15 Mar

Is it smart income insurance, or an unfair jobs tax?

Recently, the Government presented details of the New Zealand Income Insurance Scheme (NZIIS), announced at the Budget last year. NZIIS is an unemployment insurance plan allowing people who lose a job due to redundancy, layoffs, health conditions and disabilities to claim support worth as much as 80% of their former income.

Under the scheme, someone who loses their job will be given payments worth 80% of their former income (capped at salaries of $130,911), for up to 7 months after they lose their job.

Of course, the scheme comes at a cost: it will be funded by levies on wages and salaries, with both workers and employers paying an estimated 1.39% each.

That would mean someone earning $880 a week would pay $12.23 a week in levies and receive $704 a week if they were made redundant. A person earning $2000 a week would pay $27.80 in levies and receive $1600 a week in insurance if they were laid off.[1]

ACC will collect the levies and administer the scheme. Like ACC, levies could change over time, but would be frozen at 1.39% for the first 2 years of the scheme.

The plan is in draft form, and will go out for consultation before any final decisions are made.

The reaction to the proposed scheme has been decidedly mixed with political parties on the left and right being critical of aspects of the proposal. National and Act raised concerns that the scheme was too expensive and created a disincentive for hiring people. National leader Chris Luxon called it a “jobs tax. The Greens were also critical of the scheme, saying it risked opening up a gap between the level of support received by people who are able to work and those who are not. The party raised concerns the proposed levy would be too high for people on the lowest incomes.

In an article on Good Returns Cigna New Zealand chief executive Gail Costa noted that: If adopted the scheme wont cover anyones full insurance needs, so wed encourage people to speak with an adviser to understand how the scheme impacts them and what the right level of cover is for their needs both in the short and long-term.

Hamish Anderson from Fidelity Life noted that the company was still assessing the scheme and what it might mean for the business. He found this silver lining related to the scheme: Were broadly supportive of ideas that help educate New Zealanders about the importance of protecting whats important to them, and help address New Zealands under-insurance problem.

I agree that its great to get Kiwis thinking about protecting their livelihoods, and how different insurances fit into this. However, Im not sure that introducing the NZIIS is the best way to do this, or that the cost of the scheme on individuals and businesses is affordable at what is, for many, a financially shaky time. This was Chris Luxons point when he said: It’s a new tax, reducing incomes at a time when with high inflation businesses and workers can’t afford it.

Its important to remember the scheme is still in proposal form and the exact details of what kinds of self-employment and contractors will be covered by the scheme, are yet to be ironed out. Currently, the discussion document says there is a desire that self-employed people who most resemble employees should be covered.

Regardless of where this proposal goes, its important for people to look at what personal insurances, including income protection, they have in place.

Anyway, this scheme has definitely got people talking. What do you think about it? Is it smart income insurance, or an unfair jobs tax?

[1] https://www.mbie.govt.nz/dmsdocument/18666-a-new-zealand-income-insurance-scheme-a-discussion-document#:~:text=It%20will%20be%20funded%20by,ACC%20will%20manage%20the%20scheme.

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