Written By: - Date published: 12:27 pm, December 4th, 2008 - 52 comments
Categories: ACC, Media, national/act government, spin -
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There’s a lot of talk about the ACC budget deficit and National’s use of the issue to create an environment in which their privatisation scheme can roll with the minimum political fall-out.
Any doubt I had that this was their plan evaporated this morning when I heard Nick Smith on RNZ moving the story along by talking about maybe having to increase levies.
You see the ACC “blow out” is an anchor-story. It’s a big newsworthy story that can be spun with an “urgent” media conference and get lots of press that then anchors a whole stream of smaller stories that wouldn’t have got any coverage without it.
And National is doing exactly that. The urgent media conference was a great piece of theater as was the “ministerial inquiry”, and the lines “billion dollar blow-out” (gotta love that alliteration) and “ticking time-bomb” (oh noz! the clock is ticking!) were clearly prepared well in advance. The aim was to make as big a splash as possible and they pulled out the stops to do so.
Now they’ve created this anchor expect to see lots and lots and lots of minor ACC stories such as Nick’s ‘levies could rise’ bunkum spill out over the next few weeks with lines like “this follows closely on the heels of the billion dollar blow-out” and “against the background of a government inquiry in to the ACC timebomb” in them.
After a few months of this coverage it will look like there are a million things wrong with ACC. And then? Well, who could blame them for flogging it off?
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What a crap post. You still trying to blame National? Labour created this mess. Labour are paying for it.
You’re not busting anything. Infact you’re doing what you say you’re trying to bust. You’re spinning this left side.
IrishBill: so you’ve got nothing of substance to offer, infused?
Okay, say you’re right & National are milking this for all it’s worth.
But even so, it was still an advantage handed to them by Labour.
If Labour were concerned about the Nats using this issue for political point scoring, then they should’ve done the right thing & announced the ACC funding shortfall before the election.
Sure you can criticise the Nats for political point scoring, but ultimately it stems back to Labour – just like the issue with the 757s. So in that regard, you don’t really have a leg to stand on.
If God makes you laugh, one should wonder where ones future lies, Peter.
NX, show me where I’ve blamed the situation on National. This post is about having a look at how national’s spin works more than it’s about ACC.
Here’s what I don’t understand…
Why would Labour hide this ACC problem to ambush National? If Labour were in power, they would have to deal with it and the consequences thereof.
If Labour knew about the deficit, and knew that if they made it back to the treasury benches they would have to deal with it, they must have had a plan (that didn’t involve privitising it). I wonder what it was?
Also, why would you increase earners levies when the problem is in the non-earners account, funded by taxes? As I understood it, the two accounts are “hermetically sealed” but Smith seems to portray otherwise.
Chris, Labour were in an election campaign. They probably didn’t want this bad news coming out because of the traction it would have given National. Labour had the option of coming out with the info or letting it slide and providing National with the chance to soften the ground for privatisation. They took the route of least resistance. That was a poor decision.
My point is that National wouldn’t be able to spin this if it weren’t for Labour’s incompetence.
It’s kind of a chicken and the egg scenario. You can’t attack National without inadvertently attacking Labour.
Let me get this straight…
ACC is underfunded. The Minister for the ACC says that, because of this, levies might have to be raised to pay for the additional funding. This seems kind of reasonable to me.
Trying to turn this into a conspiracy is just weird. How would you fix the lack of funding without raising levies?
Two words – ‘December mini-budget’.
It’s with deep irony that Labour campaigned on trust while claiming the opposition had a secret agenda.
Thomas, the increase in levies is for the earners account. That’s kept separate from the non-earners account, is in good financial conditions and doesn’t cross-subsidise. The real question is why would you raise levies for a healthy account when you can’t transfer them to the one in deficit?
Of course if you want to discredit ACC as a whole you can take a punt that that nuance won’t be understood and then start saying things like “there could be a problem” and “levies might have to rise.” which would help produce the impression it was all going to hell.
NX, I’ve never held back from criticising Labour before and I think this was stupid politics on their part. But like I said, this is a post about PR and how a story is manipulated more than it’s about ACC.
I should note, in a followup to my own comment, that Nick Smith was talking about cost blowouts for the other accounts as well as the non-earners, therefore talking about raising levies does make sense.
This wouldn’t make as much sense if only talking about the non-earners account.
There are no cost “blow-outs” for the earners account. In fact they’ve come under criticism in the recent past for holding too much in reserve rather than reducing levies. Smith will know this but he’s not provided a figure. I can tell you right now if they had a nasty big negative figure for the earner account they’d call an “urgent” media conference to tell everyone. They don’t so Smith has to resort to “if” and “maybe” statements to get the bad news story he needs.
