We already have a UBI: New Zealand Super

Gareth MorganTax and Welfare14 Comments

Many countries around the world are looking at piloting an Unconditional Basic Income (UBI), and some are suggesting that New Zealand should follow suit. Actually we have been running a UBI pilot for many decades. It isn’t quite unconditional – you have to be over 65 to get it. That’s right, I’m talking about New Zealand Super. It has existed in its current form since 1977 when Muldoon lowered the age and made it more generous, but we’ve actually had a universal pension in some form since 1938.

What can we learn from one of the world’s longest running UBI experiments? The results are startling; on many measures it has been incredibly successful. Yet on Q&A over the weekend the Retirement Commissioner reiterated that with the ageing population NZ Super is unaffordable in its current form. According to the Retirement Commissioner the ageing members of society have not got their heads around this, with a survey showing they feel the government owes them a pension. However, the younger generation sees the writing on the wall, realising they will have to pay for their own retirement.

The question is how do we keep the good aspects of our existing Unconditional Basic Income while ensuring it is still affordable with an ageing population? Let’s start by looking at the results of our own UBI experiment.

Stigma

Generally NZ Super recipients escape the stigma associated with being a beneficiary. This is surprising given that NZ Super is the largest cost in the welfare bill (at around 47% of the total), and is set to keep receiving the biggest cash rises for the foreseeable future. A Community Law Canterbury report on beneficiary stigma found:

The term “beneficiary” is sometimes used in a belittling way, reflecting the stigma those on benefits can face (and as one participant pointed out, it is generally not used to describe superannuitants)

It is most likely that this lack of stigma is due to the universal status of the benefit – everyone over 65 receives the same amount. How curious is that? A benefit received by all over the age of entitlement is not regarded as a benefit at all, but rather an “entitlement”. It will be interesting to see whether the current and future taxpayers funding National Superannuation feel that way.

Poverty

We have one of the lowest rates of elder poverty in the developed world. Could this be because of the generous Unconditional Basic Income they receive? It helps that New Zealand Superannuation payable to a married couple must be at least 65% of the average wage. Of course not everyone in need does that well out of our tax and welfare system; we have one of the highest rates of child poverty in the developed world.

Therein lies the tradeoff of such a high rate of New Zealand Superannuation. By funding a universal benefit at such a high rate we are using precious taxpayer funds that could be used to alleviate serious poverty amongst our younger citizens. Why don’t we? Probably because the elderly have the highest turnout on polling day, while children don’t get any vote at all.

Impact on work

If you give everyone an Unconditional Basic Income, won’t people stop working? Well, no. Despite their age and the obscenely generous nature of NZ Super, many pensioners keep working. In fact one in five pensioners work, and for those under 70 it is closer to two in five; one of the highest rates of any country in the OECD. That is a long way from an employment apocalypse.

Yet some reckon that a UBI of much less magnitude than the New Zealand Superannuation would discourage younger people from paid work in droves. They have no evidence of course – it’s sheer prejudice. The fact is that people have many reasons to pursue work and success – in a recent survey of pensioners the most popular reason for working was that they ‘liked being busy’.

Money may not always be the top motivation for work, but it helps that pensioners don’t lose their Super if they keep working. That is the essence of an Unconditional Basic Income.

Volunteering and Unpaid Work

We get a pretty good return on investment from this Unconditional Basic Income. Despite their age and the fact they are not getting paid, our superannuitants seem to keep themselves busy for the benefit of the country. The age group most likely to volunteer in any given 4 week period are those aged 65-74, at almost 40%. This drops off a little at older ages, for obvious reasons.

Pensioners also spend more time doing unpaid work than any other group – 4 hours and 31 minutes every day. Clearly their UBI has no effect on their work ethic.

Remember the enormous value is generated by unpaid work. Roughly half of all work done in our economy is unpaid, an Unconditional Basic Income would honour that contribution.

How do we keep it affordable?

To conclude, New Zealand has actually been experimenting with a UBI for the past forty years, and it has been a raging success in terms of not denting the propensity to work – either voluntarily or paid. The problem is that because of its generous level it is expensive and diverts money from truly needy citizens. For this reason there is a growing realization that people can’t expect to rely on NZ Super continuing in its current form. A survey by the Retirement Commissioner indicated that 83% of people feel that people should contribute to their own retirement, while 70% felt the government should also contribute (people had two votes).

