Finance Minister Grant Robertson’s proposal to introduce an income protection scheme alongside the regular welfare system has created a lot of debate.
Some on the political right are criticising it for taxing employees and businesses more. Some on the left say it will exacerbate inequality and create a two-tier welfare system.
Interest.co.nz put the criticisms to Robertson in an interview.
But first, a recap of how the proposed scheme would work
The ACC-run scheme would provide employees who lose their jobs due to redundancy, illness or disability with a significant safety net, whereby they would receive up to 80% of their wages/salaries for up to six months.
Employees would need to contribute the equivalent of 1.39% of their wages/salaries to the scheme. Their employers would contribute the same amount.
Before a displaced worker enters the scheme, their employer would need to pay up to 80% of their wages/salaries for a month.
The proposal is for the scheme to be capped for employees (and their employers) who earn more than $130,911 a year. This would put a lid on levy and payout levels.
If the Government decides to forge ahead with the proposal, it says it will introduce legislation this year and have the scheme operating in 2023.
See this story for further details.
Robertson's response to criticisms
The scheme is regressive, much like GST. Low-income earners would have to pay the same portion of their incomes towards the scheme as high-income earners, but would feel the pinch more, because they have less disposable income. A minimum wage earner would pay $11.20 a week. Someone earning $2000 a week would pay $27.80.
Robertson noted the Government considered whether levy rates should vary according to income.
He said exempting low-income earners from paying levies was an option put forward in the public consultation.
“We know from research on things like KiwiSaver that even a 1% contribution is off-putting to people,” Robertson said, recognising the levy could feel like a lot for a minimum wage earner.
“But ultimately this [scheme] would work best as a contributory scheme that everyone’s involved in.”
People should be able to choose whether they’d like to pay to partake in the scheme, or make the saving and risk falling into the regular welfare system. High-income earners in particular may feel sufficiently protected by their savings, personal insurance or employability.
Robertson said making the scheme optional would see a lot of people “miss out”.
He believed the Wage Subsidy was an example of the “collective benefit” of keeping people in work.
The scheme is unfair, as it pays displaced high-income earners more than displaced low-income earners or those on welfare longer term due to illness or family caretaking responsibilities for example.
Robertson said the scheme would “fill a gap in our welfare system”, as New Zealand and Australia are the only countries in the OECD without such a scheme.
“It’s about a recognition of the economic scarring effect that occurs for people when they lose their jobs,” he said.
“There is a place for a scheme that supports people into a new job.
“That is not to diminish the importance of having an overall welfare and support system… The Government has been increasing those levels of support to those on lower incomes consistently.”
The fact the scheme would pay displaced workers up to 80% of their prior wages/salaries for up to seven months could disincentivise them to try to get a job - any job - quickly. They may be able to satisfy ACC’s requirements to “job hunt” or “train”, while taking time out.
“Of course, in any system, you’ll get people who will try to manipulate it. We think we’re going to put rules in place to try to stop that,” Robertson said.
A scheme this big needs bipartisan support, but National has said it would abolish it if elected into government.
“There’s plenty of time for the National Party to get on board if that’s what they wish to do,” Robertson said.
“We’re going to push on…
“We worked with BusinessNZ and the Council of Trade Unions - in part because they actually came to us and said, ‘We think this area of displaced worker is something we need to work on’…
“The design of the scheme is now open. There will obviously be a parliamentary process.
“I would note that the potential coalition partner for the National Party - the ACT Party - in fact has an [income insurance] policy a little different from the one we’ve proposed.
“So I don’t think the views on this are necessarily defined by where you sit on the political spectrum.”
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For more on inflation, housing, wages, and Reserve Bank staff turnover, see the latter half of the interview. The first half covers the contents in this write-up.
100 Comments
So the spare income of our poorest is already getting crushed by CPI inflation, rent inflation, and house prices sailing off into the distance… let’s levy what’s left over for something most of them will never claim!
This is fiscal policy to reduce CPI inflation disguised as a fat middle aged Robinhood
Its a dog...cannot believe a Labour administration is promoting an insurance scheme for unemployment.
It serves no purpose, those that are already well qualified will receive a windfall payment whereas those without in demand skills will not benefit from a time limited (marginally) increased payment ...in the event of an increase of unemployment (likely deliberately triggered by central bank policy) the availability of employment will not be impacted by this insurance scheme one iota...the markets will be rubbing their hands together however, more grist to the mill.
It is obvious who this policy serves, and it sure as hell aint the future unemployed
Hang on. How I see it, the government is now going to introduce a new demand to collect funds off both employers & employees and use those same funds, in one form or another, to replace existing outgo for unemployment benefits? That means they would have more money coming in and less money going out. If it walks like a tax, quacks like a tax then it sure hootenanny is damn new tax in my book.
