ACC to get $7 billion boost from accounting change

Wednesday, 23 July 2025

ACC will no longer build a ‘safety buffer’ into its claim forecasts.

An accounting change will ride to the rescue of the Government’s accounts by wiping $7 billion off ACC’s deficit from next year.

ACC’s estimates of its own financial position will be more optimistic, or less pessimistic — depending on how its future costs actually pan out — after the change.

The new rule won’t alter the underlying nature of either ACC’s or the Government’s finances. ACC Minister Scott Simpson said earlier this year ACC was not trucking along all right.

But it will make them look less poorly, in part by reducing the annual operating deficit (Obegal) by about $350m from the financial year ending June 2027.

That will be reflected in the Treasury’s five-year Budget forecasts from May, Simpson said.

Simpson said the accounting change would not have any implications for the wider work he was doing on a “turnaround plan” for ACC that he expected to announce in the next few months.

He has previously questioned whether ACC might need to offload responsibility for some mental health claims to a different agency to ensure the insurance scheme is sustainable.

That has generated speculation some current insurance entitlements might be replaced by entitlements to benefits and fall in value.

Up until now, ACC has built a 12.7% safety margin into its estimate of the future cost of meeting its current claims.

That is to guard against the possibility that claims may cost more than its central forecast.

Its existing accounting standard, IFRS 4, requires it to build in a buffer.

But it is planning to remove the margin from its forecasts from July next year when it moves to an updated standard, IFRS 17, which gives it more discretion, delivering what will be a big instant boost to its books.

ACC said in its annal report in November that the appropriateness of a risk margin was being assessed and that it planned to agree an outcome with its auditors.

The Ministry of Business, Innovation and Employment has advocated for the change since at least 2019.

ACC reported a deficit of $7.2b in the year ending June last year, which sent its accumulated deficit — the difference between its savings and its estimate of the future cost of meeting current claims — soaring to $12.4b.

It has yet to report its accumulated deficit for the year just closed, but ACC’s forecast has been that will jump again, to $17.1b.

The idea that ACC’s accounts could and should be improved by taking the 12.7% contingency out of its calculations has been mulled for several years.

Labour ACC spokesperson Camilla Belich acknowledged the change did not appear to be “politicised”.

Private insurers have been required to build the “risk margin” into their accounts to reduce the chance of them going broke in the event of an unexpected increase in their costs.

But the case for Government-owned entities not having to do so is that — unlike private insurers — they could lean on government support in such a crisis.

The Ministry of Business, Innovation and Employment advocated in favour of axing the safety buffer from ACC’s accounts as far back as in 2019, arguing its current more conservative accounting practice created an inaccurate picture of its finances.

“As a result of the risk margin, ACC’s solvency appears to be lower than it would otherwise be, and this does not assist users of ACC’s financial statements,” its then general manager of labour policy, Ruth Isaac, said in a submission.

Simpson said the cost of claims in the past had tended to be roughly in line with the central estimate from ACC’s ‘outstanding claims liability cashflow forecasts’, which would appear to provide further justification for the change.