Govt agrees to ACC's recommended cuts in Work levy and Earners levy, but delays motor vehicle cuts to 2015/16

The Government has agreed to the Accident Compensation Corporation's (ACC) recommendations for a 17% cut in the Work levy paid by businesses and a 15% cut in the Earners' levy paid by employees from July 1 next year.

But the Government decided against ACC's recommendation for a change to a new system for assessing Motor Vehicle levies based on the safety of the vehicle. ACC Minister Judith Collins said the systems were not ready yet, but were likely to be in place in time for the 2015/16 year.

The ACC's recommendations would have seen all vehicle owners receive at least a 5% reduction in levies from July 1 next year, with those owning safer, newer cars receiving cuts of up to 40%.

Collins said workers and employers would pay NZ$387 million less in ACC levies in 2014/15, which is slightly larger than the NZ$300 million foreshadowed in the May 2013 Budget, but is less than the NZ$508 million recommended by the ACC.

Collins and Prime Minister John Key announced the cabinet's decision at Key's regular weekly post-cabinet news conference. She reaffirmed that the Government was on track to announce around NZ$1 billion more of ACC levy cuts for 2015/16, as foreshadowed in the May 2013 Budget.

“It’s important New Zealand maintains its fiscal credibility by reducing pressure on the exchange rate and interest rates to ensure private sector growth and investment are supported. This is especially important as the Canterbury rebuild gathers pace,” Collins said.

Collins said the average New Zealand household could expect to keep over NZ$200 each year, while small businesses would be around NZ$180 better off per year. Larger employers would receive an average NZ$6,000 reduction.

Collins said the Motor Vehicle Account was still not fully funded and had a solvency rate of 91% as at September 30, but the Government expected to bring in cuts from July 1, 2015. The Work and Earners accounts were both fully funded.

In an attached Question and Answer paper, Collins said the Government was seeing more consistency in ACC's performance and therefore could be more confident in agreeing to levy cuts.

She said ACC's rehabilitation performance had improved and its investment team had outperformed industry benchmarks.

ACC expects 99 per cent of the 500,000 businesses who pay a levy to see a decrease, with eight industries out of 539 expected to see an increase.

'Higher maximum loading'

Collins also said the maximum loading for the experience rating was increasing to 75% from 50%. Under this programme, businesses can be charged an extra loading, based on their claims history.

"Loadings are aimed at incentivising businesses with worse-than- average claims experience to improve their workplace health and safety and rehabilitate injured worker/s as effectively and efficiently as possible," the Minister's office said in the Q&A.

"This will prevent poor performing businesses, who are currently sitting at the highest end of the loading scale (50%), from receiving the full benefit from the reduction in levy rates," it said.

Collins' office said Cabinet had agreed in principle to introduce risk rating based on crash safety rating in the 2015/16 levy year so that the costs of levies more closely reflect the level of risk associated with a car.

Decisions on the final shape of the programme would be made next year as part of the 2015/16 levy round.

Cabinet agreed to expand the fleet programme to include businesses that rent out trucks. Under the programme which starts on 2 December, truck fleets receive levy discounts if their safety management practices meet ACC’s audit standards.

Elsewhere, Cabinet said it expected to conclude a review of ACC funding policy and rules in mid-2014.

"The review aims to improve the governance and transparency of the levy-setting process, while ensuring that it reflects the Government’s objectives for the ACC scheme. It will include whether there should be any changes to funding targets," Collins' office said.

Cabinet also confirmed the Health and Safety levy collected on behalf of the new WorkSafe NZ agency would be increasing from 5c per NZ$100 of liable earnings to 8c, as foreshadowed last August.

It confirmed the Goods Service Vehicles (GSV) levy reduction split would come into affect from today. It reduces the levy for light vans, utes and trucks.