ACC needs to cover $1 billion revenue hole

The Accident Compensation Corporation (ACC) has revealed a nearly $1 billion hole in revenue will need to be covered when levies are raised next year.

ACC says it will need to collect $4.7 billion in levies in the 2025/26 financial year, to fund support for about 930,000 claims on three levy schemes - the motor vehicle fund, the work fund, and the earners' account.

In the 2022/23 financial year, ACC brought in just under $3.8 billion in levies from those accounts, and it didn't cover the claims being made.

It has signalled levies will need to take a significant jump over coming years in order to cover increasing costs, likely by up to about 20 percent.

Consultation is beginning on proposed changes to rates, as well as other proposals regarding the system. Details of proposed changes were released on Wednesday

People pay ACC levies when buying petrol or renewing a vehicle registration, while employees and employers also pay varying levies depending on the industry they are in.

Three levy accounts are under consideration for change:

• The motor vehicle levy, which averages $113.94 per vehicle each year
• The work levy, under which employers pay 63 cents for every $100 of liable earnings
• The earners' levy, with workers paying $1.39 for every $100 earned

All three are likely to see significant increases but are unlikely to approach previous settings.

In 2013/14, the earners' levy was $1.70 per $100 earned (22.3 percent higher than today), the work levy was $1.15 per $100 of payroll (82.5 percent higher), and the average motor vehicle levy was $330.68 (190 percent higher).

RNZ has been told the current shortfall was due to long-standing issues with rehabilitation services, and the organisation's inability to identify problems and make changes.

Increasing numbers of serious injuries was also a problem, as were higher unemployment figures, meaning return to work timetables were stretching ever longer.

In a briefing to the incoming ACC Minister Matt Doocey released in February, ACC laid out issues it was facing.

"The financial sustainability of the scheme is under pressure," the document reads. "Most Accounts have a declining funding ratio, an escalating new year cost gap, or both.

"To return to a strong funding position, levies for some Accounts will need to increase at their cap for many years. Accounts cannot be cross-subsidised. It is not possible to cover a shortfall in one Account by using funds from another Account or the government appropriation.

"Similarly, a surplus in an Account must be returned to levy-payers through a reduction in future levies and cannot be used to cross-subsidise other Accounts."

The corporation is also facing pressure after a court ruling relating to sexual abuse cases.

A woman made a claim when in her 30s due to post traumatic stress caused by sexual abuse when she was a child.

According to ACC documents, her ACC claim was accepted, but her claim for weekly compensation for loss of potential earning capacity was declined.

The High Court determined the woman was entitled to compensation dating back to the time of her injury, and this was upheld in the Court of Appeal, changing the precedent for how these cases are decided.

The ACC said "the judgement could have significant implications for scheme costs. If this judgement were extended to all sensitive claims satisfying these conditions (including past claims), the estimated impact on the OCL would be between $70 million and $420 million".

The organisation has also been under pressure from internal work programmes that haven't worked as intended.

It recently had to ditch part of a $74 million restructure that had removed personal case managers for clients, because the new system wasn't working.

The restructure was part of a $700m overhaul of ACC's systems that was meant to produce $438m in cost savings by 2030.

The 2022 review found there was a "high degree of uncertainty" over whether those forecast benefits would be achieved.

Consultation on proposed levy changes runs until 9 October. The government will make the final decisions later in the year.