Brian Fallow: When work isn't working

Illustration / Anna Crichton

Technology and foreign competition are consuming jobs, but a universal income is too crude and costly a solution.

People should work for a living, we think, but that presupposes there are enough jobs available which deliver a decent income.

That assumption is increasingly challenged by technological change and global competition (farewell, Fisher and Paykel).

So the Labour Party has been thinking about the future of work.

Here are some things I observed about that in the space of two, utterly commonplace hours a few days ago.

It has been a while since I went to a fast food joint, so I was surprised to see that I could now place my order by prodding at a screen instead of going to the counter the old-fashioned way.

And at the supermarket, most people were doing the DIY checkout thing, even though there was no queue for the flesh-and-blood alternative.

Channel surfing when I got home, awaiting delivery of some stuff bought online, I alighted on a Deutsche Welle item showing driverless trucks zooming down the autobahn, while over on CNBC they were debating how disruptive "fin tech" innovations will prove to the banks' business models.

Wherever you look, industries are being turned upside down by new technology and changing business models.

The same technology that makes it easier for journalists to do their job, for example, is making it harder to earn a living doing so.

In principle, you might think that any task a machine can do is something a person is wasted on.

You might have every confidence people will come up with plenty of new ways of earning a living that do require the intelligence of the human brain, the dexterity of the human hand or a sympathetic heart.

And that the time and effort digital technology saves will get distributed as more leisure for everybody.

Eventually.

In the meantime, however, it is clear that the scale and pace of the technological revolution we are in the midst of is overwhelming the ability for those good things to happen.

Though technology boosts some people's productivity, it collapses others' to zero as they become redundant or struggle to find their first job.

The flipside of labour market flexibility is a burgeoning "precariat", living hand to mouth from one lousy paycheque to another - when they can get one.

But one firm's employee is another's customer. It is not good for business overall if more and more people can't afford to buy much.

In the longer run, more widespread financial insecurity and rising inequality undermine social cohesion and carry the threat of political unrest and Trumpish demagoguery.

This is the background for revived interest in the concept of a universal basic income.

The idea is that the government pays everyone a sum sufficient to meet basic needs regardless of their individual circumstances.

We already have a form of it in New Zealand Superannuation for those who meet age and residency tests. It is taxable but not means-tested. Proponents argue that this form of income support avoids the stigma and indignities often associated with accessing traditional welfare payments.

And it avoids the poverty trap issues associated with targeting - where a welfare payment or tax credit is whittled away as people's market income rises, resulting in punishingly high effective marginal tax rates (EMTRs).

Proponents say it would make it easier to be a stay-at-home parent.

It would encourage entrepreneurship by providing a safety net during the precarious start-up phase of a new venture.

And it would facilitate retraining when people need to change careers.

The problem, of course, is affordability.

How basic would the basic income be? The closer it gets to what people need for more than just keeping body and soul together - and that varies a lot - the more daunting the fiscal cost.

The further it is below what people need, the more it would need to be topped up, which reintroduces all the issues around means-testing and reduces the extent to which the costs would be offset by a reduction in existing welfare spending.

When there are real issues around the longer-term affordability of NZ Superannuation with its current entitlement parameters - given an ageing population and declining rates of home ownership - the arithmetic of extending anything like it to the adult population as a whole is challenging, to say the least.

The scope for raising existing tax rates is limited.

New Zealanders, or foreigners for that matter, who have the skills the modern world demands and can earn a decent living don't have to do so here. Marginal income tax rates matter. Capital is also mobile and New Zealand's chronic need to import capital constrains options there.

But the challenges posed by rapid technological change and globalisation are real.

The bottom line is that the need for income support will grow.

Pretending that the primary requirement for policy design is to create better incentives to get a job, any job, is callous and deluded.

What that leaves is the option of broadening the tax base.

The first place to look is capital gains.

We purport to have an income tax but (largely) exempt the income derived from just having owned the right asset over the right period.

Why is it fine to tax the income people gain from selling their labour, but not the profit from selling a house they bought in the right suburb at the right time, or a farm at the right phase of the commodity cycle?

Instead of leadership on this issue, what we get from both major parties is craven capitulation to vested interests which grow with each passing year.

Beyond that, there are taxes that apply to activities which impose a social cost, like emitting greenhouse gases, but which are not sheeted home to those responsible.

Finally, the issue of poverty trapping and high EMTRs is not a binary choice between the status quo and a universal basic income. Policy makers have choices about where to put the thresholds at which abatement kicks in, and at what rate it occurs.

SPEED READ

• Technology and global competition are displacing jobs

• Low and insecure incomes mean fewer business customers

• One possible response is a universal basic income

• But the more adequate that income is, the bigger the cost

• There is limited scope to pay by lifting tax rates

• But the tax base could be broadened - starting by taxing capital gains