NZ Income Insurance Scheme (NZIIS)
Business South will be making a submission to the Government on behalf of southern businesses before the consultation period closes on 26 April 2022. Here’s details on the proposed scheme.
What is the New Zealand Insurance Scheme (NZIIS)?
An NZIIS would essentially be an expansion of the ACC scheme. Workers who cannot work because of redundancy or illness will be entitled to income support of 80% of pre replacement income, capped at $130,000 (the same as current ACC entitlements). Employers would be required to give 4 weeks’ notice and additionally pay 4 weeks wages at 80% prior to the worker entering the scheme. The 4 weeks at 80% payment is refundable if the employer takes active steps to find the displaced worker new employment. Access to the scheme requires commitment to enter retraining or rehabilitation programs. Access can be denied or cancelled if this requirement not met.
The proposed insurance scheme has a (4 week) contingent liability that would be paid out at the point of termination. The insurance scheme has ongoing costs in the form of a payroll levy on both employers and workers. The cost of this level is projected to be 1.39% each for workers (roughly $12 per week for a worker on the minimum wage) and employers. This would drop to about 0.8% if redundancy only was covered by the scheme. Safeguards also need to be put in place to prevent “gaming”, ie, incentives to “take the money and run” (workers) or “dump” poor performers (employers) must also be countered.
What is the problem the NZIIS is intended to solve?
The Government takes the view that New Zealand has a gap in its support mechanism for people that lose their job through no fault of their own. NZ and Australia are the only two countries in the OECD that don’t have this kind of scheme. The Government see this as an increasing risk in a more uncertain future world, where traditional work and jobs could be disrupted by any manner of things, including an increasingly digital/high tech economy, a move to a low carbon economy, an economy disrupted by global shocks and/or pandemics etc. The rationale for a scheme that supports retraining and more time to achieve better job/skills matching is that people are not forced to take any job to survive, which might be underutilising their skills and for lower pay, with a loss of productivity to the country. Also an income insurance scheme has the potential to soften the blow for a region where a large employer is no longer viable and winds down their operations quite abruptly.
We all saw the impact of Covid19 on the New Zealand economy, with some regions particularly hard-hit jobs wise e.g. tourism, hospitality and the absence of international students. Some would say we came through that with record low unemployment, but the Government supported jobs with sixty billion dollars’ worth of borrowing.
Is this the best scheme to deal with the problem described?
The Government is not happy with the status quo, so it was either going to be this sort of approach – where the cost is shared between employers and employees, or compulsory redundancy, which would have fallen 100% on employers and been more expensive for employers.
BusinessNZ’s View of the Scheme
BusinessNZ was supportive of discussing the issue and getting feedback from the business community on the proposal, but note that, as with any policy change the “devil is in the detail”.
BusinessNZ notes that countries have to pay for these employment shocks one way or another. As we have seen through the pandemic, Governments around the world took on more Government debt through quantitative easing (printing money). That comes with its own problems as we are now seeing with increasing inflation. Another option is to beef up the unemployment entitlements, but that would probably require increasing taxes and people would not be getting any dedicated retraining or upskilling for future opportunities.
BusinessNZ was supportive of looking at alternatives, but that came with some proviso’s as well.
Ideally such a scheme should be reflecting the fact that a burden is being removed from the State, and as such there should be a commensurate reduction in corporate tax to help fund the scheme.
The scheme should allow for pre-existing corporate schemes for redundancy that have the support or employees and also not disrupt individual arrangements that people already have with the insurance sector to support them through job losses.
The scheme should be restricted to redundancy situations and not widened out to include health and disability, which significantly increases the cost and moral hazard of the scheme.
The timing of the introduction of such a scheme is important, and arguably as businesses are recovering from Covid19, the timing is not the best.
BusinessNZ can see merit in having a scheme that invests in people’s skills to ensure a highly productive workforce that has well matched skills to job opportunities going forward.
Key Messages for Government and Members
- The BusinessNZ Network has participated in the Future of Work Tripartite Forum in good faith, and one of the Forum’s outputs has been a proposal for a NZ Income Insurance Scheme.
- The proposal has strayed a long way from what would be acceptable to the BusinessNZ Network and the business community we represent and therefore we cannot support it in its current form.
- There has been significant scope creep with the inclusion of health and disability (with no commensurate tax reductions) and no mention of the removal of balance sheet provisions for redundancies, which we would have expected to see.
- The inclusion of health-related costs has significantly increased the cost of the scheme (see graph below) and the potential for future scope creep is very high risk, particularly given the government is not funding the scheme and will have no incentive to reign it in.
NZ Income Insurance Scheme: Q&A with Mike Collins and Kirk Hope
Get engaged. It is a discussion document, and the policy work is still be done. There is plenty of scope to inform policy, so do provide input and feedback.
See here for MBIE’s full and summary version.
How to provide feedback
No decisions will be made on the form, scope and process of a scheme until all views have been considered.
Fair Pay Agreement
NZ Income Insurance Scheme
Feedback to Business South closes 12 April 2022
Have your say
Submit your feedback to Business South