Should Government give everyone free cash?

Tuesday, 19 February 2019

Imagine a world where everyone gets $200 a week from the Government, as a basic income.

You can choose to work your normal job on top of that, and use your $200 to get ahead on your bills or saving.

Or you can rely on that income and cut down on work, perhaps going back to study or putting time into launching your own business.

Sound good? It's the idea behind a Universal Basic Income (UBI) - something that used to be fringe idea but is now creeping into mainstream discussions.

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But it's not necessarily all it's cracked up to be.

FOR

You might hear a UBI proposed for a number of reasons, says Jessica Berentson-Shaw, who co-authored a book with Gareth Morgan, Pennies from Heaven, which argued for a basic income for families.

It used to be a fringe idea but a UBI has gained traction in recent years.

They include to overcome poverty, remove central government involvement in people's lives, reduce the bureaucracy involved in welfare systems, allow a freer market economy, reduce government investment in core universal services, provide a sufficient standard of living for all citizens, recognise and support the role of unpaid labour in the economy and encourage entrepreneurship.

Economist Brad Olsen said a UBI could reduce long-term welfare dependency because it would mean virtually all benefits being disestablished and replaced with the UBI.

It would also go some way to addressing the 'benefit trap' - where people are reluctant to work, even if it means a better long-term income, because they lose benefits.

This is particularly true of Working for Families and the accommodation supplement. At certain income levels, almost all of any extra you earn can effectively be taken away by the reduction in Government support.

A UBI would remove that disincentive to enter employment because and they would get the full benefit of pay for each extra hour worked.

A UBI would also remove the need for low-income people to prove their circumstances to officials to qualify for a benefit. 'The hoops you have to jump through to ensure there is actual need are really not pleasant,' said Eric Crampton, chief economist at The New Zealand Initiative.

Berenston-Shaw said a study in Canada in the 1970s that was targeted at low-income families showed that new mothers stayed home longer with their babies and teenagers traded work for study when they were given a basic income.

Jess Berentson-Shaw: A UBI would help families but that doesn't mean it's a great idea for every New Zealander.

'I reviewed a large number of different unconditional cash payment programmes for my research on child and family poverty in different high-income countries where existing universal services were in place.

'The overwhelming evidence was a positive effect in a number of key areas in children's and parents' lives, ranging from mothers' mental health, reductions in violence, increased spending on children's goods by parents, reduced spending on alcohol and tobacco, improved behaviour in children, reduced involvement in crime and improvements in educational and economic achievement of children.

'The money itself has a direct and immediate poverty reduction effect, while the mitigation of the impacts of poverty would be expected to lead to improvements in intergenerational wellbeing (including reductions in poverty) as social, educational, and financial resource acquisition is known to accumulate over generations. Unconditional cash (in various forms) for those with limited resources was simply the most powerful intervention found to overcome the impact of insufficient resources in families. Other interventions work, but not across so many domains of family and child wellbeing.'

We already have a UBI of sorts in the pension. Almost anyone over 65 will receive the payment, no matter how much they earn elsewhere.

Tax adviser Terry Baucher said it was widely regarded as minimising the number of pensioners in poverty.

'The implication must be that if it has merits for older people why not everyone?'

Terry Baucher: If the pension works for retirees, why wouldn't a UBI work for everyone?

He said the zero-tax bracket, which is used in the United Kingdom and Australia, was another form of UBI. In those countries, people can earn small amounts each year without having to pay any tax at all.

'The cash benefit is the tax which would have been paid so in cash terms is less significant than an actual cash payment.'

AGAINST

But Berentson-Shaw said while the data showed benefits for families in being given cash without strings, there were problems when it was applied to everyone.

Eric Crampton: It would come at a price.

'If you give everyone cash, it is not the same as giving everyone what they need. A UBI will not address imbalances across society - like the benefits that pakeha experience in the health and education system, as it is like giving some communities who already have lots of libraries, parks, shops, cycles lanes even more of these things, while only giving other communities one playground and a Four Square.

'You have to find ways to use unconditional cash to ensure those who have been disadvantaged the most have what others have just got used to before you give it to everyone. That might take a generation. In other words, if you give a UBI and ignore the imbalances already in existence in society, then you are buying into myths of meritocracy. '

Olsen said there was a fear that a UBI would reduce people's need to find work.

'This fear of the unknown and a strong societal pressure in New Zealand that people should pay their own way and stand on their own two feet makes the political appetite for reform towards a UBI highly unlikely, at best. Society currently views payments from the Government as requiring people to fulfil obligations to ensure they go back into employment quickly – with no such thing under a UBI, it seems to appear as far too big of a policy for anyone to stomach.

'A UBI would require a systematic upheaval to New Zealand's tax and transfer settings, and regardless of the economic sense behind it, the public and politicians would be highly resistive. The fact that the economic carve-outs for an already unpopular Capital Gains Tax idea have left that policy without a strong economic or political sense shows just how fraught the process could be to even start discussing a UBI.'

He said there was a need for more evidence on how getting a set amount of no-strings-attached cash each week could affect people's behaviours.

'So far the trials that have occurred were just on small limited numbers of the population, so we haven't seen the wider interplay yet.'

Crampton said a UBI that did not leave beneficiaries worse off than they currently are would be very expensive and require a big increase in our tax rates.

That was unless it had a clawback system much like the current one that a UBI was meant to solve.

He said New Zealand already had one of the most efficient tax systems by internationals standards when it came to transferring money to those on the lowest incomes.

Crampton said Labour's 2016 discussion document, which suggested combining a UBI with supplementary support package, would have given the cost of a UBI with fewer of the advantages.

That paper - which was not party policy - suggested giving $11,000 a year to everyone aged 18 or over.

Crampton said the most recent Treasury estimates found that, for a $300-a-week UBI for adults and $86 a week for children, income tax rates would have to rise to 55 per cent.

'I just don't see the point.'