THE STANDARD TAX CREDIT AND THE SOCIAL WAGE:
existing means to a Universal Basic Income. ^†

© 1996 Keith Rankin, Economics Dept., University of Auckland

INTRODUCTION

A tax­benefit regime that provides publicly sourced income to all adults - whether as pensions, cash benefits, tax allowances or a combination - can be called a basic income system; the guaranteed income can be called a social dividend,¹ a monetary return on collectively inherited resources. A social dividend can be more, less or equal to an adequate benefit. A full universal basic income (UBI) is an adequate social dividend, equivalent to at least an unemployment benefit, whereas a partial basic income is a social dividend that must be supplemented by an income support 'transfer' in order to adequately sustain an adult lacking a private income.²

The realisation of a social dividend, per se, is not a costly reform. Choosing between costed income support proposals is a matter of politics - of public values - not economics. For any tax rate and level of committed public expenditure, a social dividend can be calculated (Saunders 1988, p.26). Likewise, for any level of benefit to be distributed as a social dividend, there is a calculable cost in taxes and/or public expenditure and/or employment. This paper details two alternative budgets for New Zealand in 1996/97, based on flat income tax rates of 33% and 43%, each of which yields social dividends as partial or full basic incomes.

A social wage accounting framework is needed through which different tax­benefit proposals - including proposals that do not provide unconditional benefits - can be easily compared and contrasted, and which can be understood with reference to other items of public expenditure. By applying such a framework to current New Zealand tax scales, an effective tax credit of $3,933 per annum can be discerned as a social dividend. An effective low income surtax, a clawback on some individuals' social dividends, is also revealed.

The existing tax­benefit regime can develop, given time and productivity growth,³ into a generous basic income system. Juliet Schor's idea (Schor 1991) of a historically rising productivity dividend is suggestive of the means by which a full UBI should be able to emerge from a simple social dividend arrangement. Future productivity growth will be unsustainable, however, if high and growing levels of labour supply continue, as both a rational response to and a cause of increased relative poverty.

Basic income reforms suggested by social wage accounting principles - a necessary though insufficient step towards the achievement of economic justice and sustainable growth - can become to public economic welfare what the recent introduction of Mixed Member Proportional (MMP) elections is becoming for representative democracy in New Zealand⁴. Such reforms will naturally incur resistance, as all progressive reforms do, but, as Hirschman (1994) has shown, conservative interests generally adapt well to reforms, often embracing them once their fears have been mollified.

BASIC INCOME / FLAT TAX

A common subset of social dividend proposals come under the rubric of 'Basic Income / Flat Tax' through which the progressivity of personal taxes derives from the interaction between the unconditional basic income and the flat tax, rather than from graduations in the tax scale. Tony Atkinson (1995) calls the proposal 'BI/FT', distinguishing it from the welfare states created mid­century which he labels 'social insurance / graduated tax' (SI/GT). In the context of New Zealand, where the concept of social insurance is not common parlance, the prevailing approach to benefits and taxes can be called 'CI/GT' (conditional income / graduated tax).

Atkinson fails to address the important issue of the difference between social dividends ('earned income') and transfer payments ('unearned benefits'); that is, the difference between distribution and redistribution. He simply sees basic income payments as "refundable tax credits", a term which fudges the distinction. Atkinson sees the simplicity of converting the British tax system into one based on a flat tax set at the present upper rate of 40% combined with a standard tax credit. Likewise, the present New Zealand tax­benefit system can easily convert into a BI/FT system funded by a 33% flat rate of income tax and a 121/2% GST.⁵

SOCIAL WAGE ACCOUNTING

Social wage accounting takes the BI/FT system one step further, into a system based around a social wage of which the social dividend becomes just one essential part. Thus, the standard tax credit (STC) is a name for a social dividend constructed from existing tax allowances. The STC is an integral part of a social wage which is a factor income like wages, salaries, interest and company dividends. The STC is an earned income, a share of an equal return on social assets; public domain assets that cannot be freeholded and publicly owned assets that have not been privatised. The social wage fund, by definition, is the equal property of all citizens⁶, including children⁷. Thus the individual social wage is simply an equal share of the total fund.

