Labour’s plan for a UBI would require an extra $10bn in taxes

Labour is discussing a horrendously expensive Universal Basic Income, one which would be paid to every one…including multi-millionaires.

NBR discusses the UBI with economist Susan Guthrie:

A universal minimum income scheme to replace the welfare system would have to be preceded by tax reform and would also need to be phased in over a very long timeframe, economist Susan Guthrie says.

The Labour Party is looking at the concept, which it may adopt as one of its policy planks.

Co-author with Gareth Morgan of a book on the concept, The Big Kahuna, Ms Guthrie, who has previously worked at the Treasury and the Reserve Bank, says such a policy would also need broad agreement across the political spectrum.

“It’s a policy that has to be implemented over at least two decades,” Ms Guthrie says.

A 20 year implementation? I’m not even John Key could sell that proposition. No one can sell when the true costs are known.

A lot of the right-wing opposition to the concept is coming from people worried about how much such a policy would cost, Ms Guthrie says.

So reforming the tax base would need to happen first.

“Quite separate conversations are being held around the world right now that actually tax bases are pretty loopy and holey and, as a separate issue, let’s close those.”

Ms Guthrie estimates such reforms would generate about $8-9 billion a year in extra taxes – about the same amount critics of the universal minimum income concept have said would be needed over and above the cost savings from dismantling the welfare bureaucracy.

Those figures have been independently verified by the New Zealand Institute for Economic Research, she says.

If an economist is saying $8-9 billion is needed in extra taxes then you may be absolutely sure it is more than $10 billion.

For Labour’s and Gareth Morgan’s UBI idea to work you would need to tax Kiwis an extra $10 billion a year to pay for it. And during the twenty year transition phase also pay for Superannuation…the costs are unmanageable, crazy and unaffordable.

I really hope that Labour goes ahead with this proposal. Then their support would drop into the low twenties.

 

– NBR

 


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  • The other Neil

    As Eric Crampton points out hid blog offsettingbehaviour, if $9bn of additional taxes is justified, then it is justified irrespective of a UBI. It is very difficult to see how that is the case.

    It is right for everyone to worry about where the money will come from. It can only come from us, the public, there is no other source. Just saying that it is affordable because it is a new tax, does not actually make it affordable, it just makes it fiscally neutral (maybe).

  • Terence Hodgson

    The very few countries and states which embrace the UBI tend to have one thing in common: they’ve gained the money to do this from selling their enormous amounts of oil within their territories.
    Examples would include Alaska (the Alaska Dividend), Norway, Abu Dhabi, Kuwait etc.
    What they haven’t done is tax their citizens’ earnings for the loot.

    • Aucky

      Let’s see how those states manage the massive reductions in their oil revenues and how they cope with reducing or even abandoning the UBI as a consequence.

      • Grizz30

        Saudi Arabia not so well. They are talking about privatizing and selling down the national oil company and setting up a multi trillion dollar sovereign wealth fund. In fact as most Saudi jobs are government do nothing jobs (probably the equivalent of green jobs) Saudi Arabia sounds like one giant welfare state funded by oil.

        • Tiger

          Correct, the Saudis are in a pickle , they also have to pay skilled expats at tax free wages to actually do the work. Their sstem requires oil to be usd100+ to break even. Not likely will they see this price for years to come. Watch the politic of ME change.

    • Platinum Fox

      The Alaska Dividend has only exceeded USD2000 per qualified resident in two out of the 34 years since the permanent fund was established. I guess that’s it can represent a substantial cash top-up for a person who lives in the back country and is reliant on hunting and fishing to provide sustenance.
      That wouldn’t be enough “income” to provide for the needs of people living in an urban environment, though I’d note that the Alaska Permanent Fund only distributes from its fund income and retains the oil royalties received as part of its capital.

  • Elmwood

    Social welfare should only be available to those that need it. This includes the pension.

    • sonovaMin

      The pension or superannuation by its very name and definition is not welfare. However top ups in the form of welfare are available to those in need.
      Those of us who collect it now, had to endure not only much higher rates of taxation during our high earning years but very high mortgage rates as well – in the promise that we would receive a pension later.
      I would add, high inflation caused by government policies, caused havoc with savings.
      I would agree to the amount paid out over time being reduced, but not abolished, if comparatively low tax rates continue.

