Accident Compensation (Financial Responsibility and Transparency) Amendment Bill

I rise now to debate Part 2 of the bill. You have just heard the Labour Party vote against Part 1. It is against our instincts to do so, but we just cannot back up that part without that amendment being put in place. It is sad to see that there are a few parties that think it is all OK to use ACC levies for whatever purpose they see fit, but that is not the view of the Labour Party. We will be supporting Part 2 wholeheartedly, and that is because it actually exposes the way that the New Zealand public was misled by the National Government when it came into office and claimed that there was a funding crisis in ACC. That is what it claimed just 7 years ago, and yet in Part 2 of this bill we are allowing flexibility for the residual levy to be taken off prematurely because things have gone so well, Dr Smith.

It was Nick Smith who tried to convince the country otherwise. He tried to claim that there was a funding crisis when this Government took over, but here is the truth, and this Part 2 exposes it. In 1999 what happened was that the Government of the day decided to move to a pay-as-you-go model—that is, it was actually paying for the levies—[Interruption] Mr Chair, this is about the residual levy and the history of how it was put in place—

The CHAIRPERSON (Hon Trevor Mallard): Yes, and—

The residual levy.

The CHAIRPERSON (Hon Trevor Mallard): Right. The member did see me indicating that she should come to Part 2 of the bill. There is nothing historical in this. We have had our second reading debate. This is a narrow, technical area to do with residual levies. There are matters that can be debated, but this is about 2019, or some other date in the future, and we cannot rehearse the history of ACC over the past decade.

Thank you, Mr Chair. It is therefore going to be a bit difficult for the public to follow what the residual levy was put in place for, but it was designed for a full-funding model, and that is why when the National Government came in, it tried to claim that there was a funding crisis. In fact, it was going to take us—and we knew this—until 2019 to get to full funding, and that is the purpose of the residual levy.

So the fact that this part says that, actually, things have gone so well within ACC that it looks likely—and the Minister announced today that it looks very likely—that the residual levy will come off early just goes to show how misleading that whole debacle was. Nick Smith is agreeing now. He is agreeing now that about 7 years ago he misled the New Zealand public. We agree that if there is no need to keep the residual levy in place, there should be flexibility to cease the operation of that levy prior to 2019. The Minister has indicated that that is going to be next year, and we look forward to seeing that.

However, one of the consequences of this, which it is important for the public listening to this debate to understand, is that overall this is not actually going to mean a reduction in the ACC levies that are being paid in order to keep all of our accounts in good health—the work account, the earners account, the motor vehicle account. What it does is it simply readjusts what was a temporary situation that was created in 1999 based on the injuries and accidents that needed to be fully funded at that time and brings it forward into the modern day. So the impact of that will be that some companies and businesses will pay higher ACC levies than they are paying now, particularly if they are in an industry or a sector that has had a lot more injuries and accidents in recent years than it did prior to 1999. Those companies and those businesses will, in fact, get an increase in their ACC levies. The ones that will get a reduction are the ones that have improved their safety record since 1999. They are the ones that are set to reap the benefits of this legislation, because the residual levy will be removed.

So my very strong hope for this is that if Part 2 is voted through, and I anticipate that it will be, when we make that adjustment and we decide which companies—

Part 2 of the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill is about Parliament bringing forward the date on which the residual levy, which is paid by thousands of businesses around New Zealand, can be brought to an end such that ACC levy payers are then having to pay only for the costs of the accidents that occur in a particular year. That is something that this Parliament should celebrate: after over 30 years of the ACC scheme, in this year and the next—this financial year—for the first time ACC will be fully solvent and fully funded. That is something we members of the National team are very, very proud of.

I must respond to claims around where this residual levy has come from.

The CHAIRPERSON (Hon Trevor Mallard): Order!

Oh, look, Mr Chairman!

The CHAIRPERSON (Hon Trevor Mallard): The member will stand and apologise.

For saying what? I apologise for saying “Mr Chairman”.