I'm self employed (contractor), running under a Ltd structure. So Im both business owner and employee.
Because I'm hardworking and prudent, I maintain 6 months living expenses (in cash) at all time. Just in case I can't find work, or suddenly lose my contract, or get sick and can't work etc.
Between the sky high inflation (eating savings value and rewarding debt) and this new scheme, there is now even less incentive for me to be financially prudent... Why bother budgeting, saving, living within my means etc, when I can just make easy money speculating debt, or relying on the govt/acc to bail me out if things get rocky.
I understand that its tough for people right now on the lower end of the wealth spectrum, but all this does is move us one step further down the line towards nanny state socialism, MMT and need for an endless money tree.
As a nation we need to find balance with our capabilities, systems and resources, and focus on finding normal again after such harsh lockdown measures. All this scheme does is invent a new ways to prop up a way of life that already is bursting at the seams.
Print more money, tax that money, give more money away, print more money, tax more money, give more money away.
It's a one way street.
Oh dear I am not rich but had income protection since the age of 19 , Have claimed twice due injury that acc wont pay , dont have acc as managers bunch of crooks
Also have redundant insurance and I am not rich either , personally a micky mouse policy that cuold rip the tax payer off
ALL TAX DEDUCTABLE
Levy!! Tax!! WTF!! Same shit, new name.
Get fk all for it in return.
Income tax, GST on everything. Council rates, levy.
What is the point of working in this country? Should just live on benefit. Resigning first thing tomorrow and be part of great resignation. Then will let government support me until they do.
When is a tax not a tax? When the Prime Minister says so. John Key has denied going back on his word...
Asked what the difference was between a tax and a levy, he replied "many", and when pressed, to "Google it".
"There's a lot of technical answers, IRD can give you those answers," Key said. "I could too, but I'm not going to bother."
But you're right.
Unfortunately hard work is not rewarded. Best to either sit on a benefit or sit on an asset (and its benefit).
In the UK all of my previous employers paid redundancy to exited staff. Adjusting to NZ with no offer of redundancy payment was a bit of a shock. I have never been made redundant but it’s nice to have a safety net. I already pay for income protection and illness cover. This scheme might be cheaper and more generous. Looks good value to me, but I would like to see all the details and review the fine print of my current policies before I could make a firm decision.
Shove your tax. Add this to the 3% increase in the top tax rate, inflation of 6%, housing up 40% in 23-months and a regional fuel tax....
Grant, how out of touch with working kiwis are you? Reading your responses to Bernard Hickey on house prices tells me you live on Mars.
For the love of NZ lets hope voters kick these turkeys out in ‘23.
I almost forgot how much I ended up hating Helen Clark. Starting to remember now!
Honestly, all I wanted was house prices to stop going spastic.
And the occasional joint...
Don't worry. My 'anyone with realistic chance and not Labour' vote is already locked in... I think I will setup a diary reminder just in case I forgot how pissy I feel right now (when the free pre-election handouts start coming).
This is insanity. The tax take is absolutely booming with low unemployment and increasing wages. But Labour says it's still not enough. Their mantra appears to be:
1. Tax take is NEVER enough, despite it growing 20% in a year
2. Productive work is where we get all taxes
3. Never, ever, ever suggest taxing speculation
We ALREADY have an unemployment benefit. Claiming we need another one without fixing the existing one is pretty damn stupid.
Don't worry, they are already well looked after. Significantly above the cap on the pleb scheme, but only for 3 months.
https://www.nzherald.co.nz/nz/former-mps-and-their-perks-salary-free-tr…
Sneaks in just below my 2.7% pay rise I got late last year, but well above the 0% pay rise I got the year before. Net effect: Almost no change since October 2019. Remind me again how much the cost of living hasn't moved since then?
(To clarify, my employer would definitely be taking their portion out of my salary package, just as they would for Kiwisaver.)
Welcome to MMT socialism. Its great for a while, until you realise its just a giant squeeze by the people who say they are working in your best interests.
Whilst the average billionare has increased their wealth how much in the last 3 years?
The real issues will start when the cost of climate change comes home to roost. Whose going to end up paying for that do you think (socially & financially?)
We’re going to push on…
Yes, why let the fact the public doesn't actually appear to want the scheme interfere with public policy proposals? Still I'm slightly surprised that the government rolled over on CGT when it'd have been easiest to implement but is willing to go out to bat for a new tax people don't want at a time when people are most concerned about household budgets.
