Politics

An investment adviser on why we need a Universal Basic Income debate

You could be forgiven for thinking support for a Universal Basic Income comes only from Gareth Morgan and the more radical parts of the left. But as financial adviser Michael Warrington points out, the UBI has a lot to recommend it whatever your political outlook.

Gareth Morgan’s proposals around tax and the Universal Basic Income (UBI) got me thinking, which is what he’d like us all to do. I’d encourage everyone to react to Gareth and his Opportunities Party in this way – to join in the debate rather than pretending the subjects don’t exist.

You don’t have to like Gareth, or cover your cat’s ears, to participate in the debate about how your country is governed.

My thinking was extended by a good article on the subject by Laura Pennacchi in the pan-European publication Social Europe.

Last week Andrew Little called for a new review of the tax system. My immediate reaction, only heard by the windscreen of my car, was “for goodness sake we have only just had a major review”. That review, by the The Tax Working Group, was in 2012.

However, on reflection I think the TWG left the matter of tax on capital unanswered. A potential Universal Basic Income for all adult citizens demands that we think about how more tax would be collected from those with more money than they could possibly need.

I am a fan of providing incentives for good behaviour, meaning the chance to win if you behave in a desirable way rather than excessive cash subsidies to have you move in remote control. So, a UBI plus a right to keep income above that should encourage 95-97% of the able population to be productive.

Every single able-bodied person willing to be productive should be able to receive more cash flow than an able bodied person who prefers Work & Income NZ to finance their lives.

The Pennacchi article describes how free-market economist Milton Friedman once expressed his support for a negative tax rate for the first layer of tax assessment (aka, the marginal tax rate). This, she argues, is similar to a UBI. It was this information that had me agreeing with Andrew Little’s call for another review of the tax framework.

Arguably our ‘Working For Families’ structure is a similar tax-reducing mechanism at lower income levels for those who are working and not sitting on the couch. This was introduced by a Labour government so I think the Labour Party should be careful before criticising Gareth Morgan’s opinions (on all subjects) out of hand.

Lower tax on the initial marginal tax rate, perhaps even to zero, benefits the majority but this means it benefits me, which Gareth doesn’t want. A UBI gets the initial $10,000 into the hands of the young and yet to be employed, or employed on modest incomes. People like my my 23 year old son, for whom I (occasionally) feel sympathy as he confronts relatively high expenses at a time of relatively low income.

A lower tax rate helps me and my son, but a UBI structure probably collects more money from me and gives it to my son (something that is happening in-house anyway).

I am not a tax adviser, nor have I read enough on the matter to reach conclusions, but I like that this discussion is happening. Hopefully we’ll see Andrew Little, Bill English and Gareth Morgan debate this on television in the run up to the election.

Michael Warrington is a financial adviser at Chris Lee & Partners. A version of this column first appeared in the company’s weekly newsletter.


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