ACC fund returns $0.7billion to Govt Coffers

[IdunBrokdItAgin]

Article from stuff today:

http://www.stuff.co.nz/business/indu...-govt-finances

Now how does that work exactly? I work in financial markets and have done so for about 15 years. The business model of the ACC is confusing to say the least.

So, as far as I can tell, the ACC has investment portfolios which it attempts to gain income from by investing them.
These portfolios must be made up of previous unspent ACC income (assumption made here).
In a negative year the capital value of the portfolio is reduced (due to investment losses or ACC claims higher than ACC income.
In a positive year (when a capital gain is made or when income is higher than costs) the gain is passed back into government coffers!
No bloody wonder they are sighting a shortfall in ACC if they take the returns from the ACC and don't leave them within the portfolios (to offset future negative years - or further increase future income potential).

Apologies if this is abit confusing for some people - I will attempt to clarify:
If I have $100 and invest it for a year I will create income of say $10. My expected payouts and costs for that year is $10. At the end of the year I will still have $100. This is a break even situation.
If I have $100 and invest them for one year and create income of $10 plus make capital gains of $10. less the $10 costs and payouts I end up with $110.
The second secenario shows that I am building up my reserves for the years where either I make a capital loss or where payouts and costs is more than income (In other words I am guarding against eroding my capital base).

But If I take that $10 capital gain and pay for my partner to fly to europe (bare with me here). Then I am not guarding against possible future negative returns! This is what the government is doing by returning gains from the ACC portfolios back into the government coffers.

No wonder they are saying there is a shortfall if this is standard practice. Any bad year will look really bad because it isn't being offset versus the good years.

Apologies for the rant but I couldn't see this anywhere else and it is a very important issue in my mind.

[MSTRS:Me]

It's no wonder the Labour govt overturned the privatising of the Earner fund. I always knew it had to be about losing the cash cow.

[PhantasmNZ]

I just read this article myself and can't help wondering why we ACC is trying to run us into the ground over a cross subsidy within the ACC of less than $70m when they just made 10 times that amount and cross-subsidised the rest of the government... hmmmmm

[Mully]

I love the way they've called it 0.7 of a Billion.

Instead of the (more impressive sounding) Seven Hundred Million Dollars.

I suspect ACC keeps a portion of it's "profits" and returns the balance to the Gummint.

[XP@]

This needs to be summerised and added to the ACC Info pages / sites...

This news makes me feel like I am just about to be royally shafted and there ain't a lot I can do about it

[Pedrostt500]

They did the same thing a few years ago, can remeber Cullen pratteling on about it.

[Brian d marge]

profits from a SOE are returned into the General Account ..This is why there is no actions from the government to lower the Electricity prices

Stephen

[Winston001]

With respect, there is nothing underhand or new about this. The money is simply tax on investment returns. The link also says the Cullen Fund paid tax of $1.4 billion.

In neither case are all of the gains taken by IRD - simply the tax percentage.

FYI State Owned Enterprises such as the big three power companies pay dividends to the government on top of tax.

It seems a bit weird to have the Cullen Fund paying tax when its purpose is to build a massive nest-egg for future retirees but thats the way it works. If it wasn't taxed all of the other funds would scream foul play because they are taxed.

[Brian d marge]

With respect, there is nothing underhand or new about this. The money is simply tax on investment returns. The link also says the Cullen Fund paid tax of $1.4 billion.

In neither case are all of the gains taken by IRD - simply the tax percentage.

FYI State Owned Enterprises such as the big three power companies pay dividends to the government on top of tax.

It seems a bit weird to have the Cullen Fund paying tax when its purpose is to build a massive nest-egg for future retirees but thats the way it works. If it wasn't taxed all of the other funds would scream foul play because they are taxed.

Even more reason not to lower the prices........

its a great idea,

Stephen