Kaye Nikki: Accident Compensation (Financial Responsibility and Transparency) Amendment Bill — First ReadingText is incorporated into the Bound VolumeKaye Nikki: Accident Compensation (Financial Responsibility and Transparency) Amendment Bill — First Reading[Sitting date: 02 June 2015. Volume:706;Page:4198. Text is incorporated into the Bound Volume.]Hon NIKKI KAYE (Minister for ACC):I move That the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill be now read a first time. I nominate the Transport and Industrial Relations Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by Tuesday 3 November 2015. This will help to ensure that the provisions of the bill if enacted by the House can come into effect before ACC consults on levies in 2016. The Government is committed to ensuring that the ACC scheme remains sustainable and effective so that ACC can continue to provide comprehensive no-fault cover to injured New Zealanders long into the future. This bill will amend the Accident Compensation Act 2001 to improve the governance and transparency of ACC funding and the setting of levies. The ACC scheme is a longstanding and critical part of New Zealand’s social and economic fabric. It has served generations of New Zealanders well. The Government is committed to strengthening the ACC scheme for our most vulnerable and for all New Zealanders. We want to reduce the incidence and severity of personal injury. To achieve this we are focusing on better injury prevention improved disputes resolution for injured people improved management of our most complex and serious claims and more consistent and timely decision-making on claims.In addition to this work it is also vital that we consider the framework in which ACC funding and levies are set and that we better meet the public’s expectations that ACC should be responsive and transparent. In 2008 the Government inherited a $4.8 billion hole in the ACC accounts. Over the last 6 years we have worked really hard alongside ACC to improve the scheme’s finances. As a consequence for the first time in history ACC’s three levy accounts hold or will soon hold enough funds to meet the expected lifetime of all existing claims. This is a significant achievement that reflects the work undertaken by our Government to turn things round. However we cannot be complacent. Continued improvement is crucial to maintaining levy stability and avoiding volatility. ACC’s $30 billion balance sheet is subject to frequent shocks including changes in investment discount rates claim numbers and medical costs. Interest rate movements alone can have a significant impact on ACC’s balance sheet at any one moment. For example a recent decrease in the discount rate over the period of 1 month was estimated to have increased ACC’s outstanding claims liability by almost $3 billion. These shocks can impact on ACC’s solvency.As ACC’s accounts have approached full funding over recent years this Government and officials have been considering how to best manage the inherent economic volatility to which the ACC scheme is exposed. A delicate balance needs to be struck. On the one hand the public needs to have assurance that levies reflect underlying costs and that ACC will have sufficient funds to pay ongoing entitlements to claimants. On the other hand volatility in levy rates can undermine public confidence in the ACC scheme and create uncertainty for business and individuals. When levied accounts are at or approaching full funding they may appear to have an excess of funding. However returning to what appears at one particular point in time to be an excess of funds could result in a reduction in solvency and create a need to collect more funding in the following years. As such we need to ensure that successive Governments have an appropriate range of tools to enable them to make funding and levy decisions in a principled and equitable way and to smooth out the effect of economic shocks over time to maintain both the solvency of ACC’s levied accounts and provide levy stability.For these reasons two of my key priorities for ACC are to create a more financially responsible and transparent levy system and to enable more sustainable and stable levy reductions. The bill represents a significant step towards the achievement of these priorities and addressing the issues that I have just outlined. The bill takes this step through making two key changes to the ACC scheme. The first and most significant change in this bill is to introduce greater clarity and transparency to the approach for funding ACC and the levy-setting process. The bill achieves this through three key measures. First the bill establishes a robust framework for funding and levy setting. It does this by requiring that levies must be set in accordance with the following three principles: meeting the lifetime costs of claims in a particular year reasonable stability in levy rates and long-term solvency of the levied accounts. These principles will promote relatively stable levies that reflect underlying costs.Second the bill will require the Government to set the overarching funding policy which ACC will be required to give effect to when developing and consulting on levies. The funding policy will need to be consistent with the principles of financial responsibility included in the bill. This contrasts with the current approach where the Government’s role generally involves making a decision on levies at the end of the levy-setting process after ACC develops its own funding policy and presents the Government with levy recommendations based on this policy. Responsibility for setting levies ultimately lies with the Government of the day as it must for levies of this kind. The mandate for collecting levies has been given to the Government by Parliament and the Government must make the final decisions on levies that the public will be charged. The responsibility needs to be properly reflected in the process for setting levies from the very beginning and outset not just at the end. The bill establishes a more robust governance structure where the Government sets the policy and ACC as the responsible Crown agent implements and is held accountable for it. Ultimately this will support a closer match between the levies that ACC consults on and recommends and the final decisions on levy rates made by the Government. Taken together these two measures will increase the stability and transparency of the levy-setting process.Third the bill increases the reporting requirements for ACC so that the public is better informed about the impact that the new levy rates will have on future levy rates and other aspects of ACC’s funding. More transparency is needed so that we can ensure that the downstream consequences of funding decisions are clear and that both the Government and the public are fully aware of them and that we do not repeat the history of the last Labour Government with a $4.8 billion hole being handed to this Government. As well as ensuring that levies are set through a robust process the bill includes the kind of accountability and transparency requirements that already apply to the operation of the Government’s core budget under the Public Finance Act.The second change in the bill is to ensure that the residual levies are not over-collected by allowing for their collection to be discontinued sooner than currently required in legislation. It may be helpful to provide the House with some context about this proposal. In 1999 ACC moved to a system of fully funding the lifetime costs of an injury claim. Prior to this levies covered only the costs of a claim in a given year. Residual levies are therefore required to meet the ongoing costs of historical claims. However we need to ensure that the payment of residual levies continues only as long as there are outstanding liabilities for residual levies to be offset. This bill provides for residual levies to be discontinued from a set date by Order in Council. This will allow the collection of residual levies to be discontinued earlier than the end date currently set out in the Act which is the 2018-19 levy year.Residual liabilities will continue to fluctuate so a decision to discontinue residual levies needs to be made closer to the time at which it is appropriate to discontinue them. In practice the removal of residual levies will have no impact on the overall amount of levies collected but it will have some impact on the distribution of those levies right across New Zealand businesses. The $500 million of indicative levies announced in the Budget allows for the change in the bill which could see the collection of residual levies discontinued earlier than the date currently required in the Act. This will allow the actual end date to align with the best estimate of when residual levies will have been fully offset by the change outlined in the bill. Just to be clear: the bill allows the Government to manage only the timing of when the distributional impact occurs not whether it occurs.The measures I have outlined form an important part of the Government’s vision for the ACC scheme. It is important to have consistency transparency and stability for levy payers and stability for the hundreds of thousands of small businesses in New Zealand. It is important to continue to strengthen the public’s confidence in the ACC scheme. There has been significant leadership by people like the chair of the board Paula Rebstock and the chief executive Scott Pickering as was actually outlined today but there is a need to do more and it is important that the ACC scheme continues to be fit for purpose and that we support people to be as safe and as healthy as possible. Alongside the Government’s work that is under way I consider that this bill represents the beginning of a new era of financial sustainability and high performance for ACC. Of course many fundamental aspects of the levy-setting process will remain in place once this bill becomes law. In particular when considering changes to levies ACC will still need to consult with levy powers and make a recommendation to the Government on the levies. Certainly the changes in this bill will complement these existing processes but more important the changes in this bill will allow us to realise the benefits of improving the Government’s—The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! The member’s time has expired.