Cost and Funding a Basic Income

To estimate the total Basic Income payments for a country, it is necessary to know the number of people in each payment group. Countries hold a census, perhaps every five years. For other years, population estimates are required.

To make total Basic Income payment estimates as accurate as possible, it is necessary to estimate the population for each age group from the previous census proportionately.

New Zealand population details are found on our Taxation Basics page.

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Ideally, all legal citizens or residents of a country should receive a Basic Income. The rate may, however, vary with age.

Many countries pay a child benefit at a uniform rate for all children. This is a Basic Income for children, sometimes known as a child benefit.

• In the past, New Zealand paid a child benefit, but the rate at which it was paid was allowed to erode with inflation over time, and it was eventually abolished.
• After a delay, the Child Benefit was replaced with “Working for Families” payments. However, Working for Families has means testing and has various issues, complications and anomalies.

For those over 65, New Zealand has “New Zealand Superannuation”, which is close to an ideal Basic Income system for those of retirement age or no longer able to work due to age-related poor health.

• For more discussion on New Zealand Superannuation, see our New Zealand Superannuation page.

This page.

For the example calculations on this website, it is assumed that those over 65 will continue to receive New Zealand Superannuation, essentially a Basic Income, so those in the over-65 age band will not be included in the calculations for adult Basic Incomes.

Children have not been included in the calculations, but it is assumed that children or their caregivers will receive a child benefit type payment when a Basic Income is introduced.

This page and website look at an adult Basic Income covering those aged 18 to 64 inclusive. All Basic Income payments in the 18 to 64 age group are assumed to be at the same rate. The population figure used will be the 18 to 64-year-old total.

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This page considers the cost of a Basic Income for adults aged 18 to 64 inclusive.

• Those aged under 18 or older than 65 are not included in the calculation examples on this page unless stated otherwise.

Children

• Currently, New Zealand families receive government support for children under the age of 18, known as Working for Families. See: NZ Govt. Financial help for your family.
  • This is not a Basic Income.
• It is envisaged that with the introduction of Basic Income for adults, Basic Income payments for children under 18 will be introduced and replace other payments of similar or less value.
  • A child’s Basic Income at half the adult rate is often suggested by Basic Income advocates.
• A child’s Basic Income will probably be paid to the child’s caregiver, as is the case with family support payments at present. 

Over 65

• Those over 65 are not included in the examples on this page.
• Those over 65 receive New Zealand Superannuation, which is very close to a Basic Income.
• For further discussion on New Zealand Superannuation,
  see: New Zealand Superannuation.

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From 1 April 2025, the Job Seeker Support rate for 18 to 24-year-olds is 87% of the adult rate.

Paying a Basic Income with a youth rate for 18-24-year-olds at 87% of the adult rate results in just under a 2% reduction in the total cost of paying a Basic Income.

• On this page, it is assumed that all payments in the 18 to 64 age range will be at the adult rate.
• Paying a lower rate Basic Income for those in the 18 to 24 age range is an alternative.

Those with special needs will continue to receive additional payments over and above the Basic Income to bring their incomes up to existing welfare payment levels.

• As this brings the recipients up to the existing net income levels, there is no extra cost to the government, so the extra payments are not considered as an extra cost here.

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Basic Income advocates suggest a range of payment rates for a Basic Income.

• The larger the Basic Income,
  • the greater the savings in welfare payments,
  • but both the upfront costs and the difficulty of funding the scheme increase.
• High Basic Income rates will also distort current income relativities.
  • Those with special needs often face additional costs and have fewer opportunities to earn, so they are usually paid more.
  • Paying a Basic Income at higher rates may erode the margin for additional needs that those with special needs have at present.
  • Relativities need careful consideration.

The values of Basic Income given here are net or after-tax values unless otherwise stated, that is, free of tax, because the net value is the amount that the government pays, and is therefore a more accurate indicator of the cost to the government. 

International experts suggest that a realistic Basic Income lies in the range of 20% to 30% of GDP/capita.

• The size of a Basic Income depends on the GDP of a country.
• A Basic Income may also be larger in a country where Universal Basic Service payments are smaller.
  • A Basic Income should be seen as complementing universal Basic Services such as free education and universal medical care, not replacing them.
  • Universal Basic Services are generally only used by those who need them, so they are inherently well-targeted.

For New Zealand, the range of 20% to 30% of GDP per capita in 2025 gives a range of $327 to $490 per week.

Some net values suggested for a Basic Income in New Zealand have included: NZ$194, $250, $300, $315, and $500 per week. We will consider values in this range, although the highest rate exceeds 30% of GDP/capita.

