ACC changes could return $1b to workers

An article from Stuff by Vernon Small

Changing the way ACC is funded could give a $1 billion windfall to workers and businesses and free up billions of dollars in reserves that could be used to cut government debt or fund the Christchurch rebuild, Green MP Kevin Hague says. The Greens back a change to "pay-as-you-go" funding for ACC.
Labour ACC spokesman Andrew Little has also called for a public debate about the option and the Council of Trade Unions and ACC lobby groups have weighed in with calls for change.
ACC Minister Judith Collins has not ruled out dropping the current "full- funding" model. However, yesterday she appeared to back away from that, saying the Government "does not want to burden future generations of New Zealanders with the cost of injuries that occur today as well as the cost of their own injuries".
Under full funding, the corporation sets levies above the annual cost of claims so it can build up reserves to also cover the future costs of existing claims. It aims to reach that goal by 2019, and currently has investments of $19.5b and a net liability of $4.5b.
Little said his calculations, based on pre-2009 levies, suggested about $1b could be sliced off annual levies under a move to pay-as-you-go funding.
"Since every wage and salary earner and every business pays it, it will have a noticeable impact."
In the current year, ACC expects to collect $5b in levies from workers, employers and motor vehicle owners and pay out $2.8b. Little favoured leaving the existing reserves with ACC.
However, Hague said the reserves could be reduced to about $6b - enough for a buffer of two or three years. The remaining $14b could be used to "even out the distinctions" between illness and accident-related cover, cut debt, invest in capital projects or help pay for the Christchurch rebuild.
"We could make much better use of the dollars than keeping them in uncertain investments," he said.
A change was yesterday backed by lobby group ACC Futures Coalition. Spokeswoman Hazel Armstrong said private insurers needed full funding to cover claims, but it was not appropriate for a public agency such as ACC. It had been used to create "a false sense of crisis" at ACC.
Pension and retirement expert Michael Littlewood has long campaigned for full funding to be dropped, and today CTU economist Bill Rosenberg said full-funding had become  "a political swamp" that needed draining. The funding target rose and fell as a result of changes in assumptions about discount rates, investment returns, rehabilitation rates and cost inflation.
"It provides excuses for political swamp dwellers to alternate between cries of 'ACC funding crisis' and 'unaffordable levies' without a real basis for either. In addition building the reserves required for it has been a major driver of rising levies."

© 2012 Fairfax New Zealand Ltd

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