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BUDGET 2013 ACC levy cuts to cancel out fiscal drag

Thursday 16th May 2013

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Accident Compensation Corp levies are projected to be cut progressively to give businesses savings of $1 billion a year by 2015/16, roughly cancelling out the impact of fiscal drag on the government's accounts.

The Budget documents show fiscal drag - where rising incomes move taxpayers into higher tax brackets and drag in more tax revenue - of about 0.2 percent, of $420 million a year in the current financial year, rising to 0.3 percent by 2016/17, or around $700 million.

In a statement for the budget, ACC Minister Judith Collins says "the government is confident that a decrease in ACC levies is sustainable."

In 2013/14, total levies collected would fall by some $300 million, increasing to a "likely" $1 billion reduction in two years' time. The announcements follow a $630 million reduction in levies in the current financial year, in which ACC has so far outperformed on its investment returns by $1.1 billion.

Finance Minister Bill English told reporters at the budget lock-up the government was only moving on ACC levies now it was confident there would be no return to the volatility of recent years.

While there was no conscious trade-off made between the impacts of fiscal drag, which could be rectified with either tax cuts or increases in tax thresholds, English said the ACC changes would "more than cancel out" fiscal drag.

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