• The Social Wage Fund as a portion of GDP

• The Social Wage is Analogous to Company Profits

• New Zealand's present tax­benefit regime as a Basic Income System

• New Zealand's Social Wage

• Fiscal Transparency

• Current Patterns of Redistribution

• The End of "Gross Earnings"?

            ----------------------------------------
                         FIG. 2
            ----------------------------------------
            Tax Code                       Primary
            Annual Salary                 $33,500.00
            Fortnightly Earnings          $ 1,288.46
            Standard Tax Credit (STC)     $   151.27
            Net Income for Fortnight      $ 1,439.73
            ----------------------------------------

WHAT CAN NEW ZEALAND AFFORD THIS FINANCIAL YEAR?

The Appendix Table presents two costed examples of universal basic income. They apply to income tax rates of 33% and 43% respectively. Estimates of public expenditure and revenue are taken from the May 23 Budget documentation. The proposals are conservatively funded, in that subsidies and the budget surplus have been treated as committed expenses, and the effects of contractionary Reserve Bank policies have been factored into the Budget estimates. Neither proposal relies on the removal of hidden subsidies to fund the social dividend.

I conclude that, at the present 33% tax rate, New Zealand could fund a UBI of over $6,000, so long as all transfers were abolished and no additional funding was made available to traditional social wage expenditure areas. On the other hand a lesser social dividend of $4,000 - about the same as the present standard tax credit - can be funded with adequate supplementary assistance. Thus, the "centre­right" STC proposal in the Appendix Table is essentially an accounting change, with some redistribution of supplementary assistance. Some low­middle income families would lose some transfer income while gaining a greater incentive to raise their private incomes. By rejigging the 1997/98 tax cuts already accounted for³⁵, no­one need be worse off next year than they are today.

I believe that such a policy would be ideal for a party seeking to become the minority partner in a centre­right coalition. Such a policy, while costing nothing, would give people a positive reason to vote for the smaller party. If enough people vote for, say, the United Party, then it is likely to become part of a governing coalition. As part of the Government, it would expect to implement some of its policies. National, although "fiscally responsible",³⁶ is essentially pragmatic. National implemented electoral reform; they could just as easily implement the 33% basic income / flat tax proposal.

The "centre­left" proposal in the Appendix Table is based on a 43% tax rate. At this rate, it would be possible to fund a full UBI of $9,000. Once again, I prefer a lesser amount of $7,000 as a standard tax credit, with the remaining $2,000 per adult being retained to fund supplementary benefits and new social policy initiatives. I see the 43% option as a politically realistic programme for a centre­left party³⁷, more easily sold to the public if the centre­right version were to be implemented first.

In both proposals, the funds required for transfers and new initiatives are only available by retaining children's social dividends. This is not a problem for children - they are already better off under either STC proposal - in that their caregivers will have a social dividend as of right, plus, in many cases, an entitlement to supplementary benefit determined by the number of children in the family. However, I see that it is important that the retained children's social dividends - eg $4,008m in proposal (a) - should be acknowledged in the public accounts, set against existing expenditure in education and children's health. Thus, such existing programmes would be seen to be child­funded. Allocating this money to existing children's expenditure frees up an equal amount for other social wage expenditure, some or all of which might come under the rubric 'investing in children'.

CRITICISM

Why is there much scepticism about the viability of a universal basic income in the foreseeable future? The first answer is that most radical ideas in science and social science are treated with scepticism. In a society like New Zealand with an adversarial culture, an unwillingness to seriously contemplate new solutions to social problems leads mainstream socio­economic debate into a 'dialogue of the deaf' between the "dinosaurs" who want to draw inspiration from one era, and "trilobites" who seek to recreate an even earlier time (Rankin, 1996b).

