Posted 02/11/2021 by Don Arthur
Australia and New Zealand stand apart internationally by relying entirely on flat-rate, means-tested systems of unemployment payments. In New Zealand, this may be about to change.
In most developed countries, workers who lose their jobs can access unemployment insurance. Under these schemes, workers receive time-limited payments that are often set at a proportion of their former wage. Payments are not means tested. Unemployment insurance schemes are commonly funded by contributions from workers, employers, and government. Only when their unemployment insurance entitlements are exhausted, do workers need to turn to means tested social assistance payments.
As part of the 2021 Budget, the New Zealand Labour Government announced it is developing a new ‘Social Unemployment Insurance’ scheme. The proposal emerged from the Government’s Future of Work Tripartite Forum; a partnership between the Government, Business New Zealand (BusinessNZ) as representatives of business groups, and the New Zealand Council of Trade Unions (CTU) as representatives of unions. According to the New Zealand Government:
The Government, BusinessNZ and the New Zealand Council of Trade Unions have committed to jointly designing a Social Unemployment Insurance scheme that would support workers who lose their jobs, in line with a commitment in Labour's election manifesto.
… a Social Unemployment Insurance scheme could cushion the impact of a job loss. It could give workers the financial stability to find the right job for their skills, or to retrain for a new, fulfilling career path. We're looking at a scheme that could provide those who lose their jobs with around 80 percent of their income, with minimum and maximum caps.
The Tripartite Forum has paid particular attention to displaced workers and the possible impact of technological change and other disruptions (displaced workers are those who have lost their jobs due to firm closure or downsizing). The CTU argues that the current system imposes ‘the costs of change on workers and their families, rather than internalising it to the employer or sharing it socially’. Because unemployment insurance payments are not means tested, workers would receive full support even if their partner was employed. Payments would not only be higher than current income support payments, they would also reach a higher proportion of displaced workers.
The details of the scheme are yet to finalised. According to New Zealand researcher Michael Fletcher, the Government ‘is only promising a discussion document once the shape of such a scheme is formulated’.
While few details are available now, a 2019 report prepared for the New Zealand Productivity Commission’s Technology and the Future of Work Inquiry suggests some of the options the Tripartite Forum may consider. These include options for funding the scheme (for example, general taxation versus levies on employers, employees or both) the duration of the payment and the level of payments.
So far it is the social welfare sector that has been most critical of the proposal. Susan St John, economic spokesperson for the Child Poverty Action Group (CPAG), told Radio New Zealand that ‘The problem with social insurance is that it entrenches and ensures that there is special treatment for some newly unemployed, in times of every day unemployment’. CPAG is pushing for improvements to the existing means tested income support system and is concerned that social insurance will divert resources from that project. The organisation is also concerned that a ‘two tier’ system will further stigmatise income support recipients as the ‘undeserving poor’. Noting that supporters of unemployment insurance claim the scheme will reduce stigma for recipients, CPAG respond that this ‘overlooks the impact of establishing such a scheme on those who will continue to receive welfare benefits.’
Researcher Michael Fletcher is also critical of the policy development process. Rather than having policy developed behind closed doors with BusinessNZ and the CTU, Fletcher argues for a more open debate that considers a wider range of policy alternatives.
According to a media report earlier this year, the National Party Opposition is considering its position on the unemployment insurance proposal.
In Australia, researchers at the Blueprint Institute (a think tank aligned with the conservative side of politics) argued that Australia should introduce an unemployment insurance scheme that would provide unemployed workers with 70% of their former wage for up to six months (with benefits capped at $35,000 and limited to a cumulative six months every two years). As in New Zealand, social welfare groups criticised the proposal. According to a report in the Guardian, Cassandra Goldie of the Australian Council of Social Service, argued that: ‘everyone should have enough to cover the basics, regardless of how long they’ve been locked out of paid work’.
None of the major political parties in Australia has publicly supported the proposal.
Further information
K Spencer, Unemployment insurance: what can it offer NZ? Report for the Technology and the Future of Work Inquiry, New Zealand Productivity Commission, July 2019.
Ministry of Business, Innovation and Employment, Enhancing support for displaced workers over the medium term: Work stream update for the Tripartite Forum, Officials discussion document, 27 July 2020.
M Fletcher, ‘Why is New Zealand’s Labour government trying to push through a two-tier benefit system?’, The Conversation, 8 August 2021.
M Harris, ‘Some questions about that redundancy insurance scheme’, Newsroom, 28 May 2021.
T Barrett, E Beal, D D’Hotman, S Hamilton, A Hawcroft, and J Steinert JobMatcher: Real unemployment insurance, Blueprint Institute, 2021.