Income insurance: should workers subsidise their redundancy?

A controversial 'income insurance' scheme in New Zealand is causing workers to ponder whether tax dollars should be used to subsidise their own redundancy

The New Zealand government intends to press ahead with an ‘income insurance’ scheme, which will give people a safety net in the event they lose their job, despite underwhelming levels of public support within New Zealand.

The government published the results of a public consultation on the scheme in September, but a recent survey from the television show Newshub suggests that just a third of the public support the income insurance proposals.

When asked by Newshub whether the scheme would go ahead “come hell or high water”, Finance Minister Grant Robertson said “this is something we’re committed to”.

What is the income insurance scheme?

The proposed income insurance scheme will see people earn up to 80% of their normal income for six months if they lose their job because of redundancy or disability. It will cost workers on average $16.50 a week in additional taxes, with employers matching those contributions. It’s being compared to a similar scheme in New Zealand called ACC, which provides compensation if a worker suffers an accident or injury at work.

During the public consultation, the income insurance scheme saw support from a number of the country’s biggest trade unions, who argue that the protections afforded by the new scheme were vital for protecting workers after they’re laid off.

Supporters of the scheme say that it will reduce pressure on the recently unemployed to find a new job quickly, which often results in them taking lower-paid or lower-skilled work than they are qualified for (known as ‘wage scarring’). It will also give them a social safety net so that they can afford to keep paying the mortgage, rent or utility bills every month even after they’re made redundant.

Who opposes the proposed new scheme?

As the public poll from Newshub shows, opposition to the scheme is many and varied. Anti-poverty campaigners have suggested that the scheme would widen the gap between middle-income workers and low-paid workers living on or below the poverty line. This is because the amount you will receive through the scheme depends on how much you were earning before you lost your job. There is a cap – NZ$130,911 – but this is twice the median wage within New Zealand. That means middle-income earners will receive more in compensation than low-paid workers – and the fact that only 80% of wages are subsidised means that any worker earning minimum wage will receive less than minimum wage in compensation.

There are other criticisms of the scheme: business groups argue that, by making every eligible employer pay into the scheme, it will subsidise poor recruitment practices and industries with high turnover. For example, a small business that never makes anyone redundant will have to pay the same contribution per employee as a large corporation that regularly lays off staff; only the total bill, which depends on headcount, will be different.

There is also concern over whether the scheme represents value for the New Zealand taxpayer. Should employees really be expected to save towards their own redundancy, paying an equal contribution each month as their employer in case they are laid off further down the line? Should good employers be expected to pay into what is essentially a redundancy scheme, regardless of whether they ever make anybody redundant? Or should businesses that lay off workers be forced to bear the whole cost themselves?

BusinessNZ pulls the plug on its support

One of the most high-profile organisations to withdraw its support is BusinessNZ, which was initially keen to see the income insurance scheme happen before it was expanded to include sickness and disability as well.

A spokesperson for the organisation tells InsurTech Magazine: “BusinessNZ was keen to see a scheme that would be cost-neutral for employees and employers, where the cost of the scheme would be offset by a reduction in tax. However, since BusinessNZ was involved in the initial design of the scheme, it has undergone quite a lot of change and has eventuated in a scheme that will not be cost-neutral and could lead to large costs on employers and employees.

The spokesperson continues: “BusinessNZ Chief Executive Kirk Hope has confirmed that BusinessNZ would prefer to see a scheme that is more affordable for all concerned.”

As for next steps, the public consultation has now closed but we are still waiting to hear from the New Zealand government about whether the scheme will continue – and if it will, whether it will be amended to appease any of the criticism. If it does go ahead, it’s likely that the scheme could begin at some point in 2023. Minister Robertson’s remarks reaffirming his commitment to the scheme suggest that this is now a foregone conclusion.

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