Robertson’s proposed income insurance scheme would raise $4 billion a year

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Report and comment by Michael Coles

Five thoughts flashed through my mind when reading minister of finance Grant Robertson’s breathless announcement on 2 February about his proposed state-backed income insurance scheme.

  1. What strings will be attached to receive this benefit?
  2. Is government expecting lots of people to be too ill to work?
  3. Is this a money grab to help pay back the $Billions spent on its covid response?
  4. How will it effect the private insurance sector that sell income protection policies?
  5. How much money will it bring in for government?

According to Robertson press release, each employer would pay 1.39% of wages paid and each employee would pay 1.39% of their income under this proposed new tax.

Very roughly, and based on all salaries and wages paid in 2021 ($147.7 billion) – total income from the proposed scheme in one year would be around $4 billion. (2.76% of $147.7 billion).

In an average year Robertson says around 100,000 people find themselves either out of work or unable to work. However, employees would need to be a member of the scheme for 18 months before they could apply for help.

Download insurance scheme details.

While the scheme is in its public consultation phase (until 26 April 2022), Robertson has released plenty of details of his proposed scheme.

If put into practice, the scheme will pay eligible employees 80% of their annual salary for up to seven months (with a $130,000 annual cap) should they find themselves “made redundant, laid off, or have to stop working because of a health condition or disability”.

Robertson says the key features of this new tax are:

  • Coverage for job losses due to redundancy, layoffs and health conditions and disabilities
  • A four-week notice period and four-week payment, at 80 percent of salary, from employers
  • A further six months of financial support from the scheme, including support for training at 80% of wages or a salary
  • A case management service to support people’s return to work
  • It will be administered by ACC

The fact ACC is involved will concern anyone who has ever had to deal with this company. So mired in bureaucracy and penny-pinching rules and regulations, Robertson’s decision to place his income insurance scheme under the management of this bumbling dinosaur is his first mistake.

Then there is the issue of government assigning a ‘case manager’ to each person claiming something they are supposedly entitled to (having been forced to pay into the scheme). One can imagine that anyone feeling too unwell to work will be put through the ringer to retain this benefit.

And if ACC manages the scheme with a heavy hand, then not only is this yet another tax on the working poor, but another method to control the people (if payments come with any strings attached).

Then you have to look at all the other existing benefits already in place. Will they be changed?

The scheme could also be another nudge toward UBI – Universal Basic Income.

As recently as five years ago, seeing the impact AI, machines, and robotics were having on the manufacturing sector, I supported UBI. If and when it is introduced it would provide each working age person with a weekly income – no questions asked.

It sounds a fine idea – Utopia for some. But then recipients of the income will likely need to follow a few government rules that those who enjoy freedom of choice might not agree with.

That aside, Robertson’s plan for an income protection scheme pulls the rug from beneath the private insurance sector. And, would the self-employed or owners of failed businesses be eligible for Robertson’s scheme?

But looking at the amount of cash the scheme will raise – $400 billion in 10 years – it looks like another cash grab from a government with too much debt and a light rail scheme to pay for.

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