Wednesday, 16 December 2009

ACC Rates

If, as a creative artist, I earned more than $1500 outside of my normal job, I'd be liable to ACC taxes of 2.26% on all such earnings, or so ACC tells me today. I must ensure that such earnings not fall anywhere in the range $1450 to $1800 this year.

Does a rate of 2.26% really seem actuarily fair for on the job accidents for "Creative artists, musicians, writers and performers"? Note that private insurance markets charge less than 1% for income protection insurance, and that they charge men less than women (as women are far more likely to make claims based on mental health disorders).

Where's my opt-out switch?

There's a class of arguments that run as follows:
If I allow you to do X, and X turns out badly, I cannot credibly commit to letting you suffer the consequences. Therefore, your ability to do X must be regulated or prohibited.
And so we can't opt-out of public health systems or workplace accident insurance because the state cannot credibly commit to letting us suffer the downside consequences of accepting risk; we may soon prevent banks from getting "too big" because the state can't help itself from bailing them out (why not car manufacturers too in that case?). In this kind of world, a state that didn't want to agglomerate power to itself would be working hard to establish a credible reputation for letting things suffer downside costs of risk so that it wouldn't be put into the "can't credibly commit" situation. Instead, governments seem to be moving to bail out or compensate for any adverse life or business outcome and folks have come to expect and demand such bail-outs.

If I could convince you that, were you to suffer kidney failure, I'd be utterly unable to prevent myself from giving you a kidney, does that then give me the right to heavily regulate your diet and exercise regime to keep you from needing my kidney? Why should your rights be contingent on my self-control problems?


  1. But ACC will also cover you for pre-existing conditions that are aggravated as a result of an accident. So actuarially speaking, it might be fair to charge a higher rate as you're invariably covered for those pre-existing conditions, something of great concern to private insurers but which ACC - and in fact any kind of state-provided healthcare - doesn't worry about.

    But remember, the US government did bail out car manufacturers, but rather than a bailout, it could be seen as a form of insurance. As a gambler, and as someone whose career involves dealing with risk, when we make the investment to displace that risk we make an effective gamble that the money we're going to put in has an effect that's significantly better than the results of not making that investment. When we committed billions in potential funds to mitigate risk, then the negative outcomes of not committing that money exceeded those billions. Lehman Brothers, a case in point: left to fail, had ramifications that went way beyond just that business and cost even more money.

    It's pretty much like spending money on topping up your transmission fluid instead of buying a whole new drivetrain. The difference is, I suppose, that everyone had to buy a new drivetrain. You can't eliminate risk, and you can't always buy your way out of risk, but you can displace the effects and you can buy your way - at least partially - out of the effects if the worst comes to the worst.

    We don't have enough left to put anywhere on the balance sheet to carry on bailing anyone out above and beyond the normal agreed understanding of the term. They were exceptional times, and I don't think there's any significant movement toward extensive rescue packages - I don't think government likes it, the businesses certainly don't like it, and the taxpayers go apoplectic when THEY consider it.

  2. @Chris: You've given a great reason why ACC rates would be higher than private rates. Not a great reason for me to want to be part of it, but a good reason why the rates are higher.

    I can buy the case for bailouts in the case of systemic risk. I can argue about it, but bailouts for systemic risk is a coherent and defensible position. But GM?

    The more general point is less about bailouts of banks and more about paternalistic arguments that hinge on fiscal externalities.

  3. I'd like to throw NZ Export Credit Office, Export Development Canada, EXIM and the ECGD in for consideration - largely because while I think the bailout example might be exceptional, export credit guarantees cited as highly influential for businesses to take part in export markets are a better, longer-standing, greater risk, higher loss example of paternalistic tendencies amongst governments, especially as they relate to business. Justifying underwriting of everyday business transactions - and paying out large in some cases - is harder to argue for than the bailouts.

    The idea of export guarantees falls along the same kind of lines as the GM bailout - it's better to insure the loss when considering the impact of the closure of GM plants on the employees, their suppliers, their suppliers' employees, etc. Although GM has been badly managed and widely considered an unevolved dinosaur with dying markets, it's big, and the ramifications of Chapter 11 would be huge.

    But again, I think that GM was special, and a one-off. Although actually, thinking about the airlines after 9/11, maybe I'm shaky on this position. Was that another exceptional time? One of Nassim Taleb's Black Swan Events?

  4. I'm no fan of export development offices either.

    As an undergrad in 1996, I had to write a term paper for my econometrics class; I choose the Team Canada trade missions. At U Manitoba, they at least made the assignments serious: choose your own topic, find your own data, do your own analysis (no canned processes on canned data - thanks Prof. Dhruvarajan!). I could find zero effect of Team Canada Trade Missions on subsequent trade between country pairs compared to other country pairs that didn't get the visit. I'd have to re-do it completely to fully trust the results of course, but would be surprised if I found otherwise....