Figure 1: ACC and the Ministry s recommendations for 2013/14 ACC levy rates Work Account Average levy per $100 liable earnings

Office of the Minister for ACC 2013/14 ACC LEVIES PROPOSAL 1. This paper presents two possible approaches to setting 2013/14 Accident Compensation Corporation (ACC) average levy rates for the Work, Earners, and Motor Vehicle Accounts. 2. It also presents recommendations on policy proposals related to ACC levies that ACC consulted on as part of the levy consultation process, or are technical in nature. Some of these changes look to enhance incentives for injury prevention and better align levies with risk. EXECUTIVE SUMMARY 3. I am seeking a decision on the approach to setting average ACC levy rates for the 2013/14 year. The Accident Compensation Act 2001 (the AC Act) requires levies to be set so that each Account achieves full-funding, having regard to levy stability over time and forecast uncertainty. Section 300 of the AC Act requires the Minister to have regard to the public interest and in particular the interests of taxpayers, levy payers, claimants, and potential claimants when exercising any functions or powers under the AC Act. 4. The AC Act allows the Government to set ACC levies that balance the following considerations: the Scheme is sustainable in the long-term and is therefore adequately funded levies are relatively stable to allow businesses to plan with certainty there are incentives on employers and individuals to prevent injuries and support rehabilitation the principles of community and individual responsibility are appropriately balanced. 5. We can take one of two broad approaches. The first approach involves reducing levies in 2013/14 for at least two of the three levied Accounts because the Accounts are approaching full-funding. This approach has been recommended by ACC and the Ministry of Business, Innovation and Employment (the Ministry), in its role as the agency responsible for accident compensation policy. The differences in the specific levy rates recommended by the two agencies relate to the respective funding target preferred by each agency. ACC and the Ministry s recommended levies are presented in Figure 1. Rates in this paper are GST-exclusive unless specified. Figure 1: ACC and the Ministry s recommendations for 2013/14 ACC levy rates Work Account Average levy per $100 liable earnings Earners Account Levy per $100 liable earnings (incl. GST) Motor Vehicle Account Average levy per vehicle 2012/13 ACC levy rates $1.15 $1.70 $334.52 ACC s consulted on, and recommended, rates $1.00 $1.50 $334.52 Rates advised by the Ministry $0.95 $1.40 $260.00 6. A second approach is to recognise that there is scope in the medium term for levy reductions but to put these in place only once we have confidence that reductions are stable and sustainable. This approach would involve carrying over average 2012/13 1

levy rates into 2013/14. It takes into account the fact that levies were already substantially reduced for the 2012/13 levy year, that fully-funded schemes like ACC are particularly vulnerable to changes in economic conditions, and that it will take some time for the full impact of ACC s focus on rebuilding public trust and confidence to become apparent. 7. Cabinet decisions are required by 17 December 2012 to allow Inland Revenue to implement any changes to the Earners Account. 8. If levy rates or other settings are to be changed from the prior year, these must be set in regulation by 31 March 2013 for the Work and Earners Accounts, and 30 June 2013 for the Motor Vehicle Account. 9. The details of other policy proposals related to ACC levies are discussed in the body of this paper. 10. This year I have been working with Ministers English, Joyce, and Foss on a review of ACC funding and a longer-term framework and principles for setting ACC levies, which Cabinet requested in October 2011 [Cab Min (11) 37/19 refers]. Further work will be done on this in 2013 and I will report to Cabinet in due course. BACKGROUND The accident compensation scheme 11. ACC is a Crown agency providing comprehensive, no-fault personal injury cover to all New Zealand residents and visitors to New Zealand. ACC coverage is managed under five separate Accounts: the Work Account is funded from levies on employers and self-employed and is used to meet the costs of entitlements for work-related personal injuries the Earners Account is funded from levies on earners through PAYE (or invoiced directly by ACC for self-employed people), and is used to meet the costs of entitlements for earners non-work injuries (that is, personal injuries other than work-related injuries, motor vehicle injuries, and treatment injuries) the Motor Vehicle Account is financed from levies on motor vehicle owners and users and is used to meet the costs of entitlements for motor vehicle injuries the Non-Earners Account is funded from appropriation and is used to meet the costs of entitlements for non-earners personal injuries the Treatment Injury Account is funded from the Non-Earners and Earners Accounts and is used to meet the costs of entitlements for personal injury caused by treatment by, or at the direction of, a registered health practitioner. The levy setting process 12. The AC Act requires levies to be set so that each Account achieves full-funding, having regard to levy stability over time and forecast uncertainty. 13. Section 300 of the AC Act requires the Minister to have regard to the public interest and in particular the interests of taxpayers, levy payers, claimants, and potential claimants when exercising any functions or powers under the AC Act. 14. This framework can be summarised by the following principles: the Scheme is sustainable in the long term and is therefore adequately funded levies are relatively stable to allow businesses to plan with certainty there are incentives on employers and individuals to prevent injuries and support rehabilitation 2