The CHAIRPERSON (Hon Trevor Mallard): The member will now stand, withdraw, and apologise without reservation, or he will leave the Chamber.

I unreservedly apologise.

Dr Nick Smith will leave the Chamber. [Interruption]

Hon Dr Nick Smith withdrew from the Chamber.

The CHAIRPERSON (Hon Trevor Mallard): Order! Dr Nick Smith will take a seat now. I am sorry. Minister Foss cannot take the seat, because he cannot take it while Dr Nick Smith is here. The Serjeant-at-Arms will find Dr Nick Smith and ask him to return to the Chamber, please. What I am going to do is I am going to ask Mr Foss to take the chair until such time as Dr Smith can be found. I make it clear to those in the Government whips’ chair that if he is not found within the next half an hour, I will proceed with the measures that I am minded to do in any case.

I rise to take a very short call on Part 2 of the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill. It really is around clause 7, “Repeal of and amendments to provisions relating to residual levies”, which inserts new section 336A part 1(a) and (b) around the effective date of the residual levies coming to an end. It is a finish to those residual levies that, I am sure, will please many New Zealanders.

I have to say that 1 April 2019 is April Fool’s Day, and to that end we have some concerns that if the later time takes effect—I am talking about running those residual levies through to that date in 2019—in that time this Government will have over-collected $852 million from the work account, $155 million from the earners account, and $468 million from the motor vehicle account. We take that very, very seriously.

I think anything that could be done to prevent that from happening would certainly give a fair amount of relief to those ACC levy payers back home, who are out there slogging it out and finding it very, very tough in their businesses. We would like to see done whatever can be done. That is a total of $1.475 billion over the next 4½ years until 1 April 2019.

I have to say that the consultative process that this has gone through has been a very, very quick one, and I think there has been some oversight from the Government in respect of this. We would urge that this be looked at more clearly. Thank you.

I want to return to the clause of the bill, clause 7, that I was referring to when the Minister for ACC took a call before. What I was talking about was the fact that industries will end up with ACC levies being set on their differentiated rate, rather than a residual levy, once Part 2 comes into effect. What I hope is that when this happens we will not see a repeat of some of the problems that this Government has exhibited when it has tried to get out of a situation by deciding which workplaces are safer than others—which industries are safer than others and which carry less risk. I really hope that we do not see that shambles reoccur as a result of the residual levy being removed.

Under new section 336A, inserted by clause 7, what it specifically allows for is that the effective date of the removal of the residual levy for the work account can, in fact, mean the earlier of either “(a) 1 April 2019; and (b) a date appointed by the Minister by notice.” It seems today that the Minister for ACC indicated that it is going to be subsection (b) of that section 336A that she is going to invoke and that she is going to propose, after a consultation process, on a date next year that is yet to be determined—that is when the residual levy will be removed. So the impact of that sounds like it is going to be that everyone is going to get a reduction in their levy, but that is not the case.

Under the work account scenario it does track back to 1999, when the residual levy was set at that point. It was set in order to make sure that the injuries and accidents that had been incurred as of that date would be fully funded. The way that this Parliament chose to do it then was to put a residual levy on. The residual levy was placed on those industries based on what their accident and injury record was at the time. What we know is that for a whole lot of those businesses, particularly the ones in the Accredited Employers Programme, that has had a measure of success, and part of the measure of that success has been that the historic injury and accident rate has reduced. That is good news, but, unfortunately, because the residual levy has been in place for those companies, they have not necessarily seen the full impact of the reduction in injuries and accidents in their workplaces, because the residual levy has kept it, I guess, at that 1999 level until we got to full funding.

So it is a measure of success, but I put it to this Committee that it is a measure of success—and I think Nick Smith actually backed this up when he was speaking before—over a 30-year period, not a 7-year period, and not even a 10-year period. It is a measure of success over a 30-year period that this ACC system is so successful—that the model is such a fantastic model. And, yes, it is a Kiwi-owned and operated model, owned by the State. It belongs to the people. It is doing so well that the residual levy can be reduced earlier, and that is not because of what one Government has done; it is because we have set up a fully sustainable model over a period of time.

