised disproportionately for this. Ie more taxes (excluding consumption tax- which is the fairest way to tax). An idea would be to switch from land rates to a per capita rates system based on region. Infrastructure load is caused by people not houses.

Sadr,
Why based on regions, we just get into the arguments about regional needs which equals regional councils, why not a flat tax countrywide?
As you say infrastructure should be attached to population

Not all infastructure is interconnected so a regional individual rate would reflect actual cost of infastructure being used by an individual better than a flat national rate. Having said that I'm not opposed to a national rate.

a consumption tax is not the fairest way to tax - it is regressive.

Please explain.....

I never could get why consumption tax is thought regressive. The argument lies in the consumption patterns and the patterns quoted don't usually gel to me.

Id take 15% income tax and tax loaded onto new cars, house sales etc. Its so much fairer. I lived in HK for years and it was great.

A consumption tax encourages investment and gets more money from those who spend more.

Ther may be an advantage in a national rate for infrastructure because basic income and superannuation are national rates..
A national cost per metre for roads, pipes, water....hmmmmm...

This was posted on facebook and was a very interesting read.
http://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-prob...

There are a few commentators on this site for whom this should be compulsory reading.

Heh, I started reading that this morning, and still have it open on another tab.

It's been a quite remarkable propaganda coup to get a single ideology accepted as a kind of self-evident force of nature.

Underlying message, which I absolutely agree with, is that nothing works for ever without tweaking it back into line occasionally. Otherwise tiny imbalances get worse, turn into major problems, and the machine starts to shake itself to bits.

The Guardian is a commie rag. Don't believe a word of it.

Labour is not really working, when you can enjoy the whole process, but it sure does pay to be the go-between, between Consultancy capers.

Secrets of a fundamental Labourite, longing to be a secret Capitalist, perhaps..

http://www.telegraph.co.uk/news/2016/04/15/tony-blair-used-secret-fund-t...

Particularly and peculiarly...
The former Prime Minister used an interest-in-possession (IIP) trust, which he has not previously disclosed, to receive payments for his consultancy projects, including his work with controversial regimes.

Controversially..
I do believe wars have been started for less., earlier on, But you know what they say...a bird in the hand is always worth two in the bush...eventually

You just have to live long enough to see the wood for the trees. And the opportunities therein.

Labour was not really about working,
I think it was about solidarity, Billy Bragg style.
But it bought a ceratin inflexibility,to some extent it had traditions back to the Spinning Jenny.
They recognised the slavery inherrent in industrialisation
Lets hope we can move in to empowered people.

so their would be no need for a minimum wage rate then?

Sharetrader,
Ive never thought the unions drive the minimum wage, can you show the right wing have been less inclined to use it than the left?

The idea here is focused on a redistribution solution via tax. Bunch of bureaucrats shifting money about. If the problem is that the one percent most own everything then maybe the solution is to work on who owns. What if the ownership rules were changed so that small business flourished and corporation ownership withered. Ownership and profits retained in the communities.