the principles of community and individual responsibility are appropriately balanced. 15. The ACC levy setting process is as follows: a b c d e the ACC Board consults with levy payers the ACC Board makes recommendations to the Minister for ACC the Ministry provides the Minister with advice following an independent actuarial review the Minister for ACC considers the recommendations and advice and presents her recommendations to Cabinet for decision the Cabinet decision is implemented by regulations. 16. ACC consulted publicly on its levy proposals from 25 September to 23 October 2012. Submissions received were predominantly from significant stakeholders (employers representatives and unions) and major employers. Levy submissions were received from all the major parties who contribute regularly during consultation. 17. Cabinet decisions are required by 17 December 2012 to allow the Department of Inland Revenue to implement any changes to the Earners Account. This is to allow Payroll software developers to update, test, and distribute their systems updates. 18. New Zealand Transport Agency and Customs require any proposed changes to Motor Vehicle Account levies by 1 May 2013 to allow for invoicing. 19. If levy rates or other settings are to be changed from the prior year, these must be set in regulation by 31 March 2013 for the Work and Earners Accounts, and 30 June 2013 for the Motor Vehicle Account. COMMENT Average 2013/14 levy rates 20. We can take one of two broad approaches to setting average ACC levy rates for 2013/14. Approach A 21. The first approach, taken by ACC and the Ministry of Business, Innovation and Employment (the Ministry) is to: a take the expected costs of claims for each Account for 2013/14 b c add a funding adjustment (where appropriate) to move ACC towards their selected funding target over a period of time then adjust the levy (where appropriate) for the purposes of the public interest or levy stability. 22. Both agencies see room for immediate levy reductions but the scale of these reductions differs because of the respective funding targets preferred by each agency. The impacts of these options are detailed in the attached Regulatory Impact Statement. 23. ACC and the Ministry s recommended levies are presented in Figure 2. Rates in this paper are GST-exclusive unless specified. Figure 2: ACC and the Ministry s recommendations for 2013/14 ACC levy rates Work Account Average levy per $100 liable earnings Earners Account Levy per $100 liable earnings (incl. GST) Motor Vehicle Account Average levy per vehicle 2012/13 ACC levy rates $1.15 $1.70 $334.52 3

ACC s consulted on, and recommended, rates $1.00 $1.50 $334.52 Rates advised by the Ministry $0.95 $1.40 $260.00 24. ACC s recommended levy rates would move the levied Accounts towards funding target ranges centred on between 115% to 117.5% depending on the Account and including a risk margin. The Ministry believes there is scope to move towards much lower target funding ranges and its proposed levy rates for 2013/14 would be a move in this direction. Further work will be done on longer-term target funding ranges as part of the funding policy work that I will report back to Cabinet on in due course. Approach B 25. A second approach to the current levy setting decision is to recognise that there is scope in the medium term for levy reductions but not to put these in place until we have confidence that reductions are stable and sustainable. This would involve carrying over average 2012/13 levy rates into 2013/14. 26. Levies were already reduced substantially for the 2012/13 year, with a 22% reduction in the Work Account and a 17% reduction in the Earners Account from 2011/12 levies. Average Work Account levies are now at a historical low. The Ministry s Regulatory Impact Statement (attached) notes that the alternative approaches to 2013/14 levies are unlikely to result in significantly different impacts on the wider economy. 27. Recent volatility and continuing uncertainty in world financial markets suggest that we should take a prudent and careful approach to setting levies in the short term. The significant assets and liabilities held by fully-funded schemes such as ACC are particularly vulnerable to changes in economic conditions. Changes in economic conditions have been a major factor in recent deviations from ACC s budgeted surpluses, as shown in Figure 3. Figure 3: ACC surplus/deficit against budget $4 billion $3 billion $2 billion ACC surplus / deficit $1 billion $ billion -$1 billion Actual Budget -$2 billion -$3 billion 28. Between 1 May and 18 May 2012 alone for example, changes in interest rates driven by instability in Greece and the wider Eurozone drove down ACC s single effective discount rate by 0.28% resulting in a $1.3 billion increase in ACC s Outstanding Claims 4

