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Consultation opens on income insurance scheme


February 2, 2022

Consultation opens on income insurance scheme

February 2, 2022

Consultation is now open on the proposed New Zealand Income Insurance Scheme, which would see workers who are made redundant, laid off, or who have to stop working because of a health condition or disability, receive 80% of their usual salary for up to seven months (capped and prorated an annual salary of $130,911)

Social insurance schemes are used in most OECD countries for unemployment, as well as other payments covered in New Zealand by our benefit system. New Zealand has experience in a similar scheme, ACC, for injuries that prevent people working.

The key features of the proposed New Zealand Income Insurance Scheme are:

  • Broad coverage for different working arrangements
  • Coverage for job losses due to redundancy, layoffs and health conditions and disabilities
  • A four-week notice period and four-week payment, at 80% of salary, from employers
  • A further six months of financial support from the scheme, including support for training at 80%of wages or a salary
  • A case management service to support people’s return to work
  • Administered by ACC
  • Funded by levies on wages and salaries, with both workers and employers paying an estimated 1.39% each
  • Workers eligible after six months of levy contributions in the previous 18 months.

The proposal has been developed by a tripartite group comprising the Government, the Council of Trade Unions, and Business New Zealand. The genesis of the proposal is in a joint letter to the Government from Business New Zealand and the CTU asking for an unemployment insurance scheme to be developed. Labour adopted the idea as part of its 2020 manifesto. The support of Business New Zealand for the proposal is politically important, meaning that it is not just being imposed on business by Labour and the unions. This is in contrast to Fair Payment Agreements, which Business New Zealand is refusing to participate in.

The work has been informed by the COVID crisis, which showed the need to address New Zealand’s low level of unemployment support, which is among the lowest in the OECD. The threat of mass unemployment in 2020 that would have caused an abrupt income drop for families and created a demand shock, driving a recessionary spiral, was averted through the ad hoc use of the Wage Subsidy, paid through government borrowing. This has shown the inadequacy of relying on the Jobseeker Allowance benefit (just $200-$300 a week) and the need for a permanent solution to avoid both personal and economywide impacts of unemployment.

Following the consultation, if the Government chooses to proceed, it will need to pass legislation to change ACC’s purpose to allow it to work on the development of the scheme. Legislation for the Income Insurance Scheme itself it expected to be introduced to Parliament later this year at the earliest. The Scheme is likely to come into operation in 2024. The proposals are available at www.mbie.govt.nz/incomeinsurance.

Consultation closes on 26 April 2022. Capital is able to assist clients with submissions – please let us know as soon as possible for our planning if you would like us to do so.

We are also able to arrange briefings with Council of Trade Unions Economist Craig Renney (featured here), who is a principal architect of the scheme, to help clients learn more.

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