Second ACC blowout could shave tax cuts

A second ACC blowout could see average wage earners lose almost a third of next year's tax cut if the incoming Government follows officials' advice.

ACC Minister Nick Smith this week revealed a $1.25 billion four-year shortfall in the corporation's "non-earners account" and today he said there was an even larger $1.33b three-year hole forecast in the earners account.

The earners account is funded through a 1.4c in the dollar levy on salaries and wages.

Dr Smith said Labour Department officials had advised him to lift that levy to 2c next year, rising to 2.2c over the next three years.

That would see someone on the average wage pay $5.40 a week extra next year - almost a third of their $16-$18 April 1 tax cut - rising to $7.23 in 2011.

Someone on $80,000 would pay an extra $9.23 next year - almost half of their $20 a week tax cut - rising to $12.30 in 2011.

Dr Smith said he was concerned about the scale of the proposed increases, but something had to be done.

"I certainly do not wish to impose these sorts of increased costs on households, but also must take a prudent approach to ensuring ACC's ongoing viability."

The alternative to raising levies would be the Government taking on the liability, probably through increased debt.

Dr Smith said a decision on next year's rate would have to be taken by Christmas.

Increased medical costs, a dive in return from investments held by ACC and a move to full funding through levies by 2014 have all been cited as factors behind the funding shortfalls.

ACC's written briefing to Dr Smith, released today, shows it had consulted on raising the earners levy to 1.51c in the dollar next year, but that could be reduced to 1.47c if the move to full funding was pushed out to 2019 - an option Labour had proposed.

However the recommendation to raise the levy to $2 next year came from the Labour Department, which monitors ACC.

Dr Smith said the corporation had failed to properly canvass the issues in its written briefing to him as the incoming minister and he promised a shakeup at the corporation.

"A change in culture is required at ACC so it is better placed to appreciate the impacts of cost shocks on families and businesses."

He warned there could also be "significant cost increases" in the motor vehicle account, which is paid for through vehicle registrations.

But Labour leader Phil Goff accused the Government of beating up the problem in a bid to create a sense of crisis and soften the public up for privatisation.

"There are pressures that are on because of the poor return on investments, which will be short term, there are pressures in terms of rising medical costs," he told reporters.

"That will happen regardless of whether you have a state funded scheme... or a privatised scheme."

Mr Goff said studies had shown that ACC was the worlds best accident compensation scheme.

During the election campaign former minister Maryan Street said prior to 1999 only enough levies were collected each year to cover the cost of new claims expected to made the following year.

This created a shortfall, as it failed to account the cost of ongoing claims.

Labour had supported full funding through levies by 2014, but it had since decided it would put too high a burden on the public.

It instead proposed extending the date to 2019, smoothing the increases.

- NZPA

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