Liability (OCL). Over the whole of the year to 30 June 2012 interest rate changes had the effect of increasing the OCL by $5.085 billion. This was offset to some extent by improvements in ACC performance but the ACC bottom line surplus/deficit still moved from a $3.546 billion surplus for 2010/11, to a $0.476 billion deficit in 2011/12. 29. This approach also allows ACC to focus on rebuilding trust and confidence in the Scheme and rebalance its priorities so that a continuing focus on levy stability and financial sustainability is combined with an equally clear focus on providing high quality and appropriate services to claimants and levy payers. For example ACC is currently formulating a substantial business case that goes beyond addressing the Privacy Commissioner s recommendations on privacy issues in line with its new direction. Improvements in efficiency in operations and service could produce benefits for levy payers in the long-run. It will take some time for the full impact of this overall new direction to become apparent. 30. The residual portions of each Account have been set to ensure that the full Residual Amount is paid off by 2019, as required by the AC Act. I agree with ACC s recommendation not to adjust these rates. 31. There was general support from submitters for ACC s proposed reduction in Work Account levies (including Federated Farmers, Meat Industry Association, Employers & Manufacturers Association, Tourism Industry Association). 32. For the Earners Account there was also general support for ACC s proposed levy reductions (including Federated Farmers and Tourism Industry Association) but there was some concern that the assumptions underlying the proposed reductions might be optimistic (including the New Zealand Council of Trade Unions). A summary of the submissions is included in the attached Regulatory Impact Statement. OTHER POLICY ISSUES 33. The following policy issues were consulted on by ACC as part of the levy consultation process, or are technical in nature. Motor Vehicle Account proposals Differentiating goods-service vehicles by weight (at 3.5 tonnes) 34. The available data from the New Zealand Transport Agency s Crash Analysis System and ACC s claims experience shows there is a significant cross-subsidy between trucks and smaller Goods-Service Vehicles (GSVs). The current classifications split by fuel type result in owners of light GSVs subsidising the owners of heavy GSVs by $12 million per annum. 35. ACC has recommended the Motor Vehicle Account levy classes for GSVs be differentiated by weight to better reflect the risk of these vehicles and to reduce crosssubsidies. The levy rates for GSVs would be set based on whether they weigh more or less than 3.5 tonnes, as shown in Figure 4. Figure 4: Levy rates for GSV class split by weight GSV type Estimated number Current total levy (includes petrol levy) ACC s indicative total levy (includes petrol levy) 1 Impact of indicative total levy (includes petrol levy) Petrol-powered 108,000 $383.02 $355.59 $27.43 decrease light Petrol-powered 2,000 $383.02 $643.18 $260.16 increase heavy Non-petrol light 233,000 $467.08 $355.59 $111.49 decrease 1 These rates are indicative. Final rates would need to be confirmed by ACC s actuaries. 5

