New Zealand Superannuation:
a form of Universal Basic Income?

Keith Rankin, 31 May 1998

I have costed Universal Basic Income for the 1998/99 year, using estimates of GDP, public expenditure and revenue derived from the May 14 Budget (ref. Universal Basic Income: Costings for 1998/99).

Creating a UBI system based on the present (33%) rate of income tax involves changing the distribution of public income. Thus it constitutes a "zero-sum redistribution" of public income; distributing the public share of national income in a different way [1].

UBI is not a redistribution mechanism, however. Rather it is a distribution mechanism that has different outcomes from the present tax-benefit system [2].

Who would be better off and who would be worse off as a result of a simple reallocation of the cash component of the social wage (assuming that a UBI does not affect the non-cash component)? How would it affect superannuitants, for example? Indeed, NZ Superannuation is one benefit [3] today that has characteristics of UBI.

In accordance with the costings based on the present tax rate, to construct a UBI the UI would be set at $85 per week, and the guaranteed social minimum (or Guaranteed Minimum Income - GM) will be the present level of benefit paid to single persons without market income. The abatement rate on Supplementary Benefit will be set as 30 cents in every dollar of gross market income. In the case of New Zealand Superannuation:

         GM = $210.52 per week;   therefore  SB0 = $125.52 per week.   (ref. costings)

Under the rules of NZ Superannuation, however, GM represents a guaranteed minimum benefit; in other words, a Universal Income (UI) of $210.52. Furthermore, given additional benefits in the form of income tax concessions, NZ Superannuation is not the only benefit paid to superannuitants.

Following the formula: NI = GI - PT + UI + SB
   we get:      NI = GI - 33% + $210.52 + SB
   or    :      SB = NI - $210.52 - (GI - 33%)

A person's total benefit (TB) equals their universal income plus their supplementary benefit (UI+SB). At present (see Table 1 below), single superannuitants living alone and grossing more than $400 pw receive a total benefit of $246.73, meaning a UI of $210.52 plus an SB of $36.21. In other words, their SBs rise as their gross incomes rise, whereas in a true UBI system,
SB £ SB0.

$210.52 serves as a generous guaranteed minimum benefit, somewhat higher than anyone is suggesting as a realistic amount of UI for all adults.

After the "tax cuts" (see Table 2 below) in July 1 this year, the SB paid to high income superannuitants rises to $57.38.

Table 1

Table 1

Table 2

Table 2

After the introduction of a UBI at the present tax rate (see Table 3 below), the UI amount would become $85 pw, much less than $210.52. The maximum SB (ie SB0), would become $125.52, assuring all persons over 65 without market income (married or single) of a publicly sourced cash income of $210.52. Thus $210.52 would be a guaranteed minimum income, while the UI of $85 would be a guaranteed minimum benefit.

Table 3

Table 3

The following graph (Fig.1) contrasts present (post-July) payments to single over-65s living alone with UBI payments. It shows that retired persons grossing over $500 pw can expect to be over $180 better off under present arrangements. The UBI, on the other hand, while protecting those without market income, makes big inroads into the benefits at present paid to well-off superannuitants.

Figure 1


From the perspective of most superannuitant couples, the UBI system looks better than the present system. This is because the UBI system pays partnered persons the same level of benefit as unpartnered persons. Nevertheless, for retired couples on high gross incomes, the present system is still better, as Fig.2


In the case of a UBI system introduced with a higher tax rate (eg 42%) and higher UI (eg $150), the picture is essentially the same. Every superannuitant with market income would get a bigger total benefit; a larger UI offset by a smaller SB. But couples with gross market incomes above $200 per week would still get less in total with a UBI instead of NZ Superannuation, because their increased benefit would be less than the cut to their private income.

The overall pattern of distribution implicit in a UBI favours - relative to the present tax-benefit system - the young, families, and below-average income earners. Raising the rate of tax and the UI amount accentuates this pattern. Adding a UI for children further accentuates the same pattern.

It should be noted that, so far, I have ignored Accommodation Supplements in this exercise. Under a simple transition to UBI, SB0 will include a customised Accommodation Supplement that will vary according to each person's housing circumstances. The UBI approach is that a single superannuitant, without market income and living alone, will receive the same level of benefit as before. The difference with respect to the AS is that the abatement of the entire SB will remain at 30% (or whatever the single abatement rate is set to), while beginning at the first dollar of private income. (This contrasts with an additional abatement of 25% today.) The final table below shows the impact of the introduction of UBI on a single superannuitant living alone and in receipt of a means tested Accommodation Supplement of $60 per week.

Table 4

Table 4

New Zealand Superannuation is a form of Universal Income with respect to a targeted age group; those over 65. And it is a generous UI system with respect to that age group. It is not a UBI system however, in that it pays supplementary benefits according to criteria very different from basic need. The final column of Table 4 suggests the approximate amounts of "surtax" that would be required in order to convert NZ Superannuation into a UBI system. As well as reintroducing a surtax, in order to convert NZ Superannuation into a UBI, the age of entitlement has to come down to 17 or 18; whatever age is deemed to be that of entry to adulthood.

The UBI approach tends to be disregarded within government and business circles as being too expensive. With respect to public retirement income, however, it fulfils all the requirements of a sustainable 21st century pension system. It saves a considerable amount of social wage expenditure, while also ensuring that all members of the retired generation receive a universal public income and guaranteed support sufficient to meet a generous definition of basic needs.


  1. If the tax rate is raised there is a more complex zero-sum effect. As well as there being changes in the distribution of the public component of national income (the social wage) there is a redistribution between the private and public shares, in favour of a higher public share. [back]
  2. From a social wage accounting viewpoint, I would argue that the distribution under a UBI system is the "economically correct" distribution (both just and efficient); and that the current tax-benefit distribution is involves redistributive transfers generally in favour of higher income recipients. This article, however, does not address this issue of economic correctness. [back]
  3. "Benefit" here simply means, "for the benefit of". It does not mean "transfer" or "handout". [back]


© 1998

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