Okay. Let’s take a look at the proposed Employment Protection Insurance, dangled like a carrot at middle New Zealand by the benevolent Grant Robertson while reading the 2021 Budget. On the face of it, such a scheme would have a couple of major benefits. The first is that those who lose their jobs would get a much larger amount of unemployment benefit than is currently available – Robertson indicated that this amount could be as much as 80% of prior earnings. The second benefit is that it would reduce the amount needed for Jobseeker benefits, as a significant number of the unemployed would be covered by the scheme. Robertson tried to paint it as a possible win-win scenario for all, although he was short on actual detail.
We have never had such a scheme in New Zealand before, but similar schemes exist in other countries, notably those where state support is at a very high level. There are private income protection insurance schemes here, but these generally do not cover unemployment, but rather provide cover for sickness or accidents while employed. So it required a look at overseas schemes to see how they work and what we can expect to happen here.
First, I looked at the scheme in Sweden, because Scandinavian countries are famous for excellent state benefits. Swedish workers can look forward to as much as 80% of their working income being paid during a period of unemployment of up to 300 days. To qualify, employees must join an unemployment insurance fund, and most Swedes join a scheme as soon as they start working. Contributions cost in the region of NZ$35 per month. Anyone not belonging to such a scheme will qualify for basic unemployment benefits. Payments received will depend on hours worked, earnings and how long the worker has been a member of the unemployment insurance fund.
Let’s also look at Germany. The German scheme deducts 2.5% of salary in insurance contributions, but employers pay a similar amount. The German system seems to be run in a similar way to our Kiwisaver, with deductions from salary, paid over to the insurance scheme by the employer, together with employer contributions.
Both schemes rely heavily on employee contributions, but in saying that, our scheme would be run similarly to our ACC scheme. Looking at the way this government has piled extra costs onto businesses with additional sick leave, extra public holidays and high minimum wages, I would be very surprised if employees end up paying the bulk of their unemployment insurance contributions. Robertson has already implied, by drawing comparisons with ACC, that employers will pay the bulk of the costs incurred.
By calling it a levy rather than a tax (or even a ‘contribution’, as described in both the Swedish and German schemes), Robertson has, I believe, let the cat out of the bag as to how this scheme is to be funded. He has also chosen his words carefully, so as not to be accused of breaking his promise of no new taxes. To an employer though, the term ‘levy’ is just semantics.
ACC levies are effectively an employment tax. They are compulsory; there is little or no control over how much the employer pays and the levy rate is determined by the government. It is a tax in all but name. Might I suggest that it looks as though the unemployment insurance scheme will be much the same?
The Swedish system is not compulsory and it is, as far as I can tell, funded only by employee contributions. The German system is compulsory and is funded by both employers and employees, in roughly equal contributions. To me, the Swedish system makes the most sense because it is voluntary and contributions are paid by the future beneficiary. At the very least, employees should pay a significant contribution to their unemployment insurance. Otherwise, Grant Robertson is shifting the considerable cost of unemployment from the state to the employer.
He wouldn’t do that though… would he?
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