Non-petrol heavy 109,000 $467.08 $643.18 $176.10 increase 36. There may be some concerns around the increased costs for heavy GSVs. However cost increases are not significant when considered as part of the total costs of a business. ACC has estimated that for an average firm with three trucks it would add 0.07% to its costs 2. This does not include the 4.1% average increase in road user charges from 1 August 2012. 37. Heavy truck operators (along with other employers and self-employed owneroperators) would benefit from any reductions in average Work and Earners Account levies. In addition, the increase in levies for heavy GSVs would allow reductions for light GSVs; that is, increased levies for trucks would be offset by reductions for vans and utilities. I support this proposal because it would result in fairer levies, with GSVs split into more homogenous groups that more accurately ties levy rates to claims experience (injury cost). In addition, raising the levy rate for heavy GSVs would make the discount available in the fleet safety incentive programme more attractive. Introducing a fleet safety incentive programme (FSIP) 38. Introducing a FSIP would further improve levy fairness for heavy GSV owners and provide incentives and outcomes to improve fleet safety. The programme would involve auditing truck owners on their safety management systems and performance, providing a basis for ACC to charge different levy rates to truck owners who meet different audit standards. 39. Figure 5 shows the levy rates for heavy vehicles not participating in the FSIP and for those meeting various audit standards. Rates are indicative as they depend on related levy decisions and include the petrol levy where applicable. The FSIP would give participating operators of heavy GSV vehicles an opportunity to partially offset the increase in levies that would result from the new approach to levy setting for light and heavy vehicles proposed above. The net increases are set out in the table below. For example, the levy for a heavy petrol vehicle operated by a Platinum level participant in the programme would only increase by $17.25 overall. Fuel type Petrol Nonpetrol Figure 5: Levy impact of the FSIP (including GSV weight split) Heavy GSVs Heavy GSVs Vehicle Type Non-participant Number of vehicles 2012/13 levy rate Total levy with proposed FSIP 3 Net Change from existing levies $667.11 $284.09 increase Silver $600.40 $217.38 increase 2,000 $383.02 Gold $500.33 $117.31 increase Platinum $400.27 $17.25 increase Non-participant $667.11 $200.03 increase Silver $600.40 $133.32 increase 109,000 $467.08 Gold $500.33 $33.25 increase Platinum $400.27 $66.81 decrease 40. The main benefits of the FSIP are: It will prevent injuries similar programmes in Australia have been found to improve safety and reduce crash rates 4. Management practices have also been shown to reduce crash rates in the United States and Canada. 2 3 ACC s levy consultation 2013/14, levies for motorists, September 2012. These rates are indicative. Final rates would need to be confirmed by ACC s actuaries. 6

It will improve fairness the resulting levy rates would better reflect the level of risk and cost that these fleets are expected to pose to the MVA, removing an estimated cross-subsidy of higher risk trucks by lower risk trucks to the value of $24.85 million over the next ten years. It provides value for money 5 - the FSIP is expected to reduce scheme costs by $14.31 million over ten years (discounted to present value), made up of $29.51 million reduction in claims costs offset by $15.2 million for ACC to administer the programme. 6 41. I support the introduction of the FSIP. I also recommend that ACC monitors the progress of participants in the FSIP and an evaluation of the effectiveness of the programme be undertaken after three years by the Ministry and ACC. Trade plate exemption 42. An exemption from ACC Motor Vehicle Account levies for dealers of agricultural vehicles, heavy motor vehicles, caravans, and boat trailers was introduced because the Motor Vehicle Sales Act 2003 unintentionally removed the eligibility of these dealers to use trade plates to transport unregistered vehicles. Under the Land Transport (Trade Plates) Notice 2011 these dealers are once again required to use trade plates. 43. I recommend removing the exemption for these dealers so that it is consistent with their treatment under transport legislation and so that they pay for their share of road injury costs as part of their trade plate licence. Exemption for off-road vehicles 44. On 17 Oct 2012, Cabinet [EGI MIN 12 23/2 refers] decided to change the exemption from road user charges (RUC) for light vehicles that are operated almost exclusively off-road and that would otherwise be required to pay RUC, from a principle-based approach to a more prescriptive approach. 45. I recommend that we continue to link the ACC and transport regulations so that the rules remain consistent for small businesses. This change is expected to have a negligible impact on ACC levies. There are currently around 10,000 vehicles eligible for this exemption, and the Ministry of Transport estimates around 2,000 of these may no longer be eligible. 46. Vehicles operated almost exclusively off-road should continue to receive an exemption from ACC Motor Vehicle Account levies because injuries resulting from off-road use are not funded by the Motor Vehicle Account. Off-road injuries are covered by the Work, Earners, or Non-Earners Accounts, depending on the situation. 47. Exemptions for RUC vehicles will be specified under new Transport regulations that are expected to come into force on 1 July 2013. Consequential changes to Motor Vehicle Account levies if the average rate is reduced for 2013/14 48. If Cabinet agrees to the Ministry s proposed reduction to the average Motor Vehicle Account levy, two consequential decisions would need to be made: whether the reduction is taken off the Annual Vehicle Licensing fee or the petrol levy whether existing relativities across vehicle classes are maintained. 4 5 6 Austroads research report: Analysis of the Safety Benefits of Heavy Vehicle Accreditation Schemes. These figures are higher than ACC s calculations in its discussion document because they use the 10-year bond rate as the cost of capital, which differs to ACC s internal calculations. Includes development costs, audit costs, system maintenance costs, and other running costs. 7

