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Increase in ACC levies for employers and workers

Hon Dr Nick Smith
Minister for ACC

16 December 2008 Media Release

The Government is to reluctantly increase ACC levies for employers and workers next year – less than those recommended by officials, ACC Minister Nick Smith says.

“This has been an extremely difficult decision for the Government to make and our priority has been to minimise the impact of levy increases on households and businesses. The increases are as modest as legally possible.

“Two weeks ago Department of Labour officials recommended substantial levy increases of 43 percent for next year for the Earners’ Account and increases for the following years on all ACC accounts. The Government has decided the public is in no position to face those levels of costs increases and has rightly pulled them back.

“The previous Labour Government left the country with a massive fiscal hole of $4 billion. The scale of the blow out in costs is such that increases are inevitable to ensure ACC’s ongoing viability.

“The National Government has had to take action.”

The Government has adopted the following levy rates:

• The Earners’ Account Levy (paid by all employees and self-employed to cover their non-work, non-motor vehicle injuries) will increase from $1.40 to $170 (including GST) per $100 of liable earnings

• The average composite employer and self-employed levy will increase from $1.26 to $1.31 per $100 of payroll. This levy excludes GST and is an average rate. Individual rates for industry groups may be higher or lower

• The new rates take effect on 1 April 2009

“A person on the average wage of $47,000 per year currently pays $658 a year or $12.61 a week to ACC for the Earners’ Levy. Under the DOL recommendations for next year, an average wage earner would be paying $940 a year or $18.02 a week

“In difficult economic times that level of increase was unacceptable. That is why the Government has opted for a lesser rate of $799 per year or $15.31 a week.

“The decision on motor vehicles levies needs to be made by March next year and there are options to extend the full funding date beyond 2014 to lessen any increases. Any changes to the Motor Vehicle Levy will take effect on 1 July 2009.

“Today’s announcement comes after the Government on 8 December approved an additional $297 million appropriation to cover the shortfall for this fiscal year for the Non-Earners’ Account.

“A further concern is that officials are projecting increases in the Earners’ Account levy from today’s $1.40 to $3.00 in 2013/14 and the Work Account levy from $0.72 today to $1.13 in 2013/14. These are unacceptable to the new Government and we will need to work hard to restrain costs.

“We will be proceeding with our stock take of all accounts in the new year, and will be working with stakeholders and officials on options to get costs under control.”

Questions and Answers

Q What are the different ACC Accounts, how are they funded and what do they cover?

A ACC coverage is managed under six Accounts. The source of funding and a general description of what these Accounts fund is listed below.

Four Accounts are funded exclusively through levies:

Work Account – this Account is used to meet the costs of entitlements for work-related personal injuries, including work-related gradual-process, disease or infection where the work exposure occurred on or after 1 July 1999.

Residual Claims Account - this Account is used to meet the costs of entitlements for: work injuries suffered prior to 1 July 1999; personal injuries caused by work-related gradual-process, disease or infection where the causative exposure occurred prior to 1 July 1999; and earners’ non motor-vehicle injuries suffered prior to 1 July 1992.

Earners’ Account - this Account is used to meet the costs of entitlements for earners’ non-work injuries (that is, personal injuries other than work-related injuries, motor vehicle injuries and treatment injuries) from 1 July 1992 onwards. This Account has a residual (pre-1999) component.

Motor Vehicle Account – this Account is used to meet the costs of entitlements for motor vehicle injuries (that is, personal injuries suffered because of the movement of a motor vehicle, except for personal injuries suffered because of off-road use of a motor vehicle and certain work-related personal injuries). This Account has a residual (pre-1999) component.

One Account is funded from Parliamentary Appropriation:

Non-Earners’ Account – this Account is used to meet the costs of entitlements for non-earners’ personal injuries (other than motor vehicle injuries or treatment injuries).

One Account is currently funded from the Non-Earners’ Account and the Earners’ Account:

Treatment Injury Account – this Account is used to meet the costs of entitlements for personal injury caused by treatment by, or at the direction of, a registered health professional (other than treatment for a work-related personal injury).

Government announces 2009/10 levy rates

Why do ACC levy rates need to change?

A There are a number of factors that affect levy rates. These include the forecast trends in injury rates, the duration and cost of claimants’ rehabilitation or compensation, and economic factors such as inflation and interest rates. Rising interest rates increase the future earnings expected from ACC’s investments and decrease ACC’s liability for past injuries and, as a result, reduce the levy rates. The opposite is true when interest rates reduce.

Q What has driven increases in the Earners’ Account levy rate?

A Earners’ Account levy rates are projected to continue to rise owing to increasing claim incidence rates, cost inflation growing at a faster rate than earnings – particularly increasing the costs of providing medical treatment, elective surgery procedures and other rehabilitation services.

Q What is the impact on someone on an average salary of $47,000?

A The increase in the Earners’ Account levy rate is from $1.40 per $100 to $1.70. This equates to an annual increase of $141 per annum, from $658 to $799.

Q What has driven increases in the average Work Account levy rate?
A The main reason for the change in the average cost of a claim receiving entitlements for 2009/10 has been the increased expected costs of weekly compensation, hospital treatment, and vocational and social rehabilitation.
The number of new entitlement claims for the 2009/10 levy year is expected to be 0.6% higher than that of 2008/09. In recent years the number of claims has been decreasing and while ACC projects that underlying trend to continue, due to the 2008 Amendment Act an increase in claims is projected, mainly from the new mental injury provisions and changes to the process for making gradual process claims.

The impact of this increase on individual employers and the self-employed will vary depending on the industry they are in and the size of their payroll (employers) or earnings (self-employed).

Q. What has driven changes in the average Residual Claims Account?

A The recommended average levy rate of $0.56 per $100 of liable earnings is based on the assumption that all the costs of all current claims and all future reported work-related gradual process claims due to exposure prior to 1 July 1999 are fully funded by a flat average levy rate from 2009/10 until 30 June 2014.

The recommended increase in the average levy rate for pre-1999 claims is driven mainly by recent revisions of the assumptions used to estimate the liability of hearing loss claims expected to be reported in the future. While the expected average cost of each hearing loss claim has decreased (as a result of ACC’s new purchasing strategy for hearing aids), the number of claims expected to be reported in the future has increased. This has resulted in an overall increase in the estimated liability for hearing loss claims.

The impact of this increase on individual employers and the self-employed will vary depending on the industry they are in and the size of their payroll (employers) or earnings (self-employed).

NB – it is important to note that for the Work and Residual Claims Accounts these are average rates – with some rates going up and others falling.

ENDS

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