Universal Versus Targeted Assistance, A Muddled Dichotomy

Tuesday, 19 May 2020, 4:17 pm
Article: Keith Rankin

The Commentariat

There is a regular commentariat who appear on places such as 'The Panel' on Radio New Zealand (4pm on weekdays), and on panels on television shows such as Newshub Nation (TV3, weekends) and Q+A (TV1, Mondays). Generally, these panellists come out in favour of targeted assistance to the misfortunate, in contrast to the provision of universal entitlements. A common refrain is: "I am not poor. Such a policy should not give me more money".

Most of the panellists on these shows have little understanding about the process vulnerable people must face when applying for targeted help in a political society (such as New Zealand); a society in which substantial and costly bureaucratic efforts are made to deny people help. These processes represent the essence of targeted income support. (Such processes – unkind, sometimes cruel – also apply in other policy fields, with immigration being an obvious example. At present New Zealand has a substantial and vulnerable non-resident population experiencing simultaneous official cruelty from both the social welfare and the immigration agencies of government. And it's not only government processes that can be cruel; consider the insurance industry with its propensity to seek out ways to not pay out on claims.)

Mechanisms of Income Distribution and Redistribution

A targeted mechanism to provide income support only to those people who meet prescribed criteria is unambiguously redistribution; it is supposed to save money by not helping anyone who does not fit the qualification profile for any targeted income benefit. As redistribution, the economists' word 'transfers' neatly describes such benefits; although the mainstream media, with its love for inflammatory language, generally prefers the pejorative synonym 'handouts'.

Targeted 'support' mechanisms are 'rules-based'; a person or family either qualifies according to a set of rules, or does not qualify. Complex rules generally require bureaucratic processes. (Some rules – such as the rule that determines what percentage of a persons income must be paid in income tax – follow an arbitrary and seemingly complex formula; the benefits arising from these tax rules are unconditional but far from universal.)

Universal mechanisms are 'rights-based'. The must obvious example is the right to vote in parliamentary elections, the universal suffrage. New Zealand Superannuation is essentially a universal rights-based benefit, though it does have exclusion rules, and does have rules allowing some qualifying people to get bigger superannuation benefits than other people. (Even universal suffrage has exclusion rules; for example, children are excluded.)

In practice, almost all political societies will feature a mix of rules-based and rights-based benefits. Some support mechanisms are, in essence, universal. Others are, in essence, targeted. Each political society has its own particular mix of rights-based and rules-based benefits.

A universal rights-based publicly-sourced income benefit is an aspect of income distribution. A targeted rules-based income benefit is an income transfer; an act of income redistribution.

Before and After ('comparative statics')

Most commentators do not think about mechanisms. Rather they think of a present status quo, without much concern for the mix of principles and historical quirk that have contributed to that 'present'. This present becomes the 'before'.

When a policy change is suggested – creating a hypothetical 'after' – such commentators then wish to know, in relation to its immediate implementation, who will be the winners and who will be the losers. Winners get more dollars 'in their pockets'; loses get less money.

In this sense, both policies underpinned by universal principles and policies underpinned by targeting principles will create a redistribution, meaning that the 'after' distribution is different from the 'before' distribution. (An important exception is a purely accounting policy, which will change the description of the present, but not alter the amounts of dollars in different people's pockets.)

Let's consider a Basic Universal Income (BUI), as featured last month in Universal Income Flat Tax: the Mechanism that Makes the Necessary Possible and Universal Basic Income (or Basic Universal Income) and Covid-19. (The BUI is the benefit component of the UIFT mechanism.) Because UIFT is a policy to inject universal distribution principles into New Zealand's tax-benefit mechanism, commentators such as those mentioned above tend to assume that such a policy is not targeted, and is therefore not useful.

However, the Universal Income Flat Tax (UIFT) policy does benefit some people differently from other people, and turns out to be peculiarly well-targeted in its immediate impact. While the suggested policy to introduce UIFT makes no immediate difference to beneficiaries nor to people grossing more than $70,000 a year, that policy does distribute increased income to the remainder of the adult population, the people in the middle. Thus, a Basic Universal Income (as proposed) targets people earning less than $70,000 a year and who are not beneficiaries.

Universal Basic Income (or Basic Universal Income) and Covid-19 presents five example people: Janet, Max, Bob, Jill and Fred. Two of these people Bob and Jill – receive increased incomes as a direct result of the introduction of a Basic Universal Income. Thus, the 'target group' is non-beneficiaries receiving low and lowish incomes.

The Universal Mechanism at Work

It is important however to note that those whose incomes would not immediately change are better off, not in the sense that they would receive an immediate gain, but in the sense that they would receive an emergency cushion. Thus, persons whose incomes fall below $70,000 in the future will gain support from their cushions. Further, persons who are presently beneficiaries gain support from their cushions when they move into precarious employment. (Much – if not most – employment is precarious in these days of Covid19.)

The policy – based on universalist principles – is both well-targeted and provides an ongoing and automatic (ie non-bureaucratic) mechanism to protect individuals whose circumstances are subject to change. Additionally, the policy stabilises the economy itself, by providing an automatic economy-wide cushion, when economies face contractionary circumstances (such as pandemics and financial panics).

Benefit Adequacy

This particular UIFT policy facilitates a rights-based income distribution that contains fast-acting equalisation and stabilisation measures – the important metaphor here is the 'cushion'.

The policy does not directly address the issue of child poverty. Nor does it directly address the issue of benefit adequacy for existing beneficiaries. (By targeting lower-income adults, including parents, UIFT does mean that there should be less future child poverty. And, by cushioning people in precarious employment, the policy should contribute to a reduction in the numbers of misfortunate people needing to be beneficiaries.) Nevertheless, the policy does help parents who may be earning lowish incomes, or who may be suffering from falling incomes, or who may be experiencing income insecurity arising from precarious employment (including precarious self-employment). This help mitigates child poverty. The UIFT policy – thanks to its cushioning effect – also gives these employees more bargaining power, enabling some to earn higher wages.

Re benefit adequacy, the adoption of a UIFT policy in no way pre-empts the introduction of other policies that focus on the level of benefits payable to those we call 'beneficiaries'; those people whose circumstances would determine that their income should include a benefit over and above a BUI.

The presence of a Basic Universal Income (BUI) does not mean the absence of other benefits. (It does however mean that, if a BUI of $175 per week is introduced, then a beneficiary presently receiving $300 per week, would have the first $175 of their present benefit replaced by the BUI. If this person needs an extra $50 per week to ensure benefit adequacy, then they should get an extra $50 per week, giving them a total disposable income – BUI plus benefit – of $350 per week.)

Conclusion

A reform policy need not be either universal or targeted. It may be both universal and targeted. Critics of universal income support mechanisms should be aware of both the universal and the targeted effects of particular policies, rather than indulge in ill-informed scattergun opposition to policies which are based on universalist principles. These critics should confine their criticism to particular universalist policies, and not extend their criticism to all policies that are informed by universalist principles.

© 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.

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