Work Account proposals Expanding the Workplace Safety Discount (WSD) 49. The Workplace Safety Discount (WSD) was introduced in 2006, offering a discount of 10% on the current portion of the work levy to small employers (10 or fewer employees or less than $519,000 liable earnings in 2012/13) and the self-employed in seven high risk industries who either undertake industry specific training or can demonstrate adequate experience in health and safety systems, and complete a self-assessment based audit. 50. I propose to expand the WSD so that it will be available to all industries. This would encourage small businesses in other industries to increase their focus on their health and safety systems and raise the standard of safety management. The WSD expansion is also an enabler for the Safety Star Rating system. The expansion is a critical success factor for that initiative, which is due to be introduced on 1 April 2013. 51. The Ministry will work closely with ACC on the design of the programme and as required under the legislation I will approve the final audit tool(s). Increasing the maximum liable earnings entry criteria for the WSD 52. Liable earnings are used as a proxy for the number of staff as part of WSD entry criteria. This is because ACC has liable earnings information but does not have records of the number of staff working for each employer. 53. I agree with ACC s recommendation to update the maximum liable earnings criteria from $519,000 to $537,000 to reflect changes in average earnings. Classification unit changes in the Work Account 54. ACC has recommended that one classification unit (CU) be split, creating two new levy risk groups as outlined in Figure 6. The current classification is not homogenous, with two activities in the group having significantly higher claims-to-liable-earnings ratios than the others in the group. This change would remove a considerable cross-subsidy for these levy payers. Figure 6: proposed split of CU and levy risk group Proposed classification unit number Proposed classification unit name 93400 Amusement and other recreation activities (not elsewhere classified) 93410 Alpine and white water recreation activities Proposed Reason for introduction levy risk group 911 Removing Alpine and white water recreation activities from this CU takes away two activities with a higher claims-to-liable earnings ratio compared to the others in this group 917 These two activities need to be separated and put into a different classification unit due to their high claims-to-liable earnings ratio 55. ACC has recommended that some existing CU descriptions be altered to clarify their coverage of activities, as outlined in Figure 7 below. 8

Figure 7: proposed change to existing CU descriptions Classification unit number Current classification unit name Non-financial assets leasing and investment 64050 Air operations under Civil Aviation Rules Parts 101, 103, 104, 105, or 106 Proposed new name Non-financial assets leasing and investment (including franchisors) Air operations under Civil Aviation Rules Parts 101, 103, 104, 105, 106 or 115 Reason for change To clarify that this CU includes franchisors in franchise agreement leasing To provide more precise information so that employers/self-employed people can accurately self-select the appropriate CU To recognise a new CAA rule covering adventure aviation, this is also relevant to the activities in this classification 56. ACC has recommended revising the Levy Risk Group allocation of the CUs in Figure 8. Figure 8: proposed reallocation of CUs into levy risk groups Classification unit number Classification unit name Current LRG Proposed new LRG 93175 Sport and physical recreation-professional sport (not elsewhere classified) 52331 Houseware retailing 428 52595 Non-store retailing 52597 Retail commission-based buying and/or selling 28520 Electric cable and wire manufacturing 917 Equine and sporting activities (medium high risk group) Store and non-store retailing 241 Machinery and equipment manufacturing (lowermedium risk group) 29220 Metal furniture manufacturing 243 Machinery and equipment manufacturing (medium risk group) 919 Equine and sporting activities (high risk group) 426 Retail trade (lowmedium risk group) 231 Aviation, electronic and electrical manufacturing 241 Machinery and equipment manufacturing (lowermedium risk group) 57. These changes would require amendments to the Accident Compensation (Work Account Levies) and Accident Compensation (Experience Rating) regulations. I support these changes as they will provide more accurate pricing to businesses. 58. Calculations in the Experience Rating regulations use historic classification units. Previous changes mean that a new Schedule of 2011/12 classification units and levy risk groups needs to be included into the Accident Compensation (Experience Rating) Amendment Regulations 2013. Capping changes in the Work Account 59. In the Work Account ACC has recommended capping the changes for any levy payer resulting from movements in classification units to +10% or 4 cents, whichever is the greater, or -25% (in addition to the change in the average rate). The Ministry has proposed capping of +25% or 4 cents, whichever is the greater, or -25% (in addition to the change in the average rate). If the calculated change in levies is outside this range then ACC spreads the cost difference over all other classification units. The level of capping applied by ACC has changed each year for the past four years. 9

