Unemployment insurance scheme: deepening the class divide

by Don Franks

As Covid restrictions threaten jobs and inflation eats into spending power, workers’ prospects look grim. A government economic proposal just out bids to help patch up future problems. The proposal is a compulsory income insurance scheme. It would replace 80 per cent of a worker’s income (up to a cap of $130,911​) for a maximum of six months, upon involuntarily losing their jobs. The scheme would be funded by a levy paid by both workers and their employers – about 1.39 per cent each. You have to pay into the scheme for six months before being entitled to anything back from it. The resulting pot of money would be administered by ACC and paid out by them. Labour’s Finance Minister Grant Robertson designed the scheme in collaboration with the Council of Trade Unions ( CTU) and Business NZ. The scheme is now out for public consultation and could change before being enacted in 2023. Consultation closes on April 26 2022.

Reaction to the announcement has been mixed. The CTU “warmly welcomed” the government announcement without reservation. Vanessa Cole from Auckland Action Against Poverty disagreed:

“It seems to me inevitable that unemployment insurance will be used as an argument to avoid genuine transformation of our welfare system… Instead of spending time and money setting up a new bureaucratic structure and implementing a new unemployment tax, the government should focus on their 2017 election promises to transform the current welfare system. Making distinctions between beneficiary and worker is a strategy that has been used time and time again to divide us.. the union movement should be standing in solidarity with the unemployed workers’ movement in a long tradition of fighting for a welfare system that supports all.”

Generally supportive, Business NZ CEO Kirk Hope said his members wanted a “narrower” scheme, one only providing support for those made jobless by redundancy, not illness. Kirk Hope enlarged on his support for the proposal on RNZ Checkpoint, referring back to economic times in New Zealand history when government intervention had been required to keep the system afloat.

Taking a different tack, National party leader Chris Luxon dismissed the scheme as a new tax. One which should be abandoned forthwith, because it would cut spending and damage the economy that way. Independent economist Tony Alexander agreed that the scheme’s levies were effectively a new tax. Businesses would pass on the costs to their customers, which would push up inflation, affecting workers as they may not be able to negotiate higher wages to cover the hit to their incomes. “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.

Green Party MP Ricardo Menéndez made similar points:

“For the thousands of families struggling right now to put food on the table, the 1.37% contribution that will have to come from their existing earnings could be the difference between making ends meet or not. The Government’s proposed Income Insurance Scheme is not equitable enough to support people based on their needs under the Government’s current proposals support will be available to people based on their current income and work history. This means lower levels of support for those who have been earning less, including those in casual or seasonal work, and/or those with caring responsibilities”.

Ricardo Menéndez concluded:

“To benefit everyone, no matter their circumstances, the Government needs to put equity at the heart of income support, while also making urgent changes to the welfare system to free people from poverty.

In the context of today’s society, Ricardo Menéndez’s call to “benefit everyone, no matter their circumstances” is empty rhetoric. Wealth and poverty extremes have spun out of control in New Zealand, increasing under successive governments. Changing the welfare system to the extent that people would be free from poverty is not possible without massive social upheaval. The class division in New Zealand society has become too great. Wealth acquisition by the few has grown beyond reach of any possible parliamentary limitation. So has rich people’s capacity to protect their wealth and privilege. Inequality researcher Max Rashbiooke writes:

“The data shows that New Zealand’s wealthiest 1% of adults – around 38,000 people – have $141bn in trusts. Another 150,000 or so people, rounding out the rest of the wealthiest 5%, have trusts worth a further $122billion. Trusts are vehicles through which individuals can notionally give their assets to trustees to hold on behalf of named beneficiaries. In practice, the “givers” often retain control of the assets while having superficially ceded ownership. In the past this has allowed wealthy individuals to avoid taxes, hide assets from spouses and creditors, and receive care subsidies to which they are not entitled. IRD research has revealed extensive use of trusts among wealthy individuals who pay relatively little tax.”

“The wealth inequality data, developed in conjunction with Statistics New Zealand researchers, also show that the 1% have an average (mean) of $3.6m held in trusts, $1.6m in shares and $470,000 in cash. Their debts are on average just $80,000. Analysis of the NBR Rich List shows a strong dynastic trend: over one-third of businesses on the list are actively being run by descendants of the fortune’s originator, with the number of family members passively receiving the proceeds of that wealth undoubtedly higher still.

“Conversely, the country’s essential workers – including health staff on the front line of the coronavirus pandemic – earn so little that they are often unable to save for a house deposit.Among those in the poorest half of the country, meanwhile, the average person owns assets worth just $46,000 and has debts of $33,000, leaving them with a net worth of $12,000. They have negligible wealth in trusts and on average just $4,000 in the bank”.

In fact, house ownership costs are now far beyond the reach of most. According to the latest valuations data, the average national house price is $1.03 million. Up more than 50 percent since the 2017 election at which Labour and its coalition partners, the Greens and NZ First, falsely promised to address the housing affordability crisis. Many hard working people are much worse off than the average, but they have no leverage, and at the moment, no genuine representatives. The poor will have no meaningful input into this latest fiddling with their future.

Source: Max Rashbrooke Inequality talk 2018

Top union leaders are government cheerleaders, Green Party MPs are obedient government accomplices. Across in the capitalist’s political frog pond, debate will roll on about the final nature of the insurance scheme. Once again, government apologists will claim that it’s better than nothing. Once again, hopes will be held out for a little something. Grant Robertson has said there was a possibility that the lowest-income earners might be exempt from having to pay into the scheme. At best, Labour’s insurance scheme, if it emerges in its present form, will temporarily benefit a few higher paid employees, deepening divisions among workers.

Meanwhile, the class chasm will extend further, poverty and desperation will keep spreading, with their attendant ugly consequences. Kirk Hope may yet need to dig deeper to keep the peace in his beloved capitalist system.