Keith Rankin's Thursday Column: Generic Benefits

Thursday, 20 July 2000, 10:08 am
Column: Keith Rankin

Keith Rankin's Thursday Column
Generic Benefits

20 July 2000

Labour's plan to introduce a "universal benefit" is a rehash of their 1990 policy. The change is largely semantic. Further the semantics are wrong; this is no more than a step towards a universal benefit. There will still be groups of people called beneficiaries who are distinct from fulltime workers who are distinct from students who are distinct from housespouses who are distinct from superannuitants.

Labour's universal benefit is more correctly called a 'generic benefit'; a general rather than a specific benefit.

What really is a universal benefit? The meaning varies from country to country. To Americans, our benefits, since 1938, have never been anything but universal. For them "universal" means that there is no time limit. The benefit in New Zealand that is most like an American-style benefit is the student allowance, which is subject to a 5-year rule.

To Germans, our present benefits are universal because the same amount is payable to everyone, regardless of past income. German benefits are 'earnings related', like our accident compo. A German made redundant from a highly paid job gets a bigger benefit than an unemployed labourer or school leaver.

In New Zealand, however, we consider our present benefits to be 'targeted', the diametric opposite of 'universal'. They are means-tested (as they always have been) and subject to various "stand-down" conditions. The contrast to "targeting" is a universal benefit paid to everyone, or at least every tax-resident New Zealander over a certain age.

New Zealand Superannuation is a universal benefit, in the kiwi parlance. There is no means-testing. Age is the only criterion. NZ Super is a property right, not a transfer payment, not a handout. A negative income tax - a personal tax credit - is also a genuine form of universal benefit.

I suspect that some people have understood Labour's "universal benefit" to be a universal benefit; ie just like New Zealand Super, but set at a lower amount and with a much younger qualifying age. Such a benefit would be a radical change, wouldn't it?

Not really. The reality is that almost all New Zealand adults are already beneficiaries.

If you divide the population into 10 groups, and pay members of the first group "benefit A" and members of the second group "benefit B" and so on, with members of the 10th group getting "benefit J", then you have a fully targeted benefit system that nevertheless pays everyone a benefit. This is supposition closely approximates our present situation.

Today, employees (group A) all receive tax discounts on the first $38,000 of their annual incomes. A tax discount is just another name for a benefit (ie a type A benefit). A person on $38,000-$60,000 per year gets the equivalent of a type A benefit of $5,130 ($9,500*18%+$28,500*12%).

Persons grossing less than $38,000 or more than $60,000 get a benefit of the same form, but a lesser amount. Many of these are group B persons; employees who qualify for an 'Accommodation Supplement'. A type B benefit is a tax discount combined with an Accommodation Supplement.

Persons grossing $145,500 pay exactly 33% in tax. There is no tax concession, so they are not beneficiaries.

Persons who are unemployed or sick get a type C benefit, called the Community Wage. Many students get a type D benefit, called a 'student allowance'. Many other students qualify for a type E benefit, called a 'student loan living allowance'. Many of these people pay higher rates of income tax - called 'student loan repayments' - later in their lives.

Many housespouses qualify for a type F benefit: 'Family Support'. Non-employed housespouses with high-earning spouses (or housespouses without children) do not qualify for a type-F (or any other) benefit. Along with persons grossing at least $145,500, they are the only adult New Zealanders who don't qualify for a benefit. There are not many of them.

Sole parents qualify for type G benefits (the DPB), accident victims qualify for type H benefits (ACC), and disabled persons qualify for type I (Invalids) benefits. Retired persons qualify for a type J benefit (NZ Super).

With the exception of a few housespouses every New Zealander qualifies for either of the above 10 benefit types. A genuine universal benefit will pay the same basic benefit to each New Zealand adult, regardless of which group (A to J) they are categorised into. In doing so, the housespouses who at present miss out will no longer fall through the cracks. Further, students receiving benefit type E would no longer be penalised by being required to repay their benefits.

There are, in practice, four differences between Labour's generic benefit and a genuine universal benefit. First, all rather than some housespouses would get a universal benefit. Second, all employees would receive the same universal benefit, while being taxed at a 30plus% flat rate of income tax. Third, there would no longer be student 'loan repayments'. Fourth, there would be no need to apply for a universal benefit; it would be paid automatically.

It sounds radical to pay a benefit to everyone. Yet we already pay benefits to around 95% of New Zealand adults.

The new generic benefit may be a small step in the direction of a genuine universal benefit. But it's only one step in five. When we really do achieve universal benefits, then there will be a change in our psychology. We will come to see benefits for what they are; not handouts but individualised public property rights.

© 2000 Keith Rankin

Thursday Column Archive (2000): http://pl.net/~keithr/thursday2000.html

© Scoop Media

Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

Contact Keith Rankin

• Website - Kieth Rankin