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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.

 

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    • Peter Carey
      commented 2019-05-06 13:08:43 +1200
      Will it be worthwhile to stay on a UBI? Even if it was $200 pw that’s only going to cover your rent and basic utilities. Ensuring that people are receiving a living wage should be more likely with a transfer of wealth from those formerly not paying tax and presuming that everyone receives the UBI, employers are paying the net difference between the UBI and a living wage so can afford to pay more. The’ll also be the beneficiaries of lower business taxes.
    • bob atkinson
      commented 2019-05-06 12:56:31 +1200
      A UBI for child benefit would transfer wealth from both the rich and the middle-class with no kids to families.
      The reason for having no means test is to make the difference between working and being unemployed more significant. Since we will not let anyone starve to death there will always be a benefit just sufficient to prevent it but our current problem is ‘why work?’. When the low-paid worker gets up in the dark on a winters morning to work 35 hours shift work on minimum pay he knows the unemployed are laying bed but have a similar lifestyle. With a UBI it will be financially worth while working.
    • Peter Carey
      commented 2019-05-06 12:06:35 +1200
      I think that the UBI is the easiest way of providing a basic safety net and removing a good part of the targeting system. Yes, TOP does advocate a flat tax rate, or at least a flatter one, but you can’t start taxing wealth assets whilst simultaneously asking for higher stepped income tax rates as well. Wealth is built on net income (for many) so its already had tax applied once and now we’re saying we’ll tax assets built from that income so we need to play fair and have a lower overall income tax rate but this time we’re taxing those who were formerly escaping and hadn’t actually worked for anything. Of course we also know that the tax avoidance industry does very well out of making sure wealthy people don’t pay those higher income tax rates so simplifying it and not making it worth their while is a better way. At the end of the day the idea is to make sure that most are better off and if we accept 80% are then we’re on the right track. I can accept that the rich won’t like it and there will be those at the other end who frankly don’t want to work (as opposed to those who can’t) but they will be a small minority who I’d rather give a UBI to than spend a lot of time and resources trying to coerce.
    • bob atkinson
      commented 2019-05-06 09:39:03 +1200
      A UBI does give money to the rich and so does superannuation – that is true. But then the taxman takes it all and more back off them.
      The idea that our current benefit system would be acceptable if only all benefit staff were kinder is wrong. My family’s interactions with WINZ has only revealed it is already full of kind people – it is the system not the people who are at fault.
      Any benefit that depends on eliminating the wealthy will be open to distortions – already the accommodation allowance that so many depend on forces the recipient to avoid saving $8,000 – so it is designed to keep them poor. All benefits that change with marital status are nudging people to separate. I would get more super if I left my wife; my daughter’s would get more WFF if they broke with their child’s father. A UBI is the best system because of its simplicity but a far more important issue is ensuring all benefits tend to encourage couples to stay together not as at present be wedges separating them.
    • Kevin FitzGerald
      commented 2019-05-06 07:26:04 +1200
      A ubi is simply a universal benefit and suffers from all the disadvantages that NZ Super for example suffers from. That is it amounts to pocket money for the rich and not enough for the poor who will then need supplementary benefits. Targeted benefits in the hands of Neo liberals or the right wing of politics (pretty much what we have had since the ’80’s) are a weapon to punish the poor. It is only like that because of the underlying mentality of are they deserving. Take that away and replace it with simple kindness and a lot of the stress of funding people in need vanishes. TOP’s ubi policy is the one policy that is completely out of sink with modern concerns. Flat rate tax and ubi belong in the world of Rogernomics and 19th century capitalism. Please ditch it.
    • duncan cairncross
      commented 2017-07-28 23:39:13 +1200
      Excellent idea – and I quite like the idea of starting with the youngsters
      I hope that the universal UBI comes in soon
    • bob atkinson
      commented 2017-07-28 19:31:49 +1200
      Persuasive argument. I certainly see your point that your UBI will encourage working not discourage it.
      My worry is the start and the end. My son was still at school when he was 18 and 8 months. Should he get an income while at college when his mates are not getting it?
      My second worry is the sharp cut off – 23rd birthday and you get clobbered. How will prople react?
    • Peter Carey
      commented 2017-07-28 16:33:16 +1200
      I don’t think a UBI is favouring the rich especially given that a UBI will be largely funded on the basis of taxing wealth so it’s only fair that the rich also receive it, albeit at a lower level. We already give money to rich super-annuitants so why is that different? In terms of simplicity, a UBI is easier to administer and stops governments from punitively changing the targeting rules which they have always done with various levels of enthusiasm. As someone who’s been on the high tax rate I can tell you that a considerable amount of time is spent avoiding paying it. Taxing capital assets is much harder to avoid and this will compensate for the flattening of the tax rate; it’s not fair to do both if you want to encourage enterprise. If you want to provide an incentive for people to put their money into more productive enterprises then this is a good way to do it and reduces the avoidance industry.
    • Oliver Krollmann
      followed this page 2017-07-26 09:53:00 +1200
    • Kevin FitzGerald
      commented 2017-07-25 21:40:43 +1200
      In a society already stratified by wealth and education government surely has a moral duty to address inequity. UBI simply adds to that inequity by subsidising the wealthy ruling class. Benefit systems can be simplified if that is the problem and transfer into work can be gradual enough not to impoverish while the change is made. And the culture of Welfare Agencies can be changed if the political will is there.Why advocate giving money to those who don’t need it? And why on earth is a flat tax rate a good idea? The poor pay proportionally more. How is that fair? How is it fair to to give both rich and poor the same?