60. Capping helps reduce the impact of changes in levies on individual employers, and the ability to smooth rates is a potential advantage of ACC being a monopoly provider of workers compensation insurance. However, industry relativities are intended to signal high claims cost to employers, and so capping rates can reduce the effectiveness of these signals. In addition, the resulting smoothing required from capping rates results in a cross subsidy between levy payers, since they prevent levies reflecting relative claim costs. 61. Although capping is argued to distort pricing signals I consider that a cap is beneficial. I consider that the cap should be set at +25% or 4 cents, whichever is the greater, or -25% because this would move ACC toward more accurate pricing. Minimum liable earnings for experience rating 62. Experience rating regulations need to be updated to reflect updates to the minimum wage for the year from 1 April 2011 to 31 March 2012, as per Figure 9. Whether a business has liable earnings above the level of the minimum wage over the three-year experience period determines whether it is eligible for the no-claims discount programme. Figure 9: Minimum liable earnings for eligibility into no-claims discount programme Experience period for the levy year 1 April 2009 31 March 2012 for the 2013/14 levy year Minimum liable earnings for experience period 1 April 2009 to 31 March 2010 $23,400 1 April 2010 to 31 March 2011 $26,000 1 April 2011 to 31 March 2012 $26,520 Work and Earners Accounts proposals Increase in maximum liable earnings 63. Due to indexation, the maximum weekly compensation entitlements for earners have increased in line with the increase in the Labour Cost Index (LCI). 64. To ensure that people are not paying levies on income that is not taken into consideration when calculating weekly compensation, the maximum liable earnings that levies are paid on is based on the maximum weekly compensation. 65. In line with the increases to the maximum weekly compensation entitlements, the following maximum liable earnings should be applied: to self-employed people under the Work and Earners Accounts, an increase from $111,669 to $113,768 for 2013/14 to employees, Private Domestic Workers (PDWs), and earners under the Work Account (for calculating the current portion) and the Earners Account, an increase from $113,768 to $116,089 for 2013/14 to employees and PDWs, for calculating the residual portion of the Work Account, an increase from $111,669 to $113,768 for 2013/14. Minimum liable earnings for self-employed 66. On 1 April 2012 the Minimum Wage Order 2012 increased the minimum wage to $13.50 per hour for all people except trainees and New Entrants. 67. In line with these changes, the minimum liable earnings for self-employed people should increase from $27,040 to $28,080 for all self-employed people. Review of funding policy for ACC 68. This year I have been working with Ministers English, Joyce, and Foss on a review of ACC funding and a longer-term framework and principles for setting ACC levies, which Cabinet requested in October 2011 [Cab Min (11) 37/19 refers]. Further work will be done on this in 2013 and I will report to Cabinet on a proposed approach in due course. 10

CONSULTATION 69. Section 331 of the AC Act requires that ACC undertakes public consultation on proposed levy rates for each of its levied Accounts prior to recommending rates to the Minister for ACC. ACC completed public consultation over 28 days from 25 September 2012 to 23 October 2012. Sixty-nine submissions responded to Work Account proposals; 8 responded to the Earners Account proposals; and 32 responded to the Motor Vehicle Account proposals. A summary of the submissions is included in the attached Regulatory Impact Statement. 70. The ACC Board provided its recommendations to me on 15 November 2011. These were advertised and gazetted as required. 71. The Treasury, ACC, and DPMC were informed. FINANCIAL IMPLICATIONS 72. Information on the financial implications of the various options for average 2013/14 levy rates and other policy proposals is included in the Regulatory Impact Statement. HUMAN RIGHTS 73. These proposals are consistent with the New Zealand Bill of Rights Act 1990 and the Human Rights Act 1993. LEGISLATIVE IMPLICATIONS 74. For the Accident Compensation (Work Account) regulations, Accident Compensation (Earners Accounts) regulations and Accident Compensation (Experience Rating) regulations, any changes to levy rates are required to be made prior to 1 April 2013. 75. Any changes to the Accident Compensation (Motor Vehicle Account) regulations are required to be made prior to 1 July 2013. REGULATORY IMPACT ANALYSIS Quality of impact analysis of the 2012/13 levies 76. The Regulatory Impact Analysis (RIA) requirements apply to the proposal in this paper and a Regulatory Impact Statement (RIS) has been prepared and is attached. The Regulatory Impact Analysis Team has reviewed the RIS prepared by the Ministry, and considers that the information and analysis summarised in the RIS meets the quality assurance criteria. Consistency with the Government Statement on Regulation 77. I have considered the analysis and advice of my officials as summarised in the attached Regulatory Impact Statement and I am satisfied that, aside from the risks, uncertainties, and caveats already noted in this Cabinet paper, the regulatory proposals recommended in this paper: are required in the public interest are consistent with our commitments in the Government statement Better Regulation, Less Regulation. GENDER IMPLICATIONS 78. There are no gender implications from the changes to ACC levies and the related policy. 11

