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Kairanga Lions Club - Dr Cullen Speech

Hon. Dr Michael Cullen
17 July 2000
Speech Notes

Kairanga Lions Club Annual Community Dinner

Cloverlea Tavern, Cnr Gillespie Line & Tremain Ave, Palmerston North

Thank you for inviting me here this evening. You will be aware, perhaps, that the Government is currently making a concerted effort to speak directly with business people around the country. This is a response to the feeling that we were out of touch with a very important constituency – if something as sweepingly diverse as 'business' can be bundled together as a single homogenous entity.

I have spoken with many, many business groups and individuals this year – certainly too many to list. I talk most often with CEO's of big business who have a view of the world particular to very large organisations.
It is therefore something of a welcome change to be able to be here with you this evening as representatives of what may still be called the backbone of the economy - the provincial centres.

Tonight I thought I would risk my carefully cultivated reputation for being risk averse by boldly striding into two of the more controversial areas of the government's agenda so far – ACC and the Employment Relations Bill. This evening seemed an ideal opportunity to discuss ACC issues for farmers and the self-employed with farmers and the self-employed – which immediately doubles the risk.

Of course I am joking, but only just. In the first few months of this year, we witnessed a well-run campaign against returning workplace accident insurance to the state.

Claim and counter claim were lobbed. The debate ranged from the rational to the slightly hysterical.

At the time the Prime Minister made the comment that the one thing that will convince employers the government has not completely lost the plot is when they finally hold in their hands, their first bill for cheaper ACC premiums.

That has mainly been the case. Between 70 and 80 percent of employers are, on average, better off under ACC than they were last year under the private insurers. Average premiums have dropped from $1.21 to $1.16 for every $100 of wages.

However I do acknowledge that in any equation when you are considering averages there will be relative winners and losers.

The winners under the private market were invariably those employers who were more attractive business propositions for insurers. These were in the main large enterprises and those with very low risk. They were the winners because they could negotiate favourable rates with the insurance companies.

The winners under ACC are smaller enterprises in terms of standard premiums.
As well, larger employers can self-manage through ACC's partnership programme. Unfortunately for the government's PR image those smaller employers tend not to be well organised into representative groups who are now taking out full page ads letting the rest of the country know their costs have come down!

But that is fair enough. It is the publics' job to tell us when we have it wrong. It is our job to listen to you and try and get it right.

Federated Farmers won some very positive changes for its members during the passing of the first ACC Bill. It was as a result of Federated Farmers reasonable arguments and effective presentation that the Bill was amended to remedy the fact that the old system of compensation did not reflect the cost of replacement labour nor farmers' fluctuating incomes.

These changes have been incorporated into a brand new product called ACC CoverPlus Extra.

It means that if you are self-employed, CoverPlus Extra gives you the opportunity to nominate a predetermined and guaranteed amount of weekly compensation to reduce the impact of fluctuating income or changing circumstances.

But if ACC is offering additional services and lower average premiums why are Federated Farmers railing against the changes? Recently Federated Farmers President Alistair Polson predicted that farmers will be furious and disillusioned at a 21 percent increase in their new ACC bills.

A 21 percent increase is something any business person would take very seriously, as do I.

So let's examine the facts.

A Federated Farmers Newsletter claimed self-employed farmers are charged a new ACC farming rate of $2.28 per $100 of wages of salary compared to $1.88 under private insurers.

I think we all understand that there is no single entity called farmers. In fact, only 20 percent of farmers received the $1.88 premium rate quoted by Federated Farmers.

For its purposes ACC divides farmers mostly into two premium groups –crop growers and livestock farming.

The rates of ACC premiums depend on the premium group and also whether the farmer is self-employed or an employer.

The self-employed make up over 70 percent of all farmers.

Analysis of comparative figures from the Regulator's office shows that ACC is cheaper for 90 percent of crop farmers and 42 percent of livestock farmers who are employers.

But I can see how Federated Farmers may have made a mistake with its figures.

The standard ACC employer premium for livestock farmers is $2.28 - the rate Federated Farmers wrongly applied to the self-employed.

ACC's self-employed premium structure is, however, quite different. Different types of farming do not have different rates. Instead of a flat rate, the premiums are made up of two components:

 A fixed component not related to income to pay for medical entitlements; and
 A variable income related component to fund weekly compensation.

If we put these two components together we get an effective premium rate that decreases as the level of earnings rise.