Here’s a question. Why will the thoughtful original post on this topic or this current informative post never appear in any MSM outlet?
Here’s the 6 500 word answer…http://www.medialens.org/forum/viewtopic.php?t=2860
IB “There are no cost “blow-outs’ for the earners account”
Oh really?
$1,300,000,000 blowout revealed today… Oops
It was all about trust…
NX,
Did the then opposition deny they had a secret agenda?
To all, the silly season cometh: workers and wouldbe affected by any change/s to weigh in for another bout of low conflict (so termed by their US-sourced forerunners with a close resemblance to followers nactional) industrial relations.
Such jolly types.. christmassy.. and good will.. and riiight..
IB:
“There are no cost “blow-outs’ for the earners account. In fact they’ve come under criticism in the recent past for holding too much in reserve rather than reducing levies. Smith will know this but he’s not provided a figure. I can tell you right now if they had a nasty big negative figure for the earner account they’d call an “urgent’ media conference to tell everyone. They don’t so Smith has to resort to “if’ and “maybe’ statements to get the bad news story he needs.”
Compared and contrasted to:
“”Department of Labour officials have advised the Government to increase the current ACC Earners Levy of $1.40 per $100 of earnings to $2.00 in 2009/10, $2.10 in 2010/11 and $2.20 in 2011/12 to cover the increased costs of the Earners’ Account.
“The cost increases identified by officials is being blamed on increases in the number of claims, lesser rates of rehabilitation resulting in increased duration of costs, increased medical and treatment costs, expansion of the schemes entitlements, and increases in treatment injury cover.”
Perhaps you’d care to revise your statement?
Now there is a billion dollar blow-out on the earners account as well that Labour most likely knew about before the election.
So, could someone here tell me, given the knowledge that Labour had prior to the election, how were they going to meet their promise to REDUCE levies? Or was that a promise to be scrapped after the convenient “mini-budget” after the election?
Irish Bill
you have to be kidding with this comment:
There are no cost “blow-outs’ for the earners account. In fact they’ve come under criticism in the recent past for holding too much in reserve rather than reducing levies.
Read the ACC report:
Current Total Asset position: 13.2 billion
Current total liability position: 21.2 billion
Lets look at the six accounts, just the net poition ie assets minus liabilities:
Residual Claims -1.8 billion
Motor Vehicle -2.7 billion
Non-earners -2.4 billion
Earners -0.8 billion
Work +0.5 billion
Treatment Injury -0.8 billion
Total DEFICIT yes deficit across the six funds is 8 billion dollars. The numbers being bandied about in the press today (2.3 billion and counting) are th difference between the existing budget and the new budget. As of end of 2008 FY, the budget deficit was -6.2 billion.
Where do you get any kind of statement saying ACC or any of the major accounts are “is in good financial conditions” or “healthy account”. You’re making facts up – please read page 91 of the ACC annual report.
Can you please explain the following statement you made above?
The real question is why would you raise levies for a healthy account when you can’t transfer them to the one in deficit?
Which healthy earners account would that be – the one that is 800 million in deficit in June 2008, and now 1.3 billion in deficit? Or is it 2.1billion in deficit now – I think we’ll find its the latter.
I appreciate the point you made about Labour sweeping this under the pre-election carpet, bad move and indefensible. Are National talking this up? Of course they are, any aura of financial mismanagement Nats can pin on Labour is obviously in their interest.
Regarding ACC, as I sad in the other thread:
Solvent? World Class? Best of breed? Yeah right………
No, there is about 2,300,000,000 things wrong with ACC, just Labour didn’t want to tell us that before the election. No wonder Clark & Cullen quickly threw in the towel once they lost the election.
Well it looks like I got it wrong on the earners account. That’s a first. Go figure.
Okay, this is just getting more and more ridiculous. Unfortunately for IB, the very afternoon that he said that there were no deficits in the Earners’ account, the Minister announced a $1.3 billion shortfall in the Earners’ account. That was unfortunate timing, to put it mildly.
For those who don’t know, there are six ACC accounts that are funded from a variety of sources:
Work Account:Funded by levies on employers, according to the risk profile of the occupation for accidents in the workplace. National said pre-election that it will consider opening this account up for competition. Is self-funding, and not in deficit.
Earners’ Account: Funded through PAYE as a levy on all earners, currently at $1.40 per $100 of earnings. Will be in deficit to the tune of $1.3 billion over the next three years. Will need to see levies rise to $2.00 per $100 of earnings to get out of deficit, or see a major reduction in cover. Complex and difficult to open up to competition. National said it would not do so.
