Editorial: Government’s canned social insurance scheme had best intentions but was too complex

The hardest time to find a new job can be during an economic downturn. Photo / 123RF

EDITORIAL:

It’s no surprise the Government’s proposed $3.5 billion social insurance scheme has been put on ice for now by new Prime Minister Chris Hipkins, although those who face redundancy in the coming years may rue the decision.

The scheme, which was a pet project of Finance Minister Grant Robertson, was designed to be a safety net to catch those who lost their jobs because of illness or redundancy before they fell into the regular welfare system – if they qualified.

Under the proposal, all employees would have had to pay premiums worth 1.39 per cent of their wages or salaries into the ACC-run scheme. Their contributions would be matched by their employers.

If someone lost their job, the scheme would pay 80 per cent of their previous income for up to six months.

Levies would be capped for employees (and their employers) who earn more than $130,911 a year and payouts would be limited accordingly.

The cost of the scheme made it politically unpalatable given the current steep cost of living and Hipkins’ promise to focus on the “bread and butter” issues heading into this year’s election.

It was also not “properly” presented pre-election. It was talked about and Robertson made his intentions known, but Labour didn’t campaign on it.

The complexity of the scheme also meant it had political opponents from both the Left and Right.

National had slammed it for creating a “jobs tax” and the Greens opposed it on the basis of creating a “two-tier welfare system”.

But the issue of redundancy is a problem that does need to be addressed. It can be devastating for a family to lose their main income and that earner may never find another job paying at the same level or with the same seniority.

Often, households are not able to tap into welfare support because they still have one person earning, even if that person isn’t able to support the full cost of running the home.

Income protection insurance can fill this gap but it is expensive to get in New Zealand, and there are currently low levels of take-up. A social insurance scheme is one way to spread the cost across the whole working population.

But the proposed social insurance scheme was overly generous - a payout of up to six months could have encouraged some workers to take an extended holiday rather than look for a new job.

And it was complicated by including illness as well as redundancy.

Hipkins said the scheme wouldn’t proceed as proposed and indicated there would need to be a significant improvement in economic conditions before anything is advanced.

But during tough economic conditions and times of recession - where New Zealand is said to be heading in the second half of this year - is exactly when support for redundant workers is needed most.