5.3 No disincentives to work and save

State discrimination isn’t just “unfair,” it actively warps incentives. When the state violates the NDP, it inevitably creates different rules for different people, and that always distorts behaviour.

  • Progressive income taxes:
    • Discrimination: tax rate depends on income, a personal characteristic.
    • Distortion: additional work yields less reward. People avoid promotions, overtime, or entrepreneurial risk because the state takes a larger share. It also creates an incentive to hide income or shift it into non‑productive shelters.
    • Effect: discourages work, innovation, and productivity.
  • Means‑tested welfare
    • Discrimination: benefits depend on income, assets, employment status, family structure.
    • Distortion: Earning more can cause benefits to be reduced or removed, creating a “welfare cliff.” Effective marginal tax rates can exceed 100%. People rationally avoid work or savings to keep eligibility.
    • Effect: punishes work and saving; rewards staying poor.
  • Targeted subsidies and grants
    • Discrimination: eligibility depends on industry, income, age, occupation, location.
    • Distortion: People shift into subsidised activities even if they’re less productive. Savings and investment flow toward politically favoured sectors, not efficient ones. Non‑subsidised workers face higher taxes to fund subsidies.
    • Effect: misallocates capital and discourages saving in unsubsidised areas.
  • Age‑based retirement rules (e.g., pension eligibility)
    • Discrimination: access depends on age.
    • Distortion: People retire earlier than they otherwise would. Savings behaviour is distorted because the state promises age‑based transfers. Younger workers subsidise older ones, reducing incentives to work and save across life stages.
    • Effect: reduces labour supply and distorts lifetime savings.
  • Asset‑tested aged pensions
    • Discrimination: benefits depend on wealth, a personal characteristic.
    • Distortion: Saving more reduces your pension. This is a direct penalty on thrift. People deliberately “spend down” assets to qualify. Incentive to hide wealth or shift it into exempt categories.
    • Effect: punishes saving and encourages consumption over investment.
  • Differential tax treatment of savings vehicles
    • Discrimination: tax rules depend on type of asset, type of account, or employment status.
    • Distortion: People save in tax‑favoured forms rather than the most productive ones. Creates compliance complexity and discourages saving outside special vehicles. Penalises those who don’t fit the favoured categories.
    • Effect: reduces overall saving and misallocates capital.
  • Occupational licensing tied to personal characteristics
    • Discrimination: ability to work depends on occupation category, credentials, location, guild membership.
    • Distortion: People are prevented from working in fields where they are productive. Entry barriers reduce competition and raise prices. Workers must invest in irrelevant credentials rather than productive skills.
    • Effect: reduces labour mobility and discourages productive work.
  • Location‑based taxes and rules
    • Discrimination: treatment depends on where you live, a personal characteristic under the NDP.
    • Distortion: People avoid moving to where they’d be most productive. Savings and investment flow to regions with favourable treatment, not where they’re most efficient. Creates artificial housing and labour market distortions.
    • Effect: reduces productivity and discourages optimal investment.

Every one of these examples shares the same structural flaw: When the state treats people differently based on personal characteristics, it creates behavioural distortions that reduce work, saving, investment, and productivity. Discrimination isn’t just morally questionable. It’s economically destructive.