Draft Report 2 Of The NZ Productivity Commission Is Wrong About Universal Basic Income

by Perce Harpham

The discussion appears to be a shallow justification to reach a preconceived conclusion that "The Commission does not see merit in further investigating this option as a means of improving income smoothing".

Two quotations say " the concept is deceptively simple in theory and very complex indeed in practice" and that a UBI would have "complex interrelatedness and interdependencies with other labour market and social policies". The authors do go on to observe that we do have Superannuation which is a UBI for those over 65. They do not then explicitly note that Superannuation works very well but do say that the Australian Productivity Commission in 2016 said that UBI "is relatively inexpensive to oversee and administer compared to means tested programs".

So why a fallacious attempt to associate UBI with complexity? It is exactly the reverse. Yes, getting the new system into being has complexities but then it is all much simpler.

The wrongful use of my name.

This is particularly annoying since I made a submission in response to the Commission's earlier requests and this submission appears to have been totally ignored.

One paragraph says "A UBI would have large fiscal costs. For example, a modest UBI of $200 a week for each New Zealander aged18–65 would cost roughly $30 billion per year, which is close to the cost of Vote Education ($11.8b) and Vote Health ($19.9b) combined. Funding a UBI would involve substantial modifications to tax rates or to the taxation system (Perce Harpham, sub. 2)."

Using my name at the end implies that this paragraph is quoted from my work. It is not. I have always worked in terms of annual incomes and have used the data from 2015/16 so as to have reasonable comparability of the data. My calculation for an $11,000/yr UBI for adults 18 to 64 inclusive shows there would have been a cost of $31billion per year in that period. The present day figure would be much higher but the tax collections would also be higher and the same reasoning would apply.

The lower tax rates (such as 10.5% on incomes less than $14,000 per year) on lower incomes are all enjoyed by those on higher incomes whereas those with lower incomes only get the benefit of the lower rates on their lesser incomes. The better off, as usual with tax exemptions,, get more benefit from the Income Tax exemptions.

Thus for 2015/16 by making the 33% tax rate for incomes over $70,000 apply to ALL income the increased tax revenue would have been some $18 billion higher. And if the UBI for adults was $9080 per year (paid without means test) to all 18 to 64 year-olds then all those with an income of less than $70,000 per year. would be better off and all those above that figure would be in exactly the same net position as at present..

If the adult UBI had been even higher at, say, $11,000 per year many benefits could then have been removed without harm to the beneficiaries. These and the bureaucratic savings would come to some $6billion. The remainder could be collected by a 0.5% addition to the improved value of all rateable property. This pales into insignificance compared to the annual increase in value of properties or normal rates increases. I like to call this new tax a Resource Tax rather than a Wealth Tax because it should help to dissuade people from building unnecessarily large, ostentatious houses with all their resource and infrastructure demands during construction and maintenance. Different taxes could also be considered.

I have always pointed out that the amount to be collected to pay for UBIs for three different age groups (0 to 17, 18 to64 and 65 upwards) depends on the levels of UBI. So I, and my colleagues now refer to Basic Incomes without the " Universal" because some people think that there should be one level for all and then refuse to think about Basic Incomes on the grounds that they are not affordable. Whereas the choices should be made so that, maybe, 70% of people are better off and the others are worse off. Inequality should be reduced.

Having used my name to apparently validate the paragraph referred to above the authors of this draft do not include any reference to my work in their voluminous list of references. Nor do they make reference to Gail E Duncan's brilliant analysis to show that BIs are a human right under our own and international definitions. Both have had front page treatment in Scoop. The work of others such as Keith Rankine is also ignored.

A major paper of mine as well as some relevant others – such as transition to the new system - and Gail's paper are on my website. Google "perce.harpham.nz". Also on Youtube searching for "perce harpham" will produce a 7 minute video with digestible coverage of my approach.

More misleading ideas in the draft Report

Another sentence in the Report says "Policies that provide universal and unconditional payments to a wide population are unavoidably expensive if they are set at levels that support a decent standard of living (Milligan, 2016)."

Quite so. No one in their right minds would attempt to set the BIs "at levels that support a decent standard of living". If such a level of Basic Income were to be established how many people would face the hassle and cost of going to work? How many would go through the hard graft, and the cost, of developing high skills in things which may unexpectedly be made obsolete by a technology change.