DISABILITY PERSPECTIVE 79. There are no direct implications for disabled people from the changes to ACC levies and the related policy. PUBLICITY 80. I intend to announce the 2013/14 levy rates and to release this paper in the week of 17 December 2012. ACC and NZTA will undertake a joint communications programme to advise levy payers of any changes to the Motor Vehicle Account. RECOMMENDATIONS It is recommended that Cabinet: Average 2013/14 levy rates 1 Either: 1.1 agree to leave average levies at 2012/13 levels as follows: Work Account Average levy per $100 of liable earnings Or: Earners Account Levy per $100 of liable earnings (including GST) Motor Vehicle Account Average levy per vehicle $1.15 $1.70 $334.52 1.2 agree to set average levies at ACC s recommended rates as follows: Or: Work Account Average levy per $100 of liable earnings Earners Account Levy per $100 of liable earnings (including GST) Motor Vehicle Account Average levy per vehicle $1.00 $1.50 $334.52 1.3 agree to set average levies at the Ministry of Business, Innovation and Employment s advised rates as follows: Work Account Average levy per $100 of liable earnings Earners Account Levy per $100 of liable earnings (including GST) Motor Vehicle Account Average levy per vehicle $0.95 $1.40 $260.00 2 note that recommendation 1 would set the average levy only and that the individual rates paid by classification units and vehicle class may change in line with updated risk data; 3 agree to leave the residual portions (which are required by legislation and are included in the rates in recommendation 1) at the following rates; Work Account Average residual portion per $100 of liable earnings Motor Vehicle Account proposals Earners Account Residual portion per $100 of liable earnings Motor Vehicle Account Average residual portion per vehicle $0.31 $0.04 $77.07 4 agree to introduce differentiated levy rates for goods-service vehicles (GSV) based on weight as indicated below (rates are indicative as they depend on related levy decisions and include the petrol levy), as below; 12

GSV type Estimated number Current total levy Indicative total levy Impact of indicative total levy Petrol-powered 3.5 tonnes and under 108,000 $383.02 $355.59 $27.43 decrease Petrol-powered over 3.5 tonne 2,000 $383.02 $643.18 $260.16 increase Non-petrol 3.5 tonnes and under 233,000 $467.08 $355.59 $111.49 decrease Non-petrol over 3.5 tonne 109,000 $467.08 $643.18 $176.10 increase 5 agree to introduce a Fleet Safety Incentive Programme (FSIP) as a way to promote better safety practices and reduce the cost of injuries in the Motor Vehicle Account, by introducing the following levy risk classes (rates are indicative as they depend on related levy decisions and include the petrol levy); Fuel type Petrol Non-petrol Vehicle Type heavy GSVs heavy GSVs non-participant Number of vehicles 2012/13 levy rate Total levy with proposed FSIP Change $667.11 $284.09 increase silver $600.40 $217.38 increase 2,000 $383.02 gold $500.33 $117.31 increase platinum $400.27 $17.25 increase non-participant $667.11 $200.03 increase silver $600.40 $133.32 increase 109,000 $467.08 gold $500.33 $33.25 increase platinum $400.27 $66.81 decrease 6 agree that the Ministry and ACC jointly review the FSIP after it has been in place for three years to ensure that it is achieving a reduction in injuries and costs; 7 agree to remove the trade plate exemption from Motor Vehicle Account levies for dealers of agricultural vehicles, heavy motor vehicles, caravans, and boat trailers; 8 agree to technical changes to the Accident Compensation (Motor Vehicle Account) Regulations 2012 to ensure that the exemption from ACC levies for predominantly offroad vehicles is administered consistently with Cabinet s decision to exempt them from road user charges [EGI MIN 12 23/2 refers]; Work Account proposals 9 agree to make the Workplace Safety Discount programme available to all industries; 10 agree to increase the maximum liable earnings entry criteria for the Workplace Safety Discount programme from $519,000 to $537,000 per annum; 11 agree to create the following classification units in the Work Account; Proposed classification unit number Proposed classification unit name 93400 Amusement and other recreation activities (not elsewhere classified) 93410 Alpine and white water recreation activities Proposed Reason for introduction levy risk group 911 Removing Alpine and white water recreation activities from this CU takes away two activities with a higher claims-to-liable earnings ratio compared to the others in this group 917 These two activities need to be separated and put into a different classification unit due to their high claims-to-liable earnings ratio 13

12 agree to change the following classification unit descriptions to clarify their coverage of activities; Classification Current classification unit number unit name 77300 Non-financial assets leasing and investment 64050 Air operations under Civil Aviation Rules Parts 101, 103, 104, 105, or 106 Proposed new name Non-financial assets leasing and investment (including franchisors) Air operations under Civil Aviation Rules Parts 101, 103, 104, 105, 106 or 115 Reason for change To clarify that this CU includes franchisors in franchise agreement leasing To provide more precise information so that employers/self-employed people can accurately self-select the appropriate CU To recognise a new CAA rule covering adventure aviation, this is also relevant to the activities in this classification 13 agree to the following revised Levy Risk Group allocation of the following classification units; Classification unit number Classification unit name 93175 Sport and physical recreation-professional sport (not elsewhere classified) 52331 Houseware retailing 428 52595 Non-store retailing 52597 Retail commission-based buying and/or selling 28520 Electric cable and wire manufacturing 29220 Metal furniture manufacturing Current LRG 917 Equine and sporting activities (medium high risk group) Store and non-store retailing 241 Machinery and equipment manufacturing (lower-medium risk group) 243 Machinery and equipment manufacturing (medium risk group) Proposed new LRG 919 Equine and sporting activities (high risk group) 426 Retail trade (low-medium risk group) 231 Aviation, electronic and electrical manufacturing 241 Machinery and equipment manufacturing (lower-medium risk group) 14 agree to include a schedule of 2011/12 classification units and levy risk groups for experience rating purposes; 15 agree to cap the changes in levies resulting from changes in classification units at +25% or 4 cents, whichever is the greater, or -25% (in addition to the change in the average rate); 16 agree to update the Accident Compensation (Experience Rating) Regulations 2011 to reflect updates to the minimum wage as follows: Experience period for the levy year 1 April 2009 31 March 2012 for the 2013/14 levy year Minimum liable earnings for experience period 1 April 2009 to 31 March 2010 $23,400 1 April 2010 to 31 March 2011 $26,000 1 April 2011 to 31 March 2012 $26,520 Work and Earners Account proposals 17 agree to increase the maximum liable earnings in response to indexed increases to maximum weekly compensation payments: 17.1 for self-employed people under the Work and Earners Accounts, an increase from $111,669 for 2012/13 to $113,167 for 2013/14; 14

17.2 for employees, private domestic workers, and earners under the Work Account (for calculating the current portion) and the Earners Account, an increase from $113,768 for 2012/13 to $116,089 for 2013/14; 17.3 for employees and private domestic workers, for calculating the residual portion of the Work Account, an increase from $111,669 for 2012/13 to $113,167 for 2013/14; 18 agree that, in response to increases in minimum weekly compensation, the minimum liable earnings of self-employed workers increase from $27,040 to $28,080 per annum; Next steps 19 invite the Minister for ACC to announce these decisions and to release this paper in the week of 17 December 2012; 20 invite the Minister for ACC to issue drafting instructions to Parliamentary Counsel to draft the proposed regulations required to set ACC levies, and to make the other amendments necessary to implement the decisions in the recommendations above; Funding policy review 21 note that I will report to Cabinet on a proposed approach on a longer-term framework and principles for ACC funding policy and setting ACC levies in due course. Hon Judith Collins Minister for ACC... /... /... 15