As an employer I struggle with this on a number of fronts,
1) it is going to be run by an already very inefficient organisation who doesn’t have a good track record for paying those who need to be with valid claims, multiple stuff ups over the years from acc that need correcting
2) I can see staff trying to resign over sickness to get another months paid leave before they start a new job, just another cost to the employer,
3) I don’t see any mention on how this is calculated, my worry is that if it is 1.39% of take home after tax pay, instead of gross, this will hurt both employee and employer more than published,
easy to make these decisions when you don’t have to pay for it……..
According to the Tax Working Group only half of taxpayers are net contributors at all, with the lower-income half effectively paying less than zero. So we are already relying on half to carry the can for everyone else (including all the people who aren't in the workforce). Within the half that do make a net contribution there is also a steep curve.
I paid more in tax last month than most people do in a year. I have always been happy to do so. But this government seems hell bent on extracting ever more out of me to shower the middle classes with welfare (let's be honest - this is of no real benefit to the genuinely vulnerable). At a top rate of 33% I was happy not to bother IRD with deductions for anything for many years. At 39% plus, in effect, 2.6%, they can get knobbed. Expect plenty of claims this year, Commissioner, and be ready with my refund in hand.
Keep squeezing the only people who actually pay into the system and all you will be left with are the people who don't. Then what?
4% of tax payers pay 30% of the actual tax. (https://www.treasury.govt.nz/sites/default/files/2017-11/oia-20140291.pdf)
The Irish model will become more popular and is a well-worn path. Whether your business has the scale to make it worth while is the main decision to make.
Exactly. It’s a solution to a problem that doesn’t exist, and it’s something that nobody is asking for.
I’m fortunate enough to be earning 6 figures. In my case that means I know to set money aside for a rainy day. Others get income protection. What I’ve never needed is 2.6% tax whacked on top. Apparently the gov knows best?
Unless we’re really saving the arses of people who borrowed too much on housing. Tax me and to protect them.
Sounds like they don't want an opt-out option?
What if you're very near retirement age? Why should you be forced into being 'levied' for a scheme that you would highly unlikely have use for?
If you're still working past the age of super entitlement, should you be forced to be 'levied' for this scheme?
Can someone supplying contracting services ever be made redundant? When their line of work hits a dry spell does that count? Are they still being levied regardless?
Interesting that Kirk Hope is on board will it's design and reasons for having this common enough scheme overseas.
National poo pooing the idea shows they are "better at managing the economy" ...
Business do better under Labour, better under Democrats in US. This is an example.
Min wage will need to go up to pay for this, employers will pass this on through COGS, inflation will stay high, people will start to struggle, businesses may start to off load staff. Oh I guess you will need it Grant for the carnage about to come, is this what you are really saying. We need a scheme like this because of your incompetence in managing the economy.
When is a tax not a tax? When the Prime Minister says so. John Key has denied going back on his word...
Asked what the difference was between a tax and a levy, he replied "many", and when pressed, to "Google it".
"There's a lot of technical answers, IRD can give you those answers," Key said. "I could too, but I'm not going to bother."
Labour certainly knows how to shoot itself in the foot!
Not sure JA can save Labour in next election from their lack of preparation and half baked 'tax and spend' policies....
i.e. Covid rules are 'Fluid' (which means no-one understands them) because they keep mutating like COVID itself
Now that they're now earning more than most landlord in tax (rates + tax on interest?!) who are still taking all of the risk, they want to add more taxes to insure us against a risk that will only subsidise the government
I used to support the left, now I just think they are impractical idealistic dreamers
It's not clear. I am the same. I suspect if you fall under the "labour hire" model, then your recruiter will have to pay it, which they will pass on via a deduction in your hourly rate and via your employer (they certainly wouldn't reduce their ticket clipping!).
However if you opt out of that model: https://www.ird.govt.nz/income-tax/withholding-taxes/schedular-payments…
Then I expect ACC to charge you a yearly amount for it, just as they do for their levy (which they then waste on being one of the most useless agencies in NZ government). Hopefully, you will be able to opt out completely, but the government always comes looking for it's pound of flesh...
While I applaud the idea of having some financial protection in the event that something unexpected happens to you in your job, outside of an work place accident that is already covered by ACC levies, it does seem to me that we're perpetuating the idea that you don't need to take responsibility for your own welfare.
Those on low income can't afford to be paying 1.39% into this scheme, those on high income have no need for redundancy protection and can usually structure their earnings to avoid paying such things, so that leaves the middle-income PAYE earners footing the bill.
I might just have to get my employer to "restructure" and hire me back as a consultant.
Not if you are a working NZ'er.
It increases benefits by stealth, but paid for by the majority who never need it, and are already paying for Labours welfare state in the salaries.
As an employer, the extra 1.4% payment will come our of next years allocation of funds for wage increases so the employee will pay twice.