As I see it a "living wage" for those who can find jobs is required for a decent standard of living, whatever that is defined to be. A "minimum wage" lets one survive with some few extras. A Basic Income should be just that. It should be high enough to let you survive on your own on a daily basis but requiring a part time job or collaboration with others to do more than that. There will always be a need for special hardship allowances, much as they are now, but the BI should always be there as of right without means testing or other bureaucratic process.

Again the draft says " Inevitably it is not enough to help those in severe need but is a generous gift to the wealthy who don’t need it. It is the expenditure equivalent of a flat tax and as such is regressive. (Coote & Yazici, 2019, p. 4)".

It seems to be the accepted wisdom that the wealthy should not be taxed at a level commensurate with their wealth or income. No wonder inequality increases inexorably. My suggestion (although I have not included it in calculating tax income) is that tax rates on incomes should rise in steps for incomes above, say, $150,000 per year and that each step should apply to the whole income so that the high income earner does not get the benefit of the lower rates on the first part of their income. If incomes are taxed appropriately we no longer need all the sneaky little means-testing devices which so complicate life for many and lead to manipulation of incomes for avoidance purposes.

Property is a good proxy for total wealth whether this is acquired legally or otherwise. The Resource Tax I suggest means that the wealthy would pay more than the Basic Income that they receive. For example on a $1,000,000 house the 0.5% Resource Tax would be $5,000 per year but on a $30,000,000 property it would be $150,000 per year.

There is much more in a similar vein in the draft Report alleging fancied deficiencies in BIs and suggesting, without offering any evidence or details of the policies, a mish-mash of other policies to address these deficiencies. For example "full employment at adequate wages". This nirvana has been pursued unsuccessfully for many years.

Like the climate-change deniers the Report alleges that "The high levels of technological unemployment used to justify many overseas UBI proposals are very unlikely to eventuate(NZPC, 2019)." The Report appears unaware of the threats posed by the development of vegetable "meats" and "milks", of globalisation, the corona virus, trade wars, shooting wars, driverless vehicles, the substantially simpler electric vehicles and suchlike. The report authors have apparently been unaffected by the 1000 people made redundant by IRD with their new computer system, the vanishing "posties", checkout operators, bank branches etc.

The Draft Report's conclusion that there should be no investigation of BIs is simply ludicrous.

We urgently need an extensive and competent study of the possible transformative effect of BIs to simplify both our tax and benefit systems to make them fair and fit for purpose.

What should such a study do?

I, Gail Duncan and others, have provided the start point for a study considering the simplification of both our tax and benefit systems and " how we get there from here". It is essential that both systems be looked at together since the recipients of BIs will also have to pay the taxes. For example if they were to be paid by increasing GST many recipients of BIs might be worse off than with the present system.

My papers and others have listed some of the expected benefits of UBIs. I have made no attempt to attach financial figures to them. Or to measure the resultant wellbeing. How far such figures need to be identified in order to satisfy those who can only think of money instead of people is a matter for judgement. The example of our, nearly 80 year, "trial" of Superannuation provides many lessons.

The largest lesson is that using age as the sole determinant for receiving Superannuation is a powerful simplification which largely eliminates bureaucracy, beneficiary-bashing and stigma.

Targeted benefits require costly bureaucracies to administer them and surveillance to ensure that people do not slip outside the target range. Superannuation still has some targeting in that different rates apply to one's sleeping arrangements . Thus the single rate is some $2,000 per year above the "single-sharing" figure and this in turn is some $2,000 per year above the married rate. Witness the kerfuffle about Winston Peters having been paid the wrong rate for some years. Such distinctions in this modern age are incomprehensible. I believe that there should be just one rate of benefit for all of a given age so that they have the dignity of choosing their own lives. If this had been the 2015/16 single living-alone tax free rate for all then the single living-alone recipients would be no better or worse off and all the others much better off. Surveillance and poking into people's private lives would become unnecessary.

But a part of the study has to be to bring the debate into the public arena, to expose various alternatives, gather data, calculate costs both of transition and ongoing , consider the benefits and go through the process of informing the public. Then with a properly formulated system designed to the "sketch plan" stage decide whether to move on to the "Detailed design" stage or abandon the idea. If the decision is to move ahead legislative changes will need to go through the Parliamentary Select Committee processes before the design is completed and systems implemented in stages.

