Dennis Wesselbaum writes:
Soon, the Government is going to announce its plan for the so-called “social unemployment insurance” which will be in place by 2023.
We do not have details about its precise design, but what we hear is that the new scheme will pay up to 80 per cent of income for up to half a year, if an employee loses their job. In any case, the reform will be a historic turning-point.
This policy, however, will reduce welfare (wellbeing would be more politically correct), increase unemployment, increase the duration of unemployment, reduce income, increase inequality, and lead to higher inflation. This outcome is robust and well-known in the field of macro-labour economics.
Every working New Zealander will have their take home pay drop, with an ACC type levy/tax imposed on our income to pay for this.
Recent experiences in Spain and Germany have shown that increasing the duration of unemployment insurance increases level and duration of unemployment. The probability of being unemployed for 12 months, for example, increases from 15 per cent to 40 per cent, if you move from a no unemployment insurance scheme to a one-year unemployment insurance scheme.
So we pay more tax so people can spend longer unemployed.
Even worse, be prepared to have lower incomes, because all of this will be financed via an income tax increase. Taxes will increase by about 3-4 per cent. This tax hike will damage economic growth, by reducing incentives to invest and work. This will additionally shrink the supply side, which further fuels inflation.
In conclusion, you will be paying higher income taxes, have lower income, and pay higher prices such that the Government can implement a policy which will be harmful for the economy in many ways and reduces welfare – which this Government claims to be its raison d’être.
Coming to us very soon.