There are many people over 65 receiving additional income well above the level of NZ Super – either from working or investment income. As the NZ Herald points out, we may have better ways to spend taxpayer funds than giving New Zealand Superannuation to people that don’t need it. Yet there are clearly also benefits from a universal system.

The Retirement Commissioner has suggested increasing the retirement age to 67, but there are some people that cannot keep working past 65. One middle ground could be to keep a universal portion of the pension (at around half the current level) and allow for targeted top ups to those that don’t have other forms of income. That way New Zealand Superannuation could continue to be equally successful at half the amount paid.

We already have a UBI: New Zealand Super was last modified: August 15th, 2016 by Gareth Morgan
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Gareth Morgan

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.

  • The Treasury some years ago published a working paper on the labour supply effects of the eligibility age going down to 60 and back up to 65.

  • Jack Marshall

    Now to convince the voters!

  • Warren Dennis

    “The problem is that because of its generous level it is expensive and diverts money from truly needy citizens.”
    Generous? Really Gareth, you needed to put that in 3 times?
    $350 per week is not generous.
    $150 per month electricity
    $109.43 per month telephone internet
    $115.00 per month rates
    $156.00 per month house insurance, not contents, I can’t afford that
    $300 per month petrol
    $880.43 per month in what are basically fixed outgoings

    Which leaves me $520 per month for food/clothing/house repairs
    or $130 per week.

    Luckily I do own my house. I work 10 months per year on a dairy farm, milking, at 67 years of age, mainly because there are very few people younger who want to do it.

    If you are going to push for a UBI, I would suggest you look at starting around $700 per week for over 18 years of age

    Raise the school leaving age to 18, for those not suitable for mainstream, then schools such as Auckland Metro, sadly defunct, or re-structuring tertiary institutions like ATI back into the Technical School style for 15/16 year olds to gain a good grounding in preparation for an apprenticeship

    No, I do not have “other” sources of income, interest/shares etc, I have never earnt enough during my working life to have anything left over to put into saving.

  • Mike McManaway

    Hmm..even if NZ Super doesn’t seem to affect worth ethics of elderly (who worked all their life), that is hardly strong evidence that a UBI will not have a negative affect on developing work/ethics/culture of a younger population. Thats a big unknown. Bottom line…UBI policies need experimenting with, but lets beware of the unintended consequences…

  • Rann Saicher

    Superannuation as currently operated is not unaffordable, and never will be. The arguments presented above are amongst the 7 Deadly Innocent Frauds of Economics, the title of a book written by Warren Mosler, one of the founders of the heterodox economic school known as Modern Monetary Theory, and available as a pdf on the internet. Warren, and his MMT colleagues say it better than I could, if you really want to understand how a fiat money economy works, then abandon the heterodox rubbish above and read Mosler, (or professors Wray, or Mitchell, or Fullwiler, or Kelton…)

  • Julian peters

    An entitlement ??? Really….???…
    That is exactly what it is …
    The government has taken monies off its citizens in the form of tax all their lives with the contracted understanding that the money will be available to them when they reach 60…ooops. 65.. May be 67 ….
    In the meantime it spend the money on other crap which that generation will never befit from .
    In other word this current generation who you say are being asked to. Pay for super Ann are already receiving benift of the elder generation’s toil and monies

    • Melita

      I’m not trying to be rude Julian, but I am finding it difficult to believe that you (or your family) have never benefitted or will never benefit from public (i.e. tax) spending prior to the age at which you can collect NZ Super.
      Have you not used any of these services for example:
      – Schools
      – Hospitals
      – GPs
      – Rest homes
      – Midwives
      – Public health (including vaccinations)
      – Roads
      – Police
      – Fire Service
      – Ambulance
      – Search and Rescue
      – The justice system (including mediation)
      – Public buildings
      – Libraries
      – Museums and other heritage sites
      – National parks
      – Your local MPs services
      – etc, etc, etc.

      Have you ever voted, participated in a referendum or a census?

      It is difficult to imagine that you have never been a beneficiary of any of these many services that are partially or fully funded by our tax money. Even if you don’t believe you have a responsibility to support other people in your community, I suspect that if you considered the services and public goods you use or benefit from on a daily basis you might recognise that you’re getting much of what you’re paying for as you are paying for it.

