Hon Dr Nick Smith

Minister for ACC
27 October 2009 Speech
Injury Prevention, Rehabilitation, and Compensation Amendment Bill 2009

First Reading Speech

Mr Speaker, I move that the Injury Prevention, Rehabilitation, and Compensation Amendment Bill 2009 be now read a first time.

At the appropriate time I intend to move that the Bill be referred to the Transport and Industrial Relations Select Committee with an instruction that the Committee report finally to the House on or before 12 February 2010, and that the Committee has authority to meet at any time while the House is sitting, except during oral questions, and during any evening on a day on which there has been a sitting of the House, on a Friday in a week in which there has been a sitting of the House, and to meet outside the Wellington region during a sitting of the House despite Standing Orders 187, 189 and 190(1)(b) and (c).

Mr Speaker, ACC has become has financially unsustainable and reform is required to secure its future for New Zealanders.

ACC’s 2008/09 Annual Report showed a loss of $4.8 billion on top of a $2.4 billion loss for the previous year. Over the past four years ACC’s unfunded liabilities, i.e. the difference between its liabilities and assets, has grown from $4 billion to $13 billion. This is a significant and serious problem that cannot be ignored.

The underlying issue is the steep rise in ACC claim costs, up 57% in the last four years, or rising at five times the rate of inflation.

ACC cannot sustain the huge ongoing increases in claim costs arising from greater claim numbers, deteriorating rehabilitation rates, and unfunded scheme extensions. The underlying problem is that ACC has drifted from being a state insurer to a welfare provider.

Changes in ACC are needed to make the scheme affordable, sustainable and fair.

The changes in the Bill are part of a wider reform of ACC that began with changes to the Board in March, the stocktake announced in August, and other regulatory and operational changes. The Government’s objective is to reduce ACC's liabilities by $2 billion.

The main purposes of this Bill are:

• to facilitate cost containment

• to improve flexibility in the ACC scheme

• to provide for closer work between government agencies and ACC, and

• to improve financial reporting and accountability.

The first amendment will extend the date for full funding for residual claims liabilities from 2014 to 2019. This is done by setting a final valuation of all residual claims liabilities as valued at 30 June 2009 and folds the residual liabilities into the main Accounts.

Some have presented this as a panacea for ACC’s financial woes. Shifting the full funding date does not actually save levy payers a dollar. It simply changes when we pay. Delaying payment actually increases the cost and it also increases the Crown net debt in the intervening years.

The plan in 1998 when the full funding policy was adopted was for it to take 15 years to pay off the residual component. Good progress was made from 1999 to 2004, but since then the scheme has been going backwards. It is necessary to push out the full funding date to 2019 to spread out the very sharp rise of levy increases that would otherwise be required.

There are 10 amendments in this Bill that deliver genuine cost savings, most of which are reversals of scheme extensions made by the previous Government. Over recent months I have been reviewing with officials each of the add-ons that Labour made to ACC and not all have been reversed. I acknowledge that some, while they had a cost, were needed to make the scheme fairer.

The first changes relate to enhancing the rehabilitation rates of the Corporation that have been declining over the last five years. The previous Government made it a mandatory consideration for vocational independence, for a person’s pre-injury earnings to be considered. This means that a person who previously had a very high income did not have to return to work, unless a job would provide a similar level of earnings. That is too tough a test and adds to the costs of ACC. This Bill reverses it.

We are also reversing the changes made to the vocation independence test to be better in line with the standard definitions used by WINZ and Statistics New Zealand, 30 hours per week.

The third reform is to reverse the changes in respect of the three-part test for workplace gradual process disease or infection that is simpler to apply and removes the presumption that automatically ACC should provide cover.

The next four changes in the Bill relate to the way weekly compensation is calculated and returns the scheme to the principle that ACC provides 80% of earnings for the first four weeks based on the person’s average earnings for the previous four weeks and then after that earnings’ compensation is based on income over the past 12 months. One of these changes reverses the decision to increase compensation for loss of potential earnings back to 80% and not 100%. Changes are also being made to the calculation for longer-term weekly compensation for casual or seasonal workers. Our concern about the change from this standard for seasonal workers is that a long term injured person would find themselves better off on ACC than in their normal pattern of seasonal work. We’re also reversing the change around part-time workers so that their compensation again is based on the same averaging principles.

