A few points on the ACC issue and one on Kiwirail.
Nick Smith says that, with assets of $10 and liabilities of $21 billion, if ACC were an insurance company it would have gone under years ago. But it’s not an insurance company. Because its costs can be met by the sovereign revenue raising power of the Crown, it doesn’t need to be solvent any more than WINZ does. That said, building up a pool of reserves against future liabilities now will allow lower levies in the future and hedges against the rising number of claims from baby-boomers. Both National and Labour have policies of doing so and the ratio of unfunded liability to assets has improved in the last decade.
Part of the so-called ‘blow out’ is attributed to ACC’s financial assets losing value due to the credit crunch. That’s no reason to cut services. Unless you believe this is the end of capitalism as we know it (in which case we have bigger problems), the stock-market will recover and so will the value of ACC’s assets.
ACC spends next to nothing on admin (far less than health insurance companies in the US do) and it doesn’t make a profit. Nearly all the money it takes in is paid out covering health costs or compensation for lost income. ACC can’t control the price of health-care. There are only two ways to cut ACC’s costs significantly: cut the services (ie. cover less medical treatment, give less income compensation) or reduce the people who get covered. Private insurers do both by denying vast numbers of claims and by pricing people out of getting cover altogether. National has committed to universal coverage, so it will slash services instead starting with physiotherapy.
Physiotherapy is highly cost-efficient because it accelerates rehabilitation (getting people off treatment and compensation faster) and it prevents minor injuries becoming major ones that need more expensive treatment. Cutting the relatively small cost of physio is penny wise, pound foolish.
Competition cannot make accident compensation cheaper. The bulk of costs are outside the insurers’ control, ACC already has much more efficient admin, and private insurers need to make a profit. Profits don’t come out of thin air and they can’t come by slashing what is already minimal admin. To make a profit while not charging higher levies than ACC, private insurers would have to cream off the most profitable customers, leaving the taxpayer to pay for the rest, and avoid paying out for claims whenever possible.
Finally, a point on Kiwirail. Bill English says it has negative value. Of course, that’s untrue in the sense that it has assets that could be broken up and sold for a return. And even if it’s true in the sense that it won’t give any profit to government as a going concern, and will require the Government to put in more money, so what? If that were the criteria for whether owning an asset is worthwhile, we should get rid of the state highway system for a start – it costs the Government over a billion a year and there’s nearly nil revenue. It’s the externalities that matter. Having a working rail system, liking a working road system, allows the economy to work much better than it otherwise could. That produces tremendous wealth, even though it doesn’t show up on Kiwirail’s balance sheet.
In the past fortnight, we’ve seen some extremely dodgy economic arguments from the Government on ACC, Kiwirail, and the Cullen Fund. Clearly, this is part of a softening up exercise. You can expect major cuts are coming in the Budget.