And that is why I started my earlier contribution by saying that Part 2 exposes how badly that Government, and Nick Smith in particular, tried to mislead the New Zealand public when he was Minister for ACC over what was going on with the solvency of ACC. Clearly, Part 2 shows that that was all a sham.

It is now clear, I think, that although we have expressed significant reservations, principally about Part 1 of this bill, we support the content of Part 2 of the bill. I just want to build on Sue Moroney’s comments, really, that the upshot of Part 2 of this bill supports the argument that we have been making for a long time now that the manufactured crisis in ACC funding that we saw under Nick Smith’s tenure as Minister was a sham. It was a political construct, and, as a result, since the first term of the National Government, New Zealanders have been overcharged to a gross extent. We made it very clear—[Interruption]

The CHAIRPERSON (Hon Trevor Mallard): Order! I will just ask the member to resume his seat while we deal with this matter.

💬 Hon Dr Nick Smith: I raise a point of order, Mr Chairperson. I understand that you seek my apology, and you have it.

The CHAIRPERSON (Hon Trevor Mallard): What I would like you to do now is to withdraw and apologise for the comment that you made as you left the Chamber, indicating bias on the part of the Chairperson. The member will do it properly. He knows how to do it.

💬 Hon Dr Nick Smith: I withdraw and apologise.

The CHAIRPERSON (Hon Trevor Mallard): The member will now leave the Chamber.

In December 2014 the solvency position of the earners’ account was 129 percent. The solvency position of the work account was 140 percent. But it is important to note that the position with regard to the work account excludes this extraordinary acronym “WRGPDI”—that is, work-related gradual process disease and infection claims. As quoted in response to question No. 9 of the annual review of ACC this year, the corporation said that the reported measures overstate the solvency position, as assets include those work-related gradual process disease and infection claims but the liabilities exclude them, and that a better measure of the true solvency position is to include these claims in the liabilities. So for the work account, in fact, the better figure is 116 percent.

Since December 2014 the discount rates fell considerably during January and partially recovered through January. The figures that are available show just how volatile the solvency positions are with regard to discount rates. This bill shows very clearly that the manufactured crisis in ACC funding was a sham—

The CHAIRPERSON (Hon Trevor Mallard): Order! I have warned two members previously about sticking to this particular part, with one spectacular failure, but I am going to warn this member that the second reading has accepted the principle involved here, and all that we are discussing now is what is in Part 2. It is very, very narrow.

Just speaking about residual levies, what Part 2 does is, basically, repeal the provisions in relation to residual levies. Prior to 1999 the levies covered only the current costs of a claim, and residual levies are required to meet the ongoing costs of earlier injuries. Currently, the legislation provides that ACC must continue to collect those residual levies through to 2019, and what Part 2 does is abolish that provision. It means that residual levies can cease to be collected, I think, 2 years earlier than the original legislation allowed. That is very significant, and what it shows, as Sue Moroney pointed out, is that we have a truly sustainable ACC, and the transition from pay as you go to fully funded is in place. It has been successful, and the provisions in Part 2 repealing the provisions for residual levies make that very clear.

This bill provides for those levies to be discontinued by Order in Council, reflecting the fact that residual liabilities will continue to fluctuate as they do, and the decision to discontinue will be taken at a time closer to the time when that judgment can be made with much more certainty. The second objective is to ensure that the payment of those levies continues only as long as there are outstanding liabilities to be offset. I think that is pretty much all there is to say about Part 2. The repeal of provisions relating to residual levies is uncontroversial, in our view, but it is something that it is worth taking satisfaction from as it shows that the process of transition has been successful and that we have a sustainable funding system for ACC.

I move, That the question be now put.

I think it is fair to say that we have had debate on all of the debatable points and the House is now in a position where it can make a decision.

Motion agreed to.

The question was put that the amendment set out on Supplementary Order Paper 123 in the name of Sue Moroney to Part 2 be agreed to.