CTU media release
4 December 2009
Government accounts show ACC not in crisis, corporate profits falling
ACC’s financial position continues to improve according to the government accounts for October, directly contradicting ACC Minister Nick Smith’s claims of crisis for the corporation, said the CTU today.
“ACC’s reserves are now above forecast by $739 million (5.4 percent), a further improvement over last month,” said CTU Economist and Policy Director Bill Rosenberg. “The strong performance of ACC’s investment portfolio shows that the Government’s claims of blowouts and financial mismanagement are completely inaccurate.”
ACC’s claim liabilities, above forecast largely because of changes in the assumed interest rate used to estimate it, are now just 0.6 percent ($166m), more than forecast, again an improvement over last month. These numbers are driven largely by constantly changing market valuations and by actuarial assumptions. “The main problem is the full funding of future claim payments which means ACC accounts will always be susceptible to large apparent variations which in reality may have little practical consequences for the ACC scheme,” said Rosenberg. “A pay as you go scheme with a prudent level of reserves could be much more stable.”
Corporate tax receipts continue their slide, almost 40 percent below forecast in the four months to October. Treasury now concludes that this trend is not a timing issue but is likely to lead to lower corporate tax revenue for the year. Bill Rosenberg said: “It raises concern about the health of businesses at a time when many commentators are talking of them coming out of the recession.”
At the same time, personal income tax revenue is slightly ($202 million or 3 percent) higher than forecast, which Treasury says is “consistent with the labour market not deteriorating to the degree expected”. But social assistance and benefit payments are also $172 million higher than forecast, though Treasury says about a third of this is due to timing issues. Other causes include significantly more student allowance recipients than forecast.
The operating balance before gains and losses is $1.2 billion below forecast largely because of the fall in tax revenue, but the operating balance is on target, assisted by the gains in the ACC investments and NZ Superannuation Fund.
Net debt, the Government’s main debt indicator, is on target at $21.5 billion or 11.9 percent of GDP. Compare the UK’s government debt in March at 55.5 percent of GDP and rising. Gross debt is $48.2 billion (26.8 percent of GDP).