What the proposed income insurance plan would mean for you

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The government's proposal would help newly unemployed workers, but it's unclear whether most people want such help offered.

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The government’s proposal would help newly unemployed workers, but it’s unclear whether most people want such help offered.

EXPLAIN : There are few economic policies that would affect as many New Zealanders as the government’s proposed income insurance scheme.

The scheme, first hinted at in the 2021 budget and modeled on similar social insurance schemes in Europe, would provide a new ACC-like safety net for workers who find themselves unemployed.

This would be funded by contributions from employees and employers.

On Tuesday, the government released hundreds of submissions from employers, business groups, unions and individuals, who responded to a discussion paper released in February.

Some of the country’s largest employers, but also the Salvation Army and the Child Poverty Action Group have come out against the program, although for largely different reasons.

READ MORE:
* Major employers oppose $3.5 billion income insurance plan
* ACC is already recruiting a manager for the income insurance scheme
* ‘Little to no evidence’ of income insurance schemes improving labor market outcomes

How would the scheme work?

Those laid off or made redundant due to illness would receive up to 80% of their salary, capped at a maximum of around $2,000 per week before tax, for up to six months while they were looking for another job.

This would be after an initial four-week period where they would receive 80% of their salary funded by their employer.

The six-month period during which newly unemployed would be entitled to receive 80% of their previous salary from the insurance scheme could be extended to 12 months if they enroll in approved training and rehabilitation programmes.

ACC would administer the program and newly unemployed workers would also be assigned a case manager to help them get back to work.

How much would it cost and who would pay?

Officials estimated last year that the program would cost $3.5 billion a year. But that would depend on the number of people laid off, which is hard to predict and can vary significantly from year to year.

The scheme would be funded by a levy on workers and employers, who would both have to pay around 1.39% of employees’ wages, making a levy of 2.77% in total.

Fine print?

People would probably have to have contributed to the insurance plan for six months to qualify for the payments.

Recipients should look for work or participate in training or rehabilitation, and they are likely to accept any job that matches their previous earnings and conditions.

The government has suggested it could exclude self-employed people who have a large number of clients and a high level of self-reliance from anything but sickness and disability insurance scheme provisions, but it’s not clear whether that’s decided.

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An economist says a proposed unemployment insurance scheme will not come cheap. (Video first published in 2021)

What if I already have a good redundancy agreement or private insurance?

It probably wouldn’t make any difference.

Income insurance scheme levies, like ACC levies, would be mandatory, but the flip side is that you would still be entitled to separate termination provisions or private insurance payments that you were due, in addition to any payments from the plan administered by ACC.

How serious is the government about the proposal?

He seems quite engaged.

A Things A readership poll last year suggested Finance Minister Grant Robertson had his work cut out for him to win over the public, with just 25% backing the proposal and 72% saying they were opposites.

The National Party is against the idea, with leader Christopher Luxon calling the levies that would be needed to fund the program a “jobs tax”.

But Robertson said on Monday the government hoped to introduce legislation clearing the way for the program before the end of the year and pass it before the next election.

Why is this being considered?

The main argument is that this would give the newly unemployed time to adapt to their new situation or to undergo training to re-enter the labor market.

It could also reduce the risk of the unemployed being forced to quickly accept any job, out of financial necessity, when they could be employed more productively if they took some time to look for a job and recycle, although the international evidence seems quite weak.

It could also reduce the shock to the economy in the event of a sudden economic downturn by temporarily supporting people’s incomes during a recession.

The Organization for Economic Co-operation and Development noted last year that only a third of unemployed New Zealanders receive unemployment benefit, usually because they are not entitled to it.

The immediate spur was the Covid crisis, which saw the government introduce a one-off makeshift scheme to provide more generous aid to those who lost their jobs due to the pandemic.

And the arguments against?

ACT MP Karen Chhour, the party’s social affairs spokeswoman, argued last year that the scheme would worsen “dependency”, an argument likely to appeal to those who think it should be the responsibility of workers to prepare themselves for a rainy day.

Then there is the obvious concern that if newly unemployed workers are entitled to 80% of their previous salary for six months, they may view this as paid leave rather than time to seek employment or retrain.

The Green Party pointed to the other common criticism of these insurance schemes, which is that they reduce public pressure on governments to provide an adequate safety net for those excluded from the insurance pool, which would include people who were already unemployed.

This is essentially the same type of argument frequently made against private schools and private health insurance.

What do the submissions say?

Unions are supportive, but several major employers including the University of Auckland, owner of Countdown Woolworths, Foodstuffs, Freightways and meat company ANZCO have strongly opposed the proposal.

A frequently mentioned concern among employers and business groups is that the generous benefits offered by the scheme could cause people who have been laid off to delay their return to the currently tight labor market.

Some have advanced the more fundamental argument that the employers’ tax would represent an additional cost for businesses.

Federated Farmers, for example, said employees and employers should be able to decide “what level of risk, if any, they choose to insure against” and described the proposed scheme as “a bad idea at the worst time. possible “.

There were more sophisticated objections.

Foodstuffs, the owner of New World and Pak’nSave, said there hadn’t been enough discussion about whether an overhaul of the welfare system might be a better alternative, saying it deserved a further examination.

Countdown and Freightways argued that companies and workers in industries where layoffs were rare would end up subsidizing the labor costs of companies that were more cavalier about hiring and then firing staff.

Perhaps more worryingly for the government, the Salvation Army and the Child Poverty Action Group have both spoken out against the scheme, with the Salvation Army fearing it will result in “an approach two-tier social assistance that is more likely to increase inequality than to reduce it. ”.

It should be noted, however, that such schemes have become part of the fabric in many overseas countries, and it is not just trade unions that support them.

The Simpson Grierson law firm’s labor law group said the program would reduce the impact of job losses on families, ‘support workers back to good jobs’ and help the economy adjust faster to shocks and slowdowns – so there are clearly arguments on both sides.

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