How big will a Basic Income be?

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This page looks at the question of the size of a Basic Income.
 

• 1 April 2023 rates are used.

 

Several possible levels of Basic Income are considered on this page.
 

BINZ does not promote any particular level of Basic Income. 
 

• International Basic Income experts recommend Basic Income payment levels in the range of:
  20% to 30% of GDP per capita, or alternatively, 25% of GDP per capita.
   

• As of April 2023, the New Zealand GDP per capita was NZ $76,000
   

  • Assuming a proportional tax of 33%, this gives an annual Basic Income range of:

    • $15,200 to $22,800 before tax and  $10,192 to $15,288 after tax. 
       

  • The equivalent weekly payments are:

    • $292 to $437 gross or before tax, or $195 to $293 net or after tax.

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• For comparison, the 2023 adult jobseeker support rate payable from 1 April 2023 is:

  • Gross or before-tax: $386.54 per week or $20,168.69 per annum or 
    Net or after-tax or tax-free: $337.74 per week or $17,622.45 per annum.
     

  • In addition, those on jobseeker support are entitled to a tax-free accommodation support payment of $70, $80, $105, or $165 per week depending on the area where they live. 
    This is equivalent to an additional:

    • $4,081.00 to $9,619.50 p.a. gross or before-tax or

    • $3,652.40 to $8,609.23 p.a. net or after-tax or

    • $70 to $165 per week net or tax-free.
       

  • When the jobseeker support rate and accommodation supplement are added, the total payments are: 

    • $24,249.69 p.a. to $29,788.19 p.a. gross or before-tax or

    • $21,274.85 to $26,231.68 p.a. net or tax-free or

    • $407.74 and $502.74 per week net or tax-free or

    • 52% to 64% of the minimum wage.
       

• In conclusion, the adult Jobseeker Support rate of $337.74 tax-free per week is above the internationally recognised range of $195 to $293 per week.
   

  • Adding the living allowance to increase a net Basic Income from $338 to $408 to $503 would make a Basic Income well above the recognised range and create problems with relativities.
     

  • As an example:​

    • A Basic Income of $503 per week exceeds all three New Zealand Superannuation rates.

    • Consequently, the Basic Income would probably replace NZ Superannuation adding to the total cost of the scheme.

    • Alternatively, NZ Superannuation could be further increased to maintain relativities but this would further increase the total cost of a Basic Income scheme.

 

Minimum wage rates

 

• Current minimum wage rates are included here to allow a comparison with Basic Income proposals. 
   

• New Zealand minimum wage rates from 1 April 2022:

  • Adult:     $22.70 per hour Gross or before tax.    $19.20 per hour Net or after-tax.

    • Gross = $181.60 per 8-hour day, $908.00 per 40-hour week, or $47,377.17 p.a.

    • Net     = $153.58 per 8-hour day, $767.88 per 40-hour week, or $40,066.17 p.a. 

  • Starting out or Training:     $18.16 per hour Gross or before tax.  $14.46 per hour Net or after-tax.

    • Gross = $148.80 per 8-hour day, $744 per 40-hour week, or $38,820.06 p.a.

    • Net     = $126,52 per 8-hour day, $632.58 per 40-hour week, or $33,006.55 p.a.

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 Common proposals

 

• Various alternatives for a Basic Income have been suggested. The most common proposals are:

  1. A payment of $175 per week.

  2. Convert the existing jobseeker support payments to Basic Income payments.

  3. Use the existing jobseeker support payment with an accommodation supplement included.

  4. Choose a nice round figure.

  5. Larger payment rates.

  6. Basic Income is paid in addition to existing welfare payments. 
      

These alternatives are discussed in more detail below starting with the lowest first.

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1.  A minimal payment of $175 per week.
 

• A Basic Income of $175 per week is less than that recommended by most Basic Income advocates.

  • It may however be a useful level for the initial introduction of a Basic Income that will be increased at a later date.

  • The reasons for selecting $175 are explained below.

  • Introducing a Basic Income at a lower level and increasing it later allows the economy to shift and adapt to a Basic Income and avoids major impacts on the economy.
     