The eighth change around cost savings is reversing the decision of the previous Government to include suicide and self inflicted injuries within ACC. I do acknowledge this is sensitive area but the Woodhouse Report never intended to include such injuries. Suicide is a tragedy; not an accident.

I also want to make plain that in respect of these five amendments around entitlements, the Bill only affects future claimants and that existing claimants will not have their entitlements reduced.

The Bill contains two further cost savings measures. The first is to introduce a hearing loss threshold of 6%, a provision that is in many of the Australia state schemes and is used in the United Kingdom. Hearing loss claims have been rising at 12-15% a year. We are effectively concluding that the costs of hearing aids for low levels of hearing loss are not justified.

The last change is to strengthen the disentitlements for criminals. I note that the existing provision in the Law provides for ACC to apply to the Court where compensation would be repugnant to justice have been knocked back in a number of test cases by the Courts such that not a single person has had their compensation removed in the last decade. The proposal is that where people who commit a crime that has a maximum sentence of two years or more and who are sentenced and imprisoned should automatically be disentitled from receiving compensation. The claimant will continue to get the emergency treatment that is required and that is needed to restore function.

The Government also wants to improve the incentives for safety and so this Bill makes provision for experience rating or risk sharing in the Work Account, provisions for no-claim bonuses, higher or lower levies and claim thresholds to be set. It also enables risk rating in the Motor Vehicle Account for vehicles and vehicle owners to link safety to levy payments. These are enabling provisions and the really important work will be in the regulations to make these practical and workable, albeit the principle is important. The Government and ACC should be better rewarding those motorists and employers who have got better safety records.

A difficult part of the Motor Vehicle Account is the extent to which the account is funded by petrol levies or registration fees. The amendment in this Bill gives the Government greater flexibility to be able to use the petrol levy for residual claims.

A further provision allows self-employed shareholders to buy extra entitlements under the scheme. This is a programme that I think is actually quite useful for self-employed people who want the security of knowing that in the event of an accident they are able to have confidence of a reasonable level of accident cover.

The Bill removes two advisory committees because it is the Government’s view that statutory advisory committees are not necessary for the function of ACC and that different Ministers can establish different advisory committees as is required relative to the particular challenges that exist for ACC at that time.

A further provision enables information sharing between ACC and IRD. The provision will improve the administration of the Act and is similar to other information sharing provisions that IRD has with other state agencies.

There is also provision in this Bill to link in with the other parts of the Government’s programme. The Minister of Justice has done some very good work around increasing support for victims of crime. Currently ACC is unable to be the delivery agency without charging a fee; this Bill will enable ACC to be able to enter into contractual arrangements with agencies like the Ministry of Justice to deliver these services without a fee.

The last amendment in the Bill is aimed at ensuring ACC does not again get into this level of financial difficulty. That is why the Bill provides for improved financial accountability of ACC by requiring a financial condition report to be produced by the Corporation and tabled in this Parliament. This provision is similar to that which has become best practice for insurance companies internationally in the wake of a number of high profile collapses. I note that in 2006 the Corporation’s actuaries expressed concern about the then Board’s very optimistic assumptions about investment returns but such information did not make it into the Annual Report. This additional check on ACC’s finances is part of recognising that thousands of New Zealanders rely on ACC for their wellbeing, and they need the security of knowing that the institution is financially robust.

Can I conclude by making plain the Government’s commitment to the core concepts of ACC as a 24/7, no-fault insurer for New Zealanders at work, at play and on the road. There is not a person on the Government’s benches, despite the rhetoric by some, who wants to return New Zealand to the pre-ACC days of people being able to sue and all the uncertainty, the pain and the administration costs that go with it. What we do say though, is that to secure ACC’s future it has to be affordable and financially sustainable. That is the underlying purpose of this Bill and I commend it to the House.

ENDS

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