One of the consequences of the October 2023 change of government in New Zealand is the demise, possibly forever, of plans for a national income insurance scheme. 

The scheme was proposed by the former Labour Government in early 2022 and came out of the Future of Work Tripartite Forum, a partnership between government, Business New Zealand and the New Zealand Council of Trade Unions.

In comparison with Australia, where 31 per cent of workers have income protection, the penetration of income protection products is at a low 15 per cent in New Zealand. 

The idea was to introduce a national scheme that would provide workers with an income substitute if they were made redundant or were unable to work for medical reasons.

It was seen as an alternative to earlier plans to reform redundancy laws with recommended compulsory payments based on length of service.

Safety net

To fund the scheme, the original proposal was for a compulsory 2.77 per cent levy on salaries and wages, with employers and employees contributing equally. The funds would be in a national pool and not set aside in individual accounts. 

The scheme would have allowed an employee to access payments for up to seven months, comprising a four-week notice period, followed by four weeks of 80 per cent pay provided by employers, followed by a further six months of financial support funded from the scheme at 80 per cent of salary. 

The initiative was inspired by similar schemes in Scandinavia (see breakout) and also by New Zealand’s own Accident Compensation Corporation (ACC), which covers people who are injured in accidents. The ACC would have administered the scheme had it gone ahead under the initial proposal.

Despite being the product of a tripartite consultation involving both business and unions, the incoming National Party-led government of Prime Minister Christopher Luxon saw the scheme as a “jobs tax” and has shelved it — along with a raft of other initiatives from the previous government.

Addressing under-insurance

The idea, however, had the attention of the insurance industry over 2023. 

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