• A Basic Income of $175 per week after-tax coupled with a 33% proportional tax on all other income.
   

  • $175 per week is a little more than the $174.02 required to offset the extra tax paid by those earning more than $70,000 p.a. gross but less than $180,000 p.a. if the present progressive tax is replaced with a proportional tax of 33%. 

  • The figure of $175 per week is chosen as it is a nice round figure and a little more than the $174.02.

  • The tax rate of 33% is the marginal tax rate paid at present on income between $70,000 and $180,000 under the current progressive tax system.

  • The figure of $175 per week is peculiar to the present New Zealand progressive tax system. Changes to the rates or thresholds will result in a different figure.

  • When first proposed, $175 per week was close to the Jobseeker Support rate but Jobseeker support has increased significantly since then while the $175 has remained constant. 
     

• A payment of $175 is sometimes suggested because it gives a low-cost Basic Income.
   

• With a Basic Income of $175 per week, those who are on Jobseeker support at present will still require additional payments to increase their incomes to the current Jobseeker support levels.
   

  • As a consequence administration costs remain higher than for other higher Basic Income rates.
     

• Because the $175 rate is linked to the present progressive tax system it will not be indexed with inflation.
   

  • Consequently, as the jobseeker support rate increases each year with inflation but the $175 level is fixed, additional payments required to bring those receiving a Basic Income of $175 per week up to the jobseeker support level must be increased each year to keep up with inflation.

  • As incomes increase over time with inflation, this will progressively erode the value of the Basic Income as a percentage of an individual's total income and undermine the advantages of a Basic Income. 

  • Similarly, the Basic Income component as a percentage of the total income received by individuals on jobseeker support will erode over time undermining the advantages of having a Basic Income.

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• If the $175 is indexed with inflation it will cease to be a nice round figure and costs will rise as those with incomes over $70,000 p.a. will receive greater net income from the Basic Income.
   

• As mentioned above, a value of $175 per week may serve as a useful introductory level of Basic Income that can be increased at a later date.

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2.  Convert jobseeker support payments to Basic Income payments.
 

• Many Basic Income advocates internationally recommend using the current adult jobseeker support rate as the Basic Income rate.  
   

• This rate will eliminate jobseeker support payments and significantly reduce administration costs.
   

• The present levels for jobseeker support are a little above internationally recommended levels for a Basic Income.
   

• Because jobseeker support levels are already established, using present jobseeker support rates avoids the need to justify and fund payment levels higher than already established levels.
   

• To maintain the value of the payments, the Basic Income payment rate must be increased each year to keep up with inflation.
   

• Because a Basic Income is paid to everyone, all welfare payments that are currently lower than or equal to the Basic Income will be replaced with the Basic Income. This includes student allowances.
   

• Those on welfare benefits that are higher than jobseeker support will still require additional payments to bring their total income up to present levels. Alternatively, they may qualify for a higher level of Basic Income. For instance, those with special needs could qualify for a higher level of Basic Income paid only to those with special needs. 
   

• Assuming a proportional tax of 33%, those with incomes over $70,000 p.a. who receive a Basic Income will receive an after-tax payment that increases by a dollar for each additional after-tax dollar that the Basic Income exceeds $175. 
   

• For those with earnings over $180,000 per annum, the current 39% marginal tax rate will be retained if considered desirable. 

  • Failure to retain the 39% rate or use the 33% rate for all income will result in a cut to the marginal tax rate for earnings over $180,000 and add to the overall cost of a Basic Income scheme.​
     

• There are two possible ways to convert jobseeker support payments to a Basic Income. 

  1. Convert the jobseeker support to a Basic Income without the accommodation supplement.
     The accommodation supplement will then be paid independently to those who require it.

  2. Add the accommodation supplement to the jobseeker support and convert the total amount to a Basic Income. As there are four different accommodation supplement rates there will be four different Basic Income rates.
      

• A Basic Income without the accommodation supplement. 
  While the Basic Income will replace jobseeker support payments, other payments that those on jobseeker support receive such as the accommodation supplement will remain unaffected and must be paid in addition to the Basic Income.

