A Guaranteed Minimum Income for New Zealand? The Treasury costings

The Treasury modelled a Guaranteed Minimum income (GMI) at the request of the Welfare Working Group in 2010. A GMI paying $300 per week – the mean benefit income among those on benefits – would cost $44.5 billion (model 1) or $52.6 billion if we extended it to super annuitants as a replacement for NZ Superannuation or old age pension (model 2). The former could be covered by a flat personal income tax rate of 45.4%; the latter, 48.6%.

Full fiscal neutrality would require tax rates of 50.6% and 54.4% – the lower tax rates would be just enough to cover the transfers, but income tax revenues are currently also used to fund more than just transfers.

If we recognize that most parents are beneficiaries via Working for Families and compensate them for their loss with a $86 per child per week payment (model 3), we get a $57.1 billion fiscal cost and a personal tax rate of 50% (or 55.7% for fiscal neutrality).

Treasury noted that many beneficiaries (including the disabled, carers and sole parents) currently receive more than $300 per week and would be made financially worse off under a GMI scheme.

Treasury also warned about potential adverse labour supply responses to the necessary higher personal income tax rates. The large gap between company and personal tax rates would increase IRD’s enforcement costs.

In 1987, Finance Minister Roger Douglas announced a Guaranteed Minimum Family Income Scheme to accompany a new 22% flat income tax. The idea did not go ahead.

Richard Nixon also proposed a guaranteed minimum family income plan in 1969 to replace the Aid to Families with Dependent Children (AIDC) scheme at the behest of future Senator Daniel Patrick Moynihan. This was based on the negative income tax proposals of Milton Friedman and George Stigler. Nixon’s plan passed the House but not the Senate after 3 years of infighting.

The final outcome was the earned income tax credit (EITC) in 1975 that was expanded significantly in the 1990s to become the largest single federal income transfer programme. One attraction of the EITC is that because its benefits rise positively with earnings up to the phase-out point, so it can have a positive rather than negative effect on work incentives for workers on a low wage.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Map Dragons

Written by map lovers for map lovers

Wrong Hands

Cartoons by John Atkinson. ©John Atkinson, Wrong Hands

New Historical Express

(Formerly Hatful of History)

FondOfBeetles

a developmental biologist in a gendered world

Overcoming Bias

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

CONVERSABLE ECONOMIST

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Barrie Saunders

Thoughts on public policy and the media

The Victorian Commons

Researching the House of Commons, 1832-1868

Coyote Blog

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Overlawyered

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

American Enterprise Institute – AEI

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The History of Parliament

Blogging on parliament, politics and people, from the History of Parliament

Catallaxy Files

Australia's leading libertarian and centre-right blog

Climate Audit

by Steve McIntyre

StephenFranks.co.nz

A New Zealand lawyer, ex-MP, farmer and enthusiast for life opines on law, politics and the universe

Books & Boots

reflections on books and art

Legal History Miscellany

Posts on the History of Law, Crime, and Justice

Sex, Drugs and Economics

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The Long Run

the EHS blog

The Undercover Historian

Beatrice Cherrier's blog

Vincent Geloso

Economics, History, Lots of Data and French Stuff

Climatism

Tracking Anthropogenic Climate Alarmism

Science Matters

Reading between the lines, and underneath the hype.

Point of Order

Politics and the economy

FREEcology

Libertarian environmentalism

Doc's Books

A window into Doc Freiberger's library

Newmark's Door

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Media Myth Alert

Calling out media myths

Uneasy Money

Commentary on monetary policy in the spirit of R. G. Hawtrey

European Royal History

Exploring the History of European Royalty

Tallbloke's Talkshop

Cutting edge science you can dice with

Marginal REVOLUTION

Small Steps Toward A Much Better World

The Risk-Monger

Let's examine hard decisions!

NOT A LOT OF PEOPLE KNOW THAT

“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.

STOP THESE THINGS

The truth about the great wind power fraud

Trust, yet verify

Searching for the missing pieces of climate change communication

%d bloggers like this: