Thomas Coughlan: Grant Robertson proposes decent scheme at a bad time


The unemployment insurance scheme announced by the Government on Wednesday is a decent policy, which comes at a terrible time.

It’s the product of an approach by Business NZ and the Council of Trade Unions (capital and labour, you might say) to the Government in early 2020, asking it to come up with a plan to provide better unemployment payments to people who are laid off.

Both sides get a win.

Business gets a more dynamic labour market, where workers are less sticky, and where people are encouraged to retrain and upskill as the economy evolves.

In this sense, it goes some way to addressing concerns about marrying job-for-life culture with the needs of the modern labour market, a problem that’s bedevilled developed economies since the 1980s.

Unions get a more generous welfare state, which will comfortably support people through tumultuous times ahead.

But what a time to announce it.

Back in the first quarter of 2020, annual inflation was just 2.5 per cent, it’s now 5.9 per cent. As Robertson was giving a speech announcing the scheme, Stats NZ released unemployment data showing the unemployment rate falling to 3.2 per cent, the lowest since 1986.

It’s inflation, not unemployment that’s on people’s minds.

But poor timing shouldn’t get in the way of a decent policy. This is real legacy stuff for Robertson and Labour, who can use the scheme to fund an historic expansion of the social safety net.

Jobseeker benefit – the main unemployment benefit – will cost the Government $3.2b this year; this scheme will add another $3.5b of annual payments to the unemployed – doubling that part of the welfare state overnight (the true cost of the social safety net, including other benefits like disability and superannuation, is about $33b a year).

Whether it’s progressive or not is a tough question; it’s regressive in the sense that it imposes a flat tax on workers, but progressive because the most vulnerable employees will draw down on the support payments much more than the least vulnerable.

Labour’s got some political cover. It was always likely to have union backing, and the Greens are supportive of the scheme in general but critical of the fact it will create a two-tier welfare system, something Labour could yet address.

Support from Business NZ, whose chief executive Kirk Hope said New Zealand “can’t afford not to do this”, will deflect some support from the right of politics. Even Act is partly on board, saying it doesn’t like this particular scheme, but is open to the idea of unemployment insurance more generally.

Even parts of the National Party support an unemployment insurance scheme. Members have previously tried to get the party to endorse some kind of unemployment insurance, arguing it’s productivity enhancing because it encourages a more dynamic labour market.

In fact, the only thing working in Robertson’s favour in terms of the timing of the scheme is that the only party to be entirely against the scheme is National.

New leader Christopher Luxon rightly argues the scheme will pile on costs for workers at a time of high inflation (Robertson deflected, saying that by the time the scheme is functioning in 2023, inflation is forecast to be much lower).

But schemes similar to this one are common in states like Denmark, which he’s argued New Zealand should seek to emulate. In National’s reckoning, countries like Denmark have highly productive economies that deliver good incomes and social services to their populations.

Luxon will now have to argue why this policy isn’t the kind of thing that will help the economy march towards the Danish model he thinks might work well here.

It’s not an impossible case to make. The scheme does indeed tax employment, something all governments should seek to encourage. But that argument is difficult to make right now, because unemployment is so very low.

The issue could be one of the first times when Luxon sees his past as an Air New Zealand executive cuts both ways. It’s probably many years – decades – since Luxon knew employment insecurity.

Some of the people who would most benefit from the scheme would be the thousands of skilled (some highly-skilled) workers who lost their jobs in airlines like Air New Zealand during the pandemic.

Making matters more difficult still for Luxon is his own exit from his last job was exceedingly generous: the airline’s 2020 annual report notes Luxon received a cash payment of $450,849 on leaving the airline, in lieu of another incentive grant he would have received had he stayed.

All leaders eventually realise politics is personal – sometimes that helps, and sometimes it really doesn’t.

The test for Robertson will be to see whether he can hold his nerve through a year of undoubtedly high inflation which will put pressure on low-paid workers (the Government has not ruled out adjusting the scheme to ensure that people on lowest incomes avoid paying the levy).

For Luxon, it will be a test of whether he is able to make an altruistic argument against the scheme on purely economic grounds, whilst avoiding a charge of hypocrisy.

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