      • David Moore

        The pension as it exists in New Zealand is welfare. The name superannuation is a lie, there was never any payment made to fund it.

        High taxes and mortgages were in no way a payment for your pension.

        • Aucky

          You are wrong David. 7.5 cents in every dollar was paid over and above income tax to cover a guaranteed retirement income at the age of 60. Muldoon grabbed those accumulated funds to help pay for his Think Big schemes. In return he GUARANTEED a retirement income along the lines of what we have today. A subsequent government raised the age of entitlement to 65.

          • Lemuzz

            You are right Aucky My generation funded my parents superanuation just as my children are funding my super through taxation As Government stops paying which they are starting to do through National Super there will be a generation who will be paying twice Once for their parents superanuation and also saving for their own superanuation. You can be sure that taxation will not be reduced when this cycle ends

          • David Moore

            Demographics make the pension impossible to sustain in it’s current form. 4 working age adults can pay for 1 retiree, much harder when it’s 4 working age adults paying for 4 retirees.

          • sonovaMin

            The reality is my generation are dropping like flies and will be very lucky to live as long as our parents.
            Out of all my good friends two are dead, one is gaga, two have stents and on their way and another has had a liver transplant. I spent christmas in hospital myself and was lucky that it was nothing too serious. I am the only one who is relatively healthy.
            The reality is thousands of young people are pouring into the country as immigrants. The demographic figures is another straw man argument. The population is not stable, it is increasing at very fast rate.

          • David Moore

            Stawman argument doesn’t mean what you seem to mean.

            Life expediency in NZ is increasing, and has done for at least 50 years.
            The percentage of the population over 65 is increasing and will increase from 12% today to 25% in 2040. In 1980 it was 5%.

            You anecdotes do not change those facts.

          • Lemuzz

            As I said above Taxation will not reduce when this cycle ends. The welfare system dictates there will always be beneficaries who will get a handout, Either through bad managment or bad luck

          • David Moore

            That was 40 years ago. The NZ pensions has not be contribution based for two generations and even when it was, the contributions were no where enough to actually fund it.

        • sonovaMin

          Yes but the much higher taxes, mortgage payments and inflation made saving for retirement difficult if not impossible for many.
          Further to what Aucky has noted, when the fund was folded into the general account taxation also went up not down.

          • David Moore

            No it didn’t. High inflation made buying houses perhaps a bit harder for the first year or two, but that inflation rapidly chewed the mortgage to nothing. Claiming it was ‘impossible’ to save for retirement is just BS.

            Income taxes may well be lower now, but the overall tax take hasn’t changed in reality.

          • sonovaMin

            Difficult for most and impossible for some not all – you obviously weren’t there.
            First mortgage 12%, second mortgage 14% third mortgage 21%. It took 15 years before we began to see daylight.
            All that on a much higher tax rate than today.
            You are dreaming if you think wages kept up with inflation. You have a straw man argument.
            If you include GST then the overall tax rate hasn’t decreased much.
            But a lot of GST is on discretionary spend and you have the choice whether to blow your cash on “stuff” or save it.

          • David Moore

            I made no comment about wages and inflation. That’s a straw man you have created. My point was very simple, inflation chews down a mortgage much faster than wages ever can.

            If you do want to talk about inflation and wages, wages increased faster than inflation all through the 70s and 80s, If you claim they didn’t, then you are claiming you were poorer in 1990 than you were in 1970.

          • Lemuzz

            “My point was very simple, inflation chews down a mortgage much faster than wages ever can.”
            That is BS unless you live in Auckland or Queenstown. You try living in towns where inflation is very low or non existant. I know as I have been there done that

          • David Moore

            Inflation isn’t something that is localised to a town. Inflation is what happens to the dollar.

          • Lemuzz

            “Infometrics expects nationwide house price inflation to peak at 14% in 2015/16, with higher interest rates eventually sufficient to restrict both
            It also happens to property

          • David Moore

            Please point out where I was talking about property price increases? I’m am specifically talking about inflation that NZ had between the 60s and 90s.