From 1 April 2025, New Zealand single Jobseeker Support rates are:

• Adult, aged over 25 years, $412.51 gross or $361.32 net.
• Youth aged 20 to 24 years or aged 18 to 19 living away from home, $356.02 gross or $314.72 net.

For more information on the size of a Basic Income, see: 
How big will a Basic Income be?

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Will a Basic Income either partially or fully replace existing welfare payments, or will it be paid in addition to existing welfare and other payments (an add-on scheme)?

Basic Income advocates generally suggest that a realistic Basic Income will replace all welfare payments of equal or less value and partially replace larger welfare payments.

• Replacing some welfare payments and partially replacing others helps make a Basic Income affordable and achievable.
• A Basic Income of this type is paid with additional add-on welfare payments for those with special needs to ensure they maintain their current income support level, preventing anyone from being worse off.
• An alternative is to pay those with special needs a larger Basic Income.

Two Alternatives to Partial Welfare Replacement.

The two alternatives considered above, a large Basic Income and an add-on Basic Income, are both more expensive and difficult to implement, while offering little or no real advantages over a standard Basic Income scheme.

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For further discussion, see Taxation Basics – The circulation of money.

Because Basic Income recipients spend the money they receive, it will generate tax revenue through GST and income and profit taxes and continue to do so as the money circulates. This revenue can then be used to fund subsequent Basic Income payments. Consequently, a Basic Income does not need to be fully funded from other independent sources.

People spending their Basic Income generates economic activity which stimulates the local economy, generating more employment and more tax revenue for the government. This is the multiplier effect. 

A fully funded Basic Income can be defined as one where all Basic Income payments are fully funded by taxes from other sources. In other words, every dollar spent on Basic Income payments is raised from taxes on activities other than economic activities directly resulting from the Basic Income payments. This might be done by increasing existing income taxes, increasing the GST rate, or increasing or introducing other taxes, such as a property or wealth tax or taxes on transactions not subject to GST at present. However, as indicated above, after the initial payments, this becomes increasingly unnecessary as the circulation of money creates a multiplier effect, and as the money continues to circulate, most of it is returned to the government. 

Fully funding a Basic Income from independent tax sources is neither necessary nor realistic. When people receive a Basic Income, they will spend it on goods and services, and the government will receive GST on the expenditure generated by the Basic Income. Any extra money that has been put into circulation through the Basic Income payments will generate extra employment and boost business profits, so the government receives additional tax revenue from income tax and profit taxes.

What money the government does not take back in taxes when the first round of Basic Income payments are spent remains in circulation. The remaining money is now in the hands of people other than those who originally received the payments. Those who now have the money can spend it, and when they do, the government will take back a second amount of tax from GST, income tax, and profit tax. The money left after the second round of expenditure continues to circulate, and the process is repeated. Each time the money circulates, the government takes a portion back as taxes. Eventually, more than 99% is returned to the government. As money is progressively returned to the government, it is immediately available for the government to pay out again as Basic Income payments.

The second and each subsequent Basic Income payment will similarly create a series of progressively reducing GST and other tax returns to the government. The total tax that the government collects in each period will be the sum of the tax received on each of the preceding Basic Income payments for that period. With time, as more payment periods have passed, the total tax collected in each payment period will increase until it reaches an amount almost equal to the Basic Income payments for the same period. This will, after an initial introductory number of periods, make a Basic Income almost entirely self-funding.

With a well-designed Basic Income scheme, money is targeted toward those who need the money the most – those on lower incomes. This ensures a high rate of tax is returned to the government, as those who need the money most are also most likely to spend the money quickly, boosting local economies and maximising the GST and other tax returns to the government. 

How fast the money is returned to the government depends on the tax rates and also on the speed the money circulates – the velocity of money. The higher the tax rates or the faster the money circulates, the faster money is returned to the government as taxes. Those on lower incomes will spend a Basic Income quickly, ensuring a higher velocity of money, while those on higher incomes tend to accumulate money and spend it at a slower rate, slowing the velocity of money and consequently reducing government annual incomes.

What this means is that the government must fund initial Basic Income payments with money from other sources, but over time, the money the government receives back in taxes increases and eventually almost equals the amount being paid out. The total amount of money required by a government to start a Basic Income scheme depends on how fast a Basic Income is introduced and the tax rate, which determines the amount of money returned to the government in each cycle.