The first reaction is simply to dismiss UBI as "utopian" or simply "too expensive". At times this reaction is justified. More often it is not. It is up to advocates of a universal basic income to be cautious in the claims they make for their product, while being seen to oppose 'straw man' criticism; criticism based on claims that are confined to the minds of the critics. The social wage accounting approach negates this line of criticism by showing that a social dividend can be afforded from any tax rate.

A second line of criticism, usually coming from the political right, applies in general to the welfare state: why should the "strivers" ³⁸ be forced to give their money to someone else, especially someone who might choose to not work? The simple answer here is that social wage accounting shows that income taxes are not personal earnings at all; rather they are factor payments from firms to the Inland Revenue acting on behalf of the public. Some of the highly paid may feel that producers are paying too much tax; all that means is that the price to be attributed to public resources should be politically contestable.

A related argument is that higher marginal tax rates will encourage tax avoidance and the growth of the 'black economy'. Such developments are in fact linked to the effective marginal tax rate (EMTR), not the nominal marginal tax rate. The provision of a UBI is actually a way of reducing the EMTR, hence reducing the relative growth of the informal economy. With respect to high­income people little affected by abatements and surtaxes, there is enough circumstantial evidence to suggest that some will seek to avoid taxes, whatever the tax rate³⁹. Social wage accounting will at least help to reveal the extent of their tax avoidance.

Another related line of criticism relates to a cultural unease about granting incomes to people without them or their families incurring a cost, whether that cost is employment, training or some degree of humiliation. The reality is that the entire social wage is property­derived income. Concerns about people getting something for nothing apply equally to income arising from inherited private property. Pure rent, income without an associated cost, is by no means confined to the social wage. The owners of most kinds of property do incur costs in maintaining their property, however. The social wage is not an income without an associated cost.   

A variation of this 'no free lunch' argument is the labour supply 'work avoidance' argument⁴⁰, presented by both professional and armchair economists, that hardly anyone would choose to work if an unconditional basic income was available. People who use this argument are extremely cynical about human nature. While many such economist critics may believe that real people conform to the one­dimensional calculating "Hobbesian brutes" ⁴¹ that pass for people in many formal models, they ignore simple textbook models which show that cutting taxes to the "strivers" may also encourage them to work less⁴². Furthermore, they ignore the reality of the huge gift economy that exists today and has always existed. More than the voluntary sector, the gift economy includes intellectual, cultural and charitable contributions to the public domain. The gift economy is where people voluntarily produce goods, services and intangible assets of economic value, expecting either nothing in return, or considerably less than the true economic value of those assets.

A third line of criticism comes from groups which benefit or seek to benefit from some degree of positive discrimination. Some feminists, for example, may suspect that the removal of negative discrimination implicit in basic income systems would create a 'level playing field', to the detriment of some gains that some women have made since the 1970s. The answer here is that, the granting of a social dividend as a minimum direct entitlement from the social wage in no way requires that that minimum should be also a maximum entitlement. Social wage accounting does not preclude social wage redistributive spending, such as Domestic Purposes Benefits, that benefit mainly women. Nor does it preclude Treaty of Waitangi settlements to Iwi.

A fourth line of criticism, usually from the political left, is that employment is, per se, a benefit, not a cost. It has become part of an ingrained 'work­ethic' culture that we should think this way, forgetting that it is the salary that is the benefit, and that employment is the cost we incur to secure our salaries. Left­wing critics of basic income systems tend to argue that social wage funding would be better allocated to job creation programmes than to a social dividend.

There are of course peripheral benefits associated with certain jobs, such as enjoyment of the work and socialisation⁴³. But these benefits do not revoke the basic principle that employment is the cost employees incur in order to get paid. Furthermore, such benefits can arise from many activities in addition to paid work. Critics of this persuasion see the UBI as the means by which a social commitment to full employment might be dropped. My answer is that (i) such a social commitment died some time ago, (ii) that a commitment to providing everyone of working age with a job that pays a high enough wage for no other income source to be required is not appropriate to a sustainable post­industrial or a pre­industrial economy, (iii) that one of the strengths of a universal basic income is that it frees people who would otherwise be dependent into becoming employed, and (iv) that full employment can coexist with high productivity and low levels of labour force participation. In essence, the level of employment is determined much more by the demand for labour than by the size and allocation of the social wage. A universal basic income encourages the underemployed to work more, and the overemployed to work less. It can coexist with a political commitment to full employment, and encourages the employment of "jobless" discouraged workers.

