Government finalises massive expansion of social safety net, funded by 1-2 per cent tax hike

The Government will soon release its proposal for social unemployment insurance (SUI), in what could be the biggest expansion of the welfare state since ACC opened its doors in 1974.

SUI will pay people who are made unemployed 80 per cent of their income for a limited period after they’re laid off. The catch is that it will be funded by a levy of between 1 and 2 cents of every dollar earned by employees and a similar levy on employers.

Finance Minister Grant Robertson announced work would begin on the scheme at the Budget in May. Since then, Business NZ, the Council of Trade Unions and the Government have been ironing out details of the scheme with the Government. Those negotiations are “largely completed”, according to Robertson.

In May, Robertson acknowledged the scheme would look a bit like ACC, with employees and business paying a levy which would fund the insurance – such schemes are common overseas.

What’s emerged from the negotiations is a scheme that looks a lot like ACC for unemployment, and could plug some of the long-standing holes left by ACC in the social safety net.

The Government wanted to release its ideas for consultation this year, but the latest Covid outbreak has pushed it back until next year, despite the three parties having wrapped up their negotiations.

The scheme

The levy for the scheme is in the lower bound of between 1 and 2 per cent. It will offer a sort of social insurance for people who are unemployed either by being laid off, or by getting ill or injured.

Robertson said the nature of the fee could change – its currently regressive, in that you pay a fixed amount on your earnings no matter how much you earn. This could be flattened to mean that higher earners pay proportionally more and lower earners pay proportionally less.

“One of the things we will consult on is exactly how the levy will be struck because for some businesses and individuals there might be some issues there – that’s one of the issues we’re keen to explore,” Robertson said.

The insurance will cover 80 per cent of a person’s income, for a time-limited period – that period and the upper cap on cover have not yet been announced.

It is not yet clear how the scheme will work in relation to people unable to work because of mental health concerns, a long-standing complaint of the ACC system. It will not impact existing redundancy packages.

The scheme will include “active labour market” policies, which will help people retrain and rehabilitate themselves into the labour market.

Fixing gaps in ACC?

Robertson said unemployment insurance was not a rewriting of ACC, but it would expand the social safety net to ensure that people who were unable to work are able to be supported.

“One of the things we’ve wanted for this is for it to be able to cover a range of issues that make it difficult or impossible for someone to work,” Robertson said.

“Yes, there have been gaps in the ACC scheme in the past, but we are starting this piece of work from scratch, so we have the ability to cover the areas that we think are important but the detail of exactly how that will work will be in the discussion document,” Robertson said.

Business NZ Manager Employment Policy, Paul Mackay, said the system was “ACC-like”.

“There are three levels of it [of cover], there’s being hurt in an accident which ACC takes care of now; there’s being made redundant, which unless you’ve got redundancy compensation doesn’t do much for you, and it leaves you in the dole queue; and the third one is if you get sick and you can’t work there’s this gap,” Mackay said.

He said the discussions with the other parties had focused on how the employment scheme could help support people in the second two categories.

“That’s the area of focus – the level of detail of how they will do that is what the public consultation will cover.

Mackay said the scheme could help in the future when there were “large scale areas of change” like redundancies caused by responding to climate change.

CTU economist Craig Renney negotiated with Business NZ on behalf of unions said the scheme would help plug existing gaps in the social safety net.

“The classic example is cancer – you have to pay expensively for cancer coverage right now and people go back faster than they probably should in order to ensure they’re at work and they’re bringing some income home and they’re not going to lose their job,” Renney said.

“This says ‘here is some income’ and if your employer wants to keep you on, we will pay to make sure that you get well and then you might get well faster,” he said.

Renney said one of the key components of the scheme was the inclusion of active labour market policies.

Renney said New Zealand was “one of the lowest spenders in the world” on active labour market policies – policies that help people upskill and find work.

By pairing insurance with payments to help people retrain, its hoped the social unemployment insurance scheme will help people who are made unemployed re-enter the labour market in a role that is well paid and suits peoples’ skill sets, rather than just taking the first job they find after they’re made unemployed.

Renney thinks the scheme will also help New Zealand weather another recession. MSD reckons that at its peak, a scheme like this could cost $5 billion a year – if a lot of people lost their jobs. But that money would go into the economy, stimulating demand, acting as a stabiliser to the recession.

Renney said it could also do this on a regional level: if a factory closed, the region around the factory would be cushioned by unemployment insurance, stimulating demand and the economic transition.

The big political concern will be whether employers and employees can stomach what is effectively a tax hike, and whether the political left can weather what looks a lot like a two-tier welfare system.

There’s also the question of why, when the Government has decided to give another form of insurance to ACC, it doesn’t take up long-standing calls to expand ACC’s coverage to illness as opposed to injury, an issue that re-emerged in a series of valedictory speeches at the end of the last Parliament.

One valedictory speech from Labour’s Ruth Dyson recalled a “meeting with a constituent who lost three limbs to meningitis, who rightly pointed out that if she had lost those same limbs in a car accident, she would have been considerably better off financially and would have received superior treatment and support.

“That is impossible to justify,” Dyson said.

But Robertson is happy with a limited unemployment scheme – something Dyson also mentioned in her valedictory

“There’s been a bit of give and take,” Robertson said, of the negotiations.

He thinks he’s hit the political mid-point, something business and unions can support.

“The great news for me is we’ve come to near the conclusion of that work and the three partners have got a proposal they can all endorse,” he said.

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