No it doesn't. It shifts money from employees and employers to the ACC for the entire time you're employed. And if you are a good employee working for a good well managed business doing a good job that you're happy in, you'll never see most of that money back. Remember - you'll only ever see up to 6 months worth of up to 80% of your income.
If you're earning, say, $70k, then converting that to an hourly pre-tax rate is $35.90/hour.
80% of that is $28.71 before tax.
Extrapolating that out to 6 months is $28.71 x 37.5 x 26 weeks = $28,000.
To accumulate $28k at 2.78% of each hour's wage, before tax would take 14.388 years to accumulate, then after that you're paying money for nothing.
Of course your income changes over time and you're likely to be wanting to change jobs over that time.
BUT this is for income protection in the event of redundancy, not resignation.
Robertson clearly is aware that his "regressive tax" hits high earners by more as they still pay a proportion of their income, but are not protected by the provisions beyond a certain level.
Add to that, many people have their own income protection policies, I have had this since my mid twenties, and if unable to work, it would pay 80% of my total rem (which is above the governments scheme limit) until I retire for a monthly cost of $6-700. Why would I now drop this for a policy that only covers 6 months of a lower income, but costs me $500 and the employer $500.
Make sure you make a submission on the MBIE website using the link below (note: its asking mostly about how the scheme should run, but included options to change share of payments, increase at any time, make available for people who are fired or quit their jobs, and also for illness).
Only at the end can you make the statement that you disagree with the need for the scheme at all
https://www.mbie.govt.nz/have-your-say/income-insurance/
Does ACC have a huge liability it suddenly needs funds to cover that they aren't telling us about?
Because at 2.8% of everyone's pay this levy is enough to cover 5% of the workforce being made redundant each year, which is very unlikely. Where is the rest of the money going?
Why can’t this insurance be rolled into kiwisaver? The unemployed could take the standard unemployment benefit then top it up to 80% or whatever of their previous salary or wages out of their kiwisaver fund.
While they’re at it, making kiwisaver contributions tax exempt would be nice.
I should say, Robertson has been keen on this scheme for some time. I wrote about it a bit before the 2020 election, when work was already on the go around it on the back of a recommendation from the Productivity Commission. So it isn't a knee-jerk idea. I sense Robertson wants this to be his legacy.
However, the merits or flaws of the policy aside, it's a bad time (in my view) for him to try to sell it, with living costs rising/real wages falling and unemployment low.
This is another policy that they were not elected to implement.
That's 3 major policies that they're pushing on with regardless of what the public wants, and without an electoral mandate for those specific policies.
And yes - it is a tax because it is compulsory.
And most people would never recover all the money they pay into it over the years.
I like the idea of the scheme but believe the levels of funding are too high because the scheme as it stands tries to do too much poorly.
- ~3% of wages a year is higher than i was expecting (adding employee and employer contributions)
- Would prefer to see a greater focus on medical forced leave and it extended out to a year. People can find other work if they are well to tide them over if they want. Got cancer or a serious mental illness that ACC wont cover, that could be a year out of your life. Most poeple arnt insured for that because the numbers insured are low and therefore the costs are high.
- Abandon the redundancy payment side of it.
Questions that should have asked:
1. How much and how long has the government studied this to put together a case for it? With what's happened in the past two years, when has the government had time, money and resources to come up with this scheme?
2. Citizens now get support through sickness and jobseeker benefits. If they wanted a more significant level of support as proposed in this scheme, shouldn't they be allowed to choose to participate in it (through WINZ or in their PAYE while they are/were employed)?
3. Why not increase sickness and jobseeker benefits for 6 months and then reduce it after? And why 6 months? How did they arrive at that timeframe? It took me 9 months to find a job 2020-2021. For some it may have been a shorter time, for others longer.
4. Why is there a cap at $130,000 income? Isn't that advantaging the rich? They would be the ones who would be less hit by the scheme. So you'd pay $130,000 x 1.9% to the scheme, even though your salary may be $300,000. AND you'd be paid 80% of $300,000 if you got ill or were made redundant? How's that fair, especially for low-income earners?
5. Should there not be a floor to the lower-income then? i.e. those on minimum wage be exempt?
6. Why ACC? Redundancy doesn't fall under the scope of accidents and illnesses, does it?
7. If it's not a tax, then it should be optional or applied to a select group of people (e.g. top earners), shouldn't it? A levy is selective, a tax is universal.
8. Is the government foreseeing a large number of redundancies in various industries in the near future? Is so, where? How does it know? What are the indicators?
9. If EVERYBODY must participate in it, then why must it be 1.9% and not less? e.g. 1% Why and how did the government arrive at that figure?
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