Pushing back income insurance scheme a "sensible decision"

Pushing back income insurance scheme a "sensible decision" | Insurance Business New Zealand

Pushing back income insurance scheme a "sensible decision"

“There is considerable work to get the scheme up and running, and it is now expected that it will be operational in 2024.”

Those were the words of Finance Minister Grant Robertson when he presented the country’s fourth Wellbeing Budget, referring to the proposed New Zealand Income Insurance Scheme (NZIIS) which was originally planned to commence operations next year.

The consultation on NZIIS closed a little over three weeks prior to Thursday’s Budget, with the likes of the Financial Services Council of New Zealand (FSC) among those offering insights into the major proposal to compensate workers who are made redundant, laid off, or have to stop working due to a disability or health condition.

“Good policy development takes time to get right,” noted the FSC previously. “We are concerned that the policy development for the NZIIS proposal has been unduly rushed for a scheme of this complexity and that this will likely lead to poor drafting, and ultimately poor public policy outcomes.”

The non-profit member organisation also lamented: “The significant scope of the proposal relative to the lack of prior industry engagement and a consultation period coming in the midst of the Omicron outbreak and at a time when our sector faces an almost unprecedented volume of regulatory or proposed regulatory change (much of it deferred from 2020/2021 due to COVID-19) is of significant concern.”

Pushing back the scheme then to 2024 should be welcome news, and perhaps a development that is not entirely surprising.

“Submissions on the New Zealand Income Insurance Scheme closed in late April, so it was expected that it might be too soon to expect to have any concrete details revealed in Budget 2022,” Deloitte New Zealand tax partner Robyn Walker (pictured) told Insurance Business. “However, we have been given some hints about the direction of the proposal, being that it is full steam ahead.”

According to Robertson, $60 million of Budget 2022 is allocated for the establishment of the NZIIS. The amount will fund the Accident Compensation Corporation (ACC), as the scheme’s delivery agency, to undertake preliminary work to establish the systems and operational processes for a new levy-funded income insurance scheme. 

Commenting further, Walker highlighted: “The Budget states that the scheme is expected to be operational in 2024, which is later than originally indicated, which was late 2023. Given the significance of the scheme and the complexity of some of the design issues which will have been raised in submissions, a 2023 implementation date would have been incredibly ambitious.

“The sensible decision to not rush this through means that the New Zealand Income Insurance Scheme may become a significant matter for voters to evaluate as we head into Election 2023.”

Jointly designed by the government, Business New Zealand, and the New Zealand Council of Trade Unions (NZCTU), NZIIS will be funded by levies on both wages and salaries. Forecast financial statements have been published as part of The Treasury’s Budget Economic and Fiscal Update 2022.

“The detail of the Budget documents show that income insurance levies are expected to hit the Crown revenue and expense lines in 2025, with anticipated in and outflows of $1.1 billion in 2025 and $4.7 billion in 2026,” Walker went on to tell Insurance Business.

“A question naturally arises as to whether this means a later than 2024 implementation date can be expected. Given the timing of the forecast revenue flows, it may be that the scheme is forecast to collect levies from April 01, 2025.”

When they consulted on the NZIIS proposals, designers of the scheme asserted that “we want to get this right,” emphasizing the importance of hearing the views of as many interested people as possible.

“We believe a New Zealand Income Insurance Scheme could be an important step-change that lets us manage the challenges and harness the opportunities that lie ahead for New Zealand,” reads part of the summary of proposals put forward by BusinessNZ, NZCTU, and the government.

“The proposed scheme most directly benefits working people, but there are also significant benefits for employers. The proposed income insurance scheme would help shift New Zealand to being a higher productivity economy where businesses generate more value and greater returns. The proposal will also create a clearer process for redundancies, with more predictable costs.”

Until the scheme actually commences, it remains to be seen whether or not they indeed got it right.