Non-Earners’ Account: Funded by direct transfer from the government for people not in the workforce (beneficiaries, children, superannuitants). In deficit to the tune of $900 million over the next three years. Complex and difficult to open up to competition. National said it would not do so.
Motor Vehicle Account: Funded by petrol taxes and motor vehicle registration. Probably not in deficit. Labour announced on 28 October that levy rates would fall. Almost impossible to open up to competition, as it would involve private motorists getting individual cover. National has said it would not open up to competition.
Treatment Injury and Residual Claims accounts: Funded from Earners, Non-Earners accounts, and employers’ accounts respectively for medical misadventure and historical employer claims. May be in deficit. Almost certainly impossible to open up the latter to competition; the former can really only be done by levying health providers. Almost certainly won’t happen.
As for the claims that Labour didn’t want to bind the next government by making announcements prior to the election on the state of the ACC accounts, that is just plain rubbish. Labour campaigned on reducing employer levies and motor vehicle levies. They were the only accounts they mentioned when they pledged to “lower ACC levies”. Maryan Street did so almost certainly knowing of major cost blow-outs in the Earners’ and Non-Earners accounts. While promising lower employer levies, Street also announced a review of work-related pain injury cover to provide more comprehensive cover. This extra cost would have come through Employer levies.
Street had the perfect opportunity then to set the record straight on the Earners’ and Non-Earners’ accounts. She didn’t. I find it just staggering that she could have sat on information that these accounts were facing enormous deficits, while going around the country saying she was going to reduce levies and increase ACC cover.
I don’t have any doubt that there does need to be a full review of ACC. In the Earners’ and non-Earners’ Account, the two options are clear: either reduce cover, or have workers pay substantially more for their cover. Opening it up for competition just isn’t an option. Labour have given National a free-pass on this through their cover-up of the issues before the election. National can either continue to raise levies and blame those increased costs on Labour, or declare those increased costs as unsustainable and reduce cover. Either way, the shonky politicking that Labour played with the ACC system, and their hysteria-driven cries of “privatisation” have severely damaged their integrity on ACC.
In the Work Account, where no real problems seem to exist, the issue of opening it up for competition is still on the table. There’s nothing in the information so far to suggest that this is more or less viable as a result of what’s come through in the last few days. There may be greater efficiencies and savings to be made from competition, particularly if the Work Account is effectively cross-subsidising other accounts.
One further point, I was very surprised reading the ACC briefing to the Incoming Minister. It isn’t a briefing at all. It’s a propaganda document eulogising the ACC system, and Labour Party policy. It doesn’t include any of the key numbers on cost blow-outs. It reads like a cynical attempt by the ACC board to cover itself in glory. That document alone seriously undermines confidence in the ACC board.
Irish Bill
I’m not really trying to score points by pointing out you got something wrong, though it would be helpful for everyone to read the latest annual report before commenting. And I must say your timing was impeccably bad to make the sweeping statements you did. After all you were only a few billion dollars wrong – hardly important, though I suspect it would have been important enough for Cullen to reverse his tax cuts were he still Finance Minister. The reality of ACC does not come close to your rose tinted view of ACC.
What really irks me about ACC debate is the two extreme arguments (left/right) neither of which is sensible – loosely defined as “best scheme in the world/absolutely marvellous/don’t change anything versus deregulate/privatise. Neither is a sensible position, and taking the best parts of both arguments would vastly improve the system.
Addressing the general left position – ACC IS IN A MESS and has been for years. If it were a company it would be insolvent, and its directors breaking the law. Thank god they have a stupid owner prepared to underwrite a negative equity position of over 8 billion dollars…….
I won’t bother addressing the right position but I can assure you I would be just as negative on aspects of that too. What is clear is that any debate on ACC is uninformed unless you read their accounts.
Fundamentally even though National’s criticism of the previous government’s handling of the ACC accounts is valid, IB’s point stands: this is less a pragmatic issue of policy and spending than it is a symbolic issue of `socialist bureaucratic waste’, and it’ll be the mother hen to a whole lot of other issues in a similar vein which on their own might not have been worth a mention. National seem to have set this as the keystone of their agenda, and the previous government were fools to let them do so.
L
Tim – the only account in actual surplus is the Work Account. I think you are confusing budgeted change in deficits with actual deficits. Some accounts may not be worse than their budgeted change in deficit (though this is unlikely in the current market environment). The other 5 accounts are all in actual deficit and I think we’ll find out over the next few days worse versus budget.
It would be good for every post on the subject of ACC to begin with the following phrase:
I understand ACC is over NZD 8 billion in deficit and technically insolvent, but…….
