Time to Take the Road Less Traveled

Last week I attended the Fabian Conference entitled “Fresh Ideas For A Productive Economy” held at Parliament in the Legislative chamber. It’s the third time I’ve been there for a conference and it’s a good place to debate ideas away from the main chamber. As the title says, the focus was on fresh ideas and this was very appealing given the current government has been rather light in that area.

Two key themes developed from the 8 speakers and their various proposals:

1) New Zealand’s financial position and framework must be addressed.

The current debt situation is untenable in the long run. The borrowing binge of the government is driving up the currency and causing serious problems for our export sector. Whilst NZ has, so far, been exempt from the debt dramas of the US and Europe, that may not last forever. The exchange rate is volatile, our interest rates too high and our investment in property has led to a mis-allocation of resources. Market liberalisation has seen financial markets (the capital account) rather than the productive sector (the balance of payments) drive the economy. This has led to severe imbalances within the NZ economy which are leading to entrenched impoverishment for a large section of society.

2) We must invest more in Research and Development in order to create a more dynamic, broad and innovative economy.

Our investment in people is woeful. We are a low wage, unproductive economy heavily reliant on basic commodities to pay our way. We need a revolution in investment in order to boost productivity, innovation and general skills. As a small country and economy, we have to be clever and nimble in how we generate our wealth and the revenue we need to pay for the goods we import. Our good people leave and many don’t come back. Without sustained investment into research, development and education, we will continue to fall behind. This is about building core infrastructure at the human level. See Dr Rhema Vaithianathan’s research at the University of Auckland.

There seems to be a recognition that the current system is not working and that we need to look at alternative options. The ongoing turmoil in the global financial markets is further proof that the system is irreparable in its current form. When you add in dysfunctional welfare systems and a job market seeing huge technological dislocation, then the time has surely come to take a different track.

The policy proposals from the Savings, Tax and Welfare working groups have been disappointing. Perhaps they have been limited by their terms of reference and by the selected participants, but the output shows very much a business as usual approach, looking for solutions from the same place they found the problems. So what’s the new road?

Simply it is nothing less than a revolution in the way we think about income, sovereignty, wealth and entitlements. What is it that we, as citizens, should be entitled to? How should the state pay for it? How should citizens be taxed? and so on.

I believe strongly that the answer lies in a system underpinned by a Universal Participatory Income (UPI). This a variation of the more commonly know Universal Basic Income (UBI) or Guaranteed Minimum Income (GMI). The main difference is that to receive it you must participate in society in one of the following ways: employment, education, volunteering or caring. In other words you can’t sit around doing nothing. There are always jobs to be done even if those are not in formal paid employment. In this way people will be recognised for making a contribution to society and welfare will be seen as a stepping stone to a more fundamentally just system.

The good news is that there are at least fully costed options for a GMI open for discussion. One is from Lowell Manning entitled a “Guaranteed Minimum Income for NZ” and the other is from Gareth Morgan entitled the “Big Kahuna”. They are both similar in that they see the dissolution of the welfare state and the system that supports it. No longer will there be a raft of differing benefits, just one single payment to all citizens. There are similarities in how the new GMI will be funded in that the tax base will shift from income and towards capital. Morgan proposes a Comprehensive Wealth Tax (CCT) and Manning a Wealth Tax (WT). There are slight differences in the broadness of the tax capture but they are minor in the grand scheme. Income tax would be flat and superannuation would disappear.

The key point to note is that this does not remove the incentive to find paid employment but recognises the contribution made to society by non-paid work such as raising children, caring for the sick and elderly, as well as voluntary work. The removal of superannuation would take way the silly idea that all people “retire” at a specific age.

No doubt there will be a great deal of debate around the specifics once people have got their heads around the idea. For example, one question that will be asked is whether people will have lots of children to access lots of GMI. This is easily dealt with by limiting the number of children that will be granted the child amount of the GMI (I would argue for 3, some maybe 2). This would deal with concerns that people might game the system.

One of the main advantages will be a huge simplification in the fiscal framework. No more welfare bureaucracy, a very simple tax system and the knowledge for people that they can move between different forms of work, knowing that they have a basic income to support them. This will lead to a more efficient and productive economy and will ultimately lead to a more cohesive society.

It would be the most revolutionary change in the fiscal systems since welfare was first introduced and now is the time to start discussing and debating the different proposals.