In this morning’s National Business Review (paywalled), Matthew Hooton estimates Labour’s Universal Basic Income Policy could cost up to $86 billion.
This is the latest in a series of escalatingly absurdist claims about the UBI, starting with David Farrar’s $38 billion, John Key’s $76 billion, and Stephen Joyce’s 80% tax rates.
By next week, I expect Cam Slater to estimate the UBI costs $240 billion, New Zealand’s entire GDP.
So, what’s wrong with Hooton’s particular number? Well, let’s start with how he got it:
First, he finds a very high benefit, which is for a single superannuitant living alone ($431.10 a week).
On top of that, he finds a very high extra payment a person sometimes receives if they have a dependent child, which he says is the $107.20 a week a person receives if they’re on the jobseeker’s benefit.
Then he assumes a Universal Basic Income would provide those top-end payments to absolutely everyone, adults and children respectively.
Together, this means a typical family of four would receive a “basic” income of $56,100 after tax, before they’ve earned a cent. To put that in perspective, that’s what a person with a $70,000 pre-tax salary currently ends up with. Fewer than one in five people currently earn that much.
That’s a massive departure from the most-quoted example discussed in Labour’s initial UBI discussion paper, which would guarantee that same family only $23,000.
This is the first of the five most serious flaws in Matthew’s analysis: He stretches the concept of a “basic” income to, and well past, breaking point.
Second, Matthew falsely assumes that the current top-end benefit payments should apply to everyone. There’s nothing in the Universal Basic Income idea that requires it is the only support the government provides for people.
If a person has extra costs and/or little opportunity to earn (like the superannuitant living alone Matthew takes his figure from, for example), the government can readily provide the UBI and also something else. This particular case would come with little admin cost, too. So the assumption that leads him to give everyone the same $431.10 is false.
The third error is Matthew starts with pre-tax benefit rates, then uses them to hand out a post-tax UBI. This might seem like a minor, technical error, but it’s huge.
If you fix the error by using post-tax benefit amounts and also assume it’s the only income a person gets, it’s only an $11 billion error.
If you fix the error by taxing the UBI instead, as we currently do for superannuation and benefits, the impact is much larger. That’s because fixing this error pushes the rest of everyone’s income into higher tax brackets. It’s difficult to work out precisely how large the error is, because that would involve knowing everyone’s taxable income, but it looks to be in the region of $20-25 billion. This is, for clarity, a ballpark estimate.
The fourth error is about the child payments. Matthew assumed the current payment goes out per child, whereas in fact it goes out only for the first child. To be fair, that’s only probably a $3 billion error, so it’s minor compared to the others.
The fifth problem is a glaring obfuscation. The costs Matthew leads with are gross, not net. That leads to a more dramatic figure - $86 billion! - but a less informative one.
It’s like saying there were $14 billion of tax cuts in 2010, without acknowledging the GST increase undid most of them.
To be fair to Matthew, he acknowledges this late in the piece, and makes an incomplete nod towards the more informative net cost. He takes $25 billion off the price to account for replacing existing benefits, but fails to account – at all – for the tax changes everyone acknowledges need to form part of any UBI package.
Those five major problems make the cost estimate not worth the one-ply paper it is written on. As I mentioned on Twitter yesterday, two-ply would have been more useful.
The column ultimately provides estimate of a policy that bears little relation to the discussion Labour is having, and is based on wrong-headed assumptions and factual mistakes. If that’s your cup of tea, it seems Matthew’s your guy.
But here’s the thing, and I’m complimenting Matthew Hooton here: He’s far too smart to be this stupid.
I don’t think he honestly believes a UBI in New Zealand would cost $86 billion, any more than David Farrar believes it will cost $38 billion or Stephen Joyce believes it will lead to 80% tax rates.
Instead, all these insane figures are part of a deliberate, coordinated strategy of scaremongering, coming from many of the usual Dirty Politics suspects, aimed at shutting down an important policy debate just as it’s getting started.
But I think the media and the public are smarter than this crowd give them credit for. They can see this con-job a mile off.