A variant is the belief that a UBI will subsidise employers. The alleged problem here is that if a person's salary falls, a significant part of the tab will be taken up by the UBI. Therefore, it is argued, employers and employees will do a deal to underprice labour. The argument is misplaced in that this applies equally to traditional graduated tax scales, and applies to a much greater extent when targeted welfare and explicit surtaxes create very high effective marginal tax rates. The most blatant kind of wage subsidy scheme is the GMFI (guaranteed minimum family income) which was the centrepiece of Sir Roger Douglas's 1987 tax­welfare proposals, and does exist at present in an attenuated form. A basic income is in fact a means of overcoming this existing problem of underpriced labour, by giving workers more bargaining strength.

A final aspect of the centre­left critique is that basic income systems will casualise the workforce. The cynical reply is that a solid dose of 'Rogernomics' in the 1980s, followed by the 1991 Employment Contracts Act, has got there first. More realistically, changes in the labour markets of rich western economies are a result of their past success; a result of the growth process itself which gives people aspirations to fill their lives with a greater variety of experiences, and to pursue life goals which may clash with the 1950s' ethic that favoured devotion to a single career and a lifetime employer. Thus casualisation is not necessarily bad, and is a feature of economic success. The challenge of the 21^st century is to manage economic activity in such a way as to achieve economic justice and sustainability in a complex world in which people expect to gain income from a wide variety of sources throughout their lives. Social wage accounting illuminates ways by which economically advanced societies can reconcile themselves to the consequences of their success, while taking full responsibility for the intangible assets upon which that success rests.

INDEXING

Social wage accounting is a companion to growth accounting and environmental accounting. It seeks to address problems that unfold over time, not just problems of the moment. The two key parameters of the social wage are a tax rate which represents a slice of GDP, and a social dividend which represents a slice of each person's social wage. The first parameter is automatically indexed so as to grow at the same rate as GDP. The second parameter should also be indexed so that the social dividend grows with the economy. Social wage indexing has nothing to do with inflation; it is about preserving income shares in the absence of any political decision to alter those shares.

Because the social wage fund acts as a macroeconomic stabiliser, it should be allowed to rise in the event of recessions, and be allowed to fall during periods of cyclical expansion. The social wage fund should rise as more people claim unemployment benefits, for example, and as firms pay less income tax. The social wage is thus an important tool of countercyclical fiscal management. Because it responds automatically, the social wage acts much like an economic thermostat.

Because of the need to preserve the automatic stabilising effects of the social wage, the social wage share of GNP should be managed across the economic cycle rather than adjusted in accordance with the balanced budget policies such as those which aggravated the depressions of 1931 and 1991. In true Keynesian fashion, the social wage fund should be topped up from government borrowing in a recession, and public debt should be reduced during each growth spurt.

New Zealand in the 1990s faces an additional problem of structural recession, which means that employment rates, on average through the economic cycle, are much lower than they would be had it not been for the economic policy changes of the 1980s and early 1990s. The problem of inappropriate macroeconomic policies cannot be addressed by social wage accounting, but if it is addressed (eg by changes to the Reserve Bank Act) the New Zealand economy could afford to pay a significantly higher social dividend. The cost of that increased social dividend would be increased employment, leading to a higher GDP.

OUTLOOK

In the long run, historical studies show that technology is both labour­saving and capital­saving (eg Mokyr 1990). This means that public domain resources, over time, become more valuable relative to private property and labour. Thus the share of gross market income paid as a public domain royalty should gradually rise.

