ACC levies

Vernon Small reports:

ACC is in line for a major shake-up, with the two major parties eyeing changes that could see premiums plunge by up to 25 per cent.

Labour is rethinking its ACC policy, and could scrap the fully funded model to revert to a “pay as you go” approach – and yesterday ACC Minister Judith Collins refused to rule out a similar move.

During last year’s levy review, the Cabinet agreed to “a review of the funding policy for the ACC accounts and the reasons for the fluctuations in the projections of the ACC’s accounts”.

Ms Collins said ministers were looking at the funding policy “which could include the stability of the scheme, good process for levy setting and the impact on the economy”.

“We’re not ruling out anything at this stage.”

Labour leader David Shearer said a possible change had not yet been discussed by caucus.

But the party’s ACC spokesman, Andrew Little, said it was time for a public debate about funding options, with recent controversy highlighting ACC’s overemphasis on lowering costs rather than meeting claimants’ needs.

Under full funding the corporation builds up reserves to cover the current and future costs of existing claims, and is aiming to reach that goal by 2019.

Under a pay-as-you-go approach, it would need only enough income in a year to cover annual claims, plus a possible buffer for unexpected costs or disasters.

Mr Little said his “back of the envelope” calculation was that levies could be cut by 20 per cent to 25 per cent if there was a move away from full funding.

While it would be nice to have lower levies, such a move is a false economy which really just leaves the next generation with a huge unfunded liability. Levies should reduce because ACC is managing to rehabilitate people back to work faster, not due to accounting changes.

ACC’s revenue for a year should roughly match the liabilities it incurs in that year. That way there is security for long-term ACC recipients, and we don’t leave a huge bill for future generations. The benefits of paying for the full costs as they incur is that we can then make rational decisions about what ACC covers. When that cost is partially hidden by leaving it to the next generation, it encourages reckless spending.