Jacinda Ardern fires up after Christopher Luxon dubs proposed income insurance scheme a 'job tax'

Christopher Luxon's "job tax" description of the Government's proposed income insurance scheme has not gone down well with the Prime Minister.

The ACC-style scheme announced earlier this month 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.

The proposal also includes a mandatory four-week notice period from employers, paid at 80 percent of the employee's salary. The worker would then get a further six months of financial support, including for training, also at 80 percent of their salary. 

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, each paying about 1.39 percent. The scheme, which wouldn't come until late 2023, is estimated to cost $3.54 billion a year. 

At a time when the price of goods and services in New Zealand is up a record 5.9 percent - the biggest jump since a 7.6 percent increase in 1990 - Luxon said on Tuesday now is not the time to be adding more costs on businesses and workers.

Unemployment is at 3.2 percent, the lowest rate since 1986, meaning it's an incredibly tight labour market. 

"Why is she proposing a brand new jobs tax under the guise of income insurance that will see costs for businesses increase and income for workers decrease at a time of rising inflation and falling real incomes?" the National leader said in Parliament. 

Ardern said she was "disappointed" to hear Luxon characterise a scheme that is "ultimately designed to support New Zealand workers in a time of economic shock" as a tax. 

"Business New Zealand and the Council of Trade Unions - an extraordinary tripartite agreement - have come together to make this proposal," Ardern said. 

"We have now experienced the Christchurch earthquakes, the GFC [Global Financial Crisis] and a pandemic, which has demonstrated the need for us - New Zealand - to no longer be on the outside with Australia as the only OECD countries that do not have a form of job protection insurance. 

"I welcome the fact that we have agreement amongst Business New Zealand and the CTU. It's a shame the Opposition won't join them."

Luxon quoted former BNZ chief economist Tony Alexander who says the proposed income insurance scheme will fuel inflation because he predicts wages will not increase enough to compensate workers.

Ardern responded: "The member is totally ignoring the fact that the period in which we are developing this policy will take us beyond the period we're expecting to experience this increase in inflation - 2023 is the timeline we're working to. 

"It is incredibly short-sighted to have the member criticise spending which has kept people in their jobs through the wage subsidy and then criticise a solution designed to support New Zealanders should they in the future experience a jarring shock to our economy. 

"It demonstrates again how short-sighted and lacking ideas to protect New Zealand in the future the Opposition are."

Luxon asked how "taxing workers and businesses more is going to help address the cost of living crisis" in New Zealand. 

"Interesting, does the member call ACC that same thing? Because this is where we are mirroring this programme and this policy around," Ardern said. 

"A hundred thousand New Zealanders lose their job every year and if you think about the number who experience a diagnosis like cancer that means they are for a time unable to work. This is not something that only affects a small number of New Zealanders. 

"Almost all the countries we compare ourselves to have something similar. Disappointing that the member cannot see the benefits to New Zealand of such a scheme."

Senior Labour Minister Chris Hipkins reminded Luxon that it was the previous National Government that increased the tax on goods and services from 12.5 percent to 15 percent to pay for tax cuts. 

"I would absolutely acknowledge what the member has raised which is the last time New Zealanders saw a significant increase in the cost of living in that manner it was actually imposed by the National Government," Ardern said. 

Former Prime Minister Sir John Key at the time argued against concerns the GST increase would harm low income earners, because higher income earners consumed more and therefore paid more in tax.