How big will a Basic Income be?

 


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

 

Several possible levels for a 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 2021, the New Zealand GDP per capita was NZ $57,376. 
    • This gives an annual Basic Income range before tax of $11,475 to $17,213 and an after-tax range of $7,688 to $11,532 assuming a uniform tax rate of 33%. 
    • The equivalent weekly payments are $220 to $329 before tax or $147 to $221 after tax. 
       
  • For comparison, the 2021 adult jobseeker support rate payable from 1 April 2021 is:
    • Before-tax $290.57 per week or $15,161.50 per annum.
    • After-tax or tax-free: $258.50 per week or $13,488.16 per annum.
    • In addition, those on jobseeker support are entitled to a tax-free accommodation support payment of $70 to $165 per week depending on the area where they live. This is equivalent to an additional $3,652.50 to $8,609.46 p.a. after-tax or $4,081.00p.a. to $9,619.50 p.a. before-tax.
    • When the jobseeker support rate and accommodation supplement are added together the total net or tax-free payments are in the range of $17,140.73 to $22,097.662 p.a. and the gross or before-tax payments are $19,249.49 p.a. to $24,781.00 p.a.
    • Recipients on adult jobseeker support will receive a tax-free payment between $328.50 and $423.50 per week.
       
  • Various alternatives for a Basic Income have been suggested. The most common proposals are:
    1. A minimal payment of $175 per week.
    2. Convert the existing jobseeker support payments to Basic Income payments.
    3. Choose a nice round figure.
    4. Larger payment rates.
    5. Basic Income is paid in addition to existing welfare payments. 
       
These alternatives are discussed in more detail below.
1.  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 $174.14 required to offset the extra tax paid by those earning over $70,000 p.a. and less than $180,000 p.a. if or 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 and a little more than the $174.14.
    • The tax rate of 33% is the maximum tax rate paid on income over $70,000 and less than $180,000 with the current progressive tax system.
       
  • A payment of $175 is also suggested because it gives a low-cost Basic Income suggested as a first value for the introduction of a Basic Income and allowing for the value to be increased at a later date.
     
  • 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, as jobseeker support increases each year with inflation but the $175.00 level is fixed the additional payment required to bring those receiving a Basic Income of $175.00 per week 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 on jobseeker support 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. will receive greater net income from the Basic Income.
2.  Convert jobseeker support payments to Basic Income payments.
 
  • A second alternative is to replace the present jobseeker support payment with 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.
     
  • Because a Basic Income is paid to everyone, all welfare payments that are currently lower than the Basic Income will be replaced by the Basic Income. This includes student allowances.
     
  • 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.  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:
     
    • $12,000 p.a. ($230 p.w.). This is less than the current jobseeker support rates.​
    • $13,000 p.a. ($249 p.w.). This is still less than the current job seeker support rate.
    • $13,500 p.a. ($258 p.w.). This is just a little less than the current job seeker support rate.
    • $14,000 p.a. ($268 p.w.). This is a little more than the current job seeker support rate.
       
  • As the first three figures are less than the current job seeker support rates the same comments apply as for the first alternative above.
     
  • As the third and fourth figure are similar to the payments suggested for the second alternative above 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 total income which is more 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.  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.
     
  • 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 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 is offset by the Basic Income payments that people receive.  
     
  • 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. It is worth noting that most people who have high incomes now from sources other than work 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.
     
5.  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 intended to replace and eliminate a substantial portion of the existing welfare system simplifying the 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.
     
  • 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 whilst the many problems and costs associated with the existing welfare system will remain.

END

Revised 30 April 2021