Insurance plan

Social insurance scheme: work degrading democracy


A new income insurance policy shaped by business and union elites, with little broad public consultation, would see labor tarnished and our democracy degraded, warns Dr Simon Chapple

Opinion: The government’s working paper on social unemployment insurance proposes to introduce a very specific scheme in 2023 to partially replace a person’s salary for a period of time after redundancy (and, possibly, sickness as well) . Funding should be based on a revenue levy.

He now spends three months asking members of the public what they think of the $3.5 billion scheme.

The proposal was developed behind closed doors by the government, in association with Business NZ and the Council of Trade Unions. The development process raises serious questions about how our democracy works and how best to build strong and sustainable policies for the benefit of all New Zealanders.

A good democracy is not just about electing a bunch of politicians every three years and letting them represent you in the meantime. It is also about engaging and consulting all New Zealanders on policy change in a respectful, equal, open-minded and transparent way, which is often described as participatory democracy. The bigger and more controversial the change, the more important the right process is, because there is more to lose if it gets it wrong.

The way the social insurance scheme has been concocted falls far short of good practice, let alone best practice.

Some might say that the government has consulted and encouraged participation in this discussion paper via contributions from Business NZ and CTU – the “social partners”. However, neither the leading companies nor the trade union organizations are representative of New Zealand employees or companies.

Business NZ is, inevitably, dominated by big business interests, and CTU covers around 12% of those employed.

In addition, CTU membership is disproportionate toward middle-class, advantaged, white-collar workers largely employed by government, such as nurses, teachers, civil servants, and academics. Inevitably, CTU tailors its concerns to these interests. And of course this participatory ‘social partner’ process weeds out most New Zealanders who are not business owners or unemployed.

In addition to degrading the broader democratic political landscape by limiting policy-making to the corporate and labor aristocracies, failing to engage broadly and with an open mind when developing new policy creates a high risk of “group think”. This greatly increases the chances that policy errors will be difficult to correct.

One would hope that these kinds of issues could be ironed out in the public responses provided through the unfortunately truncated consultation process that the government has determined for its discussion paper. Yet it is hard to believe that the problems will be ironed out.

Basic human psychology – cognitive dissonance – severely limits the ability of those driving this process, and clearly already committed to a very specific political idea in public, to withdraw from strong positions. From a more diverse and open-minded perspective, the hard-line positions already taken might seem less compelling, perhaps thoughtless, even irrational.

There are other important ways in which the proposal degrades democracy, in this case our representative democracy. Voters chose their representatives in part based on the policies they present to the public in their election manifestos. In its 2020 manifesto, Labor provided detailed information on its social and fiscal policies. But the 2020 manifesto did not even mention social insurance. Not once. The reasons are unclear, but it means there is no positive manifesto mandate for the program.

Moreover, the obvious problems surrounding social insurance are not simply due to an omission, they are a commission. The Social Insurance proposal breaks two clear commitments from the Labor manifesto: no new taxes and simplifying the income support system. A levy on income to fund the proposal is unambiguously a new tax. Adding a new layer of social insurance obviously makes our income support system more complex.

Finally, in terms of the announced timetable, there is an intention to introduce the social insurance scheme before the 2023 elections, rather than allowing the public to approve or reject it during the elections, before costs significant are incurred. In addition to further limiting democratic accountability, this pace of change is incredibly accelerated for such a significant policy change.

Why act so quickly? The only answer may be politics, rather than the development of good policies. The discussion paper compares the proposed changes to the ACC in terms of size and significance. But the ACC involved a royal commission, the broadest and most apolitical approach to consultation and policy-making, and eight years from the start of the royal commission in 1966 under National to Legislation in 1974 under Labour.

Regardless of what happens to Social Insurance, the Labor legacy here will likely be a regrettable erosion of faith in the democratic process and unnecessary further politicization of our income support system. The consequence of such a poor process has already been very mixed public reception for the plan, which many commentators – across the political spectrum – believe is deeply flawed, for a variety of reasons.

For the eye-watering sum of $3.5 billion, New Zealanders deserve better from their government.