Finance Minister Grant Robertson’s proposal to introduce an income protection scheme alongside the regular welfare system has created a lot of debate.
Some on the political right are criticising it for taxing employees and businesses more. Some on the left say it will exacerbate inequality and create a two-tier welfare system.
Interest.co.nz put the criticisms to Robertson in an interview.
But first, a recap of how the proposed scheme would work
The ACC-run scheme would provide employees who lose their jobs due to redundancy, illness or disability with a significant safety net, whereby they would receive up to 80% of their wages/salaries for up to six months.
Employees would need to contribute the equivalent of 1.39% of their wages/salaries to the scheme. Their employers would contribute the same amount.
Before a displaced worker enters the scheme, their employer would need to pay up to 80% of their wages/salaries for a month.
The proposal is for the scheme to be capped for employees (and their employers) who earn more than $130,911 a year. This would put a lid on levy and payout levels.
If the Government decides to forge ahead with the proposal, it says it will introduce legislation this year and have the scheme operating in 2023.
See this story for further details.
Robertson's response to criticisms
The scheme is regressive, much like GST. Low-income earners would have to pay the same portion of their incomes towards the scheme as high-income earners, but would feel the pinch more, because they have less disposable income. A minimum wage earner would pay $11.20 a week. Someone earning $2000 a week would pay $27.80.
Robertson noted the Government considered whether levy rates should vary according to income.
He said exempting low-income earners from paying levies was an option put forward in the public consultation.
“We know from research on things like KiwiSaver that even a 1% contribution is off-putting to people,” Robertson said, recognising the levy could feel like a lot for a minimum wage earner.
“But ultimately this [scheme] would work best as a contributory scheme that everyone’s involved in.”
People should be able to choose whether they’d like to pay to partake in the scheme, or make the saving and risk falling into the regular welfare system. High-income earners in particular may feel sufficiently protected by their savings, personal insurance or employability.
Robertson said making the scheme optional would see a lot of people “miss out”.
He believed the Wage Subsidy was an example of the “collective benefit” of keeping people in work.
The scheme is unfair, as it pays displaced high-income earners more than displaced low-income earners or those on welfare longer term due to illness or family caretaking responsibilities for example.
Robertson said the scheme would “fill a gap in our welfare system”, as New Zealand and Australia are the only countries in the OECD without such a scheme.
“It’s about a recognition of the economic scarring effect that occurs for people when they lose their jobs,” he said.
“There is a place for a scheme that supports people into a new job.
“That is not to diminish the importance of having an overall welfare and support system… The Government has been increasing those levels of support to those on lower incomes consistently.”
The fact the scheme would pay displaced workers up to 80% of their prior wages/salaries for up to seven months could disincentivise them to try to get a job - any job - quickly. They may be able to satisfy ACC’s requirements to “job hunt” or “train”, while taking time out.
“Of course, in any system, you’ll get people who will try to manipulate it. We think we’re going to put rules in place to try to stop that,” Robertson said.
A scheme this big needs bipartisan support, but National has said it would abolish it if elected into government.
“There’s plenty of time for the National Party to get on board if that’s what they wish to do,” Robertson said.
“We’re going to push on…
“We worked with BusinessNZ and the Council of Trade Unions - in part because they actually came to us and said, ‘We think this area of displaced worker is something we need to work on’…
“The design of the scheme is now open. There will obviously be a parliamentary process.
“I would note that the potential coalition partner for the National Party - the ACT Party - in fact has an [income insurance] policy a little different from the one we’ve proposed.
“So I don’t think the views on this are necessarily defined by where you sit on the political spectrum.”
For more on inflation, housing, wages, and Reserve Bank staff turnover, see the latter half of the interview. The first half covers the contents in this write-up.