People who are laid off may soon be able to claim support worth as much as 80 per cent of their former income, under a Government unemployment insurance plan unveiled today.
Under the scheme, someone who loses their job will be given payments worth 80 per cent of their former income (capped at salaries of $130,911), for up to seven months after they lose their job.
The Government reckons it can smooth the transition in and out of unemployment, and help people survive periods of not having a job, without it scarring a person's career.
The scheme comes at a cost - a levy of 1.39 cents on every dollar earned by employees and businesses.
That would mean someone earning $880 a week would pay $12.23 a week in levies and receive $704 a week if they were laid off.
A person earning $2000 a week would pay $27.80 in levies and receive $1600 a week in insurance if they were laid off.
The policy, dubbed New Zealand Income Insurance Scheme (NZIIS) was announced at the Budget last year. The details were negotiated between the Government, the Council of Trade Unions and BusinessNZ. The plan released on Wednesday is in draft form, and will go out for consultation before any final decisions are agreed.
ACC will collect the levies and administer the scheme. Like ACC, levies could change over time, but would be frozen at 1.39 cents for the first two years of the scheme.
Finance Minister Grant Robertson said lessons learned from the Covid-19 economic response guided the creation of the scheme, which shifts the focus of Government support from keeping people in their existing jobs, to supporting people to find new and better jobs.
"During Covid-19, the Government protected livelihoods with the Wage Subsidy Scheme and Resurgence Support Payment," Robertson said.
"This was primarily done through keeping people in their existing jobs and supporting businesses most directly affected by the pandemic," he said.
Robertson said the scheme is a more "enduring solution" to the problem of managing unemployment during a downturn.
"Our proposed scheme provides economic security to individuals directly, and supports them to transition into a good, new job, as opposed to economic support packages which keep people in their existing job even if that role is no longer viable," Robertson said.
CTU president Richard Wagstaff said the scheme would help the 100,000 Kiwis who lose their jobs every year.
"A job loss often results in a significant income shock that can affect wellbeing and earnings, even when a person finds new work. That's because finding a good job takes time. Many people accept lower-paid jobs that don't match their skillset because of the financial pressure to get back to work quickly," he said.
The total annual cost of the scheme is estimated to be $3.54 billion, made up of $1.81b for displacement and $1.73b for health condition and disability claims.
The scheme promises broad coverage for different working arrangements, and covers job losses due to redundancy, layoffs, and health conditions and disabilities.
Employers would pay workers through a four-week notice period, and a "bridging payment", worth four weeks salary, at 80 per cent. After that, employees would access funding from the scheme, paid at 80 per cent of wages or salary.
Robertson described the bridging payment as an "integrity measure" to ensure employers did not misuse the scheme.
The scheme also pays for case management that will help guide people to rejoining the workforce. These costs will be carried by the Crown, as will the cost of administering the scheme.
The Government reckons the cost of "displacement" from the workforce can be substantial. Analysis suggests the costs of unemployment could amount to $15.4b a year over the first five years following job losses, assuming the displacement of 100,000 working people.
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".
"It's a new tax, reducing incomes at a time when with high inflation businesses and workers can't afford it," Luxon said.
Act was also critical of the scheme, but said it was open to some form of unemployment insurance, saying the welfare scheme was "due for an overhaul".
"Labour is proposing an almost 3 per cent tax increase on workers when Kiwis are already struggling with cost of living. Only Labour could believe that adding new taxes will help productivity," Act Welfare spokesperson Karen Chhour said.
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.
Green Party social development spokesperson Ricardo Menéndez March said that "ensuring everyone has enough to live on and provide for their families, including those not in paid employment, must remain the priority as the Government moves to introduce an income insurance scheme".
He also raised concerns the proposed levy would be too high for people on the lowest incomes.
Robertson noted the concerns around introducing the scheme at a time of high inflation, but said that inflationary pressures are expected to diminish by the time the scheme is operational.
Hope offered Robertson some political cover for the cost of the scheme, saying that New Zealand "can't afford not to do this".
"This scheme is designed to get people back into the workplace, to ensure that New Zealanders are more productive and that skills are more aligned to the demands of the modern economy," Hope said.
Still up for debate
The Government is accepting submissions on the scheme until April 26.
Robertson acknowledged there was still some debate between the three parties over the sorts of things that would be covered by the scheme, which were being put out to consultation.
The term of coverage, for example, could be extended from seven months to 12, although this would require an increase in the levy payment.
Another point of debate is whether to exempt people on the lowest incomes from paying the levy.
The exact details of what kinds of self-employment and contractors will be covered by the scheme is also up for debate, although the discussion document says there is a desire that self-employed people who most resemble employees should be covered.
Another point of interest for unions and businesses is the way the scheme will affect redundancy payments.
Robertson said the scheme will not change redundancy arrangements as they stand now for existing employees, but as time went on, he expected the existence of the scheme would change how people think about redundancy.
Many employees do not have redundancy provisions. Their employees might be put out by the "bridging payments" brought in by the social unemployment scheme.
However, businesses with mainly unionised workforces that demand redundancy payments, might find the scheme reduces pressure for them to provide generous packages, as many of the costs of redundancy would be picked up by the scheme.
"A lot of New Zealanders don't have redundancy clauses and those who do work very hard for them," Robertson said.
"Over time, I'm sure that the fact that the scheme exists - when we go ahead with it - will mean there are different discussions about redundancy clauses and provisions," Robertson said.