Chris Hipkins has put a halt to work on the Government’s social insurance scheme, an initiative it had advanced in the face of significant opposition. Sam Sachdeva reports on how its critics and boosters feel about its demise, and what may lie ahead
It was described as “historic” just over a year ago – now, the Government’s plans for a social insurance scheme may well be history.
Prime Minister Chris Hipkins’ announcement that work had been paused on expanding financial support for those made redundant or too sick to work was not exactly a surprise, given there had been plenty of speculation about the scheme when Hipkins’ predecessor Jacinda Ardern announced plans for a paring back of policy late last year.
But the decision will sting nonetheless, particularly for Finance Minister Grant Robertson who had championed the initiative and labelled its unveiling “an historic day” back in February 2022.
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The scheme’s origins arguably date back to Labour’s years in opposition, when the party set up a Future of Work Commission to examine how the workforce would be hit by changing labour trends and technological advances.
Its implementation date had already been pushed out to 2024 due to the darkening fiscal picture, and Hipkins cited the economy in putting the project on ice indefinitely.
“With families and businesses under pressure, it's not the time to pursue this change and put additional costs on them,” he said, referring to the 2.77 percent levy (split equally between employers and employees) that would have funded the scheme.
Dr Simon Chapple, director of Victoria University of Wellington’s Institute for Governance and Policy Studies and a prominent critic of the proposal, did not mince words in describing the backdown as “a bloody good decision”.
“In terms of the process, it was effectively a solution looking for a problem,” Chapple said, noting the scheme had been designed and partly resourced before the public was consulted.
“All political parties need to step back and learn from that and say, ‘Look, this is not how you build trust with New Zealanders, going through pre-determined processes like this.”
"[Lower-income Kiwis] pay in the same proportion of their income to people at the upper end of the wage distribution, but proportionately they get less back out of it, so it's not a particularly equitable scheme.” - Dr Simon Chapple, Victoria University of Wellington
He also took issue with the substance of the policy, with his colleague Michael Fletcher determining most of the scheme’s benefits would go to high-income Kiwis rather than those in greater need.
“People on the minimum wage or relatively low wage and their families will be supported in the current system anyway through Working for Families…they pay in the same proportion of their income to people at the upper end of the wage distribution, but proportionately they get less back out of it, so it's not a particularly equitable scheme.”
Chapple’s opposition was shared by a large chunk of those who submitted to the Government, with businesses objecting to the associated costs and some social services organisations criticising the focus on unemployment protections rather than welfare reforms.
The scheme did have some backers, such as the NZ Council of Trade Unions which with Business NZ was involved in co-designing the initiative (the latter group subsequently cooled on the proposal).
NZCTU president Richard Wagstaff told Newsroom the news was a setback, but the union movement still believed in the need for change.
“We’re still going to go through periods of high unemployment, there are always going to be occasions when people get sick, and New Zealand is still going to have wage scarring,” Wagstaff said, referring to significant drops in income when workers rush to find a job after being laid off.
The union leader says he doesn’t view the scheme as dead in the water, and Hipkins appears to agree, saying: “We will be continuing to explore the best ways to address inequities in the current system in the longer term, when the economy is better positioned to make that change.”
Expanding ACC or welfare?
The Prime Minister was vague on exactly what alternatives the Cabinet might consider, but raised the possibility of expanding the country’s ACC scheme, which currently excludes illness from the conditions it will cover.
Former ACC minister and ex-Labour MP Iain Lees-Galloway is among the proponents of expanding coverage, arguing in his 2020 valedictory speech that “health should also be run as a social insurance scheme, and New Zealanders should expect the same support whether they are injured or they fall ill”.
Lees-Galloway told Newsroom he supported the Government’s broader insurance scheme, but remained convinced that those who fell ill deserved the same access to government support even if not every inequity could be covered.
“It’s difficult to design the perfect system but that’s not a reason to not try: what’s that old cliche about not making the perfect the enemy of the good?”
Any hypothetical ACC expansion would not necessarily cover worker redundancies, but Chapple said there were other ways the Government could achieve its policy aims in that respect.
Making further changes to the welfare system was one option, such as temporarily disregarding the income of one spouse for entitlement purposes if the other was laid off.
Additionally, Chapple said the Government could simply set minimum redundancy standards for all employers to meet, “a pretty obvious solution for an equity-focused Labour Government”.
It would be a dark irony indeed if those tasked with designing an improved redundancy system were themselves made redundant without the benefit of a stronger safety net to catch them.
For his part, Wagstaff said it was the outcome for Kiwi workers that mattered to the CTU more than how it was achieved, suggesting union flexibility on how Hipkins moves ahead if he manages to secure a new term in power.
Some Labour supporters who see the party’s focus on workers as a critical part of its kaupapa may be less forgiving, although Lees-Galloway believed pragmatism would win the day given the alternative of a National-led government.
It will take nothing less than an election victory for any progress to be made, with Hipkins ruling out any revival of the scheme until after October 14 at the earliest.
For now, there is the uncomfortable question of what to do with the staff already hired to work on the plans - some on permanent contracts - even before the Cabinet had made a final decision.
Hipkins understandably declined to comment on what would happen to those staff, and it is likely new roles will be found to accommodate them within the system.
But it would be a dark irony indeed if those tasked with designing an improved redundancy system were themselves made redundant without the benefit of a stronger safety net to catch them.
