Introduction from Hon Grant Robertson (Minister of Finance), Richard Wagstaff (President) and Kirk Hope (Chief Executive).
As New Zealand looks to move beyond the economic and social impacts of COVID-19, there are important lessons to be learned from the way in which we were able to support one another through an unprecedented series of challenges.
Government programmes such as the Wage Subsidy Scheme and Resurgence Support Payment aimed to protect New Zealanders’ livelihoods and economic wellbeing. This was primarily done through keeping people in their existing jobs and supporting businesses most directly affected by the pandemic.
As we look toward a future where economic activity might be moving toward new sectors and industries, it is appropriate that we consider how we continue to ensure New Zealanders’ economic security. Future shocks may occur at an international, national or regional level. Equally, individual businesses or workers may find themselves subject to economic displacement for a range of reasons.
Rather than supporting workers to remain attached to their current jobs, as the Government did throughout COVID-19, we need policies that provide economic security to the individual directly and support them to transition into new work, regardless of the source of their displacement.
Few protections are available for people who lose their job. Some receive redundancy payments, but this depends on employment agreements, and is rarely paid if a business fails. Others are supported by welfare, but the drop in income can be large, and many aren’t eligible. This 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. Others might not find work, because their skills are no longer needed, as old industries close down or new technologies replace work previously done by people. These wage losses run into the billions of dollars every year.
People dealing with a health condition might try to keep working to maintain an income, often making their health worse or delaying their recovery. An existing or new disability might mean they need to reduce their work hours or can’t keep doing the same job, and they struggle to retrain for a new career.
These outcomes don’t just harm individuals and their families, they affect businesses, communities and the economy. In short, everyone.
Businesses lose out on important productivity gains: the current system doesn’t give people time to find work that matches the skills they have. Sectors facing critical skill shortages may miss out on key workers, simply because a vacancy wasn’t available in the few weeks a worker was desperately looking for work. As New Zealand faces a tight labour market and demand for skilled workers, it is in the best interests of workers and businesses that people are employed in areas that make the greatest use of their skills.
People who keep working while unwell are much less productive, and when it takes longer to recover, important skills can be lost.
Loss of work can affect communities and whānau, especially communities reliant on a major employer. When these businesses shut down, workers have little money to spend, which means other businesses suffer and the community can go into a long-term economic decline lasting for generations. An income insurance scheme could cushion workers and communities from such abrupt income losses, allowing more time to adapt.
We’ve seen this frequently over the past 40 years, as New Zealand has been struck by economic shocks that have seen even seemingly secure careers affected significantly.
Around 200,000 people lost their jobs and spent time out of work, some for several years, during the late 2000s Global Financial Crisis. The Canterbury earthquakes saw successful businesses close down almost overnight after their facilities were damaged. The COVID-19 pandemic brought our then-largest export earner, tourism, to an abrupt halt. At local levels, many examples can be found, such as the closure of Kawerau’s timber mill or Hawkes Bay’s Whakatū and Tomoana freezing works.
These economic challenges are likely to become more frequent. Technology could replace more jobs currently done by people, or replace the products and goods we produce. The move to a low-emissions economy will see significant changes in how we do things, and some industries, like oil and gas, will be replaced by others over time. Changing consumer demands, an ageing population and increasing globalisation will all contribute to big shifts in what work we do, what things we produce and what skills we need.
These are confronting challenges, but they also provide exciting possibilities. Since 2006, the value of start-up investment in New Zealand has grown sevenfold. Brand new industries – like our space sector – have emerged and others – like video game development – are growing fast. An income insurance scheme isn’t just about helping people find good jobs, it’s about giving people the freedom and confidence to enter new sectors, which they might traditionally avoid for fear of not having secure work.
A New Zealand Income Insurance Scheme could play a significant role in better protecting workers and incomes, matching skills with where they are needed, and helping communities and industries during economic shocks and transitions.
The proposed scheme would also go a long way to addressing the current inequity whereby a person who experiences an accident can receive much more support than a person with a non-accident-related health condition or disability, despite a similar loss of ability to work.
New Zealand is almost alone in the developed world in not having some kind of mandatory, nationwide income insurance scheme or other protection, such as mandatory redundancy payments, for people who lose their jobs.
We believe a New Zealand Income Insurance Scheme could be an important step-change that lets us manage the challenges and harness the opportunities that lie ahead for New Zealand.
The proposed scheme most directly benefits working people, but there are also significant benefits for employers. The proposed income insurance scheme would help shift New Zealand to being a higher productivity economy where businesses generate more value and greater returns. The proposal will also create a clearer process for redundancies, with more predictable costs.
Our proposed scheme – which we would like your feedback on – will see workers receive 80% of their usual salary for up to seven months. It will cover them if they are made redundant, laid off, or when a health condition or disability means they have to significantly reduce their work hours or stop working entirely. This will give them the time and financial security to find a good job or take part in training or rehabilitation.
The scheme will require people to look for work or take part in training and rehabilitation. It will be funded by levies on wages and salaries, with both workers and employers paying an estimated 1.39% each. ACC will manage the scheme.
The challenges of the future are real and inescapable. That’s why Business New Zealand, the New Zealand Council of Trade Unions and the Government have developed this proposal to protect workers, improve productivity and prepare New Zealand for the changing world of work. Now it’s time to hear what the country thinks. We want to get this right, and we look forward to hearing your views on everything we’ve proposed.
Hon Grant Robertson
Minister of Finance
Our questions for you
Should New Zealand introduce an income insurance scheme for job losses due to redundancy, layoffs or health conditions and disabilities? Please state, yes, or, no, and feel free to expand on why or why not.