  • This option gives a lower cost Basic Income than a Basic Income with the accommodation supplement included but will be a more complex scheme to administer.

  • Additional payments such as accommodation supplements will remain available to those who are eligible to receive them at present.

  • To maintain their value, all additional payments must be increased with inflation.

  • Retaining the accommodation supplement and other payments as they are at present will result in administration costs to ensure the correct payments are made and to ensure that they are correctly abated.

  • Manual reporting of incomes is required at present to ensure that accommodation supplements are abated at the correct rate and this requirement will remain. 

  • At present, the accommodation supplement is abated from the first dollar earned so retaining accommodation supplements will not completely eliminate poverty traps. 
     

3.  Convert jobseeker support payments to Basic Income payments with an accommodation supplement included.​

 

• A Basic Income with the accommodation supplement included.
  With this proposal, an accommodation supplement is added to the jobseeker support rate to give a higher value Basic Income. This occurs at present with New Zealand Superannuation which can be considered to include an allowance for living. However, those receiving New Zealand Superannuation may apply for additional payments if they can prove the need.​

  • Alternative a. - 4 different rates of BI for four different accommodation supplement areas.

    • At present, there are four different accommodation supplement rates that depend on the area where a person lives. Four different rates of Basic Income will result if the principle of different rates depending on the area is retained.

    • Four different Basic Income rates depending on the area will complicate the Basic Income scheme:

      • the Basic Income payment rate must be changed whenever a person moves from one area to another,

      • an annual reconciliation will be required,

      • monitoring will be required to ensure that people do not attempt to obtain a higher rate than they are entitled to.

    • Problems will occur if a person moves from a high accommodation rate area to a lower rate area and forgets to report the move, or if a person frequently changes from one area to another during the year.

  • Alternative b. - the accommodation supplement is added at the minimum rate only (area 4).

    • This will give a higher uniform Basic Income rate than a Basic Income paid without an accommodation supplement added. 

    • Only those who live in the three higher-cost accommodation areas will require an additional accommodation supplement resulting in some simplification and reduction of administration costs.

  • Alternative c. - the accommodation supplement is added at the maximum rate only (area 1).

    • This will give a higher but uniform Basic Income for the whole country that does not require the payment of additional accommodation supplements.

    • A uniform Basic Income will encourage people to live in or move to lower-cost regional areas which will boost regional economies and help counter urban drift.  

    • Poverty traps are eliminated.

    • A uniform Basic Income will eliminate most, if not all, administration costs associated with the payment of a separate accommodation supplement.

    • With the accommodation supplement included at the maximum rate only, the need for those on low incomes to report any additional income earned or to report when they have moved from one area to another is eliminated. 

  • Alternative d. - the accommodation supplement is added at an intermediate rate (area 2 or 3).

    • The accommodation supplement is added at area 2 or area 3 rates.

    • Only those on low incomes living in areas with higher accommodation costs than are included in the payment would need to apply for an accommodation supplement. 

    • Administrative costs associated with manual reporting of incomes and abatements are not completely eliminated and poverty traps will remain for those who still receive an accommodation supplement.

    • The rate may still encourage some people to move to lower-cost areas. 

    • The problem of people moving from one area to another remains,
       

• Adding the accommodation supplement at a higher rate will result in a higher level of Basic Income and a more expensive scheme but will eliminate the need to pay accommodation supplements to anyone who has no full-time employment and eliminate all the administration costs that go with this. Administration costs are considerably reduced or eliminated.
   

• Adding the Basic Income at a single higher rate to produce a uniform Basic Income rate for the country will give the most benefits from a Basic Income but increase the cost of the scheme.

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4.  Use a nice round annual figure to replace jobseeker support.
 

• Some advocates suggest a nice round annual figure for the introduction of a Basic Income.
  Examples using net or after-tax payment rates that have been suggested include:
   

  • $12,000 p.a. ($230 p.w.). 

  • $13,000 p.a. ($249 p.w.). 

  • $14,000 p.a. ($268 p.w.).  

  • $15,000 p.a. ($287 p.w.). 

