Labour, National clash over social insurance scheme, tax policies

Jane Patterson for RNZ

"The global environment is enormously challenging at the moment ... they are choppy waters," - Finance Minister Grant Robertson

Labour claims New Zealand's economy is holding up well compared to many others, but global pressures and new policies may threaten its re-election chances. 

National has been on the attack, with the cost of living crisis cutting deep, over what it says is wasteful spending and unnecessary taxation - but its own tax plans have left it open to criticism too. 

Labour Finance Minister Grant Robertson cites positive economic indicators - record-low unemployment, low public debt and, though constrained, economic growth - as evidence New Zealand is in a relatively strong financial position.

He acknowledges worker shortages as a main weakness right now, constraining productivity and - as highlighted by the Reserve Bank - driving inflation. The hard-but-necessary border closure decision when Covid-19 hit contributed to this, but Robertson says trades training and loosened immigration will help ease the pressure. 

National won't be easing the political pressure over Robertson's spending, however, honing its latest attacks on the proposed social insurance scheme

The details aren't final, but the plan would see a 2.77 percent levy on pay packets - split between employees and employers - set aside to support worker who lose their job through redundancy, sickness or disability. They would receive 80 percent of their income for up to seven months, capped at $130,000 a year. 

It was in part developed at the urging of the Council of Trade Unions, and Business New Zealand

The latter's chief executive Kirk Hope says they back the principle, but members have had concerns from the start and have been active in responding to the government's discussion document. 

"We would have a preference for a tax-neutral scheme and secondly that health and disability wouldn't be included in the scheme, as that effectively doubles the cost ... business wants the government to start listening - here's an important opportunity for them," Hope says. 

ACT leader David Seymour asked Prime Minister Jacinda Ardern about the scheme in Question Time, saying it would cost a median $59,000 annual wage earner an extra $1634 a year.

"And if they lose their job or if in the horrible situation of getting cancer ... they would get the same $780 that they're already entitled to on a benefit," he said. 

Ardern said the scheme was not finalised and would at the earliest take effect in 2024 or 2025, "well beyond some of the impacts of inflation we're seeing right now"; many in such a situation would be ineligible for the benefit; and the up to 80 percent of lost income would be a "significant difference" compared to what was currently available.  

With employers and employees on the hook, National has been calling it a jobs tax. Robertson argues it is not a tax as the money does not go into the government's coffers - recycled instead back to the workers who need it. 

Either way, the government seems unlikely to back down - Robertson telling RNZ it was a form of support available in nearly every other OECD country they were committed to introducing. 

"This is about providing that bridge for people to their next job, it's really aimed at those people who earn $60,000-$70,000 a year who can't afford their own income insurance, who don't have a redundancy clause in their agreement, who don't have medical insurance if something happens to them," he said.

"We're committed to this, we've got to get the fine detail of it right ... it's our intention to have a scheme."

Robertson has also been fighting back, returning to the "fiscal Bermuda triangle": his well-worn argument over how National will pay for its promises. He says conservative estimates suggest the party needs to find more than $6 billion to fund its proposed tax cuts, while reducing debt - all without cuts to core services and social supports. 

He argues one of the three needs to give. 

National's leader Christopher Luxon says their plan aims to ease financial pressure by leaving households and businesses with more in the bank account. It includes three parts: indexing tax thresholds to inflation, unwinding all new 'taxes' introduced by the government, and an as-yet-unannounced, fully costed fiscal plan ahead of next year's election. 

Tax cuts might be expected to be a surefire win with the electorate - particularly with living costs on the rise - but massive market turbulence in the United Kingdom, sparked by new Prime Minister Liz Truss' controversial tax cut package, has led to furious public reaction there and tanked currencies around the world. 

Back in New Zealand, Luxon has been quick to argue the UK's "significant tax reform coupled with massive stimulus" is not what National proposes. When questioned on Morning Report he stopped short, however, of ruling out borrowing to achieve the party's goals. 

"That's a separate issue, we'll look at the mix of our borrowing and we'll look at our tax and our economic and fiscal plan."

There will be plenty of positioning as all parties try to read the economic tea leaves.

National has yet to substantially articulate exactly how tax relief can be achieved without slashing services, or degrading investment in the quest for surpluses.

Labour will be hoping inflation - one of the greatest risks to the economy, which can in part be blamed on policy - will come off the boil before next year's election. Robertson will certainly be making sure he has plenty in the election year war chest for what's shaping up to be a very tight race.