Grant Robertson has unveiled the Government’s grand vision for a social unemployment insurance scheme. The initiative could be a significant change for the country – if it can survive criticism from both the left and the right, Sam Sachdeva writes
Comment: Unsurprisingly given its name, the Labour Party has long made a virtue of its focus on the rights of workers.
Michael Joseph Savage, Labour’s first prime minister, is still lionised by members for his role in bolstering the country’s trade unions and establishing a ‘cradle to the grave’ social welfare system.
Asked, after unveiling the Government’s plans for a social unemployment insurance scheme, whether he was attempting to deliver on Savage’s ideals for a modern era, Finance Minister Grant Robertson was predictably quick to demur.
“I'm not going to be the one to make that kind of claim – what I would say is that this is a significant proposal, and it does fill a missing piece in our social security system.”
But his description of the policy launch as “an historic day” offered some sense of the significance he attaches to the Government’s plans.
The proposal’s name, the New Zealand Income Insurance Scheme, lacks the innate patriotic ambition of previous initiatives like KiwiBuild, although that’s probably for the best given how the house-building programme has turned out (Robertson seemed unenthused about the alternative of ‘KiwiSafetyNet’ as offered up by Newshub journalist Amelia Wade).
But if it succeeds, the creation of a new buffer to aid New Zealanders forced out of work through no fault of their own could leave a lasting mark on the landscape.
The genesis of Robertson’s work dates back to Labour’s last term in opposition, when the party (under then-leader Andrew Little) launched a Future of Work Commission to explore how greater automation and other technological advances could impact the country’s workforce.
“If people knew in the first anxious conversation around the kitchen table about the loss of a job or income, that it would be softened by an unemployment insurance scheme for a fixed period of time, perhaps the immediate thought wouldn't be, ‘How on earth am I going to manage?’ but rather, ‘What new opportunities could I pursue?’” – Grant Robertson, Finance Minister
Addressing a Business NZ audience during the first wave of the pandemic in 2020, Robertson described the commission as “the project that gave me the greatest satisfaction in opposition”.
“It was both about how we make sure there is decent work and higher wages in our future, but also working differently, drawing together business, unions, academics, entrepreneurs and more to develop ideas and solutions.”
That desire to draw together unlikely bedfellows was made tangible once Labour won power, with the insurance proposal the result of a Future of Work tripartite forum with Business NZ and the Council of Trade Unions.
The end product is a seven-month cushion for those made redundant or rendered unable to work due to a health condition or disability, providing 80 percent of a worker’s income with an expectation that they actively look for work or take part in training and rehabilitation during that period.
The $3.5 billion annual cost would be funded through a 2.77 percent levy split equally between employees and employers, with the Government covering the administrative costs of running the fund through ACC.
The idea, at least in theory, is to offer “security and opportunity” to Kiwis in their time of need, as Robertson put it.
“If people knew in the first anxious conversation around the kitchen table about the loss of a job or income, that it would be softened by an unemployment insurance scheme for a fixed period of time, perhaps the immediate thought wouldn't be, ‘How on earth am I going to manage?’ but rather, ‘What new opportunities could I pursue’?”
As Institute of Governance and Policy Studies senior associate Max Rashbrooke put it, the proposal also seems to “smuggle in” a compulsory four-week notice of redundancy as well as a mandatory four-week “bridge payment” funded by the employer.
The latter is intended to act as a safeguard against abuse of the scheme by an unscrupulous employer or employee, while Robertson hoped the innate nature of most employment relationships would act as a check on fraud.
“Most employers treat this kind of situation very seriously, the employers that I meet and talk to don't want to make their workers redundant, they invest a lot in them. They're often very close to them, particularly in small businesses in New Zealand, so I think the risk is relatively low.”
But with recent cases of wage subsidy scheme fraud still in the rear mirror, some may still hold concerns about the possibility for manipulation, while there are a number of other aspects which may require further thought.
Robertson said the Government was still considering whether and how self-employed workers could be covered by the scheme, with the Productivity Commission having previously warned that treating standard and non-standard employment relationships differently could incentivise businesses to move towards contractors due to lower costs.
The definition of worker displacement, the “involuntary loss of work”, also raises questions about whether a voluntary redundancy process would qualify for support, although he suggested there was an in-principle desire for that to be the case.
Squeezed from left and right
Then there are the more ideological but no less valid concerns about the concept.
From the left, the Child Poverty Action Group has expressed fears it would bake in pre-existing inequality and act as a regressive tax on lower-income families, while also undercutting any move towards long overdue reform of the welfare system.
"A two-tier welfare system established under a social unemployment insurance scheme would likely exacerbate poor mental wellbeing among welfare benefit recipients and strengthen stigma for benefit recipients," CPAG social security spokesman Mike O’Brien said.
From the right, the likes of the Taxpayers’ Union and New Zealand Initiative have suggested the scheme’s generosity could deter laid-off workers from the job hunt, while further stretching the pockets of Kiwis battling record inflation.
Robertson and his ministers have firmly dismissed any suggestion that unemployment insurance would undermine the welfare system, while he said the anticipated start date of late 2023 would likely see improved economic conditions.
That timing would also implicitly see its implementation subject to Labour winning a third term, given National leader Christopher Luxon came out strongly against the plans.
Funnily enough, Savage did a similar thing by confirming the Social Security Act would not come into effect until the year after the 1938 election, making it a battleground Labour won.
But the modern party has proven less successful at winning the public debate on such economic issues, lest we forget the dearly departed capital gains tax.
Having key trade and business organisations on side should theoretically help, although it was noteworthy that when BusinessNZ chief executive Kirk Hope was asked whether he would encourage companies to support the scheme, he dodged slightly: “I would encourage business to very much engage with what's in the consultation document.”
But if Robertson and Labour can win over sceptics, and if the scheme lives up to its lofty intent, the Finance Minister could be closer to the historic achievement that most politicians crave.