Calculations for one model show that the total new money required to implement a Basic Income is about 50% of the first year’s total payments, as tax is returned soon after the first payment is made. For the second year, about 8% of the total year’s payments are required. After the first two years, the tax returned to the government in each payment period is sufficient to make the Basic Income over 99% self-funding. 

A switch from a progressive tax to an appropriate tax for those who receive a Basic Income will boost government tax revenue as the Basic Income is introduced. This will counter the extra cost required in the first year and may lead to government surpluses in subsequent years.

When those with high incomes receive additional income, they tend to save it rather than spend it, or they save it and spend it later. This slows the velocity of money and reduces the money returned to the government. Spending the money on overseas travel also tends to slow the velocity of money. This is known as leakage. For this reason, money should be targeted toward those on lower incomes using broad targeting methods.

There are two principal savings areas.

Here are some examples of the expected additional tax the government will receive with a conversion from the present progressive tax to a two-stage tax. Here, it is assumed that there will be an initial tax rate up to an income of $180,000 p.a. and a tax rate of 39% on income above $180,000.

In 2023, with a Basic Income of $337.74 a week, changing to a two-stage tax with an initial rate of 33% recovers some 31.5% of the total after-tax cost (not the transfer cost) of the Basic Income, while targeting it toward those most in need.

In 2025, with a Basic Income with a net value of $361,32 per week, and an 18 to 64 inclusive population of 3,250,000, the total annual payments will be $61.11 billion. Changing to a two-stage tax of 33% and 39% on incomes over $180,000 will generate an additional $23 billion in revenue, or 37.6% of the Basic Income payments.

With a Basic Income of $280 a week, changing to a two-stage tax with an initial rate of 33% recovers some 38% of the cost of the Basic Income while targeting the Basic Income toward those most in need. See the figures below.

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The total annual Basic Income payments for various values of Basic Income are shown in the examples below. Annual savings from a change to a two-stage tax, 33% and 39% on income greater than $180,000, and Welfare savings are also shown. The bottom line shows the additional revenue required for a government to fully fund a Basic Income.

When considering these figures, it is important to remember that government expenditure on a Basic Income will result in savings in other government expenditures and not quote the figures for the total initial payments in isolation.

Other areas where government revenue is reduced, or extra revenue occurs, include: welfare expenditure, conversion to a proportional tax, and increased government income from taxation generated when people spend the Basic Income. Other government savings resulting from Basic Income but not quantified here come from lower crime rates and improved mental and physical health. 

The following examples with a range of Basic Incomes (BI) show the initial expenditure and the remainder to be found after savings from a change to proportional tax and welfare savings are realised.

Example 1. BI = $175 p.w. or $9,131 p.a.

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Example 2. BI = $200 p.w. or $10,436 p.a.

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Example 3. BI = $250 p.w. or $13,045 p.a.

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Example 4. BI = $280 p.w. or $14,610 p.a.

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Example 5. BI = $300 p.w. or $15,653 p.a.

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Example 6. BI = $377.74 p.w. or $19,709.53 p.a.

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Example 7. BI = $500 p.w. or $26,089 p.a.

Because those who receive a Basic Income will spend all or part of the Basic Income, this will generate additional government revenue through GST and other taxes, such as income and profit taxes. It may not be necessary to find any additional government revenue after the savings from the conversion to a suitable tax and welfare savings are accounted for, and a budget surplus may soon be achieved. 

However, if additional government revenue is required it might be raised through other areas of taxation while still leaving most people better off. The options most often suggested are a property tax, a comprehensive wealth tax, transaction taxes, or an increase in GST.

Below, we discuss revised income tax systems and funding with GST increases as possible ways to raise additional tax to fund a Basic Income. There is further discussion on Basic Income and tax on our web page, Taxation and Basic Income.

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The three alternatives proposed and considered here are:

1. Increasing income tax rates
2. Increasing the progressivity of the income tax scheme
3. Using a proportional, uniform, or flat tax

The present and proposed income tax systems

New Zealand currently has a five-stage progressive income tax scheme with the tax rates increasing in steps as income increases.

The lower tax rates on low-income brackets are sometimes referred to as tax discounts or tax exemptions.

• In some countries, the first tax band is tax-free or exempt from all taxes.
• Those with very high incomes also receive the tax exemptions on their first levels of income, and are only taxed at higher rates on subsequent income.
• People with high incomes can therefore be described as beneficiaries of the tax exemptions on lower incomes.
• A characteristic of a tax cut on lower incomes is that the net benefit value of the tax cut increases as other income increases up to the next threshold. consequently, those on higher incomes always receive the maximum possible benefit from a tax cut on the lower income bands.