The exact opposite has occurred since the 1970s. Tax rates have fallen markedly, as private capital and management have monopolised surpluses accruing since that decade. This phase of history, of increasingly privatising public assets and undervaluing collective inputs, will, if persevered with, lead to a global sustainability crisis. Some public domain inputs will depreciate, others will grow less rapidly than they would otherwise have done. Industrialisation proved to be a way out of an incipient crisis 200 years ago. By reforming our social accounting procedures and implementing socio­economic policies which reflect the importance of public domain contributions we can avert the brooding crisis. A basic income as a part of a universal social wage reflects the value we give to the immensely valuable collectively inherited environmental and intellectual property in the public domain.

As in the case of MMP, a path­breaking political reform for New Zealand, basic income reform is not a path to utopia. Rather, it is a means by which New Zealanders can come to value what they are and what they have. Collective self­esteem results from giving value to and taking responsibility for our socio­economic domains. Self­esteem does not result from the labour market alone.

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Endnotes

† Revision of a paper prepared for the Universal Basic Income National Conference at Wellington, 1-2 July 1996. I would like to thank Ian Ritchie and UBINZ (Universal Basic Income, New Zealand) for their organisation of the conference, and his support for the ideals of tax-welfare reform and social wage accounting. And I would like to thank the Methodist Church of NZ Prince Albert College Fund, the Cathy Pelly Maungarongo Trust, and the NZ Public Service Association for their financial assistance in organising the conference and getting me and other speakers to Wellington. [return]