  • $16,000 p.a. ($307 p.w.). 

  • $17,000 p.a. ($326 p.w.).

  • $18,000 p.a. ($345 p.w.).

  • $19,000 p.a. ($364 p.w.).

  • $20,000 p.a. ($383 p.w.).

  • $21,000 p.a. ($402 p.w.).

  • $22,000 p.a. ($422 p.w.).

  • $23,000 p.a. ($441 p.w.).

  • $24,000 p.a. ($460 p.w.).

  • $25,000 p.a. ($479 p.w.).

  • $26,000 p.a. ($498 p.w.).

  • $27,000 p.a. ($517 p.w.).
     

• For those amounts that are less than the current jobseeker support rates, the same comments apply as for the first alternative above.
   

• When the Basic Income is similar to the jobseeker support rate, the second alternative, there is little advantage when compared to the second alternative and the same comments apply as for the second alternative above.

  • The Basic Income payment rate could be increased to the next round figure above the jobseeker support rate but the advantage of a nice round figure will be lost with the first increase due to inflation.
     

• Again, care must be taken to ensure that those with special needs who currently receive more than the jobseeker support rate will continue to receive the same total income after the Basic Income is introduced.
   

• If the payment rate is indexed with inflation to maintain its value the annual payment will cease to be a nice round figure defeating any advantage there might be to having a nice round figure.
   

• If the payment rate is not indexed with inflation the value of the Basic Income payments will erode over time and the advantages of the Basic Income will be progressively lost.

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5.  Higher payment rates
 

• Higher levels of payment than those indicated in the first three alternatives for the initial introduction of a  Basic Income are seldom recommended by International experts.
   

• As the payment level of a Basic Income increases the overall cost of the scheme increases and it becomes more difficult or impossible to fund the scheme.
   

• However, higher payment rates have been suggested by some advocates who consider that they are sustainable. The following points should be noted.
   

  • While alternatives one to three above may be paid for with little change to present taxation rates, payments higher than suggested in the first three alternatives will require additional taxation.
     

  • This will not necessarily lead to an individual receiving less total after-tax income as the increase in tax is offset by the Basic Income payments that people receive.
     

  • Most people will work to increase their incomes above the levels received from a modest Basic Income. However, it has been suggested, but not proven, that when the level of a Basic Income is greater than a certain level or the levels suggested above, there is a point where the number of people who decide not to work will increase as the Basic Income level increases. In other words, there is likely to be a particular level of income that varies for each individual, above which a person will consider that they no longer need to work, however, the indications are that most people will always continue to work to boost their incomes.
     

  • Trials indicate that modest Basic Income payments do not result in increases in those opting not to work. However, trials have not been done with larger Basic Income payments to see if there is a threshold above which people will progressively decide not to work. If there is a threshold, it is likely to vary from person to person. It is worth noting that most people who have high incomes now from sources other than work or have high wealth levels continue to work to enhance their incomes.
     

  • If the Basic Income level is greater than current jobseeker support rates, those with special needs may feel that the extra payment level they receive for their special needs has been eroded and ask for their payments to be increased to maintain their current margins.
     

6.  Basic Income is paid as an addition to existing welfare payments.
 

• Paying a Basic Income as an additional payment to be added to all existing welfare payments is known as an "add-on scheme". 
   

• A Basic Income is usually intended to replace and eliminate all welfare payments of equivalent or less value.  Thus, a substantial portion of the existing welfare system is replaced, simplifying the welfare system, and saving costs. Failure to replace this portion of the present welfare payments will significantly add to the total cost of a Basic Income scheme and fail to eliminate many of the complexities and inefficiencies of the present system.
   

• To keep an add-on scheme affordable, Basic Income payments must be kept very low, and the many advantages of a Basic Income will be either reduced or eliminated.
   

• With an add-on scheme, if the Basic Income payments are set at a reasonable level the overall cost of the scheme will be very high as there will be no welfare payment savings and the many problems and costs associated with the existing welfare system will remain.

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Note: While every effort has been made to ensure that the information presented on this page is accurate, Basic Income NZ takes no responsibility for the use of these figures.

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