BTW, 8 billion dollars is approximately $2,000 for every man, woman and child in NZ.
IB, just following up on gomango’s initial point, we all appear to have overlapped in our postings and I gave you a bit of a serve too, but good on you for being gracious enough to admit you got it wrong. It’s one of the hazards of making predictions and bold statements (I’ve done it a fair bit, too), that sometimes new information can come along and bite you. That one was a bit of a clanger but it wasn’t your fault and at least you had the balls to make the bold statement in the first place rather than sitting on the fence.
One of the things I do admire about young SP, even though I often disagree with him, is that he does have the guts to get it out there.
gomango wrote:
I think I indicated projected deficits rather than actual deficits gomango. To be fair a reason that all the accounts, with the exception of the Work Account are in deficit is a function of the move from pay-as-you-go ACC funding up until 1999 transitioning to fully-funded accounts by 2014. When the Work Account was opened for competition in 1998, it was required to be fully-funded, the other accounts are still moving to that position.
It was a near certainty, without aggressive management of the tail in each of the accounts, that levies across all accounts would rise from 1999 onwards even taking into consideration existing cover. For the last nine years Labour have pumped up the “world class system” mantra, and carefully not only ignored the massive cost of it under existing cover, but actually extended coverage as well.
Moving from pay-as-you-go to a fully-funded model was one of the most fiscally responsible actions by any New Zealand government. It’s directly comparable to setting up the Cullen Fund to partially-fund future superannuation entitlements. Labour has dragged the chain on fully-funding ACC, not wanting to deal with the political reality that a gilt-edged accident compensation scheme is very expensive to pay for.
Gomango:
” Addressing the general left position – ACC IS IN A MESS and has been for years. If it were a company it would be insolvent, and its directors breaking the law. Thank god they have a stupid owner prepared to underwrite a negative equity position of over 8 billion dollars…”
You obviously don’t see the irony here. Right at this moment, the biggest capitalist institutions in the world eg. Citigroup, are insolvent, their directors are not in jail, and they are being bailed out to the tune of $8 trillion plus and still counting.
The state funded ACC can be in deficit and legitimately charged to the government until the premiums are re-adjusted. There is no off balance sheet gambling going on here. No corrupt CEOs filling their bank accounts with workers savings. This is perfectly proper public financing compared with the right-wing ideological ‘socialism’ now being practiced by the worlds central banks.
Its a right wing snow job to point to the broken toe on the thug who is busy kicking our brains out.
gomango: What really irks me about ACC debate is the two extreme arguments (left/right) neither of which is sensible
I’ve been a staunch supporter of ACC in the past, and remain so – but only in comparison to the proferred alternative, which is eventual privatisation. I’ve written extensively on this and have issued a challenge to anyone who wants to try to demonstrate how opening the worker account up to competition will not eventually lead to full privatisation of that account, and nobody has yet done so (trawl through old ACC posts; I bring it up a lot).
But while I suspect we might disagree on the balance, I think I agree with you that the system we have now is not optimal, and nor would be a wholly or partially-privatised system. The problem is that I think what we’re seeing here is a return to the old `privatise and then at least it’s not our problem any more’ ideas, which would be much worse than simply retaining the flawed system we have now. Yes, I know how flawed it is – I’ve lived through the cashflow shortages caused by their incompetence when the majority of my mum’s client base (and therefore income) have their treatment paid for by ACC. In that respect it’s a damned site better now than it was in the 80s and 90s when I was living at home.
There are things which could be fixed – the degree of moral hazard which the cross-subsidisation system creates in some accounts, for instance. But the discourse about ACC’s problems seems to always argue for scrapping or utterly revamping the system,, reducing coverage or entitlement, or competition/privatisation, which amounts to both. We have a good system which has potential to be great – but `perfect’ is the enemy of `good enough’. The focus, in my view, should be on improving the system we have without fundamentally changing it.
(And that’s why I’m opposed to the National policy.)
L
Serious changes are required in how we do accident insurance in NZ, this much is obvious and anyone who argues with that needs to answer why Labour didn’t disclose this before the election.
yes thats fair comment Tim- anecdotally the investment staff within ACC believe 2024 is more likely than 2014 (as they roll their eyes toward the ceiling.)
I think we both agree is ACC is now a poorly structured system with obvious outcomes from specific public policy imperatives over the last 10 years. I don’t think the politicians can even claim unintended consequences, more like lets ignore as long as possible the consequences we know will arise from these particular policy inputs.
The ACC board make up isnt too bad for a core quango – realistically only three are blatant political appointments without also having valid commercial, legal or investment skills – I’m thinking Butson, Fortuin and Karaitiana as the lightweights. And Pip Dunphy and Don Turkington are very sound operators. Even Neilsen and Wilson despite their past political positions bring something to the table, though maybe also an unwillingness to push back on the minister when they should.
