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ACC Crystal Ball Gazing – not all good news

The latest news coming from ACC is a deficit of $8.7 billion for the 2019 financial year.  This is on top of massive changes in personnel, IT systems, increase in claims and claim costs. 

The deficit is largely the result of how ACC accounts for its long-term claims liability and the decrease in interest rates.  This is related because in its simplest form, ACC’s long-term liability is based on a pre-set interest rate to determine what that cost would be in today’s dollars. If the interest rate is very low like it is currently, then ACC requires a lot more in funds now to account for this long-term cost.  Vice versa if interest rates were high, ACC would not need as much funds now to cover future costs.

This is relevant to all levy payers because this liability has to be covered.  ACC has a substantial fund ($44 billion) however the returns from that are not enough to cover this shortfall.

So, if the funds cannot be covered from investments then that leaves only other two options: 1] Government puts in money which is not a realistic option; and 2] levy payers pay more.

Employers have enjoyed declining levy rates since roughly 2012 on the back of the last major cost spike.  That too was based on an accounting transaction in how long-term claims are calculated but it was only a $2 billion deficit.  Pocket change.

The rhetoric coming from ACC in a media release (19 September) is that there is “no impact on our ability to support Kiwis”.  Sadly, there is no talk whether levy payers will have no impact either. 

We are picking that ACC will be considering increasing the following:

  • Earners Levy (which we all pay through our PAYE)

  • Work Levy (which all employers pay)

What extend ACC will increase levies by and when is a mystery … let’s wait and see what unfolds over the next couple of months.  Next year is an election year and let’s be honest, no government wants to go into an election with an increase in ACC levies.  So if a change comes it will be early next year, perhaps by 1 April 2020.

Martin Wouters, Managing Director

martin@managecompany.co.nz

Debbie Welsh