Grant McLachlan: Delayed ACC payouts are taxed too high

ACC and the IRD have effectively created a new class of poverty. Photo / 123RF

Opinion

• Grant McLachlan is an Auckland-based writer, environmental specialist and company director.

If the new Government is so concerned about the most vulnerable members of our society it should start by making sure the incapacitated are not taxed at the highest rate.

During the nine years under National, ACC went from being broke to being bigger than the NZ Superannuation Fund. To save money, ACC put many injured through a protracted claims process in which, after years of obfuscation, the late payments of loss of earnings compensation are paid in one settlement, often taxed at a "special" flat rate of 33 cents in the dollar.

If ACC paid weekly loss of earnings compensation on time, claimants would have incurred a much lower marginal tax rate.

Effectively, the IRD benefits from ACC's slowness to approve claims. ACC can also deduct a higher amount in levies from settlements. It is insulting to the thousands of incapacitated claimants fighting ACC over years, even decades, that their settlements are taxed no differently to a person receiving a holiday bonus.

It is no holiday. During the delays to approve cover, many people were forced to sell their homes and other assets when their ACC compensation would have covered their mortgage payments. Instead of receiving 80 per cent of their pre-injury weekly income as ACC weekly compensation, they lived off sickness benefits, which equates to one third of the minimum wage.

To rub salt in the wounds, soaring house prices has meant that many of those who receive late payments can no longer afford to buy a home that was affordable at the time of their injury.

Many people who have been struggling on the sickness benefit for years while ACC processed claims are owed hundreds of thousands of dollars in late payments plus interest. If ACC paid on time, the total tax deducted would have been a fraction of what is deducted on late payments.

Take for example, someone on a $60,000 salary who was injured around the time then-ACC Minister Nick Smith started to introduce "cost-saving" measures. If ACC paid weekly compensation on time, only $70,000 in marginal tax would be paid over the whole period. Instead, a flat rate of 33 per cent would deduct over $190,000 from a late payment.

In addition, the Ministry of Social Development deducts all benefits paid over that period. Many people forced to rent or move to be closer to medical care have their accommodation supplements and disability allowances deducted from their late payment.

ACC and the IRD have effectively created a new class of poverty. Incapacitated are vulnerable as they have limited ability to work while they are in limbo.

ACC, on the other hand, has created a new class of largesse. At one stage, it was so plush with cash, it didn't have the staff to figure out where to invest it. It now has almost 1000 employees earning over $100,000 a year.

Any ACC lawyer will tell you that the IRD and ACC have been lazy to do anything to fix this cynical situation. Apparently, all that is required is a small amendment to the tax code, allowing a special tax category where tax is deducted at a rate no different to if ACC weekly compensation was paid on time. Tax could be deducted based on when it was owed rather than when it is paid.

Any tweak could be pushed through by Parliament before Christmas under urgency. It could also apply to retrospective settlements.

ACC clients aren't asking for a holiday bonus. They are just asking for what was owed to them if ACC didn't take so long to process their claims.