Introducing the Social Income: a new way to do welfare in the 21st century

After tax, the next cab off the working-group rank is welfare. The Universal Basic Income has been the hottest new idea of recent years, but Max Rashbrooke reckons that just doesn’t add up, and there’s another, stronger option

The New Zealand Initiative and Sue Bradford make strange bedfellows: normally there is not much that unites the right-wing think-tank and the radical left activist. But in one of the Initiative’s recent reports, Bradford pops up as the author of the foreword, arguing that their “common ground” includes the belief that “we have not had a welfare state of which we can be proud for a very long time”. Such views are widely held – and have led to the commissioning of the Welfare Advisory Expert Group, which reported back yesterday.

Yet for all the agreement about what is wrong with welfare, there has been little progress on reform. One stumbling block is the absence of a clear, practical alternative. The hottest new idea, one with proponents across the political spectrum, is the Universal Basic Income, or UBI. A regular, unconditional payment to all adults, it is currently being piloted worldwide in various forms. But the basic income, for all that it speaks to the best human motives, is not in the end practical.

More promising is something I call a Social Income, essentially an unemployment benefit set just above the poverty line and paid out for a range of socially useful activities. Accompanied by a few other modest reforms, it could deliver virtually all the basic income’s claimed benefits, and more besides – while actually being affordable. On this kind of reform, I believe, we could base a welfare state – or, perhaps, a well-being state – fit for this century.

The welfare state, as developed in the late 19th and early 20th centuries, was one of humanity’s greatest inventions, guaranteeing for the first time that no-one need starve, even if their friends and family could not help them. It remains integral to our society’s good functioning. But for a long time it has been falling into disrepair. The current system’s many failings include its extremely confusing rules, its punitive attitude towards benefit recipients, its failure to adapt to modern work and relationship patterns, its inability to properly support people into paid work, and its inability to keep recipients out of poverty. No wonder that the basic income, with its promise to sweep away intrusive means-testing and de-clutter the system, sounds attractive.

But while I admire many of the basic income’s backers, I do not find the idea compelling. Guaranteeing people an income, regardless of their circumstances, speaks to the idea that all humans have an inherent dignity. But while unconditional support is a powerful principle, so too is reciprocity. Virtually all our relationships – including community bonds, marriage, and market exchanges – are reciprocal, in the sense that they require something from both parties. And I am not convinced that people should receive generous benefits if they simply want to surf off Piha all day.

The basic income’s promised simplicity is also, alas, an illusion. Different people need different levels of support: someone with a disability requires more money than I do to achieve the same standard of living; Aucklanders need more help with housing costs than those in the regions. To some extent, the welfare system is extremely complex because life is extremely complex. In response, basic income proponents argue that we could start by making a base component of benefits universal, with specific top-ups for people with disabilities, sole parents, and so forth. But that would just add another element to the system, increasing rather than decreasing its complexity.

Finally, the basic income cannot escape the trap of being either too generous to be affordable or too small to make a difference. In New Zealand, the poverty line is, according to one internationally accepted definition, set at 50% of the average person’s income – around $19,000. Paying this amount every year to each of the country’s roughly 4 million adults would cost $75 billion a year, falling to around $50 billion after savings from existing welfare payments. In a country whose government spends just $100 billion every year, this would be colossally unaffordable. (This is why New Zealand Super, though unconditional, is not a first step towards a basic income: it is affordable only because it goes to a small number of people.)

For that reason, basic income proponents often suggest setting it at the level of the current unemployment benefit, which is just over $11,000. But this falls short on many counts. It does nothing to lift a manifestly inadequate income for single people who cannot find paid work, while giving $11,000 a year to the spouses of millionaires.

And it would still be extremely expensive: $44 billion a year, falling to maybe $25 billion if one eliminated almost all other welfare spending, in the process halving the incomes of retirees reliant on New Zealand Super and slashing the living standards of sole parents and people with disabilities. Even if that were thought to be no problem, and tax options for raising $25 billion were considered, why would a basic income take precedence over all the other things on which that money could be spent, like fixing the mental health system, building more public housing, preparing for climate change or making New Zealand predator-free? It is not a compelling case.

So if a basic income can’t work, what can? Many reforms are needed. But the centrepiece of any such overhaul should be a Social Income, so named because it has three essentially ‘social’ aspects. In the first case, it recognises that we are all social beings, people with a profound need to connect with others. As Adam Smith argued 250 years ago, poverty is not just an absence of basic items like food and shelter, it is also the lack of things needed to participate in community life. People are poor if they cannot throw birthday parties for their children because they cannot afford the food for guests; they are poor if they cannot afford the bus fare or the petrol needed to visit a sick relative in hospital.

In light of these facts, the Social Income, which would be the core benefit for those not in paid work, would be set at a level that gives people some hope of participating in society – the poverty line, referred to above, of 50% of the average person’s income. Currently around $19,000 a year, it would rise annually in line with wages. (For context, the current incapacity benefit is around $14,000, sole parent support $17,000, and New Zealand Super $21,000.)

