How it works

Contents

Tax Free

This allows for the first $100,000 of your New Zealand earnings to be tax free and financing the UBI at the cost of an increased GST tax rate. This is fiscally neutral.

An increase in the UBI received between $73 and $97 per week covers the rise in the cost of living from the greater GST rate. For rates see the table in Wealth tax/Capital gains.

The advantages this offers us are many including:

  1. Incentive to work - you keep every dollar you earn.
  2. Reduces any inflation coming from the UBI because of the cost increase from the additional GST.
  3. Will attract needed skilled migrants into New Zealand.
  4. The additional money in the UBI adds to local economies and has a doubling effect to the country's economy from the velocity of money.
  5. A rise in GST would add substantial tourist dollars into the New Zealand economy which many are calling for at the moment.
  6. Imports would have a much greater proportion of the New Zealand total tax added to the sale price, helping domestic suppliers compete in a global market.
  7. Exporters being GST free and having a lower income tax burden would be in a better position to compete for overseas markets.
  8. Employees would have additional bargaining power and with the safety net greater risk-taking and entrepreneurial activity with people having more time to set up small businesses to create employment. (NZ Treasury).
  9. We will remove the poverty traps within the current unemployment regime. (NZ Treasury).

GST

This financial model increases the GST rate to pay for the UBI. This is fiscally neutral.

An increase in the UBI received between $31 and $61 per week covers the rise in the cost of living from the greater GST rate. For rates see the table in Wealth tax/Capital gains.

The advantages this offers us are many including:

  1. Reduces any inflation coming from the UBI because of the cost increase from the additional GST.
  2. The additional money in the UBI adds to local economies and has a doubling effect to the country's economy from the velocity of money.
  3. A rise in GST would add substantial tourist dollars into the New Zealand economy which many are calling for at the moment.
  4. Imports would have a greater proportion of the New Zealand total tax added to the sale price, helping domestic suppliers compete in a global market
  5. Employees would have additional bargaining power and with the safety net greater risk-taking and entrepreneurial activity with people having more time to set up small businesses to create employment. (NZ Treasury).
  6. We will remove the poverty traps within the current unemployment regime. (NZ Treasury).

Top Tax Rate

This increases the top tax rate to pay for the UBI - all other taxes would remain the same.

The top tax rate to pay for a UBI of $300 per week would be 132% which is not possible. If a capital gains/wealth tax and superannuation clawback were implemented the rate required would drop to 114% also not possible. I have removed the top tax funding option from the reported results.

Also worthy of noting was the report commissioned by the national government in 2010 asking for the results of a guaranteed income of $300 financed by a flat income tax. Their working showed the income tax rate would need to be between 45.4% & 48.6%. Treasury's review points on this are included in the All Tax Increased tab, please remember the negitive comments are related only to increased income tax rates.

All Tax Increased

This increases all tax rates by the same 113% to pay for the UBI of $300 as shown in the table below. This reduces to 81% if we include a capital gains tax and super clawback. This is fiscally neutral.

When Income Before After With Wealth Tax
Up to $14,000 10.5% 22.38% 18.99%
Up to $48,000 17.5% 37.29% 31.65%
Up to $70,000 33.0% 63.93% 54.25%
Over $70,000 33.0% 70.33% 59.67%

The following disadvantages as explained in the 2010 treasury report on a guaranteed minimum income of $300 are summarised as follows.

  1. "...overall labour supply is likely to fall due to an increase in effective marginal tax rates."
  2. “...damaging effect on the integrity and coherence of the tax system” “increasing enforcement and compliance costs”
  3. “...high income tax rates are highly distortionary to the labour market and to savings and investment decisions.” “Damaging the tax system and economic growth”
  4. Labour Market Incentives, “lower earners may reduce their hours or not work” “skilled/higher earners to reduce their hours or migrate to countries with lower tax rates”
  5. “Higher income tax rates are much more likely to discourage effort”
  6. "Higher personal income tax rates lower post-tax New Zealand superannuation payments"
  7. “...could discourage people from taking entry level jobs”

However the same report had these advantages listed.

