Government won’t stump up to plug ACC’s $7.2b deficit, says Nicola Willis

Thursday, 17 October 2024

ACC’s funding situation is emerging as a potential major headache for the Government.

The Government won’t put more money directly into ACC to plug its $7.2 billion deficit, Finance Minister Nicola Willis says, suggesting its salvation lies instead in improving its own performance.

Labour ACC spokesperson Rachel Boyack said the Government needed to seek urgent advice on additional funding for the state-owned accident insurer, saying Willis appeared to be unaware of the causes of the deficit.

ACC announced its $7.2b deficit on Wednesday, which turned around a $911 surplus previously recorded for the year to June last year.

Labour ACC spokesperson Rachel Boyack says Government should be seeking urgent advice.

ACC stated in its annual report that $3.1b of its deficit was attributable to factors that could be influenced, with another $3.6b due to the impact of Court of Appeal judgments that would increase the cost of claims.

Of the $3.1b of “influenceable” costs, about $1.3b was due to a deterioration in ACC’s track record getting claimants back to work, it acknowledged.

On average, people receiving weekly compensation from ACC for less than a year were off work for 73 days, up from 70 days at the start of its financial year.

However, chief executive Megan Main said even a portion of that sum was due to factors outside of ACC’s own control, such as the state of the health service.

“Pressures in the wider health sector and access to services” was a factor behind ACC needing to pay claimants to stay off work longer, she said.

Asked whether the Government would need to put more money into ACC, Willis said “no” today, pointing the finger back at ACC for its deficit.

Ice skating head injuries cost ACC nearly $5 million in 10 years.

“ACC is a self-funding system. It is levy-funded.

“We do have a very strong expectation that it manage its costs better, that it manage its rehabilitation programme better, and the Minister of ACC has expressed his views about that. But there is no issue with it being financially solvent,” she said.

Boyack noted that more than $3b of ACC’s deficit was caused by a single court judgment.

The Court of Appeal ruled in December that ACC should backdate compensation paid to sexual abuse victims for loss of earnings to the time they were abused, rather than the time they first sought treatment.

Boyack said she was surprised Willis “isn’t aware that a large part of ACC’s deficit comes from the ‘non-earner account’, which is funded through government taxation, not levies”.

ACC received $2.2b through government appropriations last year, in addition to its $4.2b of levy income, mostly to fund the treatment of people who were not in employment and not injured in road accidents.

“ACC is a world-leading system. The Government needs to act to make sure it is sustainable going forward,” Boyack said.

Finance Minister Nicola Willis is signalling no appetite for more direct funding for ACC and little appetite for higher levies.

ACC’s financial troubles were a significant factor behind the deterioration in the Government’s books reported by the Treasury earlier this month, contributing $4.1b to the $12.9b annual operating (Obegal) deficit Treasury reported for the year to June.

Boyack noted that ACC’s financial position was partly at the mercy of interest rates, which raises the prospect of a growing headache in the year ahead.

In the year to June, an 18 basis-point rise in interest rates helped pull back what would otherwise have been an even worse $9b deficit.

But a 1% decrease in interest rates would add $9b to the estimated future cost of meeting ACC’s current claims, ACC noted in its annual report.

The Government is currently consulting on a proposal by ACC to raise its total levies by the maximum allowed — 5% a year — over each the next three years, with owners of higher-powered motorcycles among those bearing the brunt.

Willis indicated the Government was viewing that proposal begrudgingly.

“I’m uncomfortable with the level of levy increases that New Zealanders have experienced in recent years and that’s why I’m so keen to see ACC better manage its costs and deliver better rehabilitation,” she told The Post.

“I think levies going up at the rate they have is ultimately unsustainable.

“We’ve been clear in expressing our view that ACC needs to better manage its costs; otherwise not only does it hit the government books, it hits New Zealanders’ pockets.”