Politics

UBI: the radical solution to tax and work which even Silicon Valley is now investigating

The Unconditional Basic Income – a guaranteed sum of money for every citizen, no matter their other income – is an idea whose time has come, say Geoff Simmons and Gareth Morgan. So why aren’t we talking about how it would be funded?

Try explaining the Unconditional (or Universal) Basic Income (UBI) and the most common response you’ll get is “but won’t everyone stop working?” One could respond by talking about the rise of robots, casualisation of work, or importance of unpaid work. But it’s easier to ask this simple question: “would you stop working?” You’ll find that most people respond “hell no – but everyone else would.”

So follow that up by asking whether they think Graeme Hart would have been less inclined to seek his success, or Rod Drury, or Valerie Adams, or Eleanor Catton. That should help expose the prejudice inherent in their response. This is precisely what the fundamental idea of the UBI exposes: our basic distrust of other people, especially those who aren’t earning as much as ourselves. It is this prejudice that is leading – despite plenty of evidence from experiments done in the 1970s – to multiple repeats of pilot studies of the UBI around the world.

As a result we are seeing a proliferation of UBI pilots in Europe and North America to test the concept. The latest to be announced is one of the more unusual – it’s being funded by a venture capital company in Oakland (near San Francisco) California. But none of these pilots answer the key question: who pays?

notes in New Zealand currency

Hang on – didn’t this idea just crash and burn in Switzerland?

Yes and no. Yes in that 77% voted against that specific proposal for a UBI. That isn’t too surprising given that the proposal was generous even by Swiss standards, with a basic income of around $NZ3,700 per month ($NZ44,400 per year). Neither did the proposal contain any consideration of how to pay for the basic income. Clearly these are major issues that need to be worked through before any such proposal is credible. These are both issues that we considered for New Zealand in our book the Big Kahuna; we even had independent consultants NZIER check our calculations.

The surprising thing about the UBI debate in Switzerland is how many people expect the issue to stick around. Some 69% of Swiss voters expect another referendum on the Unconditional Basic Income at some point in the future. That figure rises to 80% if you only count the people under 39 years of age. Two thirds believe an Unconditional Basic Income will be introduced within two decades. After the referendum, 77% of Swiss people want the UBI to be tested in an area, to see what actually happens.

Pilot Pilot Pilot

UBI tests are already happening in other parts of Europe and North America. Finland, the Netherlands and Canada already have plans underway to test the idea. The Labour Party is in opposition both here and in the UK, but both are talking about UBI pilots as well.

The latest pilot has come from an unlikely direction – a private sector start-up incubator in Oakland, California. To be precise, the money came from the incubator Y Combinator; the actual research will be done by their not-for-profit offshoot YC Research. The details of the pilot aren’t well developed yet, but they plan to pay people between US$1,000 and $2,000 per month. Basically they are going to start handing out the money and see what people do differently. Will they volunteer more? Will they stay home with their kids? Will they move off benefits into work? Or will they shun low quality work and hit the beach?

It will be interesting to see how this pilot proceeds. It is very difficult to pilot a UBI without the official welfare system onside. For example what happens when the experiment is over – can people get their benefit back without losing any of the gains they made when they had a UBI? The Morgan Foundation looked into doing a pilot here in New Zealand some time ago, but the byzantine tax and benefit system was impossible to navigate in a way that made the experiment viable; which kinda goes to show why we need a UBI in the first place.

Should New Zealand run a pilot? Actually we have been running a UBI pilot for nearly 40 years. It isn’t quite unconditional – you have to be over 65 to get it. That’s right, we’re talking about New Zealand Super. The results of this experiment are startling – there is no visible stigma to this ‘benefit’, and we have one of the lowest rates of elder poverty in the world. One in five pensioners work, and for those under 70 it is closer to two in five. Pensioners also spend more time doing unpaid work than any other group. Clearly their UBI doesn’t encourage shirking.

Analysis Paralysis

So do we really need all these pilots or is it just analysis paralysis? After all, we know very clearly who would be better off with a UBI. Previous experiments in Canada and the United States in the ’70s have also shown us how people would react with a UBI. For example, the concern that everyone would stop working with a UBI wasn’t borne out in trials. Back then, the only people that worked less were young men in training (who went on to earn more as a result) or parents wanting to look after their children. Hardly an employment apocalypse.

Of course, the size of the UBI matters – both in terms of the impact it has on the incentive to seek paid work, and the fiscal cost. These trials will give good data on how people react in different situations. But the real challenge of any UBI proposal is the fiscal cost and how it is to be funded. In order to be credible, any proposal has to outline the cost and indicate who specifically is supposed to pay for it. This is the hard part, where there are winners and losers. Instead the overseas pilots are testing the easy stuff and ignoring the difficult issue, which is their glaring weakness.

However no publicity is bad publicity; the Swiss referendum for example hugely improved Swiss understanding of the UBI. Most Swiss now know that around half of the work done in most modern societies is unpaid – something that a UBI can rectify. The UBI is also seen by 72% of the Swiss population as a useful response to automation and the risk to job security in the modern economy.

People have a natural aversion to revolutionary ideas like the UBI. In our view the evidence to support its introduction is already clear, but in the next few years these new trials will put concerns over one issue – the impact on paid work – to bed once and for all. However the fiscal impact has yet to be competently addressed by any proponent; until we know who will shoulder the cost, the Unconditional Basic Income will remain a non-starter.

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