Targeting vs Unconditional Welfare – 5 Questions to Ask Yourself

Over the past few years all Establishment Parties – National, Labour, and the Greens have proposed or enacted changes to the targeted benefit regime (including Working for Families). Which is better, targeted welfare or an Unconditional Basic Income? Here are 5 questions you can ask yourself to help make up your own mind. 

Do you know who needs help?

How accurately can you point to the people that need help? What income or assets would you allow before you’d say they don’t need help? Are we worried about their parents or other relatives? What if a rich kid wants to go to dance school but their parents won’t let them go? Do we help them?

If you struggle with these questions, then you can see why an Unconditional Basic Income might be a better idea. Playing God to decide who is eligible for government help is a tough business. You are bound to either be too tight so some people miss out, or too loose so that people who don’t need it, get it.

The philosophy of a UBI is quite different. Everyone gets it, as it acts like a dividend for a civilised society. Combined with a flat tax rate (including on assets) it would provide a simple, affordable, and progressive alternative to the welfare state.

Do you know what people need help for?

We can probably all agree on the sick, disabled, and solo parents. What about the unemployed? How long should they be unemployed for before we help them? What if they do a little bit of work each week, or every other week? What about students? Should we help them? Just the poor ones or all of them? What if someone is learning in the job, or starting a business, or building their creative expertise? More than a quarter of young people don’t do ANY study or training post school; shouldn’t we help them too?

It doesn’t take long to work out that our current system of targeting is pretty random at best. Again, an Unconditional Basic Income overcomes all those issues by helping everyone and trusting them to do the right thing.

Of course you might be concerned that if you give people a UBI, they might do nothing. But actually that rarely tends to be the case. Not only does a UBI tend to reduce stress, improve health, and reduce debt, it also tends to lead to more people starting a business. In experiments the only people that worked less with a UBI were parents with small kids and people in training or education.

What are they going to spend the money on?

Do you fret that people might spend taxpayer money on things that you disagree with? Like drugs, booze, or Crusaders tickets? Can you decide what people should spend their money? You could provide them with vouchers like they do in the United States, but then you just create a black market as people swap vouchers for cash.

The evidence is pretty clear, that most people are pretty good at spending money in their own best interest. If you give them more money it reduces their stress, and they tend to spend it on the right things for them. They certainly do a better job than a bureaucrat trying to second guess what they need. Poor people don’t spend more on drugs, alcohol or junk food than the rest of us.

All telling people what to spend their money on achieves is more stigma, which creates stress, which ends up causing harm. The international evidence is clear that because everyone gets a UBI, there is less stress for beneficiaries, which leads to better outcomes all round.

Are you worried about the poverty trap?

The problem with targeted benefits is that they have to be taken off people as they earn money. This is known as ‘abatement’ and works a lot like a tax. In many cases, people end up no better off from working than they are on the benefit. And we wonder why they don’t bother to work.

To illustrate how entrenched the targeting mindset is, Minister Steven Joyce when hearing about our plans for a UBI, predictably commented that this would make it less likely that Kiwis offered themselves for work at a time when we have labour shortages. There are a couple of things that Mr Joyce needs to bone up on. Firstly the costs of going to work for many, now completely outweigh the advantages they get – losing their benefit plus the costs of transport, childcare etc, outweigh the pathetic wages his fruit picking jobs provide. The evidence tells us that a UBI would cover many of these and they’d be more likely to do paid work for the paltry wages that National’s low wage economy is offering.  The second thing is, the only reason we have labour shortages is because we’re subsidizing industries that depend on paying peanuts for labour, by bringing in large amounts of desperados from abroad.  As soon as we cut off the migrant supply those businesses yelp. We should be letting such businesses go to the wall and enabling profitable businesses to employ their labour – not opening the spigot for more cheap labour as the government just did.

Of course, some people aren’t worried about trapping people on a benefit, as long as those people have enough to live on. The question is whether we want people to work or not. The evidence is that work is generally good for people’s wellbeing, although there may be exceptions for parents of small children, and disabled people. That is why in TOP’s view the goal should be removing the poverty trap for most people. And that is what a UBI would do. We would probably still need some top ups for sole parents and disabled people.

How do you make sure people get the help they need?

Another problem with targeted welfare is that many people don’t get what they are eligible for. A review of Working for Families for example found that people only claimed about two-thirds of what they were eligible for. These targeted systems are complex, so they need a costly bureaucracy to administer them. Worse, the people that actually need help have to jump through untold hoops to get what they need. Often the result is they don’t get what they are entitled to.

By contrast, a UBI doesn’t need an expensive bureaucracy, and everyone gets what they need. Nobody falls through the cracks. 

Ultimately a UBI will never completely replace targeted welfare. But the way society and the economy is changing, the case for a UBI grows by the day.