So, if you are a self-employed farmer earning $15,000 a year you are looking at a premium rate of $2.23.

But if your yearly income is $50,000 then your premium falls to $1.47 for every $100 of wages.

It is this final variable rate that should be compared with Federated Farmer's $1.88 rate for the self-employed – which again, only 20 percent of farmers received under the private scheme.

I have brought some hand-outs with me for those of you who are interested in this issue.

But to come back from the specific to the general, let me say that in overall terms employers will pay around $25 million less this year than they did last year for workplace accident insurance.

By anyone's reckoning that must be cutting the compliance cost of New Zealand business.

Finally on ACC, let me talk briefly about the current billing system for the self-employed that has left many business people scratching their heads and wondering what minor sins they have committed to so clearly annoy the small gods of invoices and bills.

In a nutshell, the way the self-employed pay for workplace accident cover was changed from paying in arrears to paying in advance in 1998 in order to bring them into line with normal commercial practice. We don't pay any other insurance retrospectively and you can easily see why. Imagine trying to take out home and content insurance after your house has been razed in a fire.

By the end of the year both the self-employed and employers will be paying for workplace accident insurance in advance instead of in arrears.

However, in the meantime people are being billed for cover they received two years ago but did not pay for, and cover they are receiving now. As well, people still have to pay for the cost of residual long term claims – the 'tail'.

The 'tail' is paid in a separate payment to Inland Revenue. In the past, most people probably never even noticed this payment which tended to get lumped into their taxes.

I do acknowledge this transition period is confusing and complex –indeed people have asked why this Government did not repeal the practice of moving from arrears to advance. Simple answer - because it makes good commercial sense.

What I do have a problem with is that the previous government seemed to give very little thought to how to implement the change and how it would affect small businesses.

These arrears have arisen through no fault of the self-employed. That is why I want ACC to make sure that self-employed people are treated very fairly and leniently during the cross over period.

I have discussed ACC in some detail. Let me finish by sharing with you the government's intentions on the Employment Relations Bill.

The Bill is currently in front of a Select Committee and the Committee will not report back to Parliament until early August.

I cannot give you exact details about the nature of the final changes because at this stage nobody knows what they will be. But I can talk in terms of the general principle and the intent of the Bill.

We want the final Act to reflect the objectives of the original Bill. That means the fundamental philosophy driving the legislation is not up for sale.

We are repealing the Employment Contracts Act because in our view it is fundamentally unfair. It stacks up too much in favour of the employer.

We want to replace it with legislation that provides more fairness in and to improve the standard of, industrial relations in New Zealand.

The core policy objective of the Bill is to produce better employment relationships for all the parties involved. We can do that by promoting collective bargaining to establish terms of employment and at the same time protecting the integrity of choice about joining or not joining a union.

In the same manner there is nothing in the proposed legislation that would force people who are quite comfortably employed on individual contracts on to a collective contract against their will.

I would like to comment on some of the so-called "lightening rod" issues that may be of most interest to small and medium sized employers.

A high profile concern has been the status of the independent contractors. Will genuinely independent contractors be forced to become "employees" against their will?

Easy answer - of course not. The intention of the legislation was only ever meant to deal with the sham. This is where marginalised workers with no bargaining power are denied the basic rights of workers by being classified as contractors.

A related problem is the use of fixed term contracts.
Again, the intention is to stop abuse: to prevent employers locking workers out of service related entitlements by using a series of bogus fixed term engagements – when the actual job is real and permanent.

Union access is another issues of concern to employers. This is one area where the letter of the law will largely define the matter and so a workable compromise will be needed.

A last "lightening rod" issue is directors' liability. The purpose of these provisions is NOT to impose new liabilities on directors or managers. It is to prevent unscrupulous employers hiding behind limited liability in order to diddle employees out of their legal rights.

The sorts of behaviours I mean are where employers set up sweat shops, pay less than the minimum wage, disregard the Holidays Act and then escape the clutches of the Labour Inspector via insolvency.

The only intention of this part of the proposed Bill was to allow Labour inspectors to enforce the Minimum Wage and Holidays Acts when directors or managers set out to deliberately break the law. The legislation will be amended to make this crystal clear. Bone fide directors of companies have nothing to fear and will not be affected.

Thank you for inviting me to speak with you this evening. I hope I have been able to address and put to rest some of the concerns you may have had regarding changes to ACC legislation and the Employment Relations Bill.


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