Finance Minister Grant Robertson faces criticism over proposed income insurance scheme. Photo / Mark Mitchell
The Child Poverty Action Group (CPAG) has “deep concerns” about the Government’s proposal to create an income insurance scheme.
The charity argues it would be fairer and more efficient for the existing welfare system to
be strengthened in line with recommendations made by the government-established Welfare Expert Advisory Group in 2019, rather than create a two-tier welfare system.
The Government wants to establish an income insurance scheme to provide those who lose their jobs due to illness or redundancy with a safety net, so they don’t fall straight into the regular welfare system.
The proposed scheme would make it compulsory for all employees to pay 1.39 per cent of their wages/salaries to the scheme. This contribution would be matched by their employer.
If someone lost their job, they would be paid 80 per cent of their previous wage/salary for up to six months.
Levies would be capped for employees (and their employers) who earn more than $130,911 a year. Payouts would be limited accordingly.
To qualify, employees would need to have contributed to the scheme for at least six months over the 18 months before they made a claim.
The CPAG raised its concerns with the proposed scheme through a consultation process the Ministry of Business Innovation and Employment (MBIE) ran earlier this year. One of the group’s researchers, University of Auckland associate professor Susan St John, gave the Herald a copy of its submission on request.
The CPAG detailed how those who make claims under the proposed scheme would be given preferential treatment over those in the regular welfare system.
Under the proposal, a claimant would be paid out regardless of what their partner earned. However, someone in the regular welfare system may be ineligible for support depending on their partner’s income.
An income insurance claimant would be able to work to supplement their payout, provided their total incomings didn’t exceed what they earned before they lost their job. Investment income wouldn’t be counted.
Meanwhile a single person over 25 on Jobseeker Support (which pays $315 a week after tax) can only earn a maximum of $160 a week (before tax) before their benefit is docked. Investment income is counted.
Income insurance wouldn’t be asset tested, whereas asset testing is done for beneficiaries who apply for supplementary assistance.
Over-65s who work and receive New Zealand Superannuation would also be eligible for income insurance.
The CPAG said the $3.5 billion, which the income insurance scheme is expected to cost each year, could be better spent bolstering the existing welfare system. It feared the scheme’s establishment could stymie progress in this space.
“If support for displaced or sick workers was adequate and easy to access then there would be no need for a social unemployment insurance scheme,” the CPAG said.
It coined the levy on wages a “tax hike”, fearing it could prompt low-income earners to opt out of KiwiSaver.
“The proposed levy on top of ACC and 3 per cent KiwiSaver is about 5.6 per cent of gross earnings,” the CPAG said.
“The additional employer contribution inhibits wage growth and so is effectively also an impost on the worker.”
Asked by the Herald whether he would consider setting a lower levy for low-income earners, Finance Minister Grant Robertson recognised that was one of the issues he wanted feedback on.
But he concluded, “If we want to fully fund the scheme – which we do – then a lower levy would need to be made up somehow.”
The CPAG worried those who need to leave work to care for family wouldn’t be covered by the scheme. It therefore believed it was discriminatory against women, who typically do this kind of work.
Robertson suggested he wouldn’t budge on the issue.
“We need to have some boundaries for the scheme,” he said.
The CPAG concluded, “It is disappointing that an important policy initiative with significant economic impacts and opportunity costs does so little to acknowledge, let alone address child poverty.”
Robertson expected MBIE to publish all 2000-odd submissions it received via its consultation within the next week. The consultation closed in late-April. Publication of submissions appears to have been delayed.
Robertson confirmed he was committed to creating the scheme.