A Rare Occurrence

Income For All Entails More Bad Than Good

. . . A NZ Herald Editorial, in which we find ourselves in agreement

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. The scheme was outlined to Labour's "future of work" conference just before Easter by a British advocate, Professor Guy Standing. Labour's finance spokesman Grant Robertson says support for the idea is not confined to the political left, pointing out it has also been proposed by economist Gareth Morgan.

Mr Morgan entertains many ideas. The pedigree of this one is certainly left-wing.
"Universal" welfare programmes effectively make everybody a beneficiary of the state, even though the better off will not be net beneficiaries. When everybody receives a grant there is supposedly less risk of a "stigma" on those who need it. There is also no need to abate the benefit if recipients start to earn wages, avoiding the so-called "poverty trap".

But obviously, they would start paying tax, which amounts to the same thing.

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. New Zealand used to have quite a number of universal benefits, including the age pension, which is still universal, and a family benefit paid for children regardless of a family's means. The country at that time also had a top rate of income tax at 66 per cent. Higher earners returned two-thirds of their income to the Government to help pay for benefits they did not need, plus the administrative cost of taking money from them and giving some of it back, on top of the wealth that was being redistributed from them to the low-paid and jobless.

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".

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.

Dr Morgan suggests a universal basic income of $211 a week. That is much less than today's state dependants need. They would still need supplements based on need, which would carry a "stigma", if that matters, and would be abated if they started to earn more. It is hard to see any real benefit. It would be a universal setback.

- NZ Herald