1. James Meade (1993) uses the term "social dividend" in preference to "basic income", the more common term in Britain and Europe. [return]
2. A transfer payment is, in effect, a gift; it is unearned income, conceptually different from a social dividend. Transfers and social dividends are both examples of benefits. [return]
3. More goods and services per hour of environmentally sustainable work. Where environments are degraded, we must add an imputed additional labour input into our productivity measure; likewise work gifted to the public domain should be excluded from our productivity measure. Productivity growth is not the same as economic growth, but sustainable economic growth is a form of productivity growth.[return]
4. Albert Hirschman (1991) examines the evolution of and resistance to progressive reforms in civil rights, political democracy and social welfare - in accordance with T.H. Marshall's schematics.[return]
5. "Goods and Services Tax" which is a 'value added tax'.[return]
6. I favour a generous definition of citizenship, for social wage accounting purposes. (Note that a number of Middle-Eastern nations do have what amounts to a high social wage, but based on a narrow definition of citizenship.) I would include all permanent residents of all ages, plus all people who qualify for a 'primary' tax code; eg foreigners on work permits who have applied for permanent residence, and who are not paying primary tax overseas.[return]
7. In my formulation, children are credited with a full social wage but no social dividend. A neo-liberal formulation would, I imagine, pay a children's social dividend as "vouchers" which could be spend by parents on a limited range of child-specific items.[return]
8. On 7 August 1996 (Radio New Zealand, 8 August; ref. Rooney), a New Zealand court awarded the unpaid ex-wife of a very high income earner a share of his future earnings, on the basis of her contributions to the total earning capacity of their household. The same reasoning applies at a social level; that in itself suggests that unpaid citizens should receive a social wage at least as high as that received by paid citizens.[return]
9. The diagram in Parker (1990), "Understanding Productivity, the Ways of Economics and History" (p.9), JEBO and p.18 AEHR gives some of the flavour of this public domain approach.[return]
10. In an absolute monarchy, the sovereign monarch owns the public or sovereign domain and hence owns the social wage (crown wage?) which the monarch may dispense as s/he sees fit. (See Weldon [1988, p.41] for such a use of the term "social wage".) In a constitutional democracy, all citizens are equally sovereign. While citizens own New Zealand's newly created "Crown Enterprises" I find the symbolism of the use of the word "crown", with its historical links to an autocratic monarchy, to be an ominous hint of the distrust of democracy implicit in the ideology of New Zealand's post-1984 economic reforms.[return]
11. Forget Roger Douglas and ACT; they seek low flat taxes as second best to no taxes on production. They represent a constituency who have a direct interest in exploiting the public commons, gratis if possible.[return]
12. Other taxes, such as carbon taxes, can be used to discourage the abuse of particular public domain resources.[return]
13. At the local level, the electricity retailer, Mercury Energy, pays social dividends (albeit inadequate) to all Auckland households. Much of the social wage attributable to the public assets contained in Mercury Energy are absorbed in executive salaries, to the detriment of the shareholders. Mercury Energy at least conforms to social wage accounting principles, in that its shares are not transferable.[return]
14. For example, Alison Marshall, Department of Geography, University of Auckland.[return]
15. The term social wage is important because of its widespread popular usage. Interestingly, it is not a term that appears very much in the academic literature; Australia to some extent is an exception (Rankin, 1996c).[return]
16. Indeed I am quite happy to be labelled a 'social capitalist', in that my analysis emphasises public domain resources as social capital, and sees the product attributable to social capital as the means to social justice.[return]
17. There are checks and balances which prevent a government from asking too high a tax rate. One is international competition. Another results from a recognition that the public interest and the national interest are not the same; the national interest includes the interest of labour and private capital. One constitutional solution would be to institute an Upper House - really a regular forum of interests, including a special place for the tangata whenua in accordance with the Treaty of Waitangi - through which, among other things, private interests could contest tax rates they considered to be excessive. See Rankin (1995a).[return]
18. For further treatment of this topic, see Rankin (1995c) and Rankin (1996a).[return]
19. That is, New Zealanders who are not using or thinking of using family trusts as a way of tax-splitting. Tax-splitting is a way of contriving a family's financial affairs so as to ensure that each member gets their STC. See Smith (1996), Rankin (1996a).[return]
20. The term 'social dividend' to represent increased tax concessions is now common usage in New Zealand. See, for example, Clifton (1995) "the long-awaited social dividend", Berryman (1995) "a social dividend of sorts", Rankin (1995b).[return]
21. Strictly speaking it should be called an 'effective low income surtax', analogous to the 'effective marginal tax rate' (EMTR) that defines the poverty trap and the 'additional work - additional leisure' trade-off.[return]
22. A couple on the married rate of benefit receive half each. Thus, in the case of an unemployment benefit, each receives, at present, a weekly STC of $76 plus a top-up of $43, plus further top-ups in Accommodation Supplements, and Family Support.[return]
23. Lipietz (1992, p.93) uses the term "Kafkaesque" to describe existing welfare webs.[return]
24. It is a moot point whether the student loan living allowance might be regarded as a benefit, and as another means of delivering the STC under the present system. Student loan living allowances are classified as income by the New Zealand Income Support Service with respect for entitlement to a Community Services Card.[return]
