Media release: Unemployment Insurance will mean more tax - NZ Initiative report

Chelsy Killick
Dr David Law
Media release
11 November, 2021

Wellington (Thursday, 11 November 2021) A new unemployment insurance scheme would be another tax on income, with little benefit, and increase unemployment, according to a new report from The New Zealand Initiative. The think tank warns that the scheme could constitute a 2 – 3% tax increase for every Kiwi worker in the medium-term.

During Budget 2021 the Government confirmed they were designing a scheme that would replace around 80 per cent of a worker’s wages during periods of unemployment.

Unemployment Insurance: A recipe for more unemployment? by Senior Fellow Dr David Law shows there is no need for such a policy in New Zealand. 

“New Zealand has consistently low levels of unemployment, and very low levels of long-term unemployment. Most Kiwis who find themselves out of a job do not stay out of the workforce for long. It is hard to see that the need for such a scheme exists,” says Dr Law.

“It is not clear what problem the government’s unemployment insurance policy is trying to solve, but what is clear is that it will come with a substantial cost. The Government’s current proposal looks extremely generous by international standards. Countries with unemployment insurance on average pay 2 – 3% of their income towards the schemes, but many of these are less generous than the one proposed by our government.”

”The establishment of such a scheme would discourage workers from seeking new employment if they found themselves out of work. This would lead to higher levels of unemployment and people remaining unemployed for longer.”

The New Zealand Initiative’s Executive Director Dr Oliver Hartwich says:

“Our concern is that once governments introduce unemployment insurance schemes, they are very difficult for future governments to abolish. Workers pay into the scheme and then feel entitled to take full advantage of the policy at the expense of everyone else.”

“This has all the hallmarks of a government legacy policy. But it would be a terrible one. Incentivising unemployment would be a poor legacy for any government.” 

Read more:
Unemployment Insurance: A recipe for more unemployment? is available to read here

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