ACC proposes lower levies

ACC is proposing reduced levy rates for the 2012/13 financial year thanks to ACC’s improved performance.

In 2008/09 ACC disclosed a $4.8 billion deficit for the year and that came on top of a $2.4 billion deficit the year before. This was a trend that couldn’t be allowed to continue. The Board therefore set some challenging targets around improving rehabilitation performance and running the organisation more efficiently.

ACC’s performance has improved and for the past two years it has reported surpluses of approximately $2.5 billion each year. This means that rather than the $12.8 billion net liability at the start of the 2009/10 year, ACC’s net deficit is now approximately $7.8 billion.

“ACC’s growing unfunded liability was threatening the sustainability of the Scheme and this couldn’t go on.

“Now I’m pleased to be able to announce that ACC’s performance is expected to improve for the second year running and preliminary financial results for the 2010/11 year show a forecast net surplus of around $2.5 billion.

“This is a significant turnaround driven by the improved rehabilitation of injured New Zealanders, lower claims rates and better investment returns among other factors. The Board is very pleased with the ongoing efforts of staff at ACC to turn the organisation’s performance around. It’s important that ACC has been able to achieve these improvements while staying true to its core purpose which is to support injured people to return to work or independence,” said ACC Chairman John Judge.

ACC’s legislation requires it to have a funding policy that ensures it has an adequate level of assets to fund the amount of outstanding claims liability. This policy guides how we set levies, as these need to be set to meet today’s claims and tomorrow’s cost of claims or liabilities. The Board has reviewed its funding policy and selected a series of mid ranges for each account based on their individual risk. If ACC’s ratio or assets to liabilities is below these mid ranges then that means the account is underfunded.

“We have to make sure we can continue to meet the future cost of claims as well as having a sufficient financial buffer. This buffer is important to enable us to fund an increase in claims as a result of events like the Christchurch earthquake, or changes in earnings from investments, without these events affecting the long-term sustainability of the scheme,” said Mr Judge.

ACC’s improved performance has affected the solvency of each account in different ways.

The Work Account uses levies paid by employers, self-employed people and private domestic workers to fund work-related injuries. This account is approaching 100% solvency, which means we are moving closer to a proper level of funding based on the mid range for this account of 117.5%.

This achievement has meant the Board is comfortable to propose a reduction in the average work levy to $1.15 (excluding GST) for every $100 of liable earnings for the 2012/13 year. This is a 22% reduction on this year’s average levy and will take effect from 1 April 2012.

The Earners’ Account uses levies paid by everyone in the paid workforce and self-employed people to fund treatment and support for people with non-work-related injuries. This account is also approaching its mid range of $115.5% and as a result the Board is proposing an earners’ levy of $1.70 (including GST) per $100 of your earnings. This is a 17% reduction on the current year and will take effect from 1 April 2012.

“Continued improved performance by ACC and its ongoing drive for efficiencies have given the Board the confidence we need to be able to propose a reduction in levies for employers and employees. The Board will also be carefully reviewing the funding position of each of these accounts and its requirement to fully fund by 2019, and will consider further reductions in levies in the future if possible,” said Mr Judge.

The Motor Vehicle Account uses levies collected as part of the annual licence fee and also at the petrol pump. They are paid by all motorists and fund most injuries involving moving motor vehicles on public roads. The Motor Vehicle Account’s solvency is currently at 66% and is forecast to be at more than 70% by 2012/13. It is improving but is not yet sufficient to consider lower levies. However, ACC hopes to be able to reduce motor vehicle levies within the next three to five years as the reserves in this account increase. Consequently ACC is proposing that the average vehicle levy stays the same at $334.52 (excluding GST).

Consultation on the proposed levies for 2012/13 is now open and this is your opportunity to tell us your views on the levies we are proposing.

“We know some people have strong views about their levies, particularly vehicle levies. If you genuinely want to make a difference then tell us what you think during this consultation phase,” said Mr Judge.

You have until 5pm on 15 August 2011 to make a written submission on ACC’s proposals. Or you can email ACC at levyconsultation@acc.co.nz.

ACC will consider everyone’s feedback then submit recommendations to the Minister for ACC. The Minister will consider them and make his recommendations to Cabinet on what the final rates should be. Once Cabinet agrees on final rates, levy regulations are passed for the new levy year.

For more information read the levy consultation 2012/13 document (PDF 1.23M) on the ACC website.