Background

ACC Accounts

10. ACC is a Crown Entity providing comprehensive, no-fault personal injury cover to all New Zealand residents and visitors to New Zealand. The objects of the ACC scheme are the promotion of injury prevention; rehabilitation so that claimants' health, independence and participation are restored to the maximum extent practicable; and ensuring that during rehabilitation claimants receive fair compensation for loss from injury. ACC provides entitlements to claimants including treatment and rehabilitation costs, weekly compensation for earners, and lump sum compensation for permanent impairment.

11. ACC coverage is managed under six Accounts (this will be reduced to five if the IPRC Amendment Bill is passed and the Residual Claims Account is absorbed into the Work Account). The source of funding and a general description of what these Accounts fund is listed below.

Four Accounts are funded exclusively through levies:

• Work Account - this Account is used to meet the costs of entitlements for work-related personal injuries, including work-related gradual-process, disease or infection where the work exposure occurred on or after 1 July 1999. It is possible for employers to take on some level of self-insurance through the Accredited Employers' Programme. This allows employers to provide entitlements to injured workers in place of ACC, for a set period of time and/or to a set value of claim. This gives these employers a significant discount on their Work Account levy rate.
• Residual Claims Account - this Account is used to meet the costs of entitlements for: work injuries suffered prior to 1 July 1999; personal injuries caused by work-related gradual-process, disease or infection where the causative exposure occurred prior to 1 July 1999; and earners' non motor-vehicle injuries suffered prior to 1 July 1992.
• Earners' Account - this Account is used to meet the costs of entitlements for earners' non-work injuries (that is, personal injuries other than work-related injuries, motor vehicle injuries and treatment injuries) from 1 July 1992 onwards. This Account has a residual (pre-1999) component.
• Motor Vehicle Account - this Account is used to meet the costs of entitlements for motor vehicle injuries (that is, personal injuries suffered because of the movement of a motor vehicle, except for personal injuries suffered because of off-road use of a motor vehicle and certain work-related personal injuries). This Account has a residual (pre-1999) component.

One Account is funded from Parliamentary Appropriation:

• Non-Earners' Account - this Account is used to meet the costs of entitlements for non-earners' personal injuries (other than motor vehicle injuries or treatment injuries).

One Account is currently funded from the Non-Earners' Account and the Earners' Account:

• Treatment Injury Account - this Account is used to meet the costs of entitlements for personal injury caused by treatment by, or at the direction of, a registered health professional (other than treatment for a work-related personal injury).

12. The following table illustrates what levies levy payers pay, and how they pay it:

	composite Motor Vehicle Account levy
Levy payer	Licence fee levy	Petrol levy	composite Earners' Account levy	composite work levy
employee	If owns a vehicle according to vehicle type	If uses a petrol vehicle, according to petrol usage	to IRD through PAYE, at flat rate	No
non-earner	If owns a vehicle according to vehicle type	If uses a petrol vehicle, according to petrol usage	No	No
self-employed	If owns a vehicle according to vehicle type	If uses a petrol vehicle, according to petrol usage	Direct to ACC, at flat rate	Direct to ACC based on industry risk
standard employer	If owns a vehicle according to vehicle type	If uses a petrol vehicle, according to petrol usage	No	Direct to ACC based on industry risk
accredited employer	If owns a vehicle according to vehicle type	If uses a petrol vehicle, according to petrol usage	No	Reduced amount direct to ACC based on industry risk

13. The ACC levy setting process is set out in the IPRC Act. The ACC makes recommendations on levy rates following consultation with levy payers. The Department of Labour also provides me with advice on the proposed levy rates. Each year the Minister for ACC makes decisions on ACC levies so that these can be set in regulations.

14. New levy rates are required to be set by 31 March 2010 for the composite work levy and the composite Earners' Account levy, otherwise the 2009/10 levy rates will remain in place from 1 April 2010, and ACC will be significantly underfunded. If new levy rates are to be charged on 1 April 2010, the Inland Revenue Department's processes would require approved composite Earners' Account levy rates by 17 December 2009.

15. The Motor Vehicle Account levy year runs from 1 July to 30 June of the following year. NZTA and Customs also require any changes to classifications (for example, for motorcycle classifications) prior to the new year.

16. The figures used in this paper are based on economic and claims assumptions at 30 June 2009 unless otherwise specified. However, it should be noted that ACC takes a long-term view of their investments, and are wary of being too reactive to a volatile market.

Economic effect of levy rates

17. The proposed increases in levy rates will have a significant effect on the economy:

1. The proposed increase in the Composite Earners' Account levy rate from $1.70 to $2.50 per $100 of liable earnings would reduce in the hand earnings for people earning under $110,000 by 1%. With liable earnings expected to be approximately $106 billion in the 2010/11 year this would remove $850 million of spending power from the economy.
2. The proposed increase in the average Composite Work Account from $1.31 to $1.47 is an increase for businesses of almost $150 million.
3. The proposed increase in the Composite Motor Vehicle Account from $287.00 to $334.52 averages $47.52 per vehicle, which is just over $150 million plus GST across road users.

18. The deterioration in ACC's liabilities flows directly into the Crown Accounts. ACC contributed $4.8 billion (46%) of the $10.5 billion deficit for the year ending 30 June 2009.

19. The increase in ACC levies will reduce the ACC's deficit, which in turn, reduces the Crown's deficit. My proposed rates would see a gradual improvement in the solvency of the Earners' and Motor Vehicle Accounts, and a reduction in ACC's unfunded liabilities, which would also flow positively into the Crown's financial accounts.

Principles underlying levy setting

20. The Woodhouse principles continue to be the overarching principles guiding the ACC scheme. Falling out of the broad principles are a number of objectives for the Accident Compensation Scheme, including that:

1. the scheme is sustainable in the long-term and is therefore adequately funded
2. levies are relatively stable to allow businesses to plan with certainty
3. strong injury prevention programmes and incentives on employers and individuals are maintained
4. the principles of community and individual responsibility are appropriately balanced.

21. At a broad level, the Scheme is also premised on cost recovery, and over time, levies should also be responsive to changes in funding requirements to ensure fairness.

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