Note that our benefit system is currently predicated on the philosophy of the 18th century that the "deserving poor" should get Government assistance. The corollary is that the "undeserving poor" should get nothing. They are "non-persons" in the eyes of the state which has washed its hands of them. What can such people do in order to survive? How can they nurture the next generation so that they are healthy, able to learn and be willing participants in our society?

Money is not the sole answer to many of the problems even of the "working poor" but it will surely help. Yes, there are many systems designed to help but these always have some authority making decisions for the people concerned. It is not the same as the people being treated with dignity and, as a human right, having some money of their own with which to make their own choices. Many parents have found that giving children a clothing allowance and having them buy their own clothes has resulted in a rapid development of responsibility in this respect. And the threat of deductions for misdemeanours gains attention.

Similarly if young people have a BI which can be reduced temporarily in order to pay reparations, traffic and other fines then they may be better behaved. The costs to the community in law enforcement and victim damage can be expected to decrease.

Consider the rise in membership of gangs. If as a young person you have never had the food, shelter and experiences that good parents try to give their children clearly their education will suffer. They are unlikely to enjoy school, to stay away and get into trouble. If they have a short time in "correction" establishments they will have to consider what happens when they get out. The protection and security of joining a gang has to be appealing as they will probably have no job or support . There is, in any case, some mana to be had in joining a gang if one is disaffected with no prospect of a decent future.

The Social Welfare Department can identify with some precision the future customers of Corrections at an early age. They may well be able to forecast what the effect would be of BIs in developing a sense of responsibility in both parents and children by giving them the ability to have more alternatives for making their own decisions.

Again, with both male and female parents getting their own BIs would the incidence of family violence increase or decrease? At least the caring partner could leave with the children and escape the violence. In many cases they cannot do this simply because they have no income of their own. They do not qualify for benefits because they have a working partner.

It should be possible to put a monetary figure on the potential decrease in the number of people imprisoned. Every 1% decrease represents something like $10,000,000/year. And the decrease in Maori imprisonment is likely to be greatest. It is much cheaper to pay a BI than to keep someone in prison. Even though the BI can be stopped while they are in prison.

Similarly the effect of BIs on school performance could probably be given a meaningful financial approximation.

But these direct costs do not count the cost to the families of prisoners , the costs to victims of crimes, the costs of the policing and court processes, the waste of people's potential, the demand for voluntary support services and the like. It is not just the cost to Government which has to be considered but the wellbeing of the populace and the preservation of our participatory democracy. The messages around the world are that the level of inequality has reached the stage where whole populaces want to throw out their ruling class but do not have any ideology to guide their replacement. Authoritarianism on the Trump model appears to be what is emerging.

The Productivity Commission's Draft Report conveniently avoids the need to think by dismissing the idea of Basic Incomes. Yet these have the potential to give face to kindness and promote wellbeing with an inclusive society which will withstand the perils of the future.

Government might get some of its money back.

There is an intriguing possibility that some of the money paid out as BIs will be returned to Government very quickly. If all the $31billion is spent then GST at 15% will return $4.65 billion to Government. And if the remaining $26 billion or so is also then again spent more GST will return to Government and so on. But, of course, this $31 billion has been collected as taxes and might have been spent anyway. It is not new money that is used to pay BIs.

However, if all the BI is saved (deposited) in banks then, unlike ordinary businesses, the banks are able to lend more than they have without being declared insolvent. If the operative ratio is 8 then they are able to "create money" and lend 8 times more than the deposits. So if all the BI payments went to the banks the banks could create loans which, on being spent, could give Government 7 times as much as the GST they would have got from the taxpayers spending if Government had not collected the new tax from the taxpayers.

This is, of course, a great simplification especially as present benefits are either spent or saved and many of such benefits would be subsumed into the BIs. Nonetheless any full study could make some estimates of how much of what is paid out would be returned to Government both through the mechanisms above and the boost to economic activity – especially in times of a downturn in activity. It should be enough to cover any errors in other calculations.

Note that I have only taken the change in Income Tax rates and the Resource Tax into account in my arithmetic quoted earlier.

The political position

The Green Party has hidden its policy to have Basic Incomes for many years but, for the last election included it with their Income Maintenance discussion without any arithmetic or other details.

Again, TOP proposed just a youth BI partly funded by reducing Superannuation.

Is there a political party out there which has the sense and the courage to really have a look at completely transforming our tax and benefit systems?

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