25. See "The Welfare Mess" (St. John, 1994) for a discussion of the ways different forms of assistance and abatement interact.[return]
26. NZ Superannuation tax surcharge, Child Support liable parent contributions, and Student Loan Repayments. It is valid to follow DSW's (Department of Social Welfare) example, and treat student loans as social dividends and "repayments" as high income surtaxes.[return]
27. The most important transfers are those from a breadwinner parent to a caregiver parent, and from parents to children (including adult children up to age 25 who are full-time tertiary students).[return]
28. That minimum varies for different members of the community. While it is certainly higher for an elderly retired person or a disabled person than an able-bodied person, it might also vary according to where a person lives.[return]
29. Including public sector landlords who have sought to exploit their effective monopoly position by setting "market prices" for low income rental accommodation (as the Minister of Housing publicly admitted in June).[return]
30. This paper is not the place to discuss Child Support surtaxes. But it should be noted that child maintenance relates to private contractual problems that have occurred between parents. Society, as the beneficiary of children, has a separate contractual obligation to assist families. Child maintenance should not be used for benefit recovery purposes. Refer Rankin (1996d).[return]
31. I would like to see all of GDP taxed, and elderly people of modest means compensated through a rise in their supplementary benefit (ie pension) entitlement.[return]
32. Work undertaken by Duncan Ironmonger (1989) is moving towards the construction of national accounts made up of a gross market product, a gross household product, and a combined gross economic product.[return]
33. Witness the expansion of Lotto-type games, casinos and sports betting.[return]
34. Someone grossing $36,000 today is really earning c.$24,000 plus a social dividend of c.$4,000. Likewise, someone grossing $18,000 is really earning c.$12,000 plus a social dividend of c.$4,000. The lower paid person will also be paying a LIS and might also be receiving a supplementary benefit, abating at say 18% of actual private income. The true effective marginal tax rate (EMTR) would be 18%. Under existing social accounting conventions, we would say the EMTR was 36% [24% marginal tax plus 18% times (12,000 ¸18,000)]. See Rankin (1996a) for a discussion of true EMTRs.[return]
35. An approach which I have advocated elsewhere (Rankin, 1996a), is to simply adopt social wage accounting principles now, and then to replace the July1997 tax cuts with a $10 per week increase in the standard tax credit. By 1997/98, GDP will be close to $100,000 million, giving the government an extra funding source.[return]
36. The 1994 Fiscal Responsibility Act requires government to give top expenditure priority to debt repayment.[return]
37. During a recent seminar, I asked Michael Cullen - Labour's Finance spokesperson - what were the reasons for the reduction of the top tax rate from 48% to 33% in 1988. He conceded that the reasons were political, not economic. In the context of the 1986-88 tax scale, and the tax scales of countries such as Australia, Canada and the United Kingdom, an income tax rate of 43% would not put New Zealand out of step. I believe that a properly argued, fiscally neutral social wage cum social dividend, based on a tax rate of between 39% and 43%, would be a very attractive policy for a Labour Party seeking to re-establish its credibility as a party of economic freedom with a social conscience. Labour's present proposal, set down for implementation in 1998, is based on a 33% tax rate, introduces high income surtaxes while significantly reducing low income surtaxes for low income workers. It yields an STC of $4,550, and ensures that all people earning between $14,000 and $77,500 will receive at least $3,000 of it. Beneficiaries would of course receive the full STC plus transfers. Nevertheless some will miss out. A few people, most likely women (full-time caregivers who are also liable parents but who do not qualify for family support on account of partners' incomes), will have no private income, no income support, and surtaxes in excess of the standard tax credit.[return]
38. Fran O'Sullivan, senior journalist, National Business Review, on Television New Zealand's "Meet the Press" (26 May 1996), when questioning Finance Minister Bill Birch. On the 33% tax rate she asked "Why can't we [the strivers grossing high incomes] have our money back?". Birch's reply, if anything, substantiated suggestions that the Government and the Treasury would like to reduce the base rate of income tax to around 28%; a cut that would reduce by 15% the size of the social wage fund from which a social dividend can be drawn. One of the main arguments in favour of slashing the company and upper personal tax rates in the 1980s was that it would eliminate tax avoidance and work avoidance. With respect to tax avoidance, that amounts to an open acknowledgement that huge amounts of hidden corporate welfare existed, and that a cut in the tax rate would not lead to a cut in any part of the social wage other than the hidden subsidies.[return]
39. For example, the 1995/96 New Zealand 'Winebox Inquiry', which relates to tax avoidance scams centred on the Cook Islands allegedly undertaken by some major New Zealand companies, including one publicly owned bank.[return]
40. This becomes an 'income avoidance' argument when effective marginal tax rates come to exceed 100%. Income avoidance is a genuine solution to oppressive poverty traps faced by some low-income recipients, but it makes no sense under a basic income system.[return]
41. Deirdre N. McCloskey (Eastern Economic Journal 1996), and at the University of Auckland, Conference on "Narrative and Metaphor Across the Disciplines", 8-10 July 1996.[return]
42. Technically, this arises from a conflict between the 'income effect' and the 'substitution effect'; ref. Olson (1995), pp.446-447.[return]
43. For example, the writings of Robert Lane.[return]