A Basic Income “would replace the tax exemptions on the lower income brackets.” Philippe van Parijs and Yannick Vanderborght, Basic Income: A Radical Proposal for a Free Society and a Sane Economy, April 2017. Page 135.

With Basic Income payments, a simplified two or three-stage tax scheme with higher initial tax rates provides improved targeting of the Basic Income to those on lower incomes and improved tax revenues for the government.

• Those with no other income receive the full net income gain from a Basic Income, but the gain reduces as income rises – this is Broad targeting of the Basic Income to those on low incomes.
• A characteristic of a Basic Income with a suitable tax is that the net benefit value of the Basic Income is a maximum when other income is zero and reduces as other income increases.
  • This is the exact opposite of a tax rate reduction or tax cut, where the net benefit increases as other income increases.

With a suitable tax scale, such as a two-stage tax, the first tax rate chosen is likely to be in the range of 30% to 35% with the higher tax rate bands from the present system retained.

• Choosing a higher first rate of this size automatically abates the Basic Income, so the net gain in income from the Basic Income is a maximum for those with no other income and reduces as other income increases.

Three alternatives to a simplified two or three-stage tax scheme are considered below.

Alternative suggestions for funding a Basic Income include:

Conclusion:

Paying a Basic Income coupled with a suitable and simplified two or three-stage tax scheme, with the payments broadly targeted to those on lower incomes, is a preferable alternative to increasing the tax rates on the present progressive income tax system, using a more progressive income tax scheme, or switching to a single-stage uniform tax.

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Increasing Goods and Services Tax (GST) or Value Added Tax (VAT) is sometimes proposed to fund any shortfall after introducing a Basic Income that is coupled with a suitable tax and partial replacement of the welfare system.

Other advocates suggest increasing GST to fully fund an add-on Basic Income scheme, paid in addition to existing welfare, without the need to change other existing tax rates or partially replace the welfare system. Examples of both options are considered here.

With an Increase in the GST rate, the prices of Goods and Services will rise, so Basic Income payments must be increased proportionally to ensure that those on lower incomes are not disadvantaged.

• Alternatively, because the cost of goods and services increases, the effective value of any Basic Income reduces.
• Here, the effective value of a Basic Income is the amount that would purchase goods and services at current prices, the prices before the GST increases.

Caution is needed as government GST revenue may not rise in direct proportion to the GST rate.

• People have limited incomes and may not be able to increase their expenditure in direct proportion to the increased price of Goods and Services.

During the year ended 30 June 2025, the New Zealand Government raised $29.55 billion in GST revenue with a GST rate of 15%.

The following table shows the maximum possible GST revenues as GST increases, assuming that demand for Goods and Services does not fall as prices rise – an inelastic demand.

However, as people have limited budgets for goods and services, demand decreases when increases in GST cause prices to rise. This effect is partially offset by distributing the additional government funds from GST increases as a Basic Income.

Conclusions

These examples show that a scheme that uses a revised tax and partial replacement of the welfare system will enable higher levels of Basic Income payments for a given value of GST increase than a scheme that retains the present progressive tax or an add-on scheme paid in addition to current welfare and with the current progressive tax. 

An add-on Basic Income system with the existing progressive tax is an expensive option with poor targeting that gives more money to those who do not need it.

Thus, increasing GST by 10% to a final rate of 25% will fund a Basic Income of $250 per week (increased to $275) when the Basic Income is paid with a conversion to a proportional tax and with welfare savings, but a 32% GST increase to a final rate of 47% is required to fund a Basic Income of $250 per week when the Basic Income is paid as an add on scheme. A GST of 25% is within the range of GST rates charged in other countries, but 47% is unusually high.

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A Basic Income paid in conjunction with a suitable tax scheme can be introduced progressively.

• It does not have to be introduced overnight.
• At present, the government operates several different tax rates simultaneously.
  • People nominate the rate they will be taxed at, primary or secondary, when they sign up with a new employer.
• A Basic Income can be introduced progressively and voluntarily, as people who sign up for Basic Income are required to also agree to a suitable tax on their total income.
• This smooths the introduction of a Basic Income system.
• Money from the first payments made will generate tax returns to the government, smoothing the introduction of a Basic Income for those who sign up later.
• A progressive introduction of a Basic Income lowers the initial sum of money that a government must find to start a Basic Income scheme, but may require the government to spread the initial funding over a longer period of time.
• For more information see: frequently asked questions – Will Basic Income be compulsory?

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