Smith Nick: Injury Prevention Rehabilitation and Compensation Amendment Bill — First Reading 
Smith Nick: Injury Prevention Rehabilitation and Compensation Amendment Bill — First Reading 
[Volume:658;Page:7428] 
Hon Dr NICK SMITH (Minister for ACC) 
: 
 I move  
That the Injury Prevention Rehabilitation and Compensation Amendment Bill 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 Committee with an instruction that the committee report finally to the House on or before 12 February 2010 and that the committee have the authority to meet at any time while the House is sitting except during oral questions 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). 
Accident compensation has become financially unsustainable and reform is required to secure its future for New Zealanders. The 2008-09 annual report of the Accident Compensation Corporation (ACC) showed a loss of $4.8 billion on top of a $2.4 billion loss for the previous year. Over the past 4 years the unfunded liabilities of the accident compensation scheme—for example the difference between its liabilities and its assets—have 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 accident compensation claim costs up by 59 percent in the last 4 years or rising at five times the rate of inflation. The accident compensation scheme cannot sustain the ongoing huge increases in claim costs arising from greater claim numbers deteriorating rehabilitation rates and unfunded extensions to the scheme. The underlying problem is that ACC has drifted from being a State insurer to being an extension of the welfare State. Changes in the accident compensation scheme are needed to make it affordable to make it sustainable and to make it fair. 
The changes in this bill are part of a wider reform of accident compensation that began with the changes that I made to the ACC board in March the stocktake that has been announced and other regulatory and operational improvements. The Government’s objective with this bill in that wider package is to make savings of $2 billion in the scheme’s liabilities. The first amendment in the bill will extend the full funding date for residual claim liabilities from 2014 to 2019. This is done by setting a final valuation of the residual claims liabilities as valued at 30 June 2009 and folding those residual liabilities into the main accounts. Some people have presented this as a panacea for the scheme’s financial woes. Shifting the full funding date does not actually save levy payers a dollar; it simply changes when they pay. Delaying payment actually increases the costs and it also increases the Crown’s net debt in the intervening years. 
There are 10 amendments in this bill that deliver cost savings most of which are reversals of scheme extensions made by the previous Labour Government. Over recent months with colleagues and officials I have been reviewing each of the add-ons that the previous Government made to the scheme. I note that not all have been reversed but a number have because of the financial problems. The first change relates to enhancing the rehabilitation rates of the scheme which have been declining over the last 5 years. The previous Government made it a mandatory consideration 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. This is too tough a test and adds to the costs for accident compensation. This bill reverses that consideration. 
The second change reverses the changes to the vocational independence test in order to bring it better in line with what was there previously and with the standard definition that is used both by Work and Income New Zealand and by Statistics New Zealand—that is 30 hours of work per week. The third reform is to reverse the changes in respect of the three-part test for gradual workplace injury infection or disease. It will be simpler to apply and it removes the presumption that the accident compensation scheme should automatically provide cover. 
The next four changes in the bill relate to the way weekly compensation is calculated and return the scheme to the principle that accident compensation provides 80 percent of earnings for the first 4 weeks based on a person’s average earnings for the previous 4 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 the loss of potential earnings—back from 100 percent to the standard 80 percent. 
Changes are also being made to the calculation for longer-term compensation for casual or seasonal workers. Our concern about the change that Labour made was that standard seasonal workers who were injured in the long term would find themselves better off on accident compensation than they would be in their normal pattern of seasonal work. We are also reversing the change around part-time workers so that their compensation again is based on those same averaging principles that go all the way back to the Woodhouse report. 
The eighth change around cost saving is to reverse the decision of the previous Government to include suicide and self-inflicted injuries within the accident compensation scheme. I acknowledge this is a sensitive area but the Woodhouse report never intended to include such injuries. Suicide is a tragedy but it is not an accident. I also want to make plain that in respect of these five amendments around entitlements the bill affects only future claimants; no existing person receiving compensation will receive a reduction. 
The bill contains two further cost-saving measures. The first is to introduce a hearing-loss threshold of 6 percent a provision that is in many of the Australian state schemes and is used in the United Kingdom. Hearing-loss claims have risen at a very strong pace in recent years. We are effectively concluding that the cost of hearing aids for low levels of hearing loss is not justified by the benefits. 
The last change is to strengthen the disentitlements for criminals. The proposal is that people who commit a crime that has a maximum sentence of 2 years or more and who are sentenced to imprisonment should automatically be disentitled from receiving compensation. The claimant will continue to get the emergency treatment that is required and the treatment that is required to restore function. 
The Government also wants to improve the incentives for safety so this bill makes provision for experience-rating or risk sharing in the work account and provides 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 for vehicle owners to link safety to levy payments. Those 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 better safety records. 
A further amendment in this bill gives the Government greater flexibility to be able to use the petrol levy for residual claims in the motor vehicle account. A further provision allows self-employed shareholders to buy extra entitlements under the scheme. That is a programme that I think is actually quite useful for self-employed people who can voluntarily have the security of a higher level of income by paying a higher level of levy. 
The bill removes two statutory advisory committees. Ministers can establish advisory committees as is required relative to the particular challenges that exist for accident compensation at the time without them being enshrined in statute. A further provision enables information sharing between ACC and the Inland Revenue Department. There is also provision in this bill to link accident compensation with other parts of the Government’s programme. The Minister of Justice has done some very good work on increasing support for victims of crime and this bill will enable the accident compensation scheme to deliver some of those services. 
The last important amendment ensures that the accident compensation scheme does not again end up in this level of financial difficulty. That is why this bill provides for improved financial accountability for the scheme by requiring a financial condition report to be produced by ACC and tabled in this Parliament. This provision is similar to that which is best practice for insurance companies internationally in the wake of a number of high-profile collapses. I note for instance that in 2006 ACC’s actuaries noted with concern the very optimistic assumptions about investment returns but such information did not make it into the annual report. This additional check on the scheme’s finances is part of recognising that thousands of New Zealanders rely on accident compensation for their well-being and that they need the security of knowing that the institution is financially robust. 
I conclude by making plain that this Government is committed to the core concept of ACC being 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 benches despite the rhetoric from members opposite who wants to return to the days of suing and the uncertainty that goes with it. What Government members say though is that to secure the accident compensation scheme’s future it needs to be affordable and financially sustainable and that is what this bill seeks to achieve.