Will a no-strings basic income work?
His party is new, but Gareth Morgan’s idea to give every Kiwi a basic income from the government is older than he is.
You probably heard about Morgan’s plan to dole out every 18-23 year old a no-strings $200 a week on Tuesday, but really this is just the third trojan horse for his proper plan: a Universal Basic Income (UBI) for every New Zealander.
The idea is unlikely to gain much real political traction — Labour have been scared off the UBI quite recently and it’s essentially the opposite of National’s social investment approach — but while the politics might not stack up, the economics are much more credible.
The UBI concept has decades of research behind it, but just a handful of real world trials.
It’s not hard to understand the theoretical benefits. Instead of an expensive and messy system of means-testing and targeted government intervention, we just give everyone enough to live on, with absolutely no strings attached.
Those without work don’t have to go through intrusive testing into whether they deserve enough money to cover their basic needs — and since it doesn’t taper off when they do get a job, there is no disincentive from getting more work. (If you want an idea of how this already works in practice, just ask anyone over 65 who still has a job. Super is basically UBI for old people.)
Meanwhile those with jobs have something to fall back on in case of redundancy — or just quit and start a business or give university a try.
This seems especially appropriate in a world with drastically fewer jobs thanks to automation, but huge amounts of capital floating around.
‘‘The dream is eventually the machine does all the work and we go to the beach,’’ Morgan said at the policy launch on Tuesday.
We’re clearly not at this world without work yet — where capital is heavily taxed to pay for us all to chill 24/7, aka luxury communism — but Morgan wants us to start down the road there.
So how does this idea stack up in the real world?
Would a targeted UBI work, or is that an oxymoron?
While Morgan has signalled that he wants a full UBI — The Big Kahuna — at some point, the initial payment for babies and young people deserves to be assessed by itself.
These are essentially targeted UBIs — which is a bit of an oxymoron, but let’s proceed. Both babies and young people are heavy users of the social welfare system already, via Working for Families, paid parental leave, and student loans/allowances.
Morgan wants to replace most of that with a simple $200 payment every week, indexed to CPI going forwards.
For working parents, $200 a week is far lower than what they might be able to pull in with paid parental leave — but it would run for two years, instead of 16 weeks.
And for all single students under the age of 24, $200 is more a week than either the student allowance or student loan living costs will give them — as well as not being tied to studying, and not needing to be paid back.
Economist, Christchurch City Councillor and Ilam independent candidate Raf Manji argues Morgan’s idea for young people is a solid way to target a universal benefit at a group that needs it the most.
‘‘Especially when we look at the fact that we have basically UBI for over 65-year-olds and that has worked very well over the years,’’ Manji said.
‘‘Introducing UBI in one go is obviously quite tricky, but introducing it in smaller pieces makes sense.’’
Infometrics economist Adolf Stroombergen agrees.
‘‘It’s a start. I think it’s a good way to try it out,’’ Stroombergen said.
‘‘This is a cohort where welfare payments are quite complex. This is a pure UBI, but all he’s saying is that at this stage we can’t apply it to the whole population so let’s try this.’’
Will people stop working?
Finance Minister Steven Joyce, naturally no fan of the idea, said that it would incentivise young people not to work or study.
Stroombergen argues there won’t be any more people not working or studying than there are now.
‘‘You’ll get a few loafers, but you get that now. You have to have some faith in people — there are not going to be too many people who are happy to live on that amount of money,’’ he said.
The evidence on this is complicated.
The largest trial of a UBI-like scheme ever took place in Canada in the 1970s. It’s known as the Manitoba Basic Annual Income Experiment, or ‘‘Mincome’’.
One study looking at that experiment found that labour market participation — people working — fell by 11.3 per cent. But the people who left work said they were doing things like caring for family members and investing in education.
Another study of the same data found that Mincome resulted in people staying at high school longer and requiring less hospitalisation for health problems, especially mental health issues — one of the stated goals of Morgan’s policy.
So where’s the money coming from?
Right-leaning economist Eric Crampton of the New Zealand Initiative argues that we haven’t really had a proper trial of UBI yet — anywhere — because to properly assess the merits you need to radically change the tax system as well.
‘‘For a proper version of that experiment you would have to apply the tax rates that would be necessary to fund the scheme,’’ Crampton said.
Morgan agrees of course — he wants to drastically cut income taxes while creating a new tax on assets, including the family home.
Crampton doubts the $200 a week payment would work within the context of New Zealand.
‘‘Targeted systems like we have today suck. The UBI already sucks but in different ways,’’ Crampton said.
‘‘The fundamental tradeoff is that it is impossible to give the families that are in the most need enough money without some form of targeting,’’ he said.
‘‘But if you do that — layering targeted approaches over UBI — you ruin the reason for having a UBI in the first place.’’
Without the additional targeted spending there would be families going to the media with horror stories every week, making it politically unfeasible to pay everyone the same amount.
Looking specifically at Morgan’s costings, Crampton notes that most of the money doesn’t come from dismantling the current student support scheme — it comes from cancelling National’s planned tax cuts.
‘‘You would have a lot of families that don’t meet the 18-23 threshold but would be in circumstances where they would have benefited from the tax cuts.’’
From the other end of the ideological spectrum, The New Zealand Project author Max Harris argues this is the wrong kind of UBI trial.
‘‘It doesn’t realise the full potential of a UBI or allow for a true UBI to be tested,’’ Harris said.
‘‘The best way to do a pilot is to have a proper sample of the population, not to target it through age.’’
Harris is a ‘‘cautious’’ supporter of UBI as he thinks it will reduce the stigma around welfare and offer remuneration for domestic work, without which the entire country would fall down.
A pilot programme would also cost a lot less — in the neighbourhood of $20-30m, instead of the $3.4b tag for Morgan’s proposal.
UBIs draw together an unlikely base of support from the right and left, but once people get into the details ideological divides return.
Those on the right envision a UBI complemented by a flat tax regime and an end to all other benefits.
Those on the left imagine it in concert with other targeted interventions. The divides between these two visions is massive, and unlikely to be solved any time soon.
And in the end, no economic scheme can be fully divorced from politics, as much as Morgan wishes it could be.