  1. “...employees would have additional bargaining power and with the safety net greater risk-taking and entrepreneurial activity with people having more time to set up small businesses to create employment.”
  2. "...we will remove the poverty traps within the current unemployment regime.”

Flat Income Tax Rate

This taxes all income the same flat rate of 48.15% to pay for a UBI of $300 per week. This is fiscally neutral.

The National government requested the treasury to report on this minimum income scheme in 2010.

The following disadvantages as explained in the 2010 treasury report on a guaranteed minimum income of $300 are summarised as follows.

  1. "...overall labour supply is likely to fall due to an increase in effective marginal tax rates."
  2. “...damaging effect on the integrity and coherence of the tax system” “increasing enforcement and compliance costs”
  3. “...high income tax rates are highly distortionary to the labour market and to savings and investment decisions.” “Damaging the tax system and economic growth”
  4. Labour Market Incentives, “lower earners may reduce their hours or not work” “skilled/higher earners to reduce their hours or migrate to countries with lower tax rates”
  5. “Higher income tax rates are much more likely to discourage effort”
  6. "Higher personal income tax rates lower post-tax New Zealand superannuation payments"
  7. “...could discourage people from taking entry level jobs”

However the same report had these advantages listed.

  1. "...employees would have additional bargaining power and with the safety net greater risk-taking and entrepreneurial activity with people having more time to set up small businesses to create employment.”
  2. "...we will remove the poverty traps within the current unemployment regime.”

Wealth Tax/Capital Gains and a Superannuation Claw Back

The Opportunities party have budgeted a tax take from a wealth tax and superannuation claw back of 11.5 Billion dollars, they also have a policy for a UBI funded by this. Please note no attempt has been made to calculate the cost of any wealth or capital gains tax in the figures provided.

If we include this 11.5 Billion as a fund for the UBI from any source be it a wealth tax or a capital gains tax it has a marked effect in the tax rates and GST rates required as shown in the graph below.

In my model superannuants earning wages in excess of $30,000 will receive the UBI instead of the increased national superannuation.

Model % With $11.5b Without Rate type With UBI Without UBI
Tax free 43.0% 51.0% GST Rate $373 $395
GST 27.0% 36.0% GST Rate $331 $361
Top tax 114.0% 132.0% Tax rate $300 $300
Flat tax 45.4% 48.6% Tax Rate $300 $300
All tax 10.5% 18.99% 22.38% Tax Rate
All tax 17.5% 31.65% 37.29% Tax Rate $300 $300
All tax 30.0% 54.25% 63.93% Tax Rate
All tax 33.0% 59.67% 70.33% Tax Rate

Carbon Tax Citizen's Dividend

The United States congress is taking a favourable look at this scheme currently. The authors are proposing a US $40 per ton carbon tax resulting in a at the pump increase in fuel price of 17% this returns if distributed entirely a US $2,000 per citizen dividend.

They have noted the following advantages.

  1. Penalises excessive fuel users - reducing carbon emissions.
  2. Has a direct cash benefit to 70% of the population - the poorest.
  3. Encourages investment in alternative clean energy sources.

The carbon content of our fuels compared to the US are similar as is our general usage of vehicles the 17% fuel price is a likely result of this carbon tax here. Our renewable energy production is higher in New Zealand so the total carbon tax generated by New Zealanders is lower per person at NZ $1,733 compared to the US $2,000.

Carbon Tax Global Environmental Fund

A 10% deduction has been made from the above citizens dividend to add to a global environment fund. The fund has the following attributes.

  1. It is citizen controlled.
  2. Voting for which national and international environmental goals will be made from your on-line UBI banking site.
  3. Any contributing citizen can forward an environmental goal, the search feature on the site can show which projects are currently getting the most votes.
  4. The international fund cannot be funding more than one project in any one country and the next big budget project must be in a different country to the previous.
  5. This is open to any country entering into the Carbon tax/Citizens Dividend scheme.
  6. The New Zealand portion of this fund would, at a donation rate of 10%, be about $500 million dollars a year.
  7. If the European Union, the USA or China agree to this the fund could have about 361 Billion dollars per year to enact real environmental activity, such as protection of the Amazon, irrigation of the Sahara, plantation of forests or the cleaning of the worlds oceans.