by Jim Rose in labour economics, labour supply, politics - New Zealand, poverty and inequality, public economics, welfare reform Tags: Aaron Director, Director's Law, Gareth Morgan, negative income tax, social insurance, universal basic income, welfare state

Gareth Morgan’s universal basic income appears to make everybody better off except those for whom the modern welfare state was established to protect. Examples of these from his online calculator are single mothers and retirees.

Source: The Big Kahuna – Tax and Welfare.

To stay even just with single mothers blows a good $10 billion hole in the budget deficit according to the online calculator provided by Gareth Morgan. Retirees are still worse off.

Source: The Big Kahuna – Tax and Welfare.

Central to the package is a comprehensive capital gains tax despite evidence growing with each day that the optimal tax rates on income from capital and on capital gains are zero.

A universal basic income for New Zealand is a long trip to where we are now. There is already a guaranteed minimum family income in New Zealand.

The minimum family tax credit makes sure that a family’s annual income (net income after tax has been deducted) doesn’t fall below $23,036 a year ($443 per week). To qualify, you must work for a salary or wage for at least 30 hours each week as a couple, or 20 hours each week as a single parent, and receive a family tax credit.

The Treasury modelled a Guaranteed Minimum income at the request of the Welfare Working Group in 2010. A guaranteed minimum income of $300 per week – the mean benefit income among those on benefits – would cost $44.5 billion or $52.6 billion if we extended it to super annuitants as a replacement for NZ Superannuation or old age pension. The former could be covered by a flat personal income tax rate of 45.4%; the latter, 48.6%. Full fiscal neutrality would require tax rates of 50.6% and 54.4%.

Why the Guardian is wrong on UBI https://t.co/cr9Ougi4iV — Gareth Morgan (@garethmorgannz) December 16, 2015

The universal basic income seems to be a big day out for Director’s Law of Public Expenditure. Director’s Law is public expenditure is used primary for the benefit of the middle class, and is financed with taxes which are borne in considerable part by the poor and the rich.

The universal basic income and a comprehensive capital gains tax seems to cause a lot of economic upheaval but still struggles to make the worse off groups in society even break-even on this throwing of all the cards in the air. Brian Easton put it well the other day when he said:

Many advocates put the UMI forward without doing the sums. Those who do, find that the required tax rates are horrendous or the minimum income is so low that it is not a viable means of eliminating poverty. Among the latter are New Zealanders Douglas, Gareth Morgan and Keith Rankin.