By Susan St John
Susan St John responds to the newly-announced income insurance scheme with some suggestions on how to tweak and improve what we already have.
The welfare state should ensure there is always adequate income in the event of loss of employment, ill-health, old age, childhood and at other stages of citizen’s lives.
New Zealand achieves this ideal with varying degrees of success. Along with Australia, our approach – named the Antipodean model – is very different to that of the USA and European countries where extensive social insurance programmes pay earnings-related pensions and time limited unemployment insurance, funded by high social security taxes.
For the many, especially women and ethnic minorities, who don’t have the work record to qualify for social insurance, or partners to support them, there is the stigma of meagre means-tested ‘supplementary assistance’.
The most successful part of the New Zealand welfare state is the universal flat-rate pension (NZ Super $18 billion) for all over 65. It doesn’t pretend to relate pensions to past contributions and works like an unconditional basic income. NZS is uniquely inclusive, generous, egalitarian, good for all women and disadvantaged minorities, and above all simple.
The young are supported by income-tested child tax credits in Working for Families (WFF $3.5 billion). This too provides unconditional income for children in families earning under $42,700. An unfortunate and damaging exception is that there is one conditionality: parents must not be accessing any core benefit for their children to get the full amount.
Working age adults are the least well protected unless they have earnings-related compensation for injuries (ACC $5.2 billion). The welfare system offers a stigmatised, low, basic flat-rate, jointly income-tested benefit forcing most recipients to apply for means-tested top ups, too much via repayable loans. The income gaps are plugged in increasingly unsustainable ways with food banks, charities and private high-cost loans.
Australia has a somewhat similar approach but means-tests its state pension. It does not have a separate unemployment insurance scheme. Just because the ‘Antipodean model’ is very different it does not mean a new complex addition is required. Indeed, it can be argued that we have a very inclusive and sensible framework that should be tweaked to make it fit for the 21st Century.
But, with welfare reform at snail’s pace, the New Zealand Government is proposing a large new social insurance earnings-related payment ($3.5 billion) to facilitate the retraining and reemployment of displaced workers in times of natural disaster, rapid technology changes or pandemic, and even illness.
Social insurance would pay 80 percent of lost earnings up to around $2000 gross a week for up to seven months with the first four weeks paid by the employer. It requires a 2.8 percent of wage contribution shared between employee and employer, and six months of contribution in the last 18 months to qualify.
What is wrong here? The discussion document is highly aspirational, implying that all the problems of the low-paid, those in casual precarious, just-in-time work, often with multiple jobs, will be covered, benefitting women and Māori and Pacific peoples who are most likely to be in these insecure and often temporary roles.
But there is little detail as to how the scheme could enforce four weeks from employers when the business may have collapsed. Who takes responsibility where there are multiple short-term casual and precarious jobs. Who assesses qualifying health conditions? What about women’s unpaid caregiving work? Are women reassured by the fact that Minister for Social Development and Employment Carmel Sepuloni says she was in the room when the scheme was developed?
ACC is expected to run the scheme, even though it has been focused in recent years on excluding any extensions of coverage, especially to disability caused by illness unless proven work-related. Has ACC got the capacity to case manage, police and administer the new social insurance? ACC is based on the no-fault principle, including coverage when it is ‘one’s own fault’, while social insurance will require that loss of the job is ‘no fault of the worker’. Who decides on ‘no fault of the worker’?
Like ACC itself, the new scheme is expected to be fully funded, so it has enough in its coffers to meet all current and future claims. But how does that work in a widespread event like the pandemic? Wouldn’t employers be unable to pay the first four weeks? Wouldn’t the coffers be exhausted quickly and levies have to go up?
The timeline is very short, with the anticipation the scheme will be running by the end of next year. The sheer complexity of the legislation, especially if ill-health is included, and lack of political agreement makes this highly unlikely. In the meantime, the plight of the disabled and others on welfare remains unaddressed.
Should the alternatives of fixing the current arrangements with urgency be at least evaluated? What could these look like?
First, welfare benefits could be made much more accessible for the sick and disabled and lifted to 33 percent of the net average wage to be more like NZ Super. They would be paid without reference to a partners’ earnings but taxed under a progressive tax scale. All unemployed people would be actively case-managed to retrain and redirected to emerging 21st Century skilled and unskilled jobs. In the case of national crises, displaced workers could be given temporary access to additional tailored assistance as at present. Sole parents’ benefits raise particular issues and need careful reform, beyond the space here to discuss.
Second, all seriously disabled without regard to cause could be given access to the level of rehabilitation and medical treatment currently state provides only to accident victims.
The tax credits for children should be paid in full to all low-income families. As income increases above say $48,000 they should be reduced at a modest rate (much less than the new 27 percent abatement). Proper annual indexing with a wage link like NZS is the least we can do for our children. Family debt to government agencies could be forgiven, and much of the student loan debt written off.
NZS should be paid as a basic non-taxed income to all at 65 and recipients put on a separate progressive tax scale to claw back from high-income earners. The revenue could help fund the seriously ill and disabled who currently miss out on ACC, and to fund the 21st Century tweaks needed to make New Zealand’s welfare state once again one to be proud of.
This article was originally published on Newsroom and was republished with permission. For the original, click here.
Susan St John is an Associate Professor at the University of Auckland. She is the Director of the Retirement Policy and Research Centre.
Disclaimer: The ideas expressed in this article reflect the author’s views and not necessarily the views of The Big Q.
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