Lew, I agree with you on many of your points.
In my view, it just isn’t acceptable to continue delaying fully-funding ACC accounts. It is dishonest, and just passes the cost of current claims onto future generations. To a large degree the blow-outs are more about fully-funding (i.e., paying for the actual total costs) than significantly increasing costs.
If we’re going to have an honest debate about the ACC system, then I think we can only have it in a fully-funded environment. Rationally, the only account that might be open to competition and privatisation is the Workers Account. The other accounts are just too difficult to unbundle and get individual cover for. It’s the only account that National has talked about opening up for competition.
In the other accounts, citizens, taxpayers, and levy-payers do have a right to know what they’re getting in entitlements for the actual cost of the scheme. I suspect until now earners have been quite happy getting gold-plated coverage for $1.40 per $100 of earnings. Would they be just as happy getting the same cover for $2.20 per $100?
My own view is that New Zealand just isn’t wealthy enough to pay for such a luxurious scheme. We need to have that public debate. Labour’s tactic, to shield people from the costs of the scheme, and then trumpet how wonderful the scheme was, and shrieking “privatisation” whenever National questioned it, was simply cynical and dishonest.
oops, broke my new rule on the last post.
I understand ACC is over NZD 8 billion in deficit and technically insolvent, but Lew – what do you want someone to prove? I’m not sure what your competition/privatisation argument is about. There are successful govt owned entities which compete with the private sector and they haven’t been privatised. Why not ACC? Is your argument more a discussion about the meaning of the word privatisation. Are you a jesuit priest? Do I need to break out my magnifying glass and pin? Joking aside I don’t think our positions are too far apart – we want the same outcomes and don’t ant the same unintended consequences.
And if your only proof that ACC is better now than it was is that your mothers business has better cashflow now – well really? I’m not sure your mothers earning should be one of the core objectives of a soundly designed, and carefully managed insurance scheme. I’m guessing she is not a physiotherapist?
I don’t necessarily believe carte blanche competition is the answer, but a root cause of ACC problems is the fact it has become a social policy tool rather than, as originally intended, a workers accident compensation scheme funded by employers. Much of what ACC now does are functions that should lie with other govt departments – MSD, Health etc. Ministry of Tourism too?
And there is no irony in my comment you highlight – I also say “thank god the banks globally have stupid owners willing to back them to the tune of x billion/trillion dollars”. We’d be in incredibly serious trouble (as opposed to the really serious trouble we are now in) if the likes of Citi, Fannie, Freddie, AIG etc fell over.
Fundamentally here is the issue for ACC. It is a politicised outfit (in terms of the rules given to it by the minister), there is a fundamental mismatch between the political objectives which define its role, and the political will to fund it appropriately. Either ask it do less or give it more, but be honest. The one argument I like from the right is impose some discipline on its management – easiest way to do that is some targeted competition.
Has anyone the got the energy to calculate how much $3b will cost once borrowing costs are factored in?
By the time it’s paid back perhaps 6 years from now, after perhaps another $5b (for the same purpose) has been borrowed during the time to pay back the original $3b – what will the real cost be that was hidden from the election?
Thankfully we don’t have a Labour govt that would try and do the whole thing from current taxation revenue. Now we can see why Cullen was such a big fan of fiscal drag, it allowed him to take so much more every year to sort this sort of shit out.
The statement below appeared under my name. However, I definitely did not make the statement. Could someone please look into this.
“tsmithfield
December 4, 2008 at 8:03 pm
Irish Bill
Couldn’t have said it better!!
Of course all the dunderheads who get their marching orders from the right blogs are like baying wolves at the moment chorusing with the devious Smith! A 3% shortfall in funding requires a ministerial inquiry? Give me a break! The earners shortfall will be an even smaller percentage! Wait until they are being fleeced by John’s rich mates – will they then be crying – “Oh! this is so much better!’
captcha “norwich herman’ Now who could that be??”
[lprent: I'm looking at it now. Checking IP's]
TS, I noticed that too. I assumed you were being incredibly sarcastic. I’ll check it out.
As for my comment on the earners account? I had confused it with the work account. I must be getting old. The current situation would seem to confirm that we couldn’t afford National’s extra tax cuts however. Although I’m impressed with the Nats gall in claiming the levy will claw back some of their tax cuts. One could equally argue that their cuts were unaffordable. In fact it opens up an interesting argument about whether the priority should be a solid ACC system for everyone or a tax package that primarily benefits the top 10% of earners.