Proposed $450m levy reductions signal ACC in great shape

ACC Minister Nikki Kaye today welcomed the start of ACC’s public levy consultation process.

“The ACC Board is proposing levy reductions worth $450 million in 2016/17, spread across work, earners’ and motor vehicle levies. This is possible because ACC is now in great financial shape,” says Ms Kaye.

“The proposed reductions are based on the Board’s new funding policy of each levied account targeting assets within a band of 100 and 110 per cent of the account’s liabilities.

“This will help ensure ACC is adequately funded to withstand economic volatilities, without over-collecting levies.

“The proposed reductions are $171 million to work levies, $61 million to earners’ levies and $218 million to motor vehicle levies.

“In July this year, the average motor vehicle levy fell from around $330 to $195, bearing in mind the actual amount paid by car owners depends on the risk rating of their vehicle.

“Under ACC’s proposed reductions for 2016/17, the average motor vehicle levy would reduce again to around $130. This represents total average reductions over two years of around $200.

“This year’s levy consultation is notable in that ACC’s proposed levy rates factor in the removal of residual levies, which I announced last week.

“Because of the way this will impact work levies, the Government signalled a desire to remove residual levies at the same time as levies reduce, if possible, to offset increases to work levies paid by businesses in some industries.

“The combined effect of removing the residual levy and today’s proposed work levy reductions would see around 75 per cent of businesses paying a lower work levy, with the levy reduced by as much as one third for some.

“Around 25 per cent of businesses would see their work levy increase, as a result of paying a fairer share of injury costs in their industry.

“There will also be a small reduction to the earners’ levy paid by all salary and wage earners, to fund out-of-work injury costs.

“Final levies won’t be confirmed until after the consultation process.

“During this year’s consultation, ACC will also consult on my behalf on a number of factors, including a long-term funding policy for the scheme under new legislation passed last week. I am proposing that the long-term funding policy mirrors the ACC Board’s new funding policy.

“ACC will also consult on my behalf on potential refinements to the motor vehicle risk rating policy.

“When risk rating was applied to motor vehicle levies in July this year, I said this was a new system which would be refined over time.

“Following discussions with key stakeholders, such as the Automobile Association, Motor Industry Association and Motor Vehicle Importers Association, I am proposing some pragmatic changes to the rules which will enable greater consistency and integrity in the placement of vehicles in particular rating bands.

“Risk rating is an important tool to encourage safer cars on our roads and to ensure fairer levies. Even if we prevent one or two serious injuries a year, this will save millions of dollars.

“The ACC Board has confirmed their proposal is to not change the general motorcycle levy and this proposal will be out for consultation.

“Separately to the Board, I have requested that ACC consults on a reduction to the motorcycle safety levy, from $30 to $25. This is about recognising that the current safety levy account holds good reserves. This levy is focused on funding safety initiatives aimed at making motorcycling safer on New Zealand roads.

“After discussions with the Motorcycle Safety Advisory Council and other motorcyclist representatives including BRONZ, I can confirm that preliminary scoping will be done into potential safety incentive schemes for motorcycle levies.

“This would potentially allow levies to reflect possible safety features of motorcycles or safe behaviour of riders.

“Other issues that will be consulted on by ACC on my behalf include routine changes to classification units, which identify a business’s activity and are used to calculate work levies, and liable earnings limits used to calculate levies.

“Levy consultation is an opportunity for New Zealanders to share their views about levies and any other aspect of the ACC scheme, and I encourage everyone to have their say.”

See ACC’s levy consultation at: www.shapeyouracc.co.nz

Questions and answers

What’s the timeline for consultation?

Consultation starts today and runs until 30 October 2015. Full details are available on ACC’s levy consultation website.

This year, ACC will also consult on the Minister’s behalf on possible changes to motor vehicle risk rating. After considering public feedback, ACC will then recommend levies to the Minister, and the final decision will be made by the Government. Final levy decisions are expected to be made within four months.

Why is a new funding policy being consulted on?

In the past, there has been an inconsistent approach to ACC levy setting and marked fluctuations in levy rates. A new funding policy is one way to help address this. It’s proposed that over a 10-year horizon, each ACC account holds assets within a band of 100 and 110 per cent of the account’s liabilities. This will ensure the scheme is adequately funded to withstand economic volatilities, while ensuring levies are kept as low as possible and stable over time.

How does the new funding policy impact on levy consultation?

As part of this levy consultation, the Minister is consulting on a new long-term funding policy for the ACC scheme. This new funding policy is made possible under new legislation passed last week.

The current levy consultation is being carried out under existing legislation, however, ACC’s proposed levies for 2016/17 are based on the ACC Board’s new funding policy, which mirrors the Government’s new long-term funding policy.

What changes to vehicle risk rating are being consulted on?

A number of changes are proposed to the design and operating rules of the system, for example, extending the length of time that NCAP ratings apply for, and ensuring that the same rating applies to all cars of the same model.

Once any new principles are decided, new ratings for all vehicle will be released, and further consultation will take place on how the revised system is being applied to New Zealand’s car fleet.

What improvements have helped lead to ACC’s proposed levy cuts?

There are a number of factors, including:

• a clear focus on financial sustainability, while still meeting the needs of injured New Zealanders
• an investment strategy which continues to outperform market benchmarks
• a growth in the scheme’s assets, from around $10 billion in 2008/09 to around $31 billion
• after posting a $4.8 billion hole in the accounts in one year alone (2008/09) the scheme is now fully funded.