    • Anthony Rimell

      I’m sorry Julian: where was the contracted understanding? When did the Government – any Government – state in legally enforceable terms that they had entered into a “full and final, binding for all time”, contract with superannuitants to never amend the scheme? I for one cant find it.

      When ACC was first established it took one right away (the right to sue) in exchange for another. However nowhere was it ever stated that this was set in concrete for all time.
      And it has been tinkered with – a lot – since its inception.

      The same is true for Kiwisaver: a scheme with a much shorter life.

      GST was introduced and taxes were decreased.
      GST was increased, and increased again.

      Tertiary education, road user charges, user pays: the list goes on and on.

      In all of these, a democracy understands that the only ‘contract’ we have with a government is the right, every three years, to assess their performance and their adherance to their election proposals; and if we dont like what they have done to ‘throw the bums out’.

      So, by all means vote against a party that suggests we make the Superannuation scheme more affordable into the future: but do so because you dislike the idea of a change; not for some quaint and non existent notion of a legal right to said scheme.

  • Ian Hebblethwaite

    You describe the NZ Super of less than $350 p.w. as “obscenely generous”. What sort of pension would you consider to be reasonable then Gareth?

  • Stephen Stillwell

    Please consider global economic enfranchisement

    https://en.m.wikipedia.org/wiki/User:Tralfamadoran777

  • Melita

    For those of you picking up on Gareth’s use of the term “generous” in this article, I suspect he was talking about it particularly in comparison to every other benefit and the minimum wage levels. The maximum (and many people do not get the maximum) Jobseeker support payment is currently $234.78 ($210.13 after tax) per week if you are single, and $372.28 ($325.98 after tax) per week if you are a sole parent. Jobseekers don’t have fewer expenses, and in most cases are likely to have more. They are far less likely to own their own homes, are required to attend regular job interviews (requiring transport and appropriate clothing).

    In fact, even those who are working full time on the current minimum hourly wage will only receive $590 ($497.40 after tax) per week and this is assuming you don’t have a student loan. This is of course assuming you can find a full-time job.

    If you are not currently employed and trying to transition into work then you can only earn $80 (before tax) extra per week before your benefit starts to be cut – this often results in people in part-time paid work earning less than if they were on a benefit. Even though this is the case – the vast majority of the people I have met want to work. Those who are on a benefit and can’t find work are often volunteering in your community (although WINZ demands make that challenging sometimes) – they are running events, caring for children, coaching sports teams, working in soup kitchens, community gardens, schools and kohanga reo. Those receiving NZ Super are there too, but they are not alone.

    Most of the people I know want to live in a community where people care and are cared for – one in which we support each other and recognise our responsibilities to each other and especially to the vulnerable members of our community. If we really want to live in this type of community we have to ask ourselves hard questions. We have to really think about what we’re doing, what our responsibilities are, and what we should be entitled to as equally valuable members of that community.

    • Ian Boag

      FWIW here is a version that both sides will hate …..

      Pay the pension at 60 because anyone over 60 who becomes unemployed has diddly chance of getting another job. From 60-70 treat the pension like any other benefit in terms of income testing ie start rolling it off over a certain income. Because old people are better and more deserving folk that the slackers on the dole we might peg the rolloff at $160/week rather than $80.

      Asset testing is hard so can probably be left out of it, although WINZ manage to do it when it is a matter of going into care or not.

      At 70 pay the UBI-type pension like we do now. A degree of targetting – not as intrusive as what WINZ do now though.

      .

  • Mark Godfrey Petone

    I agree it should be partially universal and partially means tested. It’s a bonus to me but friends who’ve worked in not for profits need it and more in retirement. But you’re right about volunteering. At least an additional benefit gives those with a conscience more money to give, and we chose to support needy kids and families, rather than Cats Protection Leagues etc!

  • John James Kelly

    no body talks about the loss of seignorage by borrowing for government spending from Banking Cartels who create money ‘ex nihile’ and lend at interest, when government has sovereign power to do same without interest, and the money supply circulates continuously debt-free. How much of our taxes goes to servicing this govt borrowing? about $5 Billion dollars per year at current level. how much UBI would that pay for?