Taxpayers' Union says 'universal basic income' will cost pretty penny

A "universal basic income" as is being studied by the Labour Party would require raising income tax above 50 per cent, the Taxpayers' Union says. Photo / iStock

The "universal basic income" the Labour Party is studying would require raising income tax above 50 per cent, the Taxpayers' Union says.

A 20-page study put out by the lobby group today says the high tax would be needed to fund a universal payment of $300 a week to every adult and up to $86 for every child.

Labour last week proposed a regional trial of a universal basic income (UBI) based on economist Gareth Morgan's proposal of $211 a week ($11,000 a year).

The proposal was one of "10 big ideas" from party consultations aimed at preserving basic income security in an era of rapid technological and economic changes which are said to threaten 46 per cent of jobs.

Labour finance spokesman Grant Robertson cited support for the idea from former Clinton aide Robert Reich, Westpac economist Dominick Stephens and journalist Bernard Hickey.

"We are following the debate on UBI with interest, but we do not regard the Taxpayers' Union as either credible or independent commentators," he said.

"In any event, I can totally rule out Labour having a policy of a tax rate of 50 per cent."

A Labour background paper proposed that the $211 basic weekly handout to all adults would replace all existing welfare "but allow for supplementary transfers to disadvantaged groups".

But Wellington economic consultant Jim Rose, who authored the Taxpayers' Union study, said the basic handout would need to be $300 a week to match the average benefit income.

Sole parents currently get $301 a week after tax, single jobseekers get $210, single disabled adults get $263 and single superannuitants get $375.

He quoted Treasury research in 2010 showing that a $300 weekly handout to every adult would require raising income taxes to 54 per cent on all incomes. Tax rates currently range from 10.5 per cent on low incomes up to 33 per cent above $70,000.

Adding in $86 a week for every child to replace current Working for Families tax credits would require a flat tax rate of 56 per cent.

Dr Morgan's scheme, explained in a 2011 book called The Big Kahuna, proposed a flat tax rate of 30 per cent, with the rest of the cost met from applying the tax rate to an assumed 6 per cent rate of return on all capital items including the family home.

But Mr Rose said a capital tax would reduce investment, especially from overseas, and slow economic growth.

He said American trials had found universal basic incomes reduced economic output by enabling people to work less. "Men reduce their working hours by an average of 7 per cent and women by 17 per cent."

• For more information go to taxpayers.org.nz and futureofwork.nz