Gareth Morgan Investments The Answer Room Gareth's World Morgan Foundation World By Bike Our Far South Big Kahuna Blinkers

Are you a client of Work and Income?

The Big Kahuna would bring some really important changes for you. For a start, you’d no longer have to meet any criteria in order to receive a regular cash payment (a ‘transfer’) from the government – no requirement to attend employment workshops, for example, or live in a particular type of household, or get medical certificates. Every adult aged 21 and over would get $11,000 a year (with no tax to pay), paid fortnightly into their account (anyone aged 18 to 20 would get $8,500 a year). This payment is called the Unconditional Basic Income or UBI. If you had to rely on that income alone, you could (it’s close to what a single unemployed person gets at the moment).

If you were able to get some paid work, even just a few hours a week, you would benefit from it – all you would pay is 30 cents in every dollar you earned, just like everyone else. The UBI doesn’t abate away like the Unemployment Benefit does for example.  If, on top of the UBI, you earned $100 gross a week from a paying job you would pay $30 a week in tax and keep $70 a week. All up in a year you would have net income of $11,000 (from the UBI) plus 52 weeks of $70 ($3,640) or $14,640 in total.

If you wished to share your accommodation with others, there would be no checking whether you are ‘in a relationship’ or not, or earning rent from flatmates.

However, you would no longer be able to get Work and Income to pay your phone bill or power bill, for example. “Top up” payments like Hardship Grants would no longer be available. So with the freedom to live your life as you choose, comes the responsibility to handle any financial obligations yourself (but with the help of budget advisers, family and community groups). Social services currently provided by the Ministry of Social Development would continue as usual (for example, the services provided by Children, Youth and Family Services).

At the moment Work and Income pays different levels of transfers to different people but the UBI is just set at one rate - $11,000 for those aged 21 and over. The table shows how this UBI would compare with what Work and Income pays out now.

 

Current MSD  transfers for each adult

Current MSD transfers for one adult, living
in different household types

From 1 April 2011

net rate, Main Benefit

Individual only, Main  Benefit + 50% avg accommo-dation payment[i]

Sole parent, DPB + avg accommo-dation payment

Couple, no children, Main Benefit + avg accommo-dation payment

Family of 2 adults, 2 children - Main Benefit + avg accom payment

Retired

 

$ pa each adult

$ pa each adult 

 $ pa each adult 

 $ pa each adult 

 $ pa each adult 

 $ pa each adult 

Single adult:

 

 

 

 

 

 

Unemployment benefit 25+

10,473

11,877

 

 

 

 

Sickness benefit

10,473

12,137

 

 

 

 

Invalids benefit

13,090

14,546

 

 

 

 

Sole parent:

 

 

 

 

 

 

DPB - 1 child

19,579

 

24,207

 

 

 

DPB - 2 children

22,760

 

27,388

 

 

 

DPB - 3 children

25,942

 

30,570

 

 

 

Couples (no children):

Unemployment benefit 25+

8,727

 

 

10,131

 

 

Sickness benefi

8,727

 

 

10,391

 

 

Invalids benefit

10,906

 

 

12,362

 

 

Families (2 adults, 2 children):

Unemployment benefit 25+

12,607

 

 

 

14,011

 

Sickness benefit

12,607

 

 

 

14,271

 

Invalids benefit

14,786

 

 

 

16,242

 

Retirees

Living alone

17,676

 

 

 

 

17,676

Couple, each receives

13,597

 

 

 

 

13,597

 

Sole parents who have no paid work would find themselves with less income under the UBI. Taking paid work would help (and it would no longer be penalised by the high abatement rates that apply to the DPB), but it is unlikely this would make up the shortfall. So other self-help strategies and complementary policies would be needed.

One complementary policy relates to child support payments retained by the government. Currently, non-custodial parents whose ex-partners receive the DPB provide child support payments to the government not all of which gets passed on to their ex-partner. The rationale is that these contributions partly fund the DPB. Only once the payment exceeds a certain threshold does a portion of the payment get forwarded onto the ex-partner. Under the Big Kahuna all child support payments would be forwarded to the caregiver (IRD would still be involved in collecting and redirecting the amounts paid). For a DPB-recipient with two children whose ex-partner currently earns the minimum wage and has no other dependents, for example, this would provide an extra $2,600 a year on top of the UBI. 

The UBI would also provide the means for any parent, even those who don’t have paid work, to support their children. It would be possible to divert a portion of the non-custodial parent’s UBI to their children. The children would be supported by custodial and non-custodial parents alike, reflecting the fact that two adults are in fact responsible for them.  

There are payoffs for sole parents who opt to share with other adults (including other sole parents). The family’s living costs reduce (housing, power and phone charges are shared) and the other adults can conceivably help out with childcare (making work more feasible for the sole parent), although the heavy penalties that currently apply to domestic purposes beneficiaries who don’t declare a “relationship” arguably discourage the house-sharing option at the moment. There would be no disincentive to share under the UBI policy (care would still be needed to ensure that no adult in the household posed a safety threat to the children).

The UBI policy is a flexible one. While in the Big Kahuna we elected to only pay an adult UBI, the policy can accommodate a child UBI too – it just means having a higher flat tax rate. For example, a child UBI of $3,000 would be possible with a tax rate of around 32%.

For people with disabilities, the UBI would provide less than the Invalids Benefit does currently (but something on par with the Sickness Benefit). The Invalids Benefit is currently higher than the Unemployment Benefit for example, because there are added costs associated with disability – such as ongoing medication and doctor’s visits. The additional needs of invalids could continue to be supported within the context of the UBI by policies which directly supply essential services to them and/or by addressing the charging policy associated with services supplied to those with on-going medical needs.

 



[i] Accommodation payments are reported as averages per benefit type and per applicant. As one application could be made on behalf of a couple, we assumed an individual would receive 50% of the average amount paid for that benefit type.