Written By: - Date published: 4:33 pm, December 3rd, 2008 - 45 comments
Categories: ACC, national/act government, privatisation -
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Let’s not fool ourselves that what we’ve seen from National over the last 24 hours on to the shortfall in the ACC non-earners account hasn’t been carefully managed in a way to lay the foundation for their arguments in favour of privatising the scheme.
I won’t go into a lot of detail around their motives, as this blog has covered it off already, including some very sensible comments from Economist Susan St John this morning in the linked podcast.
But there are two issues here worth exploring further. Firstly how this issue was handled by Labour in relation to the election, and secondly how National has handled it since.
On the first matter, Labour, by omitting to flag up prior to the election a cost pressure that they were aware of, may have scored a bit of an own-goal on their entirely sensible and defendable policy of retaining ACC as a government not-for-profit monopoly.
Yes there is convention not to commit a future government to new spending during an election campaign, and this convention is in place for good reasons. And it is entirely understandable, given the timeframes outlined in the Department of Labour’s report that Cabinet was not able to sign off on increasing the provisions in the non-earners account before the election.
But there was nothing stopping Labour adding their knowledge of the need for increased ACC provisions into the Pre Election Economic and Fiscal Update. There is a section of the PREFU specifically for things like this ‘unquantified risks’, a section where government can outline risks that ‘would, if they eventuated, impact on the Government’s forecast new operating and/or capital spending amounts.’ (Indeed, s.26 (U) of the Public Finance Act would appear to suggest that adding the ACC shortfall to the PREFU wasn’t actually optional it was mandatory. The phrase ‘all other circumstances that may have a material effect on the fiscal and economic outlook’ is the key one here).
Now it’s not clear whether this was Labour’s omission or Treasury’s. It is of course Treasury’s responsibility to prepare the PREFU, and they should not have knowing left it out. But if it was Labour’s, it was a silly decision. If you try to fudge and hide things, you will always get found out.
But on the second point of National’s handling of the information.
Let’s not kid ourselves over this. This error on either Labour or Treasury’s part called for a response, but a proportional response from National is not what we saw.
John Key’s use of language at the press conference he called foreshadows a campaign they intend to run on creating public mistrust in what is in fact a world class accident compensation scheme.
There is no sense that ACC or the Department of Labour acted inappropriately. They followed protocols around giving advice to Ministers in regard to committing a future government during an election campaign. Further, based on comments John Key has made, it seems that when ACC knew of the future cost issue in May, they informed the ACC Minister that there would be an increase needed, although not the amount.
And on the case of the cost increases themselves, the four areas detailed in the paper John Key released seem straight forward. And as officials note in the paper, ACC’s consulting actuaries believe the movements between the current provision for the non-earners account, and the proposed provision, are reasonable.
Thus Nick Smith’s Ministerial Inquiry seems fairly pointless; the issues behind the need for the increase are already out in the public domain. As Linda Clark pointed out on Sunrise this morning, in some respects ‘Ministerial Inquiry’ is a fancy, official-sounding way of sternly saying ‘please explain’.
Based on their pre election comments over ACC, and John Key’s choice of words yesterday, in particular ‘ticking time bomb’, it seems evident that there were other motives at play in yesterday’s press conference.
Disappointingly, although not surprisingly, the media have continued to uncritically use John Key’s spin. (How many times have you heard that phrase ‘ticking time bomb’ over the last 24 hours )
And people should watch out for the Tory commentators who will join in, and start bagging ACC, using the current funding issue to call for privatisation.
Take Graeme Hunt for example: “Many people think ACC is paid for by general taxes while, of course, it’s largely paid for by employers and it’s long overdue for the system to be reformed.”
He is of course telling porkies: a quick look at page two of the 2008 ACC annual report reveals revenue from car drivers, workers and taxpayers (through the government) was $2,534 million over the last year, whereas revenue from employers and self employed was $1,118 million.
But that’s not the point. Tory commentators like Hunt, and John Key with his phrases like ticking time bomb, have a very precise purpose – to sully ACC’s reputation, and cast it as inefficient and in need of the disciplines of the private insurance industry. (A global industry, by the way, that includes companies like the recently bailed out US firm AIG. Hmm, the sort of people I want managing my accident cover )
They’ll ignore the PricewaterhouseCoopers report finding ACC to be a world leader.
And if we let them, they will proceed to privatise one of New Zealand greatest assets, which, as many people have noted, no one actually wants privatised but the insurance industry themselves.
Let’s not let them.
- From a Standard reader.
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Tim said: Opening other parts of ACC to competition is a different matter, and not at all irrational.
Guess whether it is rational depends on what outcome you want Tim.
If you want to see employer levies drop because people who are injured are wrongly denied cover by the insurer, receive no weekly compensation, end up on a sickness benefit, have to pay for their own rehabilitation, and have to engage legal representation to challenge the insurer’s decision, then it has to be the way to go I suppose.
That was my frequent experience working as an ACC claimant advocate in the 1999-2000 period when private insurers were involved in administering work accident insurance. [I have to say that I didn't make a lot of money out of representing such claimants - I only charged what they could afford, which in many cases was nothing so I was working on a contingency no win - no fee basis]
The easiest way for private insurers to reduce levies to gain market share is to wrongly deny claims.
