Could the Universal Basic Income work for Aotearoa?

So vast has become our welfare state, writes economist Tim Hazledine, that the money currently spent on targeted transfer payments would easily finance a Universal Basic Income of $1,000 for every adult New Zealand resident.

Tim Hazledine
Tim Hazledine is Emeritus Professor of Economics at the University of Auckland Business School

Opinion: My wishes for the New Year? Well, world peace, of course. And serious global action on the climate crisis. But I’ve also got a wish for something closer to home.

This is an election year in New Zealand. The parties will soon be unveiling their manifestos. And I worry that the manifestos will all be too similar. I think we need some serious political differences in Aotearoa NZ.

Now, you might think this is silly. Aren’t we suffering an outpouring of extremism – anti-vaxxers, conspiracy theorists, the woke, purveyors of alternative facts, anti-social media trolls, and so on? Yes we are, but so far all five major political parties have been staunch on not pandering to the extremists. And they all basically agree on many big issues: climate, treaty claims, abortion, civil rights, gun control, sexism, racism, foreign policy, separation of church and state.

In our system, electoral politics is really a game. And the prize of this game? Enormous. Whoever wins the November election will thereby automatically win the right to do whatever they wish for the next three years with the 40 percent of the national income that will – with no effort on their part – pass into their hands as tax revenues.

That’s two dollars of every five earned by households taxed away to spend: about $150 billion, this year.

Of course, the parties in their election manifestos will each loudly and sincerely claim that their proposed programmes would deliver more value to the citizenry than what their rivals are offering. But whether a proposed publicly funded programme is beneficial in itself is only the first question that needs to be ticked off.

As prosperity increased and unemployment dried up, the welfare state was supposed to wither away.

Tim Hazledine Emeritus Professor of Economics, University of Auckland

The second test – which no parties ever go near – is to ask whether the benefits of Programme X will be greater than the benefits we, the taxpayers, could generate if we were allowed to spend the X-money ourselves.

How much of the 40 percent of our GDP, taken by central government every year, is thereby spent more effectively and usefully than we could achieve on our own? Most of it.

We can and do argue about the details, but we want the government to provide for schools, hospitals, police, and various other important services. That’s about two thirds of the total, or 27 per cent of GDP. Fine. It’s the last third that is problematic.

This is $50 billion of direct cash transfers of tax money to individuals now called social welfare benefits, and, increasingly, similar handouts to business.

The origins here are in the post-war Welfare State, set up after four miserable decades of world wars and the Great Depression as an insurance scheme to rescue people from unexpected hardship and homelessness.

As prosperity increased and unemployment dried up, the welfare state was supposed to wither away.

Instead, with the quiet acquiescence of successive governments, it has become bloated and entrenched: not insurance against occasional misfortune, but a way of life for many beneficiaries and companies.

Because most of the transfers are targeted at a specific problem, a beneficiary has an incentive to not solve that problem themselves, because they would thereby lose the money. This is called the “poverty trap”.

And another problem with micro-managed targeted benefits is that – for various reasons – they don’t even get to a large proportion of the people suffering genuine difficulties.

So how could we get that last $50 billion directly into the hands of the populace?

We could cut income taxes or the GST, but that would of course benefit most the people who earn and spend the most.

Is there a way of redistributing it such that – without necessarily favouring the poor – it at least treats them equally with everybody else?

Yes, there is, and it is an excellent idea. It’s usually called a UBI – Universal Basic Income.

This has two key characteristics: universality, meaning everyone gets it, with no targeting or administrative fuss. It is also “basic” and not in itself enough to live comfortably on, but it provides insurance against sudden misfortune, or a stake for savings, or feed money for enterprise.

So vast has become our welfare state that the money now spent on targeted transfer payments would easily finance a monthly, tax-free UBI of $1000 for every single adult New Zealand resident.

Wouldn’t you like that?

So my little New Year’s wish is that one of our political parties – or perhaps a new one – will have the boldness and imagination to break away from the cosy political cartel, to wind up the welfare state, and empower us the citizens to choose better lives for ourselves in these tricky times.

This article reflects the opinion of the author and not necessarily the views of Waipapa Taumata Rau University of Auckland. It was first published in the New Zealand Herald on 27 January, 2023.

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