Ugly costs ahead for ACC funders

Grahame Armstrong in the SST looks at the bad news:

Cabinet will tomorrow approve a bailout plan that also aims to safeguard ACC’s financial future. The proposed changes will be open to public discussion for four to five weeks before ACC makes recommendations to the government. …

Wage earners currently pay an ACC levy of 1.7% of what they earn, up to $110,000 (any income above that does not attract a levy). That is set to rise to 2.5%.

The Sunday Star-Times understands the ACC levy for a family earning $38,000 is likely to rise by $304 a year, plus an extra $52 to register the family car and 4c a litre more at the fuel pump.

If the government chooses not to increase the ACC petrol excise, which is now 9c a litre, the ACC component of registering a car, now $168, will go up even more – possibly by as much as $107.

Someone on the average wage of $45,000 will pay $360 more a year to ACC, plus the extra fuel and vehicle registration costs. The ACC levy for those on $65,000 will go up about $520 a year while those earning $85,000 will pay $680 more.

This is all because Labour kept adding on more and more entitlements, but didn’t fund them. It was fiscal folly. Don’t think this is just about the investment losses.

ACC chairman John Judge told the Star-Times ACC’s debt was worth about $3000 for every New Zealander, and it was going to take a “hard-nosed” approach – and possibly up to 10 years – to get it into a sustainable position. This would require “substantial” levy increases and legislative change to get people off the scheme and back to work quicker.

“In the last five years we’ve lost $9b. We need to act today because this liability is like a mortgage – if we don’t start paying it off tomorrow it gets bigger by $700 million-$800 million a year.”

Yes, the time has come to get the scheme under control. It really is about saving ACC, because if no changes were made the increased levy payments would be even more horrific.

ACC Minister Nick Smith said the choices for the government were “pretty ugly”.

“It is inevitable there will be levy increases,” he said. “The government’s preferred approach is to get savings out of ACC operationally and out of pulling back on some of the welfare-type entitlements … Without change, ACC is on course to go broke.

It has changed from a well intentioned scheme which provided support if you had an accident and were off work for a few weeks, to a massive extension of the welfare state.

Labour’s ACC spokesman David Parker said the situation was not as gloomy as the government was projecting. The ACC’s liabilities and costs were increasing but it was also the country’s biggest insurer, and the cost blow-out could not simply be blamed on poor management.

Oh yes we are going to believe Labour’s projections on this.