Businesses want a cheaper, redundancy-only unemployment insurance scheme

Wednesday, 2 February 2022

Job ads fell in June, Seek said, but remained well up on pre-pandemic levels.

Businesses want a cheaper, more slimline redundancy-only unemployment insurance scheme than the Government is proposing.

The Government has unveiled a proposed compulsory national income insurance scheme which would replace 80 per cent of a worker’s income (up to a cap of $130,911) for a maximum period of six months, in the event of them involuntarily losing their jobs, in addition to employers being required to pay a “bridging payment” for the first four weeks after a worker is laid off.

But the estimated $3.54 billion-a-year cost of the proposed scheme is too high for businesses, and will fuel inflation, critics of the proposals say.

Kirk Hope, chief executive of Business NZ, said its members supported a “narrower” scheme focused only on providing support to people who were made redundant.

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The official unemployment rate is based on a survey by Stats NZ. To count, people must have actively looked for work in the previous four weeks.

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The scheme, which is designed to soften the blow of redundancy, would come at the cost of an estimated 2.77 per cent levy on workers’ incomes, with half being taken from their pay packets, and half paid by employers.

But the scheme covers more than just redundancy, it would also cover people who stop work due to illness.

The Government estimates that of the $3.54b estimated costs, $1.81b would pay for redundancy cover, and $1.73b to cover loss of work due to health and disability claims.

The double coverage was designed to complement the ACC scheme, which replaces a portion of workers’ incomes, should they have to stop work after an accident.

Hope said: “We are certainly supportive of a narrower scheme, focused on redundancy.”

That scheme could help retrain redundant workers, support them to find work, and avoid them having to accept lower-paid work, which could leave them “income-scared”, meaning they are paid less for the rest of their working lives.

Independent economist Tony Alexander said the scheme’s levies were effectively a new tax.

Businesses would pass on the costs to their customers, which would push up inflation, but workers would have to adjust, as they may not be able to negotiate higher wages to cover the hit to their incomes.

Business New Zealand chief executive, Kirk Hope, says all businesses are short of workers.

“I don't believe wages will increase enough to compensate workers,” Alexander said.

“It's going to worsen average after-tax incomes for Kiwi households.”

The exception was for those people made redundant, who would no longer have to go cap in hand immediately to Work and Income, Alexander said.

Independent Economist Tony Alexander says property sales have fallen to levels not seen since the end of the global financial crisis.

He questioned the need for the scheme.

“This is a backward-looking policy, based on the experiences of the 1970s,” he said.

The future was one of worker power, with constrained labour markets.

“We now have a structural tightening of the labour market,” he said.

The proposed scheme would be compulsory, with workers unable to opt-out, though truly self-employed people would not have to join the scheme. But joining would be compulsory for everyone else, including the group of self-employed people who most resembled employees.

People would not be able to claim on the scheme, until after having contributed to the scheme for at least six months over the 18 months preceding the claim.

Alexander said the scheme appeared to have been designed by a government looking at the past, not the future.

Independent economist Shamubeel Eaqub said a key consideration to manage the impact on households and businesses would be how it was phased in, and whether the increase in costs for already-struggling lower-income households should be subsidised by a drop in the tax rates for lower-income workers.

Annie Newman, E tū union's assistant national secretary, said the cost on lower income households needed to be factored in to the national minimum wage, when it was reset in April.

“The minimum wage has to go up,” she said.

The scheme, which the Government hopes to start operating in 2023, would have impacts on financial businesses too, reducing the risk on bank home loans, and also potentially weakening the case for some forms of private insurance, like income protection.

Richard Klipin, chief executive from the Financial Services Council, said private insurance would retain its place because most income protection policies had stand-down periods of three to six months before people could make claims.