REFERENCES

Atkinson, A.B. [Tony] (1995) Public Economics in Action: the Basic Income/Flat Tax Proposal, Oxford: Clarendon Press.

Berryman, Warren (1995) editorial The Independent 22 September.

Clifton, Jane (1995) "Talk too Taxing for Government" NZ Sunday Star­Times, 24 September, p.C2.

Hirschman, Albert (1991) The Rhetoric of Reaction: Perversity, Futility, Jeopardy, Cambridge, Mass.: Belknap Press of Harvard University Press.

Hirschman, Albert (1994) "The On­and­Off Connection between Political and Economic Progress" American Economic Review - Papers and Proceedings 84(2):343­348; and in A Propensity to Self­Subversion Harvard University Press 1995.

Ironmonger, Duncan et.al. (1989) Synopsis of Valuing Women's Unpaid Work Project, 1989/90. Wellington, N.Z.: Ministry of Women's Affairs.

Lane, Robert (1992) "Work as Disutility" Journal of Socio-Economics 21(1):43-64.

Lipietz, Alain (1992) Towards a New Economic Order, Cambridge: Polity.

Marshall, T.H. (1949) "Citizenship and Social Class", Alfred Marshall lectures, in Class, Citizenship, and Social Development, Westport, Conn., Greenwood Press, 1963/73.

McCloskey, D.N. (1996) "Other Things Equal: Love or Money", Eastern Economic Journal 22(1):97­100.

Meade, James E. (1993) Liberty, Equality and Efficiency, Basingstoke, Macmillan.

Mokyr, Joel (1990) The Lever of Riches, New York: Oxford University Press.

Olson, Mancur (1995) "Why the Transition from Communism is so Difficult", Eastern Economic Journal 21(4):437-461.

Parker, William N. (1990), "Understanding Productivity, the Ways of Economics and History" Journal of Economic Behaviour and Organization 13[1990]:1­20 and Australian Economic History Review 30[1990]:3­22.

Rankin, Keith (1991) "The Universal Welfare State; incorporating proposals for a Universal Basic Income"; Policy Discussion Paper No.12, Department of Economics, University of Auckland.

Rankin, Keith (1992) "Escaping the Poverty Trap", New Zealand Political Review, April.

Rankin, Keith (1995a) "The Equal Property of All" New Zealand Political Review, July/August.

Rankin, Keith (1995b) "It's simply common sense; Tax Cuts are our Just Reward", The Independent 29 September.

Rankin, Keith (1995c) "Self­Refuting Prophecies" New Zealand Political Review, October.

Rankin, Keith (1996a) "So Little Relief" New Zealand Political Review, May.

Rankin, Keith (1996b) "What's cheaper; placating the poor with welfare or imprisoning the rich?" The Independent, 10 May.

Rankin, Keith (1996c) "The Social Wage as a Definitive Component of Political Parties' Philosophies", paper presented to the conference of the New Zealand Political Studies Association, July 10.

Rankin, Keith (1996d) "Investing in our Children" New Zealand Political Review 5(3):14-19, August.

Rooney, Edward (1996) "Divorce lawyer wants details made public", New Zealand Sunday Star-Times, August 11.

St. John, Susan (1994) "The Welfare Mess", Policy Discussion Paper No.15, Department of Economics, University of Auckland.

Saunders, Peter (1988) "Guaranteed Minimum Income Revisited: Paradise Lost or Guiding Light?", Economic Papers [Australia] 5(Sept.):25­32.

Smith, Nigel (1996) NZ Sunday Star Times, 17 March, p.D5.

Schor, Juliet (1991) The Overworked American, New York: Basic Books.

Weldon, J.C. (1988) "The Classical Theory of Distribution" in A. Asimakopulos ed. Theories of Income Distribution, Boston, Kluwer.

Appendix Table, presenting two costed examples of universal basic income. They apply to income tax rates of 33% and 43% respectively.
 

Rankin File