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Social insurance scheme needs to cover all New Zealanders - economist

A Canadian economist says a pay-as-you-go insurance scheme does provide a safety net for those who lose their jobs, but it’s a system susceptible to political whims.

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Canadian economist Moshe Lander talks about decades of experience with social insurance scheme Employment Insurance in Canada. Source: Q+A

During the Budget in May, Finance Minister Grant Robertson announced the Government was looking to create an ACC-style unemployment insurance scheme and Q+A understands Canada’s model is one of the schemes being assessed.

While New Zealand’s system is still on the drawing board — with big business, trade unions, and the Government tasked with designing it — Canada has had Employment Insurance (EI) since the 1930s.

Moshe Lander, a senior lecturer of economics at Concordia University in Montreal, told Q+A that the Canadian scheme "started off as something very simple that if you are out of a job, you qualify" but that over time, exemptions, exceptions, add ons and so on, had made it increasingly complex.

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And who or what is or isn’t covered had become very political.

"The positive thing is that it provides a safety net ... that’s probably why New Zealand is considering it, right. Especially in times of uncertainty, people lose their jobs and you need to know that you're going to be able to put bread on the table and feed the family and be able to maintain some semblance of a life. In that extent it’s worked exceptionally well."

In Canada, employees and employers both contribute five per cent of the wages each, up to a predetermined limit. People who lose their jobs are eligible for support, Lander explained.

"It’s usually not 100% of your income. The idea is you don't want to make it too generous, that you don't go looking for a job but you don't want to make it so un-generous that you feel you have to grab the first job along the way either.

"And so every politician will constantly tweak with that as a new party comes in, this is something that they want to review depending on whether they’re left or right of centre."

Canadian economist Moshe Lander. Source: 1 NEWS

Lander warns that there are other pitfalls in introducing such a scheme on the back of a huge economic shock such as Covid-19.

"You don't want to introduce policy at the height of a crisis or on the back end of a crisis because usually what you end up doing is you introduce something that's overly generous.

"And so while it seems reasonable in the time, especially when everybody's afraid, a few years down the line when you realise that because you're using this pay as you go system, what's gonna happen is, you're not gonna have the money to keep paying for those generous benefits ...," Lander said.

"So the best thing to do is a slow, gradual introduction where it starts off not particularly generous, not particularly long, merely to kind of trial balloon and see how people get used to it. And then you can increase the generosity as the economy recovers."