The Social Income would also, of course, be paid socially, out of our collective resources and in recognition of our desire to see others flourish. And thirdly, it would be paid in return for various socially valuable activities.

It is increasingly clear that a narrow focus on economic growth – boosting the volume of things, crudely speaking, that are produced in markets – will not ensure our collective flourishing. Many non-market contributions, made within families and communities, are also needed, and should be rewarded. This insight is reflected in the growing political focus on well-being.

Currently people receive benefits only if they are unable to find paid work. But the welfare system should recognise a range of socially useful activities outside markets. Good parenting benefits us all, but children, the direct recipients of the ‘service’, cannot pay for it. Voluntary activity also brings many benefits – think of the social connections created by community groups, or the beaches cleaned up by environmental societies – but they are too diffuse to be paid for by any individual. These activities can only be recognised socially, by all of us acting together.

For this reason, the Social Income would be paid in return for activities such as caring for sick relatives, raising children, volunteering and perhaps studying. As a means-tested benefit, it would be clawed back if people took on paid work. Those who refused to carry out socially useful activities would receive only the current $11,000-a-year dole and be placed under intense supervision aimed at getting them into the paid workforce. And clearly some eligibility checks would be needed: medical certificates for ill relatives, proof that someone’s voluntary work was done through a registered charity, and so on. (Ensuring that these arrangements worked in, say, Māori and Pacific Island communities would require careful thought.) All this would create work for bureaucrats – but that is the price of ensuring reciprocity.

If a Social Income were introduced, the level of other benefits – for sole parents and people with disabilities – would need to be reviewed. At least for political reasons, New Zealand Superannuation would have to be kept at its current level. (Payments to children, though an essential part of the system, are out of scope here.)

Such changes cannot be accurately costed without access to detailed Treasury modelling and estimates of how individuals would respond. But, in broad terms, as a means-tested benefit, the Social Income would cost far less than a UBI, perhaps in the ballpark of $6-7 billion – an amount that could be met by a new wealth tax, while leaving money over to tackle other priorities. And we could probably expect some savings in the hospital and prison budgets if recipients had more cash in hand and found it easier to heat their homes, raise their children without stress and keep their lives on track.

What are the likely criticisms of a Social Income? Some might argue that we need to encourage paid work by maintaining a bigger gap between benefits and wages. But even if so, that is surely better achieved by lifting the latter than suppressing the former. And the Social Income would still be only half the 2019 minimum wage of $37,000.

Equally, some might object to paying recipients to volunteer or raise children, either because the payment could somehow demean the work or because we shouldn’t be subsidising long-term stay-at-home parents. But the Social Income wouldn’t be compulsory, so those who wanted to remain unpaid in their work could do so. And if it is desirable that parents return to paid work once their child is a few years old, the Social Income could be accompanied by either legal requirements or a very strong social expectation that people go back to work, supported by free, high-quality childcare.

Indeed the Social Income, though it could be the core of a new ‘well-being state’, would not by itself be a sufficient reform. It would need to be paired with much stronger provision of schemes that closely assist those not in paid work, assessing their skills, monitoring opportunities in the job market, and providing high-quality, tailored retraining and skills programmes to connect the two. (Not that paid work is the be-all and end-all: but high taxes can only be generated from a high level of market activities.)

A few other changes would be required. The welfare system has not kept pace with casual and precarious work: so we could remove its unnecessary stand-down periods, and design an IT system that takes real-time data from employers and tops up the income of recipients instantly if their wages fall short of what they expected. (The IRD is already going down this route.) Checking whether recipients are in a relationship, and should thus lose their benefit, is immensely intrusive: so we could align the definition of relationships with that used in divorce proceedings, such that people can be with someone for three years before their benefit ceases.

Large benefit clawbacks often mean that work ‘doesn’t pay’: so we could ensure all benefits, including Accommodation Supplement and the like, were clawed back at one lower, uniform rate, making the income reduction more predictable and less destabilising. (If, to keep costs down, the clawback rate then had to increase somewhere higher up the income scale, it would at least do less damage at that point.) Beneficiaries are often treated in a demeaning manner: so we could bring them together with WINZ staff to discuss and agree a set of rules for the way that benefit offices should run.

With these and a few other tweaks, we could have a welfare system that provides most of the basic income’s claimed benefits. It would adapt flexibly to precarious work, provide opportunities for retraining, and recognise essential unpaid activities, especially those often carried out by women. It would do far more to reduce poverty and enhance dignity. And if the robots took all our jobs – though this is in fact unlikely in the short term – it would adjust automatically, as more people became eligible.

The Social Income would, of course, cut less bureaucracy than a basic income – and do less to ensure that work pays. But, absent an infinite amount of money, there is no perfect system. And this one has the additional merit of actually being attainable. It offers a chance to fulfil the welfare state’s original promise, to create a system that works with the grain of modern lives – and to recognise that, in our precarious century, we need more than ever to pull together, build more connected communities, and strengthen the social element of our lives.

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