The government’s proposed unemployment insurance programme would also cover people with health conditions, but it faces tough opposition on the left and right, Justin Giovannetti writes.
100,000 New Zealanders lose their jobs every year in what can be an expensive and scarring experience. It could be made a little easier. The government has detailed its flagship programme to close a yawning gap in the country’s social security system: a new unemployment insurance scheme to help workers who are laid off or face a long-term disability. The Spinoff’s live updates covered what the finance minister said he hopes is “an enduring solution” to providing workers with more economic security. The idea was first unveiled last year for the unemployed, but has now been extended to cover health conditions and disabilities. According to Politik (paywalled), it’s the most significant social programme proposed since accident compensation in the 1960s.
It’s a major change to New Zealand’s approach to welfare. As RNZ reports, workers will get to claim up to 80% of their former income for seven months under the programme, which will be administered by the ACC. The system goes up to an earnings cap of $130,911, which would a worker at that level about $1,600 weekly in unemployment. The first month will be paid directly by the former employer, as a disincentive to ensure they don’t try to misuse the new system. Officially called the income insurance scheme, it’s expected to cost $3.54 billion annually, split between job losses and health claims. Existing supports like the dole, pension and the accommodation supplement won’t be impacted.
Income insurance might not be an easy sell. New Zealand is one of the few countries without a similar system and two-thirds of unemployed workers get no benefit right now. But unemployment hit a 35-year low of 3.2% yesterday and inflation is at its highest point in a generation. As Tom Pullar-Strecker writes for Stuff, that makes this is a “brave” time to propose a new tax on incomes to help the unemployed.
Despite that, the policy was hammered out by the government, the Council of Trade Unions and Business NZ. All three have reasons to back the programme, although some debate over its final form remains. Public consultations will now last until April. For unions, the new scheme will provide a cushion for workers who lose their jobs. For businesses, it could mean increased productivity as the unemployed can wait longer for a job that more closely matches their skills. The current system often encourages people to take the first job they can find, which is bad for the economy in the long run.
By international standards, the scheme is generous. Especially compared to the cost. A new levy will be created to pay for the system, initially set at 1.39% of each paycheque, paid by both workers and employers. The few programmes that offer more money, or for longer, are often in Scandinavian countries that require payroll deductions that are three or four times higher. Some businesses told Stuff that the scheme is too expensive and they’d prefer that it only support people made redundant. Despite being one of the plan’s authors, Business NZ said it would back a more narrowly focused insurance scheme.
Is it a new tax? Call it a levy if you’d like, but it’s hard to argue that it isn’t technically a tax. The NZ Herald reports that National leader Christopher Luxon has said workers can’t afford to pay for the scheme along with rapidly increasing prices and the current welfare system is fit for purpose. That last bit is an opinion not shared by any other party in parliament. Act has said they support a form for unemployment insurance because the welfare system is broken, but this proposal is too expensive when inflation is running at 6%. It should be noted that the government’s proposal won’t take effect until the end of 2023 at the earliest, at which point most economists expect the current bout of inflation to have slowed considerably.
Moving towards a two-tier system. Criticism of the policy isn’t just from the right. If anything, some progressives are angrier. The Greens say they are worried that it marks the creation of a two-tiered system of support, where everyone gets more economic security, but some are left much more secure. MP Ricardo Menéndez March said the programme’s level of support should be based on people’s needs and not the size of their last paycheque. The Greens want the government to instead focus on comprehensive upgrades to the welfare system. The Child Poverty Action Group argued the plan is “likely to be regressive and would bake-in existing inequities” as Māori, women and people with disabilities are likely to get less when they find themselves unemployed.