Finance Minister Grant Robertson is committed to passing legislation to create an income insurance scheme before the 2023 election. Photo / Mark Mitchell
Finance Minister Grant Robertson is committed to passing legislation to create an income insurance scheme before the 2023 election. Photo / Mark Mitchell
Finance Minister Grant Robertson remains committed to passing legislation to create a state income insurance scheme before next year's general election.
He has affirmed his position despite a broad range of concerns being raised around the proposal, suggesting an enormous amount of work needs to be done to refine thescheme's design.
Robertson clarified he still wanted the scheme to cover both redundancy and illness/disability and wanted it to be funded by levies paid by employers and employees.
He assured he was "absolutely" committed to ensuring the scheme doesn't stymie progress improving the existing welfare system.
His comments came as the Ministry of Business Innovation and Employment (MBIE) published some of the 2000-odd submissions it received on a consultation it ran on the creation of the scheme between February and April.
Some advocacy groups that represent the rights of women and people with illnesses or disabilities also supported the proposal.
Various business groups and large employers opposed it, largely due to cost.
Meanwhile actuaries, accountants, and lawyers rang alarm bells over its unintended consequences.
A view, noted in several of the submissions the Herald scanned, was that more time was needed to design the scheme, given its significance – the number of people who will pay into it, the impact it'll have on how employment contracts are written, and its effects on mobility in the labour market.
Submitters also suggested the timing of the debate didn't work in Robertson's favour.
While the proposed scheme would be in place through economic ups and downs, a number of submitters opposed it at least partially on the basis the labour market is currently tight, so redundancies are uncommon, and inflation is high, so levies would put employers and employees (particularly low-paid people) under additional financial pressure.
What is income insurance?
The Government wants to create a safety net that can catch those who lose their jobs due to redundancy or illness/disability before they fall into the regular welfare system.
The proposed scheme would make it compulsory for all employees to pay 1.39 per cent of their wages/salaries to the scheme. This contribution would be matched by their employer.
If someone lost their job, they would be paid up to 80 per cent of their previous wage/salary for up to six months.
Levies would be capped for employees (and their employers) who earn more than $130,911 a year. Payouts would be limited accordingly.
To qualify, employees would need to have contributed to the scheme for at least six months over the 18 months before they made a claim.
The scheme is expected to cost $3.5 billion a year.
The Government's argument is that it would act as an automatic economic stabiliser, softening the pain during a downturn, and reducing the need for it to implement ad hoc economic support, as was used extensively during the height of the pandemic.
The scheme would also level the playing field between support available by ACC for those who can't work because of an injury incurred in an accident and those who can't work because of an illness or disability.
National opposes the scheme, largely on the basis it introduces a new tax. It has committed to repealing it if elected to govern.
Arguments in favour of the scheme
Those in favour included the likes of the Nurses Association, Human Rights Commission, National Council of Women and Wellington Multiple Sclerosis Society.
The Wellington Multiple Sclerosis Society supported more closely aligning support available for those with illnesses or disabilities with support available for people with injuries.
It suggested the scheme be broadened to ensure those with chronic illnesses aren't denied cover if they feel pressured to resign or are made redundant due to "poor performance".
The Government is committed to creating income insurance scheme by next year, despite complexities. Photo / NZME
It also disagreed with the proposal for entitlements to be based on an "established pattern of work", noting that unlike an accident, the development of a chronic illness or disability occurs over time. Accordingly, the work patterns of those suffering illnesses or disabilities may vary, or deteriorate, over time.
The National Council for Women pointed out how beneficial the scheme would've been during the height of the pandemic, given women were disproportionately affected by jobs losses in the services sector, including in retail and hospitality.
It noted private income protection insurance is unaffordable for many, and employers don't always offer generous redundancy entitlements.
Arguments against the scheme
The New Zealand Society of Actuaries, whose members are specialists in pricing risk, criticised MBIE for its lack of transparency around how costings were calculated.
It feared people would game the scheme, which could see costs blow out.
The society also worried it was unfair for the levy rate to be the same for everyone, regardless of some people being more likely to make claims than others. Insurance is traditionally priced according to risk – to some extent at least.
"Employers may be less likely to provide pay rises to employees in order to fund their costs of the scheme," the society added.
"Employers may also remove existing employee benefits, more generous redundancy provisions and existing insurance provisions."
Law firm Bell Gully raised similar concerns.
It noted difficulties around policing the scheme – ensuring someone does in fact leave a role due to "redundancy", "illness" or "disability", and not for another reason, and ensuring the claimant is in fact actively looking for work during the period they're covered.
Bell Gully expected the scheme to be more attractive to people in workforces or demographics more vulnerable to redundancy or medical incapacity issues, and less attractive to others.
Woolworths, which is one of the country's largest employers, feared both it and its employees would effectively subsidise those in industries where redundancies are more common.
"We employ more than 20,000 people across New Zealand in our Countdown stores, supply chain and support roles," Woolworths said.
"Since 2019, less than 400 people have left our business due to involuntary reasons such as their role becoming redundant."
Another large employer, BNZ, disagreed with the scheme's "one size fits all" approach. It said employers should be able to opt out if they can prove they already provide equivalent or better conditions than those offered by the scheme.
It believed the loss of income due to redundancy and illness/disability should be considered separately, as they're completely different issues.
Retail New Zealand made similar arguments to other business groups, which opposed the imposition of a cost on businesses without this being offset by a tax cut.
