Labour’s proposed scheme comes with massive costs and not much gain for low- and middle-income New Zealanders, argues Michael Fletcher.
There has been considerable media speculation in recent days that Labour may be preparing to shelve its social insurance scheme idea. Politics aside, there are good reasons for ditching such a poorly thought-out proposal. Not the least of these is new analysis showing that most low- and middle-income New Zealanders in the scheme would at best receive modest benefits.
By Labour’s own description the social insurance proposal would be the biggest change to New Zealand social security since the introduction of ACC almost 50 years ago. The scheme is huge, costing an estimated $3.5 billion each year. Administration of the scheme alone is estimated at $500 million per annum. This bill is to be funded by a 1.39 percent tax increase on wages, matched by an equal levy on employers. As Inland Revenue has advised, most of the employer levy will eventually be passed on to workers via reduced wage increases, reducing strained family incomes by nearly 3 percent in the middle of a cost-of-living crisis.
A lot of people, including the self-employed, many migrants, and some precarious workers, will not be eligible. For those who are, the scheme sounds generous – anyone who loses their job because of redundancy or illness will qualify for 80 percent of their lost wages for up to six months. That in itself is a problem because it sets up a two-tier welfare system with higher rates – one might think of it as Koru club welfare for insurance recipients, compared to other beneficiaries in cattle class.
What the “80 percent” promise also overlooks is that the scheme would be introduced on top of an already existing set of welfare and social assistance programmes. And it turns out that the extra those additional taxes would buy eligible workers in the event that they lose their job – the net gain over and above welfare entitlements – is far, far smaller for low- and middle-income workers and families.
This critical point can be illustrated by looking at the net new benefits the scheme would offer for four different hypothetical families – a couple with two children, a couple alone, a sole parent with two children and a single person alone – assuming three earnings levels – minimum wage, median wage, and the proposed scheme’s maximum earnings cap (see Figure below). The calculations take into account the existing welfare system, Working for Families tax credits, and the Accommodation Supplement where it applies. They also assume the family gets the maximum of six months’ insurance pay-outs. If the person was unemployed for only three months, for example, the benefits would be half what the figure shows.
For three out of four of the low-income family types, the net additional benefit from the scheme is between $3,300 and $4,900. When you take into account the total annual levies paid, these families would need to lose a job – and be unemployed for the entire six months – every two to four years to recoup their and their employers’ levies and break even. The gains are somewhat higher for middle income families, but still the payouts don’t match the levies paid unless the family loses a job every 2.6 to 4.7 years.
At the top end of the income spectrum the scheme is a much rosier proposition. In particular, couple families where both earn $130,000 per annum or more, would receive almost $39,000 if one of them loses a job and is unemployed for six months. In most cases, these are the families that least need the support of a scheme like what Labour is proposing.
The model family analysis also highlights one gap in our existing welfare policies. It’s an important hole, but it could be easily fixed without a $3 billion dollar per annum scheme and all the complexity that goes with it. Low- and middle-income couples, especially those without children, stand to benefit relatively more from the insurance proposal than other family types. This has nothing to do with insurance per se but is due to the fact that we income-test entitlement to welfare on the basis of total family income, so two full-time earner families typically miss out if one loses their job. It would be simple to tweak the welfare rules so as to disregard a spouse’s earnings up to some level such as the median wage, with benefit reductions only applying in respect of earnings above that amount. Much bureaucracy would also be saved.
Minister of finance Grant Robertson has described the income insurance scheme as the “missing piece” in our welfare structure. He is wrong about that. There are lots of pieces missing in the welfare system and plenty of scope for improvement, but this insurance proposal is not one of them. Hopefully, the summer break will be a chance for him and the Labour caucus as a whole to think again.
The Bulletin World Weekly is a newsletter by Peter Bale exclusively for Spinoff members, covering and analysing the most important stories from around the globe. In this special edition, a look back at a tumultuous year.
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Russia changed the world in February
In a sense 2022 started not on January 1 but on February 24, when columns of Russian armaments moved into Ukraine, marking the beginning of what the Kremlin clearly expected to be a rapid invasion of its neighbour and the decapitation of its leadership.
The invasion was predicted by a remarkable flow of US and NATO intelligence – much of it made public by the US – and it’s now clear that Kyiv had been preparing for the military attack for some time, rejigging its entire military strategy away from old Soviet methods towards agility and dynamism.
