Hon Nikki Kaye
Minister for ACC

22 September 2015

ACC reaches milestone as residual levies removed

ACC Minister Nikki Kaye confirmed today that residual levies will be removed from ACC’s Work, Earners’ and Motor Vehicle Accounts next year.

“Parliament will this week debate the final stages of an amendment to the Accident Compensation Act which will allow me to set the date from which residual levies will cease, by notice in the Gazette,” says Ms Kaye.

“This is a significant milestone for the ACC scheme, which means we will now have fairer work levies based on industries with the greatest injury costs paying their true share of those costs.

“Alongside stronger health and safety laws, the price signal resulting from these levy changes will help encourage safer workplaces.

“Residual levies were introduced in 1999, when ACC moved to a fully funded model. Under this model, the scheme is required to build up sufficient funds to meet the anticipated lifetime costs of all pre-existing claims.

“Residual levies were always going to be removed, once enough funds were collected to meet ongoing, pre-1999 claims costs.

“My decision to remove residual levies next year is the result of the latest revaluation of residual liabilities I’ve received, which shows the first equitable opportunity to remove the levies is the 2016/17 levy year.

“Removing residual levies will have a redistributive effect, which will see an increase in work levies for businesses in some industries, and a decrease for others.

“This is because instead of, on average, around one third of work levies being based on historical injury costs, and two thirds based on more recent injury costs, 100 per cent of the levy will now reflect recent injury costs.

“On its own, the redistributive effect of removing residual levies would see around 47 per cent of businesses receive a work levy increase, and around 53 per cent receive a levy decrease.

“However, if the removal of residual levies coincides with levy reductions in 2016/17, the extent of levy increases can be lessened.

“The ACC Board has advised me they intend to propose significant average levy reductions next year, which could mean only 25 per cent of businesses get a work levy increase.

“Around 75 per cent of businesses would see their work levy reduced, with the reduction being very significant for some. This is because they will effectively get a reduction through both the residual levy being removed, as well as potential reductions to the work levy.

“While there will be a redistributive impact from removing the residual levy, the proposed total Work Account levies collected in 2016/17 would be significantly reduced.

“The removal of residual levies will be welcomed by accredited employers,
who include some of New Zealand’s largest companies and organisations.

“These businesses meet their own workplace injury costs, in return for paying little or no ACC work levies. However, they’ve still been required to help pay for pre-1999 ACC claims, so today’s announcement will mean a significant cost-saving for them.

“It’s also important to acknowledge that while levies are based on industry costs, some businesses also get a levy loading or discount based on their particular claims history.

“ACC has indicated that its proposed reductions will be based on a policy of ensuring that over a ten-year horizon, each ACC account holds assets within a band of 100 and 110 per cent of the account’s liabilities.

“This mirrors the funding policy supported by Cabinet, and which I intend to consult on as a long-term funding policy for the ACC scheme.

“The aim is to ensure ACC is adequately funded to withstand economic volatilities, without over-collecting levies.

“I have advised the ACC Board today of the Government’s intention to remove residual levies next year.

“This will enable ACC to factor this into the levy rates they recommend as part of their upcoming consultation.

“The ACC Board has advised me that they expect to publish their proposed levy rates and begin public consultation next week. At the same time, I will also announce other ACC matters that I have asked ACC to consult on, on my behalf.

“Residual levies were intended to be collected until 2019, so today’s decision confirms the improved financial performance of the ACC scheme under this Government.

“We inherited a scheme which posted a $4.8 billion hole in its accounts in one year alone.

“The scheme’s assets have since grown from around $10 billion to around $31 billion. This means New Zealanders can be confident ACC is now well placed to provide accident compensation to those who need it.”

ENDS

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