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Levies could and should increase by less

CTU media release

10 December 2009

Levies could and should increase by less

The increases in ACC levies announced by ACC Minister Nick Smith could be even smaller if the Government funded ACC on the same pay-as-you-go basis as health and education, and put a great deal more focus on accident prevention, said CTU Economist and Policy Director Bill Rosenberg today. It could also afford to do this without the significant cuts to entitlements it is planning, he said.

“The smaller than threatened increase in levies was predictable given that ACC’s original proposals did not take account of the extension of the date for full funding to 2019 (from 2014),” said Rosenberg. “It is the Government’s cuts to entitlements and the returns from ACC’s investment fund which are also enabling them to reduce the levy increases. The investment fund has done better than expected, to the tune of $739 million between June and October. In fact this further exposes the misrepresentation of the health of ACC’s finances.”

“The requirement for reserves to fund all current and future costs of current claims is responsible for most of the present increase in levies, even with the reduced increases announced today. The proportion of the increase due to greater costs is in fact relatively small. The increase in the Earner’s levy (funding non-work accidents) needed to fund the cost of claims is 4.7 percent. But instead the Government has increased this by 17.6 percent. For the employer-funded Work account (for work accidents), the increase needed to fund cost of claims is 3.6 percent. Instead these are increasing by 12.2 percent.”

“A pay-as-you-go funding system – the same as is used for health, education and National Superannuation – would significantly reduce increases in levies. It would simply need to be backed by a reserve to prevent sudden jumps in levies and to provide for natural disasters and other unusual events.”

“We also have one of the worst rates of workplace fatalities in the world – about seven times that of the U.K. for example. In 2003, New Zealand was 23rd in a ranking of fatal accident rates in developed countries. Reducing accident rates would reduce levies significantly in the long run and make better workplaces.”


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