It is hard to overstate the impact of the invasion of a sovereign European nation in the 21st century. Among the flow-on effects this year were that energy prices spiked globally; NATO swung into action to support Ukraine with equipment and training (even New Zealand sent highly skilled intelligence and logistics and infantry officers to Europe); China tried out what might happen if it invaded Taiwan – and appeared to think better of it; Sweden and Finland decided to join NATO; and the US and its allies are sending tens of billions of dollars of arms, training and aid.
With Russia now clearly using winter as a weapon and Ukraine seemingly trying ever more bold strikes using innovative – sometimes even homemade – weaponry, it seems the conflict will stay at a high intensity with missile strikes against Ukrainian infrastructure, daring morale-building spectaculars by Ukraine, and World War One-style trench standoff on the frontlines.
Ukrainian servicemen fire with a French self-propelled 155 mm/52-calibre gun Caesar towards Russian positions at a front line in the eastern Ukrainian region of Donbas on June 15, 2022. (Photo: ARIS MESSINIS/AFP via Getty Images)
Expect fatigue in European capitals as energy prices spike over winter, and increased talk about some sort of ceasefire or peace talks based on the borders that prevailed before the invasion – a prospect that Kyiv will find hard to swallow. President Volodymyr Zelensky has urged a Christmas ceasefire as a first step, but Kremlin spokesman Dmitry Peskov replied: “No, no such offers have been received from anybody. This topic is not on the agenda.”
To stay on top of the story until the World Bulletin comes back in January, I recommend:
Ukrainecast – the BBC’s daily podcast on Ukraine features a remarkable line up of guests, including frontline reporters and everyday Ukrainians, and skilled analysis.
Battleground: Ukraine – a well-reported weekly podcast from veteran war correspondent Patrick Bishop and military historian Saul David.
People hold blank pieces of paper in protest at Covid restrictions and authoritarian rule on November 28, 2022 in Hong Kong, China (Photo: Anthony Kwan/Getty Images)
China faces Covid challenge and an uncertain 2023
Having evidently buckled on its zero Covid strategy after the success of the remarkable blank paper protests, Beijing faces a surging crisis as the year turns. This comes even after a year in which Xi Jinping cemented his control of the Chinese Communist Party – or thought he had.
It is hard to get a clear handle on the situation given the controls on media in China but it appears the Covid testing process has broken down and that infections are sweeping the country. Eventually, that will combine with the low level of vaccinations and the relative ineffectiveness of the locally developed vaccine China insisted on using to create a national health crisis. The knock on effects on the economy, society, and Xi himself can only be guessed at so far.
As Reuters reported: “On Nov. 21, Vice Premier Sun Chunlan, in charge of China’s war on Covid-19, said infections had to be brought down to zero as they emerged. Nine days later, she said the Omicron strain of the virus had “weakened” even though new cases in the Chinese capital hit a high. Last week, in one fell swoop, China cut away most of the tenets governing its stifling zero-Covid policies, effectively ending its war on the pandemic. It has since turned to re-educating people on the harmlessness of Omicron and pushing the idea of self-care, a dramatic U-turn from quarantine camps and crushing lockdowns that sparked recent, rare public protests.”
Recommended listening:
Drum Tower – a new weekly podcast from the Economist about China, co-hosted by its Beijing bureau chief and its chief China correspondent
Russian President Vladimir Putin meets French President Emmanuel Macron on February 07, 2022 at a very, very long table. (Photo: Kremlin Press Office/Anadolu Agency via Getty Images)
The world in pictures in 2022
From the crowds returning to Times Square in New York after the peak of the Covid pandemic to the war in Ukraine, the Winter Olympics, and that ridiculous long table Vladimir Putin used to keep his distance from Emmanuel Macron, CNN offered an elegantly curated and presented collection of images of 2022.
Novelist Hilary Mantel wins the Man Booker Prize 2012 for her book ‘Bring Up The Bodies’. (Photo: Ben Pruchnie/Getty Images)
Hilary Mantel wins the Man Booker Prize 2012 with her book ‘Bring Up The Bodies’ at The Guildhall on October 16, 2012 in London, England. (Photo: Ben Pruchnie/Getty Images)
Some we lost in 2022
It’s sobering to look back and consider people we’ve lost in 2022. Most readers’ thoughts will likely go first to Queen Elizabeth II but I thought I’d call out a handful more whose lives were described so beautifully in The Economist by the unbylined obituaries editor Anne Wroe. I will also link where I can to an equivalent from The Guardian which, unlike The Economist, does not have a paywall.
