A financial adviser says a proposed new form of income insurance would be beneficial to those who lost their job but warned it could be could be costly to cover a large number of workers and may act as a discouragement to find new work.
Thursday's Budget revealed that the Government is working with BusinessNZ and the Council of Trade Unions (CTU) on a new "social unemployment insurance" that could see Kiwis who are made unemployed paid 80 per cent of what they were earning when they were working.
The scheme was a manifesto commitment of the Labour Party in the 2020 election.
The announcement is light on detail and makes it clear that discussions are at an early stage.
Finance Minister Grant Robertson's statement only says the scheme could cover affected workers for "a period" with minimum and maximum caps.
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It provides no detail of what the insurance might cost or how it would be funded, although Robertson's release references ACC, a scheme where levies are charged to cover the cost of certain types of injuries and accidents. A CTU official has also pointed to the ACC example.
"We have an opportunity to better support New Zealanders who lose their jobs through no fault of their own," Robertson said.
"Covid-19 has exposed how vulnerable employment can be, and the risk to dramatic income loss from employment to unemployment.
"Finding a job takes time, and many workers may accept lower-paid jobs that don't match their skillsets, because financial pressures mean they need work quickly."
But Tim Fairbrother, a financial adviser at Rival Wealth, said while those who were made redundant would benefit it could be a costly exercise to insure a large group of New Zealand workers.
"If you are the person affected by unemployment it is going to be a godsend but spread across five million people for a small number of people getting made redundant. It sounds a bit heartless but the thing with redundancy is that most people are employable. If you lose your job you will go and find another one doing something to earn money."
He said that was where private income protection differed because it was for when people got sick and could not work and therefore they could not go and get another job.
"For those people that stay on an unemployment benefit for a long time and that is obviously a very stressful thing it would be great for them to have but I would wonder how much of a cross-section of New Zealand that is."
Fairbrother said it could also discourage people to look for another job. "Is it another thing where people rely on this to get 80pc of their wage covered and then not necessarily have to work or look for work? It would be interesting to know the criteria around that."
He said if it was only for a short period like six weeks it could bring the cost down but if it was six months it would cost a lot more.
At a Budget lock-up in Parliament, Robertson was unclear around when the scheme would be introduced, but said it was not likely to be in place within two years, even though the CTU and BusinessNZ wanted it to be in place more quickly.
"We're targeting, likely, around 2023 for that," Robertson said.
During Covid-19 the Government, like many around the world, upped benefit rates for those made unemployed, arguably creating a two-tier welfare system separating long term employed from those who lost their jobs in 2020.
BusinessNZ and the CTU had "asked to work with Government to propose a more enduring solution and this is our joint response," Robertson said.
In the coming months Government, CTU and BusinessNZ would consult "on what the right settings could be, balancing the support needed for Kiwis to find quality new jobs against the costs of running the scheme."
A wider public consultation would be undertaken this year.
Craig Renney, policy director at the CTU (and a former advisor to Robertson) said no decisions had been made on the scheme, which were in place in a number of countries.
"Clearly, there's already an ACC levy, so one of the things you might consider is whether that's one of the ways it has to be paid for."
Overseas schemes ranged from six months to two years, Renney said, and all were compulsory as the schemes effectively socialised the cost of group insurance.
"What's important is getting the setting right to give people enough time to find the right job, not just the jobs that's available, because we want to stop the scarring effect of unemployment," Renney said.
Kirk Hope, chief executive of BusinessNZ said it was a "worthy exercise" to go through.
"We don't have any form of support at the moment, other than fairly minimal state support for people who are out of work," Hope said.
"The key for us is a pretty simple scheme, that is really based on ACC, that supports people for a limited time."
Some overseas schemes were graduated, with the amount of support dropping over time.
"If the scheme gets too big and tries to cover too many things, it becomes, A, too expensive and B, too complex."
Hope said the scheme needed to be "cents in the hundred dollars, otherwise if it gets beyond that it's probably too expensive".
Dr David Law at the New Zealand Initiative said the schemes internationally often created perverse incentives.
"High levels of long term unemployment and reduced labour market participation can result, and they tend to be extremely costly," Law said.
"Maybe New Zealand can find a way to build one that doesn't replicate the experience in Europe, but it seems a risk not worth taking, given that our labour markets work far better than those in Europe."