Greens fear income insurance scheme will 'embed two-tier system' of rich and poor

The Government's proposed income insurance scheme "risks embedding a two-tier system" of rich and poor, according to Green MP Ricardo Menéndez March.

The ACC-style scheme would see workers made redundant, laid off or who have to stop working because of a health condition or disability, receive 80 percent of their usual salary for up to seven months.

It would include a four-week notice period and four-week payment, paid at 80 percent of salary, from employers. It would also include a further six months of financial support from the scheme, including support for training, also at 80 percent of salary. 

However, the maximum payment would be capped at $130,911, in line with the maximum leviable income that ACC has in place. 

To pay for it, the Government is proposing an ACC-administered fund that both workers and employers would contribute to, paying about 1.39 percent each into the scheme. The scheme, which wouldn't come until late 2023, is estimated to cost $3.54 billion a year. 

Menéndez March says the scheme is not equitable. 

"Under the Government's current proposals support will be available to people based on their current income and work history. This means lower levels of support for those who have been earning less, including those in casual or seasonal work, and/or those with caring responsibilities.

"Because of who predominantly does this type of work, we know that it will be young, female, and Māori and Pacific people who will get the lowest payments from this long-awaited new scheme.

"There also needs to be support to help people on lower incomes cover the cost of contributing to the scheme. For the thousands of families struggling right now to put food on the table, the 1.37 percent contribution that will have to come from their existing earnings could be the difference between making ends meet or not."

Green MP Ricardo Menéndez March.
Green MP Ricardo Menéndez March. Photo credit: File

Auckland Action Against Poverty Coordinator Brooke Pao Stanley raised similar concerns. 

"The Government's announcement about the potential introduction of a social insurance scheme will entrench a 2-tier welfare system and further exacerbate the already existing high levels of poverty we have here in Aotearoa NZ."

Similar concerns were raised when the Government announced in 2020 the Income Relief Payment for workers who lost their jobs due to the economic impact of COVID-19. It was paid at $490 a week tax-free. After tax, the jobseeker benefit at the time was around half that. 

"It shows just how unlivable and low the current benefit rates are," Green Party co-leader Marama Davidson said at the time. 

'New Zealand cannot afford not to have this'

But Finance Minister Grant Robertson says the scheme is necessary. 

"The scheme is not proposed to come in until the end of 2023, at which point most people are forecasting inflation to be well back within the 1 to 3 percent Reserve Bank band," he told reporters. 

"This is about a long-term plan to make sure New Zealand has the skilled workforce that it needs to make sure that people are able to retrain, they don't have to take the first job that comes along, and to put us in line with what the rest of the world is doing. 

"Nothing is happening right away, it's a discussion document, it's a proposal, and by the time we get to implement it I'm confident inflation will be significantly lower than it is today."

Robertson said it's about "enhancing our overall social security system", because Australia and New Zealand are the only countries within the OECD group of 38 developed nations without some form of publicly-mandated unemployment insurance.

How much the scheme would cost workers.
How much the scheme would cost workers. Photo credit: Supplied

"My view is, New Zealand cannot afford not to have this. 

"We've seen both after the Canterbury earthquakes and COVID-19 the economic scarring that can occur when people lose their jobs and we've known for many years that tens of thousands of people with health conditions and disabilities knock them out of the workforce for a period of time. 

"This is a missing bit of our social security system and it will pay benefits over the long-term. 

"When people lose their jobs suddenly, there is enormous economic scarring for those people, and so this is about adding to that.

"For the welfare system as a whole, we've made significant strides in lifting the incomes of the lowest income New Zealanders, we're in the process of working through the Welfare Expert Advisory Group's recommendations; in fact, this was part of the Welfare Expert Advisory Group's recommendations."

Finance Minister Grant Robertson.
Finance Minister Grant Robertson. Photo credit: Getty Images

Beneficiaries got a $3.3 billion bump in last year's Budget, which saw the Government go beyond recommendations made three years ago by the Welfare Expert Advisory Group, to increase benefit levels to help reduce poverty. 

The Government already increased the benefit by $25 a week in 2020. From July 1 last year, it was lifted again by $20 a week, and a second increase will occur again this year. Families and whānau with children also get a further $15 per adult per week.

It means weekly benefit rates will increase by between $32 and $55 per adult by April this year. The Government expects that 109,000 families and whānau with children will be, on average, $175 a week better off as a result of changes to income support, since 2017.

The unemployment rate is a record low of 3.2 percent - 34 percent below where it was a year ago. The total number of people in work is now 117,300 above where it was in the December 2019 quarter before COVID-19.

But inflation is also at a record high - the price of goods and services in New Zealand increased 5.9 percent in the last three months of 2021 compared to the same period in 2020, the biggest jump since a 7.6 percent annual increase in 1990.

The average hourly wage, by comparison, rose just 3.8 percent to $35.61 an hour. 

Treasury forecasts inflation to cool off next year, but it will largely depend on how COVID-19 plays out. Economists agree that stimulus-spurred consumer buying is a reason for inflation. But it's not that simple. COVID-19 has also disrupted supply-chains across the globe, and when too much money is available to purchase too few goods and services, demand outstrips supply, forcing prices up.