ACC residual levies to end

Stuff reports:

More than half of New Zealand businesses will have their yearly ACC contributions cut after an old charge has been thrown out.

Residual levies, which have been collected since 1999, will be removed from ACC’s Work, Earners’ and Motor Vehicle Accounts next year, ACC minister Nikki Kaye announced Tuesday morning.

That means 53 per cent of Kiwi businesses will see decreases in their contributions to the Crown entity beginning in April next year, while 47 per cent will be paying more.

When ACC was set up in 1974,  it operated on ‘pay-as-you-go’ funding model, where every year a levy was collected to meet costs of claims for just that particular year.

But when the funding model changed in 1999, the levy changed to collect enough money to meet the anticipated long-term costs of claims.

Suddenly, for the 25 year period between 1974 and 1999, ACC hadn’t collected enough money to pay for future costs.

The residual levy was introduced to play catch up for the downstream costs of old claims, ensuring there were enough funds set aside to pay for ongoing claims predating 1999.

Now, the Government has has announced enough money has been collected to fund the ongoing costs of all claims on ACCs books, including for claimants who will rely on ACC for lifetime support.

The levies companies pay are experience rated, reflecting the likelihood of injury in their particular industries.

The safer the industry a company is in – and the less likely it is that its employees will make have to make claims – the less the company has to pay.

The residual component was fixed, based on old injury rates, some of which date back 10 years or more and have become outdated.

Now, all businesses will have their levies calculated on the most recent data around injuries, rather than historical data, which will see 53 per cent pay less to ACC, while 43 per cent would see hikes.

Having the levies reflect current accident rates, rather than historical rates, is a good thing.

Also good to see the accounts are now fully funded.

However, Kaye also announced Tuesday that there were further levy cuts in store which could lead to three out of four Kiwi businesses decreasing their contributions starting in the 2016/17 year.

“The ACC Board has advised me they intend to propose significant average levy reductions next year, which could mean only 25 per cent of businesses get a work levy increase,” Kaye said.

“Around 75 per cent of businesses would see their work levy reduced, with the reduction being very significant for some. This is because they will effectively get a reduction through both the residual levy being removed, as well as potential reductions to the work levy.”

That’s good. The key to keeping levies down is both a reduction in accidents, but also not increasing the scheme’s coverage constantly.