English Bill: Ministerial Statements — Accident Compensation—Ministerial Inquiry into Disclosure of Funding Shortfall in ACC Non-earners’ Account 
English Bill: Ministerial Statements — Accident Compensation—Ministerial Inquiry into Disclosure of Funding Shortfall in ACC Non-earners’ Account 
[Volume:652;Page:1541] 
Hon BILL ENGLISH (Deputy Prime Minister) 
: 
 I wish to make a ministerial statement under Standing Order 347. The Public Finance Act is critical to the credibility of public finance in New Zealand. The Act requires Treasury to produce accounts that accurately set out the state of the Government’s accounts in a run-up to an election. The purpose of this provision is to protect the Government the Opposition and the public. It protects the Government by presenting an independent verification of the Government’s financial position and it protects the Government against anyone claiming that it did not reveal the true financial position. It also protects an Opposition coming into Government from finding problems it did not expect which would compromise its undertakings as an incoming Government. It protects the public from manipulation of the public accounts for political purposes and the resulting cynicism. 
When the National Government took office on 19 November 2008 among the first pieces of advice we received was the advice that the Accident Compensation Corporation (ACC) would need substantial additional Government funding for the non-earners account commencing this financial year. This came as a surprise to the Government because that had been covered neither in the 2008 Budget nor in the Pre-election Economic and Fiscal Update either in the fiscal forecasts or in the fiscal risks. From discussions at that time it became clear that officials and senior Ministers in the previous Government had been aware of the matter but had chosen not to disclose it in the pre-election financial update despite knowing that the item was material to the fiscal and economic outlook. 
I therefore took three steps. First I approved an urgent request for additional funds to go to ACC. This was to ensure that the corporation had the financial resources it needed to properly meet claims in the non-earners account. Secondly I began to work with my colleague the Minister for ACC on options to manage ACC’s costs which are growing at an unsustainable rate. Thirdly I commissioned an urgent review into the circumstances that led to non-disclosure in the pre-election fiscal update. 
Today I am pleased to inform the House of the findings of the  
Ministerial Inquiry into Disclosure of Funding Shortfall in ACC Non-earners’ Account  
report. The detailed inquiry report has been published in full. In summary its main findings are as follows: ACC was facing a funding shortfall arising from a number of general factors. Added to the funding pressures for the non-earners account were the previous Government’s policy decisions to expand cover for treatment injury and to fully fund new claims from 2001 to increase the non-earners account funding for the treatment injury account and to change the basis on which ACC purchased some treatment and rehabilitation services in order to reduce the need for co-payments by claimants. 
On 14 April 2008 the chairperson of the ACC board met with the Minister of Finance to discuss “the issue of non-earners account funding”. On 16 May 2008 the Department of Labour provided a written briefing to the Minister for ACC. That briefing drew the Minister’s attention to the fact that new entitlement claims were above the forecast the 3-month rehabilitation rate was continuing to drop investment returns were below budget and target by $800 million and the adjustment to the outstanding claims liability had added just over $2 billion to ACC’s liability and was likely to affect levy rates and appropriations in the coming year. 
On 14 August 2008 ACC advised the previous Minister for ACC of its intention to seek increased funding. The amount was around $300 million although the exact figure was undecided. The Department of Labour advised the previous Minister for ACC on ACC’s proposals on 15 August 2008 and Treasury advised the then Minister of Finance of this on 1 September 2008 well before the fiscal aspects of the Pre-election Economic and Fiscal Update were finalised on 17 September. The statement of responsibility was signed by the then Minister of Finance on 24 September. 
Because Cabinet had not been presented with proposals to increase Vote ACC non-earners account appropriations by the time of the Pre-election Economic and Fiscal Update there were no agreed changes to appropriations to include in the forecast financial statements. Treasury decided that because the matter was not under active consideration by the Minister of Finance and responsible Ministers as required by the rules it had developed for disclosing fiscal risk the risk to the Crown of funding shortfalls in the non-earners account would not be included in the Pre-election Economic and Fiscal Update. 
The inquiry has found that the Public Finance Act requirements for the disclosure of fiscal risks in economic and fiscal updates are clear and that the risk to the Crown of the funding shortfall should have been included in the pre-election update. This was not done. Furthermore the inquiry has concluded that normal principles and processes relating to Government decision-making in the lead-up to a general election would not have been a constraint on the Government’s ability to consider adjustments to Vote ACC non-earners account appropriations. 
As a result of these findings the inquiry recommends that the current process for updating Vote ACC non-earners account baselines be reviewed; that the current rules used by Treasury to identify fiscal risks be reviewed and amended; and that Treasury review its guidance and training to both its own staff and to officials in Government departments and agencies involved in the update processes to ensure that all know and understand the broader context and requirements of the Public Finance Act as well as Treasury’s own specific requirements and rules. 
Ministers played a part in this failure to disclose because they knew of the problem and did not ensure its disclosure. Treasury accepts that the Ministers made a mistake in not ensuring that the amount was included in the pre-election update. I accept the assurance of the Secretary to the Treasury that he will implement the recommendations of the report. 
There may be an interesting constitutional debate to have about the implications of a potential breach of the Public Finance Act. However the Government intends to focus on the substantial and growing problems with ACC itself. I quote from the report: “Deteriorating trends in scheme costs and rehabilitative outcomes had been evident for some years but any impact on premiums and appropriations had been masked by better than forecast investment returns and an increasing discount rate until 2007. This changed in 2007 when actual investment returns began to deteriorate due to worsening global financial and economic conditions. As investment returns deteriorated pressures on scheme costs flowed through to levy and appropriation proposals in 2008.” 
Since the first revelations the size of the problem with the non-earners account has grown. Firstly we were informed that the Government would have to put $300 million into the non-earners account by 30 June this year in order to keep it solvent. I am now advised that the requirement is $384 million by 30 June with a further $1.15 billion required over the next 3 years. At a time of significant budget constraints this is a large and unwelcome problem. 
Hon Trevor Mallard 
: Unless what? 
Hon BILL ENGLISH 
: I raise a point of order Mr Speaker. There are no interjections during ministerial statements. 
Mr DEPUTY SPEAKER 
: I just remind the member that his time is up so can he please conclude. 
Hon BILL ENGLISH 
: I have one sentence left. We will act to ensure that such a large cost is not hidden again in the run-up to an election.