Universal Basic Income (UBI)

Universal Basic Income - a Modern, Simple and Fair Tax and Welfare System

Executive Summary

The Opportunities Party (TOP) is proposing a fundamental overhaul of the tax and welfare systems in New Zealand to make them modern, simple and fair. This will be achieved by introducing a:

$13,000 annual universal basic income (UBI);

$2,080 annual child universal basic income (paid to parents); and

Flat tax of 33% on all income from all sources for all entities.

How we got here

In the past three to four decades since the last major reforms, there have been significant changes to society, business, and the world as a whole, yet our tax and benefit system has remained the same. The lack of a comprehensive Capital Gains Tax has seen housing and property-based businesses (e.g. farms) become tax-favoured assets. This has been a contributing factor to higher house prices, increasing wealth inequality, reduced home-ownership rates, increased housing costs for people on low incomes, and greater welfare dependency. As the job market becomes more dynamic, with the rise of automation and artificial intelligence, the pressure on ordinary people will grow.

There is a need for change, and now is the right time!

Why reform is needed

The New Zealand tax and welfare systems are complex, punitive, arbitrary, increasingly unable to keep up with the demands of the modern world, and creaking under the strain of economic change.

Benefits for the unemployed and underemployed currently provide a financial disincentive to work, as entitlements reduce as soon as they start to earn money themselves. So we spend billions on administration and punitive measures to counter this.

In contrast, a UBI encourages people to work because they don’t lose it when their earnings increase. It also rewards unpaid labour that keeps our society going, e.g. parents caring for children and volunteer roles in our communities. In the face of economic upheaval, it enables people to start businesses and retrain as needed.

Additionally, differing tax rates for different entities (individuals, trusts and companies) create incentives for tax planning (NZ has well above OECD averages of trusts and companies). A common tax rate between all entities removes tax advantages from the use of different entities that do not truly reflect the character of the entity.

Finally, a UBI provides some degree of financial security for everyone. A temporary boost during medical (e.g. COVID-19) and natural disaster emergencies (e.g. Christchurch Earthquake) would ensure immediate, direct support to the entire population as well as financial stimulus for the economy after financial shocks (e.g. GFC).

How it works

A UBI would be paid to all New Zealand citizens and permanent residents over the age of 18. It replaces all benefits of a lesser value (e.g. Supported Living Payments and the Jobseeker benefit). People on higher benefits would be no worse off. A child UBI would be paid to the parent(s) of all children under the age of 18. This would replace Working For Families of lesser value, those receiving higher rates would be no worse off.

All income would be taxed at a flat rate of 33% – a significant simplification of the current tax system. Progressiveness would still be achieved because the UBI creates a net 0% tax rate at around $39,000 per annum, with negative tax rates below and positive tax rates above. Companies, trusts and Portfolio Investment Entities (PIEs) would also face the 33% tax on profits, this would be an increase from 28% for companies and PIEs.

TOP has conservatively costed these changes, which end up broadly tax neutral overall. In particular, a UBI would significantly reduce the bureaucracy within government departments and the paperwork for many Kiwis. These changes would also achieve savings in other government transfers that are less generous than the UBI.

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Page last updated on 10-Sep 2020