Abe Shinzo, 67, former Japanese prime minister: shot dead on July 8 with a handmade gun allegedly by a man who objected to Shinzo’s connections to Korea’s Unification Church.
“His main concern…was that Japan should assert itself in the world. For too long it had trod nervously, cringing in atonement for its crimes in the second world war, clinging to a constitution written by the American occupiers that required it to be pacifist and to rely for its defences on the United States,” The Economist wrote in its obituary, closing with this: “His simplest wish was that Japan should no longer be haunted. He did not believe in ghosts.”
“Few other Japanese leaders in living memory have left as deep an imprint on their country as Shinzo Abe,” The Guardian wrote, using the anglicized structure of Japanese names.
Hilary Mantel, author of the Wolf Hall trilogy, died on September 22 of a stroke, aged 70.
“It was a late flowering but a glorious one, her triangular form shimmering through literary festivals, then stage and screen, in blue and silver and immense black capes lined with silk…,” The Economist wrote of her physical and psychic presence in an obituary titled: “Hilary Mantel saw things that others couldn’t”. “Fame was gleeful, because she had laboured so hard, against such odds, to earn it.”
“The impulse to write grew out of her sense that something was seriously wrong with her,” The Guardian wote. It turned out she had a long history of undiagnosed endometriosis.
James Lovelock, creator of the Gaia theory of environmental interconnectedness, died on July 26, aged 103.
“A hypothesis so all-embracing threw up question after question, which he tackled with delight,” The Economist wrote in its obituary headlined: “James Lovelock changed the way human beings look at the Earth”.
“Lovelock reckoned that, according to standard physics, the planet’s surface should have boiled with the increasing heat, rather than remain cool. The only explanation, he decided, was that the Earth was a self-regulating system that had found a way to preserve its equilibrium: and that the organisms on Earth had kept their environment stable,” The Guardian wrote in its obituary of Lovelock.
Carmen Callil, publisher and feminist, died on October 17, aged 84.
“She championed hundreds, if not thousands, of women writers,” The Economist wrote of the founder of Virago Press. “But if she could take just one book with her…it would be ‘Maurice Guest’ by Henry Handel Richardson, whose real name was Ethel. Richardson was Australian, as was she. The novel is set in 1890s Leipzig, and is suffused with many of the things she adored: music, art, sex and a certain émigré cosmopolitanism that came from being the child of a Maronite Christian and an Irish Catholic whose forebears had made a new life on the other side of the world.”
“Virago aimed to provide a mass-market publisher for 52% of the population – women – at a time when they were permitted neither mortgages nor bank loans,” The Guardian wrote.
Luiz Inácio Lula Da Silva speaks after being elected president of Brazil over incumbent Bolsonaro by a thin margin on the runoff at Intercontinental Hotel on October 30, 2022. (Photo: Getty Images)
… and a few resurrections
As well as those we lost in 2022 there was the odd resurrection of sorts. None was more spectacular than the return of long-time Israeli prime minister Benjamin Netanyahu, who won re-election having been counted out under corruption allegations and bitter opposition.
In the New York Times, former Palestinian negotiator Diana Buttu predicted that the Palestinians would bear the consequences of Netanyahu’s return, writing: “As the prime minister-designate, Benjamin Netanyahu, finalizes the formation of Israel’s most extreme right-wing government to date, I, along with other Palestinians in Israel and in the occupied territories, am filled with dread about what the next few years will bring.”
More Reading
In Brazil, the former left-wing president Luiz Inácio Lula da Silva – who served prison time on corruption charges that were later quashed – staged his own remarkable political resurrection to defeat right-wing leader Jair Bolsonaro.
It seems another expert in resurrection was part of Lula’s motivation to go into politics. According to The Guardian, “had it not been for a chiding from Fidel Castro nearly four decades ago, Luiz Inácio Lula da Silva might well have abandoned what would prove one of the most storied political careers the region has ever known.
“’He gave him a bollocking,’ Lula’s biographer and friend, Fernando Morais, said of the moment the Cuban revolutionary took the Brazilian unionist to task for considering throwing in the towel after failing in his bid to become São Paulo’s governor in 1982.”
