Govt’s Social Insurance plans have a fairness problem

By Julian Wood July 07, 2021

In this year’s Budget the Government announced their intent to create a new “Social Insurance” scheme for workers; promoted as an immediate financial buffer for people who lose work.

To date, the plans seem to have flown under the public’s radar, which is a shame, as this scheme presents the largest shift of our welfare system in over 30 years. It creates an ACC like system that all workers will pay into: instead of compensating for injury it compensates for job loss. The problem is that it runs the risk of benefiting middle-income New Zealand at the cost of the most vulnerable.

This scheme presents the largest shift of our welfare system in over 30 years.

What makes social insurance different from other forms of welfare is that it is both “contributory” and “discriminatory.” Employers and workers would be required to pay/contribute into an insurance fund as a proportion of their earnings, and only those who have been paying into the scheme can access the funds if they lose their job.

It is also discriminatory, paying different amounts to different people, based on what they were earning before they lost their employment. This means it creates a higher level of welfare that only contributors get access to; for most much higher than the current Job Seeker Support benefit.  

The key equity question however is who pays for this extension of the welfare system? It turns out that people in precarious or non-standard forms of work (often people who are already vulnerable and not well off) can end up subsidising those much better off.

Social insurance is not great news for someone in non-standard work

Social insurance is not great news for someone in non-standard work (especially for someone “self-employed” like Uber drivers and others in the gig or events based industries). Because they often don’t have agreed upon hours or a contract with an employer, it is difficult to prove if they have been “laid off” if the work or hours have simply dried up over time. It is also very hard to assess much precarious workers regularly earn, which would be necessary to decide how much their payout should be. Earnings for precarious workers are often very low and can vary from day to day or week to week over a year. Despite this, many of these workers may well be required to contribute both an employer and employee levy (much like they are for ACC).

In 2018 there were nearly 500,000 people who were classified as either self-employed or as temporary workers. It is these forms of work that are often, but not always, precarious and low paid. To be fair this is an over-estimate and this number includes both doctors and Uber drivers and no one would classify a doctor as precarious or low paid. What we do know is that both women and young workers are over-represented in this category of the most vulnerable workers.

Social insurance risks overcharging and under-delivering for these workers. Effectively those most vulnerable in work end up subsidising middle income New Zealand—not an equitable outcome. Any proposal for social insurance needs to reckon with and resolve these inequities before progressing to reality. 

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