Universal Basic Income (UBI)

Universal Basic Income - a Modern, Simple and Fair Tax and Welfare System

Executive Summary

The Opportunities Party (TOP) is proposing a fundamental overhaul of the tax and welfare systems in New Zealand to make them modern, simple and fair. This will be achieved by introducing a:

  • $13,000 annual universal basic income (UBI);
  • $2,080 annual child universal basic income (paid to parents); and
  • Flat tax of 33% on all income from all sources for all entities.

How we got here

In the past three to four decades since the last major reforms, there have been significant changes to society, business, and the world as a whole, yet our tax and benefit system has remained the same. The lack of a comprehensive Capital Gains Tax has seen housing and property-based businesses (e.g. farms) become tax-favoured assets. This has been a contributing factor to higher house prices, increasing wealth inequality, reduced home-ownership rates, increased housing costs for people on low incomes, and greater welfare dependency. As the job market becomes more dynamic, with the rise of automation and artificial intelligence, the pressure on ordinary people will grow.

There is a need for change, and now is the right time!

Why reform is needed

The New Zealand tax and welfare systems are complex, punitive, arbitrary, increasingly unable to keep up with the demands of the modern world, and creaking under the strain of economic change.

Benefits for the unemployed and underemployed currently provide a financial disincentive to work, as entitlements reduce as soon as they start to earn money themselves. So we spend billions on administration and punitive measures to counter this.

In contrast, a UBI encourages people to work because they don’t lose it when their earnings increase. It also rewards unpaid labour that keeps our society going, e.g. parents caring for children and volunteer roles in our communities. In the face of economic upheaval, it enables people to start businesses and retrain as needed.

Additionally, differing tax rates for different entities (individuals, trusts and companies) create incentives for tax planning (NZ has well above OECD averages of trusts and companies). A common tax rate between all entities removes tax advantages from the use of different entities that do not truly reflect the character of the entity.

Finally, a UBI provides some degree of financial security for everyone. A temporary boost during medical (e.g. COVID-19) and natural disaster emergencies (e.g. Christchurch Earthquake) would ensure immediate, direct support to the entire population as well as financial stimulus for the economy after financial shocks (e.g. GFC).

How it works

A UBI would be paid to all New Zealand citizens and permanent residents over the age of 18. It replaces all benefits of a lesser value (e.g. Supported Living Payments and the Jobseeker benefit). People on higher benefits would be no worse off. A child UBI would be paid to the parent(s) of all children under the age of 18. This would replace Working For Families of lesser value, those receiving higher rates would be no worse off.

All income would be taxed at a flat rate of 33% – a significant simplification of the current tax system. Progressiveness would still be achieved because the UBI creates a net 0% tax rate at around $39,000 per annum, with negative tax rates below and positive tax rates above. Companies, trusts and Portfolio Investment Entities (PIEs) would also face the 33% tax on profits, this would be an increase from 28% for companies and PIEs.

TOP has conservatively costed these changes, which end up broadly tax neutral overall. In particular, a UBI would significantly reduce the bureaucracy within government departments and the paperwork for many Kiwis. These changes would also achieve savings in other government transfers that are less generous than the UBI.

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Page last updated on 10-Sep 2020

FAQs

No. The UBI is paid tax free, you get the full $13,000 per year in the hand.

No. Everyone will be paid the UBI, then if your current transfer was larger than the UBI (e.g. NZ Super), you will be paid the difference as that transfer. So the UBI plus the top up is the same amount as (or greater than) the original transfer.

The exact method needs to be determined, but it will be paid fortnightly or weekly directly into your bank account. (Ideally this will be a unique bank account for each taxpayer to ensure the individual has access to their money, in any circumstances, by stopping any direct transfers to shared accounts).

The UBI will have to be applied for initially, so it will not be paid if not applied for. The flat 33% income tax will still apply to any individual regardless of their UBI status.

There is the potential for this to happen however, given the current low inflation environment it is unlikely that general overall inflation will increase markedly and certainly not outside the Reserve Banks 1% to 3% preferred range. With an extra $16B in circulation (before the property tax is paid) in an economy of $310B GDP the maximum additional inflation would be 5% if there was no ability to increase supply or reduce consumption of goods and services. Given the complexity of interactions that result in inflation the number expected would be lower than this.

No. The worst situation is for someone earning over $70,000 per year, for them the UBI and the 33% tax still leaves them $3,920 better off before the application of the property tax if they own property.

Maybe. There will likely be some people for whom this is an attractive idea. However, people who are able and willing are more likely to pick up seasonal, or short term work in the absence of the incumbent stand down periods and reductions in eligibility of the current transfer / benefit system. In other words, it is designed to incentivise more work, not less.

No. The tax-free payment of NZ Super top up over the UBI will be higher than their current level, to ensure that those with a small amount of additional income to supplement NZ Super are not negatively impacted by the change in tax rates from 17.5% to 33%. 50% of NZ Super recipients will either be better off or no worse off with these changes.

The worst situation possible is for someone receiving the NZ Super couple rate and a total taxable income (including NZ Super) of $70,000 per year. They will be $85 a week worse off. This affects less than 10% of current NZ Super recipients and will usually apply to those only recently eligible for superannuation. Even so, they will still see an increase over their take home pay prior to turning 65.

Example 1

Michelle lives alone in her freehold home valued at $850,000. She receives Single Alone NZ Super giving her an after-tax income of $21,380. With the small increase in NZ Super and the property tax ($8,415) Michelle is significantly worse off. However if she defers the property tax until the house is sold her disposable income increases by $806 or 3.8% per annum.

Example 2

John and Sue are both over the age of eligibility and receive the couples rate of NZ Super. They own their $900,000 home freehold and also have a rental property valued at $300,000. The rental property returns $300 per week and expenses cost $100 per week so it returns $10,400 per year which is over the income ($9,000) subject to property tax, so standard income tax on the $10,400 is due. Currently they have a combined after tax income of $41,472. If they defer the property tax then their after tax income is unchanged, and with the property tax their after tax combined income drops by $9,070 to $32,402.

Your UBI is unaffected by your partners income. Unlike current transfers, the UBI is an individual based payment (not a household payment), so everyone gets $13,000 per year.