This occurred particularly with gradual process injuries such as occupational overuse injuries (OOS), where the legal tests are complex and put an onus on the claimant to show that the work environment or work tasks have a property or characteristic that causes or contributes to the cause of the personal injury; that property or characteristic is not found to any material extent in the non-employment activities or environment of the claimant; and that the personal injury is not related to non-physical stress.
The private inurers denied the claims in the knowledge that most claimants would not have sufficient understanding of the law to personally challenge them and could not afford the thousands of dollars that legal representation would cost them.
The difficulty is that (apart from the self-employed) the choice of insurer is the employer’s – the injured employee has no choice and gets whatever insurer the employer has chosen. Those who give the best deal to employers in terms of levies are likely to be those that give the worst deal to claimants in terms of entitlements.
In 1999-2000 the private insurers took all the low risk business while the ACC subsidiary @work insurance ended up lumbered with the high risk high levy industries.
And what happens if a private personal injury insurer goes belly-up?
I suppose we get an AIG-style taxpayer funded bailout. Or do all the claimants on their books just lose their entitlements?
Diane Foreman must be getting so excited at the prospect of payback, finally.
toad, your arguments are very good against opening ACC to competition and I agree with the dangers you point out. I don’t have the experience you have in this nor do I have compelling reasons to research it. Time will tell what the new government will do, and in respect of rationality I would certainly expect them to thoroughly research what the impacts would be of any changes they make.
I take back the statement I made, and if you’d be so kind I’d like to replace it with “consideration and investigation of opening other parts of ACC to competition is a different matter, and not at all irrational.”
I agree with the position that it would be bad for the government to open ACC to competition just to benefit private insurers, but if there were actual benefits to ACC consumers (which outweigh the risks) then let them be considered.
I know Standard readers and others on the left will be watching keenly to see what the government does in this area, and I’ll also be skeptical about what benefits there will be to competition. But in all fairness they haven’t done it yet and they did say before the election they would consider it, so it’s not like it’s a secret agenda. Let’s see what they come up with before condemning it.
infused: “lprent is getting beat up over this. Quite good to watch imo.”
Not really – in essence TE is trying to make a mountain out of a molehill. Unfortunately I don’t have much time during the day as TE.
The accounting timeline is the issue (very well covered in NRT), and TE simply doesn’t want to look at anything quite so prosaic.
Either that or doesn’t understand accounting, esp the interesting govt variants – as XYZ alluded to. I’ve only seen them personally once in the late 80′s while on a contract. But friends of mine have incredously cringed about them.
LP wrote:
I was an audit partner in one of the Big 4 firms for eight years before moving to where I am presently running internal audit with a major retail bank. I do have some understanding of accounting. While I defer to your expertise in software development matters, LP, I think I know my way reasonably around the Public Finance Act.
Sounds like “All Taito was guilty of was being helpful to his constituents’.
Sounds like you are desperate to beat up a non issue. This would be consistent with your continual attacks on Labour (including at least one known irrational lie) over the last few months.
I know we all came to expect great things from the last Labour government, but even they were bound by the laws of physics. Michael Culllen couldn’t travel backwards in time. Oct 22nd comes after Oct 6th.
I’m always really surprised when ACC i debated and the world class comments get thrown around. I’ve talked about the following (and other ACC issues) several times on the Standard and what usally happens is the people stop commenting and move on to other things because its kind of a hard issue to accept. Lets make it really easy with two questions, two answers and a page reference:
a. What is the current Asset position of ACC as a whole?
b. What is the current liability position of ACC a a whole?
Answers:
a. $13.2 billion
b. $21.2 billion
Page 91, 2008 ACC Annual Report
The outstanding claims liability ($18 billion) is $5 billion bigger than assets. And investment returns to 2008 is not really the issue – I think ACC reported a loss of 0.8% or so which is really rather a very good performance in the wider context. The real issue is systemic underfunding, mispricing of risk and willy nilly extension of the originally intended WORKERS COMPENSATION scheme into social areas it was never intended to cover.
Solvent? World Class? Best of breed?
TE: I was wondering. Well as you know, the public finances systems are archaic. They remind me of pre-1986 business accounting in NZ with lousy reporting systems. Frankly I’m surprised that it has taken them this short a time to figure out exactly where they’re bleeding red ink.
BTW: the reason I did an MBA was because I couldn’t understand accountants (coming from an operations side). I learnt that side quite well (and seem to spend excessive amounts of time looking at other peoples accounts). The course gave me a chance to retrain. Since it was a bit boring I spent most of my time playing with PC’s and subsequently developed a career in it…. Kind of puts you off training when each time you do, you decide not to follow that career…
Well it seems there are further deficits found, this time in one of the earner’s accounts.
http://www.national.org.nz/Article.aspx?articleId=28995
My thoughts on it are 1) is ACC actually being well managed? and 2) were Labour actually trying to keep this quiet to stop themselves looking bad?
Actually LP the PFA is considered to be world-leading. As of 1 January 2007, all New Zealand public entities have adopted the NZ-IFRS reporting standard, the same used by private sector organisations, making reporting standards in the public sector sector-neutral. There are a number of issues around applying the IFRS to the New Zealand public sector environment (and the Auditor-General has expressed significant concerns about the appropriateness of the IFRS in a New Zealand public sector environment, particularly with regard to the significantly increased costs to public entities and the need to get external audit advice), but the IFRS standards can hardly be viewed as “archaic” or backward.