Of all the candidates for the Democratic nomination for the American Presidential Election later this year, none have the intellectual pedigree of Andrew Yang. From the demented Joe Biden to the snotty Elizabeth Warren to the weakling Bernie Sanders, the Democratic field seems mediocre in comparison. This article discusses one of Yang’s most popular ideas – the Universal Basic Income – and whether it’s applicable to New Zealand.
The maths is hard to escape.
Let’s assume we directly adopt Yang’s proposal of $1,000 per month, no questions asked, for every qualifying adult, with no adjustment made for the exchange rate. This equals $12,000 per year per person over 18. As there are at least 3,667,000 such adults in New Zealand, a UBI would require an expenditure of around $44,000,000,000 per year. This a hefty sum of money – but it’s a good deal for New Zealand if the costs of not having a UBI would be greater.
Yang suggests that he would pay for a UBI mostly by consolidating welfare programs and by introducing a 10% VAT on all goods and services.
Something that many UBI opponents fail to consider is that the introduction of a UBI would obviate the need for almost all benefits, which could then be scrapped. The unemployment benefit, the sickness benefit, the invalid’s benefit, the student allowance and the pension could all be shitcanned in one go. This means all the bureaucracy and expense associated with them would also go.
The Government spent $34,000,000,000 on welfare last year, a figure that includes the cost of running the welfare bureaucracy. The Ministry of Social Development, in a manner of speaking, is the welfare bureaucracy – it employs public servants in over 200 different locations around New Zealand. It’s a titanic institution.
With a UBI, all of those public servants would be made redundant, the bureaucracies that employ them would be wound down, and the 200 locations that currently house them sold off. As the Ministry of Social Development costs $27,000,000,000 a year to run – and that’s only the core expenses – getting rid of all this would provide 70-75% of the required funding for a UBI.
The Government brought in around $22,000,000,000 last year from the Goods and Services Tax, currently set at 15%. The GST is a tax beloved of modern Governments because it’s hard to avoid – pretty much every legitimate business has to account for it. Also, being a consumption tax, it’s all but unavoidable even for the most miserly person. Even if you only spend $200 a week to keep yourself alive, you will pay $30 in GST that week.
America doesn’t have a federal GST, so the introduction of one at 10% would be the equivalent of New Zealand raising ours from 15% to 25%. Most European countries have GST rates of between 20% and 25%, so this would be nothing extraordinary.
It’s not guaranteed that increasing GST to 25% (i.e. a relative increase of 67% compared to the 15% it is now at) would necessarily increase GST take by a proportionate amount. Higher taxes may lead to increasing rates of tax evasion (although, as mentioned above, GST is difficult to avoid).
If it did, however, then 67% of $22,000,000,000 would mean a further $14,700,000,000.
Add this to the sum of $27-34,000,000,000 for obsoleting the Ministry of Social Development, and we have somewhere around $42-48,000,000,000. This is enough to cover the cost of a UBI mentioned above. Once Yang’s other revenue-gathering measures (such as a transaction tax) are accounted for, there might even be enough to grant slightly more than $1,000 per month (which would otherwise only be about as much as the current unemployment benefit).
All of this is before we try to estimate the economic benefits of what would, in practice, amount to a powerful stimulus. The economic benefits of empowering individuals to turn down shitty working conditions, coupled with the physical and mental health savings accrued from sharply reducing the financial stress among the population, could be worth several billions in their own right.
In the end, Andrew Yang’s proposal to get rid of the American welfare bureaucracy could be applied in New Zealand wholesale. We also have the problem that we spend billions of dollars on office staff merely to determine who’s worthy of being allowed to eat and who isn’t. Scrapping the Ministry of Social Development, along with increasing GST by 10%, would allow us to fund a Universal Basic Income for all adult Kiwis.
New Zealand has already embarrassed itself by having less enlightened cannabis laws than 70 other nations. Hopefully we won’t have to wait for 70 other nations to introduce a UBI before the merits of such are understood in New Zealand.
If you enjoyed reading this essay, you can get a compilation of the Best VJMP Essays and Articles of 2019 from Amazon for Kindle or Amazon for CreateSpace (for international readers), or TradeMe (for Kiwis). A compilation of the Best VJMP Essays and Articles of 2018 and the Best VJMP Essays and Articles of 2017 are also available.