New Zealand Income Insurance Scheme

The New Zealand Income Insurance Scheme (NZIIS) is a proposed law that would ensure a payment made to workers who have to stop employment through redundancy, or for a health or disability reason. The draft scheme would pay 80% of salary for a period of up to seven months, with the first month being covered by the employer entirely. Coverage could be extended for a period of up to a year if the recipient was in approved training or rehabilitation. NZIIS aims to cover as many workers as possible, including those in part-time and non-standard forms of work such as casual work, and contractors. Workers covered under health conditions wouldn’t have to leave their job – and so could concentrate on getting well.

NZIIS would be paid for through a levy on pay, provided equally by workers and employers (1.39%). The scheme would be operated by the Accident Compensation Commission (ACC), which would provide a case management service to help get people back into good, sustainable work. The governance of the scheme would include representation from unions, business, Māori and the Government. It would operate as a separate fund to the other work of ACC.

The scheme would complement the reform work the Government has undertaken on welfare. It would be paid to workers as individuals, and not on a household basis as is the case with other forms of welfare. Existing entitlements that workers may have to contractual redundancy or to superannuation would be unaffected by payments made through NZIIS. Workers would be able to access a package of new active labour market programmes, which are being developed in parallel with this scheme.

These schemes are common around the rest of the world. New Zealand is almost unique among advanced economies in having no statutory income protection when a worker loses their job. The International Monetary Fund and the OECD have backed this scheme, and it was part of the Labour Party’s 2020 election manifesto. The Government has been working with unions and civil society to design the scheme.

Why does New Zealand need income insurance?

By Craig Renney, CTU economist

International and New Zealand-based evidence shows that workers in this country face some of the worst consequences when they lose their job. Economists call this ‘wage scarring’, and it occurs when the recently unemployed are forced to take a job that pays them less than they were on previously. This is often as a consequence of not being able to match their skills and talents to the jobs available at the time. It costs workers billions each year in lost income.

We saw this during Covid-19, when airline pilots were stacking shelves at supermarkets. There is nothing wrong with supermarket work, but If they were able to get a job that matched their skills, then they would be better off, the economy would be more productive, and more people overall would be in work. NZIIS will provide workers with the means to find the right job, rather than just the first job that is available. Everyone benefits. 

While each redundancy is a tragedy, mass layoffs are an economic disaster. We have seen time and time again in New Zealand the impact that a large employer closing has on communities. It’s not just the first round of job losses that they must bear. There are flow-on consequences in job losses in the supply chain, in the community shops, bars, and restaurants. In the local schools that lose children. In the creation of multi-generational disadvantage and economic deprivation.

New Zealand’s welfare system is not well configured to deal with this problem. And we underinvest in workers in terms of training and reskilling workers during their working life. We know that workforce changes are going to become more and more prevalent in the future with increased automation, digitisation, and globalisation. Without additional targeted support, workers increasingly have to bear the cost of that change alone. NZIIS will make sure that we pool that risk, and in doing so, we share the costs of that change with employers, the Government, workers, and with higher income earners. In short, it is the progressive thing to do.

A scheme like NZIIS is a long overdue protection that will help workers when they need it the most, when they are at the point that they are going to lose their employment and their income. The CTU and all affiliated unions support this change, and we encourage you to engage positively with the consultation and any subsequent legislation.