          • M C Chinaman

            While I agree with your first paragraph, I also have to say that the 70s and 80s were pretty tough in NZ. Where sonovaMin is right is that saving was difficult in that period as term deposit rates were usually lower than inflation, making lower risk investments unviable. We had massive emigration in the 70s and 80s mostly from wage earners who felt their real incomes were falling. Economic growth in this period was basicly zero. Unemployment went from zero to over 10%. Yes there were people whose real incomes increased in that time but I would say NZ workers as a whole were poorer in 1990 than in 1970.

  • Kevin

    Under an UBI that is actually realistic, every single beneficiary would be worse off, including every pensioner. So it’s no wonder that Labour are trying to push a version which is totally unrealistic and unaffordable.

    • David Moore

      One of the main aims of a UBI is that people need too, are are rewarded by, working to top it up. It’s to prevent the poverty trap that locks people into benefits.

      • Justme

        That may be true, but do you see Labour implementing that component of the UBI? They are very silent on the canning of all benefits apart from a UBI.
        So either they are lying to their own supporters, or they don’t intend to cut all benefits. Either way, they are stuffed.

  • Grizz30

    Let’s just look at one aspect, that being superannuation. Even if you replaced government super at the same level with a UBI, superannuatants would be worse off. In 20 years, many, hopefully most who have had steady jobs for most of their working life, will have retirement savings. Earnings from this savings is taxed and I cannot see this changing. Under UBI they would be liable to a higher taxes rate and hence poorer off with no great ability to increase their income. Hence I cannot see many with kiwisaver and superannuation savings warming to this. Also the government will need to broaden their tax base, so inevitably there will be a capital gains tax, not great when at the phase of life of selling down your assets.

    In my opinion if the government wanted to make radical tax changes that can be phased in over a long period of time they should slowly introduce means testing of government super, reduce income tax rates and make higher retirement savings compulsory.

    • SlightlyStrange

      My personal preference is to see income testing for government super – easier to manage than means testing.

      • M C Chinaman

        I agree. It could be easily and efficiently done through the tax system. The trick is to not call it a ‘surtax’.

  • Sally

    “Quite separate conversations are being held around the world right now that actually tax bases are pretty loopy and holey and, as a separate issue, let’s close those.”

    This statements has got me thinking. Was it the socialists driving the UBI theory the ones behind the hack of the Panama Papers and aided by the International Consortium of Investigative Journalists? The need to tightening and gain as much tax from the wealthy is the only way the UBI theorists are going to get the agenda in place worldwide.

    • Justme

      This will only work if the larger jurisdictions close all the loopholes. I am sure they will be happy if all the tax funds flow back to them, but will they want to share their Google, Apple, facebook, tax with small nations like us?

  • Keanne Lawrence

    Wow! Co-author of a book with Gareth Morgan. Seems some are still “flying out of the cuckoo’s nest.”

    • Lemuzz

      Perhaps Gareth was proposing a tax on cats

  • XCIA

    I wonder if Angry and the “team” were playing a game of Monopoly in the war room when he noticed that even though Robbie had all the houses, they all still collected $200 dollars every time they passed go. Perhaps someone should tell him that if he and the Gweens gain the treasury benches, we will all be playing with Monopoly money.

  • Graeme

    The trouble is that those people think they are much smarter than everyone else when in fact they are b*****y idiots with no experience of the real world. That brings me to the Labour Party…….. .

  • Left Right Out

    Think I might set up a trust…. off shore… in a tax haven… (The North Island is off shore to me) so I don’t have to pay any more taxes

  • cod

    If we could have a UBI (Universal basic income) to all people of $1.00 per week, with all other benefits ceasing, we could be the first in the world to have this ground breaking novel system, a leader of the free world. Ha Ha

  • Greenjacket

    Guthrie is being deliberately misleading. When she says “dismantling the welfare bureaucracy”, what she means is ending, completely, all welfare spending including Superannuation.
    Everyone’s Super would be replaced by $200 a week – single old people would have their income halved and retired couples would take a massive hit to their incomes.

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