The government’s changes to ACC levies come into effect this week. Few businesses will notice that in their bottom line though, because the change will be miniscule.
It should not be. Work done for Labour by economic analysts Infometrics has determined that at least $350 million a year is being taken from businesses and employees in excessive ACC levies without good reason.
This overcharging is essentially the stealth application of a payroll tax. And, according to Infometrics, the deadweight cost of this to the economy is 700 jobs and an extra $70 million in GDP.
This is inexcusable not just because it is costing profits and jobs but because it is likely to be the only thing maintaining the government’s chance to reach surplus. The use of this stealth tax to try to meet a much-promised surplus is a classic example of the government’s increasing tendency to put short-term political fixes ahead of longer-term sustainable growth.
The problem is National lacks a vision. It believes economic development is one-off deals with favoured businesses and sectors, not investment in productive infrastructure. It’s more focused on staying in power by scratching political itches than in doing what is right for the long-term interests of New Zealanders and their economy.
That’s not the way to govern. New Zealanders deserve a government with a clear direction and its sights set on the long-term health of the economy. That’s what I intend to deliver.
In my state of the nation speech earlier this year, I talked about working with business to foster growth so that, ultimately, we can once again have the lowest unemployment in the world and good incomes for our people.
There’s no silver bullet to hit those targets. Rather, we should assess every decision we make against the criteria of whether it supports business and creates jobs. A Labour government would not sacrifice jobs and growth for the sake of a sham surplus. And that’s why we would set sensible ACC levies.
Cost-cutting is not enough
However, we need to do more than just cut business costs. We also need to support businesses to prepare for the future by using the tax system to drive investment in research and development.
Our spending on R&D is poor by OECD standards, despite how vital innovation is to our future, and it is allocated by a process of picking favourites rather than by letting businesses get on with doing what they know best.
We also need to help small businesses grow. Last year alone, it was the small business sector that generated more than 40% of all new jobs. This is potentially a job-rich sector and it is a sector that tends to be New Zealand-owned. When we do things to help small business, like simplify tax and increase available investment capital, we also help employ more New Zealanders and build New Zealand’s economic capacity.
We need to move our production up the value chain, so that we avoid reliance on raw commodities that are too greatly exposed to the whims of international markets, and we need to shape our education system to deliver the skills to sustain these changes. Many businesses are having real difficulty getting the skilled workers they need and, right now, nothing is being done to change that.
These and many other economic issues are being taken into account by our Future of Work commission that Labour’s finance spokesman, Grant Robertson, is leading. He and his team are looking at future changes in work and labour demands, and recommending economic development, social development and employment regulation policies to assist with the changes we will face.
This commission is working with all New Zealanders, from the smoko room to the boardroom, to build a long-term economic plan from the best expert advice and the real world experience of our communities and businesses.
This project is not just about creating that plan. It is also about showing how Labour will govern – because we acknowledge we do not have a monopoly on the answers. Any party or politician that tells you they do is being disingenuous at best.
What we do have is a firm commitment to work with the people who know their own business, and their own communities, to take straightforward and sensible ideas and make them happen.
Which is why cutting ACC levies is a no-brainer. It should be for any government, either National or Labour.
It is somewhat ironic the government has been able to overcharge on levies as the result of a previous long-term vision for shifting ACC from a pay-as-you-go system to a fully-funded scheme. The rationale for that was to build reserves up for current claims and for the claims accrued since the scheme began.
But that job is now done for the Work and Earners accounts, which are funded by levies on employers and employees respectively. In fact, these accounts have been fully funded since 2013.
Between them, these funds hold billions of dollars more than they need and are forecast to take in $373 million in excess levies this year alone. That is money that has come out of the pockets of businesses and their workers.
Even the notoriously conservative board of ACC agrees with a cut. Earlier this year it recommended that both Work and Earners levies be cut significantly, although not as significantly as they should be. The government rejected that recommendation and instead has made just minor cuts to the Work levy. As ACC Minister Judith Collins admitted at the time, the decision was made “because we need to get to surplus.”
This is not fiscal responsibility and it is not credible economic decision making. ACC should not continue piling up more money that it does not need at the expense of business and employees. It costs jobs and growth and holds New Zealand back.
ACC levies may be just one cog in the wheel but we need to work together to get the best out of every part of the economy and country if New Zealand is going to succeed in the future.
I know the importance of this from personal experience, I have spent much of my working life bringing businesses and their employees together to find simple solutions and make them work while keeping the long view in mind.
Now, as leader of the opposition, that long-view is the pathway for New Zealand’s economic wellbeing. But I am also mindful of the fact that taking that path means making sure every step we take is in the right direction.
Because if we get all of the individual decisions like setting fair ACC levies right, and we maintain our focus on what kind of a New Zealand we want to build, we can do very well for ourselves now and in the future.
This post was originally published in the National Business Review on Thursday April 2, 2015.