Do we really need to spend $3.5 billion a year to buffer workers from redundancy? Photo / 123RF
Do we really need to spend $3.5 billion a year to buffer workers from redundancy? Photo / 123RF
OPINION:
When Finance Minister Grant Robertson announced in May, 2021 that his Government would develop an unemployment insurance scheme, he explained that the obvious impetus was Covid-19.
"Covid-19 has exposed how vulnerable employment can be, and the risk of dramatic income loss from employment to unemployment. Finding a job takestime, and many workers may accept lower-paid jobs that don't match their skill-sets, because financial pressures mean they need work quickly," Robertson told New Zealanders when he unveiled last year's Budget.
Prime Minister Jacinda Ardern elaborated on the theme. "When you see large-scale job losses, of course, there are individuals who have built their lives around hitting a certain level of income and so the scarring from there can be dramatic," Ardern said.
Both the PM and the Finance Minister worked to persuade Kiwis that a new safety net was needed, one that would catch displaced workers when they were pushed out of jobs, particularly in times of economic shock, and prevent them from hitting the hard pavement of the welfare benefits system.
Ministers and others also pointed back to the Christchurch earthquakes, when some 200,000 people were suddenly thrown out of work.
Both Covid-19 lockdowns and the earthquakes are apiece in that each prompted the Government of the day to quickly conceive and implement a temporary scheme to keep stricken businesses from jettisoning their employees.
And this history has been invoked at every turn to supply a rationale for the permanent introduction of the New Zealand Income Insurance Scheme.
The proposed parameters of the plan were released this month; but the details reveal a gap between the sales pitch that's been made to Kiwis and the product on offer.
Most marked is the extent to which the proposal constitutes health insurance as opposed to protection against redundancy, especially mass redundancy.
The ACC-style, mandatory scheme proposes to pay laid-off workers, or those incapacitated by ill health or disability, 80 per cent of their usual salary (to a cap of $130,911) for up to seven months. The first four weeks would be paid for by employers and the remainder would be funded by a payroll tax, footed equally by employers and employees.
Finance Minister Grant Robertson with the proposed New Zealand Income Insurance Scheme discussion document. Photo / Mark Mitchell
While Government ministers have largely stuck to the argument that Covid has exposed how vulnerable workers are to redundancy, far less has been said about the need to fill a health and disability gap. But this is exactly what roughly half the proposed scheme is set to address.
The payroll deduction is set at a total 2.77 per cent of wages, made up of equal 1.39 per cent contributions by employers and employees (the totals are from the Ministry of Business, Innovation and Employment; it warns that they don't add up because of rounding).
This would raise an estimated $3.54 billion a year, a figure which MBIE says reflects a total annual cost to the scheme of $1.81b for displacement - redundancy through no fault of the worker - and $1.73b to cover the cost of health condition and disability claims.
It's also notable that MBIE expects the majority of annual claims made on the system to be for health conditions and disability: some 135,300 as opposed to 112,300 for displacement.
Given the assumed distribution of claims, it's odd that officials expect that health and disability claims will cost less: MBIE anticipates these claimants will spend less time on scheme payouts than their redundant counterparts (an average 2.7 months as opposed to an average 4.9 months).
Jivan Grewal, policy director for the NZ Income Insurance Scheme at MBIE, confirmed that the basis for this very exact figure is a very inexact reckoning.
"To calculate the average duration of claims, the working group applied data from Denmark's analogous scheme, adjusted it to reflect differences in the proposed New Zealand scheme, and this produced the average duration of 11.6 weeks (or 2.7 months). The data from the Danish scheme shows that most HCD [health condition and disability] claims tend to be short-term and they return to work quickly … we also sense-checked our final estimated levy against a wider set of international schemes and found that our proposed rate is in line with international averages."
It should be recognised that these estimates are produced by little more than a one-eyed squint. Excepting that it's a similar size, the Danish labour market isn't like New Zealand's. And since Danish employment law makes firing and hiring workers much easier than it is in New Zealand, firms there may be more willing to experiment to find new work for, or ways of working with, the recovering sick and disabled.
In other words, it's quite conceivable that claims made because of ill health and disability might actually drag on for much longer in the New Zealand context, in which case they would constitute the bulk of the new scheme.
That, of course, would puncture the argument that Covid lends urgency to this broad plan, and it invites the criticism that now is not the right time to tackle the problem.
Many commentators have already been quick to point out that inflation in the cost of goods and services is galloping ahead of wage increases, and a new payroll tax (targeted for introduction next year) would be badly timed for Kiwis suffering from dwindling purchasing power.
That's in addition to businesses, especially small ones, struggling to absorb a wide range of government-mandated cost increases, not the least of which is a doubled provision for sick leave.
At the very least, the sprawling scope of income insurance bears careful consideration in the process of consultation that the Government is now embarked on.
But advocates for a smaller scheme, that matches the product to the sales job, are up against a powerful political impulse: never waste a good crisis.
