How big will a Basic Income be?

 


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

 

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 July 2019, the New Zealand GDP per capita is NZ $57,160.
     
  • This gives an annual Basic Income range before tax of $11,400 to $17,150 and after-tax of $7,980 to $11,490.
     
  • The equivalent weekly payments are $219 to $329 before tax or $147 to $220 after tax. 
     
  • For comparison, the 2019 adult jobseeker support rate is $219 per week after tax.
     
  • Several alternatives have been suggested. Four of the most common proposals are:
    1. A minimal payment of $175 per week.
    2. Convert existing jobseeker support payments to Basic Income payments.
    3. Choose a nice round figure.
    4. Choosing larger payment rates.
       
These four alternatives are discussed in more detail below.
1.  First alternative - a minimal payment of $175 per week.
 
  • A Basic Income of $175 per week after-tax coupled with a 33% uniform tax on all other income has been suggested.
     
    • $175 per week is just a little more than the amount required to offset the extra tax paid by those earning over $70,000 p.a. when the present progressive tax is replaced with a uniform tax of 33%. 
    • The figure of $175 per week is chosen as it is a nice round figure.
    • The tax rate of 33% is the current maximum tax rate paid on income over $70,000 with the progressive tax system.
       
  • A payment of $175 is also suggested because it gives a low-cost Basic Income required to introduce a 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 if the second alternative is adopted.
       
  • Because the $175 rate is linked to the present progressive tax system it will not be indexed with inflation.
     
    • Consequently, the additional payment required to bring the income of those on jobseeker support up to the jobseeker support level must be increased each year to keep up with inflation.
    • This will progressively erode the value of the Basic Income component as a percentage of the total income received by individuals and over time erode the advantages of having a Basic Income.
       
  • 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. receive greater net income from the Basic Income.
2.  Second alternative - convert jobseeker support payments to Basic Income payments.
 
  • A second alternative is to make the present jobseeker support payments Basic Income payments of the same after-tax value.
     
  • This rate will eliminate jobseeker support payments and significantly reduce administration costs.
     
  • The present levels for jobseeker support fit within the international recommended levels for a Basic Income.
     
  • The Basic Income payment rate must be increased each year to keep up with inflation and maintain the value of the payment.
     
  • 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.
     
  • Those on welfare benefits higher than jobseeker support will still require additional payments to bring their income levels up to present levels, or if they are eligible, they may qualify for a higher level of Basic Income.
     
  • Assuming a uniform 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. 
3.  Third alternative - 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 such as after-tax payments of either:
     
    • $11,000 p.a. ($211 p.w.). This is less than the current jobseeker support rates.
    • $12,000 p.a. ($230 p.w.). This is a little more than the current jobseeker support rates.​
       
  • As the first figure is less than the current job seeker support rates the same comments apply as for the first alternative above.
     
  • As the second figure is similar to the payments suggested for the second alternative there is little advantage when compared to the second alternative and the same comments apply as for the second alternative above.
     
  • Again, care must be taken to ensure that those with special needs who currently receive more than the Basic Income payment will continue to receive the same incomes at a higher rate than the Basic Income.
     
  • 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.
4.  Fourth alternative - higher payment rates
 
  • BINZ does not recommend higher levels of payment than those indicated in the first three alternatives for the initial introduction of a  Basic Income.
     
  • Higher payment rates have been suggested by some advocates who consider that they are sustainable but the following points should be noted.
     
  • While alternatives one to three 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 a loss of total after-tax income as the increase in tax will be offset by the Basic Income payments.  
     
  • While most people will work to increase their incomes above the levels received from a modest  Basic Income, it has been suggested, but not proven, that when the level of a Basic Income is set higher than the levels suggested in the first three alternatives, that the number of people who decide not to work may increase as the Basic Income level increases.
     
  • 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. Note that most people with high incomes now continue to work.
     
  • 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.
     
5.  Fifth alternative - Basic Income is paid as an addition to existing welfare payments
 
  • BINZ does not recommend paying a Basic Income as an additional payment to be added to all existing welfare payments. This is known as an "add on scheme".
     
  • A Basic Income is intended to replace and eliminate a substantial portion of the existing welfare system. 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 welfare system.
     
  • To keep such 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.
     
  • If the payments are set at a reasonable level the overall cost will be very high whilst the many problems and costs associated with the existing welfare system remain.

END

Revised 23 March 2020

 

BINZ is not responsible for content on external websites. © 2017 BINZ. All rights reserved.