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ACC releases levy increase proposals

Media Release

14 October 2009


ACC releases levy increase proposals


ACC has today released proposals for increases to ACC levies as part of its annual levy setting process.

The proposals relate to three ACC levies: Work levy rates that provide cover for work-related personal injuries; earners’ levy rates that provide cover for non work-related personal injuries (e.g. at home or at sport); and motor vehicle rates that provide cover for personal injuries involving moving motor vehicles on public roads.

ACC chairman John Judge said the need to increase levies was driven by many factors.

``An increase in the number of claims received annually, rising health costs and Scheme extensions have been major contributors to the need to increase levies to cover the current costs of the Scheme,’’ he said. Private health insurer Southern Cross also cited rising claim numbers and healthcare costs increasing well above the rate of inflation as key drivers for their deficit reported yesterday.

``We are also taking a more realistic approach to estimating future costs and liability. Other factors such as the global recession have had a compounding effect,’’ Mr Judge said.

Mr Judge noted ACC is required to develop its levy proposals under existing legislative provisions. However, the Minister for ACC is introducing amendments to the ACC legislation that will have an impact on the final levy rates set for 2010/11 – in particular extending the date by which the Scheme must be fully funded. In addition, ACC is also undertaking a number of initiatives which may reduce the need for levy increases in the order it is proposing.

``The ACC Board appreciates there’s a limit to how much New Zealanders should be expected to pay in ACC levies, and that many will view the prospect of levy increases at this time with dismay. We wish to stress that levy increases are not seen as the only answer to the challenges confronting the ACC Scheme – the focus must be on other ways to make the Scheme more sustainable and affordable in the long run.’’
The following table provides an indication of proposed levy rates based on some of these initiatives and changes to legislation taking effect.

Who paysLevy ComponentCurrent 2009/10Proposed 2010/11 [current legislation]Indicative 2010/11 [including initiatives & legislation change]Proposed change
Work Account
Cover for work injuries paid by self-employed* and employers (invoiced directly by ACC)
Combined average levy rate per $100 liable earnings$1.31$1.89$1.47Up 16c
Note: These are average rates. Individual rates for industry groups may increase or decrease based on recent experience.
Earners’ Account
Cover for non-work injuries paid by employees and self-employed (through PAYE)
Levy rate for non-work claims in 2010/11 per $100 liable earnings $1.5110^$2.4889^$2.1778#Up 67c
Motor Vehicle Account
Cover for motor vehicle injuries paid by motorists (through licensing fees & petrol levy)
Average levy per vehicle$287.00$417.28$317.28Up $30.28

* Self-employed and non-PAYE shareholders also pay the non-work claims levy
^ Proposed non-work claims levy including GST is $2.80 ($1.70 in 2009/10)
# Indicative non-work levy including GST is $2.45 (if improvement initiatives and legislative amendments are taken into account)

Earners’ levy
While growing claims for home and sports injuries have put pressure on the Earners’ Account, the big increase this year is largely because the levy rate has been too low since 2007/08. ``I understand the decision last year to set the Earners’ levy rate lower than required to adequately fund the account was driven by the recession and the impact on people’s income,’’ Mr Judge said, ``but this is unsustainable.’’

Motorcycle levies
Within the motor vehicle levy changes (summarised in the above table) ACC is proposing major changes to motorcycle levies to take into account the fact that for several years, car drivers have been subsidising motorcycle and moped riders.

The new levies reflect the fact that motorcycle riders are 16 times more likely to be involved in a road crash than any other road users and are far more likely to be seriously injured. In 2008/09 ACC paid more than $62 million for motorcycle riders but collected only $12.3 million in levies from them.

Even with the significant proposed increases in the rates payable by motorcycle and moped drivers to redress this imbalance, car drivers will still continue to subsidise motorcycle and moped drivers by $77 a year for the 2010/2011 year.

``The proposed legislative change to extend the full funding date to 2019 would reduce the effect of residual claims on motor vehicle levies by $100,’’ said Mr Jusge. ``However, whether or not this translates into an equivalent reduction in those levies will depend on how best to fund the account fully over the next 10 years. This is something the Board must determine.’’

The proposals also change the categories for mopeds and motorcycles, by grouping mopeds and motorcycles together and introducing three sub-classes for 0-125 cc, 126-600 cc and 601+ cc cycles.

Preventing further deterioration
``Along with other changes, levy increases are needed to help avoid further deterioration in our financial position,’’ Mr Judge said.

``The proposed increases only deal with the current shortfall in funding and largely go towards paying the ongoing costs of existing claims – not future cost increases or increases in demand for services.

``Government is proposing legislative changes which, if passed, will reduce the size of levy increases. When the Amendment is passed, the Board will reconsider its funding requirements and levy recommendations to the Minister. Despite this, the proposed rates we are releasing today show how bad the situation has really become,’’ Mr Judge said.

Consultation
Mr Judge said the ACC Board’s final view on levy increases will be informed by consultation and it will then make appropriate recommendations for Government to consider and to make a final decision.

Further information, including consultation documents and actuarial reports relating to setting levy rates and the estimated outstanding claims liability, is available from www.acc.co.nz/consultation. Alternatively, call 0800 ACC RATES (0800 222 728) or send an email with your request to consultation@acc.co.nz.

Making a submission
ACC is encouraging New Zealanders and affected organisations to have their say.

Submissions must include: Your name
Your address
Your contact phone number(s)

You can send your submission: By post: Levy Consultation
ACC
PO Box 242
Wellington 6140
By fax: 04 918 4395
By email: consultation@acc.co.nz

Deadline for submissions: 5pm, 10 November 2009

ENDS


Frequently Asked Questions

Proposed Levy Changes

Q Why are levy increases necessary?
A The increasing gap between ACC’s assets and liability means levy increases are needed to help bridge the gap.
The ACC Board appreciates there’s a limit to how much New Zealanders should be expected to pay in ACC levies, and that many will view the prospect of levy increases at this time with dismay.
We wish to stress, therefore, that levy increases are not seen as the only answer to the challenges confronting the ACC Scheme – the focus must be on other ways to make the Scheme more sustainable and affordable in the long run.

Q Why don’t we defer at least some of these costs – we’re only funding the future costs of accidents?

A ACC operates on what’s called a ‘fully funded’ basis. This means each year, we’re responsible for collecting enough funds to meet the lifetime costs of all claims we receive that year.
The fully funded approach ensures future generations aren’t ‘burdened’ with the injury costs of previous generations - since funds to meet these costs have already been set aside.

The trouble with deferring is that next year there will be accidents that also need to be funded – and so if we don’t collect sufficient money each year, it becomes a snow-balling effect.

Q Is it certain that there will be levy increases?
A As it does every year when it sets levy rates for the year ahead, ACC is consulting with the public over its proposed levy changes for 2010/11 before the Government makes a final decision.
However, given the Scheme’s current financial circumstances it is difficult to see how levy increases can be avoided, though the final amount of any increases may differ from those proposed.

Q Why is ACC consulting on a set of levy proposals that may not occur
because the Government is planning legislative change?
A ACC must propose levy rates based on legislation as it currently stands. However, we are trying to be clear about the impact of proposed legislative amendments on final rates.


Q When will new levy increases happen?
A ACC will begin consulting on the proposed levy increases today. We will make a recommendation to the Government on levy increases later in the year, and after this the Government will make a final decision on what the rates will be. New levies will take effect from 1 April 2010, except for motor vehicle levies which take effect from1 July 2010.

Q Why do we still need to pay for pre-1999 claims?
A Prior to 1 July 1999, ACC operated under a Pay As You Go system. Levies were collected at the start of the year to cover that year’s payments for all new and existing claims, but no levies were collected to cover the future cost of these existing claims. However, a number of these claims – particularly where people were seriously injured - continue to have ongoing costs which must be met.

Levies are set with the goal of building up sufficient assets to ensure that pre-1999 claims are fully funded by 30 June 2014 – although proposed legislative amendments could move this out to 2019.

Q What is ACC doing to keep levy costs down?
A ACC has launched a range of initiatives aimed at reducing the operational costs of the Scheme including:
• a new claims ‘triage’ system, designed to help assess and address the specific rehabilitation needs of clients more promptly and accurately
• developing programmes to reduce unnecessary time off work after injury
• new approaches to managing longer-term claims
• more specialised assistance for those with serious injuries
• a new model for purchasing services from treatment providers, aimed at achieving better value for money and improved rehabilitation outcomes.

Q. Why are motorcycle levies increasing so much?
A The incidence, severity and cost of motorcycle crash injuries are not reflected in the levies. If we charged motorcycle owners for the true cost of injuries, levies for motorcycles would be between $1,200 and $3,700.
• Motorcycle riders are 16 times more likely to be involved in a road crash than any other road users.
• Motorcycles are only 3% of New Zealand’s vehicle fleet but motorcycle injuries make up 21% of road crash injury claims to ACC
• The cost of injuries in motorcycle crashes is about four times higher than injuries in other motor vehicle crashes.


Q Why are levy rates for people earning a wage or salary increasing significantly?
A The Earners’ Account has seen a huge rise in liabilities over the past four years from $1.9 billion in 2004/05 to $4.6 billion in 2008/09. That increase has been driven by the growing number and cost of claims for injuries outside the workplace. Most of these happen in the home or at sport. These issues have been compounded by other factors such as:
• the recession, which has impacted on ACC’s investment income
• falling rehabilitation rates – taking longer to get people back to work or independence after an injury
• extensions to the ACC Scheme, meaning more people are eligible for assistance from ACC.

Q What is the impact of the earners’ levy increase for a family with an average income of $45,000?
A On an income of $45,000 the family would have paid $765 for the earners’ levy in the 2009/10 year. Under ACC’s proposed levies for 2010/11 they would pay $1,260. If the Minister’s changes are introduced that figure would be $1,080.

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