UBI plan’s economic backing

ANALYSIS: His party is new, but Gareth Morgan’s idea to give every Kiwi a basic income from the government is older than he is.

Morgan yesterday announced The Opportunities Party’s plan to dole out $200 a week to every 18 to 23-year-old, 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 was 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 economic theory is more credible.

Instead of a messy system of means-testing and targeted 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 doget a job, there is no disincentive to getting more work.

Meanwhile, those with jobs have something to fall back on in case of redundancy - or just quit and start a business.

This seems especially appropriate in a world with fewer jobs thanks to automation.

‘‘The dream is eventually the machine does all the work and we go to the beach,’’ Morgan said.

Infometrics economist Adolf Stroombergen said Morgan’s idea for young people is a solid way to target a universal benefit at a group that could use it.

‘‘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.’’

Finance Minister Steven Joyce said that it would incentivise young people not to work or study.

‘‘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,’’ Stroombergen said.

The largest trial of a UBI-like scheme ever took place in Canada in the 1970s.

One study looking at that experiment found that labour market participation - people working - fell by 11.3 percent. But the people who left work said they were doing things like caring for family members and investing in education.