Lower ACC levy will save $100 million for businesses

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Thomas Coughlan

Wellington, December 11, 2018

The Government has announced a reduction to ACC’s work levy, saying it will hold all other ACC levies at their current rate.

The move will save businesses $100 million over the next two years, the Government said. 

The average work levy paid by employers and self-employed people will decrease from 72 cents to 67 cents per $100 of liable earnings. Earners levies paid through PAYE will remain at the current level of $1.21 per $100 of liable earnings.

Current controversy

The issue of ACC levies has been a controversial one. 

In September, ACC recommended increasing the petrol levy by almost two cents a litre. This has also been rejected by the Government, which is currently feeling the pressure after raising fuel excise and introducing an unpopular regional fuel tax in Auckland. 

ACC is a state-run insurance scheme which supports New Zealand’s no-fault accident insurance. It is paid for by employers and motorists, contributing to a Fund which pays out on claims. The Fund is currently the largest in New Zealand and worth close to $40 billion. 

But the issue of contributing to the Fund has been controversial, particularly in light of concerns over the increasing cost of living. 

National’s Campaign

National has also been running a campaign highlighting the rising cost of living for households, particularly those on low incomes.

The Government’s ACC changes appeared to have this cost of living attack in their sights.

At her weekly post-Cabinet Press Conference, Prime Minister Jacinda Ardern noted that the changes were designed to manage costs for businesses and motorists, but refused to concede she was bowing to pressure from the opposition.

“We are constantly aware of the issue overall of the cost of living,” she said.

Vehicle Risk Rating ends

ACC Minister Ian Lees-Galloway also announced ACC’s Vehicle Risk Rating programme would end. The VRR programme charged different levies depending on a vehicle’s safety.

It was designed to encourage consumers to purchase safer cars, but Lees-Galloway said that there was no evidence it had contributed to a safer vehicle fleet.

“The evidence indicates that it has had absolutely no impact on people’s purchasing decisions. It has not been fit for purpose so far, we can use it in a better way by giving people better up-front information,” he said. 

Instead, it saw people on lower incomes paying more for ACC, as they were less likely to be able to afford newer, safer cars. The change means those with newer, safer cars will essentially subsidise drivers of older, less-safe vehicles. 

No Under-Funding

Ardern and Lees-Galloway said the changes would not mean ACC would go under-funded.

The Government had received advice from MBIE and Treasury that supported its decision to reduce the work levy and maintain the current earners and motor vehicle average levy rates.

Mr Lees-Galloway said this was due to the “high solvency levels of the accounts”. 

He said ACC was essentially over-funded, and the changes would mean the Funds would return to the mid-point of their targeted level of solvency. 

“At the moment they’re essentially over-funded. All three accounts are over 110% Funded. The Funding policy requires that we aim to have them between 100% and 110% Funded with an aim of a midpoint of 105%. 

“By keeping the rates as they are we anticipate that will mean that the solvency rate will drop steadily over time, aiming to get it towards that 105%,” Mr Lees-Galloway said.

Thomas Coughlan is a Newsroom Reporter based in Wellington who writes on Policy and Economics